As filed with the Securities and Exchange Commission on June 14, 2002
An Exhibit List can be found on page II-3.
Registration No. 333-81452
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
----------
AMENDMENT NO. 4
TO THE
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ILIVE, INC.
(Name of small business issuer in its charter)
NEVADA 6770 95-4783826
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
2102 BUSINESS CENTER DRIVE
IRVINE, CALIFORNIA 92612
(949) 660-0099
(Address and telephone number of principal executive offices and principal
place of business)
SCOTT HENRICKS, PRESIDENT
ILIVE, INC.
2102 BUSINESS CENTER DRIVE
IRVINE, CALIFORNIA 92612
(949) 660-0099
(Name, address and telephone number of agent for service)
----------
Copies to:
Gregory Sichenzia, Esq.
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas, 21st Flr.
New York, New York 10018
(212) 930-9700
(212) 930-9725 (fax)
----------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
----------
CALCULATION OF REGISTRATION FEE
============================================= ================= ==================== ===================== ==============
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED SECURITY(1) PRICE FEE
- --------------------------------------------- ----------------- -------------------- --------------------- --------------
Shares of common stock, $.001 par value 13,050,000(2) $.10 $1,315,000.00
Total $121*
============================================= ================= ==================== ===================== ==============
* Previously paid.
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) and Rule 457(g) under the Securities Act of
1933, using the average of the high and low price as reported on the
Over-The-Counter Bulletin Board on January 16, 2002.
(2) Represents 300% of the shares issuable upon conversion of our 8%
convertible debentures and 100,000 shares issuable upon the exercise of
outstanding warrants issued on January 11, 2002.
----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED JUNE __, 2002
The information in this prospectus is not complete and may be changed.
iLive, Inc.
13,150,000 SHARES OF
COMMON STOCK
This prospectus relates to the resale by the selling stockholder of
13,150,000 shares of our common stock, based on current market prices. The
selling stockholder may sell common stock from time to time in the principal
market on which the stock is traded at the prevailing market price or in
negotiated transactions. The selling stockholder is deemed an underwriter of the
shares of common stock, which they are offering.
We will pay the expenses of registering these shares.
Our common stock is registered under Section 12(g) of the Securities
Exchange Act of 1934 and is listed on the Over-The-Counter Bulletin Board under
the symbol "LIVE." The last reported sales price per share of our common stock
as reported by the Over-The-Counter Bulletin Board on April 24, 2002, was $.10.
INVESTING IN THESE SECURITIES INVOLVES SIGNIFICANT RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 3.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this prospectus is June __, 2002.
- --------------------------------------------------------------------------------
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THIS
PROSPECTUS IS INCLUDED IN THE REGISTRATION STATEMENT THAT WAS FILED BY ILIVE,
INC., WITH THE SECURITIES AND EXCHANGE COMMISSION. THE SELLING STOCKHOLDERS MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING
AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
ILIVE, INC.
We are a developer of online entertainment focused on the delivery and
distribution of streaming video content on an on-demand and pay-per-view basis.
We develop our own content and assist others develop a distribution channel for
their content on the iLive Network. We offer video-on-demand, electronic
shopping, physical VHS and DVD distribution and business-to-business content
creation and distribution.
We have produced in excess of 250 shows viewable on the Internet. We
have developed expertise in online editing and encoding. In addition, we have
the ability to help companies develop video coverage of their products and
services on the Internet. iLive has a crew of trained professionals that are
able to go out on location to shoot and produce video content. The content is
then brought back to our offices where it is digitally edited then encoded and
posted on the Internet for viewing.
We are currently developing a business-to-consumer model that focuses
on the distribution of content online. Our consumers will enjoy television
programming with the ability to watch what they want when they want. So whether
its learning how to cook, be a DJ or watching an old episode of the Beverly
Hillbillies, iLive is bringing consumers a truly unique experience through video
on demand over the Internet. Our web site is www.iLive.com.
Our offices are located at 2102 Business Center Drive, Irvine,
California 92612 and our telephone number is 949-660-0099.
The Offering
Common stock offered by selling stockholders
(includes 300% of the shares underlying convertible notes and warrants)... Up to 13,150,000 shares, based on current
market prices and assuming full conversion
of the convertible note, with interest for
two years. This number represents 22.97%
of our current outstanding stock
Common stock to be outstanding after the offering Up to 57,250,000 shares
Use of proceeds........................................................... We will not receive any proceeds from the
sale of the common stock.
Over-The-Counter Bulletin Board .......................................... ILVE
The above information is based on 44,100,000 shares of common stock
outstanding as of June 3, 2002 and assumes the subsequent conversion of our
issued convertible note, with interest, and exercise of warrants by our selling
stockholder.
RISK FACTORS
THIS INVESTMENT HAS A HIGH DEGREE OF RISK. BEFORE YOU INVEST YOU SHOULD
CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER
INFORMATION IN THIS PROSPECTUS. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR,
OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION COULD BE HARMED AND THE
VALUE OF OUR STOCK COULD GO DOWN. THIS MEANS YOU COULD LOSE ALL OR A PART OF
YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS:
WE HAVE A HISTORY OF LOSSES AND AN ACCUMULATED DEFICIT WHICH MAY CONTINUE IN THE
FUTURE AND WHICH MAY ADVERSELY IMPACT OUR BUSINESS AND OUR STOCKHOLDERS.
We have incurred significant net operating losses. We realized a net
income of $1,398,653 for the twelve months ended December 31, 2001, and incurred
a net loss of $3,098,805 for the twelve months ended December 31, 2000. Our
accumulated deficit through December 31, 2001 was $5,353,381. We may continue to
incur losses and may never achieve or sustain profitability. An extended period
of losses and negative cash flow may prevent us from operating and expanding our
business, especially our Internet-based business.
WE NEED AND MAY BE UNABLE TO OBTAIN ADDITIONAL FUNDING ON SATISFACTORY TERMS,
WHICH COULD DILUTE OUR STOCKHOLDERS OR IMPOSE BURDENSOME FINANCIAL RESTRICTIONS
ON OUR BUSINESS.
Historically, we have relied upon cash from financing activities and
revenues generated from operations to fund all of the cash requirements of our
activities. We have not been able to generate any significant cash from our
operating activities in the past and cannot assure you that we will be able to
do so in the future. We require new financing in addition to our line of credit
with Street Capital, Inc. Deteriorating global economic conditions and the
effects of ongoing military actions against terrorists may cause prolonged
declines in investor confidence in and accessibility to capital markets. Future
financing may not be available on a timely basis, in sufficient amounts or on
terms acceptable to us. This financing may also dilute existing stockholders'
equity. Any debt financing or other financing of securities senior to common
stock will likely include financial and other covenants that will restrict our
flexibility. At a minimum, we expect these covenants to include restrictions on
our ability to pay dividends on our common stock. Any failure to comply with
these covenants would have a material adverse effect on our business, prospects,
financial condition and results of operations because we could lose our existing
sources of funding and impair our ability to secure new sources of funding.
OUR BUSINESS MODEL IS UNPROVEN AND MAY NOT BE SUSTAINED, WHICH COULD ADVERSELY
IMPACT OUR BUSINESS AND STOCKHOLDERS.
Our business model, including our distributor program, is predicated on
the demand for pay-for-view streaming video content over the Internet. The
market for broadband content delivered over the Internet is currently developing
and evolving. Accordingly, we are unable to predict the demand for our services
and are therefore unable to predict whether our business model may be sustained.
If we are unable to generate significant revenues under our current business
model, our business, prospects, financial condition and results of operations
could be adversely affected.
3
RISKS RELATING TO OUR CURRENT FINANCING AGREEMENT:
THERE ARE A LARGE NUMBER OF SHARES UNDERLYING OUR CONVERTIBLE NOTE, AND WARRANTS
THAT MAY BE AVAILABLE FOR FUTURE SALE AND THE SALE OF THESE SHARES MAY DEPRESS
THE MARKET PRICE OF OUR COMMON STOCK.
As of June 3, 2002, we had 44,100,000 shares of common stock issued
and outstanding and convertible promissory notes outstanding that may be
converted into an estimated 4,350,000 shares of common stock at current market
prices, and outstanding options and warrants to purchase 100,000 shares of
common stock. In addition, the number of shares of common stock issuable upon
conversion of the outstanding convertible note may increase if the market price
of our stock declines. All of the shares, including all of the shares issuable
upon conversion of the note and upon exercise of our warrants, may be sold
without restriction. The sale of these shares may adversely affect the market
price of our common stock.
THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR CONVERTIBLE NOTES
COULD REQUIRE US TO ISSUE A SUBSTANTIALLY GREATER NUMBER OF SHARES, WHICH WILL
CAUSE DILUTION TO OUR EXISTING STOCKHOLDERS.
Our obligation to issue shares upon conversion of our convertible notes
is essentially limitless. The notes bear interest at 8%, mature on January 10,
2004, and are convertible into our common stock, at the selling stockholders'
option, at the lower of (i) $0.13 or (ii) 80% of the average of the three lowest
closing prices for our common stock for the 30 trading days before but not
including the conversion date.
The following is an example of the amount shares of our common stock
that is issuable, upon conversion of our convertible notes, based on market
prices 25%, 50% and 75% below the trading price on the day prior to issuing the
convertible notes of $.13.
With Number of Shares Percentage of
% Below Market Price Per Share Discount of 20% Issuable Outstanding Stock
- -------------- --------------- --------------- -------- -----------------
25% $.0975 $.078 4,461,538 11.31%
50% $.065 $.052 6,692,308 16.52%
75% $.0325 $.026 13,384,615 27.66%
As illustrated, the number of shares of common stock issuable upon conversion of
our convertible notes will increase if the market price of our stock declines,
which will cause dilution to our existing stockholders. See the "Selling
Stockholder--Financing Terms of the Convertible Note" section for a detailed
description of the convertible notes.
THE ISSUANCE OF SHARES UPON CONVERSION OF THE CONVERTIBLE NOTE AND EXERCISE OF
OUTSTANDING WARRANTS MAY CAUSE IMMEDIATE AND SUBSTANTIAL DILUTION TO OUR
EXISTING STOCKHOLDERS.
The issuance of shares upon conversion of the convertible note and
exercise of warrants may result in substantial dilution to the interests of
other stockholders since the selling stockholder may ultimately convert and sell
the full amount issuable on conversion. Although the selling stockholder may not
convert their convertible note and/or exercise their warrants if such conversion
or exercise would cause them to own more than 4.99% of our outstanding common
stock, this restriction does not prevent the selling stockholder from converting
and/or exercising some of their holdings and then converting the rest of their
holdings. In this way, the selling stockholder could sell more than this limit
while never holding more than this limit. There is no upper limit on the number
of shares that may be issued which will have the effect of further diluting the
proportionate equity interest and voting power of holders of our common stock
and may result in a change of control of iLive.
4
THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR CONVERTIBLE NOTES
MAY ENCOURAGE THE INVESTORS TO MAKE SHORT SALES OF OUR COMMON STOCK, WHICH COULD
HAVE A DEPRESSIVE EFFECT ON THE PRICE OF OUR COMMON STOCK.
The convertible notes are convertible into shares of our common stock
at a 20% discount to the trading price of the common stock either prior to the
issuance of the notes or prior to the conversion, whichever is lower. The
significant downward pressure on the price of the common stock as the selling
stockholder converts and sells material amounts of our common stock could
encourage short sales by the selling stockholder or others. This could place
further downward pressure on the price of the common stock. The selling
stockholder could sell common stock into the market in anticipation of covering
the short sale by converting their securities, which would cause the further
downward pressure on the stock price.
THE INTEREST PAYABLE ON OUR CONVERTIBLE NOTES IS ALSO CONVERTIBLE INTO SHARES OF
OUR COMMON STOCK.
To date, we have outstanding an aggregate of $300,000 principal amount
8% convertible notes. The convertible notes are due and payable, with 8%
interest, in January 2004 unless sooner converted into shares of our common
stock. In addition, any event of default as described in the convertible notes
could require the early repayment of the convertible notes, including a premium
of 30% of the outstanding principal balance of the note at the time of the
default. We anticipate that the full amount of the convertible notes, together
with accrued interest, will be converted into shares of our common stock, in
accordance with the terms of the convertible notes. If we are required to repay
the convertible notes, we would be required to use our limited working capital
and raise additional funds. If we were unable to repay the notes when required,
the note holders could foreclose on the collateral and commence legal action
against us to recover the amounts due which ultimately could require the
disposition of some or all of our assets. Any such action would require us to
curtail or cease operations.
