UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission file number 0-28725
Youthline USA, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3674998
------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4581 U.S Highway 9
Howell, New Jersey
----------------------------------------
(Address of principal executive offices)
07731
----------
(Zip Code)
(732) 886-0833
----------------------------------------------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of Common Stock, par value $.0001 per share, outstanding
as of November 1, 2000: 20,741,850
<PAGE>
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of
September 30, 2000 (unaudited) and December 31, 1999 . . . . . . . . . 2-3
Consolidated Statements of Operations for the Nine Months Ended
September 30, 2000 (unaudited) and the Three Months Ended
September 30, 2000 (unaudited), and the Year Ended December 31, 1999. . 4-4a
Consolidated Statements of Stockholders' Equity for the Nine Months
Ended September 30, 2000 and 1999 (unaudited) . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for Nine Months Ended
September 30, 2000 and 1999 (unaudited) . . . . . . . . . . . . . . . . 6
Notes to the Financial Statements . . . . . . . . . . . . . . . . . . . . 7-16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . 17-21
PART II. OTHER INFORMATION
Item 2. Change in Securities. . . . . . . . . . . . . . . . . . . . . . 22
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Schedule 27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated balance sheet of the Company as of September 30, 2000, the
related consolidated statements of operations, and cash flows for the nine
months ended September 30, 2000 and 1999 included in Item 1 have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the accompanying consolidated
financial statements include all adjustments (consisting of normal, recurring
adjustments) necessary to summarize fairly the Company's financial position and
results of operations. The consolidated results of operations for the periods
ended September 30, 2000 and 1999 are not necessarily indicative of the results
of operations for the full year or any other interim period. These financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1999 as filed with the Commission.
1
<PAGE>
YOUTHLINE USA, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
2000 1999
----------- -----------
(unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash $ 1,024,023 $ 572,720
Accounts Receivable 895,018 91,542
Prepaid Expenses (1,034) 20,753
----------- -----------
TOTAL CURRENT ASSETS 1,918,007 685,015
----------- -----------
FIXED ASSETS
Office equipment and software (net of
accumulated depreciation of $68,994 and $35,071, respectively) 236,400 107,795
----------- -----------
OTHER ASSETS
Organization costs (net of
accumulated amortization of $3,456 and $2,578, respectively) 2,394 3,272
Intangible Assets - Trademarks, Goodwill and Customer Lists
(Net of accumulated amortization of $43,750 and $13,000, respectively) 161,250 192,000
----------- -----------
TOTAL OTHER ASSETS 163,644 195,272
----------- -----------
TOTAL ASSETS $ 2,318,051 $ 988,082
=========== ===========
</TABLE>
See accompanying notes to financial statements
2
<PAGE>
YOUTHLINE USA, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 753,707 $ 203,938
Unearned Revenue 382,420 76,180
Current Portion of Notes Payable 5,280,000 1,530,000
------------ ------------
TOTAL CURRENT LIABILITIES 6,416,127 1,810,118
------------ ------------
LONG TERM LIABILITIES
Notes Payable 220,000 220,000
------------ ------------
TOTAL LONG TERM LIABILITIES 220,000 220,000
------------ ------------
TOTAL LIABILITIES 6,636,127 2,030,118
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred Stock, $.0001 Par Value, 5,000,000 Shares Authorized,
No Shares Outstanding -- --
Common Stock, $.0001 par value, 50,000,000 Shares Authorized;
20,741,850 and 10,071,665 shares issued and outstanding, respectively, 2,074 1,007
Additional Paid In Capital 20,339,417 4,244,195
(Deficit) (24,659,567) (5,287,238)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (4,318,076) (1,042,036)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,318,051 $ 988,082
============ ============
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
YOUTHLINE USA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
NET SALES $ 707,739 $ 94,636
------------ ------------
OPERATING EXPENSES:
Cost of Goods Sold (Exclusive of Depreciation and
Amortization, shown separately below) 1,582,799 112,673
Employee Stock Based Compensation 2,166,900 --
Payroll and Related Costs 2,582,369 179,899
Consulting Services 4,634,235 --
Selling Expenses 1,785,939 42,900
Professional Fees 136,960 138,973
General and Administrative 335,019 98,725
Depreciation and Amortization 65,550 6,434
------------ ------------
TOTAL OPERATING EXPENSES 13,289,771 579,604
------------ ------------
Loss from operations before provision for income taxes (12,582,032) (484,968)
------------ ------------
OTHER INCOME AND EXPENSES
Interest Expense (Net of Interest Income of $6,873
in 2000 and $0 in 1999) 6,790,097 10,704
------------ ------------
Loss before provision for Income Taxes (19,372,129) (495,672)
------------ ------------
PROVISION FOR STATE INCOME TAX 200 200
------------ ------------
Net Loss $(19,372,329) $ (495,872)
============ ============
Net Loss per Common Share (Basic and Diluted) $ (1.57) $ (0.09)
============ ============
Weighted Average Common Shares Outstanding 12,377,741 5,508,200
============ ============
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
YOUTHLINE USA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
NET SALES $ 140,704 $ 65,077
------------ ------------
OPERATING EXPENSES:
