UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB/A
(AMENDMENT NO. 1)
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b) OR 12(g)
OF THE SECURITIES EXCHANGE ACT OF 1934
Youthline USA, Inc.
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(Name of Small Business Issuer in its Charter)
Delaware 22-3674998
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
4581 US 9, Howell, New Jersey 07731
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(Address of Principal Executive Offices) (Zip Code)
(732) 886-0833
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(Issuer's Telephone Number)
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 Par Value for Per Share
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(Title of Class)
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AVAILABLE INFORMATION
YOU SHOULD READ THIS ENTIRE REGISTRATION STATEMENT CAREFULLY INCLUDING
INFORMATION SET FORTH IN THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE
10.
Subsequent to the date of this Registration Statement the Company will
be subject to the information requirements of the Securities Exchange Act of
1934, as amended ("Exchange Act") and in accordance therewith will file reports
and other information with the Securities and Exchange Commission (the
"Commission"). Reports and other information filed by the Company with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington
D.C. 20549, and at the Commission's New York Regional office at Seven World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material can
also be obtained from the Public Reference Section of the Commission,
Washington, DC 20549 at prescribed rates.
This Registration Statement, as well as all amendments thereto and
subsequent reports, have been and will be filed through the Electronic Data
Gathering, Analysis and Retrieval ("EDGAR") system. Documents filed through
EDGAR are publicly available through the Commission's Website at
http:/www.sec.gov.
The Company has filed with the Commission this Registration Statement
on Form 10-SB (together with all amendments and exhibits filed or to be filed in
connection herewith, the "Registration Statement") under the Exchange Act, with
respect to the Company's common stock, $.0001 par value per share (the "Common
Stock"). Statements contained herein as to the contents of any document are
summaries of such documents and, in each instance, reference is hereby made to
the copy of such document filed as an exhibit to the Registration Statement, and
each such statement is qualified in all respects by such reference. All material
information of such exhibits are discussed in this Form 10-SB. The Registration
Statement may be inspected and copied at the places set forth above.
In addition to the foregoing, the Company will furnish to registered
holders of its Common Stock annual reports containing audited financial
statements, with an opinion expressed by the Company's independent auditors.
Such audited financial statements will be prepared in conformity with generally
accepted accounting principals ("GAAP"). The Company may furnish to registered
holders of its Common Stock unaudited financial statements on a quarterly basis,
such unaudited financial statements to be prepared in conformity with GAAP. The
Company will also furnish to registered holders all notices of stockholder's
meetings and other reports and communications of the Company.
The Company's principal executive offices are located at 4581 US9,
Howell, New Jersey 07731, and its telephone number is (732) 886-0833.
As of December 31, 1999 there were 10,071,665 shares of Common Stock
issued and outstanding held by approximately 310 holders of record.
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PART I
ITEM 1. BUSINESS
FORWARD LOOKING STATEMENTS
Certain information contained in this Registration Statement are
forward-looking statements (within the meaning of Section 27A of the Securities
Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934,
as amended). Factors set forth that appear with the forward-looking statements
could cause the Company's actual results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company in this Registration Statement. Such potential risks and uncertainties
include, but are not limited to, the risk factors contained in this Registration
Statement. The Company undertakes no obligation to publicly release the results
of any revisions to these forward-looking statements which may be made to
reflect events or circumstances occurring after the date hereof or to reflect
the occurrence of unanticipated events.
GENERAL/HISTORICAL INFORMATION
Youthline USA, Inc. (the "Company" or "YOUTHLINE USA") is a multimedia
company focused on providing education and entertainment products and services
to America's youth. The Company was incorporated on July 27, 1999 pursuant to
the laws of the State of Delaware as the successor to Ult-I-Med Health Centers,
Inc., a Utah corporation ("Ult-I-Med"), which was incorporated in 1983 under the
laws of the State of Utah (originally under the name Picadilly Technology,
Inc.). The Company was organized to effectuate a reincorporation of Ult-I-Med
with and into the Company on August 16, 1999. The Company maintains its
executive offices at 4581 US9, Howell, NJ 07731 and its telephone number is
(732) 886-0833.
Ulti-I-Med was originally organized to engage in the mining of
metalliferous chemicals. In 1988, Ulti-I-Med ceased such activities and began
engaging in the business of owning and operating camping and recreation
facilities. In 1991, Ulti-I-Med ceased such activities and began engaging in the
business of owning and operating supervised primary care, health and
rehabilitation centers. In January 1996, Ulti-I-Med filed a Chapter 11
bankruptcy petition. Ult-I-Med liquidated all of its assets and its plan of
reorganization was filed with the court in February 1998. All of Ult-I-Med debts
were paid, and the court entered a final decree in September 1999.
In August 1999, Ult-I-Med acquired all of the outstanding capital stock
of S&S Plus, Inc., a wholly-owned subsidiary of the Company which operates the
publication YOUTHLINE USA, in exchange for the issuance of 5,500,000 shares of
its common stock, representing a majority of the total issued and outstanding
capital stock of the Company. On such date, the directors and officers resigned
and were replaced with some of the current officers and directors.
THE COMPANY
YOUTHLINE USA is an innovative compilation of a website, a newspaper, a
magazine, curriculum aids, and other educational and entertainment resources for
children, educators and parents. The Company provides America's youth, ages
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8-13, with world and national news, feature articles, and curriculum related
educational features and programs in a manner that mirrors the way in which
adults receive the same information. Youthline USA specializes in providing
content and resources that correlate with the core curriculums of schools
throughout the country. Through various media (at present, a web site, a
newspaper, and a magazine), Youthline USA educates and entertains today's youth
while brightening their future by teaching them crucial skills they will need to
be successful as adults. The Company believes it has found a unique niche in the
school and home market which is eager for products which can teach
technological, communication and learning skills while at the same time cover
curriculum basics--an absolute necessity for schools everywhere.
www.youthline-usa.com includes world and national news with daily
updates, archives (sports, animals, book reviews, science, news articles, etc.),
interactive games, puzzles, a stockmarket game and many other educational and
entertainment features. A subscription-based portion of the website for schools
provides students with a complete Internet environment, including limited
e-mail, stock tips, news updates, and complete access to regular news archives.
Students will check their e-mail, stock portfolios and the latest news archives
daily. On-line activities are created with daily news articles in order to
reinforce reading and math curriculum goals. Activities, all of which are
accompanied by a listing of the national standards covered for each grade level,
can be designed to fit the requirements of each school's unique curriculum and
specific needs of students. Activities may be used in conjunction with the news
article, or searched for later to be used as stand-alone activities for either
educational or entertainment purposes. The website also includes lesson plans
that demonstrate how to use the website to tie in with curriculum standards. The
goal of the website is to provide subscribers with a "Epcot Center" on the
Internet. Each article in the news is linked to archival information about
countries and states, all of which contain their own interactive video segments.
Readers are also directed to people mentioned in news articles to get additional
background information. Once in the archive sections, students are able to do
searches on people, places, and events for school-related research or just to
learn more about a particular subject. Similar sections are set up for career
choices, health issues, political figures, animals, entertainment (books,
movies, music, sports), and much more. The Company anticipates that children
will be instructed by their teachers in school to use the website for the
educational material, and that they will use it again at home for the
entertainment features and the homework help. In addition, in September 2000,
the website will open its YouthMall section, an on-line shopping center for kids
and educators, offering appropriate products along with a brief description.
Kids will be able to use either real money or e-money earned from contests and
activities on the website.
YOUTHLINE USA is a 16 page weekly national newspaper with additional
four page regional inserts written especially for kids ages 8-13. In every
respect, it is similar to an adult newspaper, except that it is written at the
kids' level, and it filters out news that is not age appropriate. Every issue is
prepared with easy-to-read articles with eye-catching photos and graphs, ideal
for grabbing the attention of its target audience. In addition to weekly news,
every newspaper is also filled with fun activities, contest, feature articles,
and interactive games. While the national newspaper attracts nationally-based
advertisers, the regional inserts are ideal vehicles for local businesses and
corporate sponsors. Every issue comes with lesson plans to enable teachers to
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incorporate the newspaper into their core curriculum. Management believes that
nothing like it exists in the country. Articles in the newspaper also direct its
readers to the appropriate segment of the website, thereby guaranteeing
increased usage of the website.
Youthline USA's Fun and Feature Magazine is a monthly publication that
focuses on a particular theme. This 20-page magazine, similarly geared for ages
eight to 13, takes a new topic each month that is both relevant to youth and
timely in the news. The purpose of the magazine is to present its readers with
an in-depth look at important issues (such as, money matters, health issues,
environmental topics, etc), all of which are displayed in an exciting and
eye-catching manner. Every magazine is accompanied by lesson plans that will
help educators cover core curriculum material by incorporating the magazine into
the classroom. All lesson plans are based on the McRel national standards, which
are clearly displayed on the lesson plans and again on the website. The magazine
is specifically created as a publication that will be read again and again.
This, combined with its more flashy appearance, serves as a more attractive
medium for potential advertisers and corporate sponsors.
Both the website and the print products are unique, and the Company
believes that this innovative combination, together with the curriculum
resources, will be extremely appealing to the educational community. Although
the newspaper has competition, the website appears to be the only one of its
kind. The website is rich in educational and entertainment content, and also
introduces kids to the world of e-mail and the Internet; a world that they need
to be familiar with for tomorrow's world. At the same time, it offers curriculum
basics and lesson plans, making it an extremely appealing package for educators.
Management believes that it has found a significant niche, and plans on
instituting an aggressive sales campaign directed at schools. Phase One of the
web site was completed on January 15, 2000. Phase Two is expected to be
completed by September 1, 2000.
The Company generates revenue (as detailed in part below) through the
sale of website subscriptions, newspaper subscriptions, magazine subscriptions,
advertisement space and corporate sponsorships, and eventually, through
e-commerce on its YouthMall.
Website subscriptions: Sold to schools for $12,000 per school per year.
Newspaper subscriptions: Either bulk subscriptions ($7 per year)
ordered by schools or individual home subscriptions ($30).
Magazine subscriptions: $25 per year.
National newspaper ad: $6,500 per page.
Regional newspaper ad: $2,000 per page.
Magazine ad: $15,000 per page.
All ad rates are subject to change as a variable of circulation.
Advertising and corporate sponsorships is expected to be a substantial
source of revenue. The Company has developed various media that offers corporate
America a unique opportunity to reach such a focused market. With this in mind,
the Company produces a national newspaper, regional inserts, the monthly
magazine, and the website. It is an all-encompassing package designed to appeal
to corporations nationwide. Corporations that sell directly to kids would
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naturally have an interest in advertising in a newspaper and on a website that
serves such a focused market. Management believes that even corporations who do
not sell directly to children will be interested in securing and increasing name
recognition with the next generation, in addition to the fact that the newspaper
reaches parents and educators as well as children.
In addition, Youthline USA, Inc., seeks to acquire companies that
either 1) can enhance and complement the newspaper, or 2) provide products or
services which are consistent with the general goals of the Company - to educate
and entertain children and broaden their horizons. During fiscal year 1999,
Youthline USA, Inc. has acquired Ingenius and Lesson Stop, both of which serve
to enhance the newspaper and the website.
Youthline USA is currently concentrating on the United States market,
yet the newspaper and website easily lend themselves to international expansion.
Plans for the future include adapting world and regional news for individual
countries and languages. Management believes that the international scope of the
Internet offers virtually unlimited opportunities for growth.
YOUTHLINE USA was first published in July 1997, and has increased paid
circulation as of December 15, 1999 to approximately 21,000. As of December 15,
1999, requested circulation has increased to approximately 550,000. School
districts in Washington D.C., Atlanta, Ohio, Tennessee, Chicago, and Florida
have already ordered website subscriptions for next year. The Company considers
the present circulation together with its new interactive website to be
attractive to potential advertisers and sponsors. The Company has built its
infrastructure in such a manner as to maximize the potential of the Company.
Each department has been carefully set up while acquiring talented, dedicated
and energetic personnel. The Company has the manpower and the organization to
perfect and enhance its products and to conquer its target markets - today's
youth, the education market and corporate America.
PRODUCT
Youthline USA is an innovative compilation of a website, a newspaper
and a magazine, rich in both educational and entertainment material for kids.
THE WEBSITE:
Youthline USA combines the excitement and speed of the Internet with
the traditional appeal of a newspaper. At present, the website includes world
and national news articles with daily updates, archives of YOUTHLINE USA
features (animal of the week, author of the week, etc.), puzzles, games, prizes,
"ask the expert" columns, recommended books and websites, and much more.
The website includes a virtual "Epcot Center." Each country and state
has its own interactive video segment on our website, and articles in the
newspaper direct the readers to the appropriate segment. Similar sections are
set up for career choices, health issues, political figures, animals,
entertainment (books, movies, music, sports), and much more.
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There are many websites dedicated to kids. However, YOUTHLINE-USA.com
is unique in that (like a newspaper) it is rich in both educational and
entertainment content. We know of no other sites that present this appealing and
substantive combination to America's youth.
In addition, the website has a guaranteed source of extensive usage
from the newspaper. Articles in the weekly newspaper direct kids to the
appropriate section of the website. The Company expects that teachers will
encourage (perhaps require) their students to access the website for additional
information. While there, the kids will be attracted to the entertainment aspect
as well. It is expected that kids who are required to visit the site during
school hours, will gladly return from home computers to take advantage of the
fun and entertainment offered at youthline-usa.com.
The website design, content, and hosting are chosen from a variety of
sources to provide subscribers with maximum reliability and outstanding content.
Much of the design is being done by Entertainment Boulevard, an Internet
entertainment company that utilizes cutting-edge streaming video and audio
technology to offer quality programming to Internet users. Management believes
that combining Entertainment Boulevard's technology and know-how with the
Company's unique content will provide the Company's users with an unmatched
Internet experience. In addition, the Company is constantly searching for fresh,
innovative ideas and content for the website.
THE NEWSPAPER:
YOUTHLINE USA is a weekly national newspaper with regional inserts
geared for children ages 8 to 13. Its design and looks are identical to that of
an adult newspaper, making it the only product of its kind in the country. Each
issue consists of sixteen pages of interesting and timely articles on a variety
of topics, including world and national news, politics, economics, science,
sports, and weather. Relevant health and computer issues are presented as well,
always in an eye and mind-catching manner. By covering both national and
international news, YOUTHLINE USA connects children across the nation, while
simultaneously introducing children to different cultures around the world. Each
issue comes with lesson plans to help teachers incorporate the newspaper into
their curriculum.
As a member of the Associated Press (AP) and a subscriber to the
Reuters News Agency, YOUTHLINE USA shares news sources with the major
newspapers. While the news is the same, each article is carefully written with
consideration of our readers' age and reading level. Recognizing that our
readership is of multiple ages and reading levels, writers prepare articles of
different lengths and difficulties so that every reader can find articles of
interest. All articles are reviewed by a clinical psychologist to ensure that
they are written with our children's best interests in mind, and that they are
sensitive to the children's developmental level.
One of the challenges of a children's newspaper is to present news
stories that will spark a child's interest. Almost half of the paper is devoted
to various news stories and accompanying graphics, all of which are chosen and
formatted with the aim of capturing a young reader's interest. In addition to
several longer articles, YOUTHLINE USA offers World News and National News in
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Brief, which provide concise news stories with striking photographs. These
reports are ideal for younger readers who may have difficulty sustaining
attention for a full-length article.
In addition to introducing children of this age to the world via news,
YOUTHLINE USA attempts to ignite within its readership an excitement for
literature, art, music, and theater, by reviewing books, movies, and shows, and
by describing the lives of authors, artists, and musicians.
In each issue, a suitable website for children is included to enhance
reader's familiarity with, and comfort level on, the computer. Children are
encouraged to communicate with the newspaper by e-mail (or phone, fax, and
regular mail); children repeatedly contacted the Company with questions about
its stock market game, answers to puzzles and editorial comments. An elaborate
reporter program encourages every child to formulate and express opinions
through letters to the editor, earn a reporter's badge, set up and conduct
interviews with political, sports or entertainment figures, and then write up
the interview for publication in the newspaper or on the website.
YOUTHLINE USA also features short stories, games, jokes, puzzles, and
weekly detailed science experiments, magic tricks, or recipes that captivate the
children and encourage them to try new and exciting ideas at home. These items
are especially designed to keep readers coming back each week. Short stories are
often printed in parts, continuing from one issue to the next, giving our
readers yet another reason to return to the pages of YOUTHLINE USA.
Management believes that YOUTHLINE USA is unique. While there are
successful curriculum aids available (such as the Weekly Reader and Scholastic
News), those publications only discuss topics that are related to recent events.
YOUTHLINE USA, however, is a full-fledged newspaper which covers the weekly news
and includes all the features and sections of an adult newspaper. Its numerous
sections (business, sports, technology, health, etc.), in addition to its
monthly features, enable it to broaden the horizons of today's youth and to
encourage better communication between parents and kids.
YOUTHLINE USA has a number of features that help kids develop the skill
of reading a newspaper. Extensive research went into the development of the
perfect newspaper for children, from its appearance and set-up to content and
format. YOUTHLINE USA is unique, with distinct columnar margins and clear
markings of where to find continuing articles. Difficult words are printed in
bold and defined at the bottom of each page. The large print and easy language
help start these young readers on the lifelong road to newspaper reading.
In a world filled with indifference, the newspaper is one place to show
that individuals do have thoughts, feelings, and opinions about what goes on
around them. Many of our readers have already taken advantage of the opportunity
to express themselves. We encourage our readers to write in and tell us their
thoughts, and our goal is to provide them with the vehicle to present their
opinions to others.
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YOUTHLINE USA's wide variety of topics and activities, as well as its
focus on news stories, distinguishes it from other children's publications, many
of which focus on a particular topic, such as sports or animals, or offer very
little news information. This is important for two reasons: first, similar to an
adult's method of reading a daily newspaper, we expect children to skim the
newspaper and pick and choose what interests them. Also, since parents are often
actively involved in the purchasing decisions of their children's reading
material, they will prefer a higher-quality, news-oriented publication. We are
confident that the diversity of topics, combined with the "clean," high-quality
nature of the newspaper, and its focus on news information, will spark and
retain the interest of both parents and children.
Youthline USA has recently added regional inserts to its newspaper. The
regional inserts give local news and have two major benefits. First, they
attract the readers, giving them access to news that may affect them more
directly or that they may be more familiar with. Second, they open up the doors
to more advertisers on each regional level.
THE MAGAZINE:
Youthline USA's Fun and Feature Magazine is a monthly publication
directed at the same market. It contains a monthly theme that is supplemented
with appropriate and relevant news items, as well as entertainment materials
that make the topic more interesting and fun for readers. The magazine is
important not only because it is another medium through which the Company
reaches today's youth, but also because it is perhaps the most attractive medium
for advertisers and corporate sponsors.
Each monthly magazine features one educational topic which is explored
in full detail. Colorful graphics, activity suggestions, relevant news articles,
book and movie reviews, and interviews are included to make the magazine
appealing for its audience. The magazine's durable format encourages children to
collect each issue and re-read the articles, which is particularly appealing to
advertisers and corporate sponsors.
YOUTHMALL:
The YouthMall section of the website is scheduled to open in September
2000. This on-line shopping center for kids and educators will offer appropriate
products along with a brief description. Kids will be able to use either real
money or e-money earned from contests and activities on the website to purchase
the items of their choice.
Because YouthMall will offer only age-appropriate items for its
audience, parents can safely allow their children to purchase products online.
Educators will be able to purchase hard-to-find, curriculum-based material.
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RECENT ACQUISITIONS
LESSON STOP
Youthline USA, Inc. acquired Lesson Stop (HTTP://WWW.LESSONSTOP.ORG), a
web-site for K-12 teachers who need good ideas for classroom activities. Lesson
Stop has numerous educational features that enhance both the Youthline USA
newspaper and website. The site provides links to over 500 lesson plan sites on
the web, which gives teachers access to thousands of lesson plans.
Lesson Plan links are categorized by subject area and sub-topic, making
it easy for teachers to locate the lesson plans they need. Subject areas include
The Arts, Science, Math, and Language Arts. Grade level notations are made at
each link, so finding the right lesson plan is even easier.
INGENIUS
Ingenius was founded in 1994 as a partnership between
Telecommunications Incorporated (TCI) and Reuters New Media to provide high
quality interactive multimedia current events programming to the children's
consumer and institutional (education) markets.
Ingenius created several award winning programs for the K-12
educational market including:
What on Earth (WOE) - A weekly-published interactive current events
program with six new top topics discussed every week. Included with each topic
(news story) were hot links to certain vocabulary, video clips, audio clips,
photographs, links to Did You Know (more in-depth information on a
sub-category), and links to "gamelits" (mini games to reinforce the learning and
educational values of the news story). In addition to this, WOE included weekly
lesson plans for the teacher that were designed specifically for each individual
news story. Characters were used in many cases to guide the student and to be a
figurehead for the specific curriculum category that the news story was tied to.
Ask ANDIE - An interactive research and learning website that focuses
on curriculum based subject areas and topics as well as having a strong
financial services component.
MARKETING
THE WEBSITE:
In marketing the subscription portion of the website to schools, the
Company believes that the most effective method will be through a sales team
that will make direct contact with principals, superintendents, and Board of
Education officials. Educators will be presented with an extensive demo of the
capabilities and uniqueness of the website. Currently, the Company is
concentrating on nine major cities across America, and dependent on the success
of this initial step, it plans to expand its sales team to reach all cities in
the United States.
With this in mind The Company recently hired Mark Siegel to be Vice
President of Educational Sales. Mr. Siegel comes with years of experience in
reaching the educational market, and he is well focused and highly energetic.
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Another vehicle used by the Company to target its audience is to attend
technology and educational expositions to showcase its products.
THE NEWSPAPER:
In the first two years of its existence, YOUTHLINE USA tested a number
of different methods in order to determine which marketing strategies were most
effective. Advertising on radio and in magazines proved to be more effective
than advertising and inserts in newspapers. Advertising in library journals
proved to be extremely effective, as did direct mail to schools. As expected,
advertising during the holiday gift-giving season produced exciting results.
YOUTHLINE USA is easily marketed as the ideal gift - clean, educational, fun,
and ongoing.
YOUTHLINE USA plans to expand its marketing efforts. It will intensify
its marketing efforts, using the strategies that have already been proven to
work and branching out to new methods (TV, the Internet, direct mail to
individuals, mail-order catalogues). The Company also has hired salespeople and
attends appropriate conventions and expositions.
ADVERTISERS, CORPORATE SPONSORS:
YOUTHLINE USA markets itself to corporate America as an established,
focused, growing publication which serves as an excellent all-encompassing
vehicle for companies to reach their target audience. Advertisers can use the
entire Youthline package - national newspaper, regional paper, magazine,
website. YOUTHLINE USA has already received advertisements from Loew's Theater,
Six Flags Great Adventure, Space Farm, Walmart, Broadway's The Sound of Music,
NJ Nets, Sesame Place and Radio Disney.
YOUTHLINE USA's sponsorship department will emphasize building
long-term relationships with corporate America. Large companies are expected to
be drawn to the rich educational and entertainment content that is available
both in the newspaper and on the website. In order to develop and sustain these
relationships, the Company has hired Melissa Coopersmith to be Vice President of
Marketing.
The Company has hired Beth Kallman to be Vice President of Advertising
Sales. She will concentrate on large national companies. In addition, the
Company has hired two regional salespeople -- one in New York and one in
Philadelphia -- as an initial step. Additional regions will be added as the
Company grows.
With the goal of increasing advertising revenue, the Company introduced
the regional inserts and the magazine. Regional inserts will attract smaller
local companies who are interested in reaching the regional market. The magazine
serves as a more attractive medium for advertisers, not only because it is more
colorful and attractive to the kids, but also because it is designed - in terms
of content and durability - to be read over and over again
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INTELLECTUAL PROPERTY
The Company's ability to compete successfully and achieve future
revenue growth will depend, in part, on its ability to protect its proprietary
technology and operate without infringing the rights of others. The Company has
received a Notice of Allowance for its trademark YOUTHLINE USA(TM). In addition,
the Company owns various domestic and foreign trademarks relating to the assets
purchased in connection with the acquisition of Ingenius, including: Ingenius,
Who on Earth, What on Earth, Where on Earth, Ask A.N.D.I.E. and Adam Electron.
EMPLOYEES
As of December 31, 1999, the Company had a total of 39 employees. The
Company has 3 employees in corporate management; 10 employees in production,
including writers and graphic designers; 11 employees in marketing, including
website advertising and corporate sponsorships; 6 employees in educational
sales, who market the web site to schools throughout the country; 5 employees in
business operation, which includes secretaries, accounting, and computer
maintenance; and 4 employees in circulation. In addition, the Company hires
freelance writers. The Company believes its future performance will depend in
large part on its ability to attract and retain highly skilled employees. None
of the Company's employees is represented by a labor union and the Company has
not experienced any work stoppages. The Company considers its employee relations
to be good.
RISK FACTORS
IN ADDITION TO OTHER INFORMATION IN THIS REGISTRATION STATEMENT ON FORM
10-SB, THE FOLLOWING IMPORTANT FACTORS SHOULD BE CAREFULLY CONSIDERED IN
EVALUATING THE COMPANY AND ITS BUSINESS BECAUSE SUCH FACTORS CURRENTLY HAVE A
SIGNIFICANT IMPACT ON THE COMPANY'S BUSINESS, PROSPECTS, FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
WE HAVE A RECENT HISTORY OF LOSSES. We have incurred net losses of
$323,835 and $4,525,603 ($3,153,768 of which was stock compensation expenses)
for the years ended December 31, 1998 and 1999, respectively. 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 $5,025,841 at December 31, 1999.
WE ARE IN OUR EARLY STAGES OF DEVELOPMENT. We have generated limited
revenues to date. While we are able to finance certain of our current operations
from revenues, we will require additional financing to increase our marketing
campaign, to improve and update our web-site and to develop new products. Our
operations are subject to all of the risks inherent in the commercialization of
new products. The likelihood of our success must be considered in light of the
problems, expenses, difficulties, complications and delays frequently
encountered when developing new products, particularly those related to the
Internet.
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WE WILL REQUIRE ADDITIONAL FINANCING. We believe that the current cash
on hand together with cash flow from operations will be adequate to fund our
operations for at least six (6) months. There can be no assurance, however, that
we will not require additional financing prior to or after such time. There can
be no assurance that any additional financing will be available to us on
acceptable terms, or at all. If adequate funds are not available, we may be
required to delay, scale back, or eliminate some of our marketing campaign or
obtain funds through arrangement with partners or others that may require us to
relinquish rights to certain of our products or other assets. Accordingly, the
inability to obtain such financing could have a material adverse effect on our
business, financial condition and results of operations.
WE ARE DEPENDENT UPON KEY EMPLOYEES AND THE RECRUITMENT OF ADDITIONAL
PERSONNEL. We are dependent upon the efforts of and abilities of Saki Dodelson,
Susan Gertler and on other members of our staff. To date, we have been able to
attract and retain the personnel necessary for our operations. However, there
can be no assurance that we will be able to do so in the future. If we are
unable to attract and retain personnel with necessary skills when needed, our
business and expansion plans could be adversely effected.
OUR LIMITED SALES AND MARKETING EXPERIENCE MAY ADVERSELY AFFECT OUR
BUSINESS. We intend to market and sell our products in the United States,
through a direct sales force. Establishing significant marketing and sales
capability will require significant resources. There can be no assurance that we
will be able to recruit and retain skilled sales management, or direct
salespersons, or that our sales effort will be successful.
COMPETITION AND TECHNOLOGICAL CHANGES COULD ADVERSELY AFFECT OUR
BUSINESS. Our success depends upon establishing and maintaining a competitive
position in areas of focus. We compete with, and will compete with numerous
companies, many of which have significantly larger operations and greater
financial, marketing, human and other resources than us such as The Weekly
Reader, Scholastic News and Times for Kids. Accordingly, such competitors may
have substantial competitive advantages over us. In addition, we plan to develop
or acquire additional products in order to expand our product portfolio. No
assurance can be given that we will successfully compete in any market in which
we conduct or may conduct 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
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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 purchasers in this Offering to sell our
securities in the secondary market and the price at which such purchasers can
sell any such securities.
ANTI-TAKEOVER PROVISIONS MAY ADVERSELY AFFECT THE VALUE OF OUR
OUTSTANDING SECURITIES. Pursuant to our Certificate of Incorporation, the Board
of Directors may issue up to 5,000,000 shares of Preferred Stock in the future
with such preferences, limitations and relative rights as the Board may
determine without stockholder approval. The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance of
Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of delaying or
preventing a change in control of the Company without further action by the
stockholders. 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.
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 December 31, 1999 there were
10,071,665 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 450,000 shares of Common Stock issuable upon exercise of the
warrants at $1.00 per share, 590,000 shares of Common Stock issuable upon
exercise of warrants at $3.00 per share, 1,050,000 shares of Common Stock
issuable upon exercise of warrants at $5.00 per share, 350,000 shares of Common
Stock issuable upon exercise of warrants at $7.00 per share, 50,000 shares of
Common Stock issuable upon exercise of warrants at $.10 per share, 350,000
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shares of Common Stock issuable upon exercise of the warrants at $10.00 per
share and 4,000,000 shares of Common Stock issuable upon exercise of options
that may be granted pursuant to our Incentive Stock Option Plan. After reserving
a total of 6,840,00 shares of Common Stock for issuance upon the exercise of all
options and warrants, we will have at least 33,088,335 shares of authorized but
unissued Common Stock available for issuance without further shareholder
approval. As a result, any issuance of additional shares of Common Stock may
cause our current shareholders to suffer significant dilution which may
adversely affect the market.
In addition to the above-referenced shares of Common Stock which may be
issued without shareholder approval, we have 5,000,000 shares of authorized
preferred stock, the terms of which may be fixed by the 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, the Board of
Directors has the authority, without shareholder approval, to create and issue
one or more series of such preferred stock and to determine the voting, dividend
and other rights of holders of such preferred stock. The issuance of any of such
series of preferred stock could have an adverse effect on the holders of Common
Stock.
SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET. As of
December 31, 1999, the Company had 10,071,665 shares of its Common Stock issued
and outstanding, 5,663,465 of which are "restricted securities". Rule 144
provides, in essence, that a person holding "restricted securities" for a period
of one year may sell only an amount every three months equal to the greater of
(a) one percent of 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.
THE EXERCISE OF OUTSTANDING OPTIONS AND WARRANTS MAY ADVERSELY AFFECT
THE MARKET FOR OUR COMMON STOCK. Currently, there are outstanding stock options
and warrants to purchase an aggregate of 50,000 shares of Common Stock at an
exercise price of $.10 per share, an additional 450,000 shares of Common Stock
at an exercise price of $1.00 per share, an additional 590,000 shares of Common
Stock at an exercise price of $3.00 per share, an additional 1,050,000 shares of
Common Stock at an exercise price of $5.00 per share, an additional 350,000
shares of Common Stock at an exercise price of $7.00 per share and an additional
350,000 shares of Common Stock at an exercise price of $10.00 per share. In
addition, we have reserved 4,000,000 shares of our Common Stock for issuance
pursuant to our Incentive Stock Option Plan. None of such options or warrants
are available for public resale and such shares would be subject to Rule 144 of
the Act upon issuance thereof. The exercise of such outstanding options and
warrants will dilute the percentage ownership of 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
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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
the Company than those provided in such securities.
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.
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE. This Registration
Statement contains forward-looking statements and information that are based on
management's beliefs as well as assumptions made by, and information currently
available to, management. When used in this Registration Statement (including
Exhibits), words such as "anticipate," "believe," "estimate," "expect," and,
depending on the context, "will" and similar expressions, are intended to
identify forward-looking statements. Such statements reflect our current views
with respect to future events and are subject to certain risks, uncertainties
and assumptions, including the specific risk factors described above. Should one
or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, believed, estimated or expected. We do not intend to update these
forward-looking statements and information.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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.
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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. In every respect, it is similar to an adult newspaper, except
that it is written at the children's level and it filters out news that is not
age appropriate. It is designed to attract and engage the attention of children
within this age range. The Company generates revenue through the sale of
subscriptions, advertisement space and corporate sponsorships. Subscriptions can
either be bulk subscriptions ordered by schools, or as individual subscriptions
for children to read at home.
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 550,000 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 December 31, 1999 there were two sources of revenue:
1) Sale of newspaper subscriptions
An individual subscription costs $30.00 per year. Bulk subscriptions to
schools cost $9.00 per subscription for 25 or more, and $7.00 per
subscription for 50 or more.
2) Advertisements
The cost for a full-page ad was $1,000
The bulk of revenue received until September, 1999 was from the sale of
newspaper subscriptions. The increase in net sales from 1998 to 1999
was due almost totally to the increase in paid subscriptions. Beginning
December 31, 1999 requested (non-paid) circulation was increased to
550,000, which management believes will significantly increase revenue
from advertisements. In addition, management intends to sell
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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 improved liquidity
reflected in the December 31, 1999 financial statements would be needed to
finance the continued operations. 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 December 31, 1999, the
Company's current assets consisted of $572,720 of cash, $91,542 of receivables
and prepaid expenses of $20,753. At December 31, 1999 the current liabilities
exceeded its currents assets by $1,125,103. Current debt consisted of $500,000
bridge financing which was paid off in January 2000 and two $500,000 convertible
promissory notes due December 14, 2000 and December 21, 2000. Management
anticipates that it will satisfy its liquidity and capital requirements in the
coming year through additional capital and funds generated by operations.
BREAK EVEN
The projected expenses for the year ending December 31, 2000 are
anticipated to be $534,000 monthly including the cost of production, advertising
and marketing. Based on current projected operating expenses, the Company must
have gross monthly revenues of $534,000 to breakeven. It is anticipated that by
September 2000, sales will be approximately $600,000 monthly.
CUSTOMER RETENTION
From inception through December 31, 1999, we have had a favorable
response from subscribers to our newspaper. Our customer retention experience
has been 91% for 1998 and 93% for 1999, respectively.
Year Ended December 31, 1999 compared to Year Ended December 31, 1998.
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 $168,967
and $14,707 for 1999 and 1998, respectively. The Company incurred net operating
losses of $4,525,603 in 1999, compared to $322,351 in 1998. The losses incurred
in 1999 included expenses from the issuance of the Company's' common stock and
warrants recorded at the fair market value at the time of issuance. The
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aggregate amount expensed in 1999 was $3,153,768 from common stock and warrants
issued for services. The Company incurred substantial costs for printing,
reproduction, mailing and design of the newspaper during these periods.
Additionally, the Company incurred substantial costs in marketing, advertising
and payroll expense during the initial start up of operations.
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.
The Company incurred a net loss from operations of $4,525,603, or $.48
per share as compared to a loss of $322,351, or $.06 per share in the comparable
period in 1998. During 1999, the Company recorded an aggregate of $3,153,768 of
charges to the income statement. Theses charges consisted of $1,352,868 is
common stock issued for services and $1,800,900 of services recorded at the fair
market value of warrants issued to employees and consultants. 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 the reorganization of the Company. 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 the Company's aggressive
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sales and marketing, finance and other general and administrative infrastructure
necessary to support the Company's business development and expansion.
Interest Expense.
Interest expense increased $18,020 to $41,238 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 the operations of the Company as well as its expansion.
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, the Company increased its (non-paid)
circulation to 550,000 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 $3,725,348 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 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.
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Operating Expenses.
Operating expenses during 1998 increased as follows: payroll costs
increased $48,381 compared to the corresponding period in 1997. The Company
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.
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
the operations of the Company as well as its expansion
YEAR 2000
Many computer software systems in use today cannot properly process
date-related information beginning on and continuing after January 1,2000. This
will not pose a problem for the Company since its accounting programs are all
Y2K compliant. In addition, the Company has inquired of its commercial banks and
other service providers so to determine if they will be prepared for the Year
2000. While all have indicated they are taking the necessary steps to be in
compliance, there can be no assurance that all exposure will be eliminated. It
is anticipated that the Company will incur no material expenses related to the
Year 2000 issue.
ITEM 3. DESCRIPTION OF PROPERTIES
The Company leases (from an unaffiliated party) approximately 2,280
square feet at 4581 US9, Howell, NJ 07731, which serves as the Company's
executive offices. The annual rental is $42,180. The lease expires on October
31, 2004.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information, as of December 31, 1999
with respect to the beneficial ownership of the outstanding shares of the
Company's Common Stock (10,071,665 as of such date) by (i) any holder known to
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the Company owning more than five percent (5%) of the outstanding shares; (ii)
the Company's officers and directors; and (iii) the directors and officers of
the Company as a group:
<TABLE>
<CAPTION>
Number of Shares of
Name of Beneficial Owner* Common Stock (1) Percentage (%) of Ownership
- ------------------------- ---------------- ---------------------------
<S> <C> <C>
Greenwood Capital Partners, Inc. (2) 4,900,000 48.65%
Jacob Y. "Rocky" Stefansky(2) 6,100,000 54.12%
Emanuel Yarmish(3) 125,000 1.24
Saki Dodelson(4) 625,000 6.01%
Susan Gertler(5) 625,000 6.01%
David Stefansky(6) 360,00 3.57%
Asher Low(7) 25,000 **
All Officers and Directors
as a group (6 persons)(8) 7,350,000 61.65%
</TABLE>
* Unless otherwise indicated, the address of all persons listed in this
section is c/o Youthline USA, Inc., 4581 US9, Howell, NJ 07731.
** Less than 1%.
(1) Beneficially ownership as reported in the table above has been determined
in accordance with Instruction (4) to Item 403 of Regulation S-B of the
Securities Exchange Act.
(2) Includes 4,900,000 shares owned by Greenwood Capital Partners, Inc. Mr.
Stefansky is the President and principal stockholder of Greenwood.
Includes 300,000 warrants exercisable at $3.00 per share, 300,000 warrants
exercisable at $5.00 per share, 300,000 warrants exercisable at $7.00 per
share and 300,000 warrants exercisable at $10.00 per share. Such warrants
expire on December 31, 2004.
(3) Represents his indirect minority ownership interest through Greenwood
Capital.
(4) Includes 225,000 warrants exercisable at $1.00 per share, 25,000 warrants
exercisable at $3.00 per share, 25,000 warrants exercisable at $5.00 per
share, 25,000 warrants exercisable at $7.00 per share and 25,000 warrants
exercisable at $10.00 per share. Such warrants expire on December 31,
2004.
(5) Includes 225,000 warrants exercisable at $1.00 per share, 25,000 warrants
exercisable at $3.00 per share, 25,000 warrants exercisable at $5.00 per
share, 25,000 warrants exercisable at $7.00 per share and 25,000 warrants
exercisable at $10.00 per share. Such warrants expire on December 31,
2004.
(6) Represent his indirect minority ownership interest through Greenwood
Capital.
(7) Represent his indirect minority ownership interest through Greenwood
Capital.
(8) Includes 1,200,000 warrants owned by Mr. Stefansky and 325,000 warrants
owned by each of Ms. Dodelson and Ms. Gertler. See Notes 2, 4 and 5.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS
The names and ages of the directors and executive officers of the
Company are set forth below. All Directors are elected annually by the
stockholders to serve until the next annual meeting of the stockholders and
until their successors are duly elected and qualified. Officers are elected
annually by the Board of Directors to service at the pleasure of the Board.
Name Age Position(s) With the Company
- ---- --- ----------------------------
Jacob Y. "Rocky" Stefansky 33 Chairman of the Board
Saki Dodelson 36 President, Treasurer and Director
Susan Gertler, Ph.D. 36 Vice President, Secretary and Director
Emanuel Yarmish 50 Director
David Stefansky 28 Director
Asher Low 39 Director
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BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS
JACOB Y. "ROCKY" STEFANSKY, has been a Director of the Company since June 1999.
From November 1991 to present, Mr. Stefansky has been the President and Director
of KID International, Inc., an international trading company. From 1997 until
present, Mr. Stefansky has been the President and director of Portugal
Investment Group, Inc., a privately held investment fund involved with
undervalued and start-up companies. In 1999 Mr. Stefansky became the President
and a director of Greenwood Capital Partners, Inc., a privately held investment
fund involved with Internet and media companies.
SAKI DODELSON, has been the President, Treasurer and Director of the Company
since August 1999 and has been the President, Treasurer and Director of the
Company's subsidiary S&S Plus, Inc., since inception. Ms. Dodelson was the
co-founder of the Youthline USA newspaper. Ms Dodelson has fifteen years
experience in business and finance, computer science, and marketing. From 1987
through May 1999, Ms. Dodelson was a manager of business and finance at AT&T.
While at AT&T, Ms. Dodelson was contacted by the Israeli government and asked to
redesign, improve and market acclaimed Israeli 2000 project--the Israeli
Knesset's website dedicated to the memory of former Prime Minister Yitzhak
Rabin. She has been credited with turning a cumbersome government project into
an efficient, profitable project.
From 1993 to present, Ms. Dodelson has been the President of Harton Financial, a
currency trading company. She has a BS in computer science and a BA in
education. Ms. Dodelson is the sister-in-law of Ms. Gertler.
SUSAN GERTLER PH.D., has been the Vice President, Secretary and a Director of
the Company since August 1999 and has been Vice President, Secretary and
Director of this Company's subsidiary S&S Plus, Inc., since inception. Dr.
Gertler was the co-founder, publisher, and executive editor, and created the
YOUTHLINE USA concept in 1996. As publisher and executive editor, she manages
content, lay-out, and presentation, coordinating development of the newspaper
and web site to guarantee a coherent presentation of all aspects of YOUTHLINE
USA's suite of products and services. Dr. Gertler is also responsible for
contacts with all independent contributors, freelance writers, and external
publishers as well as production of print and website design.
From September 1994 to August 1995, Dr. Gertler worked as a specialist in
testing and evaluation of intellectual and psychological disorders at a Veterans
Administration Hospital. Dr. Gertler conducted in- and out-patient psychotherapy
for individuals, groups, and families. From October 1992 to August 1994, Dr.
Gertler worked as a researcher in a long-term study. Dr. Gertler designed and
developed systems in the area of health psychology, including an on-line
application for quantitative and analysis of mental health status. From
September 1991 to May 1993, Dr. Gertler worked at the Bergen Regional Counseling
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Center, a community mental health system in a disadvantaged area. She conducted
individual and family therapy, maintaining contact with schools to coordinate
and individualize treatment for optimal social and development progress. From
September 1990 to May 1991, Dr. Gertler worked at the Children's Village
residential home for aggressive, adolescent boys, Dr. Gertler performed initial
assessments and ongoing therapy for children and families, developing and
implementing programs for easing the stress of major life-cycle transitions.
As a result of her experience in the fields of psychology and education, Dr.
Gertler is comfortable working with teachers and librarians, parents, and
children, all of which are the primary market segments for the Company.
EMANUEL YARMISH, has been a Director of the Company since June 1999. Form 1982
to present, Mr. Yarmish has been the President of Nicole Holdings, Inc., a
privately held real estate investment and management company.
DAVID STEFANSKY, has been a Director of the Company since December 1999. From
May 1999 to present Mr. Stefansky has been the managing director of the private
equity group at Robb Peck McCooey Institutional Services, a division of Robb
Peck McCooey Clearing Corp., where he specializes in advising and financing
emerging growth companies. From September 1997 to May 1999 Mr. Stefansky was
employed in a similar capacity at Trautman Kramer & Co., where he was active in
advising and financing emerging growth companies. From May 1994 through
September 1997, Mr. Stefansky was employed as an account executive at various
securities brokerage firms. Mr. Stefansky is the brother of Jacob Y. "Rocky"
Stefansky.
ASHER LOW, has been a Director of the Company since December 1999. From January
1994 to present Mr. Low has been a Director of Arisal Estates Ltd., a commercial
real estate holding company. Since 1997, Mr. Low has acted as an advisor to
various foreign investment firms.
ITEM 6. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
No executive officer received compensation in excess of $100,000 in
fiscal years 1998 and 1999. Each director of the Company is entitled to receive
reasonable out-of-pocket expenses incurred in attending meetings of the Board of
Directors of the Company but are not compensated for services provided in their
capacities as directors.
EMPLOYMENT AGREEMENTS
The Company has entered into five-year employment agreements with each
of Saki Dodelson (President) and Susan Gertler (Vice President and Secretary).
The employment agreements provide for annual base salaries of $115,000 each. The
employment agreements provide for discretionary bonuses to be determined in the
sole discretion of the Board of Directors and contain covenants not to compete
with the Company following termination of employment.
22
<PAGE>
STOCK OPTION PLANS AND AGREEMENTS
INCENTIVE OPTION PLAN - In January 2000, the Directors of the Company
adopted and the stockholders of the Company approved the adoption of the
Company's 2000 Incentive Stock Option Plan ("Incentive Option Plan"). The
purpose of the Incentive Option Plan is to enable the Company to encourage key
employees and Directors to contribute to the success of the Company 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.
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 the Company's
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. The Company 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.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
To the best of management's knowledge, other than as set forth below,
there were no material transactions, or series of similar transactions, or any
currently proposed transactions, or series of similar transactions, to which the
Company was or is to be a party, in which the amount involved exceeds $60,000,
and in which any director or executive officer, or any security holder who is
23
<PAGE>
known by the Company to own of record or beneficially more than 5% of any class
of the Company's common stock, or any member of the immediate family of any of
the foregoing persons, has an interest.
In February 1998 each of Saki Dodelson and Susan Gertler, the Company's
President and Secretary, respectively, loaned the Company's subsidiary, S&S
Plus, Inc., $125,000 ($250,000 in the aggregate). The notes bear interest at 9%
per annum. Interest payments only are made until the gross annual sales of the
subsidiary reach $1 million, at which time the subsidiary will begin to repay
$15,000 of principal until the notes are paid in full.
In March 1999, Robert Dodelson, the father-in-law of Saki Dodelson,
loaned the Company's subsidiary, S&S Plus, Inc., $35,000. The loan was paid in
full in December 1999.
The Company intends to indemnify its officers and directors to the full
extent permitted by Delaware law. Under Delaware law, a corporation may
indemnify its agents for expenses and amounts paid in third party actions and,
upon court approval in derivative actions, if the agents acted in good faith and
with reasonable care. A majority vote of the Board of Directors, approval of the
stockholder or court approval is required to effectuate indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to officers, directors or persons
controlling the Company, the Company has been advised that, in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in such Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by an officer, director or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such officer, director or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in such Act and will
be governed by the final adjudication of such issue. Transactions between the
Company and its officers, directors, employees and affiliates will be on terms
no less favorable to the Company than can be obtained from unaffiliated parties.
Any such transactions will be subject to the approval of a majority of the
disinterested members of the Board of Directors.
ITEM 8. DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue up to 50,000,000 shares of Common
Stock, $.0001 par value per share, of which 10,071,665 shares were issued and
outstanding as of December 31, 1999. The Company's Certificate of Incorporation
authorizes 5,000,000 shares of "blank check" preferred stock, none of which are
outstanding.
24
<PAGE>
COMMON STOCK
Subject to the rights of holders of preferred stock, if any, holders of
shares of Common Stock of the Company are entitled to share equally on a per
share basis in such dividends as may be declared by the Board of Directors out
of funds legally available therefor. There are presently no plans to pay
dividends with respect to the shares of Common Stock. Upon liquidation,
dissolution or winding up of the Company, after payment of creditors and the
holders of any senior securities of the Company, including preferred stock, if
any, the assets of the Company will be divided pro rata on a per share basis
among the holders of the shares of Common Stock. The Common Stock is not subject
to any liability for further assessments. There are no conversion or redemption
privileges nor any sinking fund provisions with respect to the Common Stock and
the Common Stock is not subject to call. The holders of Common Stock do not have
any pre-emptive or other subscription rights.
Holders of shares of Common Stock are entitled to cast one vote for
each share held at all stockholders' meetings for all purposes, including the
election of directors. The Common Stock does not have cumulative voting rights.
All of the issued and outstanding shares of Common Stock are fully
paid, validly issued and non-assessable.
PREFERRED STOCK
None of the 5,000,000 "blank check" preferred shares are currently
outstanding. The Board of Directors of the Company have the authority, without
further action by the holders of the outstanding Common Stock, to issue shares
of preferred stock from time to time in one or more classes or series, to fix
the number of shares constituting any class or series and the stated value
thereof, if different from the par value, and to fix the terms of any such
series or class, including dividend rights, dividend rates, conversion or
exchange rights, voting rights, rights and terms of redemption (including
sinking fund provisions), the redemption price and the liquidation preference of
such class or series.
WARRANTS
In connection with the Company's bridge financing in September 1999,
the Company issued to the Placement Agent of such financing, 50,000 warrants to
purchase Common Stock exercisable at $.10 per share and expiring on September 8,
2004.
In November 1999, the Company issued to each of Ms. Dodelson and Ms.
Gertler, the Company's President and Secretary, respectively, 325,000 warrants
(225,000 exercisable at $1.00 per share, 25,000 exercisable at $3.00 per share,
25,000 exercisable at $5.00 per share, 25,000 exercisable at $7.00 per share and
25,000 exercisable at $10.00 per share). All of such warrants expire on December
31, 2004.
25
<PAGE>
In November 1999, the Company issued to G.I.G. Corporate Consultants,
Inc., an entity controlled by Jacob Y. "Rocky" Stefansky, the Company's
Chairman, 1,200,000 warrants (300,000 exercisable at $3.00 per share, 300,000
exercisable at $5.00 per share, 300,000 exercisable at $7.00 per share and
300,000 exercisable at $10.00 per share). All of such warrants expire on
December 31, 2004.
In November 1999, the Company issued 940,000 warrants to consultants
(240,000 exercisable at $3.00 per share and 700,000 exercisable at $5.00 per
share). All of such warrants expire on December 31, 2004.
The exercise price of the warrants and the number of shares issuable
upon exercise of the warrants will be subject to adjustment to protect against
dilution in the event of stock dividends, stock splits, combinations,
subdivisions and reclassifications.
DELAWARE ANTI-TAKEOVER LAW PROVISIONS
As a Delaware corporation, the Company is subject to Section 203 of the
General Corporation Law. In general, Section 203 prevents an "interested
stockholder" (defined generally as a person owing 15% or more of a Delaware
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with such Delaware corporation for three years
following the date such person became an interested stockholder unless (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination, (ii) upon
consummation of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by the directors who are also
officers of the corporation and by certain employee stock plans), or (iii)
following the transaction in which such person became an interested stockholder,
the business combination is approved by the board of directors of the
corporation and authorized at a meeting of stockholders by the affirmative vote
of the holders of two-thirds of the outstanding voting stock of the corporation
not owned by the interested stockholder. Under section 203, the restrictions
described above also do not apply to certain business combinations proposed by
an interested stockholder following the public announcement or notification of
one of certain extraordinary transactions involving the corporation and a person
who had not been an interested stockholder during the previous three years or
who became an interested stockholder with the approval of the corporation's
board of directors and if such business combination is approved by a majority of
the board members who were directors prior to any person's becoming an
interested stockholder. The provisions of Section 203 requiring a super-majority
vote to approve certain corporate transactions could have the effect of
discouraging, delaying or preventing hostile takeovers, including those that
might result in the payment of a premium over market price or changes in control
or management of the Company.
26
<PAGE>
LIMITATION ON LIABILITY OF DIRECTORS
The Company's Certificate of Incorporation provides that a director of
the Company will not be personally liable to the Company or its stockholders for
monetary damages for breach of the fiduciary duty of care as a director,
including breaches which constitute gross negligence. By its terms and in
accordance with the Delaware General Corporation Law, however, this provision
does not eliminate or limit the liability of a director of the Company (i) for
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve international
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, (relating to unlawful payments or dividends or
unlawful stock repurchases or redemptions), (iv) for any improper benefit or (v)
for breaches of a director's responsibilities under the Federal Securities laws.
DIVIDEND POLICY
The Company has not paid any dividends on its Common Stock since its
inception and does not intend to pay dividends on its Common Stock in the
foreseeable future. Any earnings which the Company may realize in the
foreseeable future will be retained to finance the growth of the Company.
SHARES ELIGIBLE FOR FUTURE RESALE
As of December 31, 1999, the Company had an aggregate of 10,071,665
shares of its Common Stock issued and outstanding, 5,663,465 all of which are
"restricted securities," which may be sold only in compliance with Rule 144
under the Securities Act of 1933, as amended. Rule 144 provides, in essence,
that a person holding restricted securities for a period of one year after
payment therefor may sell, in brokers' transactions or to market makers, an
amount not exceeding 1% of the outstanding class of securities being sold, or
the average weekly reported volume of trading of the class of securities being
sold over a four-week period, whichever is greater, during any three-month
period. (Persons who are not affiliates of the Company and who had held their
restricted securities for at least two years are not subject to the volume or
transaction limitations.) The sale of a significant number of these shares in
the public market may adversely affect prevailing market prices of the Company's
securities following this Offering.
TRANSFER AGENT & REGISTRAR
The transfer agent and registrar for the Company's Common Stock is
American Registrar and Transfer Company, 342 East 900 South, Salt Lake City,
Utah 84111.
27
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
Prior to August 1999, the Company's shares of Common Stock were quoted
on the OTC Bulletin Board under the symbol "UMHCD". Since August 1999 the Common
Stock has been trading under the symbol "YLNE".
The following table sets forth the range of high and low bid quotations
for the Common Stock, in the 3rd and 4th Quarter of 1999, as reported by the OTC
Bulletin Board. The quotes represent inter-dealer prices without adjustment or
mark-ups, mark-downs or commissions and may not necessarily represent actual
transactions. The trading volume of the Company's securities fluctuates and may
be extremely limited (or non-existent) during certain periods. As a result, the
liquidity of an investment in the Company's securities may be adversely
affected. For several years prior to August 1999, the Company's Common Stock did
not trade.
Common Stock
---------------
High Low
---- ---
1999
Quarter ended
September 30, 1999* $10-3/8 $3
Quarter ended
December 31, 1999 $10 $3
* Limited trading on the OTC Bulletin Board commenced in August 1999.
On December 31, 1999, the final quoted price as reported by the OTC
Bulletin Board was $7-1/8 for each share of Common Stock. As of December 31,
1999, there were 10,071,665 shares of Common Stock outstanding, held of record
by approximately 310 record holders.
DIVIDEND POLICY
It is the policy of the Board of Directors to retain earnings for use
in the maintenance and expansion of the Company's business. The Company has not
declared any cash dividends to the shareholders of its capital stock and does
not intend to declare such dividends in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS
The Company is not a party to any material litigation or governmental
proceedings that, management believes, would result in judgments or fines that
would have a material adverse effect on the Company.
28
<PAGE>
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In September 1999, the Company issued 10,000 shares of Common Stock to
Seven Reid for services rendered. The sale was made in reliance upon Section
4(2) of the Act. No commissions were paid.
In connection with a $500,000 bridge financing in September 1999 in
which the Company issued promissory notes in the aggregate amount of $500,000,
the Company issued, for no additional consideration, 100,000 shares of Common
Stock to nine (9) accredited investors. The sales were made in reliance upon
Rule 506 of Regulation D under the Act. The Company paid commissions of 9% to
the placement agent of the financing. The promissory notes accrue interest at 8%
per annum and the principal and accrued interest are due and payable on January
7, 2000.
In connection with the Company's acquisition of all of the outstanding
shares of S&S Plus, Inc. (a wholly-owned subsidiary of the Company) in August
1999, the Company issued 5,500,000 shares of Common Stock to the shareholders of
S&S. The sale was made in reliance upon Section 4(2) of the Act. No commissions
were paid.
In connection with the Company's acquisition of Lesson Stop in August
1999, the Company issued 20,000 shares of Common Stock to Therese Sarah, an
employee of the Company. The sale was made in reliance upon Section 4(2) of the
Act. No commissions were paid.
In July 1999, the Company issued 33,465 shares of Common Stock to seven
persons in settlement of any claims such persons may have had against the
Company. The sales were made in reliance upon Section 4(2) of the Act. No
commissions were paid.
In March 1999, the Company sold 4,400,000 shares of Common Stock to
eleven (11) accredited investors for an aggregate purchase price of $44,000. The
sales were made in reliance upon Rule 504 of Regulation D under the Act. No
commissions were paid.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "GCL")
empowers a corporation to indemnify its directors and officers and to purchase
insurance with respect to liability arising out of the performance of their
duties as directors and officers. The GCL provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, vote of stockholders or otherwise.
29
<PAGE>
Article Ninth of the Company's Certificate of Incorporation eliminates
the personal liability of directors to the fullest extent permitted by Section
102 of the GCL. Article Tenth provides for indemnification of all persons whom
it shall have the power to indemnify pursuant to Section 145 of the GCL.
The effect of the foregoing is to require the Company to the extent
permitted by law to indemnify the officers and directors of the Company for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
The Company does not currently have any liability insurance coverage
for its officers and directors.
30
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
2.1 Certificate of Incorporation of the Company*
2.2 Certificate of Merger (Delaware)*
2.3 Articles of Merger (Utah)*
2.4 Plan of Merger*
2.5 By-Laws of the Company*
3.1 Specimen Certificate for shares of Common Stock*
6.1 Employment Agreement between the Company and Saki Dodelson.*
6.2 Employment Agreement between the Company and Susan Gertler.*
10.1 Consent of Michael C. Finkelstein & Co., Independent Certified
Public Accountants.
27 Financial Data Schedule
- ----------------------------
*Previously Filed.
31
<PAGE>
TABLE OF CONTENTS
PAGE
Independent Auditor's Report ................................... F-2
Consolidated Balance Sheets .................................... F-3 - F-4
Consolidated Statements of Operations .......................... F-5
Consolidated Statements of Stockholders' Equity ................ F-6
Consolidated Statements of Cash Flows .......................... F-7
Notes to the Consolidated Financial Statements ................. F-8 - F-17
Independent Auditors' Report ................................... F-18
Statement of Expenses .......................................... F-19
Statement of Stockholders' Equity (Deficit) .................... F-20
Statements of Cash Flows ....................................... F-21
Notes to the Financial Statements .............................. F-22 - F-24
Pro Forma Consolidated Statements of Operations (Unaudited) .... F-25
<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 1, effective September 24, 1999, the Company was
reorganized under a plan confirmed by the United States Bankruptcy Court for the
Northern District of Texas and adopted a new basis of accounting whereby all
remaining assets and liabilities were adjusted to their estimated fair values.
Accordingly, the financial statements for periods subsequent to the
reorganization are not comparable to the financial statements presented for
prior periods.
Michael C. Finkelstein & Co.
Morganville, New Jersey
Certified Public Accountant
February 22, 2000
F-2
<PAGE>
YOUTHLINE USA, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
ASSETS
CURRENT ASSETS:
Cash $572,720
Accounts Receivable 91,542
Prepaid Expenses 20,753
--------
TOTAL CURRENT ASSETS 685,015
--------
FIXED ASSETS
Office equipment and software (net of
accumulated depreciation of $35,071) 107,795
--------
OTHER ASSETS
Organization costs (net of
accumulated amortization of $2,578) 3,272
Goodwill (Net of accumulated amortization of $1,603) 203,397
--------
TOTAL OTHER ASSETS 206,669
--------
TOTAL ASSETS $999,479
========
The accompanying notes are an integral part of the financial statements
F-3
<PAGE>
YOUTHLINE USA, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 203,938
Unearned Revenue 76,180
Current Portion of Notes Payable 1,530,000
-----------
TOTAL CURRENT LIABILITIES 1,810,118
-----------
LONG TERM LIABILITIES
Notes Payable 220,000
-----------
TOTAL LONG TERM LIABILITIES 220,000
-----------
TOTAL LIABILITIES 2,030,118
-----------
STOCKHOLDERS' EQUITY:
Preferred Stock, No Par Value, 5,000,000 Shares Authorized,
No Shares Outstanding --
Common Stock, $.001 par value, 50,000,000 Shares 1,007
Authorized; 10,071,665 shares issued and outstanding
Additional Paid In Capital 3,994,195
(Deficit) (5,025,841)
-----------
TOTAL STOCKHOLDERS' EQUITY (1,030,639)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 999,479
===========
The accompanying notes are an integral part of the financial statements
F-4
<PAGE>
YOUTHLINE USA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
----------- -----------
NET SALES $ 168,967 $ 14,707
----------- -----------
Total Income 168,967 14,707
COST OF GOODS SOLD 321,320 163,224
----------- -----------
GROSS PROFIT (LOSS) (152,353) (148,517)
----------- -----------
OPERATING EXPENSES:
Payroll and Related Costs 455,324 48,381
Employee Stock Based Compensation 900,000 --
Consulting Services 2,253,768 --
Selling Expenses 333,580 51,914
Professional Fees 158,060 14,445
Commissions 50,000 --
General and Administrative 162,228 25,047
Depreciation and Amortization 22,638 10,529
----------- -----------
TOTAL OPERATING EXPENSES 4,335,598 150,316
----------- -----------
Loss from operations before provision
for income taxes (4,487,951) (298,833)
----------- -----------
OTHER INCOME AND EXPENSES
Interest Expense (Net of Interest Income of
$3,786 in 1999 and $0 in 1998) 37,452 23,218
----------- -----------
Loss before provision for Income Taxes (4,525,403) (322,051)
----------- -----------
PROVISION FOR STATE INCOME TAX 200 300
----------- -----------
Net Loss $(4,525,603) $ (322,351)
=========== ===========
Net Loss per Common Share (Basic and Diluted) $ (0.48) $ (0.06)
=========== ===========
Weighted Average Common Shares Outstanding 9,435,216 5,507,972
=========== ===========
The accompanying notes are an integral part of the financial statement
F-5
<PAGE>
<TABLE>
<CAPTION>
YOUTHLINE USA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Common Stock Capital Accumulated
Number of Par in excess of Deficit Total
----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 5,500,000 $ 550 (1) $ 103,429 (1) $ (177,887) $ (73,908)
Reverse Merger - Recapitalization 8,200 1 14,783 (2) -- 14,784
Net Loss for Period -- -- -- (322,351) (322,351)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 5,508,200 551 118,212 (500,238) (381,475)
Contribution to Paid-in-Capital -- -- 500,000 -- 500,000
Sale of Common Stock 4,400,000 440 44,000 -- 44,440
Stock Issued for Services 163,465 16 1,531,083 -- 1,531,099
Stock Based Compensation -- -- 1,800,900 -- 1,800,900
Net Loss for Period -- -- -- (4,525,603) (4,525,603)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 $10,071,665 $ 1,007 $ 3,994,195 $(5,025,841) $(1,030,639)
=========== =========== =========== =========== ===========
</TABLE>
(1) During 1997, officers of the Company contributed $103,979 to the Common
Stock of S&S Plus, Inc.
(2) To restate Common Stock and accumulated deficit of the Company in order to
recapitalize the stockholders' equity as a result of the reverse acquisition
on August 16, 1999. Therefore, the Common Stock of S&S Plus, Inc. with No
Par Value, 1,000 shares authorized and issued is replaced with the Common
Stock of Youthline USA, Inc. with $.0001 Par Value, 50,0000,000 shares
authorized, 5,500,000 shares issued and outstanding, including 8,200 shares
of Common Stock resulting from the reverse stock split. Accordingly, there
were 5,508,200 shares of Common Stock issued and outstanding as of December
31, 1998.
The accompanying notes are an integral part of the financial statements
F-6
<PAGE>
YOUTHLINE USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS FROM OPERATIONS $(4,525,603) $ (322,351)
Adjustments to reconcile net loss from operations
to net cash used by operating activities:
Depreciation and Amortization Expense 22,638 10,529
Common Stock Issued for Services 2,090,323 --
Stock Based Compensation 1,800,900 --
Increase in Accounts Receivables (89,708) (1,729)
Increase in Prepaid Expenses (20,753) 35,269
(Decrease) Increase in Accounts Payable and Accrued Expenses 142,854 25,215
Increase in Unearned Revenues 50,965 --
----------- -----------
NET CASH USED BY OPERATIONS (528,384) (253,067)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Trademarks (205,000) --
Purchase of Office Equipment (114,157) (3,124)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES: (319,157) (3,124)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in Loans and Exchanges 15,346 311,973
(Decrease) in Loans and Exchanges (95,173) (305,799)
Issuance of Convertible Promissory Notes 1,000,000
Proceeds of Bridge Financing 500,000 --
Proceeds from Notes Payable - Officers -- 250,000
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,420,173 256,174
----------- -----------
Net Increase in Cash and Cash Equivalents 572,632 (17)
Cash and Cash Equivalents at Beginning of Year 88 105
----------- -----------
Cash and Cash Equivalents at End of Year $ 572,720 $ 88
----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Paid During the Period for
Interest $ 15,325 $ 2,567
=========== ===========
Income Taxes $ 200 $ 300
=========== ===========
NON CASH INVESTING ACTIVITIES:
Capitalization of Officers' Loans $ -- $ 103,479
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-7
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
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,
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.
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.
B) 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.
F-8
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
PRINCIPLES
(Continued)
C) CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of
the Company and its subsidiary. All significant inter-company
accounts and transactions are eliminated. Management of the
Company has made estimates and assumptions relating to the
reporting of assets and liabilities and disclosure of
contingent liabilities to prepare these financial statements
in conformity with generally accepted accounting principles.
D) CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
E) ACCOUNTS RECEIVABLE AND REVENUE RECOGNITION
Accounts receivable and revenue recognition consist of
accounts receivable to YouthLine USA. Accounts receivable are
current, accordingly, a provision for bad debt is not
required. The Company 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 as earned.
F) FIXED ASSETS
Computer equipment and furniture and fixtures are depreciated
using the straight-line method over their estimated useful
lives ranging from five to seven years. The costs of additions
and betterment are capitalized, repairs and maintenance costs
are charged to general and administrative expenses.
Organization costs are amortized over a period of five years
on a straight-line basis.
Goodwill represents the purchase price at fair market value of
intangible assets acquired. The goodwill is being amortized
over a period of 40 years using the straight line method. The
annual amortization expense for 1999 was $1,603. At December
31, 1999, accumulated amortization of goodwill was $1,603.
F-9
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
PRINCIPLES
(Continued)
G) EARNINGS PER SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share" discusses the computation and
presentation of earnings per share ("EPS"). Basic EPS, as
defined by SFAS No. 128, is computed by dividing income
available to common shareholders by the weighted average
number of common shares outstanding for the reporting period,
ignoring any potential effects of dilution. Diluted EPS
reflects the potential dilution that would occur if
securities, or other contracts to issue common stock, were
exercised 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.
H) 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.
I) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent liabilities and the
reported amounts of revenues and expenses. Actual results
could differ from estimates.
F-10
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 2 FIXED ASSETS - OFFICE AND EQUIPMENT SOFTWARE
Office equipment and software consist of the following:
Office Equipment $ 45,666
Software 5,394
---------
51,060
Less: Accumulated Depreciation (20,763)
---------
Net Book Value $ 30,297
=========
Depreciation expense for the years ended December 31, 1999 and
1998 amounted to $19,677 and $9,359, respectively.
Other Assets and Organization costs consist of the following:
Organization Costs $ 5,850
Less: Accumulated Depreciation (2,287)
---------
Net Book Value $ 3,563
=========
Amortization expense for the years ended December 31, 1999 and
1998 amounted to $1,170 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.
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.
F-11
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 4 NOTES PAYABLE
(Continued)
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.
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
exercise price of $3.00 per share, and a maximum price of
$4.875 per share.
Long Term Debt consists of the following:
<TABLE>
<CAPTION>
TOTAL LONG TERM CURRENT
<S> <C> <C> <C>
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:
<C> <C>
2000 $ 1,530,000
2001 30,000
2002 30,000
2003 30,000
2004 30,000
Thereafter 100,000
-----------
Total Payments $ 1,750,000
===========
</TABLE>
F-12
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
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.
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, no 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 at $.01 per
share 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, $.001 par value, in exchange for all the
outstanding stock of S&S Plus, Inc. The consolidated financial
statements have been restated to reflect the effect of the
acquisition of S&S Plus, Inc.
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.
F-13
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 6 CAPITAL STOCK
(Continued)
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.
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.
On September 28, 1999, the Company purchased all the worldwide
rights, title, interest and goodwill from a partnership
composed of R L Ingenious, Inc., and ETC Ingenious Holdings,
Inc., for an aggregate purchase price of $50,000. The asset is
an interactive multimedia educational tool consisting of a
data base of over 1,500 news stories and encompasses two full
CD's. The Company did not assume any of the liabilities or
obligations relating to the purchased assets.
NOTE 7 FRESH-START REPORTING
Youthline USA, Inc's. Reorganization Plan under Chapter 11 was
confirmed by the United States Bankruptcy Court for the
Northern District of Texas, Fort Worth Division. The formal
confirmation was entered in January 1996 and the court
consummated the reorganization plan on September 24, 1999.
As a result of the confirmation of the Reorganization Plan,
the Company implemented fresh-start reporting as of 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.
The Company's Consolidated Balance Sheet as of December 31,
1999 was prepared as if the Company was a new reporting entity
at January 1996 and reflects certain reorganization
adjustments in 1996 that include the restatement of assets and
liabilities to approximate fair value and the discharge of
outstanding liabilities relating to creditor claims against
the Company, which have been satisfied primarily by additional
funding through bridge capital. The Company's total secured
and unsecured debts resulting from the bankruptcy aggregated
$131,033. As of October 11, 1999, the Company has satisfied
all debts.
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.
F-14
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
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
December 31, 1999 approximate fair value with the exception of
the interest rate swap agreement.
NOTE 9 INCOME TAXES
As of December 31, 1998 the Company has no available unused
Federal and State net operating loss carry forwards that may
be applied against future taxable income. Further, since S&S
Plus, Inc. was a sub chapter S Corporation prior to the
reverse acquisition, the net operating losses are 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.
NOTE 10 SECURED AND UNSECURED CREDITORS
The Company set up a provision of $131,033 for secured and
unsecured creditors, in accordance with the filing of the
bankruptcy. Ult-I-Med Health Centers, Inc., incurred this
liability prior to December 31, 1996. The liability was
satisfied in October 1999. The current outstanding balance is
zero.
NOTE 11 COMMITMENTS AND CONTINGENCIES
The Company entered into a five-year lease agreement with
United Securities Services, Inc. The lease currently calls for
monthly rental of $3,515 for approximately 2,280 square feet
of office space located in Lakewood, New Jersey.
At 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.
NOTE 12 WARRANTS
As of December 31 1999, warrants consisted of the following:
Warrants Outstanding Exercise Price Date of 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
=========
F-15
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 12 WARRANTS
(Continued)
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.
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 weighted average fair value of options granted during 1999 is $5.22
per share.
F-16
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 13 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 14 SUBSEQUENT EVENTS
On January 7, 2000, the Company repaid the $500,000 bridge
financing note with interest of 8.0%.
F-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
YouthLine USA, Inc.
We have audited YouthLine, USA, Inc's. (the "Company") statements of operations,
shareholders' equity (deficit) and cash flows for the period January 1, 1999
through August 16, 1999 and for the year ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements of YouthLine USA. Inc. referred to
above present fairly, in all material respects, the results of their operations
and their cash flows for the period January 1, 1999 through August 16, 1999 and
the year ended December 31, 1998 in conformity with generally accepted
accounting principles.
Michael C. Finkelstein & Co.
Morganville, New Jersey
Certified Public Accountant
February 22, 2000
F-18
<PAGE>
YOUTHLINE USA, INC.
(DEBTOR IN POSSESSION)
STATEMENTS OF EXPENSES
FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 16, 1999 AND
FOR THE YEAR ENDED DECEMBER 31, 1998
1999 1998
------ -------
Administrative Expenses $ -- $ 1,484
------ -------
Net Loss -- (1,484)
====== =======
Loss per Common Share $ -- $ (0.18)
====== =======
Common Shares Outstanding 8,200 8,200
====== =======
The accompanying notes are an integral part of the financial statements
F-19
<PAGE>
YOUTHLINE USA, INC.
(DEBTOR IN POSSESSION)
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Common Stock Capital
Number of Par in excess of Accumulated Total
--------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 8,200 $ 1 $ 16,269 -- $ 16,270
Net Loss for Period -- -- -- (1,486) (1,486)
-------- -------- -------- -------- --------
Sub-Total 8,200 1 16,269 (1,486) 14,784
Reverse Merger - Recapitalization (1) (8,200) (1) (16,269) 1,486 (14,784)
-------- -------- -------- -------- --------
Balance at December 31, 1998 -- -- -- -- --
Net Loss for Period -- -- -- -- --
-------- -------- -------- -------- --------
Balance at December 31, 1999 -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
</TABLE>
(1) To restate Common Stock and accumulated deficit of the Company in order to
recapitalize the stockholders' equity as a result of the reverse
acquisition on August 16, 1999. Therefore, the Common Stock of S&S Plus,
Inc. with No Par Value, 1,000 shares authorized and issued is replaced with
the Common Stock of Youthline USA, Inc. with $.0001 Par Value, 50,0000,000
shares authorized, 5,500,000 shares issued and outstanding, including 8,200
shares of Common Stock resulting from the reverse stock split. Accordingly,
there were 5,508,200 shares of Common Stock issued and outstanding as of
December 31, 1999.
The accompanying notes are an integral part of the financial statements
F-20
<PAGE>
YOUTHLINE USA, INC.
(DEBTOR IN POSSESSION)
STATEMENTS OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 16, 1999 AND
FOR THE YEAR ENDED DECEMBER 31,1998
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES;
NET LOSS FROM OPERATIONS $ -- $ (1,484)
--------- ---------
NET CASH USED BY OPERATIONS -- (1,484)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Secured Debts (132,033) --
Contribution to Paid in Capital 143,639 --
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 11,606 --
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 11,606 (1,484)
Cash and Cash Equivalents at Beginning of Year 220 1,704
--------- ---------
Cash and Cash Equivalents at End of Year $ 11,826 $ 220
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Paid During the Period for
Interest $ -- $ 263
========= =========
Income Taxes $ -- $ --
========= =========
The accompanying notes are an integral part of the financial statements
F-21
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
PRINCIPLES
A) BACKGROUND
YouthLine USA, Inc. (the "Company") was incorporated on July
27, 1999 pursuant to the laws of the State of Delaware as the
successor to Ult-I-Med Health Centers, Inc., a Utah
corporation ("Ult-I-Med"), which was incorporated in 1983
under the laws of the State of Utah (originally under the name
Picadilly Technology, Inc.). The Company was organized to
effectuate a reincorporation of Ult-I-Med with and into the
Company on August 16, 1999.
Ult-I-Med was originally organized to engage in the mining of
metalliferous chemicals. In 1988, Ult-I-Med ceased such
activities and began engaging in the business of owning and
operating camping and recreation facilities. In 1991,
Ult-I-Med ceased such activities and began engaging in the
business of owning and operating supervised primary care,
health and rehabilitation centers. In January 1996, Ult-I-Med
filed a Chapter 11 bankruptcy petition. Ult-I-Med liquidated
all of its assets and its plan of reorganization was filed
with the court in February 1998. All of Ult-I-Med debts were
paid subsequent to June 30, 1999, and the court entered a
final decree on September 24, 1999. The Company has not
engaged in any operations since 1996, and has been inactive
during 1999 and 1998.
NOTE 2 CAPITAL STOCK
Effective March 29, 1999, the Board of Directors declared a
reverse stock split of one thousand shares of common stock for
one common share of the Company's common stock. The effect of
the reverse stock split was to reduce the total outstanding
common shares to 8,200. All references to number of shares,
except shares authorized, and to per share information in the
consolidated financial statements have been adjusted to
reflect the stock split on a retroactive basis, for all
periods presented.
The Company is currently authorized to issue 50,000,000 shares
of its common stock, $.0001 par value. As of December 31, 1999
and 1998 there were 8,200 shares of common stock outstanding,
after the 1,000 to one reverse stock split. Effective December
31, 1999, there were 10,071,556 shares of common stock issued
and outstanding.
The Company has 5,000,000 authorized shares of preferred
stock, no par value. The Company presently has no issued and
outstanding preferred stock.
F-22
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 3 FRESH-START REPORTING
The Company's Reorganization Plan under Chapter 11 was
confirmed by the United States Bankruptcy Court for the
Northern District of Texas, Fort Worth Division. The formal
confirmation was entered in January 1996 and the court
consummated the reorganization plan on September 24, 1999. As
a result of the confirmation of the Reorganization Plan, the
Company implemented fresh-start reporting as of 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.
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.
NOTE 4 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.
F-23
<PAGE>
YOUTHLINE USA, INC.
INTRODUCTION
In August 1999, the Company acquired all of the outstanding
capital stock of S&S Plus, Inc., a wholly-owned subsidiary of
the Company which operated the publication of YOUTHLINE USA,
in exchange for the issuance of 5,500,000 shares of its common
stock, representing a majority of the total issued and
outstanding capital stock of the Company. On such date, the
previous management's directors and officers resigned and were
replaced with the current officers and directors. This
exchange will be accounted for as a reverse acquisition under
the purchase method of accounting, since the former
shareholders of S&S Plus, Inc. will own a majority of the
outstanding stock of the Company after the acquisition.
Accordingly, the combination of the two companies will be
recorded as recapitalization of shareholders' equity of S&S
Plus, Inc., pursuant to which S&S Plus, Inc. is treated as the
continuing entity for accounting purposes and the historical
financial statements presented will be those of S&S Plus, Inc.
The pro forma consolidated statements of operations for the
year ended December 31, 1999, reflects the results of the
Company and S&S Plus, Inc. as if the transaction summarized in
the preceding paragraph had occurred as of January 1, 1999.
The pro forma basic net loss per share (unaudited) for the
year ended December 31, 1999, includes the shares issued in
connection with this reverse acquisition in the computation of
the weighted average number of common shares outstanding.
The consolidated financial statements do not necessarily
represent actual results that would have been achieved had
Youthline USA, Inc. and the operations of S&S Plus, Inc. been
consolidated at the beginning of the period, nor is this
necessarily indicative of future results.
The pro forma statements of operations (unaudited) should be
read in conjunction with the historical financial statements
of the Company.
F-24
<PAGE>
YOUTHLINE USA, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
(UNAUDITED)
<TABLE>
<CAPTION>
S&S YOUTHLINE
PLUS, INC. USA, INC.
1999 1999 COMBINED
----------- -------- -----------
<S> <C> <C> <C>
NET SALES $ 168,967 $ -- $ 168,967
Interest Income 3,786 -- 3,786
----------- -------- -----------
Total Income 172,753 -- 172,753
COST OF GOODS SOLD 321,320 -- 321,320
----------- -------- -----------
GROSS PROFIT (LOSS) (148,567) -- (148,567)
----------- -------- -----------
OPERATING EXPENSES:
Payroll and Related Costs 455,324 -- 455,324
Stock Based Compensation 1,394,840 -- 1,394,840
Selling Expenses 333,580 -- 333,580
Interest Expense 41,238 -- 41,238
Professional Fees 158,060 -- 158,060
General and Administrative 170,644 -- 170,644
Depreciation and Amortization 20,847 -- 20,847
----------- -------- -----------
TOTAL OPERATING EXPENSES 2,574,533 -- 2,574,533
----------- -------- -----------
Loss before provision for income taxes (2,723,100) -- (2,723,100)
=========== ======== ===========
PROVISION FOR INCOME TAX -- -- --
----------- -------- -----------
Net Loss (2,723,100) -- (2,723,100)
=========== ======== ===========
Loss per Common Share $ (0.29) $ -- $ (0.29)
=========== ======== ===========
Weighted Average Common Shares Outstanding 9,453,216 8,200 9,435,216
=========== ======== ===========
</TABLE>
F-25
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
YOUTHLINE USA, INC.
By: /s/ SAKI DODELSON
-----------------------------------------
Name: Saki Dodelson
Title: President, Treasurer,
Principal Executive/Financial and
Accounting Officer and Director
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ JACOB Y. "ROCKY" STEFANSKY Chairman of the Board March 9, 2000
- ----------------------------- of Directors
Jacob Y. "Rocky" Stefansky
/s/ SAKI DODELSON President, Treasurer, Principal March 9, 2000
- ----------------------------- Executive/ Financial and
Saki Dodelson Accounting Officer and Director
/s/ SUSAN GERTLER Vice President, Secretary March 9, 2000
- ----------------------------- and Director
Susan Gertler
/s/ EMANUEL YARMISH Director March 9, 2000
- -----------------------------
Emanuel Yarmish
/s/ DAVID STEFANSKY Director March 9, 2000
- -----------------------------
David Stefansky
/s/ ASHER LOW Director March 9, 2000
- -----------------------------
Asher Low
</TABLE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use in this Registration Statement on Form 10-SB of our report
on YouthLine USA, Inc. and Subsidiary dated February 22, 2000 on our
examinations for the years ended December 31, 1998 and 1999. We also consent to
the reference to our firm under the caption "Experts".
MICHAEL C. FINKELSTEIN
Morganville, New Jersey
Certified Public Accountant
March 10, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001095930
<NAME> YOUTHLINE USA, INC.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 572,720
<SECURITIES> 0
<RECEIVABLES> 91,542
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 685,015
<PP&E> 142,866
<DEPRECIATION> 35,071
<TOTAL-ASSETS> 999,479
<CURRENT-LIABILITIES> 1,810,118
<BONDS> 220,000
0
0
<COMMON> 3,995,202
<OTHER-SE> 0
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<SALES> 168,967
<TOTAL-REVENUES> 168,967
<CGS> 321,320
<TOTAL-COSTS> 321,320
<OTHER-EXPENSES> 4,335,598
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,452
<INCOME-PRETAX> 0
<INCOME-TAX> 200
<INCOME-CONTINUING> (4,525,403)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,525,403
<EPS-BASIC> (.48)
<EPS-DILUTED> (.48)
</TABLE>
