SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

(Mark One)

|X|   ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
      ACT OF 1934.

      For the fiscal year ended December 31, 1999

                                       OR

|_|   TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF THE  SECURITIES
      EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

      For the transition period from ______________ to ______________

                         Commission File Number 0-25238

                             YOUNETWORK CORPORATION
                 ----------------------------------------------
                 (Name of small business issuer in its charter)

           Delaware                                       13-399035
-------------------------------                ---------------------------------
(State or other jurisdiction of                (IRS Employer Identification No.)
 incorporation or organization)

                    115 East 23rd Street. New York, NY 10010
               (Address of principal executive offices) (Zip Code)

                    Issuer's telephone number: (212) 387-0310
                                               --------------

      Securities registered pursuant to Section 12(b) of the Exchange Act:

      Securities registered pursuant to Section 12(g) of the Exchange Act:

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.

                              YES |X|      NO |_|

<PAGE>

Check if disclosure of delinquent  filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained,  to the best
of  registrant's  knowledge,  in  definitive  proxy  or  information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. |X|

Issuer's revenues for its most recent fiscal year: $ 49,700.

The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates  of the  registrant  (as  determined for the purpose of this Form
10-KSB  only) as of March  20,  2000 was  $10,618,000.  There is no  established
market for our stock. For purposes of this calculation,  the value of each share
of our common equity of the  registrant  held by  non-affiliates  was determined
based on the value of one  share of our  common  equity,  the price at which our
common equity shares are sold.

The number of shares  outstanding  of each of our classes of common equity as of
March  27,  2000 is  8,602  shares  of  Class  A,  1,642  shares  of Class B and
42,070,052 shares of Class C.

                                TABLE OF CONTENTS

                                                                           Page
                         Item Number and Caption                          Number
                                                                          ------

PART I.......................................................................-4-
         Item 1.  Description of Business....................................-4-
         Item 2.  Description of Properties.................................-14-
         Item 3.  Legal Proceedings.........................................-14-
         Item 4.  Submission of Matters to a Vote of
                     Security Holders.......................................-15-

PART II.....................................................................-16-
         Item 5.  Market for Common Equity and Related
                     Stockholder Matters....................................-16-

         Item 6.  Management's Discussion and Analysis of
                     Financial Condition and Results of Operation...........-17-
         Item 7.  Financial Statements......................................-21-
         Item 8.  Changes in and Disagreements with Accountants on
                     Accounting and Financial Disclosure....................-21-

PART III....................................................................-22-
         Item 9.  Directors, Executive Officers, Promoters
                     and Control Persons....................................-22-
         Item 10. Executive Compensation....................................-23-
         Item 11. Security Ownership of Certain Beneficial
                     Owners and Management..................................-25-
         Item 12. Certain Relationships and Related Transactions............-26-
         Item 13. Exhibits, Financial Statement Schedules, and
                     Reports on Form 8-K....................................-27-

                                     PART I

<PAGE>

Item 1. Description of Business.

                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain  statements in this Annual  Report on Form 10-KSB (this "Form  10-KSB"),
including  statements  under "Item 1.  Description  of Business,"  "Item 3 Legal
Proceedings"  and  "Item 7.  Management's  Discussion  and  Analysis  or Plan of
Operation,"  constitute  "forward-looking  statements"  within  the  meaning  of
Section  27A  of the  Securities  Act of  1934,  as  amended,  and  the  Private
Securities  Litigation  Reform Act of 1995  (collectively,  the  "Reform  Act").
Certain,  but not  necessarily  all, of such  forward-looking  statements can be
identified  by the  use  of  forward-looking  terminology  such  as  "believes,"
"expects,"  "may," "will," "should," or "anticipates" or the negative thereof or
other  variations  thereon  or  comparable  terminology,  or by  discussions  of
strategy that involve risks and uncertainties.  Such forward-looking  statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results,  performance or achievements of YouNetwork  Corporation (the
"Company",  `we" or "us") to be materially  different  from any future  results,
performance  or  achievements  expressed  or  implied  by  such  forward-looking
statements. Such factors include, but are not limited to, the following: general
economic  and  business  conditions;   competition  in  the   telecommunications
industry;  industry capacity; success of acquisitions and operating initiatives;
management of growth; dependence on senior management;  brand awareness; general
risks of the telecommunications  industries;  development risk; risk relating to
the  availability  of qualified  personnel;  labor and employee  benefit  costs;
changes  in, or failure to comply  with,  government  regulations;  construction
schedules; the costs and other effects of legal and administrative  proceedings;
changes in methods of marketing and technology; changes in political, social and
economic conditions and other factors referenced in this Form 10-KSB. YouNetwork
will not undertake and specifically  declines any obligation to publicly release
the results of any revisions which may be made to any forward-looking  statement
to  reflect  events or  circumstances  after the date of such  statements  or to
reflect the occurrence of anticipated or unanticipated events.

Overview.

      We are a  company  which  launched  a unique  and  novel  online  consumer
network.  By combining  the virtues of  cooperative  marketing  with  incentives
designed to reward a member's  purchasing  influence,  we believe  our  consumer
network  will  develop a sizeable  membership  base,  without  entry  fees,  and
distinguish itself from the emerging wave of direct Internet marketing companies
which are seeking to tap the rapidly developing market for Internet commerce.

      We derive  our  revenue  from the sale of  competitively  priced  consumer
products and  services  through our  website,  YouNetwork.com.  Our web site was
launched in late summer  1999,  and  currently  offer twelve  different  product
segments,  ranging  from house wares,  electronics  and toys to music and video,
with more than 1.3 million individual product offerings.  Product fulfillment is
achieved  through  manufacturers,  distributors  and other  vendors  which  ship
directly to our members.  We maintain no


                                       3
<PAGE>

inventory,  warehouse,  stores  or sales  facilities.  Due to our low  operating
costs, our prices are lower than brick and mortar retailers and competitive with
other Internet marketing sites

Our unique on-line consumer network.

      We have  developed  a powerful  self-perpetuating  e-commerce  engine that
empowers  the user to profit from  promoting  our program.  Membership  is free,
without  fee or  obligation.  Members  are  rewarded  with  common  stock in our
registered  public  offering and purchase  dividends for life for sponsoring new
members into our Network.  Each member  receives  purchase  dividends  generated
from: (i) his or her own Network purchases; (ii) the purchasing activity of each
new member they introduce to the Network; and (iii) the purchasing activities of
other new generations of referrals.  A member's  dividend account balance can be
applied to new  purchases,  turned  into  cash,  or used to  purchase  shares in
YouNetwork's initial public offering.

      We  believe  the key to our  success  shall  be our  NetValue  program,  a
proprietary-tracking  system that quantifies each member's  referral efforts and
applies a value for the purpose of  distribution  of  incentives.  The  NetValue
system  enables us to manage  referrals,  recommendations,  purchases,  dividend
disbursements  and stock incentives as well as provide  accurate  information to
the member all in real time. We believe that the member's referral activity will
lead to meaningful accumulation in a member's NetValue account.

      Our consumer  network model also provides a powerful direct marketing tool
as well. The traditional use of mailings imposes significant costs,  without the
ability to target  offerings in real time.  Our  consumer  network site is built
dynamically.  When a user is online,  products  and  services can be targeted in
real time to each consumer.

      We were incorporated on January 14, 1998, under the name YouNetwork Corp.,
a New York corporation.  Pursuant to a merger  effective,  February 3, 1999, the
New  York  corporation  merged  into  us,  YouNetwork  Corporation,  a  Delaware
corporation.  The purpose of the merger is to take  advantage of the laws of the
state of Delaware.

      Our website is located at  www.YouNetwork.com.  Nothing  contained  on our
website should be construed as a part of this filing.

Our solution to market  services and products and develop a sizeable  membership
base.

      We are using the  unique  characteristics  of the web to  cost-effectively
market our products and services and to develop a sizeable  membership  base. By
offering  our  members  a  variety  of  competitively   priced  branded  product
offerings,  together with purchase incentives,  rebates and equity participation
in our  company,  we believe  that we have  created an  innovative  online sales
channel with low customer  acquisition  costs.  The key elements of our approach
are:

      (a) Development of a detailed member database.


                                       4
<PAGE>

      Gather  a  significant  base of  information  about  our  members  through
      registration   information,   responses  to  closed  end  beta  tests  and
      purchasing information obtained from third parties.

      (b) Customer convenience.

      We provide  attractive  electronic  commerce  opportunities  for potential
      purchasers.  Order processing services are available 24 hours a day, seven
      days a week, which facilitates  on-demand ordering.  Our vendors will ship
      products directly to a member's  address,  without the need to travel to a
      store, thereby enhancing convenience,  particularly for customers in rural
      locations without ready access to retail stores.

      (c) Equity participation.

      As part of our promotion to rapidly build membership, we offer at no cost,
      one class A share to each of our first 250,000 members who have joined our
      consumer  network,  an  additional  750,000  class A shares to our members
      based upon their net value,  and  1,000,000  class B shares to our members
      for a purchase  price of $1.00  each.  The class B shares may only be paid
      with  rebates  a  member  may earn by  making  purchases  on our  consumer
      network.

      (d) Net value.

      We have developed proprietary tracking technology. Our tracking technology
      will be utilized to track the  referrals of our members and to pay rebates
      to the member based on a member's  purchases and the  purchases  made by a
      member's referrals.

Products and Services.

      We derive  our  revenue  from the sale of  competitively  priced  consumer
products and services through our website,  YouNetwork.com.  The network,  which
was launched in late summer 1999,  currently  offers  twelve  different  product
segments, ranging from home and garden, electronics and toys to music and video,
with more than 1.3 million individual product offerings.  Product fulfillment is
achieved  through  manufacturers,  distributors  and other  vendors,  which ship
directly to our members.  We maintain no inventory,  warehouse,  stores or sales
facilities.  Our  business  is  based  upon a  matrix  of  marketing  incentives
specifically designed for Internet application.  Due to our low operating costs,
our prices are lower than brick and mortar  retailers and competitive with other
Internet  marketing  sites.  In addition,  our low  operating  costs allow us to
direct  our  resources   towards  providing  an  unsurpassed  level  of  service
electronically in real time. Our current Product Offerings are as follows:

      o Music                   o Electronics                 o Watches
      o Video                   o Software                    o Collectibles
      o Video Games             o Computers                   o Home and Garden
      o Books                   o Office Supplies             o Communications


                                       5
<PAGE>

Fulfillment, Warehousing and Vendor Relations

      All of our  product and service  fulfillment  are  provided by vendors and
distributors.  We  operate  no  fulfillment  or  facility  of our  own.  We have
established a relationships  with a number of vendors and  distributors in order
to offer a broad based product mix at competitive prices.

      We use automated  interfaces for accepting,  sorting and processing orders
to achieve the most rapid and economical purchase and delivery terms. All of our
order related functions are processed online.

      In order to build our commerce  network,  we have entered into a number of
premier  vendor  affiliations,  which we are dependent on such as: Ingram Micro,
Baker  &  Taylor,  Ingram   Entertainment,   Inc.,   Petswarehouse.com,   United
Stationers, Muze, Inc. and DiscoverMusic.com.

Affiliations.

      On June 16, 1998,  we entered into a  distribution  agreement  with Ingram
Micro,  Inc. to purchase  computers,  hardware,  software  and  peripherals.  In
January 4, 1999, we also entered into a  non-exclusive  license with Muze,  Inc.
for us to gain  access to music,  video and book  databases.  In July  1998,  we
entered  into  a  non-exclusive   license  with  Baker  &  Taylor,  Inc.,  which
distributes  books,  spoken word audio products and provides certain value added
services.  Baker  &  Taylor  gives  us the  ability  to  provide  access  to its
proprietary data base to our members.  We entered into a distribution  agreement
on January 19, 1999,  and February  15, 1999,  with Baker & Taylor,  Inc for the
purchase of books,  spoken word audio  products,  pre-recorded  video  products,
laser disc and DVD formats, multi-media products and music audio products.

