UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(B) OR 12 (G)
OF THE SECURITIES EXCHANGE ACT OF 1934
YOUTHLINE USA, INC.
----------------------------------------------
(Name of Small Business Issuer in its Charter)
DELAWARE 22-3674998
------------------------------- ----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4581 US9, HOWELL, NEW JERSEY 07731
---------------------------------------- ---------
(Address of Principal Executive Offices) (Zip Code)
(732) 886-0833
---------------------------
(Issuer's Telephone Number)
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value for per share
--------------------------------------------
(Title of Class)
<PAGE>
AVAILABLE INFORMATION
YOU SHOULD READ THIS ENTIRE REGISTRATION STATEMENT CAREFULLY INCLUDING
INFORMATION SET FORTH IN THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE
8.
Subsequent to the date of this Registration Statement the Company will
be subject to the information requirements of the Securities Exchange Act of
1934, as amended ("Exchange Act") and in accordance therewith will file reports
and other information with the Securities and Exchange Commission (the
"Commission"). Reports and other information filed by the Company with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington
D.C. 20549, and at the Commission's New York Regional office at Seven World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material can
also be obtained from the Public Reference Section of the Commission,
Washington, DC 20549 at prescribed rates.
This Registration Statement, as well as all amendments thereto and
subsequent reports, have been and will be filed through the Electronic Data
Gathering, Analysis and Retrieval ("EDGAR") system. Documents filed through
EDGAR are publicly available through the Commission's Website at
http:/www.sec.gov.
The Company has filed with the Commission this Registration Statement
on Form 10-SB (together with all amendments and exhibits filed or to be filed in
connection herewith, the "Registration Statement") under the Exchange Act, with
respect to the Company's common stock, $.0001 par value per share (the "Common
Stock"). Statements contained herein as to the contents of any document are
summaries of such documents and, in each instance, reference is hereby made to
the copy of such document filed as an exhibit to the Registration Statement, and
each such statement is qualified in all respects by such reference. All material
information of such exhibits are discussed in this Form 10-SB. The Registration
Statement may be inspected and copied at the places set forth above.
In addition to the foregoing, the Company will furnish to registered
holders of its Common Stock annual reports containing audited financial
statements, with an opinion expressed by the Company's independent auditors.
Such audited financial statements will be prepared in conformity with generally
accepted accounting principals ("GAAP"). The Company may furnish to registered
holders of its Common Stock unaudited financial statements on a quarterly basis,
such unaudited financial statements to be prepared in conformity with GAAP. The
Company will also furnish to registered holders all notices of stockholder's
meetings and other reports and communications of the Company.
The Company's principal executive offices are located at 4581 US9,
Howell, New Jersey 07731, and its telephone number is (732) 886-0833.
As of December 27, 1999 there were 10,071,665 shares of Common Stock
issued and outstanding held by 310 holders of record.
<PAGE>
PART I
ITEM 1. BUSINESS
FORWARD LOOKING STATEMENTS
Certain information contained in this Registration Statement are
forward-looking statements (within the meaning of Section 27A of the Securities
Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934,
as amended). Factors set forth that appear with the forward-looking statements
could cause the Company's actual results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company in this Registration Statement. Such potential risks and uncertainties
include, but are not limited to, the risk factors contained in this Registration
Statement. The Company undertakes no obligation to publicly release the results
of any revisions to these forward-looking statements which may be made to
reflect events or circumstances occurring after the date hereof or to reflect
the occurrence of unanticipated events.
GENERAL/HISTORICAL INFORMATION
Youthline USA, Inc. (the "Company" or "YOUTHLINE USA") is a multimedia
company focused on providing education and entertainment products and services
to America's youth. The Company was incorporated on July 27, 1999 pursuant to
the laws of the State of Delaware as the successor to Ult-I-Med Health Centers,
Inc., a Utah corporation ("Ult-I-Med"), which was incorporated in 1983 under the
laws of the State of Utah (originally under the name Picadilly Technology,
Inc.). The Company was organized to effectuate a reincorporation of Ult-I-Med
with and into the Company on August 16, 1999. The Company maintains its
executive offices at 4581 US9, Howell, NJ 07731 and its telephone number is
(732) 886-0833.
Ulti-I-Med was originally organized to engage in the mining of
metalliferous chemicals. In 1988, Ulti-I-Med ceased such activities and began
engaging in the business of owning and operating camping and recreation
facilities. In 1991, Ulti-I-Med ceased such activities and began engaging in the
business of owning and operating supervised primary care, health and
rehabilitation centers. In January 1996, Ulti-I-Med filed a Chapter 11
bankruptcy petition. Ult-I-Med liquidated all of its assets and its plan of
reorganization was filed with the court in February 1998. All of Ult-I-Med debts
were paid, and the court entered a final decree in September 1999.
In August 1999, Ult-I-Med acquired all of the outstanding capital
stock of S&S Plus, Inc., a wholly-owned subsidiary of the Company which operates
the publication YOUTHLINE USA, in exchange for the issuance of 5,500,000 shares
of its common stock, representing a majority of the total issued and outstanding
capital stock of the Company. On such date, the directors and officers resigned
and were replaced with some of the current officers and directors.
1
<PAGE>
THE COMPANY
YOUTHLINE USA is an innovative compilation of a website, a newspaper,
and other educational and entertainment resources for children, educators and
parents. The Company publishes YOUTHLINE USA, a 16 page weekly newspaper written
especially for kids ages 8-13. In every respect, it is similar to an adult
newspaper, except that it is written at the kids' level, and it filters out news
that is not age appropriate. It is designed to grab the attention of children
this age. Management believes that nothing like it exists in the country.
Articles in the newspaper also direct its readers to the appropriate segment of
the website, thereby guaranteeing increased usage of the website.
WWW.YOUTHLINE-USA.COM includes the newspaper content (with updates),
games, puzzles, archives, and educational features. In addition ,the website
includes Lessonstop, a tool for teachers, which supplies teachers with lesson
plans and ideas for all subjects and grade levels. With the recent acquisition
of Ingenius , an entertaining educational product , the website will become that
much more appealing. The website both complements the print newspaper and stands
alone as a comprehensive resource for educators, parents and children. A
subscription-based portion of the website for schools provides students with a
complete Internet environment, including limited e-mail, stock tips, news
updates, and complete access to both Ingenius and regular news archives.
Students will check their e-mail, stock portfolios and the latest news archives
daily. Plans for the future include making the website a virtual "Epcot Center"
on the Internet. Each country and state will have its own interactive video
segment on our website, and articles in the newspaper will direct the readers to
the appropriate segment. Similar sections will be set up for career choices,
health issues, political figures, animals, entertainment (books, movies, music,
sports), and much more. The Company anticipates that children will be instructed
by their teachers in school to use the website for the educational material, and
that they will use it again at home for the entertainment features and the
homework help.
The website is being designed by Entertainment Boulevard, an Internet
entertainment company that utilizes cutting-edge streaming video and audio
technology to offer quality programming to Internet users. Management believes
that combining Entertainment Boulevard's technology and know-how with the
Company's unique content will provide the Company's users with an unmatched
Internet experience.
Both the website and the newspaper are unique, and the Company believes
that this innovative combination will be extremely appealing to the educational
community. Although the newspaper has competition, the website appears to be the
only one of its kind. The website is rich in educational and entertainment
content, and also introduces kids to the world of e-mail and the Internet; a
world that they need to be familiar with for tomorrow's world. Management
believes that it has found a significant niche, and plans on instituting an
aggressive sales campaign directed at schools. The website is due to be
completed by January 15, 2000.
The Company generates revenue through the sale of newspaper
subscriptions, website subscriptions, advertisement space and corporate
sponsorships. Website subscriptions will be sold to schools for $20,000 per
school (per year). Newspaper subscriptions can either be bulk subscriptions ($7
2
<PAGE>
per subscription per year) ordered by schools, or individual subscriptions for
kids to read at home($30). In marketing the website, management believes that it
has no direct competitors who provide a similar product In marketing a newspaper
for kids at home, management believes that YOUTHLINE USA has no competitor in
the country. In marketing to schools, YOUTHLINE USA is in competition with The
Weekly Reader, Scholastic News, and Time for Kids. A secondary market for
subscriptions is companies, organizations, and professionals who provide
services for children (i.e. pediatricians, hospitals, speech therapists, etc.) .
The Company's first target, however, is schools, parents, and gift-givers, since
they are expected to respond more enthusiastically. The Company has already
received orders for its website from Washington, D.C., Chicago, and Atlanta
school systems.
The other source of income is advertisements and corporate
sponsorships. Corporations that sell directly to kids would naturally have an
interest in advertising in a newspaper and on a website that serves such a
focused market. Management believes that even corporations who do not sell
directly to children will be interested in securing and increasing name
recognition with the next generation, in addition to the fact that the newspaper
reaches parents and educators as well as children.
YOUTHLINE USA was first published in July 1997, and has increased paid
circulation as of December 15, 1999 to approximately 21,000. As of December 15,
1999, requested circulation has increased to approximately 243,000. The Company
considers the present circulation together with its new interactive website to
be attractive to potential advertisers and sponsors.
In addition, Youthline USA, Inc., seeks to acquire companies that
either 1) can enhance and complement the newspaper, or 2) provide products or
services which are consistent with the general goals of the Company - to educate
and entertain children and broaden their horizons.
In the last three months, Youthline USA, Inc. has acquired Ingenius and
Lesson Stop, both of which serve to enhance the newspaper and the website.
PRODUCT
Youthline USA is an innovative compilation of a newspaper and a website, rich in
both educational and entertainment material for kids.
The Website:
YOUTHLINE USA combines the excitement and speed of the Internet with
the traditional appeal of a newspaper. At present, the website includes articles
from the newspaper, special updates available only to the web-site, archives of
YOUTHLINE USA features (animal of the week, author of the week, etc.), puzzles,
games, prizes, "ask the expert" columns, recommended books and web-sites, and
much more. The site also includes LessonStop, a tool for teachers, which is full
of lesson plans and ideas, in addition to lesson plans directly related to that
week's issue of the newspaper. Ingenius will also enhance our website with its
3
<PAGE>
news archives and award winning programs for introducing kids to the world
around them.
The website includes personalized e-mail, daily updates of each
student's stock portfolios and customized online activities that follow the
curriculum. Every school district can pick which online activities will be most
beneficial for their students. These unique features have already resulted in
many subscriptions to the website from Atlanta, Chicago and Washington, D.C.
Plans for the future include making the website a virtual "Epcot
Center" on the Internet. Each country and state will have its own interactive
video segment on our website, and articles in the newspaper will direct the
readers to the appropriate segment. Similar sections will be set up for career
choices, health issues, political figures, animals, entertainment (books,
movies, music, sports), and much more.
There are many websites dedicated to kids. However, YOUTHLINE-USA.com
is unique in that (like a newspaper) it is rich in both educational and
entertainment content. We know of no other sites that present this appealing and
substantive combination to America's youth.
In addition, the website has a guaranteed source of extensive usage
from the newspaper. Articles in the weekly newspaper direct kids to the
appropriate section of the website. The Company expects that teachers will
encourage (perhaps require) their students to access the website for additional
information. While there, the kids will be attracted to the entertainment aspect
as well.
The website is being designed by Entertainment Boulevard, an Internet
entertainment company that utilizes cutting-edge streaming video and audio
technology to offer quality programming to Internet users. Management believes
that combining Entertainment Boulevard's technology and know-how with the
Company's unique content will provide the Company's users with an unmatched
Internet experience.
THE NEWSPAPER:
YOUTHLINE USA is a weekly newspaper geared for children ages 8 to 13.
Each issue consists of sixteen pages of interesting and timely articles on a
variety of topics, including world and national news, politics, economics,
science, sports, and weather. Relevant health and computer issues are presented
as well, always in an eye and mind-catching manner. By covering both national
and international news, YOUTHLINE USA connects children across the nation, while
simultaneously introducing children to different cultures around the world.
As a member of the Associated Press (AP) and a subscriber to the
Reuters News Agency, YOUTHLINE USA shares news sources with the major
newspapers. While the news is the same, each article is carefully written with
consideration of our readers' age and reading level. Recognizing that our
readership is of multiple ages and reading levels, writers prepare articles of
different lengths and difficulties so that every reader can find articles of
interest. All articles are reviewed by a clinical psychologist to ensure that
4
<PAGE>
they are written with our children's best interests in mind, and that they are
sensitive to the children's developmental level.
One of the challenges of a children's newspaper is to present news
stories that will spark a child's interest. Almost half of the paper is devoted
to various news stories and accompanying graphics, both of which are chosen and
formatted with the aim of capturing a young reader's interest. In addition to
several longer articles, YOUTHLINE USA offers World News and National News in
Brief, which provide concise news stories with striking photographs. These
reports are ideal for younger readers who may have difficulty sustaining
attention for a full-length article.
In addition to introducing children of this age to the world via news,
YOUTHLINE USA attempts to ignite within its readership an excitement for
literature, art, music, and theater, by reviewing books, movies, and shows, and
by describing the lives of authors, artists, and musicians.
In each issue, a suitable web-site for children is included to enhance
reader's familiarity with, and comfort level on, the computer. Children are
encouraged to communicate with the newspaper by e-mail (or phone, fax, and
regular mail); children repeatedly contacted the Company with questions about
its stock market game, answers to puzzles and editorial comments.
YOUTHLINE USA also features short stories, games, jokes, puzzles, and
weekly detailed science experiments, magic tricks, or recipes that captivate the
children and encourage them to try new and exciting ideas at home. These items
are especially designed to keep readers coming back each week. Short stories are
often printed in parts, continuing from one issue to the next, giving our
readers yet another reason to return to the pages of YOUTHLINE USA.
Management believes that YOUTHLINE USA is unique. While there are
successful curriculum aids available (such as the Weekly Reader and Scholastic
News), those publications only discuss topics that are related to recent events.
YOUTHLINE USA, however, is a full-fledged newspaper which covers the weekly news
and includes all the features and sections of an adult newspaper. Its numerous
sections (business, sports, technology, health, etc.), in addition to its
monthly features, enable it to broaden the horizons of today's youth and to
encourage better communication between parents and kids.
YOUTHLINE USA has a number of features that help kids develop the skill
of reading a newspaper. Extensive research went into the development of the
perfect newspaper for children, from its appearance and set-up to content and
format. YOUTHLINE USA is unique, with distinct columnar margins and clear
markings of where to find continuing articles. Difficult words are printed in
bold and defined at the bottom of each page. The large print and easy language
help start these young readers on the lifelong road to newspaper reading.
In a world filled with indifference, the newspaper is one place to show
that individuals do have thoughts, feelings, and opinions about what goes on
around them. Many of our readers have already taken advantage of the opportunity
5
<PAGE>
to express themselves. We encourage our readers to write in and tell us their
thoughts, and our goal is to provide them with the vehicle to present their
opinions to others.
YOUTHLINE USA's wide variety of topics and activities, as well as its
focus on news stories, distinguishes it from other children's publications, many
of which focus on a particular topic, such as sports or animals, or offer very
little news information. This is important for two reasons: first, similar to an
adult's method of reading a daily newspaper, we expect children to skim the
newspaper and pick and choose what interests them. Also, since parents are often
actively involved in the purchasing decisions of their children's reading
material, they will prefer a higher-quality, news-oriented publication. We are
confident that the diversity of topics, combined with the "clean," high-quality
nature of the newspaper, and its focus on news information, will spark and
retain the interest of both parents and children.
RECENT ACQUISITIONS
LESSON STOP
Youthline USA, Inc. acquired Lesson Stop (HTTP://WWW.LESSONSTOP.ORG), a
web-site for K-12 teachers who need good ideas for classroom activities. Lesson
Stop has numerous educational features which enhance both the Youthline USA
newspaper and web-site. The site provides links to over 500 lesson plan sites on
the web, which gives teachers access to thousands of lesson plans.
Lesson Plan links are categorized by subject area and sub-topic, making
it easy for teachers to locate the lesson plans they need. Subject areas include
The Arts, Science, Math, and Language Arts. Grade level notations are made at
each link, so finding the right lesson plan is even easier.
INGENIUS
Ingenius was founded in 1994 as a partnership between
Telecommunications Incorporated (TCI) and Reuters New Media to provide high
quality interactive multimedia current events programming to the children's
consumer and institutional (education) markets.
Ingenius created several award winning programs for the K-12
educational market including:
What on Earth (WOE) - A weekly-published interactive current events
program with six new top topics discussed every week. Included with each topic
(news story) were hot links to certain vocabulary, video clips, audio clips,
photographs, links to Did You Know (more in-depth information on a
sub-category), and links to "gamelits" (mini games to reinforce the learning and
educational values of the news story). In addition to this, WOE included weekly
lesson plans for the teacher that were designed specifically for each individual
6
<PAGE>
news story. Characters were used in many cases to guide the student and to be a
figurehead for the specific curriculum category that the news story was tied to.
Ask ANDIE - An interactive research and learning website that focuses
on curriculum based subject areas and topics as well as having a strong
financial services component.
MARKETING
THE WEBSITE:
In marketing the subscription portion of the website to schools, the
Company believes that the most effective method will be through a sales team
that will make direct contact with principals, superintendents, and Board of
Education officials. Educators will be presented with an extensive demo of the
capabilities and uniqueness of the website. Currently, the Company is
concentrating on nine major cities across America, and dependent on the success
of this initial step, it plans to expand its sales team to reach all cities in
the United States.
THE NEWSPAPER:
In the first two years of its existence, YOUTHLINE USA tested a number
of different methods in order to determine which marketing strategies were most
effective. Advertising on radio and in magazines proved to be more effective
than advertising and inserts in newspapers. Advertising in library journals
proved to be extremely effective, as did direct mail to schools. As expected,
advertising during the holiday gift-giving season produced exciting results.
YOUTHLINE USA is easily marketed as the ideal gift - clean, educational, fun,
and ongoing.
YOUTHLINE USA plans to expand its marketing efforts. It will intensify
its marketing efforts, using the strategies that have already been proven to
work and branching out to new methods (TV, the Internet, direct mail to
individuals, mail-order catalogues).
YOUTHLINE USA intends to market itself to corporate America as an
established, focused, growing publication which serves as an excellent medium
for companies to reach their target audience. YOUTHLINE USA has already achieved
advertisements from Loew's Theater, Six Flags Great Adventure, Space Farm,
Walmart, Broadway's The Sound of Music, NJ Nets, Sesame Place, Keebler's, etc.
YOUTHLINE USA's sponsorship department will emphasize building
long-term relationships with corporate America. Large companies are expected to
be drawn to the rich educational and entertainment content that is available
both in the newspaper and on the website.
INTELLECTUAL PROPERTY
The Company's ability to compete successfully and achieve future
revenue growth will depend, in part, on its ability to protect its proprietary
technology and operate without infringing the rights of others. The Company has
received a Notice of Allowance for its trademark YOUTHLINE USA(TM). In addition,
7
<PAGE>
the Company owns various domestic and foreign trademarks relating to the assets
purchased in connection with the acquisition of Ingenius, including: Ingenius,
Who on Earth, What on Earth, Where on Earth, Ask A.N.D.I.E. and Adam Electron.
EMPLOYEES
As of December 30, 1999, the Company had a total of 32 employees. The
Company has 7 employees in production, 14 employees in marketing, 7 employees in
administration, and 4 employees in management. In addition, the Company hires
freelance writers. The Company believes its future performance will depend in
large part on its ability to attract and retain highly skilled employees. None
of the Company's employees is represented by a labor union and the Company has
not experienced any work stoppages. The Company considers its employee relations
to be good.
RISK FACTORS
IN ADDITION TO OTHER INFORMATION IN THIS REGISTRATION STATEMENT ON FORM
10-SB, THE FOLLOWING IMPORTANT FACTORS SHOULD BE CAREFULLY CONSIDERED IN
EVALUATING THE COMPANY AND ITS BUSINESS BECAUSE SUCH FACTORS CURRENTLY HAVE A
SIGNIFICANT IMPACT ON THE COMPANY'S BUSINESS, PROSPECTS, FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RECENT HISTORY OF LOSSES. The Company incurred net losses of $178,347
and $323,835 for the years ended December 31, 1997 and 1998, respectively. The
Company expects that losses will increase and continue until such time, if ever,
as the Company can generate sufficient revenue through website and newspaper
subscribers and/or obtain sufficient advertisements and sponsorships. In
addition, the Company had an accumulated deficit of $998,054 at September 30,
1999.
EARLY STAGE OF DEVELOPMENT. The Company has generated limited revenues
to date. While the Company is able to finance certain of its current operations
from revenues, it requires additional financing to increase its marketing
campaign, to improve and update its web-site and to develop new products. The
Company's operations are subject to all of the risks inherent in the
commercialization of new products. The likelihood of the success of the Company
must be considered in light of the problems, expenses, difficulties,
complications and delays frequently encountered when developing new products.
POSSIBLE NEED FOR ADDITIONAL FINANCING. The Company believes that the
current cash on hand together with cash flow from operations will be adequate to
fund its operations for at least six (6) months. There can be no assurance,
however, that the Company will not require additional financing prior to or
after such time. There can be no assurance that any additional financing will be
available to the Company on acceptable terms, or at all. If adequate funds are
not available, the Company may be required to delay, scale back, or eliminate
some of its marketing campaign or obtain funds through arrangement with partners
or others that may require the Company to relinquish rights to certain of its
products or other assets. Accordingly, the inability to obtain such financing
8
<PAGE>
could have a material adverse effect on the Company's business, financial
condition and results of operations.
DEPENDENCE UPON KEY EMPLOYEES; RECRUITMENT OF ADDITIONAL PERSONNEL. The
Company is dependent upon the efforts of and abilities of Saki Dodelson, Susan
Gertler and on other members of its staff. To date, the Company has been able to
attract and retain the personnel necessary for its operations. However, there
can be no assurance that the Company will be able to do so in the future. If the
Company is unable to attract and retain personnel with necessary skills when
needed, its business and expansion plans could be adversely effected.
LIMITED SALES AND MARKETING EXPERIENCE. The Company intends to market
and sell its products in the United States, through a direct sales force.
Establishing significant marketing and sales capability will require significant
resources. There can be no assurance that the Company will be able to recruit
and retain skilled sales management, or direct salespersons, or that the
Company's sales effort will be successful.
COMPETITION AND TECHNOLOGICAL CHANGES. The Company's success depends
upon establishing and maintaining a competitive position in areas of focus. The
Company competes with, and will compete with, numerous companies, many of which
have significantly larger operations and greater financial, marketing, human and
other resources than the Company. Accordingly, such competitors may have
substantial competitive advantages over the Company. In addition, the Company
plans to develop or acquire additional products in order to expand the Company's
product portfolio. No assurance can be given that the Company will successfully
compete in any market in which it conducts or may conduct operations.
LIMITED PRIOR PUBLIC MARKET; POTENTIAL LIMITED TRADING MARKET; POSSIBLE
VOLATILITY OF STOCK PRICE. There has only been a limited public market for the
securities and there can be no assurance that an active trading market in the
Company's securities will be maintained. In addition, the stock market in recent
years has experienced extreme price and volume fluctuations that have
particularly affected the market prices of many smaller companies. The trading
price of the common stock is expected to be subject to significant fluctuations
in response to variations in quarterly operating results, changes in analysts'
earnings estimates, announcements of innovations by the Company or its
competitors, general conditions in the industry in which the Company operates
and other factors. These fluctuation, as well as general economic and market
conditions, may have a material or adverse effect on the market price of the
Company's common stock.
PENNY STOCK REGULATIONS MAY IMPOSE CERTAIN RESTRICTIONS ON
MARKETABILITY OF SECURITIES. The Securities and Exchange Commission (the
"Commission") has adopted regulations which generally define a "penny stock" to
be any equity security that has a market price (as defined) of less than $5.00
per share or an exercise price of less than $5.00 per share, subject to certain
exceptions. As a result, the Company's Common Stock is subject to rules that
impose additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally those with assets in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 together with their spouse). For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
9
<PAGE>
the purchase of such securities and have received the purchaser's written
consent to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the rules require the
delivery, prior to the transaction, of a risk disclosure document mandated by
the Commission relating to the penny stock market. The broker-dealer must also
disclose the commission payable to both the broker-dealer and the registered
representative, current quotations for the securities and, if the broker-dealer
is the sole market maker, the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market. Finally, monthly statements
must be sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks. Consequently, the
"penny stock" rules may restrict the ability of broker-dealers to sell the
Company's securities and may affect the ability of purchasers in this Offering
to sell the Company's securities in the secondary market and the price at which
such purchasers can sell any such securities.
PROPRIETARY TECHNOLOGY; RISK OF THIRD PARTY CLAIMS OF INFRINGEMENT. The
Company's ability to compete successfully and achieve future revenue growth will
depend, in part, on its ability to protect its proprietary technology and
operate without infringing upon the rights of others. Although there are no
pending lawsuits against the Company regarding its technology or notices that
the Company is infringing upon intellectual property rights of others, there can
be no assurance that litigation or infringement claims will not occur in the
future. Such litigation or claims could result in substantial costs, and
diversion of resources and could have a material adverse effect on the Company's
business, financial condition, and results of operations. The Company generally
enters into confidentiality and non-disclosure agreements with its employees and
limits access to and distribution of its proprietary information. However, there
can be no assurance that such measures will provide adequate protection for the
Company's trade secrets or other proprietary information, or that the Company's
trade secrets or proprietary technology will not otherwise become known or be
independently developed by competitors. The failure of the Company to protect
its proprietary technology could have a material adverse effect on its business,
financial condition and results of operations.
NO DIVIDENDS. The Company has not paid any dividends on its Common
Stock since its inception and does not intend to pay dividends on its Common
Stock in the foreseeable future. Any earnings which the Company may realize in
the foreseeable future will be retained to finance the growth of the Company.
ANTI-TAKEOVER PROVISIONS. Pursuant to the Company's Certificate of
Incorporation, the Board of Directors may issue up to 5,000,000 shares of
Preferred Stock in the future with such preferences, limitations and relative
rights as the Board may determine without stockholder approval. The rights of
the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of delaying or preventing a change in control of the Company without
further action by the stockholders. The Company has no present plans to issue
any shares of Preferred Stock. In addition, following this Offering the Company
will become subject to the anti-takeover provisions of Section 203 of the
10
<PAGE>
Delaware General Corporation Law, which will prohibit the Company from engaging
in a "business combination" with an "interested stockholder" for a period of
three years after the date of the transaction in which the persons became an
interested stockholder, unless the business combination is approved in a
prescribed manner. The application of Section 203 also could have the effect of
delaying or preventing a change of control of the Company.
ADDITIONAL AUTHORIZED SHARES OF COMMON STOCK AND PREFERRED STOCK
AVAILABLE FOR ISSUANCE MAY ADVERSELY AFFECT THE MARKET. The Company is
authorized to issue 50,000,000 shares of its Common Stock, $.0001 par value. As
of December 27, 1999 there were 10,071,665 shares of Common Stock issued and
outstanding. However, the total number of shares of Common Stock issued and
outstanding does not include the exercise of up to 450,000 shares of Common
Stock issuable upon exercise of the warrants at $1.00 per share, 590,000 shares
of Common Stock issuable upon exercise of warrants at $3.00 per share, 1,050,000
shares of common Stock issuable upon exercise of warrants at $5.00 per share,
350,000 shares of Common Stock issuable upon exercise of warrants at $7.00 per
share, 50,000 shares of Common Stock issuable upon exercise of warrants at $.10
per share and 350,000 shares of Common Stock issuable upon exercise of the
warrants at $10.00 per share. After reserving a total of 2,840,00 shares of
Common Stock for issuance upon the exercise of all options and warrants, the
Company will have at least 37,088,335 shares of authorized but unissued Common
Stock available for issuance without further shareholder approval. As a result,
any issuance of additional shares of Common Stock may cause current shareholders
of the Company to suffer significant dilution which may adversely affect the
market.
In addition to the above-referenced shares of Common Stock which may be
issued without shareholder approval, the Company has 5,000,000 shares of
authorized preferred stock, the terms of which may be fixed by the Board of
Directors. The Company presently has no issued and outstanding shares of
preferred stock and while it has no present plans to issue any shares of
preferred stock, the Board of Directors has the authority, without shareholder
approval, to create and issue one or more series of such preferred stock and to
determine the voting, dividend and other rights of holders of such preferred
stock. The issuance of any of such series of preferred stock could have an
adverse effect on the holders of Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET. As of
December 27, 1999, the Company has 10,071,665 shares of its Common Stock issued
and outstanding, 5,663,465 of which are "restricted securities". Rule 144
provides, in essence, that a person holding "restricted securities" for a period
of one year may sell only an amount every three months equal to the greater of
(a) one percent of the Company's issued and outstanding shares, or (b) the
average weekly volume of sales during the four calendar weeks preceding the
sale. The amount of "restricted securities" which a person who is not an
affiliate of the Company may sell is not so limited, since non-affiliates may
sell without volume limitation their shares held for two years if there is
adequate current public information available concerning the Company. In such an
event, "restricted securities" would be eligible for sale to the public at an
earlier date. The sale in the public market of such shares of Common Stock may
adversely affect prevailing market prices of the Common Stock.
11
<PAGE>
EFFECT OF OUTSTANDING OPTIONS AND WARRANTS. Currently, there are
outstanding stock options and warrants to purchase an aggregate of 50,000 shares
of Common Stock at an exercise price of $.10 per share, an additional 450,000
shares of Common Stock at an exercise price of $1.00 per share, an additional
590,000 shares of Common Stock at an exercise price of $3.00 per share, an
additional 1,050,000 shares of Common Stock at an exercise price of $5.00 per
share, an additional 350,000 shares of Common Stock at an exercise price of
$7.00 per share and an additional 350,000 shares of Common Stock at an exercise
price of $10.00 per share. None of such options or warrants are available for
public resale and such shares would be subject to Rule 144 of the Act upon
issuance thereof. The exercise of such outstanding options and warrants will
dilute the percentage ownership of the Company's stockholders, and any sales in
the public market of shares of Common Stock underlying such securities may
adversely affect prevailing market prices for the Common Stock. Moreover, the
terms upon which the Company will be able to obtain additional equity capital
may be adversely affected since the holders of such outstanding securities can
be expected to exercise their respective rights therein at a time when the
Company would, in all likelihood, be able to obtain any needed capital on terms
more favorable to the Company than those provided in such securities.
LIMITATION ON DIRECTOR LIABILITY. As permitted by Delaware law, the
Company's Certificate of Incorporation limits the liability of directors to the
Company or its stockholders for monetary damages for breach of a director's
fiduciary duty except for liability in certain instances. As a result of the
Company's charter provision and Delaware law, stockholders may have limited
rights to recover against directors for breach of fiduciary duty.
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE. This Registration
Statement contains forward-looking statements and information that are based on
management's beliefs as well as assumptions made by, and information currently
available to, management. When used in this Registration Statement (including
Exhibits), words such as "anticipate," "believe," "estimate," "expect," and,
depending on the context, "will" and similar expressions, are intended to
identify forward-looking statements. Such statements reflect the Company's
current views with respect to future events and are subject to certain risks,
uncertainties and assumptions, including the specific risk factors described
above. Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, believed, estimated or expected. The Company does not intend
to update these forward-looking statements and information.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
YOUTHLINE, USA, Inc. publishes the weekly newspaper for kids -
YOUTHLINE USA. Currently revenue is produced from paid subscriptions and
advertisements. Paid subscriptions have increased dramatically over the previous
year, and the Company has spent from May to September to set up effective sales
and marketing departments to better reach schools and potential advertisers. In
addition, the Company currently has a circulation of 260,000. Management
12
<PAGE>
believes that this will attract advertisers and corporate sponsors. In addition,
the Company has simultaneously been working on completing and marketing its
website for schools. Management believes that the sale of website subscriptions
to schools will be a significant source of revenue.
COMPONENTS
Until September 30, 1999 there were two sources of revenue:
1) Sale of newspaper subscriptions -
An individual subscription costs $30.00 per year. Bulk
subscriptions to schools cost $9.00 per subscription for
25 or more, and $7.00 per subscription for 50 or more.
2) Advertisements
The cost for a full page ad was $1,000
The bulk of revenue received until September, 1999 was from the sale of
newspaper subscriptions. The increase in net sales from 1998 to 1999 was due
almost totally to the increase in paid subscriptions. Beginning November, 1999
circulation has increased to 260,000, which management believes will
significantly increase revenue from advertisements. Currently, the rate of a
full page advertisement is $6,500. In addition, management intends to sell
subscriptions to its website, which is due to be completed in January 2000.
COST OF GOODS SOLD
These cost include, but are not limited to, printing and distribution
costs. Until September 1999, the Company printed 20,000 or less copies each
week. The printing costs per newspaper are very high when printing so few (as
mach as $.10 per newspaper). However, now that the Company prints over 200,000
newspapers per week, the cost per newspaper has been lowered to $.023 per
newspaper. The Company therefore expect to see a significant profit on every
paid subscription.
RESULTS OF OPERATIONS
In 1998 and 1997, the Company's main source of revenues were from the
sale of newspaper subscriptions. Revenues from subscriptions were $14,707 and
$10,103 for 1998 and 1997, respectively. The Company incurred net operating
losses of $322,351 arid $177,887 during the periods ended December 31, 1998 and
1997, respectively. The Company incurred substantial costs for printing,
reproduction, mailing and design of the newspaper during these periods.
Additionally, the Company incurred substantial costs in marketing, advertising
and payroll expense during the initial start up of operations.
During the nine months ended September 30, 1999, sales revenues
increased by $72,607, an increase of 324% over the sales revenue during the
comparable period in 1998. The Company incurred a net loss from operations of
$495,872, or $.05 per share as compared to a loss of $256,669 in the comparable
period in 1998. The operating loss in 1999 was attributable to increased
professional fees and payroll costs relating to the further development of the
newspaper. Despite the net operating loss, the Company's liquidity improved
during the nine month period with a net increase of $498,116. This increase was
attributable primarily to proceeds received from the issuance of common stock
and notes payable.
13
<PAGE>
During 1999 the Company increased its (requested) circulation to
260,000 subscriptions, which should significantly increase its revenues in the
coming year. The Company, however, will continue to incur expenses attributable
to the growth of its business and therefore, management cannot estimate the
amount of losses it may incur in the future.
YEAR 2000
Many computer software systems in use today cannot properly process
date-related information beginning on and continuing after January 1, 2000. This
will not pose a problem for the Company since its accounting programs are all
Y2K compliant. In addition, the Company has inquired of its commercial banks and
other service providers so to determine if they will be prepared for the Year
2000. While all have indicated they are taking the necessary steps to be in
compliance, there can be no assurance that all exposure will be eliminated. It
is anticipated that the Company will incur no material expenses related to the
Year 2000 issue.
ITEM 3. DESCRIPTION OF PROPERTIES
The Company leases (from an unaffiliated party) approximately 2,280
square feet at 4581 US9, Howell, NJ 07731, which serves as the Company's
executive offices. The annual rental is $42,180. The lease expires on October
31, 2004.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of December 27, 1999
with respect to the beneficial ownership of the outstanding shares of the
Company's Common Stock (10,071,665 as of such date) by (i) any holder known to
the Company owning more than five percent (5%) of the outstanding shares; (ii)
the Company's officers and directors; and (iii) the directors and officers of
the Company as a group:
<TABLE>
<CAPTION>
Number of Shares of
Name of Beneficial Owner* Common Stock (1) Percentage (%) of Ownership
- ------------------------- ------------------- ---------------------------
<S> <C> <C>
Greenwood Capital Partners, Inc. (2) 4,900,000 48.65%
Jacob Y. "Rocky" Stefansky(2) 6,100,000 54.12%
Emanuel Yarmish(3) 50,000 **
Saki Dodelson(4) 625,000 6.01%
Susan Gertler(5) 625,000 6.01%
David Stefansky(6) 360,00 3.57%
Asher Low(7) 25,000 **
All Officers and Directors as a group 7,350,000 61.65%
(6 persons)(8)
</TABLE>
* Unless otherwise indicated, the address of all persons listed in this
section is c/o Youthline USA, Inc., 4581 US9, Howell, NJ 07731.
** Less than 1%.
14
<PAGE>
(1) Beneficially ownership as reported in the table above has been determined
in accordance with Instruction (4) to Item 403 of Regulation S-B of the
Securities Exchange Act.
(2) Includes 4,900,000 shares owned by Greenwood Capital Partners, Inc. Mr.
Stefansky is the President and principal stockholder of Greenwood.
Includes 300,000 warrants exercisable at $3.00 per share, 300,000 warrants
exercisable at $5.00 per share, 300,000 warrants exercisable at $7.00 per
share and 300,000 warrants exercisable at $10.00 per share. Such warrants
expire on December 31, 2004.
(3) Represents his indirect minority ownership interest through Greenwood
Capital.
(4) Includes 225,000 warrants exercisable at $1.00 per share, 25,000 warrants
exercisable at $3.00 per share, 25,000 warrants exercisable at $5.00 per
share, 25,000 warrants exercisable at $7.00 per share and 25,000 warrants
exercisable at $10.00 per share. Such warrants expire on December 31,
2004.
(5) Includes 225,000 warrants exercisable at $1.00 per share, 25,000 warrants
exercisable at $3.00 per share, 25,000 warrants exercisable at $5.00 per
share, 25,000 warrants exercisable at $7.00 per share and 25,000 warrants
exercisable at $10.00 per share. Such warrants expire on December 31,
2004.
(6) Represent his indirect minority ownership interest through Greenwood
Capital.
(7) Represent his indirect minority ownership interest through Greenwood
Capital.
(8) Includes 1,200,000 warrants owned by Mr. Stefansky and 325,000 warrants
owned by each of Ms. Dodelson and Ms. Gertler. See Notes 2, 4 and 5.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The names and ages of the directors and executive officers of the
Company are set forth below. All Directors are elected annually by the
stockholders to serve until the next annual meeting of the stockholders and
until their successors are duly elected and qualified. Officers are elected
annually by the Board of Directors to service at the pleasure of the Board.
NAME AGE POSITION(S) WITH THE COMPANY
- ---- --- ----------------------------
Jacob Y. "Rocky" Stefansky 33 Chairman of the Board
Saki Dodelson 36 President, Treasurer and Director
Susan Gertler, Ph.D. 36 Vice President and Secretary
Emanuel Yarmish 50 Director
David Stefansky 28 Director
Asher Low 39 Director
15
<PAGE>
BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS
JACOB Y. "ROCKY" STEFANSKY, has been a Director of the Company since June 1999.
From November 1991 to present, Mr. Stefansky has been the President and Director
of KID International, Inc., an international trading company. From 1997 until
present, Mr. Stefansky has been the President and director of Portugal
Investment Group, Inc., a privately held investment fund involved with
undervalued and start-up companies. In 1999 Mr. Stefansky became the President
and a director of Greenwood Capital Partners, Inc., a privately held investment
fund involved with Internet and media companies.
SAKI DODELSON, has been the President, Treasurer and Director of the Company
since August 1999 and has been the President, Treasurer and Director of the
Company's subsidiary S&S Plus, Inc., since inception. Ms. Dodelson was the
co-founder of the Youthline USA newspaper. Ms Dodelson has fifteen years
experience in business and finance, computer science, and marketing. From 1987
through May 1999, Ms. Dodelson was a manager of business and finance at AT&T.
While at AT&T, Ms. Dodelson was contacted by the Israeli government and asked to
redesign, improve and market acclaimed Israeli 2000 project--the Israeli
Knesset's website dedicated to the memory of former Prime Minister Yitzhak
Rabin. She has been credited with turning a cumbersome government project into
an efficient, profitable project.
From 1993 to present, Ms. Dodelson has been the President of Harton Financial, a
currency trading company. She has a BS in computer science and a BA in
education. Ms. Dodelson is the sister-in-law of Ms. Gertler.
SUSAN GERTLER PH.D., has been the Vice President, Secretary and a Director of
the Company since August 1999 and has been Vice President, Secretary and
Director of this Company's subsidiary S&S Plus, Inc., since inception. Ms.
Gertler was the co-founder, publisher, and executive editor, and created the
YOUTHLINE USA concept in 1996. As publisher and executive editor, she manages
content, lay-out, and presentation, coordinating development of the newspaper
and web site to guarantee a coherent presentation of all aspects of YOUTHLINE
USA's suite of products and services. Dr. Gertler is also responsible for
contacts with all independent contributors, freelance writers, and external
publishers as well as production of print and website design.
From September 1994 to August 1995, Dr. Gertler worked as a specialist in
testing and evaluation of intellectual and psychological disorders at a Veterans
Administration Hospital. Dr. Gertler conducted in- and out-patient psychotherapy
for individuals, groups, and families. From October 1992 to August 1994, Dr.
Gertler worked as a researcher in a long-term study. Dr. Gertler designed and
developed systems in the area of health psychology, including an on-line
application for quantitative and analysis of mental health status. From
September 1991 to May 1993, Dr. Gertler worked at the Bergen Regional Counseling
Center, a community mental health system in a disadvantaged area. She conducted
individual and family therapy, maintaining contact with schools to coordinate
and individualize treatment for optimal social and development progress. From
September 1990 to May 1991, Dr. Gertler worked at the Children's Village
16
<PAGE>
residential home for aggressive, adolescent boys, Dr. Gertler performed initial
assessments and ongoing therapy for children and families, developing and
implementing programs for easing the stress of major life-cycle transitions.
As a result of her experience in the fields of psychology and education, Dr.
Gertler is comfortable working with teachers and librarians, parents, and
children, all of which are the primary market segments for the Company.
EMANUEL YARMISH, has been a Director of the Company since June 1999. Form 1982
to present, Mr. Yarmish has been the President of Nicole Holdings, Inc., a
privately held real estate investment and management company.
DAVID STEFANSKY, has been a Director of the Company since December 1999. From
May 1999 to present Mr. Stefansky has been the managing director of the private
equity group at Robb Peck McCooey Institutional Services, a division of Robb
Peck McCooey Clearing Corp., where he specializes in advising and financing
emerging growth companies. From September 1997 to May 1999 Mr. Stefansky was
employed in a similar capacity at Trautman Kramer & Co., where he was active in
advising and financing emerging growth companies. From May 1994 through
September 1997, Mr. Stefansky was employed as an account executive at various
securities brokerage firms. Mr.
Stefansky is the brother of Jacob Y. "Rocky" Stefansky.
ASHER LOW, has been a Director of the Company since December 1999. From January
1994 to present Mr. Low has been a Director of Arisal Estates Ltd., a commercial
real estate holding company. Since 1997, Mr. Low has acted as an advisor to
various foreign investment firms.
ITEM 6. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
No executive officer received compensation in excess of $100,000 in
fiscal years 1997 and 1998. Each director of the Company is entitled to receive
reasonable out-of-pocket expenses incurred in attending meetings of the Board of
Directors of the Company but are not compensated for services provided in their
capacities as directors.
EMPLOYMENT AGREEMENTS
The Company has entered into five-year employment agreements with each
of Saki Dodelson (President) and Susan Gertler (Vice President and Secretary).
