SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 29, 2000
iLive, Inc.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of incorporation)
0-28549 95-4783826
------------------ --------------------------
(Commission File Number) (IRS Employer Identification No.)
242 N. Canon Drive, 3rd Floor
Beverly Hills, California 90210
--------------------------------
(Address of principal executive offices) (Zip Code)
(310) 285-5200
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Registrant's telephone number, including area code
Society of Economic Assurance, Inc.
610 Newport Center Dr., Suite 800
Newport Beach, CA 92660
(949) 719-1977
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(Former name, address, and telephone number)
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
(a) Pursuant to a Stock Exchange Agreement (the "Exchange Agreement")
effective as of February 29, 2000 between the shareholders (the "Shareholders")
of Society of Economic Assurance, Inc. ("SEA"), a Nevada corporation, and
iLive, Inc., a Nevada corporation ("iLive" or the "Company"), 100,000 shares,
consisting of 100% of the outstanding shares of common stock of SEA were
exchanged for 200,000 shares of the common stock of iLive in a transaction in
which iLive became the parent corporation of SEA.
The Exchange Agreement was adopted by the unanimous consent of the Board of
Directors of iLive on February 29, 2000. No approval of the shareholders of
iLive or SEA is required under applicable state corporate law.
Prior to the merger, SEA had 100,000 shares of common stock outstanding
which will be exchanged for 200,000 shares of common stock of iLive. By virtue
of the exchange, iLive acquired 100% of the issued and outstanding common stock
of SEA.
Prior to the effectiveness of the Exchange Agreement, iLive had an
aggregate of 15,053,334 shares of common stock, par value $.001, issued and
outstanding.
Upon effectiveness of the acquisition, iLive had an aggregate of
15,253,334 shares of common stock outstanding.
The officers of iLive continue as officers of iLive subsequent to the
Exchange Agreement. See "Management" below. The officers, directors, and
by-laws of iLive will continue without change.
A copy of the Exchange Agreement is attached hereto as an exhibit. The
foregoing description is modified by such reference.
(b) The following table sets forth certain information regarding
beneficial ownership of the common stock of iLive, Inc. as of January 31, 2000
(after the issuance of 200,000 shares pursuant to the Purchase Agreements) by:
(i) each director of the Company; (ii) each person who owns beneficially more
than 5% of each class of the Company's outstanding equity securities; and (iii)
all directors and executive officers as a group. The address of each person is
246 North Canon Drive, 3rd Floor, Beverly Hills, CA 90210.
Title Common Stock Percent of
of Class Name of Beneficial Owner Outstanding Outstanding
- --------------------- ----------------------- ------------ -----------
Common Stock Marcia Allen 1,500,000 9.83%
Common Stock Anastia Cronin 0 0.00%
Common Stock Mary Moriarty 30,578 0.20%
Common Stock Street Capital, Inc.(1) 8,500,000 55.73%
All Directors and
Officers as a Group
(4 Persons in total) 1,530,578 10.03%
- --------------------- ----------------------- ------------ -----------
(1) Scott Henricks is 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.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) The consideration exchanged pursuant to the Exchange Agreement was
negotiated between the Shareholders and iLive.
In evaluating iLive as a candidate for the proposed acquisition, the
Shareholders used criteria such as the value of the assets of iLive, its present
stock price as set forth on the over-the-counter bulletin board, its current
business operations and anticipated operations, and iLive's business name and
reputation. The Shareholders determined that the consideration for the exchange
was reasonable.
(b) iLive intends to continue its historical businesses and proposed
businesses as set forth more fully immediately below.
BUSINESS
iLive, Inc. ("iLive" or "the Company"), is a Nevada Corporation
headquartered in Beverly Hills, California. The Company is a development stage
entertainment and restaurant/private club company which seeks to combine the
fast growth and entertainment potential of the Internet with the strengths of a
traditional "brick and mortar" restaurant establishment.
