As Filed with the Securities and Exchange Commission on October 13, 2000,
Registration No. 333-________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
YouthlineUSA, INC.
------------------------------------------------------
(Exact name of Registrant as Specified in Its Charter)
Delaware 2700 22-3674998
------------------------------- ---------------------------- ------------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code) Identification No.)
Youthline USA, Inc.
4581 US9
Howell, New Jersey 07731
(732) 886-0833
------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Saki Dodelson
President
Youthline USA, Inc.
4581 Us9
Howell, New Jersey 07731
(732) 886-0833
--------------------------------------------------------
(Name, address, including zip code, and telephone number
including area code, of agents for service)
------------------------------------
Copies to:
Stuart Neuhauser, Esq.
Berlack, Israels & Liberman LLP
120 West 45th Street
New York, New York 10036
(212) 704-0100
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this Form is post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
Continued overleaf
<PAGE>
CALCULATION OF REGISTRATION FEE
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
==========================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class of Amount To Be Offering Price Per Aggregate Amount Of
Securities To Be Registered Registered Security (1) Offering Price Registration Fee
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock(2) 14,760,000 $ .30 $4,428,000 $1,168.99
----------------------------------------------------------------------------------------------------------
Common Stock(3) 550,000 $3.00 $1,650,000 $ 435.60
----------------------------------------------------------------------------------------------------------
Common Stock(3) 1,390,000 $4.00 $5,560,000 $1,467.84
----------------------------------------------------------------------------------------------------------
Common Stock(3) 950,000 $5.00 $4,750,000 $1,254.00
----------------------------------------------------------------------------------------------------------
Common Stock(4) 40,459,768 $ .2175 $8,800,000 $2,323.20
----------------------------------------------------------------------------------------------------------
Total $6,649.63
==========================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating registration fee pursuant
to Rule 457(c) under the Securities Act of 1933, as amended (the "Act")
based upon the average of the high and low sales prices of the Common
Stock on October 10, 2000, as reported on the NASD OTC Bulletin Board.
(2) Common stock outstanding held by selling securityholders.
(3) These shares of common stock are not outstanding and are issuable upon
exercise of warrants to purchase common stock (that are not being
registered hereunder) held by selling securityholders. In accordance
with Rule 457(g) of the Act, the offering price is based on the highest
of the following: (a) the price at which such warrants may be exercised
or (b) the price of the common stock as determined in accordance with
Rule 457(c) under the Act. See Footnote 1.
(4) Common stock issuable upon conversion of $4,000,000 in principal amount
of 10% Convertible Notes. For purposes of estimating the number of
common stock to be included in this registration statement, we
calculated 200% of the aggregate number of shares of common stock into
which 110% of the principal amount of such notes would be convertible
in full at $.2175 per share, which was the conversion price on October
11, 2000.
-------------------------------
Pursuant to Rule 416 of the Act, this registration statement also
covers such indeterminate additional shares of common stock as may become
issuable as a result of stock splits, stock dividends or other similar events.
-------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
The information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
securities and exchange commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS SUBJECT TO COMPLETION; DATED OCTOBER 13, 2000
58,109,768 SHARES OF COMMON STOCK
OF
YouthlineUSA, INC.
We are registering up to 58,109,768 shares of our common stock for sale
by certain shareholders of our company identified in this prospectus. These
shareholders are referred to throughout this prospectus as "selling
securityholders."
These individuals who wish to sell their shares of our common stock may
offer and sell their shares on a continuous or delayed basis in the future.
These sales may be conducted in the open market or in privately negotiated
transactions and at market prices, fixed prices or negotiated prices. We will
not receive any of the proceeds from the sales of shares by the selling
securityholders but we will receive funds from the exercise of their warrants.
Our common stock is traded on the OTC Electronic Bulletin Board under
the symbol "YLNE". On October 10, 2000, the closing sales price for the common
stock on the OTC Electronic Bulletin Board was $.30 per share.
Our principal executive offices are located at 4581 US9, Howell, NJ
07731. Our telephone number is (732) 886-0833.
Our common stock being offered by this prospectus involves a high
degree of risk. You should read the "Risk Factors" section beginning on page 8
before you decide to purchase any common stock.
------------------------------------
Neither the Securities and Exchange Commission nor any state commission
has approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
The date of this Prospectus is _________ __, 2000
<PAGE>
TABLE OF CONTENTS
Prospectus summary...........................................................3
Selected financial data......................................................6
Risk factors.................................................................7
Forward-looking statements..................................................14
Use of proceeds.............................................................14
Selling securityholders.....................................................15
Plan of distribution........................................................18
Directors, Executive Officers, Promoters and Control Persons................20
Security ownership of certain beneficial owners and management..............24
Description of securities...................................................25
Disclosure of commission position on indemnification for securities
act liabilities...........................................................30
Our business................................................................31
Management's discussion and analysis of financial condition and results
of operations.............................................................44
Certain relationships and related transactions..............................51
Market for common equity and related stockholders matters...................53
Executive Compensation......................................................54
Legal matters...............................................................55
Experts.....................................................................55
Available Information.......................................................55
You should rely only on the information contained in this document. We have not
authorized anyone to provide you with information that is different. This
document may only be used where it is legal to sell these securities. The
information in this document may only be accurate on the date of this document.
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights certain information contained elsewhere in this
prospectus. You should read the following summary together with the more
detailed information regarding YouthlineUSA and our financial statements and the
related notes appearing elsewhere in this prospectus.
OUR COMPANY
Youthline USA is an industry leader in integration of technology and
curriculum, together with the news, into the classroom. Our mission is to
promote reading excellence, combat the digital divide, and offer
school-to-career training through our award-winning weekly newspaper, monthly
magazine, and daily Web site. We have created a niche in the youth and
educational markets by being the only company to offer this total integration of
news, technology, and curriculum basics directly into the classroom. At the same
time, we are forging strong relationships with corporate America by providing
them with an effective vehicle for reaching today's youth through advertising
and sponsorships.
Our suite of products include:
o Youthline-usa.com, a daily subscription Web site used in schools and homes
throughout the country. News articles on the Web site are linked to
curriculum-based interactive activities, offering educators a customized
reading curriculum together with technology training. Full assessment and
accountability allow tracking of student performance.
o Youthline USA newspaper, a weekly national newspaper with regional inserts
with 640,000 subscribers throughout the country. The newspaper comes
together with lesson plans, giving educators an excellent resource for
teaching current events and other subjects. It also provides a reading
curriculum for schools that are not yet using the Internet in their
classrooms.
o Youthline USA Fun and Feature magazine, a monthly magazine that offers
in-depth coverage of complex topics. Children enjoy the colorful graphics
and exciting features, while the sturdy format is an attractive advertising
vehicle for corporate sponsors.
o The three products combine to offer schools a solution to the demands of
integrating today's technology while maintaining the standards of the core
reading curriculum. Schools lack the time, resources, and training to fully
manage both challenges successfully. Youthline USA provides a total
solution, whereby today's technology is already fully integrated with the
reading curriculum and is further supplemented by print publications.
BUSINESS STRATEGY
Key elements of our strategy are to:
o Develop distinctive products. Our mission is to develop niche products in
the multi-media educational market, particularly news and curriculum-based
products. Our distinctive suite of products offers educators
curriculum-based resources that address reading, technology, and
school-to-career training--three of the most the important issues facing
schools today.
3
<PAGE>
o Leverage strategic corporate partnerships. Our strategy is to develop
strategic alliances with large corporations through advertising and
corporate sponsorships to take advantage of their existing sales, marketing
and distribution networks. Our strategy is to become the market leader for
enhanced Internet and multi-media curriculum-based educational products.
o Create barriers to entry through first mover positioning and proprietary
products. We are moving rapidly to establish the Youthline USA product line
as the multi-media educational products of choice for schools. In addition,
we hope to create sufficient barriers to entry for other new entrants by
leveraging the distribution channels of its partners.
o Capitalize on specialized expertise. Our executive officers and employees
have extensive experience in business, education, finance, publishing,
marketing, and sales. Within three years, the team has successfully managed
to grow the business from a single youth newspaper to a broad range of
print and online products and services for children, parents, and teachers.
STRATEGIC ALLIANCES
Youthline USA has established several alliances with major corporations
to promote its products through their existing sales networks. Presently, our
partners include Sun Microsystems, VillageNet, Disney, the Academy of Natural
Sciences, and Notesys, among others. We presently are negotiating possible
partnerships with leading suppliers of educational products and services, and
intend to leverage these and future partnerships into an extensive distribution
network for the Youthline USA product line.
HISTORICAL INFORMATION
Youthline USA, Inc. 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.). We were organized to effectuate a reincorporation of Ult-I-Med with and
into Youthline USA on August 16, 1999.
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.
4
<PAGE>
In August 1999, Ult-I-Med acquired all of the outstanding capital stock
of S&S Plus, Inc., a wholly-owned subsidiary of Youthline USA 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 Youthline USA. On such date, the directors and officers
resigned and were replaced with some of the current officers and directors.
Our principal place of business is located at 4581 US Highway 9,
Howell, NJ, 07731. Our general phone number is (732) 886-0833. Our Web site
address is www.youthline-usa.com.
THE OFFERING
Shares outstanding before offering (1).................... 20,739,350 shares of
common stock.
Shares outstanding offered by selling securityholders..... 14,760,000 shares of
common stock.
Shares underlying warrants offered by selling 2,890,000 shares of
securityholders........................................... common stock.
Shares underlying convertible notes offered by selling 40,459,768 shares of
securityholders (2)....................................... common stock
Plan of distribution...................................... The offering of our
shares of common
stock is being made
by shareholders of
our company who wish
to sell their
shares. Sales of our
common stock may be
made by the selling
securityholders in
the open market or
in privately
negotiated
transactions and at
market prices, fixed
prices or negotiated
prices.
Use of proceeds........................................... We will not receive
any of the proceeds
from the sale of the
shares owned by the
selling
securityholders.
However, we will
receive $11,960,000
if all of the
warrants are
exercised. Such
funds will be used
for working capital
and general
corporate purposes.
--------------------
(1) As of September 30, 2000.
(2) Represents 200% of the aggregate number of shares of common stock into
which 110% of the principal amount of our 10% convertible notes would be
convertible in full at $.2175 per share, which was the conversion price on
October 11, 2000.
5
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data is qualified by reference to, and
should be read in conjunction with, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus. The financial information set forth below is audited with respect to
the annual period ended December 31, 1999 and unaudited for the six month period
ended June 30, 2000, and has been prepared by our management.
Year Ended Six Months Ended
---------------------------------------
December 31, June 30,
1999 2000
---- ----
STATEMENT OF OPERATIONS DATA: (audited) (unaudited)
Revenues .............................
$ 168,967 $ 567,035
Costs of goods sold .................. 321,320 1,336,643
Operating expenses.................... 3,271,695 5,540,722
Loss from operations.................. (3,424,048) (6,310,330)
Interest expense, net................. 1,362,952 2,947,047
Net loss.............................. (4,787,000) (9,257,377)
As of As of
December 31, 2000 June 30, 2000
----------------------------------------
Actual
------
SELECTED BALANCE SHEET DATA: (audited) (unaudited)
Cash and cash equivalents......... 572,720 164,760
Working capital................... -- --
Total assets...................... 988,082 1,316,573
Total liabilities................. 2,030,118 4,126,580
Stockholders' equity (deficit).... (1,042,036) (2,810,007)
6
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before investing in our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks could adversely affect our business, financial condition and
results of operations and could result in a complete loss of your investment.
The risks and uncertainties described below are not the only ones we may face.
We have a recent history of losses.
We have incurred net losses of $323,835 and $4,787,000 ($3,403,768 of
which was stock compensation expenses) for the years ended December 31, 1998 and
1999, respectively and $9,257,377 ($1,550,000 of which was stock compensation
expenses) for the six month period ended June 30, 2000. We expect that losses
will increase and continue until such time, if ever, as we can generate
sufficient revenue through website and newspaper subscribers and/or obtain
sufficient advertisements and sponsorships. We will need to generate a
substantial increase in revenues to become profitable. In addition, we had an
accumulated deficit of $14,544,615 at June 30, 2000.
Because we have been in business for a short period of time, there is limited
information upon which investors can evaluate our business; we are in our early
stages of development.
We initiated deployment of our newspaper product in 1997, and our
Web-based product in January 2000. Because our products are new, we should be
evaluated as an early-stage company. Consequently, we have a very limited
operating history upon which investors may base an evaluation of our business
and determine our prospects for achieving our intended business objectives. We
are prone to all of the risks inherent to the establishment of any new business
venture, including unforeseen changes in our business plan. Investors should
consider the likelihood of our future success to be highly speculative in light
of our limited operating history, as well as the limited resources, problems,
expenses, risks and complications frequently encountered by similarly situated
companies in the early stages of marketing, particularly companies in new and
rapidly evolving markets, such as the Internet. To address these risks, we must,
among other things, maintain and increase its customer base, implement and
successfully execute our business and marketing strategies, continue to develop
and upgrade our information technology, continually update and improve our
product offerings and features, provide superior customer service, respond to
industry and competitive developments, and attract, train, integrate, retain and
motivate qualified personnel. We may not be successful in addressing these
risks. If we are unable to do so, our business, prospects, financial condition
and results of operations would be materially and adversely affected.
Our additional financing requirements could result in dilution to existing
stockholders.
If additional financing is required, it could be obtained through one
or more transactions which effectively dilute the ownership interests of holders
of our common stock. Further, there can be no assurance that we will be able to
secure such additional financing. We have the authority to issue additional
shares of common stock, as well as additional classes or series of ownership
interests or debt obligations of Youthline USA which may be convertible into any
class or series of ownership interests in Youthline USA. We are authorized to
issue 50,000,000 shares of Common Stock and 5,000,000 shares of preferred stock.
Such securities may be issued without the approval or other consent of the
holders of our common stock. In light of existing derivative securities
currently outstanding, we would be obligated to take steps to have authority to
issue additional shares of common stock.
7
<PAGE>
We believe that cash on hand and anticipated revenues from operations,
will be sufficient to meet our presently anticipated working capital and capital
expenditure requirements for at least the next six to twelve months. Our belief
is based on our operating plan which in turn is based on assumptions, which may
prove to be incorrect. As a result, our financial resources may not be
sufficient to satisfy our capital requirements for this period. In addition, we
may need to raise significant additional funds prior to the completion of this
period in order to support our growth, develop new or enhanced products, respond
to competitive pressures, acquire or invest in complementary or competitive
businesses or technologies or take advantage of unanticipated opportunities. If
our financial resources are insufficient and, in any case, after this six to
twelve month period, we will require additional financing in order to implement
our growth strategy. We cannot be certain that this additional financing, if
needed, will be available when needed, on acceptable terms, or at all.
Furthermore, any additional debt financing, if available, may involve
restrictive covenants, which may limit our operating flexibility with respect to
business matters. If adequate funds are not available when needed on acceptable
terms, we may be unable to develop or enhance our products, take advantage of
future opportunities, repay debt obligations as they become due or respond to
competitive pressures, any of which would have a material adverse effect on our
business, prospects, financial condition and results of operations.
We depend upon our senior management, and their loss or unavailability could put
us at a competitive disadvantage.
Our success depends largely on the skills, experience and reputation of
certain key management and technical personnel. The loss or unavailability of
any of these individuals for any significant period of time could have a
material adverse effect on our business, prospects, financial condition and
results of operations. There can be no assurance that we will be able to replace
these key individuals in the event their services become unavailable. See
"Management."
Others may develop or purchase comparable or superior technology.
Our management believes that our Internet-based technology reflects the
current state of the art for educational and multi-media Internet offerings.
However, others could develop, and may have developed, comparable or superior
technology that we are not aware of. We cannot guarantee that future innovations
in curriculum-based Internet Web site development will not eliminate any
technological advantage we may currently enjoy over our competition or render
our approach obsolete. We expect that we will be required to maintain a
continuous program of technological innovation in order to take advantage of
general technological advances and to remain competitive.
Others may develop or purchase comparable or superior publications.
8
<PAGE>
Our management believes that Youthline USA's publications and content
occupy a unique and important niche in the youth and educational markets.
However, existing publishing firms, especially those with much greater resources
than us, could develop, or may have developed, comparable publications that we
are is not aware of. We cannot guarantee that future publications for children
will not eliminate any advantage we may currently enjoy over its competition.
We depend on the continued growth of Internet usage and infrastructure for our
business.
Our market is new and rapidly evolving. Our business would be adversely
affected if usage of the Internet does not continue to grow. Internet usage may
be inhibited for a number of reasons, such as:
o inadequate network infrastructure;
o security concerns; and
o inconsistent quality of service.
If Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it by this growth or its performance and
reliability may decline. In addition, Web sites have experienced interruptions
in their service as a result of outages and other delays occurring throughout
the Internet network infrastructure. If use of the Internet does not continue to
grow, or if the Internet infrastructure does not effectively support growth that
may occur, our business, results of operations and financial condition would be
materially and adversely affected.
We must keep pace with rapidly changing technologies to be successful.
The Internet and educational multi-media markets are characterized by
rapidly changing technologies, evolving industry standards, frequent new product
and service introductions and changing customer demands. The introduction of new
products and services embodying new technologies and the emergence of new
industry standards and practices can render existing products and services
obsolete and unmarketable or require unanticipated investments in research and
development.
Our future success will depend on our ability to adapt to rapidly
changing technologies, to enhance existing solutions and to develop and
introduce a variety of new solutions to address the changing demands of our
customers. In addition, increased availability of Internet access that delivers
greater amounts of data faster is expected to enable the development of new
products and services that take advantage of this expansion in delivery
capability. Our failure to adapt successfully to these changes could adversely
affect our business, results of operations and financial condition. We may also
experience difficulties that could delay or prevent the successful design,
development, introduction or marketing of our products or services. In addition,
any new products or services that we develop must meet the requirements of our
current and prospective customers and must achieve significant market
acceptance. Material delays in introducing new products and services may cause
customers to forego purchases of our products and services and purchase those of
its competitors.
We may not be able to compete effectively in the industries in which we conduct
operations.
9
<PAGE>
The educational multi-media industry is a fast moving, highly
innovative industry. We need to constantly develop leading edge products and
services and market them effectively in order to retain a competitive edge. We
expect that competition will intensify and increase in the future. As a result,
our potential competitors may be better positioned to address the changes to the
industry or may react more favorably to these changes, which could have a
material adverse effect on our business, prospects, financial condition and
results of operations. Although at the present time, we believe our products are
competitive, potential competitors could, at any time, elect to focus additional
resources in our target markets, which could materially adversely affect our
business, prospects, financial condition and results of operations. Many of our
potential competitors have longer operating histories, larger customer bases,
longer relationships with clients and significantly greater financial,
technical, marketing and public relations resources than we do. We must rely on
the skill of our personnel to implement our plans. The emergence of competition
with more resources could have a material adverse effect on our business,
prospects, financial condition and results of operations.
The limited prior public market and trading market may cause possible volatility
in our stock price.
There has only been a limited public market for our securities and
there can be no assurance that an active trading market in our 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 our 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 us or our competitors, general conditions in the
industry in which we operate 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 our common stock.
Penny stock regulations may impose certain restrictions on marketability of our
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,
our 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 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 our securities and may affect the
ability of investors to sell our securities in the secondary market and the
price at which such purchasers can sell any such securities.
10
<PAGE>
Shareholders should be aware that, according to the Securities and Exchange
Commission, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include:
o control of the market for the security by one or a few broker-dealers
that are often related to the promoter or issuer;
o manipulation of prices through prearranged matching of purchases and
sales and false and misleading press releases;
o "boiler room" practices involving high pressure sales tactics and
unrealistic price projections by inexperienced sales persons;
o excessive and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
o the wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired level,
along with the inevitable collapse of those prices with consequent
investor losses.
Our management is aware of the abuses that have occurred historically in the
penny stock market. Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to our common stock.
Anti-takeover provisions may adversely affect the value of our outstanding
securities.
Pursuant to our Certificate of Incorporation, our 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 Youthline USA without further action by the stockholders. We have no
present plans to issue any shares of preferred stock. In addition, we are
subject to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which will prohibit us 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 our company.
11
<PAGE>
Additional authorized shares of common stock and preferred stock available for
issuance may adversely affect the market.
We are authorized to issue 50,000,000 shares of our common stock. As of
September 30, 2000 there were 20,739,350 shares of our 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 25,000 shares of common stock
issuable upon exercise of warrants at $1.00 per share, 25,000 shares of common
stock issuable upon exercise of warrants at $2.00 per share, 665,000 shares of
common stock issuable upon exercise of warrants at $3.00 per share, 1,390,000
shares of common stock issuable upon exercise of warrants at $4.00 per share,
950,000 shares of common stock issuable upon exercise of warrants at $5.00 per
share, 250,000 shares of common stock issuable upon exercise of warrants at
$7.00 per share, 250,000 shares of common stock issuable upon exercise of
warrants at $9.00 per share, 5,875,000 shares of common stock issuable upon
exercise of warrants at $.10 per share, 750,000 shares of common stock issuable
upon exercise of warrants at $.05 per share, 100,000 shares of common stock
issuable upon exercise of warrants at $14.63 per share and 300,000 shares of
common stock issuable upon exercise of warrants at $12.00 per share. In
addition, there are approximately 18,391,000 shares of common stock issuable
upon conversion of outstanding convertible notes (subject to certain
limitations, See "Description of Securities"), approximately 6,000,000 shares of
common stock issuable (subject to certain limitations, See "Description of
Securities") upon conversion of convertible notes that may be purchased by
certain selling securityholders and 15,600 shares of common stock issuable upon
exercise of outstanding options that have been granted pursuant to our Incentive
Stock Option Plan. As a result, any issuance of additional shares of common
stock may cause our current shareholders to suffer significant dilution which
may adversely affect the market. In light of the above described existing
derivative securities, we would be obligated to take steps to have authority to
issue additional shares of common stock.
In addition to the above-referenced shares of common stock which may be
issued without shareholder approval, we have 5,000,000 shares of authorized
preferred stock, the terms of which may be fixed by our Board of Directors. We
presently have no issued and outstanding shares of preferred stock and while we
have no present plans to issue any shares of preferred stock, our 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.
The exercise of outstanding options and warrants and the conversion of
convertible notes may adversely affect the market of our common stock.
The exercise of our outstanding options and warrants and the conversion
of our notes will dilute the percentage ownership of our 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 we 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 we would, in
all likelihood, be able to obtain any needed capital on terms more favorable to
us than those provided in such securities.
12
<PAGE>
Shares eligible for future sale may adversely affect the market.
As of September 30, 2000, we had 20,739,350 shares of our Common Stock
issued and outstanding, 16,334,150 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 a 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 our company 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 our 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 our common stock.
Limitation on director liability.
As permitted by Delaware law, our Certificate of Incorporation limits
the liability of our directors for monetary damages for breach of a director's
fiduciary duty except for liability in certain instances. As a result of our
charter provision and Delaware law, stockholders may have limited rights to
recover against directors for breach of fiduciary duty.
We have no history of paying dividends on our common stock.
We have never paid any cash dividends on our common stock and do not
anticipate paying any cash dividends on our common stock in the foreseeable
future. We plan to retain any future earnings to finance growth. If we determine
that we will pay dividends to the holders of our common stock, there is no
assurance or guarantee that such dividends will be paid on a timely basis. In
addition, pursuant to the terms of our outstanding convertible notes, we are
prohibited from paying any dividends until such notes are repaid in full.
13
<PAGE>
FORWARD-LOOKING STATEMENTS
You should not rely on forward-looking statements in this prospectus.
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates", "believes", "plans",
"expects", "future", "intends" and similar expressions to identify these
forward-looking statements. Prospective investors should not place undue
reliance on these forward-looking statements, which apply only as of the date of
this prospectus. Our actual results could differ materially from those
anticipated in these forward-looking statements for many reasons, including the
risks faced by our company described in "Risk factors" and elsewhere in this
prospectus.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares
owned by the selling securityholders. However, we will receive $11,960,000 if
all of the warrants are exercised. We intend to use all of such proceeds for
working capital and general corporate purposes. Pending use of the proceeds,
they will be invested in short-term, interest bearing securities or money market
funds.
14
<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth the shareholders who are offering their
shares for sale under this prospectus, the amount of shares owned by such
shareholder prior to this offering, the amount to be offered by such shareholder
and the amount to be owned by such shareholders following completion of the
offering. The prior-to offering figures are as of September 30, 2000. All share
numbers are based on information that these shareholders supplied to us. This
table assumes that each shareholder will sell all of its shares available for
sale during the effectiveness of the registration statement that includes this
prospectus. Shareholders are not required to sell their shares.
Beneficial ownership is determined in accordance with SEC rules and
includes voting or investment power with respect to the securities. In the case
of selling securityholders who own convertible notes, the number of shares owned
prior to the offering also includes the number of shares which would be issued
upon conversion in payment of all accrued interest through maturity. As noted
below, some selling securityholders are subject to certain limits on the
conversion of their convertible notes. Therefore, although they are included in
the table below, the number of shares of common stock for some listed persons
may include shares that are not subject to purchase during the 60 day period.
The number of shares registered for resale by each of Mcallum Limited
and Praxis Assets Limited under this prospectus includes shares currently
outstanding and owned by them, shares issuable upon exercise of warrants held by
Mcallum, and, to take into account the fact that the actual conversion rate will
be based on a formula stated in the convertible notes and may fluctuate from the
assumed rate, 200% of the aggregate number of shares of common stock into which
110% of the principal amount of such notes would be convertible. Such holders
may not convert their notes if such conversion would cause such holder's
beneficial ownership of our common stock (excluding shares underlying any of
their unconverted notes) to exceed 9.99% of the outstanding shares of common
stock. However, because of these possible fluctuations in the conversion price
applicable to the convertible notes, the number of shares actually issued to and
sold by selling securityholders who own convertible notes may ultimately be more
or less than the number of shares shown in this table as being held by these
selling securityholders. This variation is due to factors that cannot be
predicted by us at this time. The most significant of these factors is the
future market price of our common stock.
The percentage interest of each selling securityholder is based on the
beneficial ownership of that selling securityholder divided by the sum of the
current outstanding shares of common stock plus the additional shares, if any,
which would be issued to that selling securityholder (but not any other selling
shareholder) when converting debentures or exercising warrants or other rights
in the future. For purposes of presentation in this table, the 9.99% limit
referred to above was disregarded.
15
<PAGE>
<TABLE>
<CAPTION>
Number of Shares
Position with Owned Prior to Percentage of Number of Shares Number of Shares
Name The Company Offering Shares Owned Being Offered Owned After Offering
---- ----------- -------- ------------ ------------- --------------------
<S> <S> <S> <S> <C> <S>
L&M Merchandising None 750,000
Greenwood Capital Principal Stockholder 4,900,000
Partners, Inc.(1)
Magdalena Zafir None 50,000
NBM Investments None 25,000
Frontier Capital Partners, None 527,000
Ltd.(2)
HAA Inc. None 27,000
Phil Lipshitz None 1,000
Zichron Avrahom Abba None 4,000
Avrahom Weiss None 1,000
Congregation Ahavas Chesed None 17,000
M. Bassman None 50,000
Resonance Limited None 448,000
Pokares Corp. None 160,000
Mcallum Limited (3) Principal Stockholder 11,155,172
Montana Bay Ltd. (4) None 375,000
New Sales Limited (5) Principal Stockholder
1,100,000
Margaret Kestenbaum None 50,000
Gold Mine Asset Management Principal Stockholder 3,600,000
Ltd.(6)
Southstone Ltd. None 500,000
Praxis Asset Limited (7) Principal Stockholder 10,405,172
Soreq, Inc. None 500,000
Hosford Trading Corp. None 500,000
Integrity International Ltd. None 500,000
Neot Israel Ltd. None 250,000
Aveze Development Corp. (8) None 450,000
Global Professional Services None 250,000
Ltd.(9)
General Trading Corp.(10) None 165,000
Citywide Consulting, Inc. (11) None 250,000
</TABLE>
16
<PAGE>
(1) The principal stockholder of this entity is Jacob Y. "Rocky" Stefansky, the
Chairman of the Board of Directors of Youthline USA, Inc. He is also the
sole officer and director of this entity. See "Principal Stockholders" and
"Management."
(2) Includes 27,000 currently outstanding and 500,000 shares underlying
warrants at $5.00 per share.
(3) Includes 1,250,000 shares currently outstanding and 250,000 shares
underlying warrants at $4.00 per share. Also represents shares issuable
upon conversion of $2 million in principal amount of our 10% convertible
notes and in lieu of interest thereon. For this selling securityholder, we
are registering 200% of the aggregate number of shares of common stock into
which 110% of the principal amount of such notes would be convertible plus
1,500,000 shares currently held or issuable upon exercise of warrants.
(4) Includes 250,000 shares currently outstanding and 125,000 shares underlying
warrants at $4.00 per share.
(5) Includes 750,000 shares currently outstanding and 350,000 shares underlying
warrants at $4.00 per share.
(6) Includes 3,000,000 shares currently outstanding, 500,000 shares underlying
warrants at $4.00 per share and 100,000 shares underlying warrants at $5.00
per share.
(7) Includes 750,000 shares currently outstanding. Also represents shares
issuable upon conversion of $2 million in principal amount of our 10%
convertible notes and in lieu of interest thereon For this selling
securityholder, we are registering 200% of the aggregate number of shares
of common stock into which 110% of the principal amount of such notes would
be convertible plus 750,000 shares currently held.
(8) Includes 350,000 shares underlying warrants at $3.00 per share and 100,000
shares underlying warrants at $5.00 per share.
(9) Includes 250,000 shares underlying warrants at $3.00 per share.
(10) Includes 165,000 shares underlying warrants at $4.00 per share.
(11) Includes 250,000 shares underlying warrants at $5.00 per share.
17
<PAGE>
PLAN OF DISTRIBUTION
In this section of the prospectus, the term "selling securityholder"
means and includes: (1) the persons identified in the tables above as the
selling securityholders and (2) any of their donees, pledgees, distributees,
transferees or other successors in interest who may (a) receive any of the
common stock offered hereby after the date of this prospectus and (b) offer or
sell those shares hereunder.
The common stock offered by this prospectus may be sold from time to
time directly by the selling securityholders. Alternatively, the selling
securityholders may from time to time offer those shares through underwriters,
brokers, dealers, agents or other intermediaries. The selling securityholders as
of the date of this prospectus have advised us that at that time there were no
underwriting or distribution arrangements entered into with respect to the
common stock offered hereby. The distribution of the common stock by the selling
securityholders may be effected in one or more transactions that may take place
on the OTC Electronic Bulletin Board (including one or more block transaction)
through customary brokerage channels, either through brokers acting as agents
for the selling securityholders, or through market makers, dealers or
underwriters acting as principals who may resell these shares on the OTC
Electronic Bulletin Board; in privately-negotiated sales; by a combination of
such methods; or by other means. These transactions may be effected at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at other negotiated prices. Usual and customary or specifically
negotiated brokerage fees or commissions may be paid by the selling
securityholders in connection with sales of the common stock.
The selling securityholder may enter into hedging transactions with
broker-dealers in connection with distributions of the shares or otherwise. In
such transactions, broker-dealers may engage in short sales of the shares in the
course of hedging the positions they assume with the selling securityholder. The
selling securityholder also may sell shares short and redeliver the shares to
close out such short positions. The selling securityholder may enter into option
or other transactions with broker-dealers which require the delivery to the
broker-dealer of the shares. The broker-dealer may then resell or otherwise
transfer such shares pursuant to this prospectus.
The selling securityholders also may loan or pledge the shares to a
broker-dealer. The broker-dealer may sell the shares so loaned, or upon a
default the broker-dealer may sell the pledged shares pursuant to this
prospectus. Any securities covered by this prospectus which qualify for sale
pursuant to Rule 144 promulgated under the Securities Act may be sold under Rule
144 rather than pursuant to this prospectus. The selling securityholders have
advised us that they have not entered into any agreements, understandings or
arrangements with any underwriters or broker-dealers regarding the sale of their
securities. There is no underwriter or coordinating broker acting in connection
with the proposed sale of shares by the selling securityholders.
Although the common stock covered by this prospectus are not currently
being underwritten, the selling securityholders or their underwriters, brokers,
dealers or other agents or other intermediaries that may participate with the
selling securityholders in any offering or distribution of common stock may be
deemed "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), and any profits realized or commissions received
by them may be deemed underwriting compensation thereunder.
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<PAGE>
At the time a particular offer of common stock is made by or on behalf
of a selling securityholder, to the extent required under applicable rules of
the SEC, we will prepare a prospectus supplement setting forth the number of
shares being offered and the terms of the offering, including the name or names
of any underwriters, dealers, brokers, agents or other intermediaries, if any,
the purchase price paid by any underwriter for securities purchased from the
selling securityholders and any discounts, commissions or concessions allowed or
reallowed or paid to others, and the proposed selling price to the public.
Under applicable rules and regulations under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), any person engaged in a
distribution of the common stock offered hereby may not simultaneously engage in
market making activities with respect to the common stock for a period of up to
five days preceding such distribution. The selling securityholders will be
subject to the applicable provisions of the Exchange Act and the rules and
regulations promulgated thereunder, including without limitation Regulation M,
which provisions may limit the timing of purchases and sales by the selling
securityholders.
In order to comply with certain state securities laws, if applicable,
the common stock offered hereby will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In certain states, the common stock
may not be sold unless they are registered or qualified for sale in such state,
or unless an exemption from registration or qualification is available and is
obtained.
All costs, expenses and fees in connection with the registration of the
common stock offered hereby will be borne by Youthline USA. However, any
brokerage or underwriting commissions and similar selling expenses, if any,
attributable to the sale of the common stock will be borne by the selling
securityholders.
We have agreed to indemnify certain of the selling securityholders
against certain liabilities, including liabilities under the Securities Act of
1933, or to contribute to payments to which any of those securityholders may be
required to make in respect thereof.
19
<PAGE>
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Officers and directors
The names and ages of the directors and executive officers of
Youthline USA 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, Secretary and Director
Emanuel Yarmish 50 Director
Louis Libin 42 Director
Mark Siegel 40 Vice President - Educational Sales
Jay Ricci 49 Vice President - Advertising
Kathleen Hoffman 44 Director of Marketing
Background of Executive Officers, Directors and Significant Employees
JACOB Y. "ROCKY" STEFANSKY, has been a Director of Youthline USA 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, is the co-founder of the Youthline USA newspaper. She has served
as the President, Treasurer and Director of Youthline USA since August 1999 and
the President, Treasurer and Director of our subsidiary, S&S Plus, Inc., since
inception. From 1987 to May 1999 she was a business and finance manager with
AT&T. During this time, Ms. Dodelson was contacted by the Israeli government and
asked to redesign, improve and market the 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
endeavor into an efficient, profitable project. Since 1993, Ms. Dodelson has
been president of Harton Financial, a currency trading company. She has 15 years
experience in business and finance, computer science and marketing. She has a BS
in computer science and a BA in education. Ms. Dodelson is the sister-in-law of
Dr. Gertler.
20
<PAGE>
SUSAN GERTLER PH.D., created and developed the concept of Youthline USA and is
its co-founder, publisher and executive editor. She has served as Vice
President, Secretary and a Director of Youthline USA since August 1999 and has
been Vice President, Secretary and Director of our subsidiary, S&S Plus, Inc.,
since inception. From 1992 to 1994, Dr. Gertler worked as a researcher in a
long-term study. She designed and developed systems in the area of health
psychology, including an on-line application for quantitative analysis of mental
health status. From 1991 to 1993, Dr. Gertler conducted individual and family
therapy in a disadvantaged area. She maintained contact with schools to
coordinate and individualize treatment for optimal social and development
progress. She holds a BA in education and an MA and Ph.D. in clinical psychology
from Fordham University. Dr. Gertler is the sister-in-law of Ms. Dodelson.
EMANUEL YARMISH, has been a Director of Youthline USA 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.
LOUIS LIBIN, has been a Director of Youthline USA since July 2000. Mr. Libin is
a recognized expert in strategic broadcast and communication systems, and has
acted as a consultant and advisor to the FCC and US State Department. From 1996
to present, Mr. Libin has been the President and founder of Broad Comm, a
consulting group specializing in satellite and wireless communications with high
profile clients including GE, NBC, CBS, International Olympic Committee, various
television stations, foreign governments, and a myriad of Internet, wireless,
and broadcast startups.
MARK SEIGEL, has served as Vice President of Educational Sales since March 2000.
From December 1998 to March 2000, he was the Sales and Marketing Vice President
of PCS Revenue Control Systems, Inc., where he. was directly responsible for
more than 500 public school districts and 5,000 individual public school
accounts. During such period, he planned and directed a sales, marketing and
Internet strategy for an industry-leading vendor of computerized school
food-service equipment. Mr. Seigel has also held senior executive positions with
Webspan Communications, Inc. from December 1997 to December 1998, and
MicroWarehouse, Inc from July 1995 to December 1997. He holds an MBA from Adam
Smith University and he served worldwide as a United States Air Force officer
from 1979-1995.
JAY RICCI, has served as Vice President of Advertising since March 2000. He
brings many years of experience in textbook and educational publishing including
product acquisition, development, sales and marketing. Mr. Ricci was a salesman,
acquisitions editor and district sales manager at McGraw Hill educational
publishing from 1976 to 1985. He has served as eastern regional sales manager at
Addison Wesley educational publishing from 1985 to 1990, and as senior executive
editor at Harcourt Brace Jovanovich from 1990 to 1995. In addition, Mr. Ricci
was the national accounts manager for new business development at Rodale
Publishing from 1995 until joining Youthline USA. Mr. Ricci holds a BA in
English/Education from the University of Massachusetts.
KATHLEEN HOFFMANN joined Youthline USA in August 2000 as Director of Marketing.
From January 1998 to August 2000, she was an Account Director at CCM Advertising
in New York City, servicing a variety of consumer services and products. Prior
to CCM, Ms. Hoffmann led the marketing team that successfully launched the
History Channel for A&E Network. Ms. Hoffmann is also credited for being part of
the marketing team that launched the Prodigy On-line service from 1988-1994,
where she developed an on-line promotion. She holds a BA from William Paterson
University and also attended The School of Visual Arts in Manhattan.
21
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors and executive officers, and persons who own more than ten percent
(10%) of a registered class of our equity securities, to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of common stock and other equity securities of Youthline
USA. Officers, directors and greater than ten percent shareholders are required
by SEC regulation to furnish the us with copies of all Section 16(a) forms they
file.
To our knowledge, based solely upon its review of the copies of such
reports furnished to us during the year ended December 31, 1999, all Section
16(a) filing requirements applicable to its officers and directors and greater
than ten percent beneficial owners were satisfied.
ADVISORY BOARDS
Youthline USA has three Advisory Boards in the areas of multimedia,
education, and technology.
Multimedia
The following persons are experts in the field of entertainment, television,
radio, and newspaper. They assist us in delivering top quality media products to
Youthline USA readers.
Mike Glenn, is a former professional basketball player. He is a
literacy advocate for elementary school students across the nation.
Youthline USA is one of his many vehicles for the promotion of
education, and he is a frequent participant in educational programs and
initiatives.
Russell Simmons is a prominent entrepreneur, music star, and
philanthropist. His endeavors include the successful Def Jam Recording,
Phat Farm clothing line, and Rush Philanthropic Arts Foundation.
Dedicated to the education of kids from every walk of life, Mr. Simmons
is a frequent participant in educational programs and initiatives
across the nation.
Mike O'Hara is a business entrepreneur whose experience in marketing
and management have gained him prominent positions with publishers such
as the New York Press and Princeton Packet. He is currently the Chief
Operating Officer of blahblah.com, an exciting new Internet-based
company.
Education
The following experienced educators and psychologists provide
invaluable advice and guidance on the development of the core Youthline USA
products, including news, curriculum, and accountability.
Dr. L'Tanya Sloan, Vice President of Technology In Schools and
President of Ed-Tech Group, has designed and implemented comprehensive
systems that use technology to improve student achievement in many
schools throughout the country.
Irma Feld Getz, independent consultant for Newspapers in Education,
currently works as a consultant to the Philadelphia Inquirer, the New
York Times, and Youthline USA. She has been an advisor to the
Burlington County Times, the Delaware County Times, the New York Post,
and several other newspapers and school districts throughout the
country.
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<PAGE>
Dr. Larry Aber is the Director of National Center for Children in
Poverty.
Sally Hindes, Ed.D. is a Learning Disabilities Consultant.
Technology
The following persons are technology experts who have teamed up to
ensure that Youthline USA stays on the cutting edge of technological advances,
in the worlds of both media and education.
Dr. Howard Brown is Director of DCPS TANF Programs and the Washington,
DC school system. In addition, he is Director of Twenty-first Century
Community Learning Centers.
Mark Gura is the Director of Instructional Technology for the New York
City Board of Education.
DIRECTOR COMPENSATION
Each director of Youthline USA is entitled to receive reasonable
out-of-pocket expenses incurred in attending meetings of the Board of Directors
of Youthline USA but do not receive compensation for services that they have
provided as directors. Youthline USA may elect to pay non-cash consideration in
the form of options to directors in the future. In the future, we may elect a
cash payment as well as a non-cash consideration.
23
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of September
30, 2000 with respect to the beneficial ownership of the outstanding shares of
our Common Stock (20,739,350 as of such date plus, where relevant for particular
beneficial owners, shares which such beneficial owner has the right to acquire)
by (i) any holder known to us owning more than five percent (5%) of the
outstanding shares; (ii) our officers and directors; and (iii) the directors and
officers of Youthline USA as a group:
Number of Shares Percentage (%) of
Name of Beneficial Owner* Common Stock Ownership
------------------------- ------------ ---------
Greenwood Capital Partners, Inc. (2) 4,900,000 23.63%
Jacob Y. "Rocky" Stefansky (2) 8,400,000 34.65%
Emanuel Yarmish (3) 210,000 1.01%
Saki Dodelson (4) 1,845,000 8.42%
Susan Gertler (4) 1,845,000 8.42%
Louis Libin (5) 150,000 .72%
McCallum Limited (6) 2,163,077 9.99%
New Sales Limited (7) 1,100,000 5.22%
Gold Mine Asset Management Ltd. (8) 3,600,000 16.89%
Praxis Assets Limited (9) 2,218,571 9.99%
All Officers and Directors 12,440,000 52.21%
as a group (5 persons) (10)
* Unless otherwise indicated, the address of all persons listed in this section
is c/o Youthline USA, Inc., 4581 US9, Howell, NJ 07731.
(1) Beneficial ownership as reported in the table above has been determined in
accordance with Instruction (4) to Item 403 of Regulation S-B of the
Exchange Act.
(2) Includes (i) 4,900,000 shares owned by Greenwood Capital Partners, Inc.
("Greenwood"), a corporation controlled by Mr. Stefansky, (ii) 1,000,000
warrants exercisable at $.10 per share owned by GIG Consultants Inc.
("GIG"), a corporation controlled by Mr. Stefansky, (iii) 1,500,000
warrants exercisable at $.10 per share, (iv) 333,333 warrants exercisable
at $.10 per share owned by Portugal Investment Group Inc. ("Portugal"), a
corporation controlled by Mr. Stefansky, and (v) 666,667 warrants
exercisable at $.10 per share owned by Katimon Partners Inc. ("Katimon"), a
corporation controlled by Mr. Stefansky. All such warrants expire on
December 31, 2004. See "Certain Transactions."
(3) Represents his indirect minority ownership interest through Greenwood.
(4) Includes 1,170,000 warrants exercisable at $.10 per share and 375,000
warrants exercisable at $.05 per share. Such warrants expire on December
31, 2004. See "Certain Transactions."
(5) Includes 25,000 warrants exercisable at $1.00 per share, 25,000 warrants
exercisable at $2.00 per share and 25, 000 warrants exercisable at $3.00.
Such warrants expire on December 31, 2004. See "Certain Transactions."
(6) The address for this holder is 7 Cours de Rive, 1204 Geneva, Switzerland.
Includes 250,000 warrants exercisable at $4.00 per share through December
31, 2004. Also includes a maximum of 663,077 additional shares of common
stock currently issuable upon conversion of a convertible note. See
"Certain Transactions."
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<PAGE>
(7) The address for this holder is 7 Cours de Rive, 1204 Geneva, Switzerland.
Includes 350,000 warrants exercisable at $4.00 per share through December
31, 2004. See "Certain Transactions."
(8) The address for this holder is c/o Lowe Lippman, 5 St. Kilda Road, St.
Kilda, 3182, Victoria, Australia. Includes 500,000 warrants exercisable at
$4.00 and 100,000 warrants exercisable at $5.00. Such warrants expire on
December 31, 2004. See "Certain Transactions."
(9) The address for this holder is 7 Cours de Rive, 1204 Geneva, Switzerland.
Includes a maximum of 1,468,571 additional shares of common stock currently
issuable upon conversion of a convertible note. See "Certain Transactions."
(10) See Notes (2) through (5) above.
DESCRIPTION OF SECURITIES
GENERAL
The following description of our capital stock does not purport to be
complete and is subject to and qualified in its entirety by our certificate of
incorporation and bylaws, which are included as exhibits to the registration
statement of which this prospectus forms a part, and by the applicable
provisions of Delaware law.
We are authorized to issue up to 50,000,000 shares of common stock,
$.0001 par value per share, of which 20,739,350 shares were issued and
outstanding as of September 30, 2000. Our 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 our common stock are entitled to share equally on a per share basis in
such dividends as may be declared by our Board of Directors out of funds legally
available therefor. There are presently no plans to pay dividends with respect
to the shares of our common stock. Upon our liquidation, dissolution or winding
up, after payment of creditors and the holders of any of our senior securities,
including preferred stock, if any, our assets will be divided pro rata on a per
share basis among the holders of the shares of our 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.
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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. Our Board of Directors 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
As of September 30, 2000, we have 10,605,000 warrants outstanding as
follows: 5,875,000 exercisable at $.10 per share; 750,000 exercisable at $.05
per share; 25,000 exercisable at $1.00 per share; 25,000 exercisable at $2.00
per share; 665,000 exercisable at $3.00 per share; 1,390,000 exercisable at
$4.00 per share; 950,000 exercisable at $5.00 per share; 250,000 exercisable at
$7.00 per share; 250,000 exercisable at $9.00 per share; 300,000 exercisable at
$12.00 per share; and 100,000 exercisable at $14.625 per share. A substantial
portion of the warrants permit the holders to utilize a cashless exercise of
such warrants. All of such warrants other than the warrants exercisable at
$14.625 (which expire on March 31, 2003) 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.
10% CONVERTIBLE NOTES
On September 22, 2000, we sold $4,000,000 in principal amount of our
10% Convertible Notes. The Notes are due March 22, 2001 (which may be extended,
at the option of the holders, until September 22, 2001). The terms of this
transaction are set forth in a Bridge Loan Financing Agreement, a Registration
Rights Agreement and certain related documents. The Notes are convertible at the
lower of a fixed conversion price or a variable conversion price. The variable
conversion price is equal to 75% of the average of the lowest closing bid prices
of our common stock for the three trading days (which need not be consecutive)
during the 15 trading days ending on the trading day immediately preceding the
conversion date. The fixed conversion price is $.70. As of October 11, 2000, the
variable conversion price was $.2175 per share. The conversion price and the
number of shares of common stock underlying the Notes are subject to adjustment
for stock splits, stock dividends, combinations, capital reorganizations and
similar events relating to our common stock.
In no event, however, will the holders of the 10% Convertible Notes be
permitted to convert if the number of shares of common stock issuable upon
conversion would result in beneficial ownership by such holders and their
affiliates or more than 9.99% of the outstanding shares of our common stock.
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The Notes are secured by the grant of a security interest in all of our
assets. The Notes are redeemable at any time by the holders in the event we
default on our obligations or convenants. Each of the following constitutes an
"Event of Default" pursuant to the terms of the Notes.
- We default in the payment of principal or interest on the
Notes and continue to do so for a period of five business
days;
- Any of the representations or warranties that we make in
the Notes, the Bridge Loan Financing Agreement, the
Registration Rights Agreement or in any certificate or
financial or other written statements that we furnish in
connection with the sale of the Notes are deemed to be
false or misleading in any material respect at the time
made;
- We fail to authorize or to cause our transfer agent to
issue shares of common stock upon exercise by the holder
of the conversion rights in accordance with the terms of
the Notes, fail to transfer or to cause our transfer agent
to transfer any certificate for shares of common stock
issued to the holder upon conversion of the Notes and when
required by the Notes or the Registration Rights
Agreement, and such transfer is otherwise lawful, or fail
to remove any restrictive legend on any certificate or
fail to cause our transfer agent to remove such restricted
legend, in each case where such removal is lawful, as and
when required by the Notes, or the Registration Rights
Agreement, and any such failure continues uncured for ten
business days;
- We fail to perform or observe, in any material respect,
any other covenant, term, provision, condition, agreement
or obligation of the Notes and such failure continues
uncured for a period of 30 days after written notice from
the holder;
- We fail to perform or observe, in any material respect,
any convenant, term, provision, condition, agreement or
obligation under the Bridge Loan Financing Agreement or
the Registration Rights Agreement and such failure
continues uncured for a period of 30 days after written
notice from the holder (other than a failure to cause the
registration statement to become effective no later than
the required effective date, as defined and provided in
the Registration Rights Agreement, as to which the cure
period shall be five days).
The Registration Rights Agreement provides that we must pay all
expenses incurred in the registration and certain expenses of the selling
securityholders, including legal fees of counsel to the selling securityholders.
We are obligated to keep the registration statement effective with respect to
the shares underlying the notes until the earliest of: (i) three (3) years after
the last day of the calendar month following the month in which the registration
statement is declared effective by the SEC; (ii) the date when the selling
securityholders may sell the registrable securities under Rule 144 without
volume or other restrictions; or (iii) the date the selling securityholders no
longer own any of the securities.
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Under the terms of the Registration Rights Agreement we are required to
register 200% of the aggregate number of shares into which 110% of the principal
amount of the notes would be convertible plus 1,500,000 shares.
The Registration Rights Agreement provides that we must pay the selling
securityholders liquidated damages equal to: 2% of the outstanding notes for the
first 30 days after certain events occur; plus, on a pro rata basis, 2% of the
notes for each subsequent 30 day period. For example, if the registration
statement is timely filed but is not declared effective until 165 days after
September 22, 2000, we would have to pay liquidated damages of 5% of the
outstanding notes (2% for days 91-120, plus 2% for days 121-150, plus 1% for
days 151-165).
2% SERIES B CONVERTIBLE NOTES
On September 15, 2000, we entered into a securities purchase agreement
relating to the sale of $600,000 of our 2% Series B Convertible Notes. The Notes
are due September 15, 2003. The terms of this transaction are set forth in a
Securities Purchase Agreement, a Registration Rights Agreement and certain
related documents. In September 2000, the holder of such notes purchased
$300,000 principal amount of such notes, which was repaid in full in September
2000. The holder has the option to purchase the balance of $300,000 of such
notes, until September 15, 2002, in $50,000 increments. The Notes are
convertible at $.05 per share. The conversion price and the number of shares of
common stock underlying the Notes are subject to adjustment for stock splits,
stock dividends, combinations, capital reorganizations and similar events
relating to our common stock.
In no event, however, will the holders of the 2% Series B Notes be
permitted to convert if the number of shares of common stock issuable upon
conversion would result in beneficial ownership by such holders and their
affiliates or more than 4.99% of the outstanding shares of our common stock.
The Notes are redeemable at any time by the holders in the event we
default on our obligations or convenants. Each of the following constitutes an
"Event of Default" pursuant to the terms of the Notes.
- We fail to pay or prepay when due, all or any part of the
Notes;
- Trading in our common stock shall have been suspended
(except for suspension of limited durations);
- We fail to perform or observe, in any material respect,
certain covenants in the Securities Purchase Agreement;
The Registration Rights Agreement provides that we must pay all
expenses incurred in the registration and certain expenses of the selling
securityholders. We are obligated to keep the registration statement effective
with respect to the shares underlying the notes until the earliest of: (i)
September 15, 2003; (ii) the date when the selling securityholders may sell the
registrable securities under Rule 144 without volume or other restrictions; or
(iii) the date the selling securityholders no longer own any of the securities.
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DELAWARE ANTI-TAKEOVER LAW PROVISIONS
As a Delaware corporation, we are 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 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 Youthline
USA.
LIMITATION ON LIABILITY OF DIRECTORS
Our certificate of incorporation provides that a director of Youthline
USA will not be personally liable to Youthline USA 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 Youthline USA (i) for
breach of the director's duty of loyalty to Youthline USA 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.
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DIVIDEND POLICY
We have not paid any dividends on our Common Stock since our inception
and do not intend to pay dividends on our common stock in the foreseeable
future. Any earnings which we may realize in the foreseeable future will be
retained to finance the growth of Youthline USA. In addition, pursuant to the
terms of our outstanding convertible notes, we are prohibited from paying
dividends until such notes are repaid in full.
SHARES ELIGIBLE FOR FUTURE RESALE
As of September 30, 2000, we had an aggregate of 20,739,350 shares of
our Common Stock issued and outstanding, 16,334,150 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 our affiliates 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 our securities.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American
Registrar and Transfer Company, 342 East 900 South, Salt Lake City, Utah 84111.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Our bylaws provide that we will indemnify our officers and directors
for costs and expenses incurred in connection with the defense of actions,
suits, or proceedings against them on account of their being or having been
directors or officers of YouthlineUSA, absent a finding of negligence or
misconduct in the performance of their duties.
Insofar as indemnification for liabilities arising under the Securities
Act, may be permitted to directors, officers or persons controlling YouthlineUSA
pursuant to the foregoing provisions, we have been informed that, in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act and is unenforceable.
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OUR BUSINESS
SUMMARY
Youthline USA is an industry leader in the integration of technology
and curriculum, together with the news, into the classroom. Our mission is to
promote reading excellence, combat the digital divide, and offer
school-to-career training through our award-winning weekly newspaper, monthly
magazine, and daily Web site. We have created a niche in the youth and
educational markets by being the only company to offer this total integration of
news, technology, and curriculum basics directly into the classroom. At the same
time, Youthline USA is forging strong relationships with corporate America by
providing them with an effective vehicle for reaching today's youth through
advertising and sponsorships.
Our management team brings extensive experience in business, education,
finance, publishing, marketing, and sales. In three years, the team has
successfully grown the business from a single newspaper to a comprehensive suite
of products and services, in print and on-line, for individuals, schools, and
corporations.
Our products combine to offer schools a solution to the demands of
integrating today's technology while maintaining the standards of the core
reading curriculum. Schools lack the time, resources, and training to fully
manage both challenges successfully. We provide a total solution, whereby
today's technology is already fully integrated with the reading curriculum and
is further supplemented by the print publications.
With this product mix, we address three major marketplaces
simultaneously: the $15-billion interactive educational school marketplace,
advertising for the $17 billion spent each year on consumer goods by and for
children, and the appetite for engaging and informative educational content in
print and online. Correspondingly, management anticipates two main sources of
revenue from these markets: Web site subscriptions (or package subscriptions
that include the Web site, the newspaper, and the magazine) and advertisements
and corporate sponsorships. Among our future growth plans are expansion into
markets abroad and the development of our YouthMall e-commerce service.
MARKETPLACE
The target market for Youthline USA products and services comprises
three major component groups: schools, advertisers and individuals. The school
and home markets have been enthusiastic subscribers to our print products since
our debut in 1997, with weekly circulation reaching 640,000 in the first quarter
of 2000. They will continue as the driving force for our Internet offerings,
beginning primarily in schools and then expanding into the home market. In the
meantime, advertising is expected to generate increased revenues as our market
penetration increases, further enhanced by corporate sponsorships.
Today, there are over 25 million children ages eight to 14 in the
United States. This consumer sector is recognized as a significant portion of
the economic marketplace. In 1996, over $17 billion was spent on purchases for
and by this age group. In 1998, $141 billion was spent on purchases for and by
teens. The financial rewards for corporate entities that successfully address
the needs of this market segment are enormous.
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The educational technology marketplace alone represents at least $15
billion in existing budget dollars. Significantly, schools are desperate for
programs that introduce kids to technology while simultaneously adhering to
curricular standards. This is a major focus of our product offerings.
Clearly, technology is a fundamental force in children's lives - and
will only become more critical in the future - not only for entertainment
purposes but also for schoolwork, career opportunities, and general information
resources. Recent surveys have demonstrated the following relevant facts
regarding Internet usage:
o 68.2% of homes with children have personal computers, 41.0% with Internet
connections.
o 48% of eight- to fourteen-year-old children on-line have computers in their
rooms.
o 19.8% of parents say that the Internet is the medium whose influence most
concerns them.
o 96% of schools have Internet access.
o By the end of 2000, over 80% of all K-12 classrooms in the U.S. will have
Internet access.
Sixty percent of U.S. households with kids under age seven already own
a multimedia-ready PC. With the growth of the sub-$1,000 computer market, this
number is certain to grow. It is important to note that many families are buying
new PCs specifically to access the Web. In 1999, more than half these wired
families were going on-line. This number is certain to grow as Internet
technologies become even more pervasive and as families become more confident in
using their already existing capabilities of getting on-line.
It is clear that most kids in the U.S. have access to and use computers
at home and/or in school. Technology has become a basic part of their everyday
lives, and for many of today's children, technology has become a fundamental
requirement in their educational progress. Most people in the workforce today
have only recently learned how to use the Internet to be more productive, but
Web usage is booming, and the future of the workplace will certainly be more
Internet dependent. Educators in thousands of schools all across the country
realize this and are striving to prepare students for their future in the
workplace.
As we move forward into the next millennium, technology will become
even more tightly integrated into children's lives and their careers as they
grow. Most statistics about computer use these days point to a continuing boom
in young kids on-line, and further studies support strong economic and
productivity gains as a result of integrating technology into school and
business. These trends are taking hold in global markets as well.
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Children's electronic media provides a new and exciting market with a
new paradigm. These changes come with different attitudes and behaviors, as well
as renewed expectations. Youthline USA has created exciting products and
services to reach this market, and our offerings appeal to advertisers who want
an entry into this space as well. At the same time, Youthline USA's newspaper,
Web site, magazine, and educational services maintain the utmost standards of
excellence, allowing parents and educators to trust their content and
presentation, and ultimately promoting greater market penetration.
PRODUCT AND SERVICE OFFERINGS
Youthline USA began in 1997 as a newspaper for children ages eight to
fourteen. Sent to homes and schools, the 16-page publication currently (June
2000) has a national circulation of over 640,000. With the newspaper,
subscribing schools receive curriculum-based lesson plans, to further assist
teachers in incorporating Youthline USA into their classrooms.
During the first quarter of 2000, we introduced our Internet offering,
WWW.YOUTHLINE-USA.COM, which provides schools with the ability to integrate
Internet technology with the reading curriculum. Students use the Web site in
conjunction with the newspaper for educational activities, current events, and
games. These curriculum-based activities, fully customizable by state, focus on
promoting Reading Excellence by grade level. The site also links parents and
educators to important resources, including its LessonStop component, which
serve as a classroom curriculum aid. Youthline USA's accountability component
assesses and provides immediate feedback on student performance.
Among our other products are regional newspaper inserts, monthly
thematic magazines, which provide an attractive vehicle for advertisers and
corporate sponsors, inserts into adult newspapers (in conjunction with
Newspapers in Education, as well as distribution to the home), and the upcoming
YouthMall e-commerce marketplace for kids, parents, and educators.
This unique, comprehensive package provides educators with the tools
they need to fully integrate today's technology into their schools while
maintaining the standards of the reading curriculum. Since Youthline USA
integrates its online reading activities with state curriculum and testing
requirements, students improve both their reading skills and their test results.
At the same time, Youthline USA keeps kids informed about ongoing world and
national events, encourages reading through changing daily content, provides
entertaining and engaging activities, prepares kids for business and careers
through special online features, and helps integrate the Internet into
children's lives. Schools are desperately seeking products and activities such
as these to enable students to understand the present and prepare for the
future. Youthline USA continues to be well received by educators who appreciate
the extraordinary value of the comprehensive technological education that
students acquire by incorporating use of the Internet into their learning. In
recognition of our outstanding offerings, our products received the 1998
Parents' Choice Award, the 2000 Golden Web Award and the 2000 EdPress Finalist
Award.
Youthline USA's product line was designed to promote synergy between
print and on-line usage. As newspaper and magazine subscriptions grow, Web site
traffic is driven upward by references to on-line features. Reciprocally, the
Web site directs users to special print sections, for use at home, in camp, or
when otherwise away from a computer. Partner school districts bring thousands of
Web users, and stickiness is achieved through the continual interactive use of
the newspaper and magazine in the classroom, along with homework assignments
that direct students to the Web site. Usage will become a weekly or daily
activity, and the growing reputation and branding of the Youthline USA name is
expected draw in non-subscribers. This self-reinforcing growth cycle is expected
to continue to attract ever-increasing numbers of advertisers and sponsors.
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THE WEB SITE
There are many Web sites dedicated to children, but Youthline-USA.com
is unique in its wealth of integrated educational and entertainment content. Our
goal is to promote reading excellence, combat the digital divide, and provide
school-to-work training--the greatest challenges facing educators today.
Youthline USA accomplishes this by creating an online environment that trains
students and encourages productive work habits, while maintaining student
interest through its interactive features, puzzles, and contests. Schools across
the nation have signed on to this approach, joining our pilot programs in major
metropolitan areas.
Youthline USA utilizes the latest in Internet technology, such as
streaming videos, sound, and interactive activities, to make the news exciting
and fun. These interactive activities are curriculum based to help students meet
and exceed state reading curriculum standards. To further personalize the user
experience, students can e-mail questions about articles and receive direct
answers. Youthline-USA.com offers regular games and contests about the news, and
student interaction is strongly encouraged by allowing children to write letters
to the editor and see their names in print. In addition, Youthline USA's Kid
Reporters program offers students the opportunity to interview newsmakers and
have an article (with by-line) published in the newspaper.
By basing our technology offerings on the Internet, we take advantage
of the Internet's inherent portability. Subscribing students and teachers
maintain, in essence, an "electronic backpack" which can be accessed from any
location that has an Internet connection. Students can begin activities in
school and continue them at home, or from a friend's house, while teachers can
assign activities and study student assessment scores from any location.
Youthline USA offers other children's programs designed to bring
together children, parents, teachers, and the community. For example,
Design-an-Ad, an activity sponsored by corporate philanthropy, lets kids create,
write, and design their own ads to deliver messages against violence, smoking,
or drug abuse. Prizes are awarded, and the best ads run on the Web site and in
the national newspaper.
Plans for the immediate future include creating a virtual "Epcot
Center" on the Internet, in which each country and state will have its own
interactive video piece, and articles in the newspaper will direct the readers
to the appropriate segment. We also plan a Spanish product offering and a
virtual mentoring program where, via e-mail, selected adults mentor and guide
students with life experience. All these product offerings can be replicated in
numerous global educational markets, anticipating Youthline USA's growth abroad.
Indeed, Youthline USA plans international expansion, initially to other
English-speaking countries (e.g., Canada, England, and Australia).
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Portions of Youthline-USA.com are available to the general public. In
addition, subscribers receive access to the Youthline USA news database, which
consists of thousands of news stories, spanning years of historical events.
Interactive, curriculum-based on-line activities accompany many news articles.
Content is developed with curriculum standards in mind which are fully
customizable for each state, and workshops are arranged to better equip
educators in integrating our products into the classroom.
The ability to enhance the Internet's available content in the growing
educational market is expected to position us as the leader in Internet
educational solutions and will enable us to continue to grow our
subscription-based services. This, in turn, will further increase Youthline
USA's attractiveness to corporate advertisers and sponsors.
THE NEWSPAPER
Youthline USA's 16-page weekly newspaper for kids ages eight to 14 is
similar in every respect to an adult newspaper, except that it is written with
the child's comprehension level in mind. It is designed to grab the attention of
children, but it filters out inappropriate content. Each issue presents an
interesting mix of timely articles on a variety of topics, including politics,
economics, science, and weather. Relevant health and computer issues appear 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 them to different cultures around the world.
Until Youthline USA appeared on the market, this country had no
newspaper suitable for kids. The newspaper has since made a tremendous splash on
the children's publication scene, and our growing suite of products and services
has received an overwhelming response from educators, parents, and children, who
are impressed and excited by our offerings.
As a member of the Associated Press (AP) and a subscriber to the
Reuters News Agency, share news sources with the major newspapers. News stories
and accompanying graphics are both chosen and formatted with the aim of
capturing a young reader's interest. Recognizing that the Youthline USA
readership spans a range of ages and reading levels, writers prepare articles of
different lengths and difficulties so that every reader can find appropriate
articles of interest. All of Youthline USA's content is reviewed by a clinical
psychologist to ensure that it is written with children's best interests in mind
and that it is sensitive to their developmental level.
In addition to introducing children to the world via news, Youthline
USA ignites within its audience an excitement for literature, art, music, and
theater, by reviewing books, movies, and shows, and by describing the lives of
authors, artists, and musicians. It also presents exciting short stories, games,
jokes, puzzles, and weekly detailed science experiments, magic tricks, stock
market activities, 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, and giving readers yet another reason to
return to the pages of Youthline USA.
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The newspaper also 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 its
content and format. Youthline USA clearly marks continuing articles. Difficult
words are printed in bold and defined in the dictionary section at the bottom of
each page. The large print and easy language help start these young readers on
the lifelong road to newspaper reading. The advice column - moderated by a child
psychologist - gives kids a place where they can vent their feelings, worries,
and frustrations. Kids are encouraged to find creative solutions to their
problems. There is also a monthly feature in the newspaper that introduces
children to a variety of professions. By describing different careers,
discussing the skills needed for acquiring these positions, and offering
interviews with skilled workers in these fields, Youthline USA gives children
the information they need to help make their dreams come true.
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 readers have already taken advantage of the opportunity to
express themselves. We encourage 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
breadth of news, 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, like adults
reading their daily newspaper, children will skim Youthline USA in order to pick
and choose what interests them; and second, since parents are often actively
involved in the purchasing decisions for 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. At the same time, Youthline USA reaches children
across every stratum of society. It appeals to all children, in practically any
setting - at home, in school, at camp, in the library, or as part of
after-school programs. Kids read the paper on their own or with their friends,
their parents, or their teachers.
REGIONAL INSERTS
Youthline USA currently includes regional inserts (available in some
areas), four-page supplements with local information covering a specific
geographical area. The inserts feature news, events, sports, and entertainment
information pertaining to the relevant locales and their surrounding areas, and
are available in all Youthline USA newspapers delivered in and around the
targeted regions. Content appearing in regional inserts will also appear on the
Youthline-USA.com Web site and will be complemented by special links to other
sites of interest to kids, parents, and teachers. The first regional insert
targeted the Philadelphia area, and the New York tri-state area began receiving
one in the third quarter of 2000.
MAGAZINE
Each month during the school year, Youthline USA publishes a monthly
magazine with exciting edu-tainment content and activities not generally covered
in such depth by our national newspaper. Features will include: the electoral
process, money matters, forces of nature, adventures in space, school safety,
environmental issues, and other topics of importance to children. In addition to
educational materials, each issue will have engaging activities to reinforce
what is learned in that month's issue. The magazine provides a vehicle for
Youthline USA to present major issues in far greater detail than can be explored
in the newspaper. Since the magazine is a monthly publication, we can devote the
extra time necessary to present the selected topics in the depth they deserve.
The magazine also presents another opportunity for advertisers to reach their
target audience in a familiar format.
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LESSONSTOP
Acquired by Youthline USA in 1999, LessonStop provides an on-line forum
for K-12 teachers to seek, share, and discuss ideas for classroom activities. It
develops Internet-based lesson plans on topics such as creative writing, the
arts, technology, studies in world cultures, science, and mathematics - all for
the entire K-12 range. LessonStop also provides links to over 500 curriculum
sites on the Web, giving teachers access to ready-made plans, templates, and
guidance for creating their own lesson plans. Curriculum resources are
categorized by subject area and sub-topic, as well as by grade level, for easy
searching. The site is experiencing explosive growth in usage, and currently
receives thousands of hits a day.
LessonStop also sends a free biweekly e-mail newsletter to thousands of
educators, with hundreds of new subscribers joining every month. Each issue is
filled with invaluable resources, lesson plans, and related links to help
enhance the K-12 curriculum and to further integrate Youthline USA into the
learning day. Topics in the newsletter cover a broad range and also address
interactive, educational games and activities. Archives of the newsletter and
lesson plans are available through the Web site, as is the Requests, S'il Vous
Plait (RSVP) system, which provides direct assistance in finding specific lesson
plans and information anywhere on the Internet.
ACCOUNTABILITY
All states maintain content standards in English and Mathematics for
all children, and assessments that measure whether students meet these
standards. Many states also include writing. We are developing a site-based
educational accountability system that provides immediate feedback on student
performance in the areas of Language Arts, Reading, Writing, and Mathematics,
for all students in grades four through eight using the on-line version of
Youthline USA. This feedback is aligned to state and local standards.
Last year, at the National Education Summit, governors, and business
leaders concluded that "efforts to set clear, common...academic standards for
students in a given school or school district, or state are necessary to improve
student performance." Without standards, and assessments that measure adherence
to those standards, students, teachers, and the public have no way of knowing
how far they must go reach their goals. Without immediate feedback from
incremental assessments aligned to state and local standards, it is impossible
to realign the delivery of instruction so teachers can deliver instruction on
the basis of improved student performance.
A January 1997 Education Week survey of 1,200 educators, stated that
96% of superintendents and principals and 93% of teachers agreed that "an
effective public education system must be built around rigorous content
standards that describe what students should learn in language arts,
mathematics, science, and history." And 89% of those surveyed agreed that
"states that set standards should also set performance levels that measure
whether students have attained advanced, proficient, or inadequate mastery of
the standards."
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The accountability section of Youthline USA's website is currently
under development. Youthline USA will assist schools and school districts with
determining the degree to which students are performing through incremental
assessments, aligned to the state standardized assessment (Stanford 9, ITBS,
MSPAP, FCAT, MAT etc.) and to state standards. Each student will complete a
specific news story with assessment items (aligned to the state assessment) that
appear at the end of the reading selection. These data will be scored, and
feedback will be provided immediately to teachers, principals, and other
district personnel regarding the degree to which students are "measuring up," as
compared to standardized achievement measures.
Following are the five key elements of the Youthline USA Education
Accountability System which is currently under development:
o Eliminating the Digital Divide. Our instructional model will provide an
opportunity to lessen the disparities that exist in levels of access between
rich and poor and between suburban and inner-city children with regard to the
quality of resources for students provided both on-line, and through print.
o High standards will be maintained through performance-based activities
completed by all students at least three times during the school year. In
addition, standards will be maintained through student participation in various
activities such as the stock market, email communication, and interdisciplinary
high-interest stories with activities.
o Classroom instruction will be transformed as students become actively
engaged in a "business model" that empowers them to make "real life"
corporate-type decisions in the classroom (i.e., daily review of email, stock
market, choices for reading news stories, spending e-Money).
o Ongoing, applied professional growth consisting of site-based teacher
development sessions will ensure both teacher and student proficiency.
o Youthline USA will provide an effective curricular resource that never
attempts to standardize students. Instead, it will operate as a work plan,
providing for focus, connectivity, coordination, and articulation, without
leading to slavish conformity where every teacher or student has exactly the
same lesson on the same day from the same page in the same textbook. Youthline
USA will define the necessary levels of focus and connectivity without leading
to standardization.
Youthline-USA.com will also offer the ability to track results for
every student and every activity. This will offer the educator a complete,
instant snapshot of how students are performing. Youthline-USA.com will be to
send this report card directly to the teacher or school, after all activities
are complete. This instant feedback will make it much easier to judge the
students' needs on a regular basis. Activities will be assigned on a number of
levels. The difficulty level will be to increase as students improve their
performance. The activity level will be tracked for every student, allowing for
a simple way to view each student's progress.
WORKSHOPS
Youthline USA offers free workshops on incorporating its programs into
the classroom. We also continually conduct focus groups and surveys with
children and teachers to gather important data about our features and programs.
With feedback from these two audiences, we regularly enhance and update our
program to ensure the greatest benefit to our users.
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YOUTHMALL
YouthMall, Youthline USA's e-commerce application, is currently under
development. It will offer for sale only products that meet ours rigorous
standards of acceptability. Students who participate regularly in the Stock
Market Game, send a designated number of editorials, or otherwise actively
participate in Youthline USA programs, will earn e-money that entitles them to
purchase selected products, such as approved books from an on-line store.
Students who qualify for e-money will be able to make their selections at the
partner/vendor's Web page. Thus, in addition to learning about e-commerce and
e-money, students who participate will also become familiar with navigating the
Internet. The site will also carry products of interest to parents and
educators, where adults know they can rely on the Youthline USA's standards.
YouthMall is planned for release in the first quarter of 2001.
MARKETING AND SALES STRATEGY
Youthline USA will rely on multiple revenue streams, generated through
school and individual subscriptions, on-line memberships, advertisements, and
corporate sponsorships. These income sources are both synergistic and diverse.
While growth in any one aspect reinforces the other, the business model is not
dependent on any single revenue source to support the enterprise. Furthermore,
these revenue streams are annuities that renew semi-annually, annually, or over
a longer period of time, depending upon the contract basis.
Thus, we focus most of our marketing efforts directly on schools and
district boards of education. This is important for two reasons: first, it helps
build Youthline USA's brand recognition; and second, it significantly limits any
negative impact from competitors. Rapid market penetration and branding of the
Youthline USA name, in addition to widespread partnerships with school districts
and corporations, presents potential competitors with significant barriers to
entry into this lucrative space.
The chief sources of revenue is expected to come from Web site
subscriptions (or package subscriptions that include the Web site, the
newspaper, and the magazine) and advertisements and corporate sponsorships.
Youthline USA will be addressing two major marketplaces simultaneously with its
business model:
o The $15-billion interactive educational school marketplace, in which 96% of
the country's 89,000 elementary schools have Internet access and 80% of all K-12
classrooms are expected to be on-line by 2001.
o The advertising marketplace for the $17 billion in consumer goods purchased
by or for the country's 25 million-plus children between eight and fourteen. To
drive penetration into these markets, the immediate goal on which we are
focusing our attention is to maximize the number of school subscriptions to
Youthline USA's Internet product line.
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Our business strategy includes driving the growth of our customer base by:
o Offering initial pilot program promotions that include incentive pricing
for new strategic subscribers in order to build brand and product loyalty.
o Developing brand recognition through extensive advertising and public
relations activities.
o Contracting with strategic marketing and distribution partners that have
existing or growing customer relationships, thus rapidly expanding the
distribution and sales channels for the Youthline USA product line.
We intend to build a national sales force to directly address schools
and their districts across the country. The plan calls for growing from 10
outside local reps at the end of 2000 to 100 by fourth quarter 2003.
Concurrently, a nationwide network of local ad sales representatives is expected
to be built within the same markets. This sales force will address the
advertising market within these local areas.
We have has already entered into agreements to launch our innovative
Internet service in Atlanta, Memphis, Chicago, New York City, and Washington
D.C. schools. Over the next six months, Youthline USA products and services will
be available in approximately 500 schools. The pilot program will give schools
access to Youthline USA's weekly newspaper and Web site, Youthline-USA.com, a
subscription-based service helping students to develop essential skills needed
to work in tomorrow's career world. Secondary markets for new subscriptions are
companies, organizations, and professionals who provide services for children
(i.e., pediatricians, hospitals, speech therapists, etc.).
The market is extremely eager for interactive news publications for
children. We have sent 640,000 requested subscriptions (of the newspaper) to
schools to ensure widespread usage of the Web site. In addition,
Youthline-USA.com will be placed on all the major search engines and will
advertise on the Internet.
We have focused on six major avenues to obtain paid subscriptions:
1. Sales teams that directly connect with principals and superintendents.
2. Advertisements in library journals and handbooks.
3. Education Express, Inc., a separate non-profit organization established to
distribute Youthline USA to schools and neighborhoods that do not have budgets
to purchase subscriptions. As a non-profit organization, Education Express is
eligible for grants from foundations and corporate philanthropy programs. In
addition, Education Express will solicit donations from local businesses to
"Adopt-A-School." Education Express will, in turn, buy subscriptions from
Youthline USA on behalf of schools and poor neighborhoods.
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4. Direct Mailing. In our first year, Youthline USA utilized direct mailings
in the New York tri-state region with great success, achieving a 2.5% order rate
(considerably higher than the 1.0% considered to be the average for direct mail
offering of new products). Youthline USA will send two mailings to schools per
year on a national scale.
5. Aligning with reading organizations, government agencies, and political
figures to reach every elementary school in the U.S.
Additional marketing tactics being investigated include mail-order
catalogues, booths in shopping malls, TV shopping networks, advertising on the
Internet, and meetings with superintendents throughout the country.
Also, marketing and sales activities will include:
o Pitching articles about Youthline USA in national newspapers and magazines
o Targeting PTAs, teachers', and reading conventions
o Approaching political figures (governors, mayors, senators)
o Publicizing to community groups
o Contacting newspaper organizations
o Marketing through teacher and library organizations
o Targeting media trade journals
o Soliciting Board of Education officials directly
Not only is subscription revenue growth directly generated from Web
site services and circulation growth, but advertisement and corporate
sponsorship revenues are also directly related to circulation. The Web site must
establish a stable subscription base and also demonstrate to its potential
advertisers that subscriptions are increasing significantly from year to year.
Therefore, our main focus will be continued subscription growth for the Web site
and newspaper.
Youthline USA is currently focusing on the U.S. market, but the
newspaper and Web site easily lend themselves to international expansion. World
and regional news can be adapted for individual countries and languages. The
international scope of the Internet offers Youthline USA virtually unlimited
opportunities for growth.
Youthline USA is an attractive marketing vehicle to corporate America
due to its presence in schools, which allows advertisers to reach their market
in a peer environment. This attraction is expected to continue to grow as
Youthline USA penetrates further into the educational marketplace.
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To stand out from its competition, Youthline USA offers advertisers a
number of unusual marketing techniques, aside from standard advertisements in
the newspaper, magazine, and Web site. Some of these marketing opportunities
include:
o Sponsoring Youthline USA contests, including Essay Contests and Design an
Ad Contests. The latter is particularly attractive to companies, since kids
will design their own advertisements for their products.
o Sponsoring a specific page, such as the technology, fashion, or health
page, as befits that company's area of expertise. Other options in this
category include Ask the Expert columns, both in the newspaper and online.
o Inserting stickers and book covers into Youthline USA's weekly newspaper
which contain the company's logo and/or message. Kids will be using these
items daily in a peer environment, an attractive benefit to advertisers.
Advertisers can also print coupons in the paper, or offer coupons as prizes
for activities on the Web site.
o Public companies have the option of participating in Youthline USA's
popular Stock Market Experience. Other companies can join Youthline USA's
online Career Section.
Youthline USA also offers partnerships that consist of a number of the above
opportunities to reach the teen market, at a significant savings over the cost
of individual components.
COMPETITION
Although Youthline USA is unique and there are no direct competitors,
we are aware of competition in specific and distinct areas of our operations.
Management is confident, however, that there are no other entities providing the
comprehensive mix of print and multimedia solutions for educators that Youthline
USA offers.
INTERNET COMPETITION
Youthline USA is keenly aware of the on-line competition for children's
and educational content. Valuable educational content can be found on the Web in
sites dedicated to history, science, mathematics, technology, and virtually any
other subject of interest. Furthermore, even education-focused e-commerce sites
and services (e.g., assessment, lesson plans, etc.) are not in short supply.
Like the Web in general, this content and service area is very dynamic,
and the fast rate of change will quickly render any static competitive analysis
stale and obsolescent. The main players in this market are currently Lightspan,
Inc., Riverdeep Interactive Learning, Discovery School, Classroom Connect and
Mamamedia.com. We believe that Youthline USA's model will be best positioned to
play a major part of this development. Of such companies, our only direct
competitor is Riverdeep; although the company, in our opinion, has robust
offerings in math but not yet fully developed products and content in reading.
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It should be noted that many of the more popular children's sites are
more entertainment-oriented than educational, and we believe these players will
only enhance our position as the premier Web site for educational content. The
more children get used to using the Internet, the easier it will be to break
them in to its multimedia educational concept.
The educational market for on-line content is currently highly
fragmented, with news, entertainment, games, activities, and lesson plans all
coming from separate sources. Youthline USA takes an integrated approach. Its
content generally uses breaking news as its starting point for direct content as
well as its derivative contributions to education. Lesson plans, for instance,
attempt to relate to the news in some way (though often tangentially) in order
to provide a well-rounded approach while emphasizing the fact that life and
education are integrally related. This unified philosophy, which we feel avoids
treating education as the opposite of "real life," has generated overwhelming
interest from school districts throughout the country, with many area school
systems subscribing to Youthline-USA.com.
PRINT COMPETITION
Several well-established and highly successful news publications are marketed
for children:
o Weekly Reader weekly magazine publishes five different editions (PreK-6,
Current Events 6-10, Career World 7-12, Current Health 4-12, Writing 7-10).
Distribution is mostly through school subscriptions, but they also
distribute directly to individuals. Circulation is up to 80% of schools,
demonstrating the penetration possibilities of a good product in this
space.
o Scholastic News weekly magazine publishes five different editions, based on
grade levels 1-5, and markets to classrooms throughout the country. Both
Scholastic News and Weekly Reader are magazines, not newspapers. They offer
current events, not breaking news. This is a major difference for an
educator looking to tie the daily news into her daily curriculum.
o Time for Kids is also a weekly magazine that targets kids ages eight to
fourteen and has a circulation of 2.6 million.
o Sports Illustrated for Kids publishes monthly for home consumption. It
targets kids ages eight to fourteen and has a circulation of 2.6 million.
Obviously, SI's subject matter is not general news.
Management is extremely encouraged by the wide-ranging success and
continuing growth of this group of publications, and we are in no way daunted by
their existence. Youthline USA does not compete with them directly, and differs
from them significantly in several ways. While Youthline USA reaches schools as
part of the curriculum, satisfying McREL standards, the newspaper targets home
usage as well, unlike several of the other publications. It covers breaking news
- with updates and continuations - not just themes and general topics. Youthline
USA is a 16-page newspaper, while most of the others are magazines, and
significantly smaller. It appears weekly throughout the year, rather than
monthly or only during the academic calendar. This underscores its use as an
everyday newspaper for everyone. And Youthline USA is distributed through
schools and via home delivery, and newsstands will be added as well.
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INTELLECTUAL PROPERTY
Our ability to compete successfully and achieve future revenue growth
will depend, in part on our ability to protect our proprietary technology and
operate without infringing the rights of others. We have received our trademark
YouthlineUSA(TM).
EMPLOYEES
As of September 30, 2000, we had 60 full-time employees. We have
employees in production, marketing, administration, and management. None of our
employees are represented by a labor union and we have not experienced any work
stoppages. We consider our employee relations to be good.
FACILITIES
We currently lease approximately 4,533 square feet of general office
space in Howell, New Jersey which serves as our executive offices. The annual
rental is $83,860. The lease expires on October 31, 2004. We also lease an
additional 1,275 square feet of general office space in Cresskill, New Jersey,
to accommodate our editorial staff. The annual rental is $19,125. The lease
expires on April 30, 2003. Our current facilities will provide adequate space to
house the business through our current growth, however, as we continue to
execute our plan, additional operational and administrative space may be
required. We believe that adequate additional space is available on competitive
terms.
LEGAL PROCEEDINGS
There are no material legal proceedings pending to which we are a
party, and we are unaware of any contemplated material legal actions against us.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Youthline USA, through our wholly owned subsidiary, S&S Plus, Inc.,
publishes Youthline USA, a daily website, weekly newspaper and monthly magazine
written and designed for children ages 8 through 14. Youthline USA makes sure
all content is age-appropriate and is designed to attract and engage the
attention of children within this age range. In addition, the Web site offers
curriculum tools for educators, including curriculum-based interactive
activities and accountability tools for tracking student performance.
In August 1999, we acquired all of the outstanding capital stock of S&S
Plus, Inc., a wholly owned subsidiary of Youthline USA 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 Youthline USA. 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.
Youthline USA 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.). We were
organized to effectuate a re-incorporation of Ult-I-Med with and into Youthline
USA 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 on 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.
Presently, we address two multi-billion dollar markets: the technology
education market and Corporate America who advertises to today's youth. To
address the technology education market, we provide curriculum and technology to
schools using our unique web site and the daily news as a base.
Youthline-usa.com provides an integrated language arts curriculum customized by
city and state, to subscribing schools, allowing them to teach their students
the required curriculum while introducing them to the world of technology. Its
appeal to schools is additionally enhanced by the incorporation of lesson plans
and an accountability package that allows educators to track their students
performance.
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We also print a weekly newspaper and monthly magazine to supplement the
web site. The print products encourage further integration of curriculum and
technology and also generates advertisement and sponsorship revenue from
Corporate America. We market ourselves to Corporate America as a unique,
flexible, focused and powerful media for reaching today's youth on a daily,
weekly and monthly basis. We believe that not only corporations which provide
products and services to that age group will advertise, but any corporation
concerned with promoting its products to tomorrow's consumers will consider
advertising and sponsoring on Youthline.
COMPONENTS
We generate revenue from:
1) Website subscriptions to schools-$16 per student per year
2) Newspaper subscriptions-$30 for individual subscriptions; $7 for
bulk subscriptions
3) Magazine subscriptions-$30 for individual subscriptions; $7 for bulk
subscriptions
4) Advertisements and sponsorships-$18,000 per page.
To date, there are 74 schools in 6 states who have subscribed to our
web site, generating $588,236.00 in revenue, which is expected to be recognized
over a period of six months to three years. Inasmuch as the products are new and
that the concept is new, management believes that this is a strong beginning
that demonstrates the appeal our products will have to schools nationwide.
To date, the following entities have advertised with Youthline: Phillip
Morris, The Academy of Natural Sciences, The American Red Cross, The Annenberg
Center-International Children's Festival, The Crayon House, Creative Kids, The
Harlem Globetrotters, Kewlminds/Global Children's Network, Loews/Sony Theatres,
New York City Police Museum, Radio Disney, Sesame Place, Six Flags Great
Adventure, Space Farms Zoo, The Sound of Music, Spotco/Suessical and Welcome
America.
Management believes that as name recognition grows, our list of advertisers will
also grow significantly.
Year Ended December 31, 1999 compared to Year Ended December 31, 1998.
Results Of Operations
In 1999 and 1998, our main source of revenues were from the sale of
newspaper subscriptions. Total revenues from subscriptions were $168,967 and
$14,707 for 1999 and 1998, respectively. We incurred net operating losses of
$4,787,000 in 1999, compared to $322,351 in 1998. The losses incurred in 1999
included expenses from the issuance of our common stock and warrants recorded at
the fair market value at the time of issuance. The aggregate amount expensed in
1999 was $3,403,768 from common stock and warrants issued for services. We
incurred substantial costs for printing, reproduction, mailing and design of the
newspaper during these periods. Additionally, we incurred substantial costs in
marketing, advertising and payroll expense during the initial start up of
operations.
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Revenues.
During the year ended December 31, 1999, sales revenues increased
$154,260, (1,048%) to $168,907 from $14,707 for the corresponding period in
1998. The increase was attributable to increased subscribers and advertising
revenues.
Cost of Goods Sold.
These costs include, but are not limited to printing and distribution
costs. Until September 1999 we printed 20,000 copies each week. The printing
costs per newspaper are very high when printing so few (as much as $.10 per
newspaper). However, now that we print over 550,000 newspapers per week, the
cost per newspaper has been lowered to $.04 per newspaper. We therefore expect
to see a significant profit on every paid subscription. Costs of goods sold also
include mailing and shipping costs. During 1999 costs of goods sold was
$321,320, an increase of $158,096 or 92% from 1998. This increase was
attributable to an increase in paid and unpaid subscriptions.
Net Losses and Unusual Charges.
We incurred a net loss from operations of $4,787,000, or $.51 per share
as compared to a loss of $322,351, or $.06 per share in the comparable period in
1998. During 1999, we recorded an aggregate of $3,403,768 of charges to the
income statement. Theses charges consisted of $1,352,868 in common stock issued
for services and $1,800,900 of services recorded at the fair market value of
warrants issued to employees and consultants and $250,000 representing the
intrinsic value of the conversion feature of the convertible promissory notes.
The fair market value of the warrants were computed using the Black-Scholes
Option Pricing Model at the time the warrants were granted. See Note 12 to the
financial statements.
Operating Expenses.
Operating expenses during 1999 increased as follows: payroll costs
increased $406,943 to $455,324 (an increase of 411%) from $48,381 for the
corresponding period in 1998. The increase was attributable to a substantial
increase in the number of employees hired as support staff. Professional fees
increased $143,615 to $158,060 (an increase of 994%) from $14,445 for the
corresponding period in 1998. The increased professional fees were mainly legal
and accounting fees relating to our reorganization. Selling expenses increased
$281,666 to $333,580 (an increase of 543%) from $51,914 for the corresponding
period in 1998. General & administrative costs increased $137,181 from $25,047
(an increase of 548%) from $25,048 for the corresponding period in 1998. The
increase in selling expenses and general and administrative expenses is
attributable to the continued investment in our aggressive sales and marketing,
finance and other general and administrative infrastructure necessary to support
our business development and expansion.
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Interest Expense.
Interest expense increased $1,339,734 to $1,362,952 (including non-cash
adjustments of $1,275,500) for the year ended December 31, 1999 from $23,218 for
the corresponding period ending December 31, 1998. The increase is primarily
associated with the increased borrowing used to fund our operations as well as
our expansion and the non-cash adjustments.
Interest Income.
Interest income was $3,786 in 1999 compared to $0 in 1998. This
increase was attributable to higher average balances of invested cash and cash
equivalents.
During the 1999 period, we increased our (non-paid) circulation to
550,000 subscriptions, which should significantly increase its revenues in the
coming year. We, however, will continue to incur expenses attributable to the
growth of our business and therefore, management cannot estimate the amount of
losses it may incur in the future.
Income Taxes.
We incurred substantial losses form its inception through the current
period. From inception to August 16, 1999, we operated as a Sub-Chapter S
corporation. Accordingly, losses aggregating $1,300,493 generated during this
period flowed through to the individual shareholders. Subsequent to the
reorganization, losses aggregating $3,986,745 incurred by us will be utilized
against future operating profits. However, as a result of the net operating
losses sustained by us, a provision for corporate taxes was not required and
deferred taxes will be recognized when we achieve profitability.
Year Ended December 31, 1998 compared to Year Ended December 31, 1997.
Results Of Operations
Revenues.
Revenues for the calendar year ended December 31, 1998 were $14,707, an
increase of $4,604 or 46% from the prior year. The increase was attributable to
increased paid subscriptions from the prior year.
Costs of Goods Sold.
During 1998 costs of goods sold was $163,224, an increase of $95,247 or
140% from 1997. This increase was attributable to an increase in paid and unpaid
subscriptions.
Operating Expenses.
Operating expenses during 1998 increased as follows: payroll costs
increased $48,381 compared to the corresponding period in 1997. We incurred no
payroll expense during its inception period in 1997. The increase was mainly
attributable to the hiring of several support staff. Professional fees
increased. Selling expenses and general and administrative decreased $21,958 to
$91,706 (a decrease of 19%) from $113,664 for the corresponding period in 1997.
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Interest Expense.
Interest expense increased $22,955 to $23,218 for the year ended
December 31, 1998 from $263 for the corresponding period ending December 31,
1997. The increase is primarily associated with increased borrowing used to fund
our operations as well as our expansion.
Six Months Ended June 30, 2000 compared to Six Months Ended June 30, 1999.
Results of operations
In 1999 and 1998, our main source of revenues were from the sale of
newspaper subscriptions. For the six months ended June 30, 2000 the main source
of revenues was from subscriptions to our web site. Web site subscriptions
aggregated $478,856 (84%) of the $567,035 in gross revenues earned. Total
revenues from subscriptions were $567,035 and $29,559 for the six months ended
June 30, 2000 and 1999, respectively. We incurred net operating losses of
$9,257,377 in 2000, compared to $133,883 in 1999. The losses incurred for the
six months ended June 30, 2000 included $1,378,000 of interest expense utilizing
the intrinsic value of the beneficial interest of the convertible notes issued
in the first quarter ending March 31, 2000, $1,790,000 in the value of warrants
issued and $2,521,406 in stock issued for services. We incurred substantial
costs for printing, reproduction, mailing and design of the newspaper during
these periods. Additionally, we incurred substantial costs in marketing,
advertising and payroll expense.
Revenues.
During the six months ended June 30, 2000, sales revenues increased
$537,476, to $567,035 from $28,559 for the corresponding period in 1999. The
increase was attributable to increased subscribers and advertising revenues and
$478,000 in web subscriptions.
Cost of Goods Sold.
These costs include, but are not limited to printing and distribution
costs. During the six months ended June 30, 2000 costs of goods sold was
$1,336,643, an increase of $1,273,490 or 2,000% from the corresponding period in
1999. This increase was attributable to an increase in paid and unpaid
subscriptions.
Net Losses and Unusual Charges.
We incurred a net loss from operations of $9,257,377, or $.81 per share
as compared to a loss of $133,683, or $.02 per share in the comparable period in
1999. During the first two quarters ending June 30, 2000, we recorded $1,378,000
of interest expense utilizing the intrinsic value of the beneficial interest of
the convertible notes issued, and $4,311,406 of warrants and stock issued for
services.
49
<PAGE>
Operating Expenses.
Operating expenses during the six months ended June 30 2000 increased
as follows: payroll costs increased $959,842 to $981,543 from $21,701 for the
corresponding period in 1999. The increase was attributable to a substantial
increase in the number of employees hired as support staff. Professional fees
increased $86,842 to $94,055 (an increase of 1,897%) from $7,213 for the
corresponding period in 1999. The increased professional fees were mainly legal
and accounting fees. Selling expenses increased $917,423 to $955,587 (an
increase of 1,651%) from $38,164 for the corresponding period in 1999. General &
administrative costs increased $298,214 from $20,616 (an increase of 1,447%) for
the corresponding period in 1999. The increase in selling expenses and general
and administrative expenses is attributable to the continued investment in our
aggressive sales and marketing, finance and other general and administrative
infrastructure necessary to support our business development and expansion.
Interest Expense.
Interest expense increased $2,937,933 to $2,947,047 for the six months
ended June 30, 2000 from $9,111 for the corresponding period ending June 30,
1999. The increase is primarily associated with the increased borrowing used to
fund the operations of Youthline USA as well as its expansion. Included in
interest expense is $2,678,500 issued for stock, warrants and the intrinsic
value of interest on convertible notes.
Interest Income.
Interest income was $3,267 for the six months ended June 30, 2000
compared to $0 in 1999. This increase was attributable to higher average
balances of invested cash and cash equivalents.
Circulation.
During the six month period that ended June 30, 2000, we increased our
(non-paid) circulation to 750,000 subscriptions, which should significantly
increase our revenues in the coming year. We, however, will continue to incur
expenses attributable to the growth of our business and therefore, management
cannot estimate the amount of losses it may incur in the future.
Income Taxes.
We incurred substantial losses from our inception through the current
period. From inception to August 16, 1999, we operated as a Sub-Chapter S
corporation. Accordingly, losses aggregating $1,300,493 generated during this
period flowed through to the individual shareholders. Subsequent to the
reorganization, losses aggregating $7,966,884 incurred by us will be utilized
against future operating profits. However, as a result of the net operating
losses sustained by us, a provision for corporate taxes was not required and
deferred taxes will be recognized when we achieve profitability.
50
<PAGE>
Liquidity and capital resources.
Management anticipates that the continued increase in subscribers will
increase advertising revenues and any future additional proceeds from financings
will result in improved liquidity during the coming year. We do not have any
plans that would materially affect our current demands and to the best of
management's belief there are no events that would result in major increase or
decreases in our liquidity other than in the normal course of our operations.
To date we have funded our operations and expansion through bridge
financing, capital contribution and the sale of convertible promissory notes.
Our potential sources of liquidity will be additional financings through the
sale of convertible notes and credit facilities with banks. At June 30, 2000,
our current assets consisted of $164,760 of cash, $613,321 of receivables and
prepaid expenses of $57,275. At June 30, 2000 the current liabilities exceeded
its currents assets by $2,961,224. At June 30, 2000, current debt consisted of
$2,500,000 convertible promissory notes and accounts payable and accrued
expenses of $1,227,971, and $148,609 unearned revenue which will be recognized
over the next three months. We issued approximately $5,500,000 in various
convertible notes during the three months ended September 30, 2000. These notes
will continue to fund our operating deficit. Management anticipates that it will
satisfy its liquidity and capital requirements in the coming year through
additional capital and funds generated by operations.
51
<PAGE>
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 annually 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.
In May 2000, Mr. Stefansky, the Company's Chairman of the Board, loaned
the Company $125,000, interest free. This loan was repaid in May 2000.
In May 2000, Portugal, a company controlled by Mr. Stefansky, the
Company's Chairman of the Board, loaned the Company $225,000, which loan
proceeds were discounted by 10%. This loan was repaid in June 2000. In July
2000, Portugal loaned the Company an additional $200,000, interest free, which
loan was repaid in July 2000.
In April 2000, Ms. Dodelson loaned the Company, interest free,
$120,000, which loan was repaid in April 2000. In August 2000, Ms. Dodelson
loaned the Company, interest free, $18,000, which loan was repaid in September
2000.
In July 2000, the Company issued a warrant to GIG, a company controlled
by Mr. Stefansky, to purchase up to 1,000,000 shares of Common Stock at $.10 per
share at any time prior to December 31, 2004. Such warrant was issued in
consideration of the cancellation of warrants previously issued by the Company
to GIG for the purchase of up to 1,200,000 shares of Common Stock (300,000
shares of Common Stock at $3 per share, 300,000 shares of Common Stock at $5 per
share, 300,000 shares of Common Stock at $7 per share and 300,000 shares of
Common Stock at $10 per share).
In July 2000, the Company issued a warrant to Mr. Stefansky, to
purchase up to 1,500,000 shares of Common Stock at $.10 per share at any time
prior to December 31, 2004, in consideration for services rendered to the
Company by Mr. Stefansky.
In July 2000, the Company issued a warrant to Katimon, a company
controlled by Mr. Stefansky, to purchase up to 666,667 shares of Common Stock at
$.10 per share at any time prior to December 31, 2004. Such warrant was issued
in consideration of the cancellation of a warrant previously issued by the
Company to Katimon for the purchase of up to 800,000 shares of Common Stock at
$1.00 per share.
In July 2000, the Company issued a warrant to Portugal to purchase up
to 333,333 shares of Common Stock at $.10 per share at any time prior to
December 31, 2004. Such warrant was issued in consideration for the cancellation
of a warrant previously issued by the Company (in connection with a loan
described above) to Portugal for the purchase of up to 400,000 shares of Common
Stock at $ 1.00 per share.
52
<PAGE>
In July 2000, the Company issued to Saki Dodelson, the Company's
President, a warrant to purchase up to 1,170,000 shares of Common Stock at $.10
per share at any time prior to December 31, 2004, for services rendered and in
lieu of warrants previously issued by the Company to Ms. Dodelson (for the
purchase of 325,000 shares at $1.00 per share, 25,000 shares at $3.00 per share,
62,500 shares at $5.00 per share, 50,000 shares at $7.00 per share and 62,500
shares at $10.00 per share).
In July 2000, the Company issued to Susan Gertler, the Company's
Secretary, a warrant to purchase up to 1,170,000 shares of Common Stock at $.10
per share at any time prior to December 31, 2004, for services rendered and in
lieu of warrants previously issued to Ms. Gertler by the Company (for the
purchase of 325,000 shares at $1.00 per share, 25,000 shares at $3.00 per share,
62,500 shares at $5.00 per share, 50,000 shares at $7.00 per share and 62,500
shares at $10.00 per share).
In July 2000, the Company issued 750,000 shares of common stock and
350,000 warrants (exercisable at $4.00 per share) to New Sales Limited, a
principal stockholder of the Company, in consideration of $1,500,000.
In July 2000, the Company issued 500,000 shares of common stock and
250,000 warrants (exercisable at $4.00 per share) to McCallum Limited
("McCallum"), a principal stockholder of the Company, in consideration of
$1,000,000.
In September 2000, the Company (in connection with the issuance of a $2
million convertible note) issued 750,000 shares to McCallum. The note bears
interest at 10% per annum and is due March 2001, which may be extended by the
option of the holder to September 2001. The note is convertible at the option of
the holder into shares of common stock at the lower of $.70 or 75% of the market
price (as defined in the note) of the Company's common stock. The holder may not
convert such note into shares of common stock if, as a result of such
conversion, it would beneficially own more than 9.99% of the outstanding common
stock. Based upon the number of shares outstanding as of the date of the mailing
of this Proxy Statement, the holder would be entitled to convert a portion of
the note into 663,077 additional shares of common stock. This figure could
increase in certain instances, such as, for example, if the Company issues
additional shares of common stock or if the holder disposes of all or a portion
of its common stock. See "Principal Stockholders".
In September 2000, the Company (in connection with the issuance of a $2
million convertible note) issued 750,000 shares to Praxis Assets Limited. The
note bears interest at 10% per annum and is due March 2001, which may be
extended by the option of the holder to September 2001. The note is convertible
at the option of the holder into shares of common stock at the lower of $.70 or
75% of the market price (as defined in the note) of the Company's common stock.
The holder may not convert such note into shares of common stock if, as a result
of such conversion, it would beneficially own more than 9.99% of the outstanding
common stock. Based upon the number of shares outstanding as of the date of the
mailing of this Proxy Statement, the holder would be entitled to convert a
portion of the note into 1,468,571 additional shares of common stock. This
figure could increase in certain instances, such as, for example, if the Company
issues additional shares of common stock or if the holder disposes of all or a
portion of its common stock. See "Principal Stockholders".
In August 2000, the Company issued to Louis Libin, a director of the
Company, 75,000 shares of Common Stock and warrants for the purchase of up to
25,000 shares at $5.00 per share, up to 25,000 shares at $7.00 per share and up
to 25,000 shares at $10.00 per share, in consideration of consulting services to
be performed by Mr. Libin on behalf of the Company. In September 2000, the
Company reduced the exercise prices of such warrants to $1.00, $2.00 and $3.00,
respectively.
53
<PAGE>
In September 2000, the Company issued to each of Ms. Dodelson and Ms.
Gertler warrants for the purchase of 375,000 shares at $.05 per share. Such
warrants expire on December 31, 2004.
In September 2000, the Company issued 3,000,000 shares of common stock
to Gold Mine Asset Management Ltd., a principal stockholder of the Company, for
international financial consulting services.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
Prior to August 1999, our 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".
The following table sets forth the range of high and low closing sales
prices for the Common Stock, in the 3rd and 4th Quarter of 1999, and the 1st,
2nd and 3rd quarter of 2000, as reported by the OTC Bulletin Board. The trading
volume of our securities fluctuates and may be extremely limited (or
non-existent) during certain periods. As a result, the liquidity of an
investment in our securities may be adversely affected. For several years prior
to August 1999, our Common Stock did not trade.
Common Stock
High Low
---- ---
1999
----
Quarter ended
September 30, 1999* $10-3/8 $3
Quarter ended
December 31, 1999 $10 $3
2000
----
Quarter ended
March 31, 2000 $12-1/2 $8-1/2
Quarter ended
June 30, 2000 $ 9-7/8 $2.687
Quarter Ended
September 30, 2000 $ 3-1/8 $.25
* Limited trading on the OTC Bulletin Board commenced in August 1999.
On October 10, 2000, the last sales price as reported by the OTC
Bulletin Board was $.30 for each share of Common Stock. As of September 30,
2000, there were 20,739,350 shares of Common Stock outstanding, held of record
by approximately ___ record holders.
54
<PAGE>
DIVIDEND POLICY
It is the policy of the Board of Directors to retain earnings for use
in the maintenance and expansion of our business. We have 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. We are also prohibited from
declaring dividends pursuant to our outstanding convertible notes.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
No executive officer received compensation in excess of $100,000 in
fiscal years 1998 and 1999. Each director of Youthline USA is entitled to
receive reasonable out-of-pocket expenses incurred in attending meetings of the
Board of Directors of Youthline USA but are not compensated for services
provided in their capacities as directors.
EMPLOYMENT AGREEMENTS
We have entered into five-year employment agreements with each of Saki
Dodelson (President) and Susan Gertler (Vice President and Secretary). The
employment agreements (as amended) provide for annual base salaries of $160,000
each. The agreement also calls for the issuance of 20,000 warrants at an
exercise price of $.10 per share and payment of 1% in cash, for each $1,000,000
of revenues received by us commencing January 1, 2001. In addition, signing
bonuses of $20,000 remain outstanding pursuant to the terms of the agreements.
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 us following termination of employment.
We have entered into a five-year employment agreement with Mark Siegel
(Vice President-Educational Sales). The employment agreement provides for an
annual base salary of $145,000. The agreement also calls for commissions to be
paid to Mr. Siegel based upon certain agreed upon revenue thresholds. The
employment agreement contains covenants not to compete with us following
termination of employment.
STOCK OPTION PLANS AND AGREEMENTS
Incentive Option Plan - In January 2000, our Directors adopted and the
stockholders of Youthline USA approved the adoption of Youthline USA 2000
Incentive Stock Option Plan ("Incentive Option Plan"). The purpose of the
Incentive Option Plan is to enable us to encourage key employees and Directors
to contribute to the success of Youthline USA by granting such employees and
Directors incentive stock options ("ISOs").
The Incentive Option Plan will be administered by the Board of
Directors or a committee appointed by the Board of Directors ("Committee") which
will determine, in its discretion, among other things, the recipients of grants,
whether a grant will consist of ISOs or a combination thereof, and the number of
shares to be subject to such options.
55
<PAGE>
The Incentive Option Plan provides for the granting of ISOs to purchase
Common Stock at an exercise price to be determined by the Board or the Committee
not less than the fair market value of the Common Stock on the date the option
is granted.
The total number of shares with respect to which options may be granted
under the Incentive Option Plan is 4,000,000. ISOs may not be granted to an
individual to the extent that in the calendar year in which such ISOs first
become exercisable the shares subject to such ISOs have a fair market value on
the date of grant in excess of $100,000. No option may be granted under the
Incentive Option Plan after January 2010 and no option may be outstanding for
more than ten years after its grant. Additionally, no option can be granted for
more than five (5) years to a stockholder owning 10% or more of our outstanding
Common Stock and such options must have an exercise price of not less than 110%
of the fair market value on the date of grant.
Upon the exercise of an option, the holder must make payment of the
full exercise price. Such payment may be made in cash or in shares of Common
Stock, or in a combination of both. We may lend to the holder of an option funds
sufficient to pay the exercise price, subject to certain limitations.
The Incentive Option Plan may be terminated or amended at any time by
the Board of Directors, except that, without stockholder approval, the Incentive
Option Plan may not be amended to increase the number of shares subject to the
Incentive Option Plan, change the class of persons eligible to receive options
under the Incentive Option Plan or materially increase the benefits of
participants.
As of September 30, 2000, there were 15,600 options outstanding that
were issued to several of our employees (none of whom are executive officers or
directors). The options are exercisable at $.25 per share and expire on December
31, 2005.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
YouthlineUSA by Berlack, Israels & Liberman LLP, New York, New York.
EXPERTS
Certain of the financial statements of Youthline USA included in this
prospectus and elsewhere in the registration statement, to the extent and for
the periods indicated in their reports, have been audited by Michael C.
Finkelstein & Co., independent certified public accountants, whose reports
thereon appear elsewhere herein and in the registration statement.
AVAILABLE INFORMATION
Reports and other information filed by us 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.
56
<PAGE>
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.
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 SB-2. The Registration
Statement may be inspected and copied at the places set forth above.
57
<PAGE>
TABLE OF CONTENTS
-----------------
Independent Auditors' Report............................................. 1
Accountants' Review Report............................................... 2
Consolidated Balance Sheets as of
December 31, 1999 (audited) and June 30 2000 (unaudited)............... 3-4
Consolidated Statements of Operations for the Years Ended
December 31, 1999 and 1998 (audited) and for the Six
Months Ended June 30 2000 and 1999 (unaudited)......................... 5
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1999 and 1998 (audited) and for
the Six Months Ended June 30 2000 and 1999 (unaudited)................. 6
Consolidated Statements of Cash Flows for Years Ended
December 31, 1999 and 1998 (audited) and for the Six
Months Ended June 30 2000 and 1999 (unaudited)......................... 7
Notes to the Financial Statements........................................ 8-22
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and
Shareholders YouthLine USA, Inc.
We have audited the consolidated balance sheet of YouthLine USA, Inc. (the
"Company") as of December 31, 1999 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the years ended
December 31, 1999 and 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of YouthLine USA, Inc. as of
December 31, 1999, and the results of their operations and their cash flows for
the years ended December 31, 1999 and 1998 in conformity with generally accepted
accounting principles.
As discussed in Note 7, effective January 1996, the Company adopted a new basis
of accounting, whereby all remaining assets and liabilities were adjusted to
their estimated fair values upon confirmation under chapter 11 by the United
States Bankruptcy Court for the Northern District of Texas. The reorganization
plan under chapter 11 was consummated on September 24, 1999. Accordingly, the
financial statements for periods subsequent to the reorganization are not
comparable to the financial statements presented for prior periods.
Michael C. Finkelstein & Co., CPA
Morganville, New Jersey
February 22, 2000
1
<PAGE>
To the Board of Directors and Shareholders
YouthLine USA, Inc.
ACCOUNTANTS' REVIEW REPORT
--------------------------
We have reviewed the accompanying statements of financial position of YouthLine
USA, Inc. as of June 30, 2000 and 1999, and the related statements of
operations, cash flows and stockholders' equity for the six month periods then
ended, in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants.
A review of the interim financial statements consists principally of obtaining
an understanding of the system for the preparation of interim financial
statements, applying analytical review procedures to financial data and making
inquires of persons responsible for financial and accounting matters. It is
substantially less in scope than an examination in accordance with generally
accepted auditing standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole. Accordingly we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles applied on a consistent basis.
Michael C. Finkelstein & Co., CPA
Morganville, New Jersey
August 15, 2000
2
<PAGE>
<TABLE>
YOUTHLINE USA, INC.
CONSOLIDATED BALANCE SHEET
<CAPTION>
ASSETS
December 31, June 30,
1999 2000
---------- ----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 572,720 $ 164,760
Accounts Receivable 91,542 613,321
Stock Subscriptions Receivable - 80,000
Prepaid Expenses 20,753 57,275
---------- ----------
TOTAL CURRENT ASSETS 685,015 915,356
---------- ----------
FIXED ASSETS
Office equipment and software (net of
accumulated depreciation of $35,071 and $55,948, respectively) 107,795 227,030
---------- ----------
OTHER ASSETS
Organization costs (net of
accumulated amortization of $2,578 and $3,163, respectively) 3,272 2,687
Intangible Assets - Trademarks, Goodwill and Customer Lists
(Net of accumulated amortization of $33,500 and $13,000, respectively) 192,000 171,500
---------- ----------
TOTAL OTHER ASSETS 195,272 174,187
---------- ----------
TOTAL ASSETS $ 988,082 $1,316,573
========== ==========
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
<TABLE>
YOUTHLINE USA, INC.
CONSOLIDATED BALANCE SHEET
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, June 30,
1999 2000
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 203,938 $ 1,227,971
Unearned Revenue 76,180 148,609
Current Portion of Notes Payable 1,530,000 2,500,000
------------ ------------
TOTAL CURRENT LIABILITIES 1,810,118 3,876,580
------------ ------------
LONG TERM LIABILITIES
Notes Payable 220,000 250,000
------------ ------------
TOTAL LONG TERM LIABILITIES 220,000 250,000
------------ ------------
TOTAL LIABILITIES 2,030,118 4,126,580
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred Stock, $.0001 Par Value, 5,000,000 Shares Authorized,
No Shares Outstanding - -
Common Stock, $.0001 par value, 50,000,000 Shares Authorized;
10,071,665 and 11,639,165 shares issued and outstanding, respectively, 1,007 1,164
Additional Paid In Capital 4,244,195 11,733,444
(Deficit) (5,287,238) (14,544,615)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (1,042,036) (2,810,007)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 988,082 $ 1,316,573
============ ============
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
<TABLE>
YOUTHLINE USA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
AND FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<CAPTION>
December 31, June 30,
1998 1999 1999 2000
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 14,707 $ 168,967 $ 29,559 $ 567,035
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Cost of Goods Sold (Exclusive of Depreciation and Amortization,
shown separately below) 163,224 321,320 63,153 1,336,643
Employee Stock Based Compensation - 1,550,000
Payroll and Related Costs 48,381 1,355,324 21,701 1,021,543
Consulting Services - 1,228,268 - 1,558,545
Selling Expenses 51,914 333,580 38,164 955,587
Professional Fees 14,445 158,060 7,213 94,055
General and Administrative 25,047 162,228 20,616 318,830
Depreciation and Amortization 10,529 34,035 3,281 41,962
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 313,540 3,592,815 154,128 6,877,165
------------ ------------ ------------ ------------
Loss from operations before provision for income taxes (298,833) (3,423,848) (124,569) (6,310,130)
------------ ------------ ------------ ------------
OTHER INCOME AND EXPENSES
Interest Expense (Net of Interest Income of $3,267 in 2000
and $0 in 1999) 23,218 1,362,952 9,114 2,947,047
------------ ------------ ------------ ------------
Loss before provision for Income Taxes (322,051) (4,786,800) (133,683) (9,257,177)
------------ ------------ ------------ ------------
PROVISION FOR STATE INCOME TAX 300 200 200 200
------------ ------------ ------------ ------------
Net Loss $ (322,351) $ (4,787,000) $ (133,883) $ (9,257,377)
============ ============ ============ ============
Net Loss per Common Share (Basic and Diluted) $ (0.06) $ (0.51) $ (0.02) $ (0.85)
============ ============ ============ ============
Weighted Average Common Shares Outstanding 5,507,972 9,435,216 5,508,200 10,855,415
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
<TABLE>
YOUTHLINE USA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<CAPTION>
Common Stock Capital Accumulated
Number of Par in excess of Deficit Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 5,508,200 $ 551 $ 118,212 $ (500,238) $ (381,475)
Contribution to Paid-in-Capital - - 523,215 - 523,215
Sale of Common Stock 4,400,000 440 44,000 - 44,440
Stock Issued for Services and
Value Ascribed to Warrants 163,465 16 3,308,768 - 3,308,784
Convertible Notes - Beneficial Interest - - 250,000 - 250,000
Net Loss for Period - - - (4,787,000) (4,787,000)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1999 10,071,665 1,007 4,244,195 (5,287,238) (1,042,036)
Sale of Common Stock 910,000 91 1,819,909 - 1,820,000
Stock Issued for Services and Financings 657,500 66 2,521,340 - 2,521,406
Value Ascribed to Issuance of Warrants - - 1,790,000 - 1,790,000
Convertible Notes - Beneficial Interest - - 1,358,000 - 1,358,000
Net Loss for Period - - - (9,257,377) (9,257,377)
------------ ------------ ------------ ------------ ------------
Balance at June 30, 2000 11,639,165 $ 1,164 $ 11,733,444 $(14,544,615) $ (2,810,007)
============ ============ ============ ============ ============
Balance at December 31, 1998 5,508,200 $ 551 $ 118,212 $ (500,238) $ (381,475)
Net Loss for Period - - - (133,883) (133,883)
------------ ------------ ------------ ------------ ------------
Balance at June 30, 1999 5,508,200 $ 551 $ 118,212 $ (634,121) $ (515,358)
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements
6
<PAGE>
<TABLE>
YOUTHLINE USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
AND FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<CAPTION>
December 31, June 30,
1998 1999 1999 2000
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS FROM OPERATIONS $ (322,351) $(4,787,000) $ (133,883) $(9,257,377)
Adjustments to reconcile net loss from operations
to net cash used by operating activities:
Depreciation and Amortization Expense 10,529 34,035 1,477 41,962
Common Stock Issued for Services - 1,507,868 - 1,460,906
Stock Based Compensation - 1,800,900 - 1,550,000
Interest Expense - Beneficial Conversion Interest and
Intrinsic Value of Warrants - 250,000 - 2,658,500
Increase in Accounts Receivables (1,729) (89,708) - (521,779)
Increase in Subscriptions Receivable - - - (80,000)
Increase (Decrease) in Prepaid Expenses 35,269 (20,753) - (36,522)
Increase in Accounts Payable and Accrued Expenses 25,215 142,854 3,902 1,024,033
Increase in Unearned Revenues - 50,965 1,771 72,429
----------- ----------- ----------- -----------
NET CASH USED BY OPERATIONS (253,067) (1,110,839) (126,733) (3,087,848)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Office Equipment - (205,000) - (140,112)
Repayment of Notes Payable (3,124) (114,157) - (500,000)
----------- ----------- ----------- -----------
NET CASH USED BY INVESTING ACTIVITIES: (3,124) (319,157) - (640,112)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in Loans and Exchanges 311,973 15,346 64,974 -
(Decrease) in Loans and Exchanges (305,799) (80,373) - -
Sale of Common Stock - - - 1,820,000
Proceeds of Bridge Financing - 500,000 - -
Issuance of Promissory Notes - - - 500,000
Proceeds fom Notes Payable - Officers 250,000 - - -
Sale of Common Stock and Contributions to Paid-in-Capital - 567,655 - -
Issuance of Convertible Promissory Notes - 1,000,000 - 1,000,000
----------- ----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 256,174 2,002,628 64,974 3,320,000
----------- ----------- ----------- -----------
Net (Decrease) Increase in Cash and Cash Equivalents (17) 572,632 (61,759) (407,960)
Cash and Cash Equivalents at Beginning of Year 105 88 (738) 572,720
----------- ----------- ----------- -----------
Cash and Cash Equivalents at End of Year $ 88 $ 572,720 $ (62,497) $ 164,760
----------- ----------- ----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Paid During the Period for
Interest $ 2,567 $ 15,325 $ - $ 222,868
=========== =========== =========== ===========
Income Taxes $ 300 $ 300 $ 200 $ 580
=========== =========== =========== ===========
NON CASH INVESTING ACTIVITIES:
Capitalization of Officers' Loans $ 103,479 $ - $ - $ -
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (AUDITED) AND
JUNE 30, 2000 (UNAUDITED)
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
PRINCIPLES
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, 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. Youthline USA had
nominal assets consisting of cash in the amount of $11,826, and had
no operations for the two years ended December 31, 1999.
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. Ult-I-Med had
prepetition indebtedness of $268,919 in its entirety, consisting of
secured and unsecured liabilities. All but $132,033 of the secured
liabilities were discharged in the chapter 11 bankruptcy.
8
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (AUDITED) AND
JUNE 30, 2000 (UNAUDITED)
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
PRINCIPLES
(Continued)
B) 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 January 1996. 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 January 1996.
Accordingly, all assets and liabilities were restated to reflect
their reorganization value, which approximates fair value at the
date of reorganization.
The Bankruptcy court confirmed the Company's plan of reorganization
in January 1996. It was determined that the Company did not have any
assets as of the confirmation date, and the prior management
contributed the necessary funds to pay off its post petition
liabilities.
The Company's total secured and unsecured debts aggregated $132,033.
As of October 11, 1999, the Company satisfied all such debts.
C) MERGER AND RECAPITALIZATION
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.
D) DESCRIPTION OF BUSINESS
The Company, through its wholly owned subsidiary, S & S Plus, Inc.,
publishes YOUTHLINE USA, a weekly newspaper and a monthly magazine
written and designed for children ages 8 through 13.
9
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (AUDITED) AND
JUNE 30, 2000 (UNAUDITED)
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
PRINCIPLES
(Continued)
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 also produces its website, YOUTHLINE-USA.COM which is a
subscription based website rich in educational and entertainment
content. The Company generates revenue through the sale of print and
website 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.
E) 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.
F) 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.
G) ACCOUNTS RECEIVABLE AND REVENUE RECOGNITION
Accounts receivable consists of balances due the Company for
newspaper and advertising revenues. Accounts receivable are current,
accordingly, a provision for bad debt is not required. The Company
recognizes revenues through the sale of newspaper subscriptions,
website subscriptions and advertising. Subscription revenues are
recognized over the term of the contract which is generally one
year. Advertising revenues are recorded upon the placement of a
sponsor's advertisement in the Company's newspaper and delivery to
subscribers.
H) 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.
Intangible assets represents the purchase price at fair market value
of trademarks, goodwill and customer lists. Intangible assets are
being amortized over a period of five years using the straight line
method. The annual amortization expense for 1999 was $13,000. At
December 31, 1999, accumulated amortization was $13,000. The
amortization expense for the six months ended June 30, 2000 was
$20,500.
10
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (AUDITED) AND
JUNE 30, 2000 (UNAUDITED)
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
PRINCIPLES
(Continued)
I) 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
for which the market price of the common shares exceeds the exercise
price, less shares which could have been purchased by the Company
with related proceeds. The additional shares of common stock
converted would then share in the earnings of the entity.
There were 2,840,000 common stock options outstanding as of December
31, 1999. As a result of the losses reported in the periods
presented, these options, if exercised, would be antidilutive.
Accordingly, Basic EPS and diluted earnings per share are the same
as presented in the financial statements. The weighted-average
number of shares used in the computation of per share data was
5,507,972 in 1998 and 9,435,216 in 1999.
There were 7,155,000 common stock options/warrants outstanding as of
June 30, 2000. As a result of the losses reported in the periods
presented, these options, if exercised, would be antidilutive.
Accordingly, Basic EPS and diluted earnings per share are the same
as presented in the financial statements. The weighted-average
number of shares used in the computation of per share data was
10,885,415 in June 2000 and 5,508,200 in June 1999.
J) INCOME TAXES
Effective January 7, 1997, the Company applied for, and received
approval to be taxed as an "S" Corporation for Federal and State
income tax purposed. 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 1999
and 1998, no Federal Corporate income taxes have been provided in
these financial statements. However, a provision for the minimum
corporate state taxes has been included.
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.
K) 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.
11
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (AUDITED) AND
JUNE 30, 2000 (UNAUDITED)
NOTE 2 FIXED ASSETS - OFFICE AND EQUIPMENT SOFTWARE
Office equipment and software consist of the following:
December 31, June 30,
1999 2000
---------- ----------
Office Equipment and Software $ 142,866 $ 282,978
Less: Accumulated Depreciation (35,071) (55,948)
---------- ----------
Net Book Value $ 107,795 $ 227,030
========== ==========
Depreciation expense for the years ended December 31, 1999 and 1998
amounted to $19,677 and $9,359, respectively. Depreciation expense
for the six months ended June 30, 2000 and 1999 amounted to $20,877
and $2,696, respectively.
Other Assets and Organization costs consist of the following:
December 31, June 30,
1999 2000
---------- ----------
Organization Costs $ 5,850 $ 5,850
Less: Accumulated Depreciation (2,578) (3,163)
-------- --------
Net Book Value $ 3,272 $ 2,687
======== ========
Amortization expense for the years ended December 31, 1999 and 1998
amounted to $1,170 for each period. The amortization expense for the
six months ended June 30, 2000 and 1999 was $585 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.
The employment agreements were amended in June and August 2000 to
increase the base salary to $160,000 annually. The amended agreement
also calls for the issuance of 20,000 warrants at an exercise price
of $.10 per warrant and 1% in cash, for each $1,000,000 of revenues
received by the Company commencing January 1, 2001. 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
(this amount has been paid), and the balance of $20,000 (accrued as
of June 30, 2000) payable upon the Company attaining 10,000
subscribers for a period of two consecutive months.
12
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (AUDITED) AND
JUNE 30, 2000 (UNAUDITED)
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
$30,025 through December 31, 1999. Accrued interest payable on
these notes aggregated $28,150 through June 30, 2000.
B) 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 of
$10.0 per share. The Company recorded a $1,000,000 commission
expense in connection with the financing agreement. Additionally,
in connection with the placement of such financing, the Company
also paid a one-time fee of $50,000 to Robb Peck McCooey Clearing
Corporation and issued 50,000 warrants at an exercise price of
$.10 per share. This transaction was with an unrelated third
party. The note was repaid in January 2000.
C) On December 14, 1999, and December 21, 1999, the Company issued
two convertible promissory notes in the principal amount of
$500,000 each, aggregating $1,000,000. The notes bear interest at
an annual rate of 8.5% and mature on December 14, 2000 and
December 21, 2000, respectively. Interest and principal will be
paid at maturity. Additionally, any portion of the notes and
accrued interest can also be converted into shares of common
stock at the lenders' option at a price equal to 20% below the
fair market value of the common shares, with a minimum conversion
price of $3.00 per share, and a maximum price of $4.875 per
share. The Company recorded a one-time interest expense of
$250,000 which is the intrinsic value of the beneficial
conversion feature of the note. The fair market value of the
stock at the date of issuance was $3.75 and $5.00 per common
share on December 14, 1999 and December 21, 1999, respectively.
D) During the first quarter ending March 31, 2000, the Company
issued several convertible promissory notes aggregating
$1,000,000. The notes bear interest at an annual rate of 8.5% and
mature one year from the date of issuance. Interest and principal
will be repaid at maturity. Additionally, any portion of the
notes and accrued interest can also be converted into shares of
common stock at the lenders' option at a price equal to 20% below
the fair market value of the common shares, with a minimum
conversion price of $3.00 per share, and a maximum price of
$4.875 per share. The Company recorded a one-time interest
expense of $1,378,000 which is the intrinsic value of the
beneficial conversion feature of the note. The fair market value
of the stock at the date of issuance ranged between $10.69 and
$12.13 per common share.
13
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (AUDITED) AND
JUNE 30, 2000 (UNAUDITED)
E) On April 10, 2000, the Company issued a note for $250,000. The
note bears interest at an annual rate of 6.0% and matures on July
10, 2000. Additionally, in consideration of the loan, the Company
issued 150,000 warrants to purchase common stock at $3.00 per
share with an expiration date of December 31, 2004.
F) On May 17, 2000, the Company issued a note for $250,000. The note
bears interest at an annual rate of 8.5% and matures on October
17, 2000. In consideration of such loan, the Company issued
250,000 shares of its restricted common stock. The 250,000 shares
of the Company's common stock were contingent upon the lender
making an additional loan of $300,000. The loan was made and
subsequently repaid. Accordingly, the Company recorded a one-time
interest expense aggregating $812,500 based on the fair market
value of the stock at the time of issuance.
Long Term Debt consists of the following:
DECEMBER 31, 1999
---------------------------------
TOTAL LONG TERM CURRENT
---------- --------- ----------
A) Notes Payable - Officers $ 250,000 $220,000 $ 30,000
B) Bridge Financing (Paid off
January 2000) 500,000 - 500,000
C) Convertible Promissory Notes 1,000,000 - 1,000,000
---------- -------- ----------
$1,750,000 $220,000 $1,530,000
========== ======== ==========
At December 31, 1999, the aggregate of amount of required payments
on long-term debt was as follows:
2000 $1,530,000
2001 30,000
2002 30,000
2003 30,000
2004 30,000
Thereafter 100,000
----------
Total Payments $1,750,000
==========
JUNE 30, 2000
--------------------------------
TOTAL LONG TERM CURRENT
---------- --------- ----------
A) Notes Payable - Officers $ 250,000 $250,000 $ -
B) Convertible Promissory Notes 1,000,000 - 1,000,000
C) Convertible Promissory Notes 1,000,000 - 1,000,000
E) Note Payable 250,000 - 250,000
F) Note Payable 250,000 - 250,000
---------- -------- ----------
$2,750,000 $250,000 $2,500,000
========== ======== ==========
14
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (AUDITED) AND
JUNE 30, 2000 (UNAUDITED)
NOTE 4 NOTES PAYABLE
(Continued)
At June 30, 2000, the aggregate of amount of required payments on
long-term debt was as follows:
2000 $ 30,000
2001 30,000
2002 30,000
2003 30,000
2004 30,000
Thereafter 100,000
---------
Total Payments $ 250,000
=========
NOTE 5 LOANS AND EXCHANGES
Certain officers advanced the Company funds. Such advances bore no
interest and had no definite repayment terms. At January 1, 1999,
these advances amounted to $79,827. During 1999, $56,596 was repaid
in cash and the difference of $23,231 was contributed to additional
paid-in-capital. At March 31, 2000, advances amounted to $120,000,
which were subsequently repaid in April 2000.
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 7,972.
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, $.0001par value. As of December 31, 1999, there
were 10,071,437 shares of common stock issued and outstanding.
The Company has 5,000,000 authorized shares of preferred stock,
$.0001 par value. The Company presently has no issued and
outstanding preferred stock.
On March 30, 1999, the Company completed a private placement
offering of 4,400,000 shares of its common stock for an aggregate
price of $44,000.
In July 1999, the Company issued 33,465 shares of its common stock
to seven persons at $7.50 per share, in settlement of any claims
such persons may have against the Company. The Company increased its
expenses and paid-in-capital by $250,988.
In August 1999, the Company issued 5,500,000 shares of its common
stock, $.0001 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.
15
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (AUDITED) AND
JUNE 30, 2000 (UNAUDITED)
NOTE 6 CAPITAL STOCK
(Continued)
On August 19, 1999, the Company purchased the domain name
"www.Lessonstop.org", and its subscriber list, in exchange for
20,000 shares of common stock, $.0001 par value per share at a fair
market value of $7.75 per share for an aggregate amount of $155,000.
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"), see Subsequent Events
(Note 14). 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 of $10.0 per share. The Company recorded a $1,000,000
commission expense in connection with the financing agreement.
Additionally, in connection with the placement of such financing,
the Company also paid a one-time fee of $50,000 to Robb Peck McCooey
Clearing Corporation and issued 50,000 warrants at an exercise price
of $.10 per share with a deemed fair market value of $25,500, which
expire December 31, 2004.
In September 1999, the Company issued 10,000 shares of its common
stock at $10.00 per share for consulting services rendered. The
Company increased its expense and paid-in-capital by $100,000.
During the six months ended June 30, 2000, the Company issued
1,567,500 shares of common stock. Of such shares 910,000 were sold
at $2.00 per share, aggregating $1,820,000. The balance of the
common shares issued totaling 657,500 were issued for services and
as additional consideration in connection with loan financings. The
Company recorded a total of $2,521,406 in expenses from the issuance
of such shares.
NOTE 7 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, 1999 and June 30,
2000 approximate fair value with the exception of the interest rate
swap agreement.
16
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (AUDITED) AND
JUNE 30, 2000 (UNAUDITED)
NOTE 8 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 passed 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.
As of December 31, 1999 the Company had $6,322,781 in available
unused Federal and State net operating loss carry forwards that may
be applied against future taxable income. These losses will expire
over a period of twenty years.
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.
NOTE 9 SECURED AND UNSECURED CREDITORS
The Company set up a provision of $132,033 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 10 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 $6,998 for approximately 4,533 square feet of office space
located in Lakewood, New Jersey.
At December 31, 1999, the Company is committed to total minimum
rental under all noncancellable operating leases of $200,355.
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.
The Company entered into a three-year lease agreement on May 1, 2000
with Cresskill Millennium Associates, LLC. The lease currently calls
for monthly rental of $1,727 including maintenance for approximately
1,275 square feet of office space located in Cresskill, New Jersey.
At June 30, 2000, the Company is committed to total minimum rental
under all noncancellable operating leases of $249,960. Generally,
these leases include additional charges for tax escalation and other
expenses. The minimum future rental commitments are payable at
$61,305 per year for five years.
17
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (AUDITED) AND
JUNE 30, 2000 (UNAUDITED)
NOTE 11 WARRANTS
As of December 31 1999, warrants consisted of the following:
WARRANTS EXERCISE DATE OF
OUTSTANDING PRICE EXPIRATION
----------- ----- ----------
450,000 $1.0 December 31, 2004
590,000 $3.0 December 31, 2004
1,050,000 $5.0 December 31, 2004
350,000 $7.0 December 31, 2004
350,000 $10 December 31, 2004
50,000 $.10 December 31, 2004
---------
Total 2,840,000
=========
As of December 31, 1999, no warrants have been exercised. All of the
outstanding warrants are restricted subject to Rule 144 of the act.
The Company has elected to follow APB No. 25, "Accounting for Stock
Issued to Employees" to account for warrants issued to its
employees. Under APB No. 25, when the exercise price of the
Company's warrants issued to its employees are less than the fair
value price of the underlying stock at the date of the grant, than
compensation will be recognized by the Company. The Company had
granted 450,000 warrants to certain key employees at exercise prices
that were below the fair value of the underlying stock. Accordingly,
the Company recorded stock-based compensation of $900,000 for the
year ended December 31, 1999 based upon the intrinsic value of the
options at the grant date. No stock warrants were issued in 1998.
Pro forma information regarding earnings (loss) per common share is
required by SFAS #123, and has been determined as if the Company had
accounted for its warrants under the fair value method of that
statement. In 1999, the fair market value of these warrants was
estimated at the date of the grant using the Black-Scholes Option
Pricing Model with the following weighted average assumptions for
1999: risk-free interest rate of 6.5%; dividend yield of 0%;
volatility factor for the expected market price of the Company's
common stock of 54.31%; and a weighted average expected life of the
option of four years.
The Black-Scholes Option Pricing Model was developed for use in
estimating the fair value of traded options. In addition, option
valuation models require the input of highly subjective assumptions
included the expected stock price volatility. Because the Company's
stock options have characteristics significantly different for those
of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide
a reliable single measure of the fair value of its stock options.
During the year ended December 31, 1999 the Company recorded
$900,900 in stock-based compensation on the 990,000 warrants
outstanding issued to consultants.
18
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (AUDITED) AND
JUNE 30, 2000 (UNAUDITED)
NOTE 11 WARRANTS
(Continued)
In accordance with the provision of SFAS #123, the Company applies
APB No. 25 and related interpretations in accounting for stock
warrants issued to its employees, and, accordingly, does not
recognize compensation costs for warrants with an exercise price
greater then the fair value of common shares at the time of the
grant. However, if the Company had elected to recognize compensation
costs based on the fair value of the warrants granted at grant date
as prescribed by SFAS #123, net income and earnings per share would
have been reduced to the pro forma amounts indicated in the table
below.
1999 1998
---- ----
Net Loss - as reported $ (4,525,603) $ (322,351)
Net Loss - pro forma $ (5,834,603) $ (322,351)
Loss Per Share - as reported $ (.48) $ (.54)
Loss Per Share - pro forma $ (.61) $ (.54)
The fair value of each warrant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions:
Expected dividend yield 0.0%
Expected stock price volatility 54.31%
Risk free interest rate 6.5%
The expected life of the options is 4 years, and they are
immediately exercisable upon issuance without restrictions.
The weighted average fair value of options granted during 1999 is
$5.22 per share.
As of June 30, 2000, warrants consisted of the following:
WARRANTS EXERCISE DATE OF
OUTSTANDING PRICE EXPIRATION
----------- ----- ----------
1,850,000 $1.00 December 31, 2004
1,190,000 $3.00 December 31, 2004
965,000 $4.00 December 31, 2004
1,375,000 $5.00 December 31, 2004
650,000 $7.00 December 31, 2004
250,000 $9.00 December 31, 2004
425,000 $10.00 December 31, 2004
50,000 $ .10 December 31, 2004
100,000 $14.63 March 31, 2003
300,000 $12.00 December 31, 2004
---------
Total 7,155,000
=========
19
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (AUDITED) AND
JUNE 30, 2000 (UNAUDITED)
NOTE 11 WARRANTS
(Continued)
As of June 30, 2000, no warrants have been exercised. All of the
outstanding warrants are restricted subject to Rule 144 of the act.
The Company has elected to follow APB No. 25, "Accounting for Stock
Issued to Employees" to account for warrants issued to its
employees. Under APB No. 25, when the exercise price of the
Company's warrants issued to its employees are less than the fair
value price of the underlying stock at the date of the grant, than
compensation will be recognized by the Company. During the six
months ended June 30, 2000, the Company granted an additional
400,000 warrants to certain employees. Of the 400,000 warrants
granted, 200,000 were at exercise price below the fair market value
of the underlying stock. Accordingly, the Company recorded
stock-based compensation of $1,550,000 for the six months ended June
30, 2000, based upon the intrinsic value of the options at the grant
date and stock issued for services.
Pro forma information regarding earnings (loss) per common share is
required by SFAS #123, and has been determined as if the Company had
accounted for its warrants under the fair value method of that
statement. In 1999, the fair market value of these warrants was
estimated at the date of the grant using the Black-Scholes Option
Pricing Model with the following weighted average assumptions for
1999: risk-free interest rate of 6.5%; dividend yield of 0%;
volatility factor for the expected market price of the Company's
common stock of 81.2%; and a weighted average expected life of the
option of four years.
The Black-Scholes Option Pricing Model was developed for use in
estimating the fair value of traded options. In addition, option
valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the Company's
stock options have characteristics significantly different for those
of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide
a reliable single measure of the fair value of its stock options.
The Company recorded $952,000 at June 30, 2000 in stock based
compensation and $488,000 in interest in connection with debt
financing on an aggregate of 3,815,0000 warrants issues to
consultants.
In accordance with the provision of SFAS #123, the Company applies
APB No. 25 and related interpretations in accounting for stock
warrants issued to its employees, and, accordingly, does not
recognize compensation costs for warrants with an exercise price
greater then the fair value of common shares at the time of the
grant.
20
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (AUDITED) AND
JUNE 30, 2000 (UNAUDITED)
NOTE 11 WARRANTS
(Continued)
However, if the Company had elected to recognize compensation costs
based on the fair value of the warrants granted at grant date as
prescribed by SFAS #123, net income and earnings per share would
have been reduced to the pro forma amounts indicated in the table
below.
June 30,
2000 1999
---- ----
Net Loss - as reported $ (9,257,177) $ (133,883)
Net Loss - pro forma $(11,357,372) $ (133,883)
Loss Per Share - as reported $ (.85) $ (.02)
Loss Per Share - pro forma $ (.71) $ (.02)
The fair value of each warrant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions:
Expected dividend yield 0.0%
Expected stock price volatility 81.2%
Risk free interest rate 6.5%
The expected life of the options is 4 years, and they are
immediately exercisable upon issuance without restrictions.
The weighted average fair value of options granted during 1999 and
2000 is $5.22 and $4.51 per share, respectively.
NOTE 12 FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISKS
The Company maintained approximately $472,720 in one bank in excess
of amounts that would be insured by the Federal Depository Insurance
Corporation. Management of the Company feels that the bank is well
capitalized under FDIC guidelines.
NOTE 13 SUBSEQUENT EVENTS
In July 2000, the Company received $1,500,000 from the sale of
750,000 shares of its common stock at $2.00 per share. The proceeds
were used to partially payoff $775,000 of the notes outstanding.
In July 2000, the Company cancelled 3,450,000 warrants issued at
various prices to employees and related parties in exchange for the
issuance of 5,840,000 warrants at an exercise price of $.10 per
share.
In August 2000, the Company issued a $400,000 promissory note. As
consideration for such loan, the Company also issued 400,000 shares
of the Company's Common Stock.
21
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (AUDITED) AND
JUNE 30, 2000 (UNAUDITED)
In September 2000 the Company issued a $500,000 promissory note. As
consideration for such loan, the Company also issued 500,000 shares
of the Company's Common Stock. Additionally, the Company issued
$4,000,000 of convertible notes. As consideration for the financing,
the Company issued 1,500,000 shares of Common Stock. These notes are
convertible at a minimum of $.70 per share of Common Stock, or 75%
of the average closing bid price. In connection with this financing,
the Company issued 250,000 shares of Common Stock as a commission.
The Company issued 6,437,000 shares of Common Stock to employees and
consultants from July 1, 2000 through September 30, 2000.
22
<PAGE>
--------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE
INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF THIS DOCUMENT.
ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN OR THAT ARE
CURRENTLY DEEMED IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS. THE RISKS
AND UNCERTAINTIES DESCRIBED IN THIS DOCUMENT AND OTHER RISKS AND UNCERTAINTIES
WHICH WE MAY FACE IN THE FUTURE WILL HAVE A GREATER IMPACT ON THOSE WHO PURCHASE
OUR COMMON STOCK. THESE PURCHASERS WILL PURCHASE OUR COMMON STOCK AT THE MARKET
PRICE OR AT A PRIVATELY NEGOTIATED PRICE AND WILL RUN THE RISK OF LOSING THEIR
ENTIRE INVESTMENT.
YouthlineUSA, INC.
DISTRIBUTION OF 58,109,768 SHARES OF
COMMON STOCK
----------------
PROSPECTUS
----------------
___________, 2000
--------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. 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 our 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 Youthline USA to the extent
permitted by law to indemnify the officers and directors of Youthline USA 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 Securities Act may be permitted to directors, officers or persons
controlling Youthline USA pursuant to the foregoing provisions, we have been
informed that in the opinion of the Commission, such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
We do not currently have any liability insurance coverage for its
officers and directors.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses payable by the
registrant in connection with the sale of the securities being registered. All
amounts are estimates except the SEC registration fee:
SEC registration fee......................................$ 6,649.63
Printing and engraving expenses...........................$ 1,500
Accounting fees and expenses..............................$10,000
Attorneys' fees and expenses..............................$40,000
Transfer agent's fees and expenses........................$ 1,000
Miscellaneous.............................................$ 850.37
Total............................................$60,000
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below is information regarding the issuance and sales of
YouthlineUSA's common stock without registration during the last three years.
Other than as set forth below, no such sales involved the use of an underwriter
and no commissions were paid in connection with the sale of any securities.
During the third quarter ended September 30, 2000, we issued
6,437,000 shares of common stock to employees and consultants, pursuant to
Section 4(2) of the Act.
During the third quarter ended September 30, 2000, we issued
900,000 shares to two lenders, as additional consideration in connection with
loans in the aggregate amount of $900,000, pursuant to Section 4(2) of the Act.
During the third quarter ended September 30, 2000, we issued
750,000 shares of common stock, at $2.00 per share, to an accredited investor
pursuant to Section 4(2) of the Act. We paid $75,000 in commissions in
connection with such transaction.
During the third quarter ended September 30, 2000, we issued
1,500,000 shares to two lenders, as additional consideration in connection with
loans in the aggregate amount of $4,000,000, pursuant to Section 4(2) of the
Act. We paid $300,000 and issued 250,000 shares as commissions in such
transaction.
During the third quarter ended September 30, 2000, we issued an
aggregate of 13,185 shares of common stock upon cashless exercise of certain
outstanding warrants, pursuant to Section 3(a)(9) of the Act.
During the second quarter ended June 30, 2000, we issued 407,500
shares of common stock to employees and consultants, pursuant to Section 4(2) of
the Act.
During the second quarter ended June 30, 2000, we issued 250,000
shares of common stock to a lender, as additional consideration in connection
with a loan in the amount of $550,000, pursuant to Section 4(2) of the Act.
During the second quarter ended June 30, 2000, we issued 910,000
shares of common stock, at $2.00 per share, to accredited investors, pursuant to
Section 4(2) of the Act. We paid $91,000 in commissions in connection with such
transactions.
In September 1999, we issued 10,000 shares of common stock to a
consultant for services rendered. The sale was made in reliance upon Section
4(2) of the Act.
In connection with a $500,000 bridge financing in September 1999 in
which we issued promissory notes in the aggregate amount of $500,000, we 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. We paid commissions of 9% to the placement agent of
the financing.
II-2
<PAGE>
In connection with the acquisition of all of the outstanding shares of
S&S Plus, Inc. (a wholly-owned subsidiary of Youthline USA) in August 1999, we
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.
In connection with the acquisition of Lesson Stop in August 1999, we
issued 20,000 shares of common stock to an employee of Youthline USA. The sale
was made in reliance upon Section 4(2) of the Act.
In July 1999, we issued 33,465 shares of common stock to seven persons
in settlement of any claims such persons may have had against us. The sales were
made in reliance upon Section 4(2) of the Act.
In March 1999, we 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.
II-3
<PAGE>
ITEM 27. EXHIBITS
Exhibit
Number Name
------ ----
3.1 Certificate of Incorporation*
3.2 Certificate of Merger (Delaware)*
3.3 Articles of Merger (Utah)*
3.4 Plan of Merger*
3.5 Bylaws *
5.1 Opinion of Berlack, Israels & Liberman LLP**
10.1 Employment Agreement between the Company and Saki Dodelson*
10.2 Employment Agreement between the Company and Susan Gertler*
10.3 Bridge Loan Financing Agreement**
21.1 Subsidiaries of Youthline USA**
23.1 Consent of Michael C. Finkelstein & Co., independent certified
public accountants
23.2 Consent of Counsel (see Exhibit 5.1)
27.1 Financial Data Schedule
* Incorporate by reference to the exhibits to the Company's Registration
Statement on Form 10-SB (File No. 0-28725)
** To be filed by amendment.
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of
Securities Act.
(b) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the commission pursuant to Rule 424(B) if, in
the aggregate, the changes in volume and price represent no more
than 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement; and
(c) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement
II-4
<PAGE>
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the registrant's annual report pursuant
to section 13(a) or section 15(d) of the Exchange Act that is
incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of New York, State of New
York, on October 12, 2000.
YouthlineUSA, INC.
By: /s/ SAKI DODELSON
---------------------------------
Name: Saki Dodelson
Title: President, Treasurer,
Principal Executive/
Financial and Accounting
Officer and Director
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ JACOB Y. "ROCKY" STEFANSKY Chairman of the Board of Directors October 12, 2000
--------------------------------
Jacob Y. "Rocky" Stefansky
/s/ SAKI DODELSON President, Treasurer, Principal October 12, 2000
-------------------------------- Executive/Financial and Accounting
Saki Dodelson Officer and Director
/s/ SUSAN GERTLER Vice President October 12, 2000
--------------------------------
Susan Gertler
/s/ EMANUEL YARMISH Director October 12, 2000
--------------------------------
Emanuel Yarmish
/s/ LOUIS LIBIN Director October 12, 2000
--------------------------------
Louis Libin
</TABLE>
II-6