The employment agreements provide for annual base salaries of $115,000 each. The
employment agreements provide for discretionary bonuses to be determined in the
sole discretion of the Board of Directors and contain covenants not to compete
with the Company following termination of employment.
17
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
To the best of management's knowledge, other than as set forth below,
there were no material transactions, or series of similar transactions, or any
currently proposed transactions, or series of similar transactions, to which the
Company was or is to be a party, in which the amount involved exceeds $60,000,
and in which any director or executive officer, or any security holder who is
known by the Company to own of record or beneficially more than 5% of any class
of the Company's common stock, or any member of the immediate family of any of
the foregoing persons, has an interest.
In February 1998 each of Saki Dodelson and Susan Gertler, the Company's
President and Secretary, respectively, loaned the Company's subsidiary, S&S
Plus, Inc., $125,000 ($250,000 in the aggregate). The notes bear interest at 9%
per annum. Interest payments only are made until the gross annual sales of the
subsidiary reach $1 million, at which time the subsidiary will begin to repay
$15,000 of principal until the notes are paid in full.
In March 1999, Robert Dodelson, the father-in-law of Saki Dodelson,
loaned the Company's subsidiary, S&S Plus, Inc., $35,000. The loan was paid in
full in December 1999.
The Company intends to indemnify its officers and directors to the full
extent permitted by Delaware law. Under Delaware law, a corporation may
indemnify its agents for expenses and amounts paid in third party actions and,
upon court approval in derivative actions, if the agents acted in good faith and
with reasonable care. A majority vote of the Board of Directors, approval of the
stockholder or court approval is required to effectuate indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to officers, directors or persons
controlling the Company, the Company has been advised that, in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in such Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by an officer, director or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such officer, director or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in such Act and will
be governed by the final adjudication of such issue.
Transactions between the Company and its officers, directors, employees
and affiliates will be on terms no less favorable to the Company than can be
obtained from unaffiliated parties. Any such transactions will be subject to the
approval of a majority of the disinterested members of the Board of Directors.
18
<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue up to 50,000,000 shares of Common
Stock, $.0001 par value per share, of which 10,071,665 shares were issued and
outstanding as of December 27, 1999. The Company's Certificate of Incorporation
authorizes 5,000,000 shares of "blank check" preferred stock, none of which are
outstanding.
COMMON STOCK
Subject to the rights of holders of preferred stock, if any, holders of
shares of Common Stock of the Company are entitled to share equally on a per
share basis in such dividends as may be declared by the Board of Directors out
of funds legally available therefor. There are presently no plans to pay
dividends with respect to the shares of Common Stock. Upon liquidation,
dissolution or winding up of the Company, after payment of creditors and the
holders of any senior securities of the Company, including preferred stock, if
any, the assets of the Company will be divided pro rata on a per share basis
among the holders of the shares of Common Stock. The Common Stock is not subject
to any liability for further assessments. There are no conversion or redemption
privileges nor any sinking fund provisions with respect to the Common Stock and
the Common Stock is not subject to call. The holders of Common Stock do not have
any pre-emptive or other subscription rights.
Holders of shares of Common Stock are entitled to cast one vote for
each share held at all stockholders' meetings for all purposes, including the
election of directors. The Common Stock does not have cumulative voting rights.
All of the issued and outstanding shares of Common Stock are fully
paid, validly issued and non-assessable.
PREFERRED STOCK
None of the 5,000,000 "blank check" preferred shares are currently
outstanding. The Board of Directors of the Company have the authority, without
further action by the holders of the outstanding Common Stock, to issue shares
of preferred stock from time to time in one or more classes or series, to fix
the number of shares constituting any class or series and the stated value
thereof, if different from the par value, and to fix the terms of any such
series or class, including dividend rights, dividend rates, conversion or
exchange rights, voting rights, rights and terms of redemption (including
sinking fund provisions), the redemption price and the liquidation preference of
such class or series.
WARRANTS
In connection with the Company's bridge financing in September 1999,
the Company issued to the Placement Agent of such financing, 50,000 warrants to
purchase Common Stock exercisable at $.10 per share and expiring on September 8,
2004.
19
<PAGE>
In November 1999, the Company issued to each of Ms. Dodelson and Ms.
Gertler, the Company's President and Secretary, respectively, 325,000 warrants
(225,000 exercisable at $1.00 per share, 25,000 exercisable at $3.00 per share,
25,000 exercisable at $5.00 per share, 25,000 exercisable at $7.00 per share and
25,000 exercisable at $10.00 per share). All of such warrants expire on December
31, 2004.
In November 1999, the Company issued to G.I.G. Corporate Consultants,
Inc., an entity controlled by Jacob Y. "Rocky" Stefansky, the Company's
Chairman, 1,200,000 warrants (300,000 exercisable at $3.00 per share, 300,000
exercisable at $5.00 per share, 300,000 exercisable at $7.00 per share and
300,000 exercisable at $10.00 per share). All of such warrants expire on
December 31, 2004.
In November 1999, the Company issued 940,000 warrants to consultants
(240,000 exercisable at $3.00 per share and 700,000 exercisable at $7.00 per
share). All of such warrants expire on December 31, 2004.
The exercise price of the warrants and the number of shares issuable
upon exercise of the warrants will be subject to adjustment to protect against
dilution in the event of stock dividends, stock splits, combinations,
subdivisions and reclassifications.
DELAWARE ANTI-TAKEOVER LAW PROVISIONS
As a Delaware corporation, the Company is subject to Section 203 of the
General Corporation Law. In general, Section 203 prevents an "interested
stockholder" (defined generally as a person owing 15% or more of a Delaware
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with such Delaware corporation for three years
following the date such person became an interested stockholder unless (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination, (ii) upon
consummation of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by the directors who are also
officers of the corporation and by certain employee stock plans), or (iii)
following the transaction in which such person became an interested stockholder,
the business combination is approved by the board of directors of the
corporation and authorized at a meeting of stockholders by the affirmative vote
of the holders of two-thirds of the outstanding voting stock of the corporation
not owned by the interested stockholder. Under section 203, the restrictions
described above also do not apply to certain business combinations proposed by
an interested stockholder following the public announcement or notification of
one of certain extraordinary transactions involving the corporation and a person
who had not been an interested stockholder during the previous three years or
who became an interested stockholder with the approval of the corporation's
board of directors and if such business combination is approved by a majority of
the board members who were directors prior to any person's becoming an
interested stockholder. The provisions of Section 203 requiring a super-majority
vote to approve certain corporate transactions could have the effect of
20
<PAGE>
discouraging, delaying or preventing hostile takeovers, including those that
might result in the payment of a premium over market price or changes in control
or management of the Company.
LIMITATION ON LIABILITY OF DIRECTORS
The Company's Certificate of Incorporation provides that a director of
the Company will not be personally liable to the Company or its stockholders for
monetary damages for breach of the fiduciary duty of care as a director,
including breaches which constitute gross negligence. By its terms and in
accordance with the Delaware General Corporation Law, however, this provision
does not eliminate or limit the liability of a director of the Company (i) for
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve international
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, (relating to unlawful payments or dividends or
unlawful stock repurchases or redemptions), (iv) for any improper benefit or (v)
for breaches of a director's responsibilities under the Federal Securities laws.
SHARES ELIGIBLE FOR FUTURE RESALE
As of December 27, 1999, the Company had an aggregate of 10,071,665
shares of its Common Stock issued and outstanding, 5,663,465 all of which are
"restricted securities," which may be sold only in compliance with Rule 144
under the Securities Act of 1933, as amended. Rule 144 provides, in essence,
that a person holding restricted securities for a period of one year after
payment therefor may sell, in brokers' transactions or to market makers, an
amount not exceeding 1% of the outstanding class of securities being sold, or
the average weekly reported volume of trading of the class of securities being
sold over a four-week period, whichever is greater, during any three-month
period. (Persons who are not affiliates of the Company and who had held their
restricted securities for at least two years are not subject to the volume or
transaction limitations.) The sale of a significant number of these shares in
the public market may adversely affect prevailing market prices of the Company's
securities following this Offering.
TRANSFER AGENT & REGISTRAR
The transfer agent and registrar for the Company's Common Stock is
American Registrar and Transfer Company, 342 East 900 South, Salt Lake City,
Utah 84111.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
Prior to August 1999, the Company's shares of Common Stock were quoted
on the OTC Bulletin Board under the symbol "UMHCD". Since August 1999 the Common
Stock has been trading under the symbol "YLNE".
21
<PAGE>
The following table sets forth the range of high and low bid quotations
for the Common Stock, in the 3rd Quarter of 1999, as reported by the OTC
Bulletin Board. The quotes represent inter-dealer prices without adjustment or
mark-ups, mark-downs or commissions and may not necessarily represent actual
transactions. The trading volume of the Company's securities fluctuates and may
be extremely limited (or non-existent) during certain periods. As a result, the
liquidity of an investment in the Company's securities may be adversely
affected. For several years prior to August 1999, the Company's Common Stock did
not trade.
COMMON STOCK
HIGH LOW
---- ---
1999
- ----
Quarter ended
September 30, 1999* $10-3/8 $3
* Limited trading on the OTC Bulletin Board commenced in August 1999.
On December 27, 1999, the final quoted price as reported by the OTC
Bulletin Board was $6-7/8 for each share of Common Stock. As of December 27,
1999, there were 10,071,665 shares of Common Stock outstanding, held of record
by approximately 310 record holders.
DIVIDEND POLICY
It is the policy of the Board of Directors to retain earnings for use
in the maintenance and expansion of the Company's business. the Company has not
declared any cash dividends to the shareholders of its capital stock and does
not intend to declare such dividends in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS
The Company is not a party to any material litigation or governmental
proceedings that, management believes, would result in judgments or fines that
would have a material adverse effect on the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In September 1999, the Company issued 10,000 shares of Common Stock to
Seven Reid for services rendered. The sale was made in reliance upon Section
4(2) of the Act. No commissions were paid.
22
<PAGE>
In connection with a $500,000 bridge financing in September 1999 in
which the Company issued promissory notes in the aggregate amount of $500,000,
the Company issued, for no additional consideration, 100,000 shares of Common
Stock to nine (9) accredited investors. The sales were made in reliance upon
Rule 506 of Regulation D under the Act. The Company paid commissions of 9% to
the placement agent of the financing. The promissory notes accrue interest at 8%
per annum and the principal and accrued interest are due and payable on January
7, 2000.
In connection with the Company's acquisition of all of the outstanding
shares of S&S Plus, Inc. (a wholly-owned subsidiary of the Company) in August
1999, the Company issued 5,500,000 shares of Common Stock to the shareholders of
S&S. The sale was made in reliance upon Section 4(2) of the Act. No commissions
were paid.
In connection with the Company's acquisition of Lesson Stop in August
1999, the Company issued 20,000 shares of Common Stock to Therese Sarah, an
employee of the Company. The sale was made in reliance upon Section 4(2) of the
Act. No commissions were paid.
In July 1999, the Company issued 33,465 shares of Common Stock to seven
persons in settlement of any claims such persons may have had against the
Company. The sales were made in reliance upon Section 4(2) of the Act. No
commissions were paid.
In March 1999, the Company sold 4,400,000 shares of Common Stock to
eleven (11) accredited investors for an aggregate purchase price of $44,000. The
sales were made in reliance upon Rule 504 of Regulation D under the Act. No
commissions were paid.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "GCL")
empowers a corporation to indemnify its directors and officers and to purchase
insurance with respect to liability arising out of the performance of their
duties as directors and officers. The GCL provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, vote of stockholders or otherwise.
Article Ninth of the Company's Certificate of Incorporation eliminates
the personal liability of directors to the fullest extent permitted by Section
102 of the GCL. Article Tenth provides for indemnification of all persons whom
it shall have the power to indemnify pursuant to Section 145 of the GCL.
The effect of the foregoing is to require the Company to the extent
permitted by law to indemnify the officers and directors of the Company for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Insofar as indemnification for liabilities arising under the
23
<PAGE>
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
The Company does not currently have any liability insurance coverage
for its officers and directors.
24
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
2.1 Certificate of Incorporation of the Company
2.2 Certificate of Merger (Delaware)
2.3 Articles of Merger (Utah)
2.4 Plan of Merger
2.5 By-Laws of the Company
3.1 Specimen Certificate for shares of Common Stock
6.1 Employment Agreement between the Company and Saki Dodelson.
6.2 Employment Agreement between the Company and Susan Gertler.
10.1 Consent of Michael C. Finkelstein & Co., Independent Certified
Public Accountants.
27 Financial Data Schedule
25
<PAGE>
Table of Contents
Page
----
S & S Plus, Inc.:
Independent Auditors' Report F-1
Balance Sheet as of December 31, 1998 F-2-F-3
Statements of Operations for the years ended
December 31, 1998 and 1997 F-4
Statements of Stockholders' Equity (Deficit)
For the years ended December 31, 1998 and 1997 F-5
Statements of Cash Flows
For the years ended December 31, 1998 and 1997 F-6
Notes to the Financial Statements F-7-F-10
YouthLine USA, Inc.:
Independent Auditors' Report F-11
Balance Sheet as of December 31, 1998 F-12
Statements of Stockholders' Equity (Deficit)
For the years ended December 31, 1998 and 1997 F-13
Notes to the Financial Statements F-14-F-15
YouthLine USA, Inc and Subsidiary:.
Introduction F-16
Proforma Consolidated Balance Sheet
As of December 31, 1998 F-17-F-18
Proforma Consolidated Statements of Operations
For the years ended December 31, 1998 and 1997 F-19
Proforma Consolidated Statements of Stockholders'
Equity (Deficit)
For the years ended December 31, 1998 and 1997 F-20
Proforma Consolidated Statements of Cash Flows
For the years ended December 31, 1998 and 1997 F-21
Notes to the Proforma Consolidated Financial Statements F-22-F-28
YouthLine USA, Inc.:
Introduction F-29
Unaudited Consolidated Balance Sheet
As of September 30, 1999 F-30-F-31
<PAGE>
Unaudited Consolidated Statements of Operations
For the nine months ended September 30, 1999 and 1998 F-32
Proforma Consolidated Statements of
Stockholders' Equity (Deficit)
For the nine months ended September 30, 1999 and 1998 F-33
Proforma Consolidated Statements of Cash Flows
For the nine months ended September 30, 1999 and 1998 F-34
Notes to the Proforma Consolidated Financial Statements F-35-F-41
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders S & S Plus, Inc.
We have audited the balance sheet of S & S Plus, Inc. (the "Company") as of
December 31, 1998 and the related statements of operations, shareholders' equity
and cash flows for the years ended December 31, 1998 and 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements schedule
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 S & S Plus, Inc. as of December
31, 1998, and the results of their operations and their cash flows for the years
ended December 31, 1998 and 1997 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statements
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included therein.
Certified Public Accountant
October 15, 1999
F-1
<PAGE>
S & S PLUS, INC.
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS:
Cash 88
Accounts Receivable 1,834
-------
TOTAL CURRENT ASSETS 1,922
-------
FIXED ASSETS
Office equipment and software (net of
accumulated depreciation of $15,206) 13,503
-------
OTHER ASSETS
Organization costs (net of
accumulated amortization of $1,408) 4,442
-------
TOTAL OTHER ASSETS 4,442
-------
TOTAL ASSETS $19,867
=======
See accompanying accountants' notes to the financial statements
F-2
<PAGE>
S & S PLUS, INC.
BALANCE SHEET
DECEMBER 31, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses 61,084
Unearned Revenue 25,215
---------
TOTAL CURRENT LIABILITIES 86,299
---------
LONG TERM LIABILITIES
Notes Payable 250,000
Loans and Exchanges 79,827
---------
TOTAL LONG TERM LIABILITIES 329,827
---------
TOTAL LIABILITIES 416,126
---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common Stock, no par value, 200 Shares issued and outstanding 103,979
Retained Earnings (Deficit) (500,238)
---------
TOTAL STOCKHOLDERS' EQUITY (396,259)
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,867
=========
See accompanying accountants' notes to the financial statements
F-3
<PAGE>
S & S PLUS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
December 31,
1998 1997
---------- ---------
NET SALES $ 14,707 $ 10,103
COST OF GOODS SOLD 163,224 67,977
---------- ---------
GROSS PROFIT (LOSS) (148,517) (57,874)
---------- ---------
OPERATING EXPENSES:
Payroll and Related Costs 48,381 --
Selling Expenses 51,914 54,650
Interest Expense (Net of Interest Income) 23,218 263
General and Administrative 39,792 59,014
Depreciation and Amortization 10,529 6,086
---------- ---------
TOTAL OPERATING EXPENSES 173,834 120,013
---------- ---------
Loss before provision for income taxes (322,351) (177,887)
Provision for income tax -- --
---------- ---------
NET LOSS $ (322,351) $(177,887)
========== =========
Loss Per Common Share $(1,611.76) $ (889.44)
========== =========
Common Shares Outstanding 200 200
========== =========
See accompanying accountants' notes to the financial statements
F-4
<PAGE>
<TABLE>
<CAPTION>
S & S PLUS, INC.
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Common Stock
Number of Par Accumulated
Share Value Deficit Total
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 -- $ -- $ -- $ --
Issuance of Common Stock 200 $ -- $ -- $ --
Net Loss for Period -- -- (177,887) (177,887)
--------- --------- --------- ---------
Balance at December 31, 1997 200 $ 200 $(177,887) $(177,887)
Contribution to PaidInCapital -- 103,779 -- 103,979
Net Loss for Period -- -- (322,351) (322,351)
--------- --------- --------- ---------
Balance at December 31, 1998 200 $ 103,979 $(500,238) $(396,259)
========= ========= ========= =========
</TABLE>
See accompanying accountants' notes to the financial statements
F-5
<PAGE>
<TABLE>
<CAPTION>
S & S PLUS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS FROM OPERATIONS: (322,351) (177,887)
Adjustments to reconcile net loss from operations
to net cash provided by operating activities:
Depreciation and Amortization Expense 10,529 6,086
Increase in Accounts Receivables (1,729) 105
Increase in Accounts Payable and Accrued Expenses 35,269 25,813
Increase in Unearned Revenues 25,215 --
--------- ---------
Net Cash used by Operations (253,067) (145,883)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Office Equipment (3,124) (25,585)
Organization Costs -- (5,850)
--------- ---------
Net Cash used by Investing Activities (3,124) (31,435)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Notes Payable 250,000 --
(Decrease) Increase in Loans and Exchanges (96,805) 176,423
Addition to Common Stock 102,979 1,000
--------- ---------
Net Cash Provided by Financing Activities 256,174 177,423
--------- ---------
Net (Decrease) Increase in Cash and Cash Equivalents (17) 105
Cash and Cash Equivalents at Beginning of Year 105 --
--------- ---------
Cash and Cash Equivalents at End of Year $ 88 $ 105
========= =========
Supplemental Cash Flow Information
Cash Paid During the Period for
Interest $ 2,567 $ 263
========= =========
Income Taxes $ 300 $ --
========= =========
</TABLE>
See accompanying accountants' notes to the financial statements
F-6
<PAGE>
S & S PLUS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
PRINCIPLES
A) DESCRIPTION OF BUSINESS
S & S Plus, Inc. (the "Company") was organized in the state of
New Jersey as a Sub Chapter S Corporation. The election was
effective for the years ending December 31, 1997 and 1998.The
Company publishes YOUTHLINE USA, a weekly newspaper written
and designed for children ages 8 through 13. In every respect,
it is similar to an adult newspaper, except that it is written
at the children's level and it filters out news that is not
age appropriate. It is designed to attract and engage the
attention of children within this age range. The Company
generates revenue through the sale of subscriptions,
advertisement space and corporate sponsorships. Subscriptions
can either be bulk subscriptions ordered by schools, or as
individual subscriptions for children to read at home.
B) CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
C) ACCOUNTS RECEIVABLE AND REVENUE RECOGNITION
Accounts receivable and revenue recognition consist of
accounts receivable to S & S Plus, Inc. Accounts receivable
are current, accordingly, a provision for bad debt is not
required. The Company's revenues are primarily derived from
the sale of subscriptions.
D) FIXED ASSETS
Computer equipment and furniture and fixtures are depreciated
using the straight-line method over their estimated useful
lives ranging from five to seven years. The costs of additions
and betterment are capitalized, repairs and maintenance costs
are charged to general and administrative expenses.
Organization costs are amortized over a period of five years
on a straight-line basis.
E) EARNINGS PER SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share" discusses the computation and
presentation of earnings per share ("EPS"). Basic EPS, as
defined by SFAS No. 128, is computed by dividing income
available to common shareholders by the weighted average
number of common shares outstanding for the reporting period,
ignoring any potential effects of dilution. Diluted EPS
reflects the potential dilution that would occur if
securities, or other contracts to issue common stock, were
exercised or converted into common stock that then shared in
the earnings of the entity.
F-7
<PAGE>
S & S PLUS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
PRINCIPLES
(Continued)
F) RECLASSIFICATION
Certain 1997 balances have been reclassified to conform to the
1998 presentation.
G) INCOME TAXES
Effective January 7, 1997, the Company applied for, and
received approval to be taxed as an "S" Corporation for
Federal income tax purposes. The effect of this election is
that taxable results of operations and tax credits are
reportable on the individual tax returns of the stockholders.
Accordingly, for 1998 and 1997, no Federal Corporate income
taxes have been provided in these financial statements.
The Company intends to follow Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for
Income Taxes" when either operations achieve profitability or
the realization of net operating loss benefits can more
readily be measured, whichever occurs first.
H) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent liabilities and the
reported amounts of revenues and expenses. Actual results
could differ from estimates.