5
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be
offered and sold from time to time by the selling stockholder of our company.
There will be no proceeds to our company from the sale of shares of common stock
in this offering. We may realize up to $15,200 upon the exercise of warrants,
which will be used for general corporate purposes.
6
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock began trading on the Over-The-Counter Bulletin Board
under the symbol "LIVE" on October 26, 1999. Prior to October 26, 1999, our
common stock was quoted under the symbol "PHIC."
The following table sets forth the high and low bid prices for shares
of the our common stock for the periods noted, as reported by the National Daily
Quotation Service and the Over-The-Counter Bulletin Board. Quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
High Low
---- ---
2000
First Quarter 4.25 1.19
Second Quarter 1.75 .41
Third Quarter 1.94 .34
Fourth Quarter 1.25 1.38
2001
First Quarter 1.0625 .25
Second Quarter .75 .20
Third Quarter .58 .15
Fourth Quarter .41 .07
2002
First Quarter .35 .14
As of June 3, 2002, our common stock was held by 206 stockholders of
record. We believe that the number of beneficial owners is substantially greater
than the number of record holders because a significant portion of our
outstanding common stock is held of record in broker "street names" for the
benefit of individual investors. The transfer agent of our common stock is
Florida Atlantic Stock Transfer. Their phone number is 954-726-4954.
7
DIVIDEND POLICY
Our board of directors determines any payment of dividends. We do not
expect to authorize the payment of cash dividends in the foreseeable future nor
have we paid any dividends for the last two years. Any future decision with
respect to dividends will depend on future earnings, operations, capital
requirements and availability, restrictions in future financing agreements, and
other business and financial considerations.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS
Some of the information in this Form SB-2 contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue," or similar words. You should
read statements that contain these words carefully because they:
-- discuss our future expectations;
-- contain projections of our future results of operations or of
our financial condition; and
-- state other "forward-looking" information.
We believe it is important to communicate our expectations. However,
there may be events in the future that we are not able to accurately predict or
over which we have no control. The risk factors listed in this section, as well
as any cautionary language in this prospectus, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. You should
be aware that the occurrence of the events described in these risk factors could
have an adverse effect on our business, results of operations and financial
condition.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 2002 COMPARED TO THE QUARTER ENDED MARCH 31, 2001.
Revenues: Revenues totaled $2,000 for the quarter ended March 31, 2002
as compared to no revenue for the quarter ended March 31, 2001. As a percentage
revenue increased 2000% during the quarter ended March 31, 2002. Our revenue for
the quarter ended March 31,2002 consisted entirely of Business Services, as
compared to our generating no revenue for the quarter ended March 31,2001. All
our revenue was derived from Business to Business sales. Basic earnings per
share totaled $(0.04) for the quarter ended March 31, 2002 as opposed to $(0.02)
net loss for the quarter ended March 31, 2001. For the quarter ended March 31,
2002, we had a net loss of $(1,264,362) as compared to a net loss of $(363,335)
for the quarter ended March 31, 2001. The loss is due to the increase in website
development costs and General and Administrative expenses as we increased the
functionality of our website and added additional content.
Cost of Sales: Cost of Sales totaled $625 for the quarter ended March
31, 2002 as compared to $0.00 for the quarter ended March 31, 2001. The increase
in the cost of sales ( an increase of 625%) was due to us generating revenue for
the quarter ended March 31, 2002 as opposed to not having revenue for the
quarter ended March 31, 2001. As a percentage of total revenue, cost of sales
was 31% for the quarter ended March 31, 2002 resulting in gross margins of 69%.
The cost of sales will vary significantly from project to project but we aim to
consistently challenge and keep the cost of sales to a minimum.
General and Administrative Expenses: General and Administrative
expenses totaled $668,162 (33,400% of revenues) for the quarter ended March 31,
2002 as compared to $208,167 for the quarter ended March 31, 2001. The increase
in general and administrative expenses was due to the production of our
corporate video and the hiring of Investor Relations services.
Website Development totaled $580,000 (29,000% of revenues) for the
quarter ended March 31, 2002 vs $120,254 for the quarter ended March 31, 2001.
The increase in website development was due to the development of our peer to
peer marketing platform as well as the preparation to launch our Internet
Service Provider initiative.
FISCAL YEAR ENDED DECEMBER 31, 2001 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
2000.
Revenues: Revenues totaled $141,060 for the fiscal year ended December
31, 2001 as compared to $3,624 in revenue for the fiscal year ended December 30,
2000. Our business services segment accounted for almost all of our revenue in
2001, while all of our revenue in 2000 were derived from the Miss Beverly Hills
beauty pageant. During the fiscal year ended December 31, 2001, we continued to
develop our business services which consists of film editing and encoding
solutions as well as received our first revenue from pay-per-view content. Basic
earnings per share totaled $0.06 for the fiscal year ended December 31, 2001 as
opposed to $(0.18) net loss for the fiscal year ended December 31, 2000. The
large increase in earnings per share for the fiscal year ended December 31, 2001
was due to a one-time gain of $1,724,983 resulting from the disposal of Asia
Pacific, Inc. the holding company of the restaurant operations which were
disposed of in 2000. In addition, general and administrative expenses and
interest expense decreased by nearly $1,500,000 in 2001 compared to 2000.
Cost of Sales: Cost of Sales totaled $15,779 for the fiscal year ended
December 31, 2001 as compared to $81,681 for the fiscal year ended December 31,
2000. The large decrease in the cost of sales ( a decrease of 518%) was due to
the company not holding it Miss Beverly Hills Beauty Pageant this year and the
streamlining of operations to focus more on the Internet. As a percentage of
total revenue, cost of sales was 11.2% for the fiscal year ended December 31,
2001 resulting in gross margins of 88.8%. The cost of sales will vary
significantly from project to project but we aim to consistently challenge and
keep the cost of sales to a minimum.
General and Administrative Expenses: General and Administrative
expenses totaled $315,399 (223.5% of revenues) for the fiscal year ended
December 31 2001 and $1,153,167 in General and Administrative expenses vs.
$3,624 in revenue for the fiscal year ended December 31, 2000. The large
decrease in general and administrative expenses was due to the downsizing of
operations as we continue to refine our focus on our plan of operations.
9
LIQUIDITY AND CAPITAL RESOURCES
In 1999, we entered into a $1,500,000 convertible line of credit
arrangement with Street capital Inc., an entity that is controlled by our
President, Mr. Henricks and CEO, Mr. Aimers, bearing interest at 12% and due on
or before March 7, 2001. The note was convertible at the holder's election into
common stock at $0.25 per share, was fully utilized, and was converted into
6,000,000 shares in 2000. In 2000, we entered into a new $1,500,000 convertible
line of credit at 12% interest with all principal and interest due on or before
April 7, 2002. On April 6, 2002 the note was extended to a due date of June 7,
2002. The note is convertible at the holder's election into a maximum of
6,000,000 shares of common stock at $0.25 per share. At March 31, 2002, we had
borrowed a total of $958,454 on this line of credit and the holder had converted
$761,250 of the debt into 3,045,000 common shares.
For the quarter ended March 31, 2002, our only material cash flow came
from our business to business sales as well as the Laurus Master Fund Note
(described in Note 2 of the accompanying financial statements) of which the
Company used $215,960. For the coming fiscal year we look to see increased cash
flow from business services as well as content pay-per-view. We believe that we
will also gain additional revenue not seen in the fiscal year ended December 31,
2001 as we begin to enter the ISP market.
In January 2002, we issued 1,050,000 shares of registered common stock
to Gennady Levtchenko and 1,100,000 shares of registered common stock to Todd
Gilligan for consulting services to be rendered. These shares were registered on
a Form S-8 and filed with the Securities and Exchange Commission on January 7,
2002.
In January 2002, we entered into a securities purchase agreement with
the Laurus Master Fund, Ltd. for the issuance of a $300,000 principal amount of
8% convertible note and 100,000 common stock purchase warrants in reliance on
Section 4(2) of the Act and Rule 506. The notes bear interest at 8%, mature on
January 10, 2004, and are convertible into our common stock, at the selling
stockholders' option, at the lower of (i) $0.13 or (ii) 80% of the average of
the three lowest closing prices for our common stock for the 30 trading days
before but not including the conversion date. The note may not be paid, in whole
or in part, before January 10, 2004 without the consent of the holder. The full
principal amount of the convertible notes are due upon default under the terms
of convertible notes. The warrants are exercisable until January 10, 2005 at a
purchase price of the lower of (i) $0.152 or (ii) 120% of the average of the
three lowest closing prices for the 10 trading days before but not including the
exercise date. The commission for the transaction was $30,000 and was paid to
Laurus Capital Management, Ltd.
On January 10, 2002, we entered in an agreement to issue 850,000 shares
of common stock to Bel Air Screen Group Inc. in consideration for $161,500 worth
of content.
On January 8, 2002, we entered into an agreement to issue 1,300,000
shares of common stock to Driven Financial Group Inc. in consideration for
$247,000 worth of Investor Relations Services.
On January 4, 2002, we entered in to an agreement to issue 1,300,000
shares of common stock to Leico Investments Limited in consideration for
$247,000 worth of consulting services.
On January 22, 2002, we entered in an agreement to issue 1,250,000
shares of common stock to Atlas Encoding Service Inc. in consideration for
$268,750 worth of services.
On January 15, 2002, we entered into an agreement to issue 1,350,000
shares of common stock to Black Forest Films Inc. in consideration for $290,250
worth of content.
On January 15, 2002, we entered into an agreement to issue 1,400,000
shares of common stock to Axis Library Group Inc. in consideration for $301,000
worth of content.
We do not have existing capital resources or credit lines available
that are sufficient to fund our operations and capital requirements as presently
planned over the next twelve months. We are actively pursuing additional funds
through the issuance of either debt or equity instruments. We may also pursue a
working capital line of credit to be secured by our assets. However, such funds
may not be available on favorable terms or at all.
10
BUSINESS
OVERVIEW
We are a developer of online entertainment focused on the delivery and
distribution of streaming video content on an on-demand and pay-per-view basis.
We develop our own content and assist others develop a distribution channel for
their content on the iLive Network. We offer video-on-demand, electronic
shopping, physical VHS and DVD distribution and business-to-business content
creation and distribution.
We have produced in excess of 250 shows of content that isviewable on
the Internet. We have developed expertise in online editing and encoding. In
addition, we have the ability to help companies develop video coverage of their
products and services on the Internet. iLive has a crew of trained professionals
that are able to go out on location to shoot and produce video content. The
content is then brought back to our offices where it is digitally edited then
encoded and posted on the Internet for viewing.
We are currently developing a business-to-consumer model that focuses
on the distribution of content online. Our consumers will enjoy television
programming with the ability to watch what they want when they want. So whether
its learning how to cook, be a DJ or watching an old episode of the Beverly
Hillbillies, iLive is bringing consumers a truly unique experience through video
on demand over the Internet. Our web site is www.iLive.com.
Our offices are located at 2102 Business Center Drive, Irvine,
California 92612 and our telephone number is 949-660-0099.
OUR HISTORY
We were originally incorporated under the laws of the State of Nevada
in April 1987 as Sandalwood Corporation. In 1988, Sandalwood sold its existing
operations and became inactive. In November 1994, Sandalwood acquired Spaceplex
One, Inc., a New York corporation and changed its name to Spaceplex Amusement
Centers International, Ltd. Spaceplex, through its subsidiaries, engaged in the
business of operating family amusement centers. In April 1996, Spaceplex filed
for Chapter 11 bankruptcy proceedings. As a result of those proceedings,
Spaceplex satisfied all outstanding debts and claims utilizing all of its
remaining assets and discontinued all obligations. Spaceplex was discharged from
bankruptcy in April 1996. In May 1996, we changed our name to Air Energy, Inc.,
and in December 1997, we changed our name to Powerhouse International, Inc. From
May 1996 until October 1999, we were inactive.
On September 30, 1999, we acquired all of the outstanding common stock
of Asia Pacific Co. Ltd., a Nuie corporation in exchange for 690,000 shares of
our common stock. Asia-Pacific's principal asset consists of a 64% ownership
interest in 246 LLC, a California limited liability corporation d/b/a Chasen's,
a restaurant located in Beverly Hills, California.
On October 21, 1999, we changed our name to iLive, Inc. to better
reflect our current business plan.
On September 30, 2001, we disposed of Asia Pacific Co. Ltd. to an
unrelated third party.
BUSINESS OF ISSUER
Through our website, iLive.com, we are designed to capitalize on the
growing video on demand market on the Internet. On iLive.com, consumers will
enjoy television programming with the ability to watch what they want when they
want to watch it. So whether it is learning how to cook with a chef from Italy,
Kung Fu lessons from a master in Japan, or golf instruction from a PGA
professional, iLive is bringing consumers their choice of content through video
on demand on the Internet.
11
By creating our own distribution network through the acquisition of
small and medium sized private ISP (Internet Service Providers), we hope to help
large content providers, such as MGM, Viacom, Sony and Universal avoid the kinds
of disruption caused by services like Napster, the former free music swapping
Internet service. Although the record companies finally succeeded in getting the
courts to shut down Napster, millions of songs had been shared for free and
billions of dollars in revenue had been lost. The film industry is already
seeing the beginnings of similar losses, as second generation "Napsters" allow
movie swapping. The film industry is also desperately seeking a viable revenue
streams from content distribution on the Internet. Of the movies produced by
major studios and released in the United States each year, relatively few are
profitable for the studios based on box office tickets alone.
Our Solution
1. We offer video on demand, electronic shopping, physical distribution of VHS
and DVD, and business-to-business content creation and distribution services.
The marriage between the personal computers and cable worlds, as well as the
personal computer and television, will allow us to create a full service
interactive programming network.
2. Another factor that makes iLive truly unique is that it doesn't have to worry
whether the machine used to consume such broadband content is a PC, a TV or a
combination of both. Nor do we need to care if people get the information from a
cable modem or a set top box. Leaving iLive free to concentrate on content; how
it's packaged and how to make it easy to sell.
OUR BUSINESS MODEL
We strive to be the leader in satisfying consumer demand for unique
content both on and offline. As announced in a recent press release, we intend
to enter the ISP marketplace through an acquisition strategy of small and medium
sized private ISPs. Management believes that becoming an ISP will further
vertically integrate the company and strengthening our content by increasing our
ability to distribute it to our end users. We are also looking to adopt revenue
sharing agreements (though the company currently only has an agreement with Pro
Sound Stage and Lighting to mutually distribute each others content on and
offline) with major motion picture studios similar to the agreements currently
used by video rental companies. These agreements along with own content
production and distribution will allow for the continuous flow of new content
and revenue.
Our business model focuses on providing three levels of service: online
streaming distribution, physical VHS and DVD distribution, and business
services. To date, we have received all of our revenue for providing business
services.
ONLINE STREAMING
Our online streaming service continues to focus on building a quality
library of unique content as well as developing a proprietary peer-to-peer
distribution platform for sharing content. We currently have developed
approximately 250 hours of content, or approximately 250 shows, and continually
looks to partner with content providers (like Pro Sound Stage and Lighting) as
well as purchase content to keep the users experience rewarding. In building our
library of content, we will always strive to possess new and entertaining
episodes by both producing our own shows and syndicating content from other
producers. The revenue sharing agreements that the large studios currently have
with video rental houses offers producers a percentage of the income. We will
look to keep production costs low while still delivering a quality end product
to the consumer. Traditional programming budgets for television generally run in
excess of $500,000 per half hour show. These shows have short shelf lives,
allowing the networks only a short time to recoup their investment. Fortunately,
for television, the 30-second commercials have provided networks with enough
revenue to easily achieve profitability. With wide scale broadband acceptance
still growing, the Internet needs to be cost sensitive and creative in reaching
profitability. Our route to profitability starts with production costs, which
average $3,000 to $5,000 per show.
12
We aim to make a profit on every show we make. These low entry costs
will allow even shows with limited success a realistic chance at making money.
Secondly, we are looking closely at the staying power of our content. The
philosophy is that the longer a show is running the more likely it is to be
profitable. We therefore look to make our shows as timeless as possible. As
such, we have opted away from early pioneers of covering red carpet events, and
showing movie trailers, and have instead looked to produce timeless shows like
cooking lessons, and focus on topics like relationships, and celebrity homes.
Content that will be as interesting five years from now as it is today.
PHYSICAL DISTRIBUTION
Broadband saturation is now reaching the point where a sustainable
business model may be built, while the industry is just now coming into its peak
growth rate. We have chosen to tap the already established revenue stream of VHS
and DVD sales to provide the existing users with product that are not yet able
to accept streamed media. This builds both our customer base and revenues, which
sustain our position as the broadband industry grows under it.
We will partner with physical stores and virtual, Internet, stores to
retail VHS and DVD videos. Currently, iLive has implemented this through its
partnership with Pro Sound Stage and Lighting (PSSL). PSSL, is one of the ten
largest pro audio, stage lighting and DJ equipment companies in the United
States. iLive has agreed to encode PSSL's video library and make it available on
the iLive.com website on a pay-per-view basis. PSSL will receive 25% of the
pay-per-view revenue generated from its content. PSSL has also agreed to
distribute iLive's Mixology series through their direct mail catalog and
website.
Physical video distribution will feature shows that are already
available online on a pay-per-view basis and so this added revenue stream costs
us very little. Management anticipates robust sales from the videos as they
target very specific market niches, which can be exploited by using retail
outlets that cater directly to these niches. A good example of this is our
Mixology series. Market research shows that the DJ Industry is worth $131
million a year, with a host of online and physical stores catering directly to
these individuals. We will wholesale our videos to these stores and earn between
$5 and $10 per video. Additionally, we will retail our videos directly on our
website, realizing between $10 and $15.
In addition, we will explore the possibility of acquiring video
duplication companies. The advantages of such a move are two fold. Firstly, this
will allow us to earn greater margins on each VHS or DVD sold because we would
produce our products "in-house." Secondly, the duplicator would put us in touch
with many business that are producing content which will enable us to cross sell
web based distribution, film and encode.
BUSINESS SERVICES
Nearly half of the U.S. adult population has now made a purchase
online, taking e-commerce from a dot.com novelty to the mainstream, according to
a survey by Nielsen NetRatings and Harris Interactive. More than $3.5 billion
was spent online in March 2001, a 35.6% increase from $2.6 billion in April
2000. With e-commerce being such an important part of retailing, businesses are
now rethinking their Internet strategy. A prime example of the new thinking is
BMW films. BMW created 6-8 minute short Internet films that provide the elusive
mix of entertainment and product showcasing that brands ranging from Nike to
Nivea have desired for years. This prompted BMW to record its best May and June
ever in terms of car sales, exceeding the 40,000-vehicle mark - despite a
cooling economy.
With iLive producing more than 250 hours of content for the Internet,
we have a certain expertise in filming, online editing and encoding. Our
professional crews are able to go out to shoot and produce video content "on
location." The content is then quickly edited and digitally encoded for viewing
over the Internet. The economics of the Internet combined with this ease of
distribution has undoubtedly made this the marketing of choice for many
companies wanting to promote themselves globally. We also offer the unique
ability to take existing content and push it through our distribution channels.
This gives companies the chance to develop a revenue stream from Internet
viewing, something that many companies have yet to discover.
13
To date, we have generated all of our revenue from our business
services division. However, management anticipates that our newly designed
website, which simplifies the pay-per-view concept, as well as the industry
moving away from distributing free video content, will allow us to experience
significant growth in this area moving forward.
THE MARKETPLACE
The Internet gets redefined almost daily. According to Forward Concepts
there are approximately 500 million worldwide Internet users. We believe that
streaming video is the future of Internet programming. Its future on the
Internet lies with the expansion of broadband connectivity. Internet television
will grow as broadband and high-speed Internet connectivity grows. The current
market size of Internet television, which is approximately 10 million
households, is a larger addressable market than many "regular television"
markets. Yet, Internet television usage has still only penetrated less than 2%
of the worldwide Internet market, and you have the emergence of an exploding
opportunity.
Dataquest estimates that the potential market for video-on-demand is $9
billion, or $1 billion more than the entire market for video rentals in 1998.
COMPETITION
To date, a large number of startups have focused on producing TV
programming for the Web and distributing films over the Internet. However, iLive
management believes the reason no company has yet to "make it" is that nobody is
offering compelling content and nobody is generating revenue in producing that
content offline. iLive's main competitors are companies like Cinema Now,
Intertainer, iFilm, and of course AOL/Time Warner as iLive enters the ISP aspect
of their business.
EMPLOYEES
We currently employ, 3 full-time employees and 4 consultant/part-time
employees. None of these employees is subject to a collective bargaining
agreement, and there is no union representation within our company. We maintain
various employee benefit plans and believe our employee relations are good.
FACILITIES
Our principal executive office address is 2102 Business Center Drive,
Irvine, California 92612. We lease our facilities month to month. Our rent
expense was $103,914 for the year ended December 31, 2001. The facilities are of
adequate size to allow us to grow to approximately 15 people after which time we
will need to seek larger space. Our month-to-month agreement will allow us
flexibility in moving as we grow in size.
14
LEGAL PROCEEDINGS
From time to time may be involved in various claims, lawsuits, disputes
with third parties, actions involving allegations of discrimination, or breach
of contract actions incidental to the operations of its business. We are
currently involved in two such instances.
JERRY NIETO v. iLIVE, INC., ET AL.
On September 21, 2001, a lawsuit was filed in the Superior Court of the
State of California for the County of Orange, against us entitled Jerry Nieto v.
iLive, Inc., et al. The complaint alleges various claims seeking payment of past
due wages in the amount of $9,000, 750,000 shares of our common stock, and
penalties and attorney fees. Mr. Nieto was contracted to develop a functional
website for us and was paid in excess of $250,000 to perform this task. We
believe that Mr. Nieto breached his contract by not delivering a functional
website and withheld a final payment. We deny all of Mr. Nieto's claims and are
vigorously defending the action.
AL MOSHIRI v. iLIVE INC., ET AL.
On July 20, 2001, a lawsuit was filed in the Superior Court of the
State of California for the County of Los Angeles, against us entitled Al
Moshiri v. iLive, Inc., et. al. The complaint alleges various claims seeking
payment of alleged finder's fees and damages in the amount of $500,000 and seeks
punitive damages of $5,000,000. Mr. Moshiri alleges to have raised iLive
millions of dollars in financing and seeks payment of a commission for such
funding. We deny these claims and are vigorously defending the action.
15
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
NAME AGE POSITION
---- --- --------
Scott Henricks 30 President, CFO, Secretary and Director
Albert Aimers 39 Chief Executive Officer and Director
Mark Moline 33 Chief Technical Officer
Gennady Levtchenko 38 Chief Operating Officer
Directors serve until the next annual meeting and until their
successors are elected and qualified. Officers are appointed to serve for one
year until the meeting of the board of directors following the annual meeting of
stockholders and until their successors have been elected and qualified,
although Scott Henricks has an employment agreement. There are no family
relationships between any of our directors or officers.
SCOTT HENRICKS is currently our President (since April 25, 2000), Chief
Financial Officer (since September 30, 2000), Secretary and one of the founders.
Mr. Henricks was our Chief Executive Officer from April 25, 2000 to January 8,
2002. Prior to that Mr. Henricks was our director of business development. From
1996 to 1999, Mr. Henricks was the President and Founder of Wall Street, Inc. an
Investment Banking company, which focused on helping build strategic
relationships, and business development for emerging companies.
ALBERT AIMERS is currently our Chief Executive Officer and Director
(since January 9, 2002). Mr. Aimers was Chairman of our board in 1999. Since
1998, Mr. Aimers has been Vice President of Corporate affairs and a shareholder
of Street Capital, Inc., a firm engaged in merchant banking. From 1997 to 1998,
Mr. Aimers was a partner in Strategic Equity Corp., a firm engaged in merchant
banking.
MARK MOLINE is currently our Chief Technical Officer. From 1997 to 2001
Mr. Moline was the President and founder of Internetrix.net a web design and
hosting company that has set up multiple server farms and has developed in
excess of 25 websites with focuses on streaming media.
GENNADY LEVTCHENKO is currently our Chief Operating Officer. >From 1999
to 2002, Mr. Levtchenko worked as an independent consultant to iLive in the
areas of content development and video encoding. From 1996 to 1999 Mr.
Levtchenko was the President of Sandline International, a company that focused
on the developing of original content from script writing, encoding, editing to
full production.
16
EXECUTIVE COMPENSATION
The following tables set forth certain information regarding our
President for the fiscal years ending December 31, 2001, 2000 and 1999:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
Other
Annual Restricted Options LTIP
Name & Principal Salary Bonus Compen- Stock SARs Payouts All Other
Position Year ($) ($) sation ($) awards (#)(1) ($) Compen-sation
- --------------------- --------- ------------ ----------- ------------ -------------- ----------- ------------ --------------
Scott Henricks, 2001 $60,000 0 0 0 0 0 0
President 2000 $60,000* 0 0 0 0 0 0
1999 0 0 0 0 0 0 0
* Includes $37,464 in accrued but unpaid salary.
EMPLOYMENT AGREEMENT
iLive and Scott Henricks, our President, are parties to an agreement,
made on April 1, 2000, which provides payments aggregating $60,000 per year. The
agreement, which also provides for increases, performance bonuses and stock
option bonuses subject to performance and services rendered, is expected to
continue in force until amended by mutual agreement or terminated by either
party or the expiry of the term.
iLive and Albert Aimers, our Chief Executive Officer, are parties to an
agreement, made on March 1, 2002, which provides payments aggregating $120,000
per year. The agreement, which also provides for increases, performance bonuses
and stock option bonuses subject to performance and services rendered, is
expected to continue in force until amended by mutual agreement or terminated by
either party or the expiry of the term.
OPTIONS
For our fiscal year ending December 31, 2001, we did not issue options
to our executive officers and they did not exercise any options.
COMPENSATION OF DIRECTORS
We do not compensate our directors.
17
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1999, we entered into a $1,500,000 convertible line of credit
arrangement with Street Capital Inc., an entity that is owned 100% by our
President, Mr. Henricks, and in which our CEO, Mr. Aimers, is an executive
officer. This line of credit bears interest at 12% and due on or before March 7,
2001. The note was convertible at the holder's election into common stock at
$0.25 per share, was fully utilized, and was converted into 6,000,000 shares in
2000. In 2000, we entered into a new $1,500,000 convertible line of credit at
12% interest with all principal and interest due on or before April 7, 2002. The
note is convertible at the holder's election into a maximum of 6,000,000 shares
of common stock at $0.25 per share. At December 31, 2001, we had borrowed a
total of $958,454 on this line of credit and the holder had converted $761,250
of the debt into 3,045,000 common shares. The note's maturity date has been
extended to June 7, 2002. We currently owe Street Capital $197,204 under this
line of credit.
18
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of our common stock as of April 25, 2002 (i) by each person who is
known by us to beneficially own more than 5% of our common stock; (ii) by each
of our officers and directors; and (iii) by all of our officers and directors as
a group. Each person's address is c/o iLive, Inc., 2102 Business Center Drive,
Irvine, California 92612.
Shares Beneficially Owned(1)
----------------------------
Name and Address of Beneficial Owner Number Percent
- ------------------------------------------------------------------------ ------------------ -------------
Scott Henricks, President (2) 1,788,816 4.00%
Albert Aimers, Chief Executive Officer (3) 6,500,000 14.73%
Street Capital, Inc. (4) 788,816 1.76%
Total securities held by officers and directors as a group (2 people): 8,288,816 18.79%
* Less than 1%.
(1) Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options or
warrants currently exercisable or convertible, or exercisable or convertible
within 60 days of April 25, 2002 are deemed outstanding for computing the
percentage of the person holding such option or warrant but are not deemed
outstanding for computing the percentage of any other person. Percentages are
based on a total of 44,100,000 shares of common stock outstanding on April 25,
2002, and the shares issuable upon the exercise of options and warrants
exercisable on or within 60 days of April 25, 2002, as described below.
(2) Includes 1,000,000 shares of common stock owned directly by Mr. Henricks and
788,816 shares of common stock owned indirectly that are issuable upon
conversion of a note held by Street Capital, Inc., an entity that is controlled
by Mr. Henricks.
(3) Includes 6,500,000 shares of common stock owned directly.
(4) Includes 788,816 shares of common stock issuable upon conversion of a note
held by Street Capital, Inc., an entity that is controlled by Mr. Henricks.
19
DESCRIPTION OF SECURITIES
THE FOLLOWING DESCRIPTION OF OUR CAPITAL STOCK IS A SUMMARY AND IS
QUALIFIED IN ITS ENTIRETY BY THE PROVISIONS OF OUR ARTICLES OF INCORPORATION,
WITH AMENDMENTS, ALL OF WHICH HAVE BEEN FILED AS EXHIBITS TO OUR REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
Our Amended Articles of Incorporation authorize the issuance of
100,000,000 shares of common stock, $.001 par value per share. Holders of shares
of common stock are entitled to one vote for each share on all matters to be
voted on by the stockholders. Holders of common stock have cumulative voting
rights. Holders of shares of common stock are entitled to share ratably in
dividends, if any, as may be declared, from time to time by the Board of
Directors in its discretion, from funds legally available therefor. In the event
of a liquidation, dissolution, or winding up of the iLive, the holders of shares
of common stock are entitled to share pro rata all assets remaining after
payment in full of all liabilities. Holders of common stock have no preemptive
or other subscription rights, and there are no conversion rights or redemption
or sinking fund provisions with respect to such shares..
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Under the Nevada General Corporation Law and our Articles of
Incorporation, as amended, and our Bylaws, our directors will have no personal
liability to us or our stockholders for monetary damages incurred as the result
of the breach or alleged breach by a director of his "duty of care." This
provision does not apply to the directors' (i) acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law, (ii) acts or
omissions that a director believes to be contrary to the best interests of the
corporation or its stockholders or that involve the absence of good faith on the
part of the director, (iii) approval of any transaction from which a director
derives an improper personal benefit, (iv) acts or omissions that show a
reckless disregard for the director's duty to the corporation or its
stockholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a director's duties, of a risk
of serious injury to the corporation or its stockholders, (v) acts or omissions
that constituted an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the corporation or its stockholders, or
(vi) approval of an unlawful dividend, distribution, stock repurchase or
redemption. This provision would generally absolve directors of personal
liability for negligence in the performance of duties, including gross
negligence.
The effect of this provision in our Articles of Incorporation and
Bylaws is to eliminate the rights of iLive, Inc. and our stockholders (through
stockholder's derivative suits on behalf of iLive, Inc.) to recover monetary
damages against a director for breach of his fiduciary duty of care as a
director (including breaches resulting from negligent or grossly negligent
behavior) except in the situations described in clauses (i) through (vi) above.
This provision does not limit nor eliminate the rights of iLive, Inc. or any
stockholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. In addition, our Bylaws
provide that if the Nevada General Corporation Law is amended to authorize the
future elimination or limitation of the liability of a director, then the
liability of the directors will be eliminated or limited to the fullest extent
permitted by the law, as amended. The Nevada General Corporation Law grants
corporations the right to indemnify their directors, officers, employees and
agents in accordance with applicable law.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act" or "Securities Act") may be permitted to directors,
officers or persons controlling iLive, Inc. pursuant to the foregoing
provisions, or otherwise, we have been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
20
PLAN OF DISTRIBUTION
The selling stockholder and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling stockholder may use any one or more of the
following methods when selling shares:
-- ordinary brokerage transactions and transactions in which the
broker-dealer solicits the purchaser;
-- block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
-- purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
-- an exchange distribution in accordance with the rules of the
applicable exchange;
-- privately-negotiated transactions;
-- short sales;
-- broker-dealers may agree with the selling stockholder to sell a
specified number of such shares at a stipulated price per share;
and
-- a combination of any such methods of sale.
In the event sales are made to broker-dealers as principals, we would
be required to file a post-effective amendment to the registration statement of
which the prospectus forms a part. In such post-effective amendment, we would be
required to disclose the names of any participating broker-dealers and the
compensation arrangements relating to such sales. In addition, if any shares of
common stock or warrants offered for sale pursuant to this prospectus are
transferred, subsequent holders could not use this prospectus until a
post-effective amendment is filed, naming such holders.
The selling stockholder may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The selling stockholder may pledge their shares to their brokers under
the margin provisions of customer agreements. If a selling stockholder defaults
on a margin loan, the broker may, from time to time, offer and sell the pledged
shares.
The selling stockholder may also engage in short sales against the box,
puts and calls and other transactions in our securities or derivatives of our
securities and may sell or deliver shares in connection with these trades. The
selling stockholder may pledge their shares of common stock to their brokers
under the margin provisions of customer agreements. If a selling stockholder
defaults on a margin loan, the broker may, from time to time, offer and sell the
pledged shares.
Broker-dealers engaged by the selling stockholder may arrange for other
broker-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholder (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholder do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The selling stockholder shall be deemed to be an "underwriter" within
the meaning of the Securities Act in connection with such sales. In such event,
any commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements of counsel to the
selling stockholder, but excluding brokerage commissions or underwriter
discounts. We and the selling stockholder have agreed to indemnify each other
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
21
PENNY STOCK
The Securities and Exchange Commission (the "Commission") has adopted
Rule 15g-9 which establishes the definition of a "penny stock," for the purposes
relevant to us, as any equity security that has a market price of less than
$5.00 per share or with an exercise price of less than $5.00 per share, subject
to certain exceptions. For any transaction involving a penny stock, unless
exempt, the rules require:
o that a broker or dealer approve a person's account for
transactions in penny stocks; and
o the broker or dealer receive from the investor a written agreement
to the transaction, setting forth the identity and quantity of the
penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks, the
broker or dealer must obtain financial information and investment experience
objectives of the person and make a reasonable determination that the
transactions in penny stocks are suitable for that person and the person has
sufficient knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks. The broker or dealer must
also deliver, prior to any transaction in a penny stock, a disclosure schedule
prepared by the Commission relating to the penny stock market, which, in
highlight form, sets forth the basis on which the broker or dealer made the
suitability determination and that the broker or dealer received a signed,
written agreement from the investor prior to the transaction. Disclosure also
has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
STOCK SIGNAL STOCKWATCH
During the week of April 8-12, 2002, a publication was distributed by
Stock Signal Stockwatch regarding our common stock and our business. Our
officers, directors and major shareholders do not have any knowledge regarding
the origin or publication of Stockwatch's report. Accordingly, our officers,
directors, and major shareholders did not pay for the production of
dissemination of the report by Stock Signal Stockwatch. In addition, all offers
by our officers and directors prior to the effectiveness of this prospectus have
complied with Rule 134 of the Securities Act of 1933.
22
SELLING STOCKHOLDER
The table below sets forth information concerning the resale of the
shares of common stock by the selling stockholders. We will not receive any
proceeds from the resale of the common stock by the selling stockholders. We
will receive proceeds from the exercise of the warrants. Assuming all the shares
registered below are sold by the selling stockholders, none of the selling
stockholders will continue to own any shares of our common stock.
The following table also sets forth the name of each person who is
offering the resale of shares of common stock by this prospectus, the number of
shares of common stock beneficially owned by each person, the number of shares
of common stock that may be sold in this offering and the number of shares of
common stock each person will own after the offering, assuming they sell all of
the shares offered.
Total
Total Shares Percentage
of Common Stock of Common Shares of
Issuable Upon Stock, Common Stock Beneficial Percentage of Beneficial Percentage
Conversion of Assuming Included in Ownership Common Stock Ownership of Common
Name Notes and/or Full Prospectus Before the Owned Before After the Stock Owned
Warrants(2) Conversion(2) (1) Offering Offering Offering After Offering
- --------------------- ----------------- -------------- -------------- ------------ --------------- ----------- ---------------
Laurus Master Fund, 4,450,000 9.17% Up to 2,316,167 4.99% 0 0
13,150,000
Ltd. (2) shares of
common stock
- --------------------- ----------------- -------------- -------------- ------------ --------------- ----------- ---------------
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the selling stockholder has sole or shared voting power or investment power and
also any shares, which the selling stockholder has the right to acquire within
60 days. The actual number of shares of common stock issuable upon the
conversion of the convertible preferred stock is subject to adjustment depending
on, among other factors, the future market price of the common stock, and could
be materially less or more than the number estimated in the table.
(1) Includes 300% of the shares issuable upon conversion of the convertible
notes, based on current market prices. Because the number of shares of
common stock issuable upon conversion of the convertible note is
dependent in part upon the market price of the common stock prior to a
conversion, the actual number of shares of common stock that will be
issued upon conversion will fluctuate daily and cannot be determined at
this time. However the selling stockholder has contractually agreed to
restrict its ability to convert or exercise its warrants and receive
shares of our common stock such that the number of shares of common
stock held by it and its affiliates after such conversion or exercise
does not exceed 4.99% of the then issued and outstanding shares of
common stock.
(2) Based on a conversion price of $.08 per share and includes 100,000
shares underlying warrants that are currently exercisable at an
exercise price of $0.152 per share. In accordance with rule 13d-3 under
the securities exchange act of 1934,Laurus Capital Management, L.L.C.
may be deemed a control person of the shares owned by such entity.