      On March 6, 1999,  we entered  into an  agreement  with United  Stationers
Supply Co. in connection with the distribution of stationary and office supplies
for a term of one year, to be renewed automatically annually. We entered into an
agreement  with  Discover.com  on  September  1,  1999.  Under  the terms of the
agreement Discovermusic.com shall provide us with sound recordings available for
real time listening or  downloading  and listening in sample lengths by visitors
to our web site. On November 1, 1999, we entered into an  affiliation  agreement
between us and  Success  Marketing,  Inc.  Under the terms of the  agreement  in
consideration  of  providing  additional;  members  to join our web site we have
agreed to  register  Success as a member and  provide  credit to the  account of
Success in the form of NetValue,  defined as point system awarded to our members
based on a certain number of referrals who join our web site.

      On November 11, 1999, we entered into a distribution agreement with Ingram
Entertainment,  Inc. The agreement  incorporates  by reference a master database
license agreement, which provides products and pricing. On February 28, 2000, we
also entered into a distribution  agreement with PetsWarehouse.com The agreement
incorporates by reference a master database  license  agreement,  which provides
pets warehouses prices and products.


                                       6
<PAGE>

      On March 8, 2000, we terminated our relationship with Qwest Communications
Corporation,  which we entered into on March 6, 1998, to solicit orders for long
distance service.

      We  view  our  strategic  relationships  as a key  factor  in our  overall
business strategy; however, there can be no assurance that our license or vendor
affiliates  will view their  relationships  with us as  significant to their own
business or that they will not reassess  their  commitment  to us in the future.
There can be no assurance  that any agreement with a licensor or vendor would be
specifically  enforceable by us. Our arrangements  with our licensors or vendors
generally may be terminated by either party with little notice.  There can be no
assurance that these relationships will be successful. In the event that any one
or more of our  strategic  relationship  is  discontinued  for any  reason,  our
business,  results of  operations  and  financial  condition  may be  materially
adversely  affected.  In  addition,  there can be no  assurance  that we will be
successful in establishing additional vendor or licensor relationships.

Marketing and Distribution of our products and services.

      All of our  product and service  fulfillment  are  provided by vendors and
distributors.  We  operate  no  fulfillment  or  facility  of our  own.  We have
established  relationships with a number of vendors and distributors in order to
offer  a  broad  based  product  mix at  competitive  prices.  We use  automated
interfaces  for  accepting,  sorting and  processing  orders to achieve the most
rapid and  economical  purchase and  delivery  terms.  All of our order  related
functions are processed online.

      Our sales and marketing  strategy is designed to  strengthen  awareness of
our brand,  increase  online  traffic,  build member  loyalty,  maximize  repeat
purchases,  increase the size and frequency of electronic commerce  transactions
and develop additional revenue opportunities.

      (a) Marketing our products through our website.

      The marketing of our services is primarily by  word-of-mouth  and indirect
      promotions  by members  with links to our  website  through the use of our
      services.  We believe  that such  relationship  marketing  (along with our
      unique  equity  participation  and  rebate  incentives)  will  generate  a
      substantial amount of additional traffic and new members. To augment these
      marketing  efforts,  we intend to  initiate a more  formal and  aggressive
      brand  promotional   campaign  to  enhance  membership  growth,  and  draw
      additional advertisers and commerce partners.

      (b) Product marketing.

      We apply a direct marketing program modeled after traditional  direct mail
      campaigns to generate product sales. As we gather  additional  information
      about our members, we intend to further target our offers and increase our
      range of product offerings.  Information obtained from a member is treated
      as confidential.

Technology and infrastructure.


                                       7
<PAGE>

      Our systems are designed for  portability,  efficiency  and growth.  Using
state of the art technology  from Windows NT and Unix technology we have created
a  custom  solution  that  is  based  on high  bandwith  access,  latest  server
technology  and  redundant  storage  systems.  We have  placed  an  emphasis  on
portability  of our  application  modules in order to support the  migration  of
systems as they encounter the added demand of a fast growing  customer base. Our
access to the internet is reinforced with multiple  support  providers and daily
and weekly backups to minimize data loss as a result of system  failure.  A high
degree of  automation  is  employed  to assure  quality  of  service  as well as
cost-efficient  operation  of our  system.  We  continue  to monitor and upgrade
components of our  infrastructure  with the goal of providing highly  productive
user experience to our members.

Competition.

      The market for electronic commerce direct selling channels on the Internet
is new and rapidly evolving, and competition for members, consumers and visitors
is intense and is expected to increase significantly in the future.  Barriers to
entry are relatively  insubstantial.  We believe that the principal  competitive
factors for  companies  seeking to create  electronic  commerce  networks on the
Internet are critical mass,  functionality,  brand recognition,  member affinity
and loyalty,  broad demographic focus and open access for visitors.  Our primary
competitors,  which  are  primarily  focused  on  creating  electronic  commerce
networks on the Internet, include such companies as: Amazon.com,  Value America,
Shopping.com,  Buy.com,  the  NetMarket  division  of  Cendent  Corporation  and
Ebay.com.  In addition,  there is an emergence of loyalty based  internet  sites
such as MyPoints and All  Advantage.  Nearly all of our  existing and  potential
competitors,  web  directories,  search  engines  and  large  traditional  media
companies,  have longer  operating  histories  in the web market,  greater  name
recognition,   larger  customer  bases  and  significantly   greater  financial,
technical and marketing resources than us. Moreover, our competitors are able to
undertake more extensive  marketing  campaigns for their brands and services and
make more attractive offers to potential employees, vendor affiliates,  commerce
companies and third-party content providers.


                                       8
<PAGE>

Intellectual property and proprietary rights.

      We have submitted an application to register our servicemark, "YouNetwork"
with the United States Patent and Trademark Office. We currently have no patents
and we do not  anticipate  that  patents will become a  significant  part of our
intellectual  property in the  foreseeable  future.  We regard our technology as
proprietary and will attempt to protect our tracking and net value by relying on
trademark,  service mark,  copyright and trade secret laws and  restrictions  on
disclosure  and  transferring  title  and  other  methods.  We will  enter  into
confidentiality  or license  agreements  with our employees and  consultants and
will attempt to limit access by vendors of our proprietary information.  Despite
these  precautions,  it may be possible  for a third party to copy or  otherwise
obtain and use our proprietary  information without  authorization or to develop
similar technology  independently.  Policing unauthorized use of our proprietary
information   is   difficult.   Legal   standards   relating  to  the  validity,
enforceability  and  scope  of  protection  of  certain  proprietary  rights  in
internet-related  businesses are uncertain and still evolving,  and no assurance
can be  given as to the  future  viability  or  value of any of our  proprietary
rights.

Employees.

      As of March 22,  2000,  we had 8 full-time  employees,  and one  part-time
employee. Our future success will depend, in part, on our ability to continue to
attract, retain and motivate highly qualified technical and management personnel
for whom competition is intense.  From time to time, we also employ  independent
contractors  to support  our  research  and  development,  marketing,  sales and
support and administrative  organizations.  Our employees are not covered by any
collective  bargaining  agreement and we have never experienced a work stoppage.
We believe our relations with our employees are good.

Insurance.

      We carry business  interruption  insurance but not a secondary  "off-site"
system or a formal disaster recovery plan. Our business  interruption  insurance
policy  coverage  is up to  $750,000.  We  also  have a data  processing  policy
covering hardware for up to $1,000,000 and software up to $250,000 in connection
with our internet services.

Government Regulation

      We are not  currently  subject  to  direct  regulation  by any  government
agency, other than regulations applicable to businesses generally, and there are
currently  few laws or  regulations  directly  applicable  to  e-commerce on the
Internet.  Due to the increasing popularity and use of the Internet, a number of
legislative and regulatory  proposals are under consideration by federal,  state
and local governmental  organizations,  and it is possible that a number of laws
or  regulations  may be adopted with  respect to the  Internet  relating to such
issues as user privacy, taxation, infringement, pricing, quality of products and
services and intellectual  property ownership.  The adoption of any such laws or
regulations  may decrease the growth in the use of the Internet,  which could in
turn  decrease the demand for our products  and  services,  increase our cost of
doing  business,  or otherwise  have a material  adverse effect on our business,


                                       9
<PAGE>

results  of  operations  and  financial   condition.   Any  new  legislation  or
regulation,  or application  or  interpretation  of existing laws,  could have a
material  adverse  effect on our business,  results of operations  and financial
condition.

Item 2. Description of Properties

Leased Properties

      Our headquarters are currently located in a leased facility in the Borough
of Manhattan,  New York, New York,  consisting of approximately 6000 square feet
of office space,  which is under a lease that expires June 30, 2002. The current
annual  rent is  $132,000.  We also have a leased  facility  in the  Borough  of
Manhattan,  New York, New York, consisting of approximately 1,000 square feet of
office space, which is under a lease that expires April 3, 2003.

Item 3. Legal Proceedings.

      To the knowledge of YouNetwork there are no threatened  legal  proceedings
or  pending  legal   proceedings  (or  property   subject  of  a  pending  legal
proceeding).

Item 4. Submission of Matters to a Vote of Security Holders

      There were no matters  submitted to a vote of security  holders during the
fourth quarter of 1999.


                                       10
<PAGE>

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

Market Information
[

      On July 13, 1999,  our  registration  statement  (File No.  333-71949) was
declared  effective and we commenced our offering in connection  with  1,000,000
Class A shares for no cash consideration and 1,000,000 Class B shares offered to
our  members  at the rate of one share  for each  $1.00 of a  member's  purchase
dividend.

      We did not  receive any  proceeds  from the sale of our class A or class B
shares.  One class A share is offered to each of the first 250,000 members at no
cost. The remaining 750,000 class A shares are offered to a member based on each
member's net value. Class B shares in our offering were offered to a member at a
rate of one share for each $1.00 of a member's purchase dividend balance,  which
may only be paid with  purchase  dividend  earned by members  who  purchase  our
products on our consumer network.  A purchase dividend balance is created when a
member is  credited  for a  percentage  of the  value of  products  or  services
purchased on our website.  A member may choose to have their  purchase  dividend
balance  paid to them in cash,  purchase  additional  products  or  services  or
purchase  class B shares in this  offering.  If a member  chooses to  purchase a
class B share with his or her purchase dividend  dollars,  the purchase dividend
balance will be reduced $1.00 for each class B share purchased. Since a purchase
dividend  balance is a liability  owed by us to our  members,  the purchase of a
class B share will offset an  outstanding  liability to those members who choose
to purchase a class B share with their purchase dividend dollars.

      Our Common  Stock is  currently  not traded on any  forum,  including,  an
exchange,  the Over the Counter Bulletin Board or pink sheets. There has been no
public  market for our common  stock.  Future  sales of  substantial  amounts of
common stock in the public market, or the availability of shares for sale, could
adversely affect the prevailing market price of our common stock and our ability
to raise capital through an offering of equity securities.

Holders

      As of March 22, 2000, there were  approximately  106 holders of our common
equity. All holders of shares of common equity are entitled to one vote for each
share held of record on all matters submitted to a vote of the stockholders.  We
do not have cumulative voting rights in the election of directors;  accordingly,
holders  of a  majority  of the  shares  voting  are  able to  elect  all of the
directors.  In the event of our liquidation,  dissolution or winding up, holders
of common  stock are  entitled to share  ratably in all of our assets  remaining
after  payment of  liabilities.  Holders of common stock have no  preemptive  or
other subscription of conversion rights. There are no redemption or sinking fund
provisions applicable to our common stock.

Stock Options


                                       11
<PAGE>

      We have an amended 1999 stock  option plan to increase  our stock  options
from 2,000,000 to 4,000,000.  Our amended 1999 Plan provides for the granting of
options  to  key  employees,  including  officers,  non-employee  directors  and
consultants  of  YouNetwork  and its  subsidiaries  to purchase up to  4,000,000
shares of common stock which are intended to qualify  either as Incentive  Stock
Options within the meaning of the Internal Revenue Code of 1986, as amended,  or
as options  which are not  intended to meet the  requirements  of such  section,
non-statutory stock options.

      The 1999 plan is administered  by the board of directors.  Under the plan,
the board of  directors  has the  authority  to  determine  the  persons to whom
options  will be  granted,  the number of shares to be  covered by each  option,
whether the options  granted are intended to be  incentive  stock  options,  the
manner of exercise, and the time, manner and form of payment upon exercise of an
option.

      Incentive  stock  options  granted under the Plans may not be granted at a
price less than the fair market  value of the common  stock on the date of grant
(or less than 110% of fair market value in the case of employees  holding 10% or
more of the voting  stock of  YouNetwork).  Non-qualified  stock  options may be
granted at an exercise price established by the stock option committee  selected
by the board of directors,  but may not be less than 85% of fair market value of
the shares on the date of grant. Incentive stock options granted under the plans
must  expire not more than ten years  from the date of grant,  and not more than
five years from the date of grant in the case of incentive stock options granted
to an employee holding 10% or more of the voting stock of YouNetwork.

Dividends

      YouNetwork has not paid any dividends since its inception.  YouNetwork has
no  intention of paying any  dividends  on its common  stock in the  foreseeable
future,  as it intends to use any  earnings to generate  increased  growth.  The
payment by YouNetwork of purchase dividends,  if any, in the future rests within
the discretion of its Board of Directors  and,  among other things,  will depend
upon YouNetwork's  earnings,  capital requirements and financial  condition,  as
well as other relevant factors.

Recent Sales of  Unregistered Securities.

      The following  gives effect to the 330,000 to 1 exchange of class C shares
of common stock effected February 3, 1999,  pursuant to an agreement and plan of
merger between  YouNetwork,  Corp., a New York  corporation  and the registrant,
YouNetwork Corporation, a Delaware corporation.

Private Placement.

      In 1999,  YouNetwork sold 7,351,500 shares of its class C common stock for
proceeds of approximately  $2,159,500.  The reason for the offering was to raise
necessary   additional  capital  to  finance  network  expansion  and  equipment
upgrades,  and development  costs in connection  with our


                                       12
<PAGE>

proprietary  software,  tracking.  The offering was a private transaction exempt
from registration. All investors are accredited.

      Pursuant to an agreement among  YouNetwork,  Dalia Silverman and Kleopatra
Georgiades (the "Original  Investors"),  the Original  Investors  purchased from
YouNetwork,  for an aggregate  purchase  price of $200,000:  (i) an aggregate of
8,910,000  shares of common stock (the "Purchased  shares")  representing 27% of
the issued and  outstanding  common stock,  on a fully diluted  basis;  and (ii)
Options (the  "Purchase  Options") to purchase in the  aggregate  such number of
shares of  common  stock,  at  nominal  consideration,  as shall  equal,  in the
aggregate when added to the Purchased shares,  27% of the issued and outstanding
common stock of YouNetwork on a fully diluted basis,  immediately  following the
sale of  additional  common stock by YouNetwork  in  consideration  of the first
$400,000 of common stock sale proceeds received by YouNetwork following December
4, 1998.

      The  proceeds  from the sale of our shares to the Original  Investors  was
used for  software  development  in the  approximate  amount of  $68,000,  legal
expenses in the amount of $10,000, and $122,000 to salaries, office expenses and
general administrative costs. In March of 1999, the Original Investors exercised
the Purchase Options following a private placement in March of 1999 for the sale
of 4,630,000 shares of class C common stock by YouNetwork to certain  accredited
investors  for  consideration  of  $463,000.  As a result of the exercise of the
Original Investors  respective Purchase Options, the Original Investors received
1,479,452 shares of YouNetwork class C common stock.

      The   foregoing   offerings   were   private   transactions   exempt  from
registration. All investors in these private transactions are accredited.

Item 6. Management's Discussion and Analysis of Financial
        Condition and Results of Operation.

Overview

      We have  launched a unique  online  consumer  network which offers a broad
range  of  consumer   products   and   services   through  our   website,   www.
YouNetwork.com.  We believe that our consumer network is unique in that we offer
shares of our  company  for no cash  consideration  when a member  joins our web
site, refers other members or purchases a share through our dividend program. We
also utilize  proprietary  technology to track the referrals of a member, and to
pay  purchase  dividend to a member  based on his or her  purchases,  as well as
those purchases made by such referrals.

Revenues and Expenses

      For  most  of  the  year  of  1999,  operations  continued  to be  in  the
development  stage.  We had limited  revenues for the period ended  December 31,
1999, totaling $49,700.

Cost of sales


                                       13
<PAGE>

      Cost of goods sold totaled $ 48,578, resulting in a gross margin of $1,122
or  2.3%  after  rebates  (which  are  allocated  to  the  members  as  purchase
dividends).  These rebates may be used against future purchases,  taken as cash,
or used to purchase Class B shares, valued at $1, in YouNetwork.

Selling, General and Administrative Expenses

      We  incurred  expenses  of  approximately  $1,700,000,  for the year ended
December 31, 1999 consisting of compensation  expense,  system development costs
and other general and administrative expenses. Compensation expenses are related
to establishing strategic  relationships through license arrangements and vendor
affiliations to market the business. Certain key positions including that of the
CEO were filled during this fiscal year. Larger space requirements  necessitated
a move to approximately 6000 square feet of office space

Liquidity

      Since  inception  YouNetwork has incurred a net losses of $1,884,346,  and
had a working capital deficit of approximately $909,000 as of December 31, 1999.
As of December 31, 1999,  our  principal  commitments  consisted of  obligations
outstanding  under  operating and capital  leases.  Although we have no material
commitments for capital  expenditures,  we anticipate a substantial  increase in
our capital  requirements  consistent  with  anticipated  growth in  operations,
infrastructure and personnel.

      At year-end our cash  position  totaled  $41,127,  and we continue to seek
additional  funds to  achieve  adequate  liquidity.  Failure  to raise  adequate
capital could have a material  impact on our company going  forward.  We believe
that our forward strategy will allow us to meet our fund raising requirements.

      Our capital  requirements  depend on numerous factors,  including,  market
acceptance of our services,  the amount of resources we devote to investments in
our  electronic  commerce  networks,  the  resources we devote to marketing  and
selling our services and our brand promotions and other factors.

      If cash generated from operations is insufficient to satisfy our liquidity
requirements,  we may seek to sell  additional  equity or debt  securities or to
obtain a credit  facility.  The sale of additional  equity or  convertible  debt
securities could result in additional dilution to our stockholders. There can be
no assurance that financing will be available in amounts or on terms  acceptable
to us, if at all.

      The system has been  operational  since September of 1999, since this time
through  December  31,  1999 the site has  registered  27,635  members  and sold
approximately  $49,000  dollars in product.  YouNetwork has grown to its current
size without any marketing expenses. While we experienced limited membership and
revenue growth during this period, we identified the opportunity to leverage the
business and  technology  platforms as a means to grow member users and revenues
through a private label  application  strategy,  incorporating a revenue sharing
model.


                                       14
<PAGE>

      We anticipate  that this parallel  strategy  offers us the  opportunity to
recognize an accelerated growth rate. There can be no assurances that there will
be a growing  market  for this  opportunity,  or that the  clients  that we have
identified will be able to sustain or fund the use of our services.

      YouNetwork  has  developed a powerful  loyalty  e-commerce  solution  that
utilizes viral marketing and a referral  compensation program that has proven to
create repeat purchasing and increase gross margin. We believe that our solution
is the only such program successfully deployed on the Internet.

      We have  identified a business  strategy  that will enable  YouNetwork  to
capitalize  on  the  current   investor  trend   favoring   business-to-business
solutions.  YouNetwork will market its proprietary loyalty e-commerce systems to
Corporate  Intranets,  Internet Content Sites and Consumer  Affinity Groups.  An
easy to use  interface  will allow the account to place a replicated  YouNetwork
site at the World Wide Web address of their choice and  customize  the site with
their  name,  logo  and  information  as  well as  their  selection  of  product
categories.  YouNetwork  will  provide site  hosting and  management  as well as
customer service,  product  merchandising,  marketing support and training.  The
account  will pay a one time  integration  fee as well as monthly  hosting.  The
revenue  sharing program will allow these groups and their members to earn money
from the sale of goods and services.

      In the  e-commerce  sector,  we  believe  we will be the first to  combine
e-commerce  with a referral  loyalty  program  that  allows  affinity  groups to
private label the program.  As  e-commerce  becomes a commodity on the Internet,
consumers  will begin to purchase  from sites that promote  their  lifestyle and
benefit them financially. By combining the loyalty model with localized affinity
marketing YouNetwork will establish a unique footprint in the Internet business.

Changes in operation and revenues.

      We believe that the  implementation of our  forward-looking  strategy will
result in significant expenditures to build our infrastructure especially in the
areas of product merchandising, marketing and technical support. We will realize
significant  economies  of scale as we  implement  our  integration  and hosting
strategy for our targeted  private label clients.  We will recognize income from
both the fees  charged to these  clients as well as our  portion of the  revenue
sharing income.

Item 7. Financial Statements.

      See Item 13 of this form 10-KSB.

Item 8. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure.

      None.

                                    PART III


                                       15
<PAGE>

Item 9. Directors and Executive Officers, Promoters and Control Persons

      The  following  table  sets  forth  certain  information   concerning  the
directors and executive officers of YouNetwork.

Directors and Executive Officers

NAME                             AGE      POSITION

Don S. Senerath...................30      Chairman
George M. Santacroce..............51      Chief Executive Officer and Director
Kyle S. Taylor....................42      President and Director
Peter R. Silverman................53      Director

Don S. Senerath has been Chairman of the Board of Directors of YouNetwork  since
inception  in January  1998.  Mr.  Senerath is also an officer of  International
Computing LLC  (formerly  known as Digital Pulp  Technologies  LLC), a Manhattan
based new media  consulting and  development  firm which he founded in 1997. Mr.
Senerath has developed  large scale  back-end  electronic  commerce  systems for
major  corporations  in  the  telecom,  commercial  capital,  entertainment  and
computer  industries.  From 1994 through 1997, Mr.  Senerath was employed as the
chief  engineer  at  Integrated  Media  Inc.,  where he  developed  a full scale
Internet  system for Miramax  Films,  and  interactive  television  products for
Nynex,  for which he was awarded the Nynex Quality  Award in 1995. In 1994,  Mr.
Senerath  received a Bachelor of Science  degree in Electrical  Engineering  and
Computer  Science  from  Cornell   University,   where  his  academic   research
concentrated  on the  compression  and  delivery of media with  applications  in
distribution.  Mr. Senerath is the Chief  architect of YouNetwork  Corporation's
proprietary technologies.

George M.  Santacroce  was  appointed  Chief  Executive  Officer  of  YouNetwork
effective  November,  1999. Mr.  Santacroce  has extensive  experience in retail
marketing  and  merchandising   along  with  a  strong  background  in  business
management.  He has  developed  strong  relationships  in the  fields of product
procurement   and   developments,   international   relations,   marketing   and
entertainment.  His experiences include, President of Tommy Hilfiger Collections
and Flagship Retail, CEO of Aquascutum of London for North America,  Senior Vice
President at Bergdorf Goodman of the Neiman Marcus Group; President of Burberrys
of London, a license division of Cluett/West Point Pepperell.  His expertise has
been  focused on startup  and turn around  opportunities.  Mr.  Santacroce  is a
graduate of Syracuse  University  in 1969,  where he received a Bachelor of Arts
Degree in Business  Management  and Fashion  Merchandising.  Mr.  Santacroce was
educated in both Europe and the United States.

Kyle S.  Taylor  has been  President  and a  director  of  YouNetwork  since our
inception in January  1998.  After  attending the  University of Tennessee,  Mr.
Taylor  spent  twelve years in the retail  apparel  business  both working as an
executive  with a  division  of  Federated  Corporation  as well as  owning  and
operating a privately  held retail  business.  In 1994,  Mr. Taylor was hired by
Delta  Woodside  Industries,  a NYSE textile  conglomerate  as Vice President of
Merchandising with responsibilities for product development, brand marketing and
merchandising.  During his tenure at Delta Woodside he developed and implemented


                                       16
<PAGE>

several marketing campaigns,  including a national product launch in conjunction
with Sears Corporation,  J.C. Penny, Federated Department Stores and other major
retail  accounts.  In 1996, Mr. Taylor pursued new  opportunities in the On-Line
Marketing.  As Marketing  Director for Interactive  Imaginations,  the owners of
Riddler.com  and The  Commonwealth  Network,  he was  responsible for developing
electronic  commerce programs with on-line retailers and corporate sponsors such
as CitiBank,  Qwest International,  Inc., Kodak, America On-line, Barnes & Noble
and others.

Peter R. Silverman has been a director  since  December 1998. Mr.  Silverman has
been a  practicing  attorney  for  over  27  years  and has  specialized  in the
development  of start up companies in the telecom and Internet  industry.  He is
the  founding  member of the law firm,  Silverman,  Collura & Chernis,  P.C. Mr.
Silverman  received a Bachelor of Arts degree from George Washington  University
in 1967 and a law degree from Brooklyn Law School in 1970.

All directors hold office until the next annual meeting of the  stockholders and
until their successors have been duly elected and qualified.  Executive officers
are elected by and serve at the direction of the board of  directors.  There are
no family relationships among any of our directors or executive Officers.

Compliance with Section 16(a) of the Exchange Act

      We do not have a class of securities  registered pursuant to Section 12 of
the Exchange Act;  therefore,  our officers,  directors and  affiliates  are not
subject to the reporting  obligations set forth in Section 16(a) of the Exchange
Act.

Item 10. Executive Compensation.

Summary Compensation Table

      The following  table provides a summary of cash and non-cash  compensation
for each of the last two fiscal  years  ended  December  31,  1998 and 1999 with
respect to the following officers of YouNetwork:

<TABLE>
<CAPTION>
Annual Compensation                 Long-Term Compensation
-------------------                 ----------------------
                                                     Other Annual   Restricted  Securities
                                                                      Stock     Underlying    LTIP     All Other
Name and Principal     Year     Salary(1)    Bonus   Compensation     Awards   Options/SARs  Payouts  Compensation
------------------     ----     ---------    -----   ------------     ------   ------------  -------  ------------
<S>                    <C>       <C>          <C>         <C>        <C>            <C>        <C>         <C>
George Santacroce
CEO(2)                 1999      $20,000      -0-         -0-        100,000        -0-        -0-

Kyle S. Taylor,        1998      $65,251      -0-         -0-        -0-            -0-        -0-
President              1999
</TABLE>


                                       17
<PAGE>

(1)   Excludes  perquisites and other personal benefits that in the aggregate do
      not exceed 10% of each of such individual's total annual salary and bonus.

(2)   Mr. Santacroce joined YouNetwork in November of 1999.

      Options/ SAR Grants in Last Fiscal Year.  The  following  table sets forth
certain  information with respect to option or SAR grants during the fiscal year
ended December 31, 1999 to the named executive officers.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                       Number of Securities   Percent of Total Options
                        Underlying Options     Granted to Employees in    Exercise or Base Price
      Name                   Granted               Fiscal Year                    ($.SH)             Expiration Date
---------------------------------------------------------------------------------------------------------------------
<S>                         <C>                       <C>                          <C>                <C>
George Santacroce           1,500,000(1)              69.11%                       $1.10              April 30, 2001
---------------------------------------------------------------------------------------------------------------------
George Santacroce             500,000                 23.04%                       $8.00              April, 30, 2001
---------------------------------------------------------------------------------------------------------------------
</TABLE>

1)    1,000,000  options have a vesting  schedule of 100,000 options a month for
      the first ten months of employment,  250,000  options shall vest after the
      first 4 months of  employment,  and  250,000  options  shall vest after 12
      months of employment.

2)    Options shall vest after 18 months of employment.

Aggregated  Options/SAR  Exercises Year-end Table.  During the fiscal year ended
December  31,  1999,  none  of  the  named  executive   officers  exercised  any
options/SARs  issued by YouNetwork.  The following table sets forth  information
regarding the stock options held as of December 31, 1999 by the named  executive
officers.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
                         Number of Securities Underlying Unexercised    Value of Unexercised In-the-Money
                                  Options at Fiscal Year-End               Options at Fiscal Year End
                         -------------------------------------------    ---------------------------------
----------------------------------------------------------------------------------------------------------
      Name                   Exercisable           Unexercisable         Exercisable       Unexercisable
      ----                   -----------           -------------         -----------       -------------
----------------------------------------------------------------------------------------------------------
<S>                            <C>                   <C>                      <C>                <C>
George Santacroce              200,000               1,800,000                0                  0
----------------------------------------------------------------------------------------------------------
</TABLE>

Directors' Compensation

      Our directors do not receive any fixed  compensation for their services as
directors.  Directors are reimbursed for their reasonable out-of-pocket expenses
incurred in connection  with  performance  of their  duties.  We did not pay our
directors any cash or other form of compensation for acting in such capacity.


                                       18
<PAGE>

Item 11. Security Ownership of Certain Beneficial Owners and Management.

      The following table sets forth certain  information as to the common stock
ownership of each of our directors,  executive officers,  all executive officers
and  directors  as a group,  and all  persons  known by us to be the  beneficial
owners of more than five percent of our common stock.  Unless  otherwise  noted,
all  persons  named in the table  have sole  voting and  dispositive  power with
respect  to all  shares  of  common  stock  beneficially  owned by them.  Unless
otherwise  indicated,  the address of each  beneficial  owner is c/o  YouNetwork
Corporation, 220 East 23rd Street, Suite 607 New York, New York 10010.

<TABLE>
<CAPTION>
Name and Address of                                           Amount and Nature of
Beneficial Owner (1)                      Title Of Class      Beneficial Ownership     Percent of Class
--------------------                      --------------      --------------------     ----------------
<S>                                                                 <C>                      <C>
Kyle S. Taylor                             Class C Common           9,562,500                22.7%
Don S. Senerath                            Class C Common          12,475,000                29.7%
Dalia Silverman                            Class C Common           4,662,226                11.1%
Kleopatra Georgiades                       Class C Common           4,762,726                11.3%
Spencer Trask Partners                     Class C Common           4,000,000                 9.5%
Richard Perry (3)                          Class C Common             250,000                 0.6%
George Santacroce (4)                      Class C Common             200,000                 0.5%
All Officers and Directors as a
Group (4 persons)                          Class C Common          22,487,500                53.5%
</TABLE>

(1)   Except as otherwise  noted,  the persons  named in this table,  based upon
      information  provided by these  persons,  have sole voting and  investment
      power  with  respect to all shares of common  stock  owned by them.  Dalia
      Silverman is the wife of Peter R.  Silverman,  one of our  directors.  Mr.
      Silverman  disclaims any  beneficial  ownership in the shares owned by his
      wife, Dalia Silverman.  There is no family relationship  between Kleopatra
      Georgiades and any of our directors or officers. Michael Karfunkel, George
      Karfunkel and Kevin Kimberlin are partners of Spencer Trask Partners.

(2)   Beneficial  ownership is determined  in  accordance  with the rules of the
      Securities  and Exchange  Commission.  In  computing  the number of shares
      beneficially  owned  by a  person  and the  percentage  ownership  of that
      person,  shares of common  stock which is issuable  upon the exercise of a
      Warrant or Stock Option which is presently  exercisable  or which  becomes
      exercisable  within 60 days of March 20,  2000,  are  deemed  outstanding.
      Percentage  of  beneficial  ownership is based upon  42,070,052  shares of
      common


                                       19
<PAGE>

      stock  outstanding as of March 27, 2000. To our  knowledge,  except as set
      forth in the footnotes to this table and subject to  applicable  community
      property  laws,  each  person  named  in the  table  has sole  voting  and
      investment  power  with  respect to the  shares  set forth  opposite  such
      person's name.

(3)   Represents options for the purchase of 250,000 shares of our common stock.

(4)   Represents options for the purchase of 200,000 shares of our common stock.

Item 12. Certain Relationships and Related Transactions.

      On February 3, 1999, YouNetwork,  a New York corporation,  merged with and
into us,  the  surviving  corporation.  Pursuant  to the  agreement  and plan of
merger,  dated February 3, 1999, all  shareholders  of the New York  corporation
exchanged  their  common stock for our class C common stock $.0001 par value per
share,  on a basis  of  330,000  shares  of our  class C common  stock  for each
outstanding share of the New York corporation.  The reason for the merger was to
take advantage of the laws of the State of Delaware.

      Pursuant to a stockholders' agreement, dated as of December 4, 1998, among
Kyle S. Taylor, Don S. Senerath (the "Management Stockholders"), Dalia Silverman
and  Kleopatra  Georgiades  (the  "Original  Investors")  and us;  our  Board of
Directors, the Management Stockholders and Original Investors who owned 77.3% of
our common stock agreed to vote their shares of common stock to elect a board of
directors  consisting  of three  directors,  one of whom was  designated  by the
Original  Investors,   and  two  of  whom  were  designated  by  the  Management
Stockholders.  The ratio of directors  designated  by the Original  Investors to
those designated by the Management Stockholders shall be maintained in the event
the board is increased  in number.  Pursuant to the  stockholders'  agreement no
significant transaction can be approved without the unanimous approval of all of
the directors. A significant transaction is defined in the agreement as:

      o     any creation of any class of capital stock;
      o     the sale or issuance of shares of capital  stock,  warrants or other
            securities convertible into or exchangeable for capital stock;
      o     any declaration or issuance of any dividend;
      o     any transaction or contract with a value of $10,000 or more;
      o     any amendment to or modification of any provision of our Certificate
            of Incorporation or By-laws;
      o     any change in our auditors;
      o     any consolidation or merger of us;
      o     any executive employment contract;
      o     payment of salaries  to any  officer at a rate of more than  $85,000
            per annum; and
      o     the election of officers.

      The  stockholders'  agreement also provides for certain bring along rights
and rights of first refusal among the Management  Stockholders  and the Original
Investors with respect to any sale of their shares. The stockholders'  agreement
terminates on December 1, 2010, or such earlier time as either:


                                       20
<PAGE>

o     the Original Investors no longer own at least 10% of our common stock on a
      fully diluted basis; or
o     we have  completed a public  offering of its  securities  resulting in net
      proceeds to us of at least $10,000,000.

      Pursuant  to a  December  4,  1998,  stock  sale  agreement  among us, the
Management  Stockholders  and the Original  Investors,  the  Original  Investors
purchased from us, for an aggregate purchase price of $200,000: (a) an aggregate
of 8,910,000 shares of common stock (the "Purchased Shares") representing 27% of
the issued and  outstanding  common  stock,  on a fully diluted  basis;  and (b)
Options (the  "Purchase  Options") to purchase in the  aggregate  such number of
shares of  common  stock,  at  nominal  consideration,  as shall  equal,  in the
aggregate when added to our Purchased Shares,  27% of our issued and outstanding
common  stock  on a fully  diluted  basis,  immediately  following  the  sale of
additional  common stock by us in  consideration of the first $400,000 of common
stock sale proceeds received by us following December 4, 1998.

      The  proceeds  from the sale of our shares to the Original  Investors  was
used for  software  development  in the  approximate  amount of  $68,000,  legal
expenses in the amount of $10,000, and $122,000 to salaries, office expenses and
general administrative costs. In March of 1999, the Original Investors exercised
the  Purchase  Options  following  a  private  placement  in  March  of  1999 to
accredited  investors  only for the sale of  4,630,000  class C shares by us for
consideration of $463,000. Proceeds from the private placement is being used for
salaries and fees, network expansion,  equipment upgrades, and development costs
in connection with our proprietary software, tracking.

      Pursuant to three  promissory  notes,  Dalia  Silverman has loaned to us a
total of $137,500 in 1999 as follows:  on November 3, 1999, $75,000, on December
8, 1999,  $25,000 and on  December  20,  1999  $37,500.  Each note is payable on
demand at an interest rate of seven percent per annum.

      Under two promissory notes,  Kleopatra  Georgiades loaned to us a total of
$62,500 in 1999 as  follows:  $ 25,000 on  December  14,  1999,  and  $37,500 on
December 20, 1999.

      As a result of their  March 1999  exercise  of their  respective  Purchase
Options,  the Original  Investors each received  1,479,452 shares of our class C
common stock.  The $463,000 raised from the private  placement in March of 1999,
was used for salaries, fees and working capital.

      On November 1, 1999, we entered into an employment  agreement  with George
Santacroce,  to serve as our chief executive officer.  The term of the agreement
is for two years commencing on November 1, 1999. Mr. Santacroce  receives a base
compensation of $120,000 for the first nine months  following  November 1, 1999.
Under the terms of the agreement,  Mr. Santacroce  commencing August 1, 2000 and
through the end of the term shall be entitled to receive a base salary at a rate
of $400,000 per annum,  payable in arrears in equal  installments  in


                                       21
<PAGE>

accordance with our payroll  practices.  The agreement  contains a provision for
performance based bonuses, including non-qualified stock options. The employment
agreement contains a non-compete clause for a period of six months following the
termination of Mr. Santacroce's  employment.  A state court might not enforce or
only partially enforce this non-compete provision.  In addition, if we terminate
the  agreement  without  cause,  Mr.  Santacroce  may be entitled to a severance
payment  which  shall  equal the amount of $20,000  multiplied  by the number of
months of employment completed prior to termination, in the event of termination
within the first nine months of employment.  If Mr.  Santacroce's  employment is
terminated  without cause after nine months of the term, or the agreement is not
extended for an additional  term,  the severance  payment shall be $180,000.  He
will receive the balance of any unpaid  salary which would  otherwise be payable
to him during the remainder of the term of the agreement.

      Currently we do not have any  employment  agreements  with Kyle Taylor our
president and Don S. Senerath;  however, pursuant to the stock sale agreement if
either Mr. Taylor's or Mr. Senerath's  employment with us is terminated  without
substantial  cause, as defined in the Agreement,  the terminated  executive will
receive compensation  equivalent to twelve times his monthly compensation during
the month immediately prior to the termination date, which compensation shall be
paid quarterly in advance.

      Under the  agreement,  Mr. Taylor and Mr.  Senerath have agreed that for a
period  of two  years  from  the date of  termination  of  employment,  with the
exception  of  termination  by us  without  substantial  cause,  they  will not,
directly or  indirectly,  engage in the  business of  electronic  commerce  with
respect to buying or selling of consumer  products through a membership  network
or buying  syndicate  which  offers its  members  purchase  incentives  or which
utilizes  programs or systems which duplicate or are similar to the programs and
systems which have been developed  exclusively by or for us; or (ii) solicit our
employees or its clients.

      From  inception,  YouNetwork  has retained  the services of  International
Computing,  which provides software and system integration consultation services
in  connection  with our  efforts to build out our web site and to  develop  our
proprietary  tracking  technology.  Don S.  Senerath,  Chairman  of the board of
directors of YouNetwork,  is a member of International Computing. For the period
from January 14, 1998  (inception)  to December 31, 1999,  Mr.  Senerath did not
perform any significant services on behalf of YouNetwork in his role as chairman
and no  compensation  expense has been recorded by YouNetwork.  Consulting  fees
paid or accrued by  YouNetwork  to  International  Computing for the period from
January 14, 1998 (inception) to December 31, 1998 were approximately $89,000, of
which  approximately   $69,000  was  capitalized  and  the  balance  charged  to
operations.  For the year  ended  December  31,  1999,  consulting  fees paid or
accrued  by  YouNetwork  to  International  Computing  were  $510,000,  of which
approximately   $425,000  was   capitalized  and  the  balance  was  charged  to
operations. At December 31, 1999, $200,000 was due to International Computing by
YouNetwork.

      We believe  that all of the  transactions  set forth  above  with  persons
affiliated  with us were made on terms no less  favorable  to us than could have
been obtained from unaffiliated third parties.


                                       22
<PAGE>

Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a)   Index to Financial Statements

      1.    Financial Statements                                            Page

            Independent Auditor's Report                                     F-1

            Balance Sheet as of December 31, 1999                            F-3

            Statements  of  Operations  - for theYear  Ended
            December 31,  1999;  for the Period from January
            14, 1998  (Inception)  to December 31, 1998; and
            for the Period from January 14, 1998 (Inception)
            to December 31, 1999                                             F-4

            Statements of  Stockholders'  Equity for theYear
            Ended  December  31,  1999;  for the Period from
            January 14,  1998  (Inception)  to December  31,
            1998;  and for the Period from  January 14, 1998
            (Inception) to December 31, 1999                                 F-5

            Statements   of  Cash  Flow  for  theYear  Ended
            December 31,  1999;  for the Period from January
            14, 1998  (Inception)  to December 31, 1998; and
            for the Period from January 14, 1998 (Inception)
            to December 31, 1999                                             F-8

            Notes to Financial Statements                                   F-10

      2.    Exhibits Included Herein

            See Exhibit Index herein for the exhibits filed as part of
            this Form 10-KSB.

(b)   Reports on Form 8-K

            None.

<PAGE>


                             YOUNETWORK CORPORATION
                          (A Development Stage Company)

                                      Index
                                      -----

                                                                            Page
                                                                            ----

Independent Auditor's Report                                                 F-1

Balance Sheet as of December 31, 1999                                        F-3

Statements of Operations for the Year Ended December 31, 1999;
  for the Period January 14, 1998 (Inception) to
  December 31, 1998; and for the Period from January 14, 1998
  (Inception) to December 31, 1999                                           F-4

Statements of Stockholders' Equity for the Year Ended
  December 31, 1999; for the Period from January 14, 1998
  (Inception) to December 31, 1998; and for the Period from
  January 14, 1998 (Inception) to December 31, 1999                          F-5

Statements of Cash Flows for the Year Ended December 31, 1999;
  for the Period from January 14, 1998 (Inception) to
  December 31, 1998; and for the Period from January 14, 1998
  (Inception) to December 31, 1999                                           F-8

Notes to Financial Statements                                               F-10



<PAGE>

                          INDEPENDENT AUDITOR'S REPORT

The Board of Directors
YouNetwork Corporation

      We have audited the accompanying balance sheet of YouNetwork  Corporation,
a development stage company, as of December 31, 1999, and the related statements
of operations,  stockholders'  equity and cash flows for the year ended December
31, 1999 and for the period from  January 14, 1998  (inception)  to December 31,
1998 and for the period from January 14, 1998  (inception) to December 31, 1999.
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 YouNetwork  Corporation,  a
development  stage  company,  as of December  31,  1999,  and the results of its
operations  and its cash flows for the year ended  December 31, 1999 and for the
period from January 14, 1998 (inception) to December 31, 1998 and for the period
from  January 14, 1998  (inception)  to December 31, 1999,  in  conformity  with
generally accepted accounting principles.


                                      F-1
<PAGE>

      The accompanying financial statements have been prepared assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial  statements,  the Company is in the  development  stage,  has incurred
losses since  inception  of  approximately  $1,884,000  and expects to incur net
losses for the  foreseeable  future.  At December  31,  1999,  the Company had a
working  capital  deficit  of  approximately   $909,000.   These  factors  raise
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's  plans as to these  matters  are also  described  in Note 1.  These
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.

                                          /s/ MAHONEY COHEN & COMPANY, CPA, P.C.
                                          --------------------------------------
                                              MAHONEY COHEN & COMPANY, CPA, P.C.

New York, New York
March 7, 2000


                                      F-2
<PAGE>

                             YOUNETWORK CORPORATION
                          (A Development Stage Company)
                                  Balance Sheet
                                December 31, 1999

<TABLE>
<CAPTION>
                                     ASSETS
                                     ------

<S>                                                                         <C>
Current assets:
    Cash and cash equivalents                                               $    41,127
    Prepaid expenses                                                             59,308
                                                                            -----------
                Total current assets                                            100,435

Property and equipment, net (Notes 3 and 4)                                     763,731

Other assets:
    Software development costs, net (Notes 2 and 8)                             508,334
    Security deposits                                                           187,196
    Loan to stockholder                                                          12,201
    Software license                                                            165,431
    Other assets                                                                 41,974
                                                                            -----------
                Total other assets                                              915,136
                                                                            -----------
                                                                            $ 1,779,302
                                                                            ===========

<CAPTION>
                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------

Current liabilities:
    Current portion of capital lease obligations (Note 4)                   $   242,627
    Notes payable - stockholders (Note 6)                                       200,000
    Deferred revenue (Note 5)                                                   175,000
    Accounts payable                                                            114,381
    Accrued rebate payable                                                        4,063
    Other current liabilities                                                    73,710
    Due to related party (Note 8)                                               200,000
                                                                            -----------
                Total current liabilities                                     1,009,781

Capital lease obligations, less current portion (Note 4)                        254,439

Commitments (Note 12)

Stockholders' equity (Note 11):
    Common stock:
        Class A - par value $.0001 per share:
           Authorized - 1,500,000 shares
           Issued and  outstanding - 7,052 shares
        Class B - par value $.0001
           per share:                                                                 1
           Authorized - 1,500,000 shares
           Issued and  outstanding - 1,058 shares                                    --
        Class C - par value $.0001 per share:
           Authorized - 247,000,000 shares
           Issued and outstanding - 41,852,352 shares                             4,185
    Additional paid-in capital                                                2,395,242
    Deficit accumulated during the development stage                         (1,884,346)
                                                                            -----------
                Total stockholders' equity                                      515,082
                                                                            -----------
                                                                            $ 1,779,302
                                                                            ===========
</TABLE>


                             See accompanying notes.


                                      F-3
<PAGE>

                             YOUNETWORK CORPORATION
                          (A Development Stage Company)
                            Statements of Operations

<TABLE>
<CAPTION>
                                                                             Period From         Period From
                                                                             January 14,         January 14,
                                                                                 1998                1998
                                                          Year Ended       (Inception) to      (Inception) to
                                                         December 31,        December 31,        December 31,
                                                             1999                1998                1999
                                                         ------------       -------------       -------------
<S>                                                      <C>                 <C>                <C>
Revenue                                                  $     49,700        $       --         $     49,700

Cost of goods                                                  48,578                --               48,578
                                                         ------------        ------------       ------------

Gross profit                                                    1,122                --                1,122

Expenses:
    Compensation                                              396,976              67,251            464,227
    Development costs                                         317,371              20,000            337,371
    General and administrative                                985,516              73,597          1,059,113
                                                         ------------        ------------       ------------
                Total expenses                              1,699,863             160,848          1,860,711
                                                         ------------        ------------       ------------

Operating loss                                             (1,698,741)           (160,848)        (1,859,589)

Other income (expense):
    Interest expense                                          (34,017)             (1,975)           (35,992)
    Interest income                                            11,235                                 11,235
                                                         ------------        ------------       ------------
                Net other expense                             (22,782)             (1,975)           (24,757)
                                                         ------------        ------------       ------------

Net loss                                                 $ (1,721,523)       $   (162,823)      $ (1,884,346)
                                                         ============        ============       ============
Net loss per common share, basic and
    diluted                                              $       (.04)       $       (.01)
                                                         ============        ============
Weighted average of common shares
    outstanding - basic and diluted                        39,423,603          24,916,434
                                                         ============        ============
</TABLE>

                             See accompanying notes.


                                      F-4
<PAGE>

                             YOUNETWORK CORPORATION
                          (A Development Stage Company)
                       Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                                                   Common Stock                                         Deficit
                                                  --------------------------------------------------                  Accumulated
                                                       Class A       Class B           Class C           Additional    During the
                                                       -------       -------           -------             Paid-in    Development
                                                  Shares  Amount  Shares  Amount    Shares    Amount       Capital       Stage
                                                  ------  ------  ------  ------    ------    ------       -------       -----
<S>                                                   <C> <C>         <C> <C>     <C>         <C>        <C>          <C>
Issuance of 24,090,000 shares of common
   stock on January 22, 1998 for cash (at
   less than $.01 per share)                          --  $   --      --  $   --  24,090,000  $ 2,409    $   (2,209)  $       --

Issuance of 8,910,000 shares of common
   stock on December 4, 1998 for cash
   (at $.02 per share)                                --      --      --      --   8,910,000      891       199,109           --

Net loss                                              --      --      --      --          --        --           --     (162,823)
                                                  ------  ------  ------  ------  ----------  -------    ----------   ----------
Balances, December 31, 1998                           --      --      --      --  33,000,000    3,300       196,900     (162,823)

Issuance of 4,630,000 shares of common
   stock on March 22, 1999 for cash (at
   $.10 per share)                                    --      --      --      --   4,630,000      463       462,537           --

Exercise of common stock purchase
   warrants for no cash proceeds in
   accordance with anti-dilutive provisions
   (Note 11)                                          --      --      --      --   1,479,452      148          (148)          --

Issuance of 2,050,000 shares of common
   stock on April 19, 1999 for cash (at $.50
   per share)                                         --      --      --      --   2,050,000      205     1,024,795           --
                                                  ------  ------  ------  ------  ----------  -------    ----------    ---------

Totals carried forward                                --  $   --      --  $   --  41,159,452  $ 4,116    $1,684,084   $ (162,823)
                                                  ------  ------  ------- ------  ----------  -------    ----------   ----------

</TABLE>

                                                   Treasury Stock
                                                ------------------
                                                Shares      Amount      Total
                                                ------      ------      -----

Issuance of 24,090,000 shares of common
   stock on January 22, 1998 for cash (at
   less than $.01 per share)                        --     $   --    $      200

Issuance of 8,910,000 shares of common
   stock on December 4, 1998 for cash
   (at $.02 per share)                              --         --       200,000

Net loss                                            --         --      (162,823)
                                                ------     ------    ----------

Balances, December 31, 1998                         --         --        37,377

Issuance of 4,630,000 shares of common
   stock on March 22, 1999 for cash (at
   $.10 per share)                                  --         --       463,000

Exercise of common stock purchase
   warrants for no cash proceeds in
   accordance with anti-dilutive provisions
   (Note 11)                                        --         --            --

Issuance of 2,050,000 shares of common
   stock on April 19, 1999 for cash (at $.50
   per share)                                       --         --     1,025,000
                                                ------     ------    ----------
Totals carried forward                              --     $   --    $1,525,377
                                                ------     ------    ----------


                                              See accompanying notes.


                                      F-5
<PAGE>

                                              YOUNETWORK CORPORATION

                                           (A Development Stage Company)
                                        Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                                                   Common Stock                                         Deficit
                                                  --------------------------------------------------                  Accumulated
                                                       Class A       Class B           Class C           Additional    During the
                                                       -------       -------           -------             Paid-in    Development
                                                  Shares  Amount  Shares  Amount    Shares    Amount       Capital       Stage
                                                  ------  ------  ------  ------    ------    ------       -------       -----
<S>                                                   <C> <C>         <C> <C>     <C>         <C>        <C>          <C>

Totals brought forward                                --  $   --      --  $   --  41,159,452  $ 4,116    $1,684,084   $ (162,823)

Issuance of warrants for Web site
   design                                             --      --      --      --          --       --        38,000           --

Issuance of warrants for portion of
   computer equipment lease                           --      --      --      --          --       --        54,748           --

Issuance of 595,000 shares of common
   stock on August 19, 1999 for cash
   (at $1 per share)                                  --      --      --      --     595,000       59       594,941           --

Issuance of 29,000 shares of common
   stock on October 13, 1999 for cash
   (at $1 per share)                                  --      --      --      --      29,000        3        28,997           --

Issuance of 6,400 shares of common
   stock on October 1, 1999 for
   advertising (at $1 per share)                      --      --      --      --       6,400        1         6,399           --

Issuance of warrants for leasehold
   improvements                                       --      --      --      --          --       --        11,000           --
                                                  ------  ------  ------  ------  ----------  -------    ----------    ---------
Totals carried forward                                --  $   --      --  $   --  41,789,852  $ 4,179    $2,418,169   $ (162,823)
                                                  ------  ------  ------  ------  ----------  -------    ----------   ----------
</TABLE>

                                                   Treasury Stock
                                                ------------------
                                                Shares      Amount      Total
                                                ------      ------      -----

Totals brought forward                              --     $   --    $1,525,377

Issuance of warrants for Web site
   design                                           --        --         38,000

Issuance of warrants for portion of
   computer equipment lease                         --         --        54,748

Issuance of 595,000 shares of common
   stock on August 19, 1999 for cash
   (at $1 per share)                                --         --       595,000

Issuance of 29,000 shares of common
   stock on October 13, 1999 for cash
   (at $1 per share)                                --         --        29,000

Issuance of 6,400 shares of common
   stock on October 1, 1999 for
   advertising (at $1 per share)                    --         --         6,400

Issuance of warrants for leasehold
   improvements                                     --         --        11,000

                                                ------     ------    ----------
Totals carried forward                              --     $   --    $2,259,525
                                                ------     ------    ----------

                             See accompanying notes.


                                      F-6
<PAGE>

                             YOUNETWORK CORPORATION
                          (A Development Stage Company)
                       Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                                                   Common Stock                                         Deficit
                                                  --------------------------------------------------                  Accumulated
                                                       Class A       Class B           Class C           Additional    During the
                                                       -------       -------           -------             Paid-in    Development
                                                  Shares  Amount  Shares  Amount    Shares    Amount       Capital       Stage
                                                  ------  ------  ------  ------    ------    ------       -------       -----
<S>                                                   <C> <C>         <C> <C>     <C>         <C>        <C>          <C>

Totals brought forward                                --  $   --      --  $    -  41,789,852  $ 4,179    $2,418,169  $  (162,823)

Issuance of 15,000 shares of common
   stock on November 9, 1999 for lease
   broker fees (at $1 per share)                      --      --      --      --      15,000        2        14,998            --

Issuance of 25,000 shares of common
   stock on December 5, 1999 for cash
   (at $1 per share)                                  --      --      --      --      25,000        2        24,998            --

Shares contributed to Treasury                        --      --      --      --          --       --            --            --
Issuance of 250,000 shares of common
   stock on November 7, 1999 for cash
   (at $.50 per share) from Treasury                  --      --      --      --          --       --       125,000            --

Issuance of 22,500 shares of common
   stock on November 30, 1999 for cash
   (at $1 per share)                                  --      --      --      --      22,500        2        22,498            --

Registration costs incurred                           --      --      --      --          --       --      (218,530)           --

Issuance of 7,052 shares of Class A
   common stock                                    7,052       1      --      --          --       --         7,051            --

Issuance of 1,058 shares of Class B
   common stock                                       --      --   1,058      --          --       --         1,058            --

Net loss                                              --      --      --      --          --       --            --    (1,721,523)
                                                  ------  ------  ------  ------  ----------  -------    ----------    ---------
Balance, December 31, 1999                         7,052  $    1   1,058  $   --  41,852,352  $ 4,185    $2,395,242   $(1,884,346)
                                                  ======  ======  ======  ======  ==========  =======    ==========   ===========
</TABLE>

                                                  Treasury Stock
                                               ------------------
                                               Shares      Amount      Total
                                               ------      ------      -----

Totals brought forward                             --     $   --    $2,259,525

Issuance of 15,000 shares of common
   stock on November 9, 1999 for lease
   broker fees (at $1 per share)                   --         --        15,000

Issuance of 25,000 shares of common
   stock on December 5, 1999 for cash
   (at $1 per share)                               --         --        25,000

Shares contributed to Treasury                250,000         --            --
Issuance of 250,000 shares of common
   stock on November 7, 1999 for cash
   (at $.50 per share) from Treasury         (250,000)                   125,00

Issuance of 22,500 shares of common
   stock on November 30, 1999 for cash
   (at $1 per share)                               --         --        22,500

Registration costs incurred                        --         --      (218,530)

Issuance of 7,052 shares of Class A
   common stock                                    --         --         7,052

Issuance of 1,058 shares of Class B
   common stock                                    --         --         1,058

Net loss                                           --         --    (1,721,523)
                                                                    ----------
Balance, December 31, 1999                         --     $   --    $  515,082
                                              =======   ========    ==========

                             See accompanying notes.


                                      F-7
<PAGE>

                             YOUNETWORK CORPORATION
                          (A Development Stage Company)
                            Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                                  Period From          Period From
                                                                                                  January 14,          January 14,
                                                                                                     1998                 1998
                                                                              Year Ended         (Inception) to      (Inception) to
                                                                              December 31,        December 31,        December 31,
                                                                                 1999                1998                 1999
                                                                           -------------------   --------------      ---------------
<S>                                                                           <C>                  <C>                  <C>
Cash flows from operating activities:
    Net loss                                                                  $(1,721,523)         $  (162,823)         $(1,884,346)
    Adjustments to reconcile net loss to net cash
      provided by (used in) operating activities:
        Depreciation and amortization                                             180,249                7,508              187,757
        Amortization of software license                                          104,845                   --              104,845
        Amortization of other asset                                                12,774                   --               12,774
        Warrants and common stock issued for
           services                                                                29,510                   --               29,510
        Change in assets and liabilities:
           Prepaid expenses                                                       (59,308)                  --              (59,308)
           Other current assets                                                       672                 (672)                  --
           Deferred revenue                                                            --              175,000              175,000
           Accounts payable                                                       105,157                9,224              114,381
           Accrued rebate payable                                                   4,063                 --                  4,063
           Other current liabilities                                               58,981               14,729               73,710
           Due to related party                                                   176,850               23,150              200,000
                                                                              -----------          -----------          -----------
                Net cash provided by (used in)
                   operating activities                                        (1,107,730)              66,116           (1,041,614)
                                                                              -----------          -----------          -----------
Cash flows from investing activities:
    Purchase of property and equipment                                           (256,958)              (9,927)            (266,885)
    Software development costs                                                   (447,120)             (69,425)            (516,545)
    Loan to stockholder                                                           (12,201)                  --              (12,201)
    Purchase of software license                                                 (270,276)                  --             (270,276)
    Payment of security deposits                                                 (183,696)              (3,500)            (187,196)
                                                                              -----------          -----------          -----------
                Cash used in investing activities                              (1,170,251)             (82,852)          (1,253,103)
                                                                              -----------          -----------          -----------
Cash flows from financing activities:
    Proceeds from issuance of common stock,
        net of registration costs                                               2,065,970              200,200            2,266,170
    Proceeds from notes payable - stockholders                                    200,000                   --              200,000
    Payments of capital lease obligations                                        (124,930)              (5,396)            (130,326)
                                                                              -----------          -----------          -----------
                Net cash provided by financing
                   activities                                                   2,141,040              194,804            2,335,844
                                                                              -----------          -----------          -----------
Net increase (decrease) in cash and cash
    equivalents (carried forward)                                             $  (136,941)         $   178,068          $    41,127
                                                                              -----------          -----------          -----------
</TABLE>

                             See accompanying notes.


                                      F-8
<PAGE>

                             YOUNETWORK CORPORATION
                          (A Development Stage Company)
                      Statements of Cash Flows (Concluded)

<TABLE>
<CAPTION>
                                                                                                  Period From          Period From
                                                                                                  January 14,          January 14,
                                                                                                     1998                 1998
                                                                              Year Ended         (Inception) to      (Inception) to
                                                                              December 31,        December 31,        December 31,
                                                                                 1999                1998                 1999
                                                                           -------------------   --------------      ---------------
<S>                                                                            <C>                <C>                  <C>
Net increase (decrease) in cash and cash
    equivalents (brought forward)                                               $(136,941)         $ 178,068            $  41,127

Cash and cash equivalents, beginning of period                                    178,068               --                     --
                                                                                ---------          ---------            ---------
Cash and cash equivalents, end of period                                        $  41,127          $ 178,068            $  41,127
                                                                                =========          =========            =========

                                 Supplemental Disclosure of Cash Flow Information

Cash paid during the period for:
    Interest                                                                    $  19,977          $   1,975            $  21,952
                                                                                =========          =========            =========

                       Supplemental Schedule of Non-Cash Investing and Financing Activities

Capital lease obligation incurred for the
    acquisition of equipment                                                    $ 582,442          $  44,950            $ 627,392
                                                                                =========          =========            =========

Issuance of Class A common stock for
    services                                                                    $  21,400          $      --            $  21,400
                                                                                =========          =========            =========

Issuance of warrants for leasehold
    improvements                                                                $  11,000          $      --            $  11,000
                                                                                =========          =========            =========

Issuance of warrants for acquisition
    of software development costs                                               $  38,000          $      --            $  38,000
                                                                                =========          =========            =========

Issuance of warrants for portion of
    computer equipment lease                                                    $  54,748          $      --            $  54,748
                                                                                =========          =========            =========
</TABLE>


In March 1999,  common stock  purchase  warrants were  exercised and the Company
issued 1,479,452 of Class C common stock for no cash proceeds.

During the year ended  December  31,  1999,  the Company  issued 7,052 shares of
Class A common  stock  and  1,058  shares  of Class B common  stock  for no cash
proceeds.

                             See accompanying notes.


                                      F-9
<PAGE>

                             YOUNETWORK CORPORATION
                          (A Development Stage Company)
                          Notes to Financial Statements

Note 1 - The Company

      YouNetwork  Corp. was incorporated in the State of New York on January 14,
1998. On February 3, 1999, the stockholders of YouNetwork Corp.  exchanged their
common stock for shares of Class C common stock of YouNetwork  Corporation  (the
"Company")  (see Note 11).  The Company  developed  an online  consumer  network
comprised of consumers  who are Internet  shoppers.  The Company  markets a wide
range  of  branded  consumer  products  and  services  provided  through  vendor
affiliations at discounted  prices to members of its network.  Members will earn
rebates based on purchases.  Members will be able to request rebates as cash, as
a credit to future product  purchases or to purchase  stock in the Company.  The
Company will not maintain an inventory in any product line which it markets.

      Basis of Presentation and Management's Plans

      Since  its  inception,  the  Company  has been  primarily  engaged  in the
development of its computer  software program,  negotiating  agreements with its
vendors  and  raising  capital.  As  a  consequence,  there  has  not  been  any
significant  operating  revenue  generated by the  utilization  of the Company's
services and/or products since inception.  Management  believes that by offering
competitively  priced products,  purchase  incentives in the form of rebates and
equity  participation to members,  they can develop an online sales channel with
low customer acquisition costs.

      The  accompanying  financial  statements  have been prepared  assuming the
Company will continue as a going  concern.  For the period from January 14, 1998
(inception)  to  December  31,  1999,  the  Company  has  incurred a net loss of
approximately  $1,884,000  and had a working  capital  deficit of  approximately
$909,000 as of December 31, 1999. These conditions raise substantial doubt about
the  Company's  ability to continue as a going  concern.  Management  expects to
incur additional  losses for the foreseeable  future and recognizes the need for
an  infusion of cash to achieve  their  business  plan.  The Company is actively
pursuing various options which include seeking additional equity financing.  The
Company  believes  it will be able to  raise  sufficient  funds to  achieve  its
planned business  objectives through private placements and through the issuance
of stock to members of its online  consumer  network.  The  Company  has no bank
lines of credit and there can be no  assurance  that the Company will be able to
obtain any needed additional financing on commercially  reasonable terms. If the
Company  is unable to  obtain  sufficient  funds,  it may be  necessary  for the
Company to explore other options which could have a material  adverse  effect on
the Company's business.  The financial statements do not include any adjustments
to reflect the possible future effects on the  recoverability and classification
of assets or the amounts and  classifications  of liabilities  that might result
from the outcome of this uncertainty.


                                      F-10
<PAGE>

                             YOUNETWORK CORPORATION
                          (A Development Stage Company)
                          Notes to Financial Statements

Note 2 - Summary of Significant Accounting Policies

      Use of Estimates

      The  preparation  of financial  statements  in conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

      Revenue Recognition

      The  Company  recognizes  revenue  at the time the  goods are  shipped  or
services are  provided by its vendors.  The Company acts as a principal in these
transactions.

      Cash and Cash Equivalents

      The  Company  considers  all highly  liquid  investments  with an original
maturity of three months or less to be cash equivalents.

      Property and Equipment

      Property  and  equipment  is  recorded  at cost.  Expenditures  for  major
additions and betterments are  capitalized.  Maintenance and repairs are charged
to operations as incurred. Depreciation of property and equipment is computed by
the  straight-line  method over the assets'  estimated useful lives ranging from
three to five years.  Leasehold  improvements are amortized by the straight-line
method over the lesser of the term of the related lease or the useful life. Upon
sale or retirement of property and equipment,  the related cost and  accumulated
depreciation  are removed from the accounts and any gain or loss is reflected in
operations.

      Software Development Costs

      The Company accounts for its software development costs in accordance with
the provisions of Statement of Position 98-1,  "Accounting for Costs of Computer
Software for Internal Use", issued by the American Institute of Certified Public
Accountants  ("SOP  98-1").  Under the  provisions  of SOP 98-1,  certain  costs
incurred  in  developing  internal  use  software  principally  in the  software
application development stage, are eligible for capitalization.


                                      F-11
<PAGE>

                             YOUNETWORK CORPORATION
                          (A Development Stage Company)
                          Notes to Financial Statements

Note 2 - Summary of Significant Accounting Policies (Continued)

      Software Development Costs (Continued)

      The Company has developed certain  proprietary  e-commerce  technology for
its online  systems.  Development  includes  software  for its  member  referral
tracking, shopping list and checkout, rebate and reward accounting,  credit card
transaction engine, automated merchandising and product presentation, as well as
data base management  tools and reporting  programs.  Front-end site development
includes such items as design and development of the shopping interface, dynamic
home page and Internet gateway. Accordingly,  during the period from January 14,
1998 (inception) to December 31, 1999, the Company capitalized  $516,545 of fees
incurred related to software application development costs. Such costs are being
amortized on a straight-line  basis over three years commencing October 1, 1999.
To  date,  substantially  all of the  Company's  software  development  has been
conducted  by  an  affiliate,   International  Computing,  Inc.  ("International
Computing"), formerly Digital Pulp Technologies, Inc. (see Note 8).

      Advertising and Promotion Costs

      Advertising  and  promotion  costs are  charged to  operations  during the
period in which they are incurred.  The Company distributes one Class A share to
each of the first 250,000 members of the consumer network. Such cost amounted to
approximately  $7,000 and is included in advertising and promotion costs for the
year ended  December  31,  1999.  Such costs were  nominal for the period  ended
December 31, 1998.

      Computation of Net Loss per Common Share

      Basic net income  (loss) per share is  calculated  by dividing  net income
(loss) by the  weighted  average  number of common  shares  outstanding  for the
period.  Diluted net income  (loss) per share is computed by dividing net income
(loss) by the  weighted  average  number of common  shares  outstanding  for the
period, adjusted for the dilutive effect of common stock equivalents, consisting
of dilutive common stock options using the treasury stock method.

             For all periods  presented,  common stock warrants are not included
in the computation as they would be anti-dilutive. In the event that the Company
was to report net income in future periods, these warrants could have a dilutive
effect on future earnings per share calculations in those periods.

      The Company's  board of directors  declared a 3.65 to 1 stock split of its
common stock effective  December 4, 1998. The stock split was effective prior to
the  issuance  of  shares  discussed  in  Note  11.  All  share  data  has  been
retroactively  adjusted  for the effect of the split on December 4, 1998 and the
exchange of stock on February 3, 1999.


                                      F-12
<PAGE>

                             YOUNETWORK CORPORATION
                          (A Development Stage Company)
                          Notes to Financial Statements

Note 2 - Summary of Significant Accounting Policies (Continued)

      Stock-Based Compensation

      Statement of  Financial  Accounting  Standards  No. 123,  "Accounting  for
Stock-Based Compensation" ("FAS 123"), encourages but does not require companies
to record compensation cost for stock-based employee  compensation plans at fair
value.   The  Company  has  elected  to  continue  to  account  for  stock-based
compensation using the method prescribed in Accounting  Principles Board Opinion
No. 25,  "Accounting  for Stock  Issued to  Employees"  ("APB 25"),  and related
interpretations. Accordingly, compensation cost for stock options is measured as
the excess,  if any, of the quoted market price of the Company's common stock at
the date of the option  grant over the amount the  employee  must pay to acquire
the stock. See Note 10 - Stock Option Plan.

      Income Taxes

      The Company accounts for deferred income taxes using the liability method.
Deferred  income taxes are measured by applying  enacted  statutory rates to net
operating loss carryforwards.  Deferred tax assets are reduced, if necessary, by
a  valuation  allowance  for any tax  benefits  which  are  not  expected  to be
realized.

      Fair Value of Financial Instruments

      The Company  applies the  provision of  Statement of Financial  Accounting
Standards  No.  107,  "Disclosures  about Fair Value of  Financial  Instruments"
("SFAS  107").  SFAS 107  requires  all  entities to disclose  the fair value of
financial instruments, both assets and liabilities recognized and not recognized
on the balance sheet,  for which it is practicable to estimate fair value.  SFAS
107  defines  fair value of a  financial  instrument  as the amount at which the
instrument could be exchanged in a current  transaction between willing parties.
At  December  31,  1999,  management  believes  the fair value of all  financial
instruments approximated carrying value.

Note 3 - Property and Equipment

           Property and equipment consists of:

           Computer equipment                                           $713,932
           Office equipment                                                7,435
           Leasehold improvements                                        183,910
                                                                        --------
                                                                         905,277
           Less:  Accumulated depreciation and
              amortization                                               141,546
                                                                        --------
                                                                        $763,731
                                                                        ========


                                      F-13
<PAGE>

                             YOUNETWORK CORPORATION
                          (A Development Stage Company)
                          Notes to Financial Statements

Note 4 - Capital Lease Obligations

             Capital lease obligations consist of:

           Capital lease obligations, payable in monthly
             installments of $22,679, including interest
             between 7.45% and 11%, maturing in December
             2001, secured by specific equipment with a
             carrying value of $509,091

                                                                       $ 536,928
           Less:  Amount  representing interest
           Less:  Current portion
                                                                          39,862
                                                                       ---------
                                                                         497,066
                                                                         242,627
                                                                       ---------
                                                                       $ 254,439
                                                                       =========

         Minimum future lease payments under the capital lease as of December
31, 1999 are as follows:

              Year Ending
             December 31,
             ------------

                2000                                             $ 242,627
                2001                                               254,439
                                                                 ---------
                                                                 $ 497,066
                                                                 =========

         The Company leases certain computer equipment under an agreement which
is classified as a capital lease. Assets included under capital lease are
included in the balance sheet as follows:

             Computer equipment                                      $  627,391
             Accumulated amortization                                  (118,300)
                                                                     ----------
                                                                     $  509,091
                                                                     ==========
Note 5 - Deferred Revenue

         The Company entered into an agreement in March 1998 with a company
which provides long-distance telephone service. The agreement includes
provisions for advances to the Company totalling $250,000. During 1998, the
Company received advances of $175,000. Commissions earned by the Company for the
referral of customers to the telephone company are offsetable against these
advances. The initial term of the agreement is three years. Advances made in
excess of commissions earned are payable by the Company on the earlier of the
termination of the agreement


                                      F-14
<PAGE>

                             YOUNETWORK CORPORATION
                          (A Development Stage Company)
                          Notes to Financial Statements

Note 5 - Deferred Revenue (Continued)

or twelve months from the date of full execution of the agreement. In March
2000, the Company was released from all obligations pursuant to the agreement
and was not required to perform its obligations under the agreement or repay the
advance. There were no commissions earned during the year ended December 31,1999
and the period ended December 31, 1998.

Note 6 - Notes Payable - Stockholders

         The notes payable are due on demand and bear interest at 7% per annum.

Note 7 - Income Taxes

         At December 31, 1999, the Company had a U.S. federal and New York State
net operating loss carryforward of approximately $1,869,000 expiring through
2019. The Company has established a valuation allowance with respect to these
federal and state carryforwards. The difference between the statutory rate of
34% and the Company's effective tax rate of 0% is due to an increase in the
valuation allowance. The valuation allowance increased by $664,900 during the
year ended December 31, 1999.

         Deferred tax assets:

              Net operating loss carryforwards                     $    730,000
              Valuation allowance                                      (730,000)
                                                                   ------------
           Net deferred tax assets                                 $         --
                                                                   ============
Note 8 - Related Party Transactions

         From inception, the Company has retained the services of International
Computing, a corporation that is partially-owned by the Company's chairman who
is also a significant stockholder of the Company. For the period from January
14, 1998 (inception) to December 31, 1999, this individual had not performed any
significant services on behalf of the Company in his role as chairman and no
compensation expense has been recorded by the Company. International Computing
has provided software and systems integration consultation services in
connection with the Company's development of its proprietary tracking software.
Consulting fees paid or accrued by the Company to International Computing for
the period from January 14, 1998 (inception) to December 31, 1998 were
approximately $89,000, of which approximately $69,000 was capitalized and the
balance charged to operations. For the year ended December 31, 1999, consulting
fees paid or accrued by the Company to International Computing were $510,000, of
which approximately $425,000 was capitalized and the balance was charged to
operations. At December 31, 1999, $200,000 was due to International Computing by
the Company.


                                      F-15
<PAGE>

                             YOUNETWORK CORPORATION
                          (A Development Stage Company)
                          Notes to Financial Statements

Note 9 - Concentration of Credit Risk

         The Company maintains cash balances at two banks. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation up to
$100,000.

Note 10 - Stock Option Plan

         In October 1999, the Board of Directors and the stockholders of the
Company approved a Stock Option Plan (the "1999 Plan") which provides for the
granting of options to purchase up to 4,000,000 shares of common stock, pursuant
to which key employees, directors and consultants are eligible to receive
incentive and/or non-qualified stock options. The exercise period and price of
options granted under the 1999 Plan are determined by the Board of Directors.
The exercise price for incentive stock options must not be less than the fair
market value of the shares of common stock on the date of the grant, except that
the exercise price of options granted to a stockholder owning more than 10% of
the outstanding capital stock may not be less than 110% of the fair value of the
common stock at date of grant.

         Pro forma information regarding net loss and net loss per share is
required by SFAS No. 123 and has been determined as if the Company had accounted
for its applicable options under the fair value method of the statement.

         A summary of applicable option activity and related information for the
year ended December 31, 1999 is as follows:

                                                                   Weighted-
                                                                   Average
                                                                   Exercise
                                                    Options          Price
                                                    -------        --------

          Outstanding, beginning of year               --           $  --

          Granted                                 2,170,500          2.66
          Exercised                                    --              --
          Forfeited                                    --              --
          Outstanding, end of year                2,170,500          2.66
                                                  =========
          Exercisable, end of year                   57,500         $ .59
                                                  =========

         The weighted-average fair value of options granted during 1999 was
$.56. Exercise prices for options outstanding ranged from $.50 to $8.00 as of
December 31, 1999. These options expire at various times through April 2001.


                                      F-16
<PAGE>

                             YOUNETWORK CORPORATION
                          (A Development Stage Company)
                          Notes to Financial Statements

Note 10 - Stock Option Plan (Continued)

         The fair value for these options was estimated at the date of grant
using the Black-Scholes option pricing model with the weighted-average
assumptions for 1999, including a risk free interest rate of 6%, a volatility
factor of the expected market price of the Company's common stock of 231%, a
dividend yield of 0% and a weighted-average remaining contractual life of the
options of 10 months.

         This model was developed for use in estimating the fair value of traded
options which have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility. Because the
Company's options have characteristics significantly different from 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 employee options.

         For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option vesting period. The effects of
applying SFAS No. 123 for pro forma disclosures are not likely to be
representative of the effects on reported net income or losses for future years.
The Company's pro forma information for the year ended December 31, 1999
follows:

         Pro forma net loss                                        $ (1,922,523)

         Pro forma net loss per share                                      (.05)

Note 11 - Stockholders' Equity

         Stock Warrants

         On December 4, 1998, the Company issued 8,910,000 shares (the
"Purchased Shares") of common stock and common stock purchase warrants (the
"Purchase Warrants") for $200,000. The Purchase Warrants can be used to purchase
in the aggregate such number of shares of common stock, at nominal
consideration, as shall equal, in the aggregate when added to the Purchased
Shares, 27% of the issued and outstanding shares of common stock of the Company
on a fully diluted basis, immediately following the sale of additional common
stock by the Company in consideration of the first $400,000 of common stock
proceeds received by the Company after December 4, 1998. During 1998, no
warrants were exercised. During the year ended December 31, 1999, the warrants
were exercised and the Company issued 1,479,452 shares of Class C common stock
to certain stockholders in accordance with anti-dilutive provisions of the
stockholders' agreement.


                                      F-17
<PAGE>

                             YOUNETWORK CORPORATION
                          (A Development Stage Company)
                          Notes to Financial Statements

Note 11 - Stockholders' Equity (Continued)

         Exchange of Stock

         On February 3, 1999, the stockholders of YouNetwork Corp., a New York
corporation, exchanged all of their common stock for 24,090,000 shares of Class
C common stock of YouNetwork Corporation, a Delaware corporation under common
control. Since the entities are under common control, the transaction was
accounted for in the same manner as a pooling of interest.

         In November 1999, two of the principal shareholders contributed, for no
consideration, a total of 250,000 shares of Class C common stock to the Company.
Such shares were then sold by the Company to an unrelated shareholder for
$125,000.

         Registration Statement

         On February 8, 1999, YouNetwork Corporation filed a registration
statement under the Securities Act of 1933 to register 1,000,000 shares each of
Class A and Class B common stock. In July 1999, the registration statement
became effective and the first 250,000 Class A shares were offered at no cost to
each consumer who registered to become a member of YouNetwork Corporation's
consumer network. The remaining 750,000 Class A shares will be distributed to
members based upon referring new members to the consumer network. Class B shares
are offered to consumer network members at $1.00 per share, which may only be
paid with rebates earned by members making purchases on the consumer network.
During the year ended December 31, 1999, 7,052 shares of Class A common stock
and 1,058 of Class B common stock were issued.

         Upon the issuance of Class A shares, the Company records a charge to
operations for promotions costs for the value of the shares issued based on the
fair value of the common stock. Upon the issuance of Class B shares, the Company
records a reduction in the liability for rebates due to members of the consumer
network. A liability for rebates due to members and a corresponding charge to
revenue are recorded when members make purchases on the consumer network.


                                      F-18
<PAGE>

                             YOUNETWORK CORPORATION
                          (A Development Stage Company)
                          Notes to Financial Statements

Note 12 - Commitments

         Leases

         The Company leases office space under operating leases expiring in
April 2003. The future minimum lease payments, excluding escalation charges, are
as follows:

              Year Ending
             December 31,

                  2000                                $  153,000
                  2001                                   153,000
                  2002                                    87,000
                  2003                                     7,000
                                                      ----------
                                                      $  400,000
                                                      ==========

         Total rent expense charged to operations for the period from January
14, 1998 (inception) to December 31, 1998 and the year ended December 31, 1999
was approximately $12,100 and $96,000, respectively.

         Employment Contract

         The Company has an employment agreement with a key executive officer
which expires on October 31, 2001. Such agreement provides for a base salary of
$120,000 for the first nine months of the agreement and $400,000 thereafter. The
agreement also provides for a severance payment equal to $20,000 per month
multiplied by the number of months of employment prior to termination, up to a
cap of $180,000 in the event of termination without cause. If the executive
officer resigns from his employment after six months, he shall be entitled to a
pro-rata share of the severance. The executive received stock options for
2,000,000 shares of common stock at prices ranging from $1.10 to $8.00 per share
which vest over a period of eighteen months.


                                      F-19
<PAGE>

(c)   Exhibit Index

Number    Description of Exhibit
------    ----------------------

2.1       Agreement  and plan of merger,  dated  February 3, 999, by and between
          YouNetwork Corp., a New York corporation and YouNetwork Corporation, a
          Delaware  corporation  (incorporated  by  reference  to the  Company's
          registration statement on Form SB-2 (file No. 333-71949).

3.1       Certificate of Incorporation of Registrant,  as amended  (incorporated
          by  reference  to the  Company's  registration  statement on Form SB-2
          (file No. 333-71949).

3.2       By-laws of  Registrant  (incorporated  by reference  to the  Company's
          registration statement on Form SB-2 (file No. 333-71949).

4.1       Specimen  certificate  representing  Registrant's class A common stock
          (incorporated by reference to the Company's  registration statement on
          Form SB-2 (file No. 333-71949).

4.2       Specimen  certificate  representing  Registrant's class B common stock
          (incorporated by reference to the Company's  registration statement on
          Form SB-2 (file No. 333-71949).

10.1      Stockholders'  Agreement,  dated  December  4, 1998  (incorporated  by
          reference to the Company's  registration  statement on Form SB-2 (file
          No. 333-71949).

10.2      Stock  and  Warrant  Purchase   Agreement,   dated  December  4,  1998
          (incorporated by reference to the Company's  registration statement on
          Form SB-2 (file No. 333-71949).

10.3      Agreement  between Muze,  Inc. and  YouNetwork , dated January 7, 1999
          (incorporated by reference to the Company's  registration statement on
          Form SB-2 (file No. 333-71949).

10.4      Agreement between Qwest International Inc. (a successor in interest to
          LCI International Telecom Corp.), dated March 6, 1998 (incorporated by
          reference to the Company's  registration  statement on Form SB-2 (file
          No. 333-71949).

10.5      Agreement between Baker & Taylor, Inc. and YouNetwork,  dated, July 9,
          1998   (incorporated  by  reference  to  the  Company's   registration
          statement on Form SB-2 (file No. 333-71949).

<PAGE>

10.6      1999 Stock Option Plan  (incorporated  by  reference to the  Company's
          registration statement on Form SB-2 (file No. 333-71949).

10.7      Master  lease  agreement   between  Leasing   Technologies,   Inc  and
          YouNetwork   corporation,   dated  April  15,  1999  (incorporated  by
          reference to the Company's  registration  statement on Form SB-2 (file
          No. 333-71949).

10.8*     Employment   agreement  between  YouNetwork   Corporation  and  George
          Santacroce

10.9*     Promissory notes between Dalia Silverman and YouNetwork

10.10*    Promissory notes between Kleopatra Georgiades and YouNetwork

27*       Financial Data Schedule

----------
*Filed with this Form 10K.

<PAGE>

                                   SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) 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: April 14, 2000                  YOUNETWORK COPORATION

                                       By: /s/  Kyle S. Taylor
                                           --------------------------------
                                           President

      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
Report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant in the capacities and on the date indicated.

            Name                           Title                      Date
            ----                           -----                      ----

/s/ Don S. Senerath                Chairman of the Board          April 14, 2000
------------------------------       of Directors

/s/ George M. Santacroce           Chief Executive Officer        April 14, 2000
------------------------------       and Director

/s/ Kyle S. Taylor                 President and Director         April 14, 2000
------------------------------

/s/ Peter R. Silverman             Director                       April 14, 2000
------------------------------