NOTE 2 FIXED ASSETS - OFFICE AND EQUIPMENT SOFTWARE
Office equipment and software consist of the following:
December 31,
1998
------------
Office Equipment $ 23,315
Software 5,394
---------
28,709
Less: Accumulated Depreciation 15,206
---------
Net Book Value $ 13,503
=========
Depreciation expense for the year ended December 31, 1998 and
1997 amounted to $9,471 and $5,734, respectively.
F-8
<PAGE>
S & S PLUS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 FIXED ASSETS - OFFICE AND EQUIPMENT SOFTWARE
(Continued)
Other Assets and Organization costs consist of the following:
December 31,
1998
------------
Organization Costs $ 5,850
Less: Accumulated Depreciation (1,408)
----------
Net Book Value $ 4,442
==========
Amortization expense for the year ended December 31, 1998 and
1997 amounted to $1,056 and $352, respectively.
NOTE 3 NOTES PAYABLE
On February 1, 1998, the Company issued two promissory notes
in the principal amount of $125,000, payable to Saki Dodelson
(President) and Susan Gertler (Vice-President), aggregating
$250,000. The notes bear interest at an annual rate of 9%,
payable monthly, interest only, until the gross annual sales
of the Company reach $1,000,000; at which point the Company
will begin to repay $15,000 of principle on each note
annually. The accrued interest expense on these notes
aggregated $11,170 through December 31, 1998.
NOTE 4 LOANS AND EXCHANGES
Certain officers of the Company advanced the Company funds to
meet current operating requirements. The balance outstanding
as of December 31, 1998 was $79,827. During 1999 the Company
repaid $45,000 of such advances.
NOTE 5 FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate
the fair value of financial instruments:
CASH AND CASH EQUIVALENTS. The carrying amount reported in the
balance sheet for cash and cash equivalents approximates its
fair value.
ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE. The carrying amount
of accounts receivable and accounts payable in the balance
sheet approximates fair value.
SHORT-TERM AND LONG-TERM DEBT. The carrying amount of the
revolving credit facility approximates fair value. The
carrying amounts of the company's financial instruments at
December 31, 1998 approximate fair value.
F-9
<PAGE>
S & S PLUS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 6 SUBSEQUENT EVENTS
On February 25, 1999 Shragie Kotler advanced the Company a
$30,000 note payable, interest free with a maturity date of
November 1, 1999.
On March 10, 1999, Robert Dodelson loaned the Company $35,000
at a rate of 7% per annum. The loan is self-amortizing and
includes monthly principle payments of $200 plus interest.
The Company executed two employment contracts on May 28, 1999
with certain senior executives for future services that vary
in length for periods of up to five years. Each employment
contract will call for a base salary of $115,000 with annual
increases of 9% per annum. The contracts also include options
to purchase 10,000 shares of the Company's common stock at a
20% discount off the maximum price per share in the Company's
next private placement. Additionally, the employment contract
also includes a one-time signing bonus equal to $30,000
payable as follows: $10,000 within 30 days of signing the
contract, and the balance of $20,000 payable upon the Company
attaining 10,000 subscribers for a period of two consecutive
months.
In August 1999, YouthLine USA, Inc. acquired all of the
outstanding capital stock of S&S Plus, Inc., in exchange for
the issuance of 5,500,000 shares of its common stock,
representing a majority of the total issued and outstanding
capital stock of YouthLine USA, Inc. On such date, the
previous management's directors and officers of YouthLine USA,
Inc. resigned and were replaced with the current officers and
directors.
F-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders YouthLine USA, Inc.
We have audited the balance sheet of YouthLine USA, Inc. (the "Company") as of
December 31, 1998 and the related statements of operations, shareholders' equity
and cash flows for the years ended December 31, 1998 and 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements schedule
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 YouthLine USA, Inc. as of
December 31, 1998, and the results of their operations and their cash flows for
the years ended December 31, 1998 and 1997 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statements
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included therein.
As discussed in Note 1, effective September 24, 1999, the Company was
reorganized under a plan confirmed by the United States Bankruptcy Court for the
Northern District of Texas and adopted a new basis of accounting whereby all
remaining assets and liabilities were adjusted to their estimated fair values.
Accordingly, the financial statements for periods subsequent to the
reorganization are not comparable to the financial statements presented for
prior periods.
Certified Public Accountant
October 15, 1999
F-11
<PAGE>
YOUTHLINE USA, INC.
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
Cash $ (826)
Subscriptions Receivable 152,139
-----------
TOTAL ASSETS $ 151,313
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Commitments and Contingencies --
Secured and Unsecured Creditors Payable 132,033
-----------
TOTAL LIABILITIES 132,033
-----------
Retained Earnings (Deficit) (1,161,867)
Common Stock, Par Value $.001; 50,000,000 shares authorized,
8,200 shares issued and outstanding 1
Preferred stock, no Par Value; 5,000,000 shares authorized,
No shares outstanding --
Additional Paid-In-Capital 1,181,146
-----------
TOTAL STOCKHOLDERS' EQUITY 19,280
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 151,313
===========
See accompanying accountants' notes to the financial statements
F-12
<PAGE>
<TABLE>
<CAPTION>
YOUTHLINE USA, INC.
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Common Stock Capital
Number of Par in excess of Accumulated
Share Value Par Value Deficit Total
------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 8,200 $ 1 $ 1,181,146 $(1,159,921) $ 21,226
Net Loss for Period -
Administrative Expenses -- -- -- (460) (460)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 8,200 $ 1 $ 1,181,146 $(1,160,381) $ 20,766
Net Loss for Period -
Administrative Expenses -- -- -- (1,486) (1,486)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 8,200 $ 1 $ 1,181,146 $(1,161,867) $ 19,280
=========== =========== =========== =========== ===========
See accompanying accountants' notes to the financial statements
</TABLE>
F-13
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1998
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
PRINCIPLES
A) BACKGROUND
YouthLine USA, Inc. (the "Company") was incorporated on July
27, 1999 pursuant to the laws of the State of Delaware as the
successor to Ult-I-Med Health Centers, Inc., a Utah
corporation ("Ult-I-Med"), which was incorporated in 1983
under the laws of the State of Utah (originally under the name
Picadilly Technology, Inc.). The Company was organized to
effectuate a reincorporation of Ult-I-Med with and into the
Company on August 16, 1999.
Ult-I-Med was originally organized to engage in the mining of
metalliferous chemicals. In 1988, Ult-I-Med ceased such
activities and began engaging in the business of owning and
operating camping and recreation facilities. In 1991,
Ult-I-Med ceased such activities and began engaging in the
business of owning and operating supervised primary care,
health and rehabilitation centers. In January 1996, Ult-I-Med
filed a Chapter 11 bankruptcy petition. Ult-I-Med liquidated
all of its assets and its plan of reorganization was filed
with the court in February 1998. All of Ult-I-Med debts were
paid subsequent to June 30, 1999, and the court entered a
final decree on September 24, 1999. The Company has not
engaged in any operations since 1996, and has been inactive
during 1998 and 1997.
B) DESCRIPTION OF BUSINESS
The Company, through its wholly owned subsidiary, S & S Plus,
Inc., publishes YOUTHLINE USA, a weekly newspaper written and
designed for children ages 8 through 13. In every respect, it
is similar to an adult newspaper, except that it is written at
the children's level and it filters out news that is not age
appropriate. It is designed to attract and engage the
attention of children within this age range. The Company
generates revenue through the sale of subscriptions,
advertisement space and corporate sponsorships. Subscriptions
can either be bulk subscriptions ordered by schools, or as
individual subscriptions for children to read at home.
NOTE 2 CAPITAL STOCK
Effective March 29, 1999, the Board of Directors declared a
reverse stock split of one thousand shares of common stock for
one common share of the Company's common stock. The effect of
the reverse stock split was to reduce the total outstanding
common shares to 8,200. All references to number of shares,
except shares authorized, and to per share information in the
consolidated financial statements have been adjusted to
reflect the stock split on a retroactive basis, for all
periods presented.
The Company is currently authorized to issue 50,000,000 shares
of its common stock, $.0001 par value. As of December 31, 1998
and 1997 there were 8,200 shares of common stock outstanding,
after the 1,000 to one reverse stock split. Effective
September 30, 1999, there were 10,071,665 shares of common
stock issued and outstanding.
F-14
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1998
NOTE 2 CAPITAL STOCK
(Continued)
The Company has 5,000,000 authorized shares of preferred
stock, no par value. The Company presently has no issued and
outstanding preferred stock.
NOTE 3 FRESH-START REPORTING
The Company's Reorganization Plan under Chapter 11 was
confirmed by the United States Bankruptcy Court for the
Northern District of Texas, Fort Worth Division. The formal
confirmation was entered in January 1996 and the court
consummated the reorganization plan on September 24, 1999. As
a result of the confirmation of the Reorganization Plan, the
Company implemented fresh-start reporting as of September 24,
1999. Under the provisions of AICPA Statement of Position 90-7
("SOP 90-7"), "Financial Reporting by Entities in
Reorganizations under the Bankruptcy Code", the Company was
required to adopt fresh-start reporting upon emergence from
Chapter 11 that resulted in a new reporting entity with no
retained earnings or accumulated deficit as of September 30,
1999.
The Company's Unaudited Consolidated Balance Sheets as of
September 30, 1999, were prepared as if the Company was a new
reporting entity at 1996 and reflects certain reorganization
adjustments that include the restatement of assets and
liabilities to approximate fair value and the discharge of
outstanding liabilities relating to creditor claims against
the Company, which have been satisfied primarily by additional
funding through bridge capital. The Company's total secured
and unsecured debts aggregated $132,033. As of October 11,
1999, the Company has satisfied all debts.
NOTE 4 SUBSEQUENT EVENTS
In August 1999, the Company acquired all of the outstanding
capital stock of S&S Plus, Inc., a wholly-owned subsidiary of
the Company which operated the publication of YOUTHLINE USA,
in exchange for the issuance of 5,500,000 shares of its common
stock, representing a majority of the total issued and
outstanding capital stock of the Company. On such date, the
previous management's directors and officers resigned and were
replaced with the current officers and directors. This
exchange will be accounted for as a reverse acquisition under
the purchase method of accounting, since the former
shareholders of the S & S Plus, Inc. will own a majority of
the outstanding stock of the Company after the acquisition.
Accordingly, the combination of the two companies will be
recorded as recapitalization of shareholders' equity of S & S
Plus, Inc., pursuant to which S & S Plus, Inc. is treated as
the continuing entity for accounting purposes and the
historical financial statements presented will be those of S &
S Plus, Inc.
F-15
<PAGE>
YOUTHLINE USA, INC.
INTRODUCTION
The pro forma consolidated balance sheet (unaudited) as of
December 31, 1998, presents the pro forma consolidated balance
sheet of Youthline USA, Inc. (the "Company"), as if the
transaction of August 16, 1999, described below, which is
presented on page F15 occurred on December 31, 1998.
In August 1999, the Company acquired all of the outstanding
capital stock of S&S Plus, Inc., a wholly-owned subsidiary of
the Company which operated the publication of YOUTHLINE USA,
in exchange for the issuance of 5,500,000 shares of its common
stock, representing a majority of the total issued and
outstanding capital stock of the Company. On such date, the
previous management's directors and officers resigned and were
replaced with the current officers and directors. This
exchange will be accounted for as a reverse acquisition under
the purchase method of accounting, since the former
shareholders of S & S Plus, Inc. will own a majority of the
outstanding stock of the Company after the acquisition.
Accordingly, the combination of the two companies will be
recorded as recapitalization of shareholders' equity of S & S
Plus, Inc., pursuant to which S & S Plus, Inc. is treated as
the continuing entity for accounting purposes and the
historical financial statements presented will be those of S &
S Plus, Inc.
The pro forma consolidated statements of operations for the
years ended December 31, 1998 and 1997, reflect the results of
the Company and S & S Plus, Inc. as if the transaction
summarized in the preceding paragraph had occurred as of
January 1, 1997.
The pro forma basic net loss per share (unaudited) for the
years ended December 31, 1998 and 1997, includes the shares
issued in connection with this reverse acquisition in the
computation of the weighted average number of common shares
outstanding.
The pro forma consolidated statements of cash flows
(unaudited) for the years ended December 31, 1998 and 1997,
reflect the results of the Company and S & S Plus, Inc. as if
the transaction summarized in the second paragraph had
occurred as of January 1, 1997.
The consolidated financial statements do not necessarily
represent actual results that would have been achieved had
Youthline USA, Inc. and the operations of S & S Plus, Inc.
been consolidated at the beginning of the period, nor is this
necessarily indicative of future results.
The pro forma consolidated financial statements (unaudited)
should be read in conjunction with the historical financial
statements of the Company.
F-16
<PAGE>
YOUTHLINE USA, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998 (UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ (738)
Accounts Receivable 1,834
Subscription Receivables 152,139
---------
TOTAL CURRENT ASSETS 153,235
---------
FIXED ASSETS
Office equipment and software (net of
accumulated depreciation of $15,206) 13,503
---------
OTHER ASSETS
Organization costs (net of
accumulated amortization of $1,408) 4,442
---------
TOTAL OTHER ASSETS 4,442
---------
TOTAL ASSETS $ 171,180
=========
See accompanying accountants' notes to the
pro forma consolidated financial statements
F-17
<PAGE>
YOUTHLINE USA, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998 (UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 61,082
Unearned Revenue 25,215
Secured and Unsecured Creditors Payable 131,033
---------
TOTAL CURRENT LIABILITIES 217,330
---------
LONG TERM LIABILITIES
Notes Payable 250,000
Loans and Exchanges 79,827
---------
TOTAL LONG TERM LIABILITIES 329,827
---------
TOTAL LIABILITIES 547,157
---------
COMMITMENTS AND CONTINGENCIES --
STOCKHOLDERS' EQUITY:
Common Stock, $.001 par value, 50,000,000 Shares
Authorized; 5,508,200 shares issued and outstanding 551
Additional Paid In Capital 125,654
Preferred Stock, Not Par Value, 5,000,000 Shares Authorized,
No Shares Outstanding --
RETAINED EARNINGS (DEFICIT) (502,182)
---------
TOTAL STOCKHOLDERS' EQUITY (375,977)
---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 171,180
=========
See accompanying accountants' notes to the
pro forma consolidated financial statements
F-18
<PAGE>
YOUTHLINE USA, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
(UNAUDITED)
1998 1997
----------- -----------
NET SALES $ 14,707 $ 10,103
COST OF GOODS SOLD 163,224 67,977
----------- -----------
GROSS PROFIT (LOSS) (148,517) (57,874)
----------- -----------
OPERATING EXPENSES:
Payroll and Related Costs 48,381 --
Selling Expenses 51,914 54,650
Interest Expense (Net of Interest Income) 23,218 263
General and Administrative 41,276 59,474
Depreciation and Amortization 10,529 6,086
----------- -----------
TOTAL OPERATING EXPENSES 175,318 120,473
----------- -----------
Loss before provision for income taxes (323,835) (178,347)
Provision for income tax -- --
----------- -----------
NET LOSS $ (323,835) $ (178,347)
=========== ===========
Loss per Common Share $ (0.59) $ (0.32)
=========== ===========
Common Shares Outstanding 5,508,200 5,508,200
=========== ===========
See accompanying accountants' notes to the
pro forma consolidated financial statements
F-19
<PAGE>
<TABLE>
<CAPTION>
YOUTHLINE USA, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(UNAUDITED)
Common Stock Capital
Number of Par in excess of Accumulated
Share Value Par Value Deficit Total
----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 5,508,200 $ 551 $ 1,181,596 $(1,159,921) $ 22,226
Net Loss for Period -- -- -- (178,347) (178,347)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 5,508,200 $ 551 $ 1,181,596 $(1,338,268) $ (156,121)
Contribution to PaidInCapital -- -- 103,979(1) -- 103,979
Reverse Merger Recapitalization -- -- (1,159,921)(2) 1,159,921 --
Net Loss for Period -- -- -- (323,835) (323,835)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 5,508,200 $ 551 $ 125,654 $ (502,182) $ (375,977)
=========== =========== =========== =========== ===========
</TABLE>
(1) During 1997, officers of the Company contributed $103,979 to the Common
Stock of S & S Plus, Inc.
(2) To restate Common Stock and accumulated deficit of the Company in order to
recapitalize the stockholders' equity as a result of the reverse acquisition
on August 16, 1999. Therefore, the Common Stock of S & S Plus, Inc. with No
Par Value, 1,000 shares authorized and issued is replaced with the Common
Stock of Youthline USA, Inc. with $.0001 Par Value, 50,0000,000 shares
authorized, 5,500,000 shares issued and outstanding, including 8,200 shares
of Common Stock resulting from the reverse stock split. Accordingly, there
were 5,508,200 shares of Common Stock issued and outstanding as of December
31, 1998.
See accompanying accountants' notes to the
pro forma consolidated financial statements
F-20
<PAGE>
<TABLE>
<CAPTION>
YOUTHLINE USA, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(UNAUDITED)
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES;
NET LOSS FROM OPERATIONS (323,835) (178,347)
Adjustments to reconcile net loss from operations
to net cash used by operating activities:
Depreciation and Amortization Expense 10,529 6,086
Increase in Accounts Receivables (1,731) 105
(Decrease) Increase in Accounts Payable and Accrued Expenses 35,269 25,813
Increase in Unearned Revenues 25,215 --
--------- ---------
NET CASH USED BY OPERATIONS (254,553) (146,343)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Office Equipment (3,124) (25,585)
Organization Costs -- (5,850)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (3,124) (31,435)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Notes Payable 250,000 --
Reduction to Loans and Exchanges-Officers (97,700) 177,527
Sale of Shares of Common Stock 103,979 --
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 256,279 177,527
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents (1,398) (251)
Cash and Cash Equivalents at Beginning of Year 660 911
--------- ---------
Cash and Cash Equivalents at End of Year $ (738) $ 660
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Paid During the Period for
Interest $ 2,567 $ 263
========= =========
Income Taxes $ 300 $ --
========= =========
See accompanying accountants' notes to the
pro forma consolidated financial statements
</TABLE>
F-21
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
PRINCIPLES
A) BACKGROUND
YouthLine USA, Inc. (the "Company") was incorporated on July
27, 1999 pursuant to the laws of the State of Delaware as the
successor to Ult-I-Med Health Centers, Inc., a Utah
corporation ("Ult-I-Med"), which was incorporated in 1983
under the laws of the State of Utah (originally under the name
Picadilly Technology, Inc.). The Company was organized to
effectuate a reincorporation of Ult-I-Med with and into the
Company on August 16, 1999.
Ult-I-Med was originally organized to engage in the mining of
metalliferous chemicals. In 1988, Ult-I-Med ceased such
activities and began engaging in the business of owning and
operating camping and recreation facilities. In 1991,
Ult-I-Med ceased such activities and began engaging in the
business of owning and operating supervised primary care,
health and rehabilitation centers. In January 1996, Ult-I-Med
filed a Chapter 11 bankruptcy petition. Ult-I-Med liquidated
all of its assets and its plan of reorganization was filed
with the court in February 1998. All of Ult-I-Med debts were
paid subsequent to September 30, 1999, and the court entered a
final decree on September 24, 1999.
In August 1999, the Company acquired all of the outstanding
capital stock of S&S Plus, Inc., a wholly-owned subsidiary of
the Company which operated the publication of YOUTHLINE USA,
in exchange for the issuance of 5,500,000 shares of its common
stock, representing a majority of the total issued and
outstanding capital stock of the Company. On such date, the
previous management's directors and officers of Ult-I-Med
resigned and were replaced with the current officers and
directors.
B) DESCRIPTION OF BUSINESS
The Company, through its wholly owned subsidiary, S & S Plus,
Inc., publishes YOUTHLINE USA, a weekly newspaper written and
designed for children ages 8 through 13. In every respect, it
is similar to an adult newspaper, except that it is written at
the children's level and it filters out news that is not age
appropriate. It is designed to attract and engage the
attention of children within this age range. The Company
generates revenue through the sale of subscriptions,
advertisement space and corporate sponsorships. Subscriptions
can either be bulk subscriptions ordered by schools, or as
individual subscriptions for children to read at home.
C) CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of
the Company and its subsidiary. All significant inter-company
accounts and transactions are eliminated. Management of the
Company has made estimates and assumptions relating to the
reporting of assets and liabilities and disclosure of
contingent liabilities to prepare these financial statements
in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
F-22
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
PRINCIPLES
(Continued)
D) BASIS OF PRESENTATION
Reference is made to the Introduction at page F-16
E) RECLASSIFICATIONS
Certain items from the December 31, 1998 and 1997, audited
financial statements on pages F-2 to F-6 have been
reclassified in the December 31, 1998 and 1997, pro forma,
financial statements to conform to the September 30, 1999 and
1998, unaudited financial statements presented on pages F-17
to F-21
F) PRO FORMA ADJUSTMENT
The pro forma adjustment to the consolidated balance sheet is
to record the recapitalization of stockholders' equity by
adjusting Youthline USA, Inc.
accumulated deficit and S & S Plus, Inc.
common stock and additional paid - in capital.
G) CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
H) ACCOUNTS RECEIVABLE AND REVENUE RECOGNITION
Accounts receivable and revenue recognition consist of
accounts receivable to YouthLine USA. Accounts receivable are
current; accordingly, a provision for bad debt is not
required. The Company's revenues are primarily derived from
the sale of subscriptions.
I) FIXED ASSETS
Computer equipment and furniture and fixtures are depreciated
using the straight-line method over their estimated useful
lives ranging from five to seven years. The costs of additions
and betterment are capitalized, repairs and maintenance costs
are charged to general and administrative expenses.
Organization costs are amortized over a period of five years
on a straight-line basis.
J) EARNINGS PER SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share" discusses the computation and
presentation of earnings per share ("EPS"). Basic EPS, as
defined by SFAS No. 128, is computed by dividing income
available to common shareholders by the weighted average
number of common shares outstanding for the reporting period,
ignoring any potential effects of dilution. Diluted EPS
reflects the potential dilution that would occur if
securities, or other contracts to issue common stock, were
exercised or converted into common stock that then shared in
the earnings of the entity.
F-23
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
PRINCIPLES
(Continued)
K) RECLASSIFICATION
Certain 1997 balances have been reclassified to conform to the
1998 presentation.
L) BUSINESS COMBINATION
In August 1999, the Company acquired all of the outstanding
stock of S&S Plus, Inc., in exchange for the issuance of
5,5000,000 shares of its common stock. The merger constituted
a tax-free reorganization and has been accounted for as
pooling of interests under Accounting Principles Board Opinion
No. 16. Accordingly, all prior period consolidated financial
statements have been restated to include the combined results
of operations, financial position and cash flows of S&S Plus,
Inc. as though it had always been part of the Company. There
were no transactions between S&S Plus, Inc. and the Company
prior to the combination.
M) INCOME TAXES
The Company intends to follow Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for
Income Taxes" when either operations achieve profitability or
the realization of net operating loss benefits can more
readily be measured, whichever occurs first.
N) STOCK BASED COMPENSATION
The Company accounts for stock based compensation using the
fair-value method as prescribed by SFAS No. 123, "Accounting
for Stock-Based Compensation." As permissible under SFAS No.
123, the Company accounts for stock options using the
intrinsic value method as prescribed under Accounting
Principles Board Opinion No. 25.
O) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent liabilities and the
reported amounts of revenues and expenses. Actual results
could differ from estimates.
F-24
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 FIXED ASSETS - OFFICE AND EQUIPMENT SOFTWARE
Office equipment and software consist of the following:
December 31,
1998
------------
Office Equipment $ 23,315
Software 5,394
---------
28,709
Less: Accumulated Depreciation 15,206
---------
Net Book Value $ 13,503
=========
Depreciation expense for the year ended December 31, 1998 and
1997 amounted to $9,471 and $5,734, respectively.
Other Assets and Organization costs consist of the following:
December 31,
1998
------------
Organization Costs $ 5,850
Less: Accumulated Depreciation (1,408)
---------
Net Book Value $ 4,442
=========
Amortization expense for the year ended December 31, 1998 and
1997 amounted to $1,056 and $352, respectively.
NOTE 3 EMPLOYMENT AGREEMENTS
The Company executed two employment contracts on May 28, 1999
with certain senior executives for future services that vary
in length for periods of up to five years. Each employment
contract will call for a base salary of $115,000 with annual
increases of 9% per annum. The contracts also include options
to purchase 10,000 shares of the Company's common stock at a
20% discount off the maximum price per share in the Company's
next private placement. Additionally, the employment contract
also includes a one-time signing bonus equal to $30,000
payable as follows: $10,000 within 30 days of signing the
contract, and the balance of $20,000 payable upon the Company
attaining 10,000 subscribers for a period of two consecutive
months.
NOTE 4 NOTES PAYABLE
On February 1, 1998, the Company issued two promissory notes
in the principal amount of $125,000, payable to Saki Dodelson
(President) and Susan Gertler (Vice-President), aggregating
$250,000. The notes bear interest at an annual rate of 9%,
payable monthly, interest only, until the gross annual sales
of the Company reach $1,000,000; at which point the Company
will begin to repay $15,000 of principle on each note
annually. The accrued interest expense on these notes
aggregated $11,170 through December 31, 1998.
F-25
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 5 LOANS AND EXCHANGES
Certain officers of the Company advanced the Company funds to
meet current operating requirements. The balance outstanding
as of December 31, 1998 was $79,827. During 1999 the Company
repaid $45,000 of such advances. The remaining balance will be
capitalized at December 31, 1999.
NOTE 6 CAPITAL STOCK
Effective March 29, 1999, the Board of Directors declared a
reverse stock split of one thousand shares of common stock for
one common share of the Company's common stock. The effect of
the reverse stock split was to reduce the total outstanding
common shares to 8,200. All references to number of shares,
except shares authorized, and to per share information in the
consolidated financial statements have been adjusted to
reflect the reverse stock split on a retroactive basis, for
all periods presented.
The Company is currently authorized to issue 50,000,000 shares
of its common stock, $.0001par value. As of December 31, 1998
and 1997 there were 8,200 shares of common stock outstanding.
Effective September 30, 1999, there were 10,071,665 shares of
common stock issued and outstanding.
The Company has 5,000,000 authorized shares of preferred
stock, no par value. The Company presently has no issued and
outstanding preferred stock.
NOTE 7 FRESH-START REPORTING
Ult-I-Med's Reorganization Plan under Chapter 11 was confirmed
by the United States Bankruptcy Court for the Northern
District of Texas, Fort Worth Division. The formal
confirmation was entered in January 1996 and the court
consummated the reorganization plan on September 24, 1999.
As a result of the confirmation of the Reorganization Plan,
the Ult-I-Med implemented fresh-start reporting as of
September 24, 1999. Under the provisions of AICPA Statement of
Position 90-7 ("SOP 90-7"), "Financial Reporting by Entities
in Reorganizations under the Bankruptcy Code", the Company was
required to adopt fresh-start reporting upon emergence from
Chapter 11 that resulted in a new reporting entity with no
retained earnings or accumulated deficit as of September 30,
1999.
The Company's Pro Forma Consolidated Balance Sheet as of
December 31, 1998 and September 30, 1999 and 1998 were
prepared as if the Company was a new reporting entity at
December 31, 1996 and reflects certain reorganization
adjustments that include the restatement of assets and
liabilities to approximate fair value and the discharge of
outstanding liabilities relating to creditor claims against
the Company, which have been satisfied primarily by additional
funding through bridge capital. The statement of operations
and the statement of cash flows for the years ended December
31, 1998 and 1997 and the nine months ended September 30, 1999
and 1998 incorporate the effect of fresh-start reporting. The
Company's total secured and unsecured debts resulting from the
bankruptcy aggregated $131,033. As of October 11, 1999, the
Company satisfied all such debts.
F-26
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 8 FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate
the fair value of financial instruments:
CASH AND CASH EQUIVALENTS. The carrying amount reported in the
balance sheet for cash and cash equivalents approximates its
fair value.
ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE. The carrying amount
of accounts receivable and accounts payable in the balance
sheet approximates fair value.
SHORT-TERM AND LONG-TERM DEBT. The carrying amount of the
revolving credit facility approximates fair value. The
carrying amounts of the company's financial instruments at
December 31, 1998 approximate fair value.
NOTE 9 INCOME TAXES
As of December 31, 1998 the Company has no available unused
Federal and State net operating loss carry forwards that may
be applied against future taxable income. Further, since S & S
Plus, Inc was a sub chapter S Corporation prior to the reverse
acquisition, the net operating losses are passes through to
the former stockholders of S & S Plus, Inc., and therefore
cannot be utilized by the Company. Accordingly, no deferred
tax benefit has been recorded in the pro forma consolidated
statements of operations.
NOTE 10 SECURED AND UNSECURED CREDITORS
The Company set up a provision of $131,033 for secured and
unsecured creditors, in accordance with the filing of the
bankruptcy. Ult-I-Med Health Centers, Inc., incurred this
liability prior to December 31, 1996. The liability was
satisfied in September 1999. The current outstanding balance
is zero.
NOTE 11 SUBSEQUENT EVENTS
On February 25, 1999 Shragie Kotler advanced the Company
$30,000, interest free with a maturity date of November 1,
1999.
On March 10, 1999, Robert Dodelson loaned the Company $35,000
at a rate of 7% per annum. The loan is self-amortizing and
includes monthly principle payments of $200 plus interest.
On March 30, 1999 the Company sold 4,400,000 shares of its
common stock for an aggregate price of $44,000.
In August 1999, the Company issued 5,500,000 shares of its
common stock, $.001 par value, in exchange for all the
outstanding stock of S&S Plus, Inc. The consolidated financial
statements have been restated to reflect the effect of the
acquisition of S&S Plus, Inc.
F-27
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 11 SUBSEQUENT EVENTS
(Continued)
On August 19, 1999, the Company entered into an asset purchase
agreement with Therese Sarah for the purchase of the business
name, "Lesson Stop", its web address (WWW.LESSONSTOP.ORG), and
its subscriber list, in exchange for 20,000 shares of common
stock, $.0001 par value per share. The Company did not assume
any liabilities or obligations relating to the purchased
assets.
On August 31, 1999, the Company entered into a bridge
financing agreement aggregating $500,000 (the "Note"). The
note bears interest at 8% per annum, matures on January 19,
2000, and is secured by all assets and properties owned by the
Company. Additionally, in consideration for such financing,
the Company issued 100,000 shares of its $.0001 par value
common stock. In connection with the placement of such
financing, the Company paid a one time fee of $50,000 to Robb
Peck McCooey Clearing Corporation and issued 50,000 warrants.
On September 28, 1999, the Company purchased all the worldwide
rights, title, interest and goodwill from a partnership
composed of R L Ingenious, Inc., and ETC Ingenious Holdings,
Inc., for an aggregate purchase price of $50,000. The assets
consist of all the trademarks and copyrights of Ingenious,
Inc. The Company did not assume any of the liabilities or
obligations relating to the purchased assets.
NOTE 12 COMMITMENTS AND CONTINGENCIES
The Company entered into a five-year lease agreement with
United Securities Services, Inc. The lease currently calls for
monthly rental of $3,515 for approximately 2,280 square feet
of office space located in Lakewood, New Jersey.
At September 30, 1999, the Company is committed to total
minimum rental under all noncancellable operating leases of
$210,900. Generally, these leases include additional charges
for tax escalation and other expenses. The minimum future
rental commitments are payable at $42,180 per year for five
years.
F-28
<PAGE>
YOUTHLINE USA
INTRODUCTION
SEPTEMBER 30, 1999
(UNAUDITED)
The accompanying unaudited financial statements of Youthline USA, Inc.,
(the Company) as of September 30, 1999 and 1998 and for the nine months
then ended, reflect all material adjustments consisting of only normal
recurring adjustments, which in the opinion of management, are necessary
for a fair presentation of results for interim periods. Certain information
and footnote disclosures required under generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission, although the Company
believes that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the audited financial statements for the year ended
December 31, 1998.
The results of operations for the nine months ended September 30, 1999 and
1998 are not necessarily indicative of the results to be expected for the
entire year or any other period.
F-29
<PAGE>
YOUTHLINE USA, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999 (UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $497,378
Accounts Receivable 23,411
--------
TOTAL CURRENT ASSETS 520,789
--------
FIXED ASSETS
Office equipment and software (net of
accumulated depreciation of $20,763) 30,297
--------
OTHER ASSETS
Organization costs (net of
accumulated amortization of $2,287) 3,563
Goodwill 118,500
--------
TOTAL OTHER ASSETS 122,063
--------
TOTAL ASSETS $673,149
========
See accompanying accountants' notes to the
unaudited consolidated financial statements
F-30
<PAGE>
YOUTHLINE USA, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999 (UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 39,075
Unearned Revenue 17,558
Secured and Unsecured Creditors Payable 17,241
Current Portion of Accounts Payable 32,400
---------
TOTAL CURRENT LIABILITIES 106,274
---------
LONG TERM LIABILITIES
Notes Payable 776,759
Loans and Exchanges 27,954
---------
TOTAL LONG TERM LIABILITIES 804,713
---------
TOTAL LIABILITIES 910,987
---------
STOCKHOLDERS' EQUITY:
Common Stock, $.001 par value, 50,000,000 Shares
Authorized; 10,071,665 shares issued and outstanding 1,004
Additional Paid In Capital 759,212
Preferred Stock, No Par Value, 5,000,000 Shares Authorized,
No Shares Outstanding --
Retained Earnings (Deficit) (998,054)
---------
TOTAL STOCKHOLDERS' EQUITY (237,838)
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 673,149
=========
See accompanying accountants' notes to the
unaudited consolidated financial statements
F-31
<PAGE>
YOUTHLINE USA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
1999 1998
------------ ------------
NET SALES $ 94,636 $ 22,029
COST OF GOODS SOLD 112,673 137,354
------------ ------------
GROSS PROFIT (LOSS) (18,037) (115,325)
------------ ------------
OPERATING EXPENSES:
Payroll and Related Costs 179,899 42,090
Selling Expenses 42,900 49,033
Interest Expense (Net of Interest Income) 10,704 16,252
Professional Fees 138,973 8,627
General and Administrative 98,925 17,445
Depreciation and Amortization 6,434 7,897
------------ ------------
TOTAL OPERATING EXPENSES 477,835 141,344
------------ ------------
Loss before provision for income taxes (495,872) (256,669)
PROVISION FOR INCOME TAX -- --
------------ ------------
Net Loss (495,872) (256,669)
============ ============
Loss per Common Share $ (0.05) $ (31.30)
============ ============
Common Shares Outstanding 10,071,665 8,200
============ ============
See accompanying accountants' notes to the
unaudited consolidated financial statements
F-32
<PAGE>
<TABLE>
<CAPTION>
YOUTHLINE USA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
Common Stock Capital
Number of Par in excess of Accumulated
Share Value Par Value Deficit Total
------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 8,200 $ 1 $ 1,182,146 $(1,338,268) $ (156,121)
Contribution to Paid-In-Capital -- -- 103,979 -- 103,979
Net Loss for Period -- -- -- (256,669) (256,669)
----------- ----------- ----------- ----------- -----------
Balance at September 30, 1998 8,200 $ 1 $ 1,286,125 $(1,594,937) $ (308,811)
=========== =========== =========== =========== ===========
Balance at December 31, 1998 8,200 $ 1 $ 1,286,125 $(1,662,103) $ (375,977)
Reverse Merger-Recapitalization -- -- (1,159,921)(2) (1,159,921)(2) --
Exchange of Common Stock 5,500,000 550 499,450 -- 500,000
Sale of Common Stock 4,520,000 452 103,558 -- 104,000
Stock Issued for Services 43,465 1 30,000 -- 30,011
Net Loss for Period -- -- -- (495,872) (495,872)
----------- ----------- ----------- ----------- -----------
Balance at September 30, 1999 10,071,665 $ 1,004 $ 759,212 $ (998,054) $ (237,838)
=========== =========== =========== =========== ===========
</TABLE>
(1) During 1997, officers of the Company contributed $103,979 to the Common
Stock of S & S Plus, Inc.
(2) To restate Common Stock and accumulated deficit of the Company in order to
recapitalize the stockholders' equity as a result of the reverse acquisition
on August 16, 1999. Therefore, the Common Stock of S & S Plus, Inc. with No
Par Value, 1,000 shares authorized and issued is replaced with the Common
Stock of Youthline USA, Inc. with $.0001 Par Value, 50,0000,000 shares
authorized, 5,500,000 shares issued and outstanding, including 8,200 shares
of Common Stock resulting from the reverse stock split. Accordingly, there
were 5,508,200 shares of Common Stock issued and outstanding as of December
31, 1998.
See accompanying accountants' notes to the
unaudited consolidated financial statements
F-33
<PAGE>
<TABLE>
<CAPTION>
YOUTHLINE USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS FROM OPERATIONS $ (495,872) $ (256,669)
Adjustments to reconcile net loss from operations
to net cash used by operating activities:
Depreciation and Amortization Expense 6,434 7,896
Increase in Accounts Receivables (21,577) (20,922)
(Decrease) Increase in Accounts Payable and Accrued Expenses (22,007) 18,429
Increase in Unearned Revenues (7,657) 15,770
Decrease in Unsecured Creditors (113,792) --
----------- -----------
NET CASH USED BY OPERATIONS (654,471) (235,496)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Goodwill (118,500) --
Purchase of Office Equipment (22,349) (2,506)
Organization Costs -- --
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES: (140,849) (2,506)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Notes Payable 559,159 250,000
Decrease in Loans and Exchanges (51,873) (113,975)
Issuance of Shares of Common Stock 786,150 103,979
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,293,436 240,004
----------- -----------
Net Increase in Cash and Cash Equivalents 498,116 2,002
Cash and Cash Equivalents at Beginning of Year (738) 660
----------- -----------
Cash and Cash Equivalents at End of Year $ 497,378 $ 2,662
----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Paid During the Period for
Interest $ 10,462 $ 1,252
=========== ===========
Income Taxes $ 300 $ 300
=========== ===========
See accompanying accountants' notes to the
unaudited consolidated financial statements
</TABLE>
F-34
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
PRINCIPLES
A) BACKGROUND
YouthLine USA, Inc. (the "Company") was incorporated on July
27, 1999 pursuant to the laws of the State of Delaware as the
successor to Ult-I-Med Health Centers, Inc., a Utah
corporation ("Ult-I-Med"), which was incorporated in 1983
under the laws of the State of Utah (originally under the name
Picadilly Technology, Inc.). The Company was organized to
effectuate a reincorporation of Ult-I-Med with and into the
Company on August 16, 1999.
Ult-I-Med was originally organized to engage in the mining of
metalliferous chemicals. In 1988, Ult-I-Med ceased such
activities and began engaging in the business of owning and
operating camping and recreation facilities. In 1991,
Ult-I-Med ceased such activities and began engaging in the
business of owning and operating supervised primary care,
health and rehabilitation centers. In January 1996, Ult-I-Med
filed a Chapter 11 bankruptcy petition. Ult-I-Med liquidated
all of its assets and its plan of reorganization was filed
with the court in February 1998. All of Ult-I-Med debts were
paid subsequent to June 30, 1999, and the court entered a
final decree on September 24, 1999.
REVERSE ACQUISITION
In August 1999, the Company acquired all of the outstanding
capital stock of S&S Plus, Inc., a wholly-owned subsidiary of
the Company which operated the publication of YOUTHLINE USA,
in exchange for the issuance of 5,500,000 shares of its common
stock, representing a majority of the total issued and
outstanding capital stock of the Company. On such date, the
previous management's directors and officers resigned and were
replaced with the current officers and directors.
This exchange has been accounted for as a reverse acquisition,
under the purchase method of accounting, since the former
owners of S & S Plus, Inc. owned a majority of the outstanding
stock of Youthline USA, Inc after the acquisition.
Accordingly, the combination of the two companies is recorded
as recapitalization of shareholders' equity of S & S Plus,
Inc, pursuant to which S & S Plus, Inc. is treated as the
continuing entity for accounting purposes and the historical
financial statements presented are those of S & S Plus, Inc.
INTERIM FINANCIAL STATEMENTS
The accompanying consolidated financial statements (unaudited)
for the nine months ended September 31, 1999 and 1998, have
been prepared in accordance with generally accepted accounting
principles for the interim financial information and, in the
opinion of the Company, include all adjustments, consisting of
normal recurring adjustments, necessary for a fair
presentation thereof.
F-35
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
PRINCIPLES
(Continued)
B) DESCRIPTION OF BUSINESS
The Company, through its wholly owned subsidiary, S & S Plus,
Inc., publishes YOUTHLINE USA, a weekly newspaper written and
designed for children ages 8 through 13. In every respect, it
is similar to an adult newspaper, except that it is written at
the children's level and it filters out news that is not age
appropriate. It is designed to attract and engage the
attention of children within this age range. The Company
generates revenue through the sale of subscriptions,
advertisement space and corporate sponsorships. Subscriptions
can either be bulk subscriptions ordered by schools, or as
individual subscriptions for children to read at home.
C) CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of
the Company and its subsidiary. All significant inter-company
accounts and transactions are eliminated. Management of the
Company has made estimates and assumptions relating to the
reporting of assets and liabilities and disclosure of
contingent liabilities to prepare these financial statements
in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
D) CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
E) ACCOUNTS RECEIVABLE AND REVENUE RECOGNITION
Accounts receivable and revenue recognition consist of
accounts receivable to YouthLine USA. Accounts receivable are
current, accordingly, a provision for bad debt is not
required. The Company's revenues are primarily derived from
the sale of subscriptions.
F) FIXED ASSETS
Computer equipment and furniture and fixtures are depreciated
using the straight-line method over their estimated useful
lives ranging from five to seven years. The costs of additions
and betterment are capitalized, repairs and maintenance costs
are charged to general and administrative expenses.
Organization costs are amortized over a period of five years
on a straight-line basis.
F-36
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
PRINCIPLES
(Continued)
G) EARNINGS PER SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share" discusses the computation and
presentation of earnings per share ("EPS"). Basic EPS, as
defined by SFAS No. 128, is computed by dividing income
available to common shareholders by the weighted average
number of common shares outstanding for the reporting period,
ignoring any potential effects of dilution. Diluted EPS
reflects the potential dilution that would occur if
securities, or other contracts to issue common stock, were
exercised or converted into common stock that then shared in
the earnings of the entity.
H) RECLASSIFICATION
Certain 1997 balances have been reclassified to conform to the
1998 presentation.
I) INCOME TAXES
The Company intends to follow Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for
Income Taxes" when either operations achieve profitability or
the realization of net operating loss benefits can more
readily be measured, whichever occurs first.
J) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent liabilities and the
reported amounts of revenues and expenses. Actual results
could differ from estimates.
F-37
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
NOTE 2 FIXED ASSETS - OFFICE AND EQUIPMENT SOFTWARE
Office equipment and software consist of the following:
September 30,
1998
-------------
Office Equipment $ 45,666
Software 5,394
---------
51,060
Less: Accumulated Depreciation (20,763)
---------
Net Book Value $ 30,297
=========
Depreciation expense for the nine months ended September 30,
1999 and 1998 amounted to $5,556 and $7,104, respectively.
Other Assets and Organization costs consist of the following:
September 30,
1998
-------------
Organization Costs $ 5,850
Less: Accumulated Depreciation (2,287)
---------
Net Book Value $ 3,563
=========
Amortization expense for the year ended September 30, 1999 and
1998 amounted to $878 for each period.
NOTE 3 EMPLOYMENT AGREEMENTS
The Company executed two employment contracts on May 28, 1999
with certain senior executives for future services that vary
in length for periods of up to five years. Each employment
contract will call for a base salary of $115,000 with annual
increases of 7% per annum. The contracts also include options
to purchase 10,000 shares of the Company's common stock at a
20% discount off the maximum price per share in the Company's
next private placement. Additionally, the employment contract
also includes a one-time signing bonus equal to $30,000
payable as follows: $10,000 within 30 days of signing the
contract, and the balance of $20,000 payable upon the Company
attaining 10,000 subscribers for a period of two consecutive
months.
F-38
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
NOTE 4 NOTES PAYABLE
A) On February 1, 1998, the Company issued two
promissory notes in the principal amount of $125,000,
payable to Saki Dodelson (President) and Susan
Gertler (Vice-President), aggregating $250,000. The
notes bear interest at an annual rate of 9%, payable
monthly. Principle repayment will be deferred until
the gross annual sales of the Company reach
$1,000,000; at which point the Company will repay
$15,000 of principle on each note annually. The
accrued interest payable on these notes aggregated
$24,400 through September 30, 1999.
B) On February 25, 1999 Shragie Kotler advanced the
Company $30,000, interest free with a maturity date
of November 1, 1999.
C) On March 10, 1999, Robert Dodelson loaned the Company
$35,000 at a rate of 7% per annum. The loan is self
amortizing and includes monthly principle payments of
$200 plus interest.
NOTE 5 LOANS AND EXCHANGES
Certain officers of the Company advanced the Company funds to
meet current operating requirements. The balance outstanding
as of September 30, 1999 was $27,954.
NOTE 6 CAPITAL STOCK
Effective March 29, 1999, the Board of Directors declared a
reverse stock split of one thousand shares of common stock for
one common share of the Company's common stock. The effect of
the reverse stock split was to reduce the total outstanding
common shares to 8,200. All references to number of shares,
except shares authorized, and to per share information in the
consolidated financial statements have been adjusted to
reflect the stock split on a retroactive basis, for all
periods presented.
The Company is currently authorized to issue 50,000,000 shares
of its common stock, $.0001 par value. Effective September 30,
1999, there were 10,071,665 shares of common stock issued and
outstanding.
The Company has 5,000,000 authorized shares of preferred
stock, no par value. The Company presently has no issued and
outstanding preferred stock.
On March 30, 1999, the Company completed a self underwritten
Regulation "D" private placement offering of 4,400,000 shares
of its common stock at $.01 per share for an aggregate price
of $44,000.
In August 1999, the Company issued 5,500,000 shares of its
common stock, $.001 par value, in exchange for all the
outstanding stock of S&S Plus, Inc. The consolidated financial
statements have been restated to reflect the effect of the
acquisition of S&S Plus, Inc.
F-39
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
NOTE 6 CAPITAL STOCK
(Continued)
On August 19, 1999, the Company entered into an asset purchase
agreement with Therese Sarah for the purchase of the business
name, "Lesson Stop", its web address (WWW.LESSONSTOP.ORG), and
its subscriber list, in exchange for 20,000 shares of common
stock, $.0001 par value per share. The Company did not assume
any liabilities or obligations relating to the purchased
assets.
On August 31, 1999, the Company entered into a bridge
financing agreement aggregating $500,000 (the "Note"). The
note bears interest at 8% per annum, matures on January 19,
2000, and is secured by all assets and properties owned by the
Company. Additionally, in consideration for such financing,
the Company issued 100,000 shares of its $.0001 par value
common stock. In connection with the placement of such
financing, the Company agrees to pay a one time fee of $50,000
to Robb Peck McCooey Clearing Corporation and issue 50,000
warrants.
On September 28, 1999, the Company purchased all the worldwide
rights, title, interest and goodwill from a partnership
composed of R L Ingenious, Inc., and ETC Ingenious Holdings,
Inc., for an aggregate purchase price of $50,000. The assets
consist of all the trademarks and copyrights of Ingenious,
Inc. The Company did not assume any of the liabilities or
obligations relating to the purchased assets.
NOTE 7 FRESH-START REPORTING
Youthline USA, Inc's. Reorganization Plan under Chapter 11 was
confirmed by the United States Bankruptcy Court for the
Northern District of Texas, Fort Worth Division. The formal
confirmation was entered in January 1996 and the court
consummated the reorganization plan on September 24, 1999.
As a result of the confirmation of the Reorganization Plan,
the Company implemented fresh-start reporting as of September
24, 1999. Under the provisions of AICPA Statement of Position
90-7 ("SOP 90-7"), "Financial Reporting by Entities in
Reorganizations under the Bankruptcy Code", the Company was
required to adopt fresh-start reporting upon emergence from
Chapter 11 that resulted in a new reporting entity with no
retained earnings or accumulated deficit as of September 30,
1999.
The Company's Consolidated Balance Sheets as of September 30,
1999 were prepared as if the Company was a new reporting
entity at December 31, 1996 and reflects certain
reorganization adjustments that include the restatement of
assets and liabilities to approximate fair value and the
discharge of outstanding liabilities relating to creditor
claims against the Company, which have been satisfied
primarily by additional funding through bridge capital. The
statement of operations and the statement of cash flows for
the nine months ended September 30, 1999 and 1998 incorporate
the effect of fresh-start reporting. The Company's total
secured and unsecured debts resulting from the bankruptcy
aggregated $131,033. As of October 11, 1999, the Company has
satisfied all debts.
F-40
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
NOTE 8 FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate
the fair value of financial instruments:
CASH AND CASH EQUIVALENTS. The carrying amount reported in the
balance sheet for cash and cash equivalents approximates its
fair value.
ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE. The carrying amount
of accounts receivable and accounts payable in the balance
sheet approximates fair value.
SHORT-TERM AND LONG-TERM DEBT. The carrying amount of the
revolving credit facility approximates fair value. The
carrying amounts of the company's financial instruments at
December 31, 1998 approximate fair value with the exception of
the interest rate swap agreement.
NOTE 9 INCOME TAXES
As of December 31, 1998 the Company has no available unused
Federal and State net operating loss carry forwards that may
be applied against future taxable income. Further, since S & S
Plus, Inc was a sub chapter S Corporation prior to the reverse
acquisition, the net operating losses are passes through to
the former stockholders of S & S Plus, Inc., and therefore
cannot be utilized by the Company. Accordingly, no deferred
tax benefit has been recorded in the consolidated statements
of operations.
NOTE 10 SECURED AND UNSECURED CREDITORS
The Company set up a provision of $131,033 for secured and
unsecured creditors, in accordance with the filing of the
bankruptcy. Ult-I-Med Health Centers, Inc., incurred this
liability prior to December 31, 1996. The liability was
satisfied in October 1999. The current outstanding balance is
zero.
NOTE 11 COMMITMENTS AND CONTINGENCIES
The Company entered into a five-year lease agreement with
United Securities Services, Inc. The lease currently calls for
monthly rental of $3,515 for approximately 2,280 square feet
of office space located in Lakewood, New Jersey.
At September 30, 1999, the Company is committed to total
minimum rental under all noncancellable operating leases of
$210,900. Generally, these leases include additional charges
for tax escalation and other expenses. The minimum future
rental commitments are payable at $42,180 per year for five
years.
F-41
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
YOUTHLINE USA, INC.
By: /s/ SAKI DODELSON
-----------------------------------------
Name: Saki Dodelson
Title: President, Treasurer and Director
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Signature Title Date
--------- ----- ----
/s/ JACOB Y. "ROCKY" STEFANSKY Chairman of the Board December 29, 1999
- ------------------------------ of Directors
Jacob Y. "Rocky" Stefansky
/s/ SAKI DODELSON President, Treasurer and December 29, 1999
- ------------------------------ Director
Saki Dodelson
/s/ SUSAN GERTLER Vice President, Secretary December 29, 1999
- ------------------------------ and Director
Susan Gertler
/s/ EMANUEL YARMISH Director December 29, 1999
- ------------------------------
Emanuel Yarmish
/s/ DAVID STEFANSKY Director December 29, 1999
- ------------------------------
David Stefansky
/s/ ASHER LOW Director December 29, 1999
- ------------------------------
Asher Low
CERTIFICATE OF INCORPORATION
OF
YOUTHLINE USA, INC.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified, and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is YOUTHLINE USA, INC.
SECOND: The address, including street, number, city, and county, of
the registered office of the corporation in the State of Delaware is Corporation
Service Company, 1013 Centre Road, in the City of Wilmington, County of New
Castle; and the name of the registered agent of the corporation in the State of
Delaware at such address is Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH:
(a) The total number of shares of capital stock which the
Corporation shall have authority to issue is 55,000,000, 50,000,000 of which are
common shares, par value $.0001 per share, each entitled to one vote per share,
and 5,000,000 of which are preferred shares, par value $.0001 per share.
The shares of Preferred Stock may be issued from time to time in one or
more series, in any manner permitted by law, as determined from time to time by
the Board of Directors, and stated in the resolution or resolutions providing
for the issuance of such shares adopted by the Board of Directors pursuant to
authority hereby vested in it. Without limiting the generality of the foregoing,
shares in such series shall have such voting powers, full or limited, or no
voting powers, and shall have such designations, preferences and relative,
participating, optional, or other special rights, and qualifications,
limitations, or restrictions thereof, permitted by law, as shall be stated in
the resolution or resolutions providing for the issuance of such shares adopted
by the Board of Directors pursuant to authority hereby vested in it. The number
of shares of any such series so set forth in such resolution or resolutions may
be increased (but not above the total number of authorized shares of Preferred
-1-
<PAGE>
Stock) or decreased (but not below the number of shares thereof then
outstanding) by further resolution or resolutions adopted by the Board of
Directors pursuant to authority hereby vested in it.
No holder of any of the shares of the stock of the Corporation, whether
now or hereafter authorized and issued, shall be entitled as of right to
purchase or subscribe for any unissued stock of any class, or any additional
shares of any class to be issued by reason of any issuances of capital stock of
the Corporation or any increase of the authorized capital stock of any class of
the Corporation, or bonds, certificates of indebtedness, debentures, or other
securities convertible into stock of any class of the Corporation, or carrying
any right to purchase stock of any class of the Corporation, but any such
unissued stock or any such additional authorized issue of any stock or of other
securities convertible into stock, or carrying any right to purchase stock, may
be issued and disposed of pursuant to resolution of the Board of Directors to
such persons, firms, corporations, or associations, and upon such terms, as may
be deemed advisable by the Board of Directors in the exercise of its discretion.
FIFTH: The name and the mailing address of the incorporator are as
follows:
NAME MAILING ADDRESS
Stuart Neuhauser Berlack, Israels & Liberman LLP
120 West 45th Street
New York, New York 10036
SIXTH: The corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between
this Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
ss.291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
ss.279 of Title 8 of the Delaware Code order a meeting of the creditors or class
of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
-2-
<PAGE>
EIGHTH: For the management of the business and for the conduct of
the affairs of the Corporation, and in further definition, limitation, and
regulation of the powers of the Corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by, or in the
manner provided in, the Bylaws, but shall always equal or exceed three (3)
members. The phrase "whole Board" and the phrase "total number of directors"
shall be deemed to have the same meaning, to wit, the total number of directors
which the corporation would have if there were no vacancies. No election of
directors need be by written ballot.
2. After the original or other Bylaws of the Corporation have been
adopted, amended, or repealed, as the case may be, in accordance with the
provisions of ss.109 of the General Corporation Law of the State of Delaware,
and, after the Corporation has received any payment for any of its stock, the
power to adopt, amend, or repeal the Bylaws of the Corporation may be exercised
by the Board of Directors of the Corporation; provided, however, that any
provision for the classification of directors of the Corporation for staggered
terms pursuant to the provisions of subsection (d) of ss.141 of the General
Corporation Law of the State of Delaware shall be set forth in an initial Bylaw
or in a Bylaw adopted by the stockholders entitled to vote of the Corporation
unless provisions for such classification shall be set forth in this certificate
of incorporation.
3. Whenever the Corporation shall be authorized to issue only one class
of stock, each outstanding share shall entitle the holder thereof to notice of,
and the right to vote at, any meeting of stockholders. Whenever the Corporation
shall be authorized to issue more than one class of stock, no outstanding share
of any class of stock which is denied voting power under the provisions of the
certificate of incorporation shall entitle the holder thereof to the right to
vote at any meeting of stockholders except as the provisions of paragraph (2) of
subsection (b) of ss.242 of the General Corporation Law of the State of Delaware
shall otherwise require; provided, that no share of any such class which is
otherwise denied voting power shall entitle the holder thereof to vote upon the
increase or decrease in the number of authorized shares of said class.
NINTH: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by the provisions of paragraph
(7) of subsection (b) of ss.102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
TENTH: The Corporation shall, to the fullest extent permitted by the
provisions of ss.145 of the General Corporation Law of the State of Delaware, as
the same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and all of
the expenses, liabilities, or other matters referred to in or covered by said
-3-
<PAGE>
section which may be incurred by or asserted against such persons by reason of
any action taken or entitled to be taken on behalf of the Corporation and in
furtherance of its interests, and the indemnification provided for herein shall
continue as to a person who has ceased to be a director, officer, employee, or
agent and shall inure to the benefit of the heirs, executors, and administrators
of such a person.
ELEVENTH: From time to time any of the provisions of this
certificate of incorporation may be amended, altered, or repealed, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted in the manner and at the time prescribed by said laws,
and all rights at any time conferred upon the stockholders of the corporation by
this certificate of incorporation are granted subject to the provisions of this
Article ELEVENTH.
Signed on July 27, 1999.
/s/ Stuart Neuhauser
----------------------------
STUART NEUHAUSER
Incorporator
-4-
CERTIFICATE OF MERGER
OF
ULT-I-MED HEALTH CENTERS, INC.
(A UTAH CORPORATION)
AND
YOUTHLINE USA, INC.
(A DELAWARE CORPORATION)
It is hereby certified that:
1. The constituent business corporations participating in the merger
herein certified are :
(i) Ult-I-Med Health Centers, Inc., which is incorporated under the
laws of the State of Utah ("Ult-I-Med"); and
(ii) Youthline USA, Inc., which is incorporated under the laws of
the State of Delaware ("Youthline").
2. An Agreement and Plan of Merger has been approved, adopted,
certified, executed and acknowledged by each of the aforesaid constituent
corporations in accordance with the provisions of subsection (c) of Section 252
of the General Corporation Law of the State of Delaware, to wit, by Ult-I-Med in
accordance with the State of its incorporation and by Youthline the same manner
as is provided in Section 251 of the General Corporation Law of the State of
Delaware.
3. The name of the surviving corporation in the merger herein certified
is Youthline USA, Inc., which will continue its existence as said surviving
corporation under its present name upon the effective date of said merger
pursuant to the provisions of the General Corporation Law of the State of
Delaware.
4. The Certificate of Incorporation of Youthline, as now in force and
effect, shall continue to be the Certificate of Incorporation of said surviving
corporation until amended and changed pursuant to the provisions of the General
Corporation Law of the State of Delaware.
5. The executed Agreement and Plan of Merger between the aforesaid
constituent corporations is on file at the principal place of business of the
aforesaid surviving corporation, the address of which is as follows:
288 Forrest Avenue
Lakewood, NJ 08701
<PAGE>
6. A copy of the aforesaid Agreement and Plan of Merger will be
furnished by the aforesaid surviving corporation, on request, and without cost,
to any stockholder of each of the aforesaid constituent corporations.
7. The authorized capital stock of Ult-I-Med consists of 50,000,000
shares with $.001 par value.
Dated: August 16, 1999
ULT-I-MED HEALTH CENTERS, INC.
By:
---------------------------------------
Name:
Title:
Dated: August 16, 1999
YOUTHLINE USA, INC.
By:
--------------------------------------
Name:
Title:
ARTICLES OF MERGER
OF
ULT-I-MED HEALTH CENTERS, INC.
AND
YOUTHLINE USA, INC.
To the Division of Corporations and Commercial Code
State of Utah
Pursuant to the provisions of Utah Revised Business Corporation Act,
the domestic business corporation and the foreign business corporation
hereinafter named do hereby adopt the following Articles of Merger.
1. Annexed hereto and made a part hereof is the Plan of Merger for
merging Ult-I-Med Health Centers, Inc. (Ult-I-Med") with and into Youthline USA,
Inc. ("Youthline"), as adopted by resolution adopted at a meeting by the Board
of Directors of Ult-I-Med on August 2, 1999 and by resolution adopted at a
meeting by the Board of Directors of Youthline on August 2, 1999.
2. With regard to Ult-I-Med, the designation, the number of outstanding
shares, and the number of votes entitled to be cast by the sole voting group
entitled to vote on the Plan of Merger, are as follows:
(a) Designation of shares of voting group: Common Stock
(b) Number of outstanding shares of voting group: 9,908,200
(c) Number of votes of voting group entitled to be cast on the Plan of
Merger: 9,908,200
3. With regard to Ult-I-Med, the total number of votes cast for and
against the Plan of Merger by the sole voting group entitled to vote separately
on the Plan of Merger is as follows:
(a) Designation of shares of voting group: Common Stock
(b) Number of votes of voting group cast for the Plan of Merger:
5,900,000
(c) Number of votes of voting group cast against the Plan of Merger:
None
<PAGE>
4. The said number of votes cast for the Plan of Merger was sufficient
for the approval thereof by, the said voting group.
5. The merger of Ult-I-Med with and into Youthline is permitted by the
laws of the jurisdiction of organization of Youthline and has been authorized in
compliance with said laws.
6. The address of the principal office of Youthline within or without
the State of Utah at which Youthline has authorized process to be served upon it
by registered or certified mail return receipt requested is as follows:
Youthline USA, Inc., c/o Corporation Service Company, 1013 Centre Road,
Wilmington, Delaware 19805.
7. The effective time and date of the merger herein provided for in the
State of Utah shall be the date of filing of the Articles of Merger.
Executed on August 16, 1999
ULT-I-MED HEALTH CENTERS, INC.
By:
---------------------------------
Name:
Title:
YOUTHLINE USA, INC.
By:
---------------------------------
Name:
Title:
PLAN OF MERGER
PLAN OF MERGER adopted by Ult-I-Med Health Centers, Inc., a business
corporation organized under the laws of the State of Utah, and by its Board of
Directors on August 2, 1999 ("Ult-I-Med"), and adopted by Youthline USA, Inc., a
business corporation organized under the laws of the State of Delaware, and by
its Board of Directors on August 2, 1999 ("Youthline").
1. Ult-I-Med and Youthline shall pursuant to the provisions of the Utah
Revised Business Corporation Act and the provisions of the laws of the
jurisdiction of organization of Youthline, be merged with and into a single
corporation, to wit, Youthline, which shall be the surviving corporation upon
the effective date of the merger and which is sometimes hereinafter referred to
as the "surviving corporation", and which shall continue to exist as said
surviving corporation under its present name pursuant to the provisions of the
laws of the jurisdiction of its organization. The separate existence of
Ult-I-Med, which is sometimes hereinafter referred to as the "non-surviving
corporation", shall cease upon the effective date of the merger in accordance
with the provisions of the Utah Revised Business Corporation Act.
2. The certificate of incorporation of the surviving corporation upon
the effective date of the merger in the jurisdiction of its organization shall
be the certificate of incorporation of said surviving corporation; and said
certificate of incorporation shall continue in full force and effect until
amended and changed in the manner prescribed by the provisions of the laws of
the jurisdiction of organization of the surviving corporation.
3. The by-laws of the surviving corporation upon the effective date of
the merger in the jurisdiction of its organization will be the by-laws of said
surviving corporation and will continue in full force and effect until changed,
altered, or amended as therein provided and in the manner prescribed by the
provisions of the laws of the jurisdiction of its organization.
4. The directors and officers in office of the surviving corporation
upon the effective date of the merger in the jurisdiction of its organization
shall be the members of the first Board of Directors and the first officers of
the surviving corporation, all of whom shall hold their directorships and
offices until the election and qualification of their respective successors or
until their tenure is otherwise terminated in accordance with the by-laws of the
surviving corporation.
5. Each issued share of the non-surviving corporation immediately prior
to the effective time and date of the merger shall, at the effective date and
time of the merger be converted into one (1) share of the surviving corporation.
The issued shares of the surviving corporation shall not be converted or
exchanged in any manner, but each said share which is issued as of the effective
date and time of the merger shall continue to represent one issued share of the
surviving corporation.
6. The Plan of Merger herein made and approved shall be submitted to
the shareholders of the non-surviving corporation for their approval or
rejection in the manner prescribed by the provisions of the Utah Revised
-1-
<PAGE>
Business Corporation Act, and the merger of the non-surviving corporation with
and into the surviving corporation shall be authorized in the manner prescribed
by the laws of the jurisdiction of organization of the surviving corporation.
7. In the event that the Plan of Merger shall have been approved by the
shareholders entitled to vote of the non-surviving corporation in the manner
prescribed by the provisions of the Utah Revised Business Corporation Act, and
in the event that the merger of the non-surviving corporation with and into the
surviving corporation shall have been duly authorized in compliance with the
laws of the jurisdiction of organization of the surviving corporation, the
non-surviving corporation and the surviving corporation hereby stipulate that
they will cause to be executed and filed and/or recorded any document or
documents prescribed by the laws of the State of Utah and of the State of
Delaware, and that they will cause to be performed all necessary acts therein
and elsewhere to effectuate the merger.
8. The Board of Directors and the proper officers of the non-surviving
corporation and of the surviving corporation, respectively, are hereby
authorized, empowered and directed to do any and all things, and to make,
execute, deliver, file, and/or record any and all instruments, papers, and
documents which shall be or become necessary, proper, or convenient to carry out
or put into effect any of the provisions of this Plan of Merger or of the merger
herein provided for.
-2-
BY-LAWS
OF
YOUTHLINE USA, INC.
(A DELAWARE CORPORATION)
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock in
the corporation shall be signed by, or in the name of, the corporation by the
Chairman or Vice-Chairman of the Board of Directors, if any, or by the President
or a Vice-President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the corporation. Any or all the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon or registration of transfer of any
shares of stock of any class or series shall be noted conspicuously representing
such shares.
The corporation may issue a new certificate of stock or uncertificated
shares in place of any certificate theretofore issued by it, alleged to have
been lost, stolen, or destroyed, and the Board of Directors may require the
owner of the lost, stolen, or destroyed certificate, or his legal
representative, to give the corporation a bond sufficient to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss, theft, or destruction of any such certificate or the issuance of
any such new certificate or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the
General Corporation Law, the Board of Directors of the corporation may provide
by resolution or resolutions that some or all of any or all classes or series of
the stock of the corporation shall be uncertificated shares. Within a reasonable
time after the issuance or transfer of any uncertificated shares, the
corporation shall send to the registered owner thereof any written notice
prescribed by the General Corporation Law.
3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall arrange for the disposition of fractional
-1-
<PAGE>
interests by those entitled thereto, pay in cash the fair value of fractions of
a share as of the time when those entitled to receive such fractions are
determined, or issue scrip or warrants in registered form (either represented by
a certificate or uncertificated) or bearer form (represented by a certificate)
which shall entitle the holder to receive a full share upon the surrender of
such scrip or warrants aggregating a full share. A certificate for a fractional
share or an uncertificated fractional share shall, but scrip or warrants shall
not unless otherwise provided therein, entitle the holder to exercise voting
rights, to receive dividends thereon, and to participate in any of the assets of
the corporation in the event of liquidation. The Board of Directors may cause
scrip or warrants to be issued subject to the conditions that they shall become
void if not exchanged for certificates representing the full shares or
uncertificated full shares before a specified date, or subject to the conditions
that the shares for which scrip or warrants are exchangeable may be sold by the
corporation and the proceeds thereof distributed to the holders of scrip or
warrants, or subject to any other conditions which the Board of Directors may
impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and, in the case of shares represented by certificates, on
surrender of the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty nor less than ten days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which the meeting is held. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting. In order that the corporation
may determine the stockholders entitled to consent to corporate action in
writing without a meeting, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which date shall not be
more than ten days after the date upon which the resolution fixing the record
date is adopted by the Board of Directors. If no record date has been fixed by
the Board of Directors, the record date for determining the stockholders
entitled to consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is required by the General Corporation
Law, shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the corporation by delivery
to its registered office in the State of Delaware, its principal place of
business, or an officer or agent of the corporation having custody of the book
in which proceedings of meeting of stockholders are recorded. Delivery made to
the corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required by
-2-
<PAGE>
the General Corporation Law, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action. In order that the corporation may determine
the stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or the stockholders entitled to exercise
any rights in respect of any change, conversion, or exchange of stock, or for
the purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted, and which record date shall be not more than
sixty days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock and said reference is also intended to include any outstanding share or
shares of stock or any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such rights
notwithstanding that the certificate of incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; provided, however, that no such right shall vest
in the event of an increase or a decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting rights under the
provisions of the certificate of incorporation, except as any provision of law
may otherwise require.
7. STOCKHOLDER MEETINGS
- TIME. The annual meeting shall be held on the date and at the time
fixed, from time to time, by the directors, provided, that the first annual
meeting shall be held on a date within thirteen months after the organization of
the corporation, and each successive annual meeting shall be held on a date
within thirteen months after the date of the preceding annual meeting. A special
meeting shall be held on the date and at the time fixed by the directors.
- PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of Delaware, as the directors may, from time
to time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
- CALL. Annual meetings and special meetings may be called by the
directors or by any officer instructed by the directors to call the meeting or
by the holders of at least 25% of the outstanding Common Stock in the aggregate.
-3-
<PAGE>
- NOTICE OR WAIVER OF NOTICE. Written notice of all meeting shall be
given, stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholder of the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information, or documents prescribed
by the General Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be given, personally
or by mail, not less than ten days nor more than sixty days before the date of
the meeting, unless the lapse of the prescribed period of time shall have been
waived, and directed to each stockholder at his record address or at such other
address which may have been furnished by request in writing to the Secretary of
the corporation. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in the United States Mail. If a meeting is adjourned to
another time, not more than thirty days hence, and/or to another place, and if
an announcement of the adjourned time and/or place is made at the meeting, it
shall not be necessary to give notice of the adjourned meeting unless the
directors, after adjournment, fix a new record date for the adjourned meeting.
Notice need not be given to any stockholder who submits a written waiver of
notice signed by him before or after the time stated therein. Attendance of a
stockholder at a meeting of stockholder shall constitute a waiver of notice of
such meeting, except when the stockholder attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice.
- STOCKHOLDER LIST. The officer who has charge of the stock ledger
of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city or other municipality or community
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
- CONDUCT OF MEETING. Meetings of the stockholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting - the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, the President, a Vice-President, or, if none of the foregoing is in
office and present and acting, by a chairman to be chosen by the stockholders.
-4-
<PAGE>
The Secretary of the corporation, or in his absence, an Assistant Secretary,
shall act as secretary of every meeting, but if neither the Secretary nor an
Assistant Secretary is present the Chairman of the meeting shall appoint a
secretary of the meeting.
- PROXY REPRESENTATION. Every stockholder may authorize another
person or persons to act for him by proxy in all matters in which a stockholder
is entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
- INSPECTORS. The directors, in advance of any meeting, may, but
need not, appoint one or more inspectors of election to act at the meeting or
any adjournment thereof. If an inspector or inspectors are not appointed, the
person presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the directors in
advance of the meeting or at the meeting by the person presiding thereat. Each
inspector, if any, before entering upon the discharge of his duties, shall take
and sign an oath faithfully to execute the duties of inspectors at such meeting
with strict impartiality and according to the best of his ability. The
inspectors, if any, shall determine the number of shares of stock outstanding
and the voting power of each, the shares of stock represented at the meeting,
the existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots, or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots, or consents, determine the result, and do such acts as are proper to
conduct the election or vote with fairness to all stockholders. On request of
the person presiding at the meeting, the inspector or inspectors, if any, shall
make a report in writing of any challenge, question, or matter determined by him
or them and execute a certificate of any fact found by him or them. Except as
otherwise required by subsection (e) of Section 231 of the General Corporation
Law, the provisions of that Section shall not apply to the corporation.
- QUORUM. The holders of a majority of the outstanding shares of
stock shall constitute a quorum at a meeting of stockholders for the transaction
of any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
- VOTING. Each share of stock shall entitle the holder thereof to
one vote. Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. Any other action shall be authorized by a majority of
the votes cast except where the General Corporation Law prescribes a different
percentage of votes and/or a different exercise of voting power, and except as
may be otherwise prescribed by the provisions of the certificate of
incorporation and these By-laws or by any shareholders or other agreement to
which the Corporation is a party. In the election of directors, and for any
other action, voting need not by ballot.
-5-
<PAGE>
8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of there taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing. Action taken pursuant to this paragraph shall be
subject to the provisions of Section 228 of the General Corporation Law.
ARTICLE II
DIRECTORS
1. FUNCTION AND DEFINITION. The business and affairs of the corporation
shall be managed by or under the direction of the Board of Directors of the
corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the corporation would have if
there were no vacancies.
2. QUALIFICATIONS AND NUMBERS. A director need not be a stockholder or
a resident of the State of Delaware. The initial Board of Directors shall
consist of 3 persons. Thereafter the number of directors constituting the whole
board shall be at least two. Subject to the foregoing limitation and except for
the first Board of Directors, such number may be fixed from time to time by
action of the stockholders or of the directors, or, if the number is not fixed,
the number shall be 3. The number of directors may be increased or decreased by
action of the stockholders or of the directors.
3. ELECTION AND TERM. The first Board of Directors, unless the members
thereof shall have been named in the certificate of incorporation, shall be
elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
at any time upon written notice to the corporation. Thereafter, directors who
are elected at an annual meeting of stockholders, and directors who are elected
in the interim to fill vacancies and newly created directorships, shall hold
office until the next annual meeting of stockholders and until their successors
are elected and qualified or until their earlier resignation or removal. Except
as the General Corporation Law may otherwise require, in the interim between
annual meetings of stockholders or of special meetings of stockholders called
for the election of directors and/or for the removal of one or more directors
and for the filling of any vacancy in that connection, newly created
directorships and any vacancies in the Board of Directors, including unfilled
vacancies resulting from the removal of directors for cause or without cause,
may be filled by the vote of a majority of the remaining directors then in
office, although less than a quorum, or by the sole remaining director.
-6-
<PAGE>
4. MEETINGS.
- TIME. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble.
- PLACE. Meetings shall be held at such place within or without the
State of Delaware as shall be fixed by the Board.
- CALL. No call shall be required for regular meetings for which
time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the board, if any, the Vice-Chairmen of the Board,
if any, or the President, or by or at the direction of a majority of the
directors in office.
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be
required for regular meetings for which the time and place have been fixed.
Written, oral, or any other mode of notice of the time and place shall be given
for special meetings in sufficient time for the convenient assembly of the
directors thereat. Notice need not be given to any directors or to any member of
a committee of directors who submits a written waiver of notice signed by him
before or after the time stated herein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
- QUORUM AND ACTION. A majority of the whole Board shall constitute
a quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided, that
such majority shall constitute at least one-third of the whole Board. A majority
of the directors present, whether or not a quorum is present, may adjourn a
meeting to another time and place. Except as herein otherwise provided, and
except as otherwise provided by the General Corporation Law, the vote of the
majority of directors present at a meeting at which a quorum is present shall be
the act of the Board. The quorum and voting provisions herein stated shall not
be construed as conflicting with any provisions of the General Corporation Law
and these Bylaws which govern a meeting of directors held to fill vacancies and
newly created directorships in the Board or action of disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
- CHAIRMAN OF THE MEETING. The Chairmen of the Board, if any and if
present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman
-7-
<PAGE>
of the Board, of any and if present and acting, or the President, if present and
acting, or any other director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the
General Corporation Law, or any shareholders or other agreement to which the
Corporation is a party, any directors or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
6. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation with the exception of
any authority of the Board of Directors in the management of the business and
affairs of the corporation with the exception of any authority the delegation of
which is prohibited by Section 141 of the General Corporation Law, and may
authorize the seal of the corporation to be affixed to all papers which may
require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee, as the case may be, may be
taken by the directors in lieu of any meeting, by the consent thereto in
writing, signed by all of the directors, and the writing, and the writing or
writings, are filed with the minutes of proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a President, a
Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the
Board of Directors, a Chairman of the Board, an Executive Vice President, one or
more other Vice-Presidents, one or more Assistant Secretaries, one or more
Assistant Treasurers, and such other officers with such titles as the resolution
of the Board of Directors choosing them shall designate. Except as may otherwise
be provided in the resolution of the Board of Directors choosing him, no officer
other than the Chairman or Vice Chairman of the Board if any, need be a
director. Any number of offices may be held by the same person, as the directors
may determine.
-8-
<PAGE>
ARTICLE IV
INDEMNIFICATION
The Corporation shall (a) indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit, (b) indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or served at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with any such action, suit or proceeding, in each case to
the fullest extent permissible under subsections (a) through (f) of Section 145
of General Corporation Law of the State of Delaware or the indemnification
provisions of any successor statute and (c) advance reasonable and necessary
expenses in connection with such actions or suits, and not seek reimbursement of
such expenses unless there is a specific determination by a court having
competent jurisdiction that the officer or director is not entitled to such
indemnification. The foregoing right of indemnification shall in no way be
exclusive of any other rights of indemnification to which any such persons may
be entitled, under any by-law, agreement, vote of shareholders or disinterested
directors or otherwise, and shall inure to the benefit of such person and the
heirs, executors and administrators of such a person.
ARTICLE V
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors
shall prescribe.
ARTICLE VI
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject
to change, by the Board of Directors.
-9-
<PAGE>
CONTROL OVER BYLAWS
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Law, the power to amend, alter, or repeal
these Bylaws and to adopt new Bylaws may be exercised by the Board of Directors
or by the stockholders.
-10-
-------------------------- --------------------------
No.
-------------------------- --------------------------
YOUTHLINE USA, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
- --------------------------------------------------------------------------------
THIS
CERTIFIES
that
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE $.0001 PAR VALUE COMMON STOCK OF
YOUTHLINE USA, INC.
transferable only on the books of the corporation by the holder hereof in person
or by a duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate and the shares represented hereby are issued and
shall be held subject to all of the provisions of the Certificate of
Incorporation and By-Laws of the Corporation and all amendments thereto, copies
of which are on file with the corporation, to all of which the holder of this
certificate, by acceptance hereof, assents.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by the signature of its duly authorized officers.
Dated:
By BY
/s/ SAKI DODELSON /s/ SUSAN GERTLER
- ------------------------- ------------------------------
Saki Dodelson, President Susan Gertler, Secretary
<PAGE>
YOUTHLINE USA, INC.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common. UNIF GIFT MIN
TEN ENT - as tenants by the entireties ACT - ______ Custodian ______
JT TEN - as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform Gifts to Minor Act
in common
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS,
INCLUDING POSTAL ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- Shares
of the common stock represented by the within Certificate and do hereby
irrevocably constitute and appoint
- ----------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated:
-------------------
--------------------------------------------
NOTICE: The signature to the assignment must
correspond with the name as written upon the
face of the Certificate in every particular,
without alteration or enlargement or any
change whatever.
Signature(s) Guaranteed:
- -------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNION WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17 Ad-15.
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of May 28, 1999, by and between S&S
Plus, Inc., a New Jersey corporation with its principal office located at 286
Forest Avenue, Lakewood, NJ 08701 (the "Company"), and Saki Dodelson, an
individual residing at 286 Forest Avenue, Lakewood, NJ 08701 (the "Employee").
W I T N E S S E T H :
WHEREAS, the Company desires to secure the services of the Employee
upon the terms and conditions hereinafter set forth; and
WHEREAS, the Employee desires to render services to the Company upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties mutually agree as follows:
1. EMPLOYMENT. The Company hereby employs Employee and the
Employee hereby accepts such employment, as Senior Vice-President subject to the
terms and conditions set forth in this Agreement.
2. DUTIES. The Employee shall serve as Senior Vice-President.
During the term of this Agreement, the Employee shall devote all of her business
time, attention and energies to the performance of her duties hereunder (not
less than 40 hours per week, predominately during normal business hours) and
shall properly perform such duties as may be assigned to her from time to time
by the Board. The Employee shall not, during the Term (as hereinafter defined),
be engaged in any other business activity which, in the reasonable judgment of
the Board of Directors of the Company, would conflict with the ability of the
Employee to perform her
1
<PAGE>
duties under this Agreement, whether or not such activity is pursued for gain,
profit or other pecuniary advantage. The Employee shall report directly to the
Company's Board of Directors.
3. TERM OF EMPLOYMENT; VACATION.
(a) The term of the Employee's employment shall be for a period of
five (5) years commencing on May 28, 1999 (the "Start Date"), subject to earlier
termination by the parties pursuant to Sections 5 and 6 hereof (the "Term").
(b) The Employee shall be entitled to ten (10) days' vacation (and
Jewish holidays including Chol Hamoed) during each year of the Term. The
Employee shall take her vacation at such time or times as the Employee and the
Company shall determine is mutually convenient. During the remainder of the
Term, Employee shall be entitled to 15 vacation days.
(c) Employee agrees to permit the Company, at its own expense, to
purchase a life insurance policy on the life of Employee, in the amount of
$1,000,000. The Company will be the beneficiary of such policy. Employee agrees
to provide all documentation in connection therewith and to submit herself for a
physical examination.
4. COMPENSATION OF EMPLOYEE.
4.1 SALARY. The Company shall pay to Employee a base salary of One
Hundred Fifteen Thousand Dollars ($115,000) per annum (the "Base Salary"), less
such deductions as shall be required to be withheld by applicable law and
regulations. All salaries payable to Employee shall be paid at such regular
weekly, biweekly or semi-monthly time or times as the Company makes payment of
its regular payroll in the regular course of business. Employee's Base Salary
shall increase by 7% annually.
4.2 EXPENSES. During the Term, the Company shall promptly
reimburse the Employee for all reasonable and necessary travel expenses and
2
<PAGE>
other disbursements incurred by the Employee on behalf of the Company in the
performance of the Employee's duties hereunder, assuming Employee has received
prior approval for such travel expenses and disbursements by the Company to the
extent possible consistent with corporate practices with respect to the
reimbursement of expenses incurred by the Company's employees. The Employee
shall present all appropriate vouchers and receipts for such expenses. The
Company shall pay the expenses of Employee's cell phone used in connection with
the business.
4.3 BENEFITS. The Employee shall be entitled during the Term to
participate in a family health programs (Prudential or the like) and stock
option plan that may be available to other employees of the Company as
determined by the Board. Employee shall be entitled to one (1) week of sick
leave annually. Employee shall receive 10,000 options to purchase shares of
common stock of the Company, at an exercise price equal to a 20% discount to the
maximum price per share paid by any investor in the Company's next equity
financing. Employee shall have unlimited "piggyback" registration rights
relating to the shares underlying the options, subject to volume limitations
imposed by the Board.
4.4 SIGNING BONUS. Employee shall be entitled to a one (1) time
signing bonus equal to $30,000. $10,000 shall be payable thirty (30) days from
the date hereof and $20,000 shall be payable after the circulation of Youthline
USA reaches 10,000 subscribers for a period of two (2) consecutive months.
5. DISABILITY OF THE EMPLOYEE. If the Employee is incapacitated or
disabled by accident, sickness or otherwise so as to render the Employee
mentally or physically incapable of performing the services required to be
performed under this Agreement for a period of 60 consecutive days or 90 days in
any period of 360 consecutive days (a "Disability"), the Company may, at the
time or during the period of such Disability, at its option, terminate the
3
<PAGE>
employment of the Employee under this Agreement immediately upon giving the
Employee written notice to that effect.
6. TERMINATION.
(a) The Company may terminate the employment of the Employee and
all of the Company's obligations under this Agreement at any time for Cause (as
hereinafter defined) by giving the Employee notice of such termination, with
reasonable specificity of the details thereof. "Cause" shall mean (i) the
Employee's willful misconduct which could reasonably be expected to have a
material adverse effect on the business and affairs of the Company, (ii) the
Employee's willful disregard of lawful instructions of the Company's Board of
Directors consistent with the Employee's responsibilities under this Agreement
relating to the business of the Company, (iii) the Employee's neglect of duties
or failure to act, which, in each case, could reasonably be expected to have a
material adverse effect on the business and affairs of the Company, (iv) the
commission by the Employee of an act constituting common law fraud, or a felony,
or criminal act against the Company or any affiliate thereof or any of the
assets of any of them, (v) the Employee's abuse of alcohol or other drugs or
controlled substances, or conviction of a crime involving moral turpitude, (vi)
the Employee's material breach of any of the agreements contained herein, or
(vii) the Employee's death or resignation hereunder; PROVIDED HOWEVER, that if
the Employee resigned as a result of a material breach by the Company of this
Agreement, such resignation shall not be considered "Cause" hereunder. A
termination pursuant to Section 6(a)(i), (ii), (iii), (iv), (v) (other than as a
result of a conviction of a crime involving moral turpitude) or (vi) shall take
effect 30 days after the giving of the notice contemplated hereby unless the
Employee shall, during such 30-day period, remedy to the reasonable satisfaction
of the Board of Directors of the Company the misconduct, disregard, abuse or
breach specified in such notice; PROVIDED, HOWEVER, that such termination shall
4
<PAGE>
take effect immediately upon the giving of such notice if the Board of Directors
of the Company shall, in its reasonable discretion, have determined that such
misconduct, disregard, abuse or breach is not remediable (which determination
shall be stated in such notice). A termination pursuant to Section 6(a)(v) (as a
result of a conviction of a crime involving moral turpitude) or (vii) shall take
effect immediately upon the giving of the notice contemplated hereby.
7. EFFECT OF TERMINATION OF EMPLOYMENT.
(a) Upon the termination of the Employee's employment for Cause or
a Disability, neither the Employee nor the Employee's beneficiaries or estate
shall have any further rights to compensation under this Agreement or any claims
against the Company arising out of this Agreement, except the right to receive
(i) the unpaid portion of the Base Salary provided for in Section 4.1, earned
through the Termination Date (the "Unpaid Salary Amount"), (ii) reimbursement
for any expenses for which the Employee shall not have theretofore been
reimbursed, as provided in Section 4.2 (the "Expense Reimbursement Amount"), and
(iii) all other benefits that shall have accrued through the Termination Date.
8. DISCLOSURE OF CONFIDENTIAL INFORMATION. Employee recognizes
that she has had and will continue to have access to secret and confidential
information regarding the Company, including but not limited to its customer
list, products, know-how, and business plans. Employee acknowledges that such
information is of great value to the Company, is the sole property of the
Company, and has been and will be acquired by her in confidence. In
consideration of the obligations undertaken by the Company herein, Employee will
not, at any time, during or after her employment hereunder, reveal, divulge or
make known to any person (except counsel or as may be required by law or, if
necessary, in a litigation), any information acquired by Employee during the
course of her employment (including employment prior to the date hereof), which
5
<PAGE>
is treated as confidential by the Company, including but not limited to its
customer list, not otherwise in the public domain, other than in the ordinary of
business during her employment hereunder. The provisions of this Section 8 shall
survive Employee's employment hereunder. This Section 8 shall be void and of no
force and effect if the Company defaults on any loans listed on Schedule 6.6 of
that certain Subscription Agreement dated the date hereof between the Company,
Employee and other shareholders (the "Subscription Agreement"), or if the
Company is in default under its obligations to pay the salary or provide the
benefits required hereunder.
9. COVENANT NOT TO COMPETE.
(a) Employee recognizes that the services to be performed by her
hereunder are special, unique and extraordinary. The parties confirm that it is
reasonably necessary for the protection of Company that Employee agree, and
accordingly, Employee does hereby agree, that she shall not, directly or
indirectly, at any time during the term of the Agreement and the "Restricted
Period" (as defined in Section 9(e) below):
(i) except as provided in Subsection (d) below, be engaged in
the children's newspaper publication industry, or provide technical assistance,
advice or counseling regarding such industry in any state in the United States
in which the Company or an affiliate thereof transacts business, either on her
own behalf or as an officer, director, stockholder, partner, consultant,
associate, employee, owner, agent, creditor, independent contractor, or
co-venturer of any third party; or
(ii) employ or engage, or cause or authorize, directly or
indirectly, to be employed or engaged, for or on behalf of herself or any third
party, any employee or agent of Company or any affiliate thereof.
6
<PAGE>
(b) Employee hereby agrees that she will not, directly or
indirectly, for or on behalf of herself or any third party, at any time during
the term of the Agreement and during the Restricted Period solicit any customers
of the Company or any affiliate thereof ( including those procured or indirectly
by the Employee) in a manner which directly or indirectly competes with the
Company.
(c) If any of the restrictions contained in this Section 9 shall
be deemed to be unenforceable by reason of the extent, duration or geographical
scope thereof, or otherwise, then the court making such determination shall have
the right to reduce such extent, duration, geographical scope, or other
provisions hereof, and in its reduced form this Section shall then be
enforceable in the manner contemplated hereby.
(d) This Section 9 shall not be construed to prevent Employee from
owning, directly or indirectly, in the aggregate, an amount not exceeding two
percent (2%) of the issued and outstanding voting securities of any class of any
company whose voting capital stock is traded on a national securities exchange
or on the over-the-counter market other than securities of the Company.
(e) The term "Restricted Period," as used in this Section 9, shall
mean the period of Employee's actual employment hereunder plus in the event the
Employee's employment is terminated for Cause for a period of twenty-four (24)
months thereafter.
(f) The provisions of this Section 9 shall survive the end of the
Term as provided in Section 9(e) hereof.
(g) This Section 9 shall be void and of no force and effect if the
Company defaults on any loans listed on Schedule 6.6 of the Subscription
7
<PAGE>
Agreement, if the Company is in default under its obligations to pay the salary
or provide the benefits required hereunder or if the Employee resigns due to a
violation of Section 6.7 of the Subscription Agreement.
10. ADDITIONAL AGREEMENTS AND COVENANTS
10.1 SALE OF STOCK. Employee acknowledges that she may not sell,
assign, or otherwise hypothecate her stock in the Company for a period of
eighteen (18) months from date hereof, without the prior written consent of the
Board. Shares acquired through the exercise of stock options shall be restricted
to twelve (12) months.
11. MISCELLANEOUS.
11.1 INJUNCTIVE RELIEF. Employee acknowledges that the services to
be rendered under the provisions of this Agreement are of a special, unique and
extraordinary character and that it would be difficult or impossible to replace
such services. Accordingly, Employee agrees that any breach or threatened breach
by her of Section 8 or 9 of this Agreement shall entitle Company, in addition to
all other legal remedies available to it, to apply to any court of competent
jurisdiction to seek to enjoin such breach or threatened breach. The parties
understand and intend that each restriction agreed to by Employee hereinabove
shall be construed as separable and divisible from every other restriction, that
the unenforceability of any restriction shall not limit the enforceability, in
whole or in part, of any other restriction, and that one or more or all of such
restrictions may be enforced in whole or in part as the circumstances warrant.
In the event that any restriction in this Agreement is more restrictive than
permitted by law in the jurisdiction in which Company seeks enforcement thereof,
such restriction shall be limited to the extent permitted by law.
8
<PAGE>
11.2 ASSIGNMENTS. Neither Employee nor the Company may assign or
delegate any of their rights or duties under this Agreement without the express
written consent of the other.
11.3 ENTIRE AGREEMENT. This Agreement constitutes and embodies the
full and complete understanding and agreement of the parties with respect to
Employee's employment by Company, supersedes all prior understandings and
agreements, whether oral or written, between Employee and Company, and shall not
be amended, modified or changed except by an instrument in writing executed by
the party to be charged. The invalidity or partial invalidity of one or more
provisions of this Agreement shall not invalidate any other provision of this
Agreement. No waiver by either party of any provision or condition to be
performed shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same time or any prior or subsequent time.
11.4 BINDING EFFECT. This Agreement shall inure to the benefit of,
be binding upon and enforceable against, the parties hereto and their respective
successors, heirs, beneficiaries and permitted assigns.
11.5 HEADINGS. The headings contained in this Agreement are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.6 NOTICES. All notices, requests, demands and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given when personally delivered, sent by
registered or certified mail, return receipt requested, postage prepaid, or by
private overnight mail service (e.g. Federal Express) to the party at the
address set forth above or to such other address as either party may hereafter
give notice of in accordance with the provisions hereof. Notices shall be deemed
given on the sooner of the date actually received or the third business day
after sending.
9
<PAGE>
11.7 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey without giving
effect to such State's conflicts of laws provisions and each of the parties
hereto irrevocably consents to the jurisdiction and venue of the federal and
state courts located in the State of New Jersey.
11.8 COUNTERPARTS. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
11.9 SEPARABILITY. If any of the restrictions contained in this
Agreement shall be deemed to be unenforceable by reason of the extent, duration
or geographical scope thereof, or otherwise, then the court making such
determination shall have the right to reduce such extent, duration, geographical
scope, or other provisions hereof, and in its reduced form this Agreement shall
then be enforceable in the manner contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date set forth above.
S&S PLUS, INC.
By:
------------------------
Name:
Title:
------------------------
Saki Dodelson
10
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of May 28, 1999, by and between S&S
Plus, Inc., a New Jersey corporation with its principal office located at 286
Forest Avenue, Lakewood, NJ 08701 (the "Company"), and Susan L. Gertler, an
individual residing at 521 Grenville Avenue, Teaneck, NJ 07666 (the "Employee").
W I T N E S S E T H :
WHEREAS, the Company desires to secure the services of the Employee
upon the terms and conditions hereinafter set forth; and
WHEREAS, the Employee desires to render services to the Company upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties mutually agree as follows:
1. EMPLOYMENT. The Company hereby employs Employee and the
Employee hereby accepts such employment, as Senior Vice-President subject to the
terms and conditions set forth in this Agreement.
2. DUTIES. The Employee shall serve as Senior Vice-President.
During the term of this Agreement, the Employee shall devote all of her business
time, attention and energies to the performance of her duties hereunder (not
less than 40 hours per week, predominately during normal business hours) and
shall properly perform such duties as may be assigned to her from time to time
by the Board. The Employee shall not, during the Term (as hereinafter defined),
be engaged in any other business activity which, in the reasonable judgment of
the Board of Directors of the Company, would conflict with the ability of the
Employee to perform her
-1-
<PAGE>
duties under this Agreement, whether or not such activity is pursued for gain,
profit or other pecuniary advantage. The Employee shall report directly to the
Company's Board of Directors.
3. TERM OF EMPLOYMENT; VACATION.
(a) The term of the Employee's employment shall be for a period
of five (5) years commencing on May 28, 1999 (the "Start Date"), subject to
earlier termination by the parties pursuant to Sections 5 and 6 hereof (the
"Term").
(b) The Employee shall be entitled to ten (10) days' vacation
(and Jewish holidays including Chol Hamoed) during each year of the Term. The
Employee shall take her vacation at such time or times as the Employee and the
Company shall determine is mutually convenient. During the remainder of the
Term, Employee shall be entitled to 15 vacation days.
(c) Employee agrees to permit the Company, at its own expense, to
purchase a life insurance policy on the life of Employee, in the amount of
$1,000,000. The Company will be the beneficiary of such policy. Employee agrees
to provide all documentation in connection therewith and to submit herself for a
physical examination.
4. COMPENSATION OF EMPLOYEE.
4.1 SALARY. The Company shall pay to Employee a base salary of
One Hundred Fifteen Thousand Dollars ($115,000) per annum (the "Base Salary"),
less such deductions as shall be required to be withheld by applicable law and
regulations. All salaries payable to Employee shall be paid at such regular
weekly, biweekly or semi-monthly time or times as the Company makes payment of
its regular payroll in the regular course of business. Employee's Base Salary
shall increase by 7% annually.
4.2 EXPENSES. During the Term, the Company shall promptly
reimburse the Employee for all reasonable and necessary travel expenses and
-2-
<PAGE>
other disbursements incurred by the Employee on behalf of the Company in the
performance of the Employee's duties hereunder, assuming Employee has received
prior approval for such travel expenses and disbursements by the Company to the
extent possible consistent with corporate practices with respect to the
reimbursement of expenses incurred by the Company's employees. The Employee
shall present all appropriate vouchers and receipts for such expenses. The
Company shall pay the expenses of Employee's cell phone used in connection with
the business.
4.3 BENEFITS. The Employee shall be entitled during the Term to
participate in a family health programs (Prudential or the like) and stock
option plan that may be available to other employees of the Company as
determined by the Board. Employee shall be entitled to one (1) week of sick
leave annually. Employee shall receive 10,000 options to purchase shares of
common stock of the Company, at an exercise price equal to a 20% discount to the
maximum price per share paid by any investor in the Company's next equity
financing. Employee shall have unlimited "piggyback" registration rights
relating to the shares underlying the options, subject to volume limitations
imposed by the Board.
4.4 SIGNING BONUS. Employee shall be entitled to a one (1) time
signing bonus equal to $30,000. $10,000 shall be payable thirty (30) days from
the date hereof and $20,000 shall be payable after the circulation of Youthline
USA reaches 10,000 subscribers for a period of two (2) consecutive months.
5. DISABILITY OF THE EMPLOYEE. If the Employee is incapacitated
or disabled by accident, sickness or otherwise so as to render the Employee
mentally or physically incapable of performing the services required to be
performed under this Agreement for a period of 60 consecutive days or 90 days in
any period of 360 consecutive days (a "Disability"), the Company may, at the
-3-
<PAGE>
time or during the period of such Disability, at its option, terminate the
employment of the Employee under this Agreement immediately upon giving the
Employee written notice to that effect.
6. TERMINATION.
(a) The Company may terminate the employment of the Employee and
all of the Company's obligations under this Agreement at any time for Cause (as
hereinafter defined) by giving the Employee notice of such termination, with
reasonable specificity of the details thereof. "Cause" shall mean (i) the
Employee's willful misconduct which could reasonably be expected to have a
material adverse effect on the business and affairs of the Company, (ii) the
Employee's willful disregard of lawful instructions of the Company's Board of
Directors consistent with the Employee's responsibilities under this Agreement
relating to the business of the Company, (iii) the Employee's neglect of duties
or failure to act, which, in each case, could reasonably be expected to have a
material adverse effect on the business and affairs of the Company, (iv) the
commission by the Employee of an act constituting common law fraud, or a felony,
or criminal act against the Company or any affiliate thereof or any of the
assets of any of them, (v) the Employee's abuse of alcohol or other drugs or
controlled substances, or conviction of a crime involving moral turpitude, (vi)
the Employee's material breach of any of the agreements contained herein, or
(vii) the Employee's death or resignation hereunder; PROVIDED HOWEVER, that if
the Employee resigned as a result of a material breach by the Company of this
Agreement, such resignation shall not be considered "Cause" hereunder. A
termination pursuant to Section 6(a)(i), (ii), (iii), (iv), (v) (other than as a
result of a conviction of a crime involving moral turpitude) or (vi) shall take
effect 30 days after the giving of the notice contemplated hereby unless the
Employee shall, during such 30-day period, remedy to the reasonable satisfaction
of the Board of Directors of the Company the misconduct, disregard, abuse or
-4-
<PAGE>
breach specified in such notice; PROVIDED, HOWEVER, that such termination shall
take effect immediately upon the giving of such notice if the Board of Directors
of the Company shall, in its reasonable discretion, have determined that such
misconduct, disregard, abuse or breach is not remediable (which determination
shall be stated in such notice). A termination pursuant to Section 6(a)(v) (as a
result of a conviction of a crime involving moral turpitude) or (vii) shall take
effect immediately upon the giving of the notice contemplated hereby.
7. EFFECT OF TERMINATION OF EMPLOYMENT.
(a) Upon the termination of the Employee's employment for Cause
or a Disability, neither the Employee nor the Employee's beneficiaries or estate
shall have any further rights to compensation under this Agreement or any claims
against the Company arising out of this Agreement, except the right to receive
(i) the unpaid portion of the Base Salary provided for in Section 4.1, earned
through the Termination Date (the "Unpaid Salary Amount"), (ii) reimbursement
for any expenses for which the Employee shall not have theretofore been
reimbursed, as provided in Section 4.2 (the "Expense Reimbursement Amount"), and
(iii) all other benefits that shall have accrued through the Termination Date.
8. DISCLOSURE OF CONFIDENTIAL INFORMATION. Employee recognizes
that she has had and will continue to have access to secret and confidential
information regarding the Company, including but not limited to its customer
list, products, know-how, and business plans. Employee acknowledges that such
information is of great value to the Company, is the sole property of the
Company, and has been and will be acquired by her in confidence. In
consideration of the obligations undertaken by the Company herein, Employee will
not, at any time, during or after her employment hereunder, reveal, divulge or
make known to any person (except counsel or as may be required by law or, if
necessary, in a litigation), any information acquired by Employee during the
-5-
<PAGE>
course of her employment (including employment prior to the date hereof), which
is treated as confidential by the Company, including but not limited to its
customer list, not otherwise in the public domain, other than in the ordinary of
business during her employment hereunder. The provisions of this Section 8 shall
survive Employee's employment hereunder. This Section 8 shall be void and of no
force and effect if the Company defaults on any loans listed on Schedule 6.6 of
that certain Subscription Agreement dated the date hereof between the Company,
Employee and other shareholders (the "Subscription Agreement"), or if the
Company is in default under its obligations to pay the salary or provide the
benefits required hereunder.
9. COVENANT NOT TO COMPETE.
(a) Employee recognizes that the services to be performed by her
hereunder are special, unique and extraordinary. The parties confirm that it is
reasonably necessary for the protection of Company that Employee agree, and
accordingly, Employee does hereby agree, that she shall not, directly or
indirectly, at any time during the term of the Agreement and the "Restricted
Period" (as defined in Section 9(e) below):
(i) except as provided in Subsection (d) below, be engaged in
the children's newspaper publication industry, or provide technical assistance,
advice or counseling regarding such industry in any state in the United States
in which the Company or an affiliate thereof transacts business, either on her
own behalf or as an officer, director, stockholder, partner, consultant,
associate, employee, owner, agent, creditor, independent contractor, or
co-venturer of any third party; or
-6-
<PAGE>
(ii) employ or engage, or cause or authorize, directly or
indirectly, to be employed or engaged, for or on behalf of herself or any third
party, any employee or agent of Company or any affiliate thereof.
(b) Employee hereby agrees that she will not, directly or
indirectly, for or on behalf of herself or any third party, at any time during
the term of the Agreement and during the Restricted Period solicit any customers
of the Company or any affiliate thereof ( including those procured or indirectly
by the Employee) in a manner which directly or indirectly competes with the
Company.
(c) If any of the restrictions contained in this Section 9 shall
be deemed to be unenforceable by reason of the extent, duration or geographical
scope thereof, or otherwise, then the court making such determination shall have
the right to reduce such extent, duration, geographical scope, or other
provisions hereof, and in its reduced form this Section shall then be
enforceable in the manner contemplated hereby.
(d) This Section 9 shall not be construed to prevent Employee
from owning, directly or indirectly, in the aggregate, an amount not exceeding
two percent (2%) of the issued and outstanding voting securities of any class of
any company whose voting capital stock is traded on a national securities
exchange or on the over-the-counter market other than securities of the Company.
(e) The term "Restricted Period," as used in this Section 9,
shall mean the period of Employee's actual employment hereunder plus in the
event the Employee's employment is terminated for Cause for a period of
twenty-four (24) months thereafter.
(f) The provisions of this Section 9 shall survive the end of the
Term as provided in Section 9(e) hereof.
-7-
<PAGE>
(g) This Section 9 shall be void and of no force and effect if
the Company defaults on any loans listed on Schedule 6.6 of the Subscription
Agreement, if the Company is in default under its obligations to pay the salary
or provide the benefits required hereunder or if the Employee resigns due to a
violation of Section 6.7 of the Subscription Agreement.
10. ADDITIONAL AGREEMENTS AND COVENANTS
10.1 SALE OF STOCK. Employee acknowledges that she may not sell,
assign, or otherwise hypothecate her stock in the Company for a period of
eighteen (18) months from date hereof, without the prior written consent of the
Board. Shares acquired through the exercise of stock options shall be restricted
to twelve (12) months.
11. MISCELLANEOUS.
11.1 INJUNCTIVE RELIEF. Employee acknowledges that the services
to be rendered under the provisions of this Agreement are of a special, unique
and extraordinary character and that it would be difficult or impossible to
replace such services. Accordingly, Employee agrees that any breach or
threatened breach by her of Section 8 or 9 of this Agreement shall entitle
Company, in addition to all other legal remedies available to it, to apply to
any court of competent jurisdiction to seek to enjoin such breach or threatened
breach. The parties understand and intend that each restriction agreed to by
Employee hereinabove shall be construed as separable and divisible from every
other restriction, that the unenforceability of any restriction shall not limit
the enforceability, in whole or in part, of any other restriction, and that one
or more or all of such restrictions may be enforced in whole or in part as the
circumstances warrant. In the event that any restriction in this Agreement is
more restrictive than permitted by law in the jurisdiction in which Company
seeks enforcement thereof, such restriction shall be limited to the extent
permitted by law.
-8-
<PAGE>
11.2 ASSIGNMENTS. Neither Employee nor the Company may assign or
delegate any of their rights or duties under this Agreement without the express
written consent of the other.
11.3 ENTIRE AGREEMENT. This Agreement constitutes and embodies
the full and complete understanding and agreement of the parties with respect to
Employee's employment by Company, supersedes all prior understandings and
agreements, whether oral or written, between Employee and Company, and shall not
be amended, modified or changed except by an instrument in writing executed by
the party to be charged. The invalidity or partial invalidity of one or more
provisions of this Agreement shall not invalidate any other provision of this
Agreement. No waiver by either party of any provision or condition to be
performed shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same time or any prior or subsequent time.
11.4 BINDING EFFECT. This Agreement shall inure to the benefit
of, be binding upon and enforceable against, the parties hereto and their
respective successors, heirs, beneficiaries and permitted assigns.
11.5 HEADINGS. The headings contained in this Agreement are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.6 NOTICES. All notices, requests, demands and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given when personally delivered, sent by
registered or certified mail, return receipt requested, postage prepaid, or by
private overnight mail service (e.g. Federal Express) to the party at the
address set forth above or to such other address as either party may hereafter
-9-
<PAGE>
give notice of in accordance with the provisions hereof. Notices shall be deemed
given on the sooner of the date actually received or the third business day
after sending.
11.7 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey without giving
effect to such State's conflicts of laws provisions and each of the parties
hereto irrevocably consents to the jurisdiction and venue of the federal and
state courts located in the State of New Jersey.
11.8 COUNTERPARTS. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
11.9 SEPARABILITY. If any of the restrictions contained in this
Agreement shall be deemed to be unenforceable by reason of the extent, duration
or geographical scope thereof, or otherwise, then the court making such
determination shall have the right to reduce such extent, duration, geographical
scope, or other provisions hereof, and in its reduced form this Agreement shall
then be enforceable in the manner contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date set forth above.
S&S PLUS, INC.
By:
-----------------------
Name:
Title:
-----------------------
SUSAN L. GERTLER
-10-
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use in this Registration Statement on Form 10-SB of our report
on S & S Plus, Inc. dated October 15, 1999 on our examinations for the years
ended December 31, 1997 and 1998, our report on YouthLine USA, Inc. dated
October 15, 1999 on our examinations for the years ended December 31, 1997 and
1998, our report on YouthLine USA, Inc. and Subsidiary for the years ended
December 31, 1997 and 1998 and for our report on the unaudited financial
statements for the nine months ended September 30, 1999.
MICHAEL C. FINKELSTEIN
Certified Public Accountant
New York, New York
December 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001095930
<NAME> YOUTHLINE USA, INC.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 497,378
<SECURITIES> 0
<RECEIVABLES> 23,411
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 520,789
<PP&E> 51,060
<DEPRECIATION> 20,763
<TOTAL-ASSETS> 673,149
<CURRENT-LIABILITIES> 106,274
<BONDS> 0
0
0
<COMMON> 760,216
<OTHER-SE> (998,054)
<TOTAL-LIABILITY-AND-EQUITY> 673,149
<SALES> 94,636
<TOTAL-REVENUES> 94,636
<CGS> 112,673
<TOTAL-COSTS> 112,673
<OTHER-EXPENSES> 477,835
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (495,872)
<INCOME-TAX> 0
<INCOME-CONTINUING> (495,872)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (495,872)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)
</TABLE>