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HISTORY OF THE COMPANY
The Company was 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"). 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 the Company
changed its name to Air Energy, Inc., and in December 1997, the Company changed
its name to Powerhouse International, Inc. From May 1996 until October 1999,
the Company was inactive. On September 30, 1999, the Company acquired all of
the outstanding common stock of Asia Pacific Co, Ltd., a Nuie corporation
("Asia-Pacific") in exchange for 690,000 shares of the Company's 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 ("Chasen's"), a
restaurant located in Beverly Hills, California. On October 21, 1999, the
Company changed its name to iLive, Inc. to better reflect its current business
plan.
BUSINESS OF THE ISSUER
iLive, Inc. ("iLive" or the "Company") is a development stage entertainment
and restaurant/private club company which seeks to combine the fast growth and
entertainment potential of the Internet with the strengths of a traditional
"brick and mortar" restaurant establishment. The Company operates a broadcast
entertainment Internet destination located at www.ilive.com. the Company plans
to broadcast musical groups and entertainers live over the Internet through its
web site. These musical groups and entertainers will then be presented before a
live audience of entertainment industry insiders and simulcast to the Company's
user base. The Company plans to have its Internet audience and insiders vote to
drive the editorial content to ensure that it is entertainment by the masses for
the masses. Successful entertainment will be supported and enhanced to be
packaged, sold and delivered to the consumer via multiple forms of media.
CHASEN'S / THE JOCKEY CLUB
The Company's "hard asset" traditional business is comprised of Chasen's /
The Jockey Club, a restaurant located in the heart of Beverly Hills. The
Company, through its wholly-owned subsidiary, Asia Pacific, a Niue company, owns
a 64% interest in 246 LLC, a California limited liability company d.b.a.
Chasen's. Chasen's has contracted with Asia-Pacific to manage and operate its
restaurant operations. The Company believes that Chasen's is one of the most
revered and established dining experiences in Southern California. Above its
restaurant, the Company has built The iLive Jockey Club - an exclusive enclave
which accepts a limited number of memberships, and which provides an intimate
and elegant setting for private parties, live shows and concerts, and special,
one-of-a-kind entertainment events. The Company intends the iLive Jockey Club
to be the first venue for iLive.com events.
In forming this relationship, iLive intends to create a
vertically-integrated entertainment company that both creates content for and
responds to the entertainment industry wishes and wants by becoming the place
where entertainment comes together.
ILIVE.COM
The Company's Web site, located at www.iLive.com, is currently under
development. The Company anticipates that its Web site will become fully
operational in the first quarter of 2000. The Company anticipates that its Web
site will encompass the following features:
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* MP3/video archive and live online events
* A comprehensive entertainment destination focusing on broadband and
e-commerce
* Original and sponsored entertainment, television style interactive
interviews, concerts, and high end products available for purchase and
auction
* Membership influenced artist development
* Character driven content
* Extensive consumer loyalty programs to attract and keep user attention
* Monthly CD-rom magazine with music and videos featuring iLive
entertainment
* E-commerce, CD Sales, artist paraphernalia, concert tickets, and auction
items
* "Vortal" (vertically integrated portal) style reporting on the
entertainment industry
* Partnerships or acquisitions of other like minded entertainment properties
There can be no assurances however, that the Company will be able to
incorporate any or all of these features. Unforeseen technical or other reasons
may prevent the Company from implementing these or other features into its
intended Web site.
The Company intends to launch in two phases. Phase I (which is currently
operational) offers a full featured record label package. The Company views
this initiative as a means to quickly build an audience which it will usher and
introduce to the iLive Network (Phase II).
Phase One: iLive Music and Online Launch
During this phase the Company has launched iLive.com as a music site. The
site is intended to be a place where independent and signed bands can
upload/self-publish (with iLive editorial approval) bios, music and fan
information. The consumer is able to download the band's music in MP3 and/or
Real Media format, vote on their favorite properties, get music and
entertainment news, see live or VOD (video-on-demand, similar to a video
jukebox) concerts and interviews from the iLive Jockey Club and become iLive
members.
Music is a well recognized Internet business strategy that the Company
intends to use to aggregate content and market share in one of the most
accessible Internet entertainment spaces, music. During this phase the Company
also plans to negotiate the acquisition of and begin production on proprietary
video entities, presented in Internet television and movie format. The intent is
to leverage this media and market foothold and move into phase two.
Phase Two: The iLive Network
Building on the efforts of phase one, the Company should be in a position
to develop iLive.com into an entertainment incubator, directing any and all
demographics into selected iLive properties. Using the television model, the
Company plans to develop/script iLive characters that produce music, movies and
television. The Company believes that as people become fans of the characters,
they will become fans of the entertainment properties that the characters are
associated with, thus creating a character driven network and an entertaining
delivery of Internet entertainment.
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To technically develop this concept, iLive plans to research and most
likely partner with and/or hire writers, and cross-media producers. The Company
believes that this approach has the ability to revolutionize the way people are
entertained via interactive media. The Company is currently developing a
complete revenue model based on the impact that a character driven Internet
entertainment network will have on the interactive industry.
Initial broadcasting is expected to be done from the Company's studios at
the iLive Jockey Club. The Company's internet servers are expected to be
located at SoftAware, an internet hosting facility. As part of their package,
SoftAware will provide full-power backup (UPS and diesel generator) and
monitored, multiple backbone connections.
iLive.com intends to deliver the majority of its music in MP3 format. MP3
is gaining popularity because it enables a global audience to easily download
music that is CD quality.
iLive.com intends to service the internet music audience by providing all
"plug-in players" necessary to stream or download audio or video. A plug-in is
simply a software module that operates on a user's computer. These plug-ins
come standard on approximately 80% of web browser packages. To ensure full
coverage, iLive.com will provide RealPlayer for Windows and Macintosh users.
MARKET DESCRIPTION
The Internet has grown rapidly in recent years, spurred by simple, low-cost
Internet access, inexpensive multimedia computers and easy-to-use web browsers.
The user experience has been enhanced by several technological innovation,
yielding multimedia capabilities such as streaming audio and video, and creative
text animations.
The development of streaming media products by Microsoft and RealNetworks
has made simultaneous transmission and playback a reality. Continuous streams
of audio and video can be delivered over widely-used 28.8 kb narrow bandwidth
modems, and will take advantage of higher bandwidth access ("broadband") to
produce audio and video as faster modems (56 kb) and cable and ISDN delivery
systems become more widely accepted.
Traditional television and radio broadcasters are limited in their ability
to identify real-time listeners. The Company, as an Internet broadcaster,
expects to be able to target a geographically dispersed audience at a relatively
low cost. In addition, Internet broadcasters can provide highly specific
information about a program's audience to content providers, advertisers, and
users of Internet business services.
The desire of many users to communicate and interact with others having
similar tastes and interests has spurred the growth of virtual Internet
communities. Communities serve an important function because they create a
virtual "town square" where users can meet and exchange ideas. Communities also
play a key role in the development of online commerce by providing advertisers
and businesses with a means to identify and target groups of users with desired
traits
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The Internet has the potential to replace certain categories of retail
stores and distribution methods by linking consumers directly to wholesale
distribution channels that provide selection, convenience and competitive
pricing. Online retailers typically offer products and services that can be
described and shipped easily and do not require the consumer's physical
presence. These products include CDs, books, videocassettes and computer
software. The Internet offers the opportunity for a retailer with a single
location or web site to inexpensively develop one-to-one relationships with
customers worldwide.
The development of streaming media, a technology that permits the
simultaneous transmission and playback of digitized audio and video, allows the
Internet to broadcast music, information, advertising and other content to
Internet users worldwide. Because audio streams are transmitted in digitized
form over telephone lines, they are unaffected by atmospheric or structural
barriers. As bandwidth increases, Internet audio quality is expected to improve
and become even better than, traditional broadcast radio. Advertisers who buy
time or space on Internet audio broadcasts can typically expect a more targeted
audience with the potential for immediate, impulse purchases.
By launching as a 24-hour live Internet entertainment site, the Company
hopes to position itself to capitalize on the audio and video capabilities of
this growing broadcast medium.
The Company is focusing its efforts and resources on music content that is
compelling to the 11-34 age bracket. According to the RIAA, approximately 40%
of all recorded music sales over the last four years were to customers who are
under 25 years of age. The Company believes that those who are most likely to
be early adopters of purchasing music through the Internet are in the 11 - 34
age bracket. For example, according to Jupiter Communications, a media research
firm, college students represent 34% of all Internet users. Strategic Marketing
Communications states that there are approximately 15.0 million college students
in the United States, 83% of who use the Internet regularly.
In addition, 90% of universities in the United States provide free
high-speed Internet access to their students and faculty community in
dormitories, study areas, computer labs, and offices; this means there is no
barrier to market entry for the remaining 17%. Management believes that the
Internet presents a significant opportunity for the rapid and cost-effective
distribution of recorded music.
Due to the emerging technologies of MP3 and SDMI (the "Secure digital Music
Initiative"), consumers are now using their computers to play music. Dataquest
estimates that in 1998, 30% of U.S. households had multimedia PCs with a sound
card, speakers and either a CD or DVD drive. Consumers can now play CDs on
their computers with the ease and fidelity formerly associated only with stereo
systems.
SDMI intends to bring together the worldwide recording industry and
technology companies to develop an open, interpretable architecture and
specification for digital music security. The hope is to answer demand for
convenient accessibility to quality digital music, enable copyright protection
for artists' work, and enable technology and music companies to build successful
businesses.
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The Company believes that new technological advances will continue to drive
growth of the market for downloadable music. Advances in compression
techniques, for example, have greatly reduced the size of digitally stored
recordings. The MP3 open standard can compress music files to one-tenth their
original size while maintaining their audio integrity at near-CD quality levels.
MP3 playback software is currently available on most operating environments
such as Microsoft Windows 95/98, Windows NT and Mac OS, most major versions of
UNIX and other operating environments. Forrester Research estimates that there
are already more than 50 million MP3-capable users today.
Consumer electronics companies and technology companies have capitalized on
the growing popularity of digital music by introducing portable music devices.
The Rio, introduced in November 1998 by Diamond Multimedia Systems, has already
sold over 300,000 units. Other manufacturers, including Creative Labs, Sensory
Sciences, RCA/Thomson, Samsung, Toshiba and LG Electronics have released or
announced plans to release portable MP3 players. In addition, other
manufacturers have produced or announced plans to produce, other devices for
playing and storing MP3 recordings. These include the Empeg Car (a removable,
automotive audio system capable of holding over 5,000 titles), Clarion's AutoPC
(an auto MP3 audio player) and Lydstrom's Songbank (a home stereo component that
stores and supports MP3 files).
As a result, the Company believes that Internet demand for downloadable
music will continue to grow and that technologies will continue to develop to
support its growth.
COMPETITION
The market for delivery of entertainment content over the Internet is new,
rapidly evolving and intensely competitive, and the Company expects competition
to intensify further in the future. Barriers to entry are relatively low, and
current and new competitors can launch new sites at a relatively low cost using
commercially available software. The Company anticipates that it will compete
with a number of other companies. The Company's direct competitors include
various online audio and video streaming sites such as the House of Blues,
through their Web site at hob.com; Yahoo through their Web site at
broadcast.com; Garage Band through their Web site at garageband.com; MP3 through
their Web site at MP3.com; Music Choice through their Website at
musicchoicelive.com; and Universal Music Group/MTV through their Web site at
farmclub.com.
The Company believes that its business model focused on the promotion and
distribution of music by putting the power back into the hands of ordinary
consumers provides the following advantages to both consumers and recording
artists and therefore, competitive advantages to the Company. The Company's
proposed operations:
* Gives new artists the opportunity to perform their music live before a
worldwide audience.
* Creates an easy and convenient way for consumers to listen to, download
and purchase music.
* Lowers the costs of artist promotion and distribution.
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* Enables artists to reach a large number of consumers.
* Enables consumers to discover new artists they might not be made aware of
through traditional music retailers.
* Facilitates direct communication between fans (consumers) and artists.
* Allows users (consumers) to listen to high quality artists pre-screened by
the Company.
* Gives both consumers and artists the ability to view and judge the
competition.
Management of the Company believes that these features will allow the
Company to effectively compete with its anticipated competitors. However, there
can be no assurances that the Company will be able to successfully complete the
development of its Web site or that it will be able to effectively compete with
its anticipated competitors. Most of the Company's current and potential
competitors have longer operating histories, larger customer bases, greater
brand recognition and significantly greater financial, marketing and other
resources. Competitive pressures created by any one of these companies, or by
the Company's competitors collectively, could have a material adverse effect on
the Company's business, results of operations and financial condition.
REGULATION
The Company is not currently subject to direct federal, state or local
regulation, and laws or regulations applicable to access to or commerce on the
Internet, other than regulations applicable to businesses generally. However,
there can be no assurances that the Company will not be subject to such
regulation in the future.
FACILITIES
iLive, Inc. currently operates at 242 N. Canon Drive, 3rd Floor, Beverly
Hills, CA, 90210. On October 1, 1999, the Company entered into an oral
month-to-month lease with the Company's majority shareholder, Street Capital,
Inc., for approximately 4,400 square feet in Beverly Hills, CA. This facility
serves as the Company's headquarters and administrative facility. Under the
terms of the oral lease, the monthly rent is currently scheduled to increase to
$14,500 on January 1, 2000 and will increase to $15,000 per month beginning on
July 1, 2000. The monthly rent will increase according to the Consumer Price
Index beginning on July 1, 2001. The lease is currently scheduled to terminate
on July 1, 2004.
EMPLOYEES
As of December 15, 1999, the Company employed 5 people on a full time
basis. Additionally, Chasen's Restaurant, of which the Company, through its
wholly-owned subsidiary Asia-Pacific, holds a 64% interests, currently employs
80 people on a full time basis.
LEGAL PROCEEDINGS
No current or pending litigation, and no claims or counter claims involving
the Company as a Plaintiff or a Defendant exist.
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MANAGEMENT
The officers and directors, and key employees of the Company are as
follows:
Name Age Positions
---- --- ---------
Marcia Allen 49 President Chief Executive Officer, and
Director
Albert Aimers 37 Chairman of Board and Director
Anastasia Cronin 39 Chief Financial Officer, Controller,
Corporate Secretary, and Treasurer
Mary Moriarty 37 Vice-President, Director
Kenny Buttice 49 Director of Musical Content
EXECUTIVE OFFICERS:
MARCIA ALLEN, is currently the Company's President and Chief Executive
Officer. Between 1991 and October 1999, Ms. Allen was the president of Allen
Gordon & Associates, Inc., a corporate finance advisory organization focused
primarily on mid-sized companies in the entertainment, hospitality and related
industries. Between 1984-1991, Ms. Allen was President of Allen Brenner, Inc.,
a money management firm. Between 1978 and 1983, Ms. Allen was a Financial
Officer and Corporate Development Officer for W.R. Grace & Co. (NYSE). Between
1976 to 1978, Ms. Allen was the CFO and Controller of Taco Bell, Inc.
ALBERT AIMERS, is currently the Company's Chairman of the Board. Between
February 1998 and December, 1999, Mr. Aimers functioned as a private venture
capitalist in Southern California. His investments were primarily focused on
small to mid size private and public companies. Prior to entering the US
investment market, Mr. Aimers was a investment professional in the Canadian
markets between 1995 and February,1998. Mr. Aimers business background began
with product sales and marketing and moved into investments and investor
relations in the early 1990's.
ANASTASIA CRONIN, is currently the Company's Chief Financial Offer,
Controller, Corporate Secretary, and Treasurer. In addition to fulfilling her
duties to the Company, Ms. Cronin is the CFO, Controller, and Manager for
Chasen's Restaurant. Ms. Cronin has served as the Chief Financial Officer,
Controller, and Manager for Chasen's Restaurant since June 1997. Prior to her
service with Chasen's, Ms. Cronin was an Office Manager and Accountant from
February 1996 to June 1997, for the Hard Rock Caf in Universal City,
California. Ms. Cronin has a Bachelor of Science degree in International
Business from the American College in Leysin, Switzerland.
MARY MORIARTY, is currently a Vice-President and Director of the Company.
Between November 1994 to the present, Mr. Moriarty has been an Executive
Vice-President for Chasen's Restaurant, of which the Company owns a 64%
interest.
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KEY EMPLOYEES:
KENNETH BUTTICE, is currently The Company's Director of Musical Content.
Between 1996 and 1999 he worked as the President of ICA's (Independent Creative
Artists) Music Division. From 1994 and 1995 he held the position of Vice
President of Maverick Records (which is headed by Madonna). Between 1992 and
1994, Mr. Buttice was Vice President of Promotion for Gasoline Alley Records.
Between 1986 and 1990 he was an independent consultant for several major record
labels including; Warner, Elektra/Asylum, Atlantic, EMI and BMG. In 1980 he was
promoted to Senior Vice President of Elektra/Asylum Records and took over
Artists and Repertoire (the identifying and signing of new artists) and
Promotional Activities. In 1972 the CEO of Elektra Records head-hunted Mr.
Buttice and moved him to Los Angeles where he was promoted to spearhead the
specialized singles' sales department. A small portion of the highly successful
artists with whom Mr. Buttice has been actively involved include: The Eagles,
The Cars, Joni Mitchell, Madonna, Queen, INXS, Motely Crue, Rod Stewart and
Fleetwood Mac.
EXECUTIVE COMPENSATION
On September 1, 1999, the Company entered into an oral, at-will, employment
agreement with Marcia Allen, the Company's President and CEO, whereby the
Company will pay Ms. Allen an annual salary of $120,000. The agreement also
requires the Company to provide health benefits to Ms. Allen and her family and
to allow Ms. Allen the opportunity to participate in the Company's retirement,
stock option and bonus plans as they may be established.
On September 1, 1999, the Company entered into an oral, at-will, employment
agreement with Anatasia Cronin, the Company's Chief Financial Officer,
Controller, Corporate Secretary, and Treasurer, whereby the Company will pay Ms.
Cronin an annual salary of $50,000. The agreement also requires the Company to
provide health benefits to Ms. Cronin and her family and to allow Ms. Cronin the
opportunity to participate in the Company's retirement, stock option and bonus
plans as they may be established.
On September 1, 1999, the Company entered into an oral, at-will, employment
agreement with Mary Moriarty, the Company's Vice-President, whereby the Company
will pay Ms. Moriarty an annual salary of $60,000. The agreement also requires
the Company to provide health benefits to Ms. Moriarty and her family and to
allow Ms. Moriarty the opportunity to participate in the Company's retirement,
stock option and bonus plans as they may be established.
CERTAIN TRANSACTIONS
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 is the President and sole director 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, an "accredited" individual, at a
price of $0.05 per share, resulting in net proceeds of the Company of $75,000.
Ms. Allen is the Company's President and CEO. The issuance was an isolated
transaction not involving a public offering pursuant to Section 4(2) of the
Securities Act of 1933.
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On September 7, 1999, the Company raised $1,500,000 through debt financing
in the form of a $1,500,000 convertible note (the "Note"). 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 March 7, 2001. The note is
convertible, at anytime given 15 days's 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.
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.
RISK FACTORS
FUTURