UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________________
Commission file number 0-28725
-------
YOUTHLINE USA, INC.
-------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3674998
- ------------------------------------------------ -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
4581 U.S. Highway 9
Howell, New Jersey
------------------
(Address of principal executive offices)
07731
-----
(Zip Code)
(732) 886-0833
--------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ ] No [X]
The number of shares of Common Stock, par value $.0001 per share, outstanding
as of April 30, 2000: 10,071,665
<PAGE>
TABLE OF CONTENTS
-----------------
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of
March 31, 2000 (unaudited) and December 31, 1999 . . . . . . . . . . 2-3
Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and 1999 (unaudited). . . . . . . . . . . . . . 4
Consolidated Statements of Stockholders' Equity for the Three Months
Ended March 31, 2000 and 1999 (unaudited). . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for Three Months
Ended March 31, 2000 and 1999(unaudited) . . . . . . . . . . . . . . 6
Notes to the Financial Statements . . . . . . . . . . . . . . . . . . 7-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . . . . 15-17
Part II. OTHER INFORMATION
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Schedule 27. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated balance sheet of the Company as of March 31, 2000, the related
consolidated statements of operations, and cash flows for the three months ended
March 31, 2000 and 1999 included in Item 1 have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, the accompanying consolidated financial statements include all
adjustments (consisting of normal, recurring adjustments) necessary to summarize
fairly the Company's financial position and results of operations. The
consolidated results of operations for the periods ended March 31, 2000 and 1999
are not necessarily indicative of the results of operations for the full year or
any other interim period. These financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's Annual Report on Form 10-KSB for the fiscal year ended December
31, 1999 as filed with the Commission.
<PAGE>
<TABLE>
<CAPTION>
YOUTHLINE USA, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
March 31, December 31,
2000 1999
---------- ----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 84,829 $ 572,720
Accounts Receivable 616,000 91,542
Prepaid Expenses 5,400 20,753
---------- ----------
TOTAL CURRENT ASSETS 706,229 685,015
---------- ----------
FIXED ASSETS
Office equipment and software (net of
accumulated depreciation of $39,529 and $35,071, respectively) 170,586 107,795
---------- ----------
OTHER ASSETS
Organization costs (net of
accumulated amortization of $2,871 and $2,578, respectively) 2,979 3,272
Intangible Assets - Trademarks, Goodwill and Customer Lists
(Net of accumulated amortization of $23,250 and $13,000, respectively) 181,750 192,000
---------- ----------
TOTAL OTHER ASSETS 184,729 195,272
---------- ----------
TOTAL ASSETS $1,061,544 $ 988,082
========== ==========
</TABLE>
See accompanying notes to financial statements
2
<PAGE>
<TABLE>
<CAPTION>
YOUTHLINE USA, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
2000 1999
----------- -----------
(unaudited)
CURRENT LIABILITIES:
<S> <C> <C>
Accounts Payable and Accrued Expenses $ 616,441 $ 203,938
Unearned Revenue 376,572 76,180
Current Portion of Notes Payable 1,000,000 1,530,000
Loans and Exchanges 120,000 --
----------- -----------
TOTAL CURRENT LIABILITIES 2,113,013 1,810,118
----------- -----------
LONG TERM LIABILITIES
Notes Payable 1,250,000 220,000
----------- -----------
TOTAL LONG TERM LIABILITIES 1,250,000 220,000
----------- -----------
TOTAL LIABILITIES 3,363,013 2,030,118
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred Stock, $.0001 Par Value, 5,000,000 Shares Authorized,
No Shares Outstanding -- --
Common Stock, $.0001 par value, 50,000,000 Shares 1,007 1,007
Authorized; 10,071,665 shares issued and outstanding
Additional Paid In Capital 5,602,195 4,244,195
(Deficit) (7,904,671) (5,287,238)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (2,301,469) (1,042,036)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,061,544 $ 988,082
=========== ===========
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
<TABLE>
<CAPTION>
YOUTHLINE USA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
2000 1999
------------ ------------
<S> <C> <C>
NET SALES $ 263,502 $ 5,692
------------ ------------
OPERATING EXPENSES:
Cost of Goods Sold (Exclusive of Depreciation and Amortization,
shown separately below) 479,976 26,826
Payroll and Related Costs 421,479 4,319
Consulting Services 56,837 --
Selling Expenses 305,579 17,448
Professional Fees 30,075 3,700
General and Administrative 175,522 24,555
Depreciation and Amortization 15,001 1,477
------------ ------------
TOTAL OPERATING EXPENSES 1,484,469 78,325
------------ ------------
Loss from operations before provision for income taxes (1,220,967) (72,633)
------------ ------------
OTHER INCOME AND EXPENSES
Interest Expense (Net of Interest Income of $2,876 in 2000
and $0 in 1999) 1,396,266 3,750
------------ ------------
Loss before provision for Income Taxes (2,617,233) (76,383)
------------ ------------
PROVISION FOR STATE INCOME TAX 200 200
------------ ------------
Net Loss $ (2,617,433) $ (76,583)
============ ============
Net Loss per Common Share (Basic and Diluted) $ (0.26) $ (0.01)
============ ============
Weighted Average Common Shares Outstanding 10,071,665 5,508,200
============ ============
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
<TABLE>
<CAPTION>
YOUTHLINE USA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
Common Stock Capital Accumulated
Number of Par in excess of Deficit Total
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 10,071,665 $ 1,007 $ 4,244,195 $(5,287,238) $(1,042,036)
Convertible Notes - Beneficial Interest -- -- 1,358,000 -- 1,358,000
Net Loss for Period -- -- -- (2,617,433) (2,617,433)
---------- ----------- ----------- ----------- -----------
Balance at March 31, 2000 10,071,665 $ 1,007 $ 5,602,195 $(7,904,671) $(2,301,469)
========== =========== =========== =========== ===========
Balance at December 31, 1998 5,508,200 $ 551 $ 118,212 $ (500,238) $ (381,475)
Net Loss for Period -- -- -- (76,583) (76,583)
---------- ----------- ----------- ----------- -----------
Balance at March 31, 1999 5,508,200 $ 551 $ 118,212 $ (576,821) $ (458,058)
========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
<TABLE>
<CAPTION>
YOUTHLINE USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
NET LOSS FROM OPERATIONS $(2,617,433) $ (76,583)
Adjustments to reconcile net loss from operations
to net cash used by operating activities:
Depreciation and Amortization Expense 15,001 1,477
Interest Expense - Beneficial Conversion Interest 1,358,000
Increase in Accounts Receivables (524,458) --
Decrease in Prepaid Expenses 15,353 --
Increase in Accounts Payable and Accrued Expenses 412,503 3,902
Increase in Unearned Revenues 300,392 1,771
----------- -----------
NET CASH USED BY OPERATIONS (1,040,642) (69,433)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Office Equipment (67,249) --
Repayment of Notes Payable (500,000) --
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES: (567,249) --
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in Loans and Exchanges 120,000 64,974
Issuance of Convertible Promissory Notes 1,000,000 --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,120,000 64,974
----------- -----------
Net Increase in Cash and Cash Equivalents (487,891) (4,459)
Cash and Cash Equivalents at Beginning of Year 572,720 (738)
----------- -----------
Cash and Cash Equivalents at End of Year $ 84,829 $ (5,197)
----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Paid During the Period for
Interest $ 18,160 $ --
=========== ===========
Income Taxes $ 580 $ 200
=========== ===========
</TABLE>
See accompanying notes to financial statements
6
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited financial statements of Youthline USA, Inc.
(the "Company") as of March 31, 2000 have been prepared in accordance
with generally accepted accounting principles for interim information.
Accordingly, certain information and footnote disclosures required
under generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, all adjustments of
a recurring nature considered necessary for a fair presentation of the
results for the interim periods presented have been included.
Operating results for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the
entire year or any other period.
NOTE 2 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& 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.
A) 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. 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.
7
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
NOTE 2 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
PRINCIPLES
(Continued)
B) 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.
C) 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.
D) 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.
E) 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 amortization expense for the three months ended March 31,
2000 was $10,250. At March 31, 2000, accumulated amortization was
$23,250.
F) 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.
8
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
NOTE 2 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
PRINCIPLES
(Continued)
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 2,940,000 common stock options/warrants outstanding as of
March 31, 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 10,071,665 in
2000 and 5,508,200 in 1999.
G) INCOME TAXES
The Company intends to follow Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes" when
either operations achieve profitability or the realization of net
operating loss benefits can more readily be measured, whichever occurs
first.
H) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent
liabilities and the reported amounts of revenues and expenses. Actual
results could differ from estimates.
NOTE 3 FIXED ASSETS - OFFICE AND EQUIPMENT SOFTWARE
Office equipment and software consist of the following:
Office Equipment and Software $ 210,115
Less: Accumulated Depreciation (39,529)
-----------
Net Book Value $ 170,586
===========
Depreciation expense for the three months ended March 31, 2000 and
1999 amounted to $4,458 and $1,194, respectively.
Other Assets and Organization costs consist of the following:
Organization Costs $ 5,850
Less: Accumulated Depreciation (2,871)
-----------
Net Book Value $ 2,979
===========
Amortization expense for the three months ended March 31, 2000 and
1999 amounted to $293 for each period.
9
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
NOTE 4 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 (this amount has been paid), and the balance of $20,000
payable upon the Company attaining 10,000 subscribers for a period of
two consecutive months. The Company accrued the balance of the signing
bonus amounting to $40,000 as of March 31, 2000.
NOTE 5 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 $28, 150 through March 31, 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. 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.
10
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
NOTE 5 NOTES PAYABLE
(Continued)
Long Term Debt consists of the following:
<TABLE>
<CAPTION>
Total Long Term Current
----- --------- -------
<S> <C> <C> <C>
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
---------- ---------- ----------
$2,250,000 $1,250,000 $1,000,000
========== ========== ==========
</TABLE>
At March 31, 2000, the aggregate of amount of required payments on
long-term debt was as follows:
2000 $1,030,000
2001 30,000
2002 30,000
2003 30,000
2004 30,000
Thereafter 100,000
----------
Total Payments $1,250,000
==========
NOTE 6 LOANS AND EXCHANGES
Certain officers advanced the Company funds. Such advances bore no
interest and had no definite repayment terms. At March 31, 2000, these
advances amounted to $120,000, which were subsequently repaid in April
2000.
NOTE 7 CAPITAL STOCK
The Company is currently authorized to issue 50,000,000 shares of its
common stock, $.0001par value. As of March 31, 2000, there were
10,071,665 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.
NOTE 8 FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of financial instruments:
Cash and Cash Equivalents. The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
11
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
NOTE 8 FAIR VALUE OF FINANCIAL INSTRUMENTS
(Continued)
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 March 31, 2000 approximate fair
value with the exception of the interest rate swap agreement.
NOTE 9 INCOME TAXES
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 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 $3,515 for approximately 2,280 square feet of office space located
in Lakewood, New Jersey.
At March 31, 2000, the Company is committed to total minimum rental
under all noncancellable operating leases of $189,810. 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.
NOTE 11 WARRANTS
As of March 31, 2000, warrants consisted of the following:
Warrants Outstanding Exercise Price Date of Expiration
-------------------- -------------- ------------------
450,000 $ 1.00 December 31, 2004
590,000 $ 3.00 December 31, 2004
1,050,000 $ 5.00 December 31, 2004
350,000 $ 7.00 December 31, 2004
350,000 $10.00 December 31, 2004
50,000 $ .10 December 31, 2004
100,000 $14.63 March 31, 2003
---------
Total 2,940,000
=========
As of March 31, 2000, no warrants have been exercised. All of
the outstanding warrants are restricted subject to Rule 144 of
the act.
12
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
NOTE 11 WARRANTS
(Continued)
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.
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.
December 31, 1999 December 31, 1998
----------------- -----------------
Net Loss - as reported $ (4,787,000) $(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)
13
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 11 WARRANTS
(Continued)
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 and
2000 is $5.22 and $5.06 per share, respectively.
14
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
In August 1999, the Company acquired all of the outstanding capital stock of S&S
Plus, Inc., a wholly owned subsidiary of the Company which operated the
publication of Youthline USA, in exchange for the issuance of 5,500,000 shares
of its common stock, representing a majority of the total issued and outstanding
capital stock of the Company. On such date, the previous management's directors
and officers resigned and were replaced with the current officers and directors.
This exchange has been accounted for as a reverse acquisition, under the
purchase method of accounting, since the former owners of S&S Plus, Inc. owned a
majority of the outstanding stock of Youthline USA, Inc. after the acquisition.
Accordingly, the combination of the two companies is recorded as
recapitalization of shareholders' equity of S&S Plus, Inc., pursuant to which
S&S Plus, Inc. is treated as the continuing entity for accounting purposes and
the historical financial statements presented are those of S&S Plus, Inc.
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 rein-corporation of
Ult-I-Med with and into the Company on August 16, 1999.
Ult-I-Med was originally organized to engage in the mining of metalliferous
chemicals. In 1988, Ult-I-Med ceased such activities and began engaging in the
business of owning and operating camping and recreation facilities. In 1991,
Ult-I-Med ceased such activities and began engaging in the business of owning
and operating supervised primary care, health and rehabilitation centers. In
January 1996, Ult-I-Med filed a Chapter 11 bankruptcy petition. Ult-I-Med
liquidated all of its assets and its plan of reorganization was filed with the
court in February 1998. All of Ult-I-Med debts were paid subsequent to June 30,
1999, and the court entered a final decree on September 24, 1999.
The Company, through its wholly owned subsidiary, S&S Plus, Inc., publishes
YOUTHLINE USA, a weekly newspaper written and designed for children ages 8
through 13. Youthline USA makes sure all content is age-appropriate and is
designed to attract and engage the attention of children within this age range.
Id addition, the web site offers curriculum tools for educators, including
curriculum-based interactive activities and accountability tools for tracking
student performance. The Company generates revenue through the sale of
subscriptions (newspaper, magazine and on-line); advertisement space in print
and on-line; and corporate sponsorships. Subscriptions can either be bulk
subscriptions ordered by schools, or as individual subscriptions for children to
read at home.
15
<PAGE>
Paid subscriptions have increased dramatically over the previous year, and the
Company has spent from May to December to set up effective sales and marketing
departments to better reach schools and potential advertisers. Also, we
currently send 661,000 free (requested) subscriptions to schools. We believe
that this will attract advertisers and corporate sponsors. In addition, the
Company has simultaneously been working on completing and marketing its website
for schools. Management believes that the sale of website subscriptions to
schools will be a significant source of revenue.
COMPONENTS
Through March 31, 2000 there were three sources of revenue:
1) Sale of newspaper subscriptions
An individual subscription costs $30.00 per year. Bulk subscriptions to
schools cost $9.00 per subscription for 25 or more, and $7.00 per
subscription for 50 or more. Schools that order both products receive a
10% discount.
2) Advertisements - Companies can advertise either in the national
newspaper ($18,000 per page) or the magazine ($25,000 per page) or in
the regional editions (currently two - at $3,500 per page.)
3) Website Subscriptions - A website subscription costs $12,000 per
school per annum, or $5,000 per school per annum for bulk orders
(entire districts, etc.).
As of May 15, 2000 requested (non-paid) circulation was increased to
661,000 which management believes will significantly increase revenue
from advertisements. In addition, management intends to sell
subscriptions to its website, the first phase of which was completed on
January 15, 2000 and the second phase is due to be completed on
September 1, 2000.
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. The
Company does not have any plans that would materially affect its current
demands and to the best of management's belief there are no events that
would result in major increase or decreases in the Company's liquidity
other than in the normal course of its operations. To date the Company
has funded its operations and expansion through bridge financing,
capital contribution and the sale of convertible promissory notes. The
Company's potential sources of liquidity will be additional financings
through the sale of convertible notes and credit facilitates with banks.
At March 31, 2000, the Company's current assets consisted of $84,829 of
cash, $616,000 of receivables and prepaid expenses of $5,400. At March
31, 2000 the current liabilities exceeded its currents assets by
$1,406,784. Current debt consisted of two $500,000 convertible
promissory notes due December 14, 2000 and December 21, 2000 and
accounts payable and accrued expenses of $616,441, and $376,572 unearned
revenue which will be recognized over the next three months. Long term
debt consists of convertible promissory notes aggregating $1,000,000,
and mature one year from the date of issuance, expiring during the first
quarter of 2001. Management anticipates that it will satisfy its
liquidity and capital requirements in the coming year through additional
capital and funds generated by operations. As of May 15, 2000,
approximately 70 schools subscribed to the Company's website with fees
aggregating $672,000, which will be recognized over a period of six
months to three years.
16
<PAGE>
Three Months Ended March 31, 2000 compared to Three Months Ended March 31, 1999.
RESULTS OF OPERATIONS
In 1999 and 1998, the Company's main source of revenues were from the sale of
newspaper subscriptions. Total revenues from subscriptions were $263,502 and
$5,592 for the three months ended March 31, 2000 and 1999, respectively. The
Company incurred net operating losses of $2,617,433 in 2000, compared to $76,383
in 1999. The losses incurred for the three months ended March 31, 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. The Company incurred substantial costs for printing, reproduction, mailing
and design of the newspaper during these periods. Additionally, the Company
incurred substantial costs in marketing, advertising and payroll expense.
Revenues.
During the three months ended March 31, 2000, sales revenues increased $257,810,
to $263,502 from $5,692 for the corresponding period in 1999. The increase was
attributable to increased subscribers and advertising revenues and $239,000 in
web subscriptions.
Cost of Goods Sold.
These costs include, but are not limited to printing and distribution costs.
During the three months ended March 31, 2000 costs of goods sold was $479,976,
an increase of $453,150 or 1,689% from the corresponding period in 1999. This
increase was attributable to an increase in paid and unpaid subscriptions.
Net Losses and Unusual Charges.
The Company incurred a net loss from operations of $2,617,433, or $.26 per share
as compared to a loss of $76,583, or $.01 per share in the comparable period in
1999. During the first quarter ending March 31, 2000, the Company recorded
$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.
Operating Expenses.
Operating expenses during the three months ended March 31 2000 increased as
follows: payroll costs increased $417,160 to $421,479 from $4,319 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 $26,375 to $30,075 (an increase of 713%) from $3,700 for the
corresponding period in 1999. The increased professional fees were mainly legal
and accounting fees relating to the reorganization of the Company. Selling
expenses increased $281,131 to $305,579 (an increase of 1,651%) from $17,448 for
the corresponding period in 1999. General & administrative costs increased
$150,967 from $24,555 (an increase of 615%) for the corresponding period in
1999. The increase in selling expenses and general and administrative expenses
is attributable to the continued investment in the Company's aggressive sales
and marketing, finance and other general and administrative infrastructure
necessary to support the Company's business development and expansion.
17
<PAGE>
Interest Expense.
Interest expense increased $1,392,516 to $1,396,266 for the three months ended
March 31, 2000 from $3,750 for the corresponding period ending March 31, 1999.
The increase is primarily associated with the increased borrowing used to fund
the operations of the Company as well as its expansion.
Interest Income.
Interest income was $2,876 for the three months ended March 31, 2000 compared to
$0 in 1999. This increase was attributable to higher average balances of
invested cash and cash equivalents.
During the three months period that ended March 31, 2000, the Company increased
its (non-paid) circulation to 661,000 subscriptions, which should significantly
increase its revenues in the coming year. The Company, however, will continue to
incur expenses attributable to the growth of its business and therefore,
management cannot estimate the amount of losses it may incur in the future.
Income Taxes.
The Company incurred substantial losses form its inception through the current
period. From inception to August 16, 1999, the Company 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 $6,564,178 incurred by the Company will be
utilized against future operating profits. However, as a result of the net
operating losses sustained by the Company, a provision for corporate taxes was
not required and deferred taxes will be recognized when the Company achieves
profitability.
YEAR 2000
Many computer software systems in use today cannot properly process date-related
information beginning on and continuing after January 1,2000. This will not pose
a problem for the Company since its accounting programs are all Y2K compliant.
In addition, the Company has inquired of its commercial banks and other service
providers so to determine if they will be prepared for the Year 2000. While all
have indicated they are taking the necessary steps to be in compliance, there
can be no assurance that all exposure will be eliminated. It is anticipated that
the Company will incur no material expenses related to the Year 2000 issue.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 15, 2000 Youthline USA, Inc..
By: /s/ SAKI DODELSON
--------------------------------
Saki Dodelson, Chief Executive,
Financial and Accounting Officer
19
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001095930
<NAME> YOUTHLINE USA, INC.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 84,829
<SECURITIES> 0
<RECEIVABLES> 616,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 706,229
<PP&E> 210,115
<DEPRECIATION> (39,529)
<TOTAL-ASSETS> 1,061,544
<CURRENT-LIABILITIES> 2,113,013
<BONDS> 0
0
0
<COMMON> 5,603,202
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,061,544
<SALES> 263,502
<TOTAL-REVENUES> 263,502
<CGS> 479,976
<TOTAL-COSTS> 1,484,469
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,396,266
<INCOME-PRETAX> (2,617,233)
<INCOME-TAX> 200
<INCOME-CONTINUING> (2,617,433)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,617,433)
<EPS-BASIC> .26
<EPS-DILUTED> .26
</TABLE>