David Grin and Eugene Grin are the principals of Laurus Capital
Management, L.L.C.
23
FINANCING TERMS OF CONVERTIBLE NOTE
To obtain funding for our ongoing operations, we entered into a
Securities Purchase Agreement with the selling stockholder on January 10, 2002
for the sale of (i) a $300,000 convertible note and (ii) a warrants to buy
100,000 shares of our common stock.
The notes bear interest at 8%, mature on January 10, 2004, and are
convertible into our common stock, at the selling stockholders' option, at the
lower of (i) $0.13 or (ii) 80% of the average of the three lowest closing prices
for our common stock for the 30 trading days before but not including the
conversion date. The note may not be paid, in whole or in part, before January
10, 2004 without the consent of the holder. The full principal amount of the
convertible notes are due upon default under the terms of convertible notes. The
warrants are exercisable until January 10, 2005 at a purchase price of the lower
of (i) $0.152 or (ii) 120% of the average of the three lowest closing prices for
the 10 trading days before but not including the exercise date.
The conversion price of the notes and the exercise price of the
warrants may be adjusted in certain circumstances such as if we pay a stock
dividend, subdivide or combine outstanding shares of common stock into a greater
or lesser number of shares, or take such other actions as would otherwise result
in dilution of the selling stockholder's position.
The selling stockholder has contractually agreed to restrict its
ability to convert or exercise its warrants and receive shares of our common
stock such that the number of shares of common stock held by it and its
affiliates after such conversion or exercise does not exceed 4.99% of the then
issued and outstanding shares of common stock.
A complete copy of the Securities Purchase Agreement and related
documents was filed with the SEC as exhibits to our Form SB-2 relating to this
prospectus.
SAMPLE CONVERSION CALCULATION
The number of shares of common stock issuable upon conversion of a note
is determined by dividing that portion of the principal of the note to be
converted and interest, if any, by the conversion price. For example, assuming
conversion of $300,000 of notes on January 16, 2002, a conversion price of $0.13
per share, and the payment of accrued interest in the approximate amount of
$2,152 in additional shares rather than in cash, the number of shares issuable
upon conversion would be:
$300,000 + $2,152 = 2,324,246 shares
-----------------
$0.13
24
LEGAL MATTERS
The validity of the shares of common stock being offered hereby will be
passed upon for us by Sichenzia Ross Friedman Ference LLP, New York, New York.
EXPERTS
Our financial statements at December 31, 2000 and 2001 appearing in
this prospectus and registration statement have been audited by Cacciamatta
Accountancy Corporation, independent auditors, as set forth on their report
thereon appearing elsewhere in this prospectus, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2 under the
Securities Act of 1933, as amended, relating to the shares of common stock being
offered by this prospectus, and reference is made to such registration
statement. This prospectus constitutes the prospectus of iLive, Inc., filed as
part of the registration statement, and it does not contain all information in
the registration statement, as certain portions have been omitted in accordance
with the rules and regulations of the Securities and Exchange Commission
("SEC").
We are subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") which requires us to file reports,
proxy statements and other information with the Securities and Exchange
Commission. Such reports, proxy statements and other information may be
inspected at public reference facilities of the SEC at Judiciary Plaza, 450
Fifth Street N.W., Washington D.C. 20549; Northwest Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and 5670 Wilshire
Boulevard, Los Angeles, California 90036. Copies of such material can be
obtained from the Public Reference Section of the SEC at Judiciary Plaza, 450
Fifth Street N.W., Washington, D.C. 20549 at prescribed rates. Because we file
documents electronically with the SEC, you may also obtain this information by
visiting the SEC's Internet website at http://www.sec.gov.
We furnish our stockholders with annual reports containing audited
financial statements.
25
iLIVE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(Unaudited)
MARCH 31,
2002
------------
ASSETS
CURRENT ASSETS
Cash $ 25,040
Accounts receivable 48,034
Other receivable 10,000
Prepaid expenses 231,100
------------
Total current assets 314,174
EQUIPMENT, NET OF ACCUMULATED DEPRECIATION OF $61,387 101,310
WEB CONTENT 605,000
BEAUTY PAGEANT RIGHTS 100,150
OTHER 52,469
------------
$ 1,173,103
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable $ 100,000
Notes payable - stockholder 197,204
Accounts payable 105,671
Accrued interest, including $261,556 to related party 279,056
Accrued payroll 37,464
------------
Total current liabilities 719,395
CONVERTIBLE DEBT 300,000
------------
Total liabilities 1,019,395
------------
COMMITMENTS AND CONTINGENCIES --
STOCKHOLDERS' EQUITY
Common stock, $.001 par value; 100,000,000 shares
authorized, 34,058,147 shares issued and outstanding 34,058
Additional paid-in capital 6,804,072
Unamortized beneficial conversion feature of convertible debt (66,679)
Accumulated deficit (6,617,743)
------------
Total stockholders' equity 153,708
------------
$ 1,173,103
============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-1
iLIVE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
THREE MONTHS ENDED MARCH 31,
-------------------------------
2002 2001
------------- -------------
REVENUES $ 2,000 $ --
COSTS AND EXPENSES
Cost of sales 625 --
Website development and hosting 580,500 120,254
General and administrative 668,162 208,167
Interest 10,821 24,962
Interest - related party 6,254 9,952
------------- -------------
NET LOSS $ (1,264,362) $ (363,335)
============= =============
BASIC AND DILUTED LOSS PER SHARE
Net loss $ (0.04) $ (0.02)
============= =============
BASIC AND DILUTED WEIGHTED AVERAGE
NUMBER OF SHARES OUTSTANDING 28,917,591 21,313,147
============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-2
iLIVE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
THREE MONTHS ENDED MARCH 31,
---------------------------
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,264,362) $ (363,335)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 23,027 5,409
Beneficial conversion feature of convertible debt 8,321 --
Issuance of shares for services 1,210,000 --
Change in assets and liabilities:
Accounts receivable 7,870 --
Prepaids and other assets (283,569) (1,500)
Accrued interest 2,500 9,952
Accrued interest - related party 6,254 24,545
Accrued payroll -- 15,000
Accounts payable 43,798 37,684
Other accrued expenses -- (12,555)
------------ ------------
Net cash used by operating activities (246,161) (284,800)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (28,799) --
------------ ------------
Net cash provided by investing activities (28,799) --
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt 300,000 --
Advances from stockholder -- 124,800
Issuance of common stock -- 160,000
------------ ------------
Net cash provided by financing activities 300,000 284,800
------------ ------------
Net decrease in cash 25,040 --
CASH, BEGINNING OF PERIOD -- --
------------ ------------
CASH, END OF PERIOD $ 25,040 $ --
============ ============
SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Issuance of shares for web content $ 605,000 $ --
============ ============
CASH PAID FOR
Interest $ -- $ --
============ ============
Income taxes $ -- $ --
============ ============
The accompanying notes are an integral part of these financial statements.
F-3
ILIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2002
1. BASIS OF PRESENTATION
- ---------------------------
The accompanying condensed consolidated financial statements include the
accounts of iLive, Inc., ("iLive"), its wholly owned subsidiaries, Society
of Economic Assurance, Inc. ("SEA") and Asia Pacific Co., LTD ("Asia
Pacific") and Asia Pacific's majority owned subsidiary, 246 LLC,
(collectively, the "Company") through September 30, 2001. All material
intercompany transactions and accounts have been eliminated in
consolidation.
iLive (formerly Powerhouse International Corporation) was incorporated in
1987 in Nevada, became inactive in 1996, and had no assets or liabilities
at August 31, 1999. On September 7, 1999, iLive sold 10,000,000 shares of
common stock for $500,000 cash and on September 30, 1999, it acquired Asia
Pacific for 690,000 of its common shares valued at $74,609. This
acquisition was accounted for as a purchase; accordingly, the results of
operations of Asia Pacific are included in the accompanying consolidated
financial statements since the date of acquisition through its sale on
September 30, 2001.
Asia Pacific, incorporated in October 1995 in Niue (a foreign country),
acquired a controlling 64% interest in 246 LLC, a limited liability
company organized in March 1996, to construct and operate a full-service
restaurant, bar and membership club in Beverly Hills, California. The
restaurant, known as Chasen's, commenced operations in April 1997. In July
2000, operations of the restaurant were discontinued and all restaurant
assets were abandoned. On September 30, 2001, Asia Pacific was sold for
$10,000.
On February 17, 2000 the Company acquired 100% of the outstanding shares
of Society of Economic Assurance, Inc. ("SEA"), a Nevada public shell by
issuing 200,000 shares of its common stock. The Company elected to have
SEA become the successor issuer, pursuant to Rule 12g-3(a) of the general
Rules and Regulations of the Securities and Exchange Commission for
reporting purposes under the Securities Exchange Act of 1934. For
accounting purposes, the SEA acquisition was treated as a
recapitalization. From its inception, SEA has been inactive, has operated
no business, and held no assets or liabilities.
Management is focused on the delivery and distribution of streaming video
content on an on-demand and pay-per-view basis. The Company develops its
own content and assists others to develop a distribution channel for their
content on the iLive Network. The Company offers video-on-demand,
electronic shopping, physical VHS and DVD distribution and
business-to-business content creation and distribution. The Company
currently generates virtually all of its revenue from its business
services division where they help other bring their content online by
providing editing and encoding solutions. Moving forward the Company looks
to generate additional revenue from pay-per-view content and the Company's
recent commitment to enter into the ISP market.
F-4
ILIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2002
2. INTERIM PERIODS
- ---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions of Form 10-QSB and do not
include all of the information required by generally accepted accounting
principles for complete financial statements. In the opinion of the
Company's management, all necessary adjustments (consisting of normal
recurring adjustments) for a fair presentation have been included.
Operating results for the three months ended March 31, 2002, are not
necessarily indicative of results for any future period. These statements
should be read in conjunction with the consolidated financial statements
and notes thereto for the year ended December 31, 2001 included in the
Company's Form 10-KSB.
3. NOTES PAYABLE
- -------------------
On October 1, 2000 the Company issued a convertible note of up to
$1,500,000. Pursuant to the terms of the note, the Company is required to
repay the principal amount of $1,500,000 with 12% interest on or before
April 7, 2002. The note is convertible at any time given 15 days notice at
the holder's election into a maximum of 6,000,000 shares of the Company's
common stock at $0.25 per share. As of March 31, 2002 the Company has
borrowed $958,454 of which $761,250 was converted to common stock during
the year ended December 31, 2001.
On January 10, 2002 the Company issued a convertible note up to $300,000
and a warrant to purchase an additional 100,000 shares of its common
stock. Pursuant to the terms of the note, the Company is required to repay
the principal amount of $300,000 with 8% interest. The note may not be
paid, in whole or in part, before January 10, 2004. The note is
convertible into common stock, at the selling stockholder's option, a the
lower of (i) $0.13 or (ii) 80% of the average of the three lowest closing
prices for the common stock for the 30 trading days before but not
including the conversion date. The warrants are exercisable until January
10, 2005 at a purchase price of the lower of (i) $0.152 or (ii) 120% of
the average of the three lowest closing prices for the 10 trading days
before but not including the exercise date. The Company reported a
beneficial conversion feature of $75,000, which is reflected in additional
paid in capital. Amortization of $8,321 was reflected as interest expense
for the quarter ended March 31, 2002.
F-5
ILIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2002
4. STOCKHOLDER'S EQUITY
- --------------------------
In Q 1 2002, the Company issued:
2,150,000 shares valued $279,500 ($0.13 per share) in exchange for
consulting services.
850,000 shares valued $161,500 ($0.19 per share) in exchange for corporate
video services.
1,300,000 shares valued $247,000 ($0.19 per share) in exchange for
investor relations services.
1,300,000 shares valued at $247,000 ($0.19 per share) in exchange for
consulting services.
2,750,000 shares valued at $605,000 ($0.22 per share) in exchange for web
content.
1,250,000 shares valued at $275,000 ($0.22 per share) in exchange for
encoding services.
5. DISCONTINUED OPERATIONS
- -----------------------------
In April 2000, management closed the restaurant to the public and began
operating it for private parties only. In July 2000, operations of the
restaurant were permanently discontinued and all restaurant assets were
abandoned. Revenues from discontinued operations totaled $701,000 in 2000.
On September 30, 2001 the Company sold Asia Pacific to an unrelated party
for $10,000, resulting in a gain on the disposal of $1,893,083. At
September 30, 2001, Asia Pacific had zero assets and the following
liabilities:
Notes payable $ 376,623
Accounts payable 731,792
Accrued interest 136,399
Accrued payroll and related taxes 375,816
Other accrued expenses 262,453
------------
$ 1,883,083
============
F-6
ILIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2002
6. LEGAL PROCEEDINGS
- -----------------------
The Company from time to time may be involved in various claims, lawsuits,
disputes with third parties, actions involving allegations of
discrimination, or breach of contract actions incidental to the operations
of its business. The Company is currently involved in two such instances.
Jerry Nieto v. iLive, Inc., et al.
----------------------------------
On September 21, 2001, a lawsuit was filed in the Superior Court of the
State of California for the County of Orange, against the Company entitled
Jerry Nieto v. iLive, Inc., et al. The complaint alleges various claims
seeking payment of past due wages in the amount of $9,000, 750,000 shares
of the Company's common stock, and penalties and attorney fees. The
Company denies these claims and is vigorously defending the action.
Al Moshiri v. iLive Inc., et al.
--------------------------------
On July 20, 2001, a lawsuit was filed in the Superior Court of the State
of California for the County of Los Angeles, against the Company entitled
Al Moshiri v. iLive, Inc., et. al. The complaint alleges various claims
seeking payment of alleged finder's fees and damages in the amount of
$500,000 and seeks punitive damages of $5,000,000. The Company denies
these claims and is vigorously defending the action.
7. WEB CONTENT
-----------
During the quarter ended March 31, 2002, the Company purchased $605,000 of
Internet Content through the issuance of 2,750,000 shares of its common
stock, which was valued at $.22 per share. The Internet Content purchased
includes reality based programming, comedy, and distance learning
applications. This content will be streamed over the Internet on a
pay-per-view basis. The content was accounted for at cost (considered to
be the fair value of the shares issued) and will be amortized in the same
ratio as current pay-per-revenues bear to anticipated total pay-per-view
gross revenues.
F-7
INDEX TO FINANCIAL STATEMENTS
ILIVE, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2001 and 2000
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-9
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEET F-10
STATEMENTS OF OPERATIONS F-11
STATEMENT OF STOCKHOLDERS' EQUITY F-12
STATEMENTS OF CASH FLOWS F-13
NOTES TO FINANCIAL STATEMENTS F-14
F-8
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
The Board of Directors and Shareholders
iLive, Inc.
We have audited the accompanying consolidated balance sheet of iLive, Inc. (the
"Company") as of December 31, 2001, and the related consolidated statements of
operations, stockholders' deficit and cash flows for each of the years in the
two-year period ended December 31, 2001. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, on a test
basis, examination of 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 consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of iLive, Inc. as of
December 31, 2001, and the results of its operations and its cash flows for each
of the years in the two-year period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. Liabilities exceed assets by
$400,000 at December 31, 2001 and the Company requires additional capital in
order to execute its business plan. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
regarding those matters are also described in Note 10. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ CACCIAMATTA ACCOUNTANCY CORPORATION
Irvine, California
March 20, 2002
F-9
iLIVE, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
DECEMBER 31,
2001
------------
ASSETS
CURRENT ASSETS
Accounts receivable $ 55,904
Other receivable 10,000
------------
Total Current Assets 65,904
PROPERTY AND EQUIPMENT, NET 95,538
BEAUTY PAGEANT RIGHTS 100,150
-----------
$ 261,592
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Note payable $ 100,000
Note payable - stockholder 197,204
Accounts payable 61,873
Accrued interest, including $255,302 to related parties 270,302
Accrued payroll 37,464
------------
Total current liabilities 666,843
------------
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' DEFICIT
Common stock, $.001 par value; 100,000,000 shares
authorized, 24,458,147 shares issued and outstanding 24,458
Additional paid-in capital 4,923,672
Accumulated deficit (5,353,381)
------------
Total stockholders' deficit (405,251)
------------
$ 261,592
============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-10
iLIVE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
YEAR ENDED DECEMBER 31,
--------------------------------
2001 2000
------------- -------------
NET SALES $ 141,060 $ 3,624
------------- -------------
COSTS AND EXPENSES:
Cost of sales 15,779 81,681
Website development and hosting 182,145 206,665
General and administrative 315,399 1,153,167
Interest, including $112,167 in 2001 and $740,337 in 2000 to related parties 122,167 746,012
------------- -------------
635,490 2,187,525
------------- -------------
Loss from continuing operations before income tax benefit (494,430) (2,183,901)
INCOME TAX BENEFIT 168,100 -
------------- -------------
Loss from continuing operations (326,330) (2,183,901)
DISCONTINUED OPERATIONS:
Loss from operations (no tax effect) - (487,302)
Gain (loss) on disposal (net of tax effect of $168,100 in 2001) 1,724,983 (427,602)
------------- -------------
Gail (loss) from discontinued operations 1,724,983 (914,904)
------------- -------------
NET INCOME (LOSS) $ 1,398,653 $ (3,098,805)
============= =============
BASIC EARNINGS (LOSS) PER SHARE:
Loss from continuing operations $ (0.01) $ (0.13)
============= =============
Gain (loss) from discontinued operations $ 0.07 $ (0.05)
============= =============
Net income (loss) $ 0.06 $ (0.18)
============= =============
BASIC WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 24,606,781 16,769,814
============= =============
DILUTED EARNINGS (LOSS) PER SHARE:
Loss from continuing operations $ (0.01) $ (0.13)
============= =============
Gain (loss) from discontinued operations $ 0.07 $ (0.05)
============= =============
Net income (loss) $ 0.06 $ (0.18)
============= =============
DILUTED WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 24,908,607 16,769,814
============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-11
iLIVE, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Deficit
Years Ended December 31, 2001 and 2000
COMMON STOCK
-------------------------------------
AMOUNT TOTAL
NUMBER OF ----------------------- ADDITIONAL ACCUMULATED STOCKHOLDERS'
SHARES PER SHARE TOTAL PAID-IN CAPITAL DEFICIT DEFICIT
------------ --------- ------------ --------------- -------------- -------------
BALANCE, DECEMBER 31, 1999 15,053,147 - $ 15,053 $ 1,705,657 $ (3,653,229) $ (1,932,519)
Debt conversion 6,000,000 0.25 6,000 1,494,000 - 1,500,000
Shares issued for cash 15,000 1.67 15 24,985 - 25,000
Shares isssued for license 45,000 1.67 45 75,105 - 75,150
Shares issued for SEA 200,000 - 200 (200) - -
Contributed capital - salary - - - 20,000 - 20,000
Intrinsic value of beneficial conversion feature - - - 611,600 - 611,600
Net loss - - - - (3,098,805) (3,098,805)
------------ --------- ------------ --------------- -------------- -------------
BALANCE, DECEMBER 31, 2000 21,313,147 - 21,313 3,931,147 (6,752,034) (2,799,574)
Repurchase of shares (15,000) 1.67 (15) (24,985) (25,000)
Shares issued for accrued rent 15,000 0.60 15 8,985 9,000
Acquisition of Pay Per View 4,307,771 0.53 4,307 2,278,810 2,283,117
Acquisition of Web Theatre 3,457,017 0.53 3,457 1,828,761 1,832,218
Cancellation of shares issued to acquire
Pay Per View and Web Theatre (7,764,788) 0.53 (7,764) (4,107,571) (4,115,335)
Shares issued for cash 1,000,000 0.25 1,000 249,000 250,000
Repurchase of shares (1,000,000) 0.09 (1,000) (89,000) (90,000)
Debt conversion 3,045,000 0.25 3,045 758,205 761,250
Shares issued for services 100,000 0.24 100 23,900 24,000
Intrinsic value of beneficial conversion feature 66,420 66,420
Net income 1,398,653 1,398,653
------------ ------------ --------------- -------------- -------------
BALANCE, DECEMBER 31, 2001 24,458,147 $ 24,458 $ 4,923,672 $ (5,353,381) $ (405,251)
============ ============ =============== ============== =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-12
iLIVE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
YEAR ENDED DECEMBER 31,
------------------------------
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,398,653 $(3,098,805)
Adjustments to reconcile net loss to net cash
used by operating activities:
(Gain) loss from discontinued operations (1,893,083) 914,904
Depreciation 20,926 14,933
Contributed capital - salary - 20,000
Issuance of shares for services 24,000 -
Intrinsic value of beneficial conversion feature 66,420 611,600
Change in assets and liabilities:
Accounts Receivable (55,904) -
Miss Beverly Hills License - (25,000)
Accounts payable (53,197) 116,305
Accrued interest 55,331 129,217
Other accrued expenses (18,151) 45,001
------------ ------------
Net cash used by operating activities (455,005) (1,271,845)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Advances to) repayments from stockholder - 85,641
Purchase of equipment (25,765) (66,932)
------------ ------------
Net cash provided (used) by investing activities (25,765) 18,709
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt - 113,500
Proceeds from note payable - stockholder 345,770 1,425,954
Repurchase of common stock (115,000) -
Issuance of common stock 250,000 25,000
------------ ------------
Net cash provided by financing activities 480,770 1,564,454
------------ ------------
Cash used by discontinued operations - (311,318)
------------ ------------
Net increase in cash - -
CASH, BEGINNING OF PERIOD - -
------------ ------------
CASH, END OF PERIOD $ - $ -
============ ============
SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Acquisition of license for common stock $ - $ 75,150
============ ============
Conversion of debt to common stock $ 770,250 $ 1,500,000
============ ============
Receivable from sale of Asia Pacific $ 10,000 $ -
============ ============
Cash paid for:
Interest $ - $ -
Income taxes $ 800 $ 800
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-13
ILIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BACKGROUND AND BASIS OF PRESENTATION
------------------------------------
The accompanying consolidated financial statements include the accounts of
iLive, Inc., ("iLive"), its wholly owned subsidiaries, Society of Economic
Assurance, Inc. ("SEA") and Asia Pacific Co., LTD ("Asia Pacific") and
Asia Pacific's majority owned subsidiary, 246 LLC, (collectively, the
"Company") through September 30, 2001. All material intercompany
transactions and accounts have been eliminated in consolidation.
iLive (formerly Powerhouse International Corporation) was incorporated in
1987 in Nevada, became inactive in 1996, and had no assets or liabilities
at August 31, 1999. On September 7, 1999, iLive sold 10,000,000 shares of
common stock for $500,000 cash and on September 30, 1999, it acquired Asia
Pacific for 690,000 of its common shares valued at $74,609. This
acquisition was accounted for as a purchase; accordingly, the results of
operations of Asia Pacific are included in the accompanying consolidated
financial statements since the date of acquisition through its sale on
September 30, 2001.
Asia Pacific, incorporated in October 1995 in Niue (a foreign country),
acquired a controlling 64% interest in 246 LLC, a limited liability
company organized in March 1996, to construct and operate a full-service
restaurant, bar and membership club in Beverly Hills, California. The
restaurant, known as Chasen's, commenced operations in April 1997. In July
2000, operations of the restaurant were discontinued and all restaurant
assets were abandoned. On September 30, 2001, Asia Pacific was sold for
$10,000.
On February 17, 2000 the Company acquired 100% of the outstanding shares
of Society of Economic Assurance, Inc. ("SEA"), a Nevada public shell by
issuing 200,000 shares of its common stock. The Company elected to have
SEA become the successor issuer, pursuant to Rule 12g-3(a) of the general
Rules and Regulations of the Securities and Exchange Commission for
reporting purposes under the Securities Exchange Act of 1934. For
accounting purposes, the SEA acquisition was treated as a
recapitalization. From its inception, SEA has been inactive, has operated
no business, and held no assets or liabilities.
Management is focused on the delivery and distribution of streaming video
content on an on-demand and pay-per-view basis. The Company develops its
own content and assists others to develop a distribution channel for their
content on the iLive Network. The Company offers video-on-demand,
electronic shopping, physical VHS and DVD distribution and
business-to-business content creation and distribution. The Company
currently generates virtually all of its revenue from its business
services division where they help other bring their content online by
providing editing and encoding solutions. Moving forward the Company looks
to generate additional revenue from pay-per-view content and the Company's
recent commitment to enter into the ISP market.
F-14
ILIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
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 revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CASH AND EQUIVALENTS
--------------------
For purposes of the statement of cash flows, cash equivalents include time
deposits, certificates of deposit and all highly liquid debt instruments
with original maturities of three months or less.
CONCENTRATIONS OF CREDIT RISK
-----------------------------
In 2001, 100% of revenues were from three customers. At December 31, 2001,
one of these customers accounted for 84% of accounts receivable.
LONG LIVED ASSETS
-----------------
Equipment, furniture and fixtures and website and program content are
stated at cost, less accumulated depreciation. Depreciation is provided
over the assets' estimated useful lives of 3-5 years using the straight
line method.
Beauty pageant rights are stated at cost and include the names Miss
Beverly Hills, Miss Teen Beverly Hills, Mrs. Beverly Hills, and Mr.
Beverly Hills, among others. These rights have no expiration date.
Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that their carrying amount may not be
recoverable. Impairment is necessary when the undiscounted cash flows
estimated to be generated by the asset are less than the carrying amount
of the asset.
PROVISION FOR INCOME TAXES
--------------------------
Deferred taxes are provided for on a liability method for temporary
differences between the financial reporting and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the
future. Deferred tax assets and liabilities are adjusted for the effects
of changes in tax laws and rates on the date of enactment. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the
deferred tax assets will be realized.
F-15
ILIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
ADVERTISING AND PROMOTIONAL COSTS
---------------------------------
Costs of advertising and promotion are expensed as incurred. Such costs
were $0 in 2001 and $16,471 in 2000.
BASIC AND DILUTED NET LOSS PER SHARE
------------------------------------
Net loss per share is calculated in accordance with Statement of Financial
Accounting Standards 128, Earnings Per Share ("SFAS 128"). Basic net loss
per share is based upon the weighted average number of common shares
outstanding. Diluted net loss per share is based on the assumption that
all dilutive convertible shares and stock options were converted or
exercised. Dilution is computed by applying the treasury stock method.
Under this method, options and warrants are assumed to be exercised at the
beginning of the period (or at the time of issuance, if later), and as if
funds obtained thereby were used to purchase common stock at the average
market price during the period.
FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
Statement of financial accounting standard No. 107, Disclosures about fair
value of financial instruments, requires that the company disclose
estimated fair values of financial instruments. The carrying amounts
reported in the statements of financial position for current assets and
current liabilities qualifying as financial instruments are a reasonable
estimate of fair value.
RECLASSIFICATIONS
-----------------
Certain items in the 2000 financial statements have been reclassified to
conform with the 2001 presentation.
REVENUE RECOGNITION
-------------------
The Company records revenues from business services as the services are
rendered. Virtually all 2001 revenues are from business services. The
Company records revenues from ticket sales from live performances and
pageants at the time the performance or pageant is held. All 2000 revenues
were from the Miss Beverly Hills beauty pageant. Pay-per-view revenues
will be recorded as participants use purchased credits to watch pay per
view programming. Unused credits will be recorded as deferred revenues.
Product sales will be recorded on a net revenue basis, with net revenues
being computed by deducting from gross revenues the amount of actual sales
returns and the amount of reserves established for anticipated sales
returns.
F-16
ILIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In September 2000, the FASB issued Financial Accounting Standards SFAS No.
140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, and a replacement of FASB Statement No.
125." The impact of this statement did not have a material affect on the
Company's financial statements.
On July 20, 2001, the FASB issued SFAS No. 141, "Business Combinations,"
and SFAS No. 142, "Goodwill and Other Intangible Assets." These statements
make significant changes to the accounting for business combinations,
goodwill, and intangible assets. SFAS No. 141 establishes new standards
for accounting and reporting requirements for business combinations and
will require that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method will be prohibited. This statement is
effective for business combinations completed after June 30, 2001. SFAS
No. 142 establishes new standards for goodwill acquired in a business
combination and eliminates amortization of goodwill and instead sets forth
methods to periodically evaluate goodwill for impairment. Intangible
assets with a determinable useful life will continue to be amortized over
that period. This statement becomes effective January 1, 2002. Management
does not expect these pronouncements to materially impact the Company's
financial position or results of operations.
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting
for Asset Retirement Obligations". SFAS 143 addresses financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. This
Statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002. The impact of the adoption of SFAS 143 on
the Company's reported operating results, financial position and existing
financial statement disclosure is not expected to be material.
In August 2001, Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"), was issued. This statement addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and broadens
the definition of what constitutes a discontinued operation and how the
results of a discontinued operation are to be measured and presented. The
provisions of SFAS 144 are effective for financial statements issued for
fiscal years beginning after December 15, 2001. The impact of the adoption
of SFAS 144 on the Company's reported operating results, financial
position and existing financial statement disclosure is not expected to be
material.
F-17
ILIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
--------------------------------------------
In January 2001, the Financial Accounting Standards Board Emerging Issues
Task Force issued EITF 00-27 effective for convertible debt instruments
issued after November 16, 2000. This pronouncement requires the use of the
intrinsic value method for recognition of the detachable and imbedded
equity features included with indebtedness, and requires amortization of
the amount associated with the convertibility feature over the life of the
debt instrument rather than the period for which the instrument first
becomes convertible. The impact of this statement did not have a material
affect on the Company's financial statements.
2. DISCONTINUED OPERATIONS
-----------------------
In April 2000, management closed the restaurant to the public and began
operating it for private parties only. In July 2000, operations of the
restaurant were permanently discontinued and all restaurant assets were
abandoned. Revenues from discontinued operations totaled $701,000 in 2000.
On September 30, 2001 the Company sold Asia Pacific to an unrelated party
for $10,000, resulting in a gain on the disposal of $1,893,083. At
September 30, 2001, Asia Pacific had zero assets and the following
liabilities:
Notes payable $ 376,623
Accounts payable 731,792
Accrued interest 136,399
Accrued payroll and related taxes 375,816
Other accrued expenses 262,453
------------
$ 1,883,083
============
The receivable which is presented in the accompanying balance sheet as
"other receivable" is due on demand and is expected to be collected in the
second quarter of 2002.
3. PROPERTY AND EQUIPMENT
Computers and equipment $ 91,495
Furniture and fixtures 24,607
Website and program content 17,796
------------
133,898
Accumulated depreciation (38,360)
------------
$ 95,538
============
4. NOTE PAYABLE
Unsecured 10% promissory note due December 31, 2001.
F-18
ILIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
5. NOTE PAYABLE - STOCKHOLDER
--------------------------
In 1999, the Company entered into a $1,500,000 convertible line of credit
arrangement with a stockholder bearing interest at 12% and due on or
before March 7, 2001. The note was convertible at the holder's election
into common stock at $0.25 per share, was fully utilized, and was
converted into 6,000,000 shares in 2000.
In 2000, the Company entered into a new $1,500,000 convertible line of
credit at 12% interest with all principal and interest due on or before
April 7, 2002. The note is convertible at the holder's election into a
maximum of 6,000,000 shares of common stock at $0.25 per share. At
December 31, 2001, the Company had borrowed a total of $958,454 on this
line of credit and the holder had converted $761,250 of the debt into
3,045,000 common shares.
The intrinsic value of the beneficial conversion feature of $611,200 in
2000 and $66,420 in 2001 is included in interest expense and additional
paid-in capital in the accompanying financial statements.
6. COMMON STOCK
------------
In February 2000 the Company acquired 100% of the outstanding shares of
Society of Economic Assurance, Inc. ("SEA"), a Nevada public shell by
issuing 200,000 shares of its common stock. For accounting purposes, the
SEA acquisition was treated as a recapitalization.
In February 2000, the Company acquired the exclusive rights to the Miss
Beverly Hills, Miss Teen Beverly Hills , Mrs. Beverly Hills and Mr.
Beverly Hills beauty pageants The Company recorded the rights at the fair
value of the asset received which totaled $100,150. In exchange for the
rights, the Company paid cash of $25,000 and issued 45,000 shares of its
common stock at $1.67.
In February 2000, the Company sold 15,000 shares of its common stock in a
private placement at $1.67 per share for a total of $25,000. These shares
were repurchased in 2001 for $25,000.
In January 2001, the Company issued 15,000 shares of its common stock to
its former landlord in payment of accrued rent totaling $9,000.
On January 25, 2001, the Company issued 7,764,788 common shares valued at
$.53 per share to acquire all of the assets of Web Theatre, Inc. and Web
Pay Per View.com, Inc. In conjunction with these acquisitions, the Company
sold 1,000,000 shares of its common stock to two investors for a total of
$250,000. On March 30, 2001, all parties agreed to rescind these
transactions. The 7,764,788 shares issued for the acquisitions were
returned to the Company and the investors' shares were repurchased by the
Company for $90,000. Included in general and administrative expenses in
the consolidated statements of operations for 2001 are acquisition
expenses, rent and other general expenses totaling approximately $160,000
relating to these transactions.
F-19
ILIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
6. COMMON STOCK (CONTINUED)
------------------------
On August 6, 2001, the Company issued 100,000 shares of its common stock
for services valued at $24,000.
7. COMMITMENTS AND CONTINGENCIES
-----------------------------
LEASE OBLIGATIONS
-----------------
The Company leases office space for $5,000 per month under a month to
month operating lease from a stockholder of the Company. Rent expense
totaled $103,914 in 2001 and $101,000 in 2000.
LITIGATION
----------
The Company may from time to time be involved in various claims, lawsuits,
disputes with third parties, actions involving allegations of
discrimination, or breach of contract actions incidental to the operation
of its business. Currently, the Company is involved in the following
actions which may have a material impact on the Company's operations.
On July 20, 2001, a lawsuit was filed in the Superior Court of the State
of California for the County of Los Angeles, against the Company entitled
Al Moshiri v. iLive, Inc., et al. The complaint alleges various claims
seeking payment of alleged finder's fees and damages in the amount of
$500,000 and seeks punitive damages of $5,000,000. The Company denies
these claims and is vigorously defending the action.
On September 21, 2001, a lawsuit was filed in the Superior Court of the
State of California for the County of Orange, Jerry Nieto v. iLive, Inc.,
et al. The complaint alleges various claims seeking payment of past due
wages in the amount of $9,000, 750,000 shares of the Company's common
stock, and penalties and attorney fees. The Company denies these claims
and is vigorously defending the action.
8. PROVISION FOR INCOME TAXES
--------------------------
At December 31, 2001, the Company has a net operating loss carryforward
for federal tax purposes of $3,345,000 which, if unused to offset future
taxable income, will begin to expire in 2019 through 2020.
The Company had deferred tax assets of $1,337,000 at December 31, 2001
relating to its net operating loss. A valuation allowance has been
recognized to offset all of the related deferred tax asset due to the
uncertainty of realizing the benefit.
F-20
ILIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
9. BASIC AND DILUTED NET LOSS PER SHARE
------------------------------------
The following table illustrates the required disclosure of the
reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations.
2001 2000
------------- -------------
Basic income (loss) per share:
Numerator
Loss from continuing operations available to common stockholders $ (326,330) $ (2,183,901)
Gain (loss) from discontinued operations 1,724,983 (914,904)
------------- -------------
Net income (loss) $ 1,398,653 $ (3,098,805)
============= =============
Denominator
Basic weighted average number of common shares
outstanding during the period 24,606,781 16,769,814
============= =============
DILUTED INCOME (LOSS) PER SHARE:
Numerator
Loss from continuing operations available to common stockholders $ (326,330) $ (2,183,901)
Add: Interest expense on portion of debt unconverted 10,737 -
------------- -------------
Loss from continuing operations for diluted per share computation (315,593)
Gain (loss) from discontinued operations 1,724,983 (914,904)
------------- -------------
Net income (loss) for diluted per share computation $ 1,409,390 $ (3,098,805)
============= =============
Denominator
Basic weighted average number of common shares
outstanding during the period 24,606,781 16,769,814
Shares available for convertible debt 301,826 -
------------- -------------
Diluted weighted average number of common shares
outstanding during the period 24,908,607 16,769,814
============= =============
Incremental common shares (not included in the computation
of diluted earnings per share calculation due to their
antidilutive nature) attributable to exercise of:
Shares available for convertible debt - 2,435,520
============= =============
F-21
ILIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
10. GOING CONCERN
-------------
At December 31, 2001, the Company has current obligations of approximately
$666,000. In order to proceed with its business plan, the Company
estimates it needs an additional $500,000 to continue operations through
2002 and will need additional capital in 2003. The Company continues to
explore all possibilities in securing financing sufficient to cover
operating expenses until such time the Company reaches profitability.
Failure to raise additional funds will have a material adverse effect on
the Company's plan of operations.
11. SUBSEQUENT EVENTS
-----------------
Subsequent to year end, the Company issued 9,600,000 shares of its common
stock valued at $1,815,000 for $1,013,500 in internet content, $554,500 in
technical services to be provided in the future and $247,000 in investor
relations services to be provided in the future. In addition, the Company
issued $300,000 in 8% convertible notes and 100,000 accompanying warrants.
The debt is convertible into common shares at the stockholder's option, at
the lower of (i) $0.13 or (ii) 80% of the average of the three lowest
closing prices of the common stock for the 30 trading days before, but not
including, the conversion date.
F-22
- ---------------------------------------------------------- -----------------------------
You should rely only on the information contained in this
prospectus. We have not authorized anyone to provide you
with information different from the information contained
in this prospectus. This document may only be used where
it is legal to sell the securities. The information in
this document may only be accurate on the date of this
document. UP TO 13,150,000 SHARES
OF OUR
OF COMMON STOCK
TABLE OF CONTENTS
Page
----
Prospectus Summary 2
Risk Factors 3
Use Of Proceeds 6
Market For Common Equity And Related
Stockholder Matters 7
Management's Discussion And Analysis Or Plan Of
Operation 11 iLIVE, INC.
Business 14
Management 15 2102 Business Center Drive
Certain Relationships And Related Transactions 18 Irvine, California 92612
Security Ownership Of Certain Beneficial Owners (949) 660-0099
And Management 19
Description Of Securities 20
Plan Of Distribution 21
Selling Stockholders --------------
Legal Matters 24
Experts 25 PROSPECTUS
Available Information 25
Index To Financial Statements 26 --------------
April __, 2002
- ---------------------------------------------------------- -----------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the Nevada General Corporation Law and our Articles of
Incorporation, as amended, and our Bylaws, our directors will have no personal
liability to us or our stockholders for monetary damages incurred as the result
of the breach or alleged breach by a director of his "duty of care." This
provision does not apply to the directors' (i) acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law, (ii) acts or
omissions that a director believes to be contrary to the best interests of the
corporation or its stockholders or that involve the absence of good faith on the
part of the director, (iii) approval of any transaction from which a director
derives an improper personal benefit, (iv) acts or omissions that show a
reckless disregard for the director's duty to the corporation or its
stockholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a director's duties, of a risk
of serious injury to the corporation or its stockholders, (v) acts or omissions
that constituted an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the corporation or its stockholders, or
(vi) approval of an unlawful dividend, distribution, stock repurchase or
redemption. This provision would generally absolve directors of personal
liability for negligence in the performance of duties, including gross
negligence.
The effect of this provision in our Articles of Incorporation and
Bylaws is to eliminate the rights of our Company and our stockholders (through
stockholder's derivative suits on behalf of our Company) to recover monetary
damages against a director for breach of his fiduciary duty of care as a
director (including breaches resulting from negligent or grossly negligent
behavior) except in the situations described in clauses (i) through (vi) above.
This provision does not limit nor eliminate the rights of our Company or any
stockholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. In addition, our Bylaws
provide that if the Nevada General Corporation Law is amended to authorize the
future elimination or limitation of the liability of a director, then the
liability of the directors will be eliminated or limited to the fullest extent
permitted by the law, as amended. The Nevada General Corporation Law grants
corporations the right to indemnify their directors, officers, employees and
agents in accordance with applicable law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemization of all estimated
expenses, all of which we will pay, in connection with the issuance and
distribution of the securities being registered:
NATURE OF EXPENSE AMOUNT
----------------- ------
SEC Registration fee $ 641.27
Accounting fees and expenses 5,000.00*
Legal fees and expenses 8,000.00*
Printing and related expenses 3,000.00*
------------
TOTAL $ 16,641.27*
============
* Estimated.
II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On September 7, 1999, the Company issued 8,500,000 shares of its
"restricted" Common Stock to Street Capital, Inc., an "accredited" corporation,
at a price of $0.05 per share, resulting in net proceeds to the Company of
approximately $425,000. Scott Henricks, the Company's President & CEO, is also
the President and sole director of Street Capital, Inc. Albert Aimers, the
Company's Chairman of the Board is a majority shareholder of Street Capital,
Inc. The issuance was an isolated transaction not involving a public offering
pursuant to Section 4(2) of the Securities Act of 1933.
On September 7, 1999, the Company issued 1,500,000 shares of its
"restricted" Common Stock to Marcia Allen (the Company's former President, CEO,
and a director), an "accredited" individual, at a price of $0.05 per share,
resulting in net proceeds of the Company of $75,000. The issuance was an
isolated transaction not involving a public offering pursuant to Section 4(2) of
the Securities Act of 1933. On September 30, 1999 the Company issued 690,000
shares of its "restricted" Common Stock in exchange for all of the outstanding
common stock of Asia Pacific. The issuance was an isolated transaction not
involving a public offering pursuant to Section 4(2) of the Securities Act of
1933.
On February 22, 2000, the Company issued an aggregate of 45,000 shares
of its "restricted" Common Stock to four accredited individuals in exchange for
the exclusive rights to the Miss Beverly Hills, Miss Teen Beverly Hills, Mrs.
Beverly Hills, and Mr. Beverly Hills beauty pageants. The issuance was an
isolated transaction not involving a public offering pursuant to Section 4(2) of
the Securities Act of 1933.
On February 29, 2000, the Company entered into a Stock Exchange
Agreement with the shareholders of Society of Economic Assurance, Inc., a Nevada
corporation ("SEA") to acquire 100,000 shares (100%) of SEA, in exchange for
200,000 shares of its restricted common stock. The issuance was an isolated
transaction not involving a public offering pursuant to section 4(2) of the
Securities Act of 1933.
In February 2000, the Company initiated a private offering of up to
$5,000,000 worth of the Company's "restricted" Common Stock including warrants
to purchase additional shares of the Company's Common Stock (a "Unit"). As of
May 15, 2000, the Company has sold 5,000 Units shares resulting in net proceeds
of $25,000. The issuance were offered without general solicitation or
advertising to unrelated accredited investors under Rule 506 of Regulation D and
Section 4(2) of the Securities Act of 1933.
On September 30, 2000, the Company issued 6,000,000 common shares of
its "restricted" common stock upon conversion by Street Capital of the Company's
previously issued $1,500,000 note. The issuance was an isolated transaction
involving a public offering pursuant to Section 4 (2) of the Securities Act of
1933.
On January 9, 2001 The Company sold an aggregate of 1,000,000 shares of
its "restricted" common stock and warrants to purchase up to 1,000,000 shares of
its "restricted" common stock in two "accredited" investors, resulting in net
proceeds of $250,000. The issuance was an isolated transaction involving a
public offering pursuant to Section 4 (2) of the Securities Act of 1933.
Subsequently, however, the Company and the two investors agreed to rescind the
sale of the Company's common stock.
On January 25, 2001, pursuant to an Agreement for the Purchase and Sale
of Assets, agreed to issue to Web Theatre, Inc., an Arizona corporation,
3,448,320 shares of its "restricted" Common Stock and Warrants to purchases up
to 3,448,320 shares of the Company's "restricted" common stock at an exercise
price of $1.00 per share, in exchange for all of the assets of Web Theatre. On
March 25, 2001, however, the Company and Web Theatre agreed to rescind the
agreement.
On January 25, 2001, the Company, pursuant to an Agreement for the
Purchase and Sale of Assets, agreed to issue to Webpayperview, Inc., an Arizona
corporation, 4,307,771 shares of its "restricted" Common Stock and Warrants to
purchases up to 4,307,771 shares of the Company's "restricted" common stock at
an exercise price of $1.00 per share, in exchange for all of the assets of
Webpayperview. On March 25, 2001, however, the Company and Webpayperview agreed
to rescind the agreement.
II-2
On October 1, 2001 the Company issued 100,000 shares of its
"restricted" (as that term is defined by the Securities Act of 1933) common
stock , to an unaffiliated entity in exchange for services rendered in the
development of its website. The issuance was an isolated transaction involving a
public offering pursuant to Section 4 (2) of the Securities Act of 1933.
In January 2002, we entered into a securities purchase agreement with
the Laurus Master Fund, Ltd. for the issuance of a $300,000 principal amount of
8% convertible note and an aggregate of 100,000 common stock purchase warrants
in reliance on Section 4(2) of the Act and Rule 506.
On January 10, 2002, we entered into a verbal agreement to issue
850,000 shares of common stock to Bel Air Screen Group Inc. in consideration for
$161,500 worth of content. This verbal agreements was a binding commitment that
did not contain conditions that were within the control of the entity receiving
the shares of common stock.
On January 8, 2002, we entered into a verbal agreement to issue
1,300,000 shares of common stock to Driven Financial Group Inc. in consideration
for $247,000 worth of Investor Relations Services. This verbal agreements was a
binding commitment that did not contain conditions that were within the control
of the entity receiving the shares of common stock.
On January 4, 2002, we entered into a verbal agreement to issue
1,300,000 shares of common stock to Leico Investments Limited in consideration
for $247,000 worth of consulting services. This verbal agreements was a binding
commitment that did not contain conditions that were within the control of the
entity receiving the shares of common stock.
On January 22, 2002, we entered into a verbal agreement to issue
1,250,000 shares of common stock to Atlas Encoding Service Inc. in consideration
for $268,750 worth of services. This verbal agreements was a binding commitment
that did not contain conditions that were within the control of the entity
receiving the shares of common stock.
On January 15, 2002, we entered into a verbal agreement to issue
1,350,000 shares of common stock to Black Forest Films Inc. in consideration for
$290,250 worth of content. This verbal agreements was a binding commitment that
did not contain conditions that were within the control of the entity receiving
the shares of common stock.
On January 15, 2002, we entered into a verbal agreement to issue
1,400,000 shares of common stock to Axis Library Group Inc. in consideration for
$301,000 worth of content. This verbal agreements was a binding commitment that
did not contain conditions that were within the control of the entity receiving
the shares of common stock.
All of the above offerings and sales were deemed to be exempt under
Rule 506 of Regulation D and Section 4(2) of the Securities Act. No advertising
or general solicitation was employed in offering the securities. The offerings
and sales were made to a limited number of persons, all of whom were accredited
investors, business associates of iLive or executive officers of iLive, and
transfer was restricted by iLive in accordance with the requirements of the
Securities Act of 1933. In addition to representations by the above-referenced
persons, we have made independent determinations that all of the
above-referenced persons were accredited or sophisticated investors, and that
they were capable of analyzing the merits and risks of their investment, and
that they understood the speculative nature of their investment. Furthermore,
all of the above-referenced persons were provided with access to our Securities
and Exchange Commission filings.
II-3
ITEM 27. EXHIBITS.
The following exhibits are included as part of this Form SB-2.
References to "the Company" in this Exhibit List mean iLive, Inc., a Nevada
corporation.
Exhibit No. Description
SALE PURCHASE AGREEMENT
2.1 Asia Sale Agreement (previously filed)
ARTICLES OF INCORPORATION AND BYLAWS
3.1 Restated Articles of Incorporation (filed as an exhibit
to iLive's Form 10KSB filed on April 16, 2001 and
incorporated by reference herein)
3.2 Bylaws (filed as an exhibit to iLive's Form 10KSB filed
on April 16, 2001 and incorporated by reference herein)
INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS
4.1 Street Capital Convertible Note (filed as an exhibit to
iLive's Form 10KSB filed on April 25, 2002 and
incorporated by reference herein)
4.2 $300,000 8% Convertible Note issued to the Laurus Master
Fund, Ltd. (previously filed)
4.3 Common Stock Purchase Warrant issued to the Laurus
Master Fund, Ltd.
4.4 Securities Purchase Agreement. (previously filed)
4.5 Street Capital Convertible Note Maturity Date Extension
(previously filed)
OPINION REGARDING LEGALITY
5.1 Sichenzia Ross Friedman Ference LLP Opinion and Consent.
MATERIAL CONTRACTS
10.1 Employment Agreement with Scott Henricks (filed as an
exhibit to iLive's Form 10KSB filed on April 25, 2002
and incorporated by reference herein)
10.2 Employment Agreement with Albert Aimers (filed as an
exhibit to iLive's Form 10KSB filed on April 25, 2002
and incorporated by reference herein)
CONSENTS OF EXPERTS AND COUNSEL
23.1 Consent of independent auditors (filed herewith).
23.2 Consent of legal counsel (see Exhibit 5).
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ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes to:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of the
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) under the Securities Act if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
registration statement, and
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) For purposes of determining any liability under the Securities Act,
treat the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the City of Irvine,
State of California, on June 14, 2002.
ILIVE, INC.
By: /s/ Scott Henricks
--------------------------
Scott Henricks, President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Scott Henricks President, Chief Financial Officer June 14, 2002
- --------------------------- (principal accounting officer),
Secretary and Director
/s/ Albert Aimers Chief Executive Officer and Director June 14, 2002
- ---------------------------
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