Cost of Goods Sold (Exclusive of Depreciation and
Amortization, shown separately below) 246,156 49,520
Employee Stock Based Compensation 616,900 --
Payroll and Related Costs 1,560,826 158,198
Consulting Services 3,075,690 --
Selling Expenses 830,352 4,736
Professional Fees 42,905 131,760
General and Administrative 152,648 78,109
Depreciation and Amortization 23,588 3,153
------------ ------------
TOTAL OPERATING EXPENSES 6,549,065 425,476
------------ ------------
Loss from operations before provision for income taxes (6,408,361) (360,399)
------------ ------------
OTHER INCOME AND EXPENSES
Interest Expense (Net of Interest Income of $3,606
in 2000 and $2,729 in 1999) 3,843,050 1,590
------------ ------------
Loss before provision for Income Taxes (10,251,411) (361,989)
------------ ------------
PROVISION FOR STATE INCOME TAX -- --
------------ ------------
Net Loss $(10,251,411) $ (361,989)
============ ============
Net Loss per Common Share (Basic and Diluted) $ (0.83) $ (0.07)
============ ============
Weighted Average Common Shares Outstanding 12,377,741 5,508,200
============ ============
</TABLE>
See accompanying notes to financial statements
4a
<PAGE>
YOUTHLINE USA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
--------------------------- Capital Accumulated
Number of Par in excess of Deficit Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 10,071,665 $ 1,007 $ 4,244,195 $ (5,287,238) $ (1,042,036)
Sale of Common Stock 1,660,000 166 3,319,834 -- 3,320,000
Stock Issued for Services and Financings 8,997,000 900 8,730,489 -- 8,731,389
Exercise of Warrants 13,185 1 (1) -- --
Value Ascribed to Issuance of Warrants -- -- 2,686,900 -- 2,686,900
Convertible Notes - Beneficial Interest -- -- 1,358,000 -- 1,358,000
Net Loss for Period -- -- -- (19,372,329) (19,372,329)
------------ ------------ ------------ ------------ ------------
Balance at September 30, 2000 20,741,850 $ 2,074 $ 20,339,417 $(24,659,567) $ (4,318,076)
============ ============ ============ ============ ============
Balance at December 31, 1998 8,200 $ 1 $ 1,286,125 $ (1,662,103) $ (375,977)
Reverse Merger - Recapitalization -- -- (1,159,921) (1,159,921) --
Exchange of Common Stock 5,500,000 550 499,450 -- 500,000
Sale of Common Stock 4,520,000 452 103,558 -- 104,000
Stock Issued for Services 43,465 4 30,000 -- 30,011
Net Loss for Period -- -- -- (495,872) (495,872)
------------ ------------ ------------ ------------ ------------
Balance at September 30, 1999 10,071,665 $ 1,007 $ 759,212 $ (998,054) $ (237,838)
============ ============ ============ ============ ============
</TABLE>
'To restate Common Stock and accumulated deficit of the Company in order to
recapitalize the stockholders' equity as a result of the reverse
acquisition on August 16, 1999. Therefore, the Common Stock of S & S Plus,
Inc. with No Par Value, 1,000 shares authorized and issued is replaced with
the Common Stock of Youthline USA, Inc. with $.0001 Par Value, 50,0000,000
shares authorized, 5,500,000 shares issued and outstanding, including 8,200
shares of Common Stock resulting from the reverse stock split. Accordingly,
there were 5,508,200 shares of Common Stock issued and outstanding as of
December 31, 1998.
See accompanying notes to financial statements
5
<PAGE>
YOUTHLINE USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS FROM OPERATIONS $(19,372,329) $ (495,872)
Adjustments to reconcile net loss from operations
to net cash used by operating activities:
Depreciation and Amortization Expense 65,550 6,434
Common Stock Issued for Services and Financings 8,731,389 --
Value Ascribed to Issuance of Warrants 2,686,900 --
Interest Expense - Beneficial Conversion Interest and
Intrinsic Value of Warrants 1,358,000 --
Increase in Accounts Receivables (803,476) (21,577)
Decrease in Unsecured Creditors -- (113,792)
Decrease in Prepaid Expenses 21,787 --
Increase in Accounts Payable and Accrued Expenses 549,769 (22,007)
Increase in Unearned Revenues 306,240 (7,657)
------------ ------------
NET CASH USED BY OPERATIONS (6,456,170) (654,471)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Office Equipment and Goodwill (162,527) (140,849)
Repayment of Notes Payable (1,750,000) --
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES: (1,912,527) (140,849)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in Loans and Exchanges -- (51,873)
Sale of Common Stock 3,320,000 786,150
Issuance of Promissory Notes 5,500,000 559,159
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,820,000 1,293,436
------------ ------------
Net Decrease in Cash and Cash Equivalents 451,303 498,116
Cash and Cash Equivalents at Beginning of Year 572,720 (738)
------------ ------------
Cash and Cash Equivalents at End of Year $ 1,024,023 $ 497,378
------------ ------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Paid During the Period for
Interest $ 880,637 $ --
============ ============
Income Taxes $ 580 $ 200
============ ============
</TABLE>
See accompanying notes to financial statements
6
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited financial statements of Youthline USA,
Inc. (the "Company") as of September 30, 2000 have been prepared in
accordance with generally accepted accounting principles for interim
information. Accordingly, certain information and footnote
disclosures required under generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. In the opinion of
management, all adjustments of a recurring nature considered
necessary for a fair presentation of the results for the interim
periods presented have been included. Operating results for the nine
months ended September 30, 2000 are not necessarily indicative of the
results that may be expected for the entire year or any other period.
NOTE 2 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
PRINCIPLES
REVERSE ACQUISITION
In August 1999, the Company acquired all of the outstanding capital
stock of S&S Plus, Inc., a wholly owned subsidiary of the Company
which operated the publication of Youthline USA, in exchange for the
issuance of 5,500,000 shares of its common stock, representing a
majority of the total issued and outstanding capital stock of the
Company. On such date, the previous management's directors and
officers resigned and were replaced with the current officers and
directors.
This exchange has been accounted for as a reverse acquisition, since
the former owners of S & S Plus, Inc. owned a majority of the
outstanding stock of Youthline USA, Inc after the acquisition.
Accordingly, the combination of the two companies is recorded as
recapitalization of shareholders' equity of S & S Plus, Inc, pursuant
to which S & S Plus, Inc. is treated as the continuing entity for
accounting purposes and the historical financial statements presented
are those of S & S Plus, Inc.
A) DESCRIPTION OF BUSINESS
The Company, through its wholly owned subsidiary, S & S Plus, Inc.,
provides curriculum, technology, and career training directly into
school classrooms through its unique Web site. Using the daily news
as a base, Youthline-USA.com provides an integrated language arts
curriculum, customized by city and state, to subscribing schools,
allowing them to teach their students the required curriculum while
introducing them to the world of technology.
Its appeal to schools is additionally enhanced by the incorporation
of lesson plans and an accountability package that allows educators
to track their students' performance.
7
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE 2 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
PRINCIPLES
(Continued)
The Company also prints a weekly newspaper and monthly magazine to
supplement the website. The print products encourage further
integration of curriculum and technology, and also generates
advertisement and sponsorship revenue for Corporate America.
B) CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of the
Company and its subsidiary. All significant inter-company accounts
and transactions are eliminated. Management of the Company has made
estimates and assumptions relating to the reporting of assets and
liabilities and disclosure of contingent liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles.
C) CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
D) ACCOUNTS RECEIVABLE AND REVENUE RECOGNITION
Accounts receivable consists of balances due the Company for
newspaper, magazine, Website subscriptions and advertising revenues.
Accounts receivable are current, accordingly, a provision for bad
debt is not required. The Company recognizes revenues through the
sale of newspaper and magazine subscriptions, website subscriptions
and advertising. Subscription revenues are recognized over the term
of the contract which is generally one year. Advertising revenues are
recorded upon the placement of a sponsor's advertisement in the
Company's newspaper or magazine and delivery to subscribers.
E) FIXED ASSETS
Computer equipment and furniture and fixtures are depreciated using
the straight-line method over their estimated useful lives ranging
from five to seven years. The costs of additions and betterment are
capitalized, repairs and maintenance costs are charged to general and
administrative expenses. Organization costs are amortized over a
period of five years on a straight-line basis.
Intangible assets represents the purchase price at fair market value
of trademarks, goodwill and customer lists. Intangible assets are
being amortized over a period of five years using the straight-line
method. The amortization expense for the nine months ended September
30, 2000 was $30,750. At September 30, 2000, accumulated amortization
was $43,750.
8
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE 2 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
PRINCIPLES
(Continued)
F) EARNINGS PER SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share" discusses the computation and presentation of earnings per
share ("EPS"). Basic EPS, as defined by SFAS No. 128, is computed by
dividing income available to common shareholders by the weighted
average number of common shares outstanding for the reporting period,
ignoring any potential effects of dilution.
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 10,595,600 common stock options/warrants outstanding as of
September 30, 2000. As a result of the losses reported in the periods
presented, these options, if exercised, would be antidilutive.
Accordingly, Basic EPS and diluted earnings per share are the same as
presented in the financial statements. The weighted-average number of
shares used in the computation of per share data was 12,377,741 in 2000
and 5,508,200 in 1999.
G) INCOME TAXES
The Company intends to follow Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes" when either
operations achieve profitability or the realization of net operating
loss benefits can more readily be measured, whichever occurs first.
H) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent
liabilities and the reported amounts of revenues and expenses. Actual
results could differ from estimates.
NOTE 3 FIXED ASSETS - OFFICE AND EQUIPMENT SOFTWARE
Office equipment and software consist of the following:
Office Equipment and Software $ 305,394
Less: Accumulated Depreciation (68,994)
-----------
Net Book Value $ 236,400
===========
Depreciation expense for the nine months ended September 30, 2000 and
1999 amounted to $33,923 and $6,434, respectively.
9
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE 3 FIXED ASSETS - OFFICE AND EQUIPMENT SOFTWARE
(Continued)
Other Assets and Organization costs consist of the following:
Organization Costs $ 5,850
Less: Accumulated Depreciation (3,456)
----------
Net Book Value $ 2,394
==========
Amortization expense for the nine months ended September 30, 2000 and
1999 amounted to $878 for each period.
NOTE 4 EMPLOYMENT AGREEMENTS
The Company executed two employment contracts on May 28, 1999 with
certain senior executives for future services that vary in length for
periods of up to five years. Each employment contract called for a base
salary of $115,000 with annual increases of 7% per annum. The
employment agreements were amended in June and August 2000 to increase
the base salary to $160,000 annually. The amended agreement also calls
for the issuance of 20,000 warrants at an exercise price of $.10 per
warrant and 1% in cash, for each $1,000,000 of revenues received by the
Company commencing January 1, 2001. The contracts also include options
to purchase 10,000 shares of the Company's common stock at a 20%
discount off the maximum price per share in the Company's next private
placement. Additionally, the employment contract also includes a
one-time signing bonus equal to $30,000 payable as follows: $10,000
within 30 days of signing the contract (this amount has been paid), and
the balance of $20,000 was accrued as of September 30, 2000.
NOTE 5 NOTES PAYABLE
A) On February 1, 1998, the Company issued two promissory notes in the
principal amount of $125,000, payable to Saki Dodelson (President)
and Susan Gertler (Vice-President), aggregating $250,000. The notes
bear interest at an annual rate of 9%, payable monthly. Principle
repayment will be deferred until the gross annual sales of the
Company reach $1,000,000; at which point the Company will repay
$15,000 of principle on each note annually. The accrued interest
payable on these notes aggregated $28,150 through September 30,
2000.
B) On August 31, 1999, the Company entered into a bridge financing
agreement aggregating $500,000 (the "Note"). The note bears
interest at 8% per annum, matures on January 19, 2000, and is
secured by all assets and properties owned by the Company. The note
was repaid in January 2000.
C) On December 14, 1999, and December 21, 1999, the Company issued two
convertible promissory notes in the principal amount of $500,000
each, aggregating $1,000,000. The notes bear interest at an annual
rate of 8.5% and mature on December 14, 2000 and December 21, 2000,
respectively. Interest and principal will be paid at maturity.
Additionally, any portion of the notes and accrued interest can
also be converted into shares of common stock at the lenders'
option at a price equal to 20% below the fair market value of the
common shares, with a minimum conversion price of $3.00 per share,
and a maximum price of $4.875 per share. One note for $500,000 was
repaid in September 2000.
10
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE 5 NOTES PAYABLE
(Continued)
The Company recorded a one-time interest expense of $250,000 which
is the intrinsic value of the beneficial conversion feature of the
note. The fair market value of the stock at the date of issuance
was $3.75 and $5.00 per common share on December 14, 1999 and
December 21, 1999, respectively.
D) During the first quarter ending March 31, 2000, the Company issued
several convertible promissory notes aggregating $1,000,000. The
notes bear interest at an annual rate of 8.5% and mature one year
from the date of issuance. Interest and principal will be repaid at
maturity. Additionally, any portion of the notes and accrued
interest can also be converted into shares of common stock at the
lenders' option at a price equal to 20% below the fair market value
of the common shares, with a minimum conversion price of $3.00 per
share, and a maximum price of $4.875 per share. The Company
recorded a one-time interest expense of $1,378,000 which is the
intrinsic value of the beneficial conversion feature of the note.
The fair market value of the stock at the date of issuance ranged
between $10.69 and $12.13 per common share. The Company paid off
one of the promissory notes aggregating $250,000 in September 2000.
E) On April 10, 2000, the Company issued a note for $250,000. The note
bears interest at an annual rate of 6.0% and matures on July 10,
2000. Additionally, in consideration of the loan, the Company
issued 150,000 warrants to purchase common stock at $3.00 per share
with an expiration date of December 31, 2004. The note was repaid
in September 2000.
F) On May 17, 2000, the Company issued a note for $250,000. The note
bears interest at an annual rate of 8.5% and matures on October 17,
2000. In consideration of such loan, the Company issued 250,000
shares of its restricted common stock. The 250,000 shares of the
Company's common stock were contingent upon the lender making an
additional loan of $300,000. The loan was made and subsequently
repaid. Accordingly, the Company recorded a one-time interest
expense aggregating $812,500 based on the fair market value of the
stock at the time of issuance.
G) On September 22, 2000, the Company issued several convertible
promissory notes aggregating $4,000,000. The notes bear interest at
an annual rate of 10.0% and mature six months from the date of
issuance. 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 the lower of 25% below the fair
market value of the common shares or seventy cents ($0.70). As
consideration for making such loan, the Company issued 1,500,000
shares of common stock, paid a 7.5% finders fee aggregating
$300,000 and issued 250,000 shares of common stock as a finder's
fee. Accordingly, the Company recorded interest expense of
$1,100,000 from the issuance of the note.
H) In September 2000, the Company entered into an agreement relating
to the sale of up to $600,000 of convertible promissory notes. The
notes bear interest at an annual rate of 8% and mature September
15, 2003. Additionally, any portion of the notes and accrued
interest can also be converted into shares of common stock at the
lender's option at a price equal to $.05 per share. $300,000 of
such notes were funded and repaid (without conversion) in September
2000. The lender has the option to purchase the balance of such
notes (in $50,000 increments) until September 15, 2002.
11
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE 5 NOTES PAYABLE
(Continued)
Long Term Debt consists of the following:
Total Long Term Current
---------- --------- ----------
A) Notes Payable - Officers $ 250,000 $ 220,000 $ 30,000
B) Convertible Promissory Notes 500,000 -- 500,000
C) Convertible Promissory Notes 750,000 -- 750,000
E) Convertible Promissory Notes 4,000,000 -- 4,000,000
---------- --------- ----------
$5,500,000 $ 220,000 $5,280,000
========== ========= ==========
At September 30, 2000, the aggregate of amount of required payments on
long-term debt was as follows:
2001 $ 30,000
2002 30,000
2003 30,000
2004 30,000
2005 30,000
Thereafter 100,000
---------
Total Payments $ 250,000
=========
NOTE 6 LOANS AND EXCHANGES
Certain officers and directors advanced the Company funds. Such
advances bore no interest and had no definite repayment terms. Through
September 30, 2000, these advances amounted to $488,000, which were all
subsequently repaid. One advance made by the Chairman of the Board for
$225,000 was discounted by 10%. The Company paid a one time $25,000
discount fee on such advance.
NOTE 7 CAPITAL STOCK
The Company is currently authorized to issue 50,000,000 shares of its
common stock, $.0001par value. As of September 30, 2000, there were
20,741,850 shares of common stock issued and outstanding.
During the nine months ended September 30, 2000, the Company issued
10,670,185 shares of common stock. Of such shares 1,660,000 were sold
at $2.00 per share, aggregating $3,320,000. The Company issued 13,185
shares of common stock through the exercise of 15,000 warrants. The
balance of the common shares issued totaling 8,977,000 were issued for
services and as additional consideration in connection with loan
financings. The Company recorded a total of $8,731,389 in expenses from
the issuance of such shares.
The Company has 5,000,000 authorized shares of preferred stock, $.0001
par value. The Company presently has no issued and outstanding
preferred stock.
12
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE 8 FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of financial instruments:
Cash and Cash Equivalents. The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Accounts Receivable and Accounts Payable. The carrying amount of
accounts receivable and accounts payable in the balance sheet
approximates fair value.
Short-Term and Long-Term Debt. The carrying amount of the revolving
credit facility approximates fair value. The carrying amounts of the
Company's financial instruments at September 30, 2000 approximate fair
value with the exception of the interest rate swap agreement.
NOTE 9 INCOME TAXES
As of December 31, 1999 the Company had $6,322,781 in available unused
Federal and State net operating loss carry forwards that may be applied
against future taxable income. These losses will expire over a period
of twenty years.
The Company intends to follow Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes" when either
operations achieve profitability or the realization of net operating
loss benefits can more readily be measured, whichever occurs first.
NOTE 10 COMMITMENTS AND CONTINGENCIES
The Company entered into a five-year lease agreement with United
Securities Services, Inc. The lease currently calls for monthly rental
of $6,988 for approximately 4,533 square feet of office space located
in Howell, New Jersey.
The Company entered into a three-year lease agreement on May 1, 2000
with Cresskill Millennium Associates, LLC. The lease currently calls
for monthly rental of $1,727 including maintenance for approximately
1,275 square feet of office space located in Cresskill, New Jersey.
At September 30, 2000, the Company is committed to total minimum rental
under all noncancellable operating leases of $234,634. Generally, these
leases include additional charges for tax escalation and other
expenses. The minimum future rental commitments are payable at $61,305
per year for five years.
13
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE 11 WARRANTS AND OPTIONS
As of September 30, 2000, warrants and options consisted of the
following:
Exercise
Outstanding Price Date of Expiration
----------- ----- ------------------
15,600 (employee stock options) $ 0.25 December 31, 2005
750,000 $ 0.05 December 31, 2004
5,875,000 $ 0.10 December 31, 2004
25,000 $ 1.00 December 31, 2004
25,000 $ 2.00 December 31, 2004
665,000 $ 3.00 December 31, 2004
1,390,000 $ 4.00 December 31, 2004
950,000 $ 5.00 December 31, 2004
250,000 $ 7.00 December 31, 2004
250,000 $ 9.00 December 31, 2004
100,000 $14.63 March 31, 2003
300,000 $12.00 December 31, 2004
----------
Total 10,595,600
==========
As of September 30, 2000, 15,000 warrants were converted to 13,185
shares of common stock. 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. During the six months ended June 30,
2000, the Company granted an additional 400,000 warrants to certain
employees. Of the 400,000 warrants granted, 200,000 were at exercise
price below the fair market value of the underlying stock which. In
July 2000, the Company cancelled 3,450,000 warrants issued at various
prices to employees and related parties in exchange for the issuance of
5,840,000 warrants at an exercise price of $.10 per share, which was
below the fair market value. In September 2000, the Company issued
750,000 warrants issued at an exercise price of $.05 per share, which
was also below the fair market value. Accordingly, the Company recorded
expenses aggregating $2,686,900 from the value ascribed to the issuance
of warrants for the nine months ended September 30, 2000 based upon the
intrinsic value of the options at the grant date.
14
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE 11 WARRANTS AND OPTIONS
(Continued)
Pro forma information regarding earnings (loss) per common share is
required by SFAS #123, and has been determined as if the Company had
accounted for its warrants under the fair value method of that
statement. In 1999, the fair market value of these warrants was
estimated at the date of the grant using the Black-Scholes Option
Pricing Model with the following weighted average assumptions for 1999:
risk-free interest rate of 6.5%; dividend yield of 0%; volatility
factor for the expected market price of the Company's common stock of
81.2%; and a weighted average expected life of the option of four
years.
The Black-Scholes Option Pricing Model was developed for use in
estimating the fair value of traded options. In addition, option
valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the Company's
stock options have characteristics significantly different for those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options. 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.
The Company also recorded $2,198,900 at September 30, 2000 in expenses
on warrants issued to consultants and $488,000 in interest on warrants
issued for debt financings.
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.
September 30, December 31,
2000 1999
------------- -------------
Net Loss - as reported $ (19,372,329) $ (4,787,000)
Net Loss - pro forma $ (21,684,829) $ (5,834,603)
Loss Per Share - as reported $ (1.57) $ (.48)
Loss Per Share - pro forma $ (1.75) $ (.61)
15
<PAGE>
YOUTHLINE USA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE 11 WARRANTS
(Continued)
The fair value of each warrant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions:
Expected dividend yield 0.0%
Expected stock price volatility 81.9%
Risk free interest rate 6.5%
The expected life of the options is 4 years, and they are immediately
exercisable upon issuance without restrictions.
The weighted average fair value of options granted during 1999 and
2000 is $5.22 and $4.51 per share, respectively.
NOTE 12 SUBSEQUENT EVENTS
The Company has run out of operating funds and could not pay its
December 1, 2000 payroll. Talks are underway to borrow monies but the
outcome of these talks are uncertain. The Company loaned $300,000 to
C-Cubed Solutions, a corporation believed to be controlled by the
Company's Chairman of the Board, Rocky Stefansky. Repayment of the
loan was due December 2, 2000. Mr. Stefansky has stated that the loan
will not be repaid.
NOTE 13 GOING CONCERN
The financial statements have been prepared assuming that the Company
will continue as a going concern. Since its inception, the Company
has suffered recurring losses from operations and has a cumulative
net capital deficiency of $24,659,567 that raise substantial doubt
about its ability to continue as a going concern. Management believes
that it may be able to continue to obtain additional capital.
However, if additional financing is not obtained, the Company might
be forced to cease operations. The Company's continued existence has
been dependent on cash proceeds received from the sale of its common
stock and the willingness of vendors to accept stock in lieu of cash
payment for their services. Employees have also accepted deferrals of
wage payments. The Company hopes to reverse this trend by generating
cash inflows through the sale of its web subscriptions and
advertising revenues. To accomplish this objective, the Company will
require additional working capital to satisfy current operating
expenses during the interim period preceding such time as the revenue
cycle begins generating cash. As of the filing date, the Company has
exhausted its operating funds and has not been able to meet its last
payroll or its current cash requirements.
16
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Youthline USA is an industry leader in the integration of technology and
curriculum, together with the news, into the classroom. Our mission is to
promote reading excellence, combat the digital divide, and offer
school-to-career training through our award-winning weekly newspaper, monthly
magazine, and daily Web site. Youthline USA has created a niche for itself in
the youth and educational markets by being the only company to offer this total
integration of news, technology, and curriculum basics directly into the
classroom. At the same time, Youthline USA is forging strong relationships with
corporate America by providing them with an effective vehicle for reaching
today's youth through advertising and sponsorships.
Youthline USA's products combine to offer schools a solution to the demands of
integrating today's technology while maintaining the standards of the core
reading curriculum. Schools lack the time, resources, and training to fully
manage both challenges successfully. Youthline USA provides a total solution,
whereby today's technology is already fully integrated with the reading
curriculum and is further supplemented by the print publications.
Our suite of products include:
o Youthline-usa.com, a daily subscription Web site used in schools and homes
throughout the country. News articles on the Web site are linked to
curriculum-based interactive activities, offering educators a customized
reading curriculum together with technology training. Full assessment and
accountability allow tracking of student performance.
o Youthline USA newspaper, a weekly national newspaper with regional inserts.
The newspaper comes together with lesson plans, giving educators an excellent
resource for teaching current events and other subjects. It also provides a
reading curriculum for schools that are not yet using the Internet in their
classrooms.
o Youthline USA Fun and Feature magazine, a monthly magazine that offers
in-depth coverage of complex topics. Children enjoy the colorful graphics and
exciting features, while the sturdy format is an attractive advertising
vehicle for corporate sponsors.
o The three products combine to offer schools a solution to the demands of
integrating today's technology while maintaining the standards of the core
reading curriculum. Schools lack the time, resources, and training to fully
manage both challenges successfully. Youthline USA provides a total solution,
whereby today's technology is already fully integrated with the reading
curriculum and is further supplemented by print publications.
With this product mix, Youthline USA addresses two major marketplaces
simultaneously: the $15-billion interactive educational school marketplace, and
advertising for the $17 billion spent each year on consumer goods by and for
children. Correspondingly, management anticipates two main sources of revenue
from these markets: Web site subscriptions (or package subscriptions that
include the Web site, the newspaper, and the magazine) and advertisements and
corporate sponsorships. Among our future growth plans are our expansion into
markets abroad and the development of the YouthMall e-commerce service.
The Company's print products, which complement the Web site, encourage further
integration of curriculum and technology and also generates advertisement and
sponsorship revenue from Corporate America. The Company markets itself to
Corporate America as a unique, flexible, focused and powerful media for reaching
today's youth on a daily, weekly and monthly basis.
17
<PAGE>
The Company believes that not only corporations which provide products and
services to that age group will advertise, but any corporation concerned with
promoting its products to tomorrow's consumers will consider advertising and
sponsoring on Youthline.
In August 1999, the Company acquired all of the outstanding capital stock of S&S
Plus, Inc., a wholly owned subsidiary of the Company which operated the
publication of Youthline USA, in exchange for the issuance of 5,500,000 shares
of its common stock, representing a majority of the total issued and outstanding
capital stock of the Company. On such date, the previous management's directors
and officers resigned and were replaced with the current officers and directors.
This exchange has been accounted for as a reverse acquisition, under the
purchase method of accounting, since the former owners of S & S Plus, Inc. owned
a majority of the outstanding stock of Youthline USA, Inc after the acquisition.
Accordingly, the combination of the two companies is recorded as
recapitalization of shareholders' equity of S & S Plus, Inc, pursuant to which S
& S Plus, Inc. is treated as the continuing entity for accounting purposes and
the historical financial statements presented are those of S & S Plus, Inc.
YouthLine USA, Inc. (the "Company") was incorporated on July 27, 1999 pursuant
to the laws of the State of Delaware as the successor to Ult-I-Med Health
Centers, Inc., a Utah corporation ("Ult-I-Med"), which was incorporated in 1983
under the laws of the State of Utah (originally under the name Picadilly
Technology, Inc.). The Company was organized to effectuate a rein-corporation of
Ult-I-Med with and into the Company on August 16, 1999.
Ult-I-Med was originally organized to engage in the mining of metalliferous
chemicals. In 1988, Ult-I-Med ceased such activities and began engaging in the
business of owning and operating camping and recreation facilities. In 1991,
Ult-I-Med ceased such activities and began engaging in the business of owning
and operating supervised primary care, health and rehabilitation centers. In
January 1996, Ult-I-Med filed a Chapter 11 bankruptcy petition. Ult-I-Med
liquidated all of its assets and its plan of reorganization was filed with the
court in February 1998. All of Ult-I-Med debts were paid subsequent to September
30, 1999, and the court entered a final decree on September 24, 1999.
COMPONENTS
The Company generates revenue from:
1) Website subscriptions to schools-$16 per student per year
2) Newspaper subscriptions-$30 for individual subscriptions; $7 for bulk
subscriptions
3) Magazine subscriptions-$30 for individual subscriptions; $7 for bulk
subscriptions
4) Advertisements and sponsorships-$18,000 per page.
To date, there are 74 schools in 6 states who have subscribed to our website,
generating $588,236 in revenue, which is expected to be recognized over a period
of six months to three years. Inasmuch as the products are new and that the
concept is new, management believes that this is a strong beginning that
demonstrates the appeal our products will have to schools nationwide.
18
<PAGE>
To date, the following entities have advertised with Youthline: Phillip Morris,
The Academy of Natural Sciences, The American Red Cross, The Annenberg
Center-International Children's Festival, The Crayon House, Creative Kids, The
Harlem Globetrotters, Kewlminds/Global Children's Network, Loews/Sony Theatres,
New York City Police Museum, Radio Disney, Sesame Place, Six Flags Great
Adventure, Space Farms Zoo, The Sound of Music, Spotco/Suessical and Welcome
America.
Management believes that as name recognition grows, our list of advertisers will
also grow significantly.
ITEM 2:
LIQUIDITY AND CAPITAL RESOUCES.
Management anticipates that the continued increase in subscribers will increase
advertising revenues and any future additional proceeds from financings will
result in improved liquidity during the coming year. The Company does not have
any plans that would materially affect its current demands and to the best of
management's belief there are no events that would result in major increase or
decreases in the Company's liquidity other than in the normal course of its
operations.
To date the Company has funded its operations and expansion through bridge
financing, capital contribution and the sale of convertible promissory notes.
The Company's potential sources of liquidity will be additional financings
through the sale of convertible notes and credit facilities with banks. At
September 30, 2000, the Company's current assets consisted of $1,024,023 of
cash, $895,018 of receivables and prepaid expenses of ($1,034). At September 30,
2000 the current liabilities exceeded its currents assets by $4,498,120. Current
debt consisted of $5,280,000 convertible promissory notes and accounts payable
and accrued expenses of $753,707, and $382,420 unearned revenue which will be
recognized over the next three months. Management anticipates that it will
satisfy its liquidity and capital requirements in the coming year through
additional capital and funds generated by operations.
The financial statements have been prepared assuming that the Company will
continue as a going concern. Since its inception, the Company has suffered
recurring losses from operations and has a cumulative net capital deficiency of
$24,659,567 that raise substantial doubt about its ability to continue as a
going concern. Management believes that it may be able to continue to obtain
additional capital. However, if additional financing is not obtained, the
Company might be forced to cease operations. The Company's continued existence
has been dependent on cash proceeds received from the sale of its common stock
and the willingness of vendors to accept stock in lieu of cash payment for their
services. Employees have also accepted deferrals of wage payments. The Company
hopes to reverse this trend by generating cash inflows through the sale of its
web subscriptions and advertising revenues. To accomplish this objective, the
Company will require additional working capital to satisfy current operating
expenses during the interim period preceding such time as the revenue cycle
begins generating cash. As of the filing date, the Company has exhausted its
operating funds and has not been able to meet its last payroll or its current
cash requirements.
19
<PAGE>
CUSTOMER RETENTION
From inception through September 30, 2000, we have had a favorable response from
subscribers to our newspaper. Our customer retention experience has been 91% for
December 1998, 93% for December 1999.
Nine Months Ended September 30, 2000 compared to Nine Months Ended September 30,
1999.
RESULTS OF OPERATIONS
In 1999 and 1998, the Company's main source of revenues was from the sale of
newspaper subscriptions. For the nine months ended September 30, 2000 the main
source of revenues was from subscriptions to the Company's website. Website
subscriptions aggregated $495,739 (70%) of the $707,739 in gross revenues
earned. Total revenues from subscriptions were $707,739 and $94,636 for the nine
months ended September 30, 2000 and 1999, respectively. The Company incurred net
operating losses of $19,372,329 in 2000, compared to $495,872 in 1999. The
losses incurred for the nine months ended September 30, 2000 included $5,748,390
of interest expense utilizing the intrinsic value of the beneficial interest of
the convertible notes and stocks issued as consideration for making such notes,
$2,686,900 in the value of warrants issued and $4,340,389 in stock issued for
services. The Company incurred substantial costs for printing, reproduction,
mailing and design of the newspaper during these periods. The Company also
incurred substantial costs relating to the development, creation and design of
it's website. Additionally, the Company incurred substantial costs in marketing,
advertising and payroll expense.
Revenues.
During the nine months ended September 30, 2000, sales revenues increased
$613,103, to $707,739 from $94,636 for the corresponding period in 1999. The
increase was attributable to increased subscribers and advertising revenues and
$496,000 in web subscriptions.
Cost of Goods Sold.
These costs include, but are not limited to printing and distribution costs.
During the nine months ended September 30, 2000 costs of goods sold was
$1,582,799, an increase of $1,470,126 or 1,305% from the corresponding period in
1999. This increase was attributable to an increase in paid and unpaid
subscriptions.
Net Losses and Unusual Charges.
The Company incurred a net loss from operations of $19,372,329, or $1.57 per
share as compared to a loss of $495,672, or $.09 per share in the comparable
period in 1999. During the nine months ending September 30, 2000, the Company
recorded $1,358,000 of interest expense utilizing the intrinsic value of the
beneficial interest of the convertible notes issued, and $11,418,289 of warrants
and stock issued for services.
20
<PAGE>
Operating Expenses.
Operating expenses during the nine months ended September 30 2000 increased as
follows: payroll costs increased $2,402,470 to $2,582,369 from $179,899 for the
corresponding period in 1999. The increase was attributable to a substantial
increase in the number of employees hired as support staff. Professional fees
decreased $2,013 to $136,960 from $138,973 for the corresponding period in 1999.
Selling expenses increased $1,743,039 to $1,785,939 (an increase of 4,063%) from
$42,900 for the corresponding period in 1999. General & administrative costs
increased $236,294 from $98,725 (an increase of 239%) for the corresponding
period in 1999. The increase in selling expenses and general and administrative
expenses is attributable to the continued investment in the Company's aggressive
sales and marketing, finance and other general and administrative infrastructure
necessary to support the Company's business development and expansion.
Interest Expense.
Interest expense increased $6,779,393 to $6,790,097 for the nine months ended
September 30, 2000 from $10,704 for the corresponding period ending September
30, 1999. The increase is primarily associated with the increased borrowing used
to fund the operations of the Company as well as its expansion. Included in
interest expense is $5,748,390 issued for stock, warrants and the intrinsic
value of interest on convertible notes.
Interest Income.
Interest income was $6,873 for the nine months ended September 30, 2000 compared
to $0 in 1999. This increase was attributable to higher average balances of
invested cash and cash equivalents.
Circulation.
During the nine month period that ended September 30, 2000, the Company
increased its (non-paid) circulation to 750,000 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 $18,071,836 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.
21
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGE IN SECURITIES
During the third quarter ended September 30, 2000, the Company issued 5,689,500
shares of Common Stock to employees and consultants, pursuant to Section 4(2) of
the Securities Act of 1933, as amended (the "Act").
During the third quarter ended September 30, 2000, the Company issued 900,000
shares of Common Stock to two lenders, as additional consideration in connection
with loans in the aggregate amount of $900,000, pursuant to Section 4(2) of the
Act.
During the third quarter ended September 30, 2000, the Company issued 750,000
shares of Common Stock, at $2.00 per share, to an accredited investor pursuant
to Section 4(2) of the Act. The Company paid $75,000 in commissions in
connection with such transaction.
During the third quarter ended September 30, 2000, the Company issued 1,500,000
shares of Common Stock to two lenders, as additional consideration in connection
with loans in the aggregate amount of $4,000,000, pursuant to Section 4(2) of
the Act. The Company paid $300,000 and issued 250,000 shares as commission in
such transaction.
During the third quarter ended September 30, 2000, the Company issued an
aggregate of 13,185 shares of Common Stock upon cashless exercise of certain
outstanding warrants, pursuant to Section 3(a)(9) of Act.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: December 5, 2000 Youthline USA, Inc.
BY: /s/ SAKI DODELSON
-------------------------------
Saki Dodelson, Chief Executive,
Financial and Accounting Officer
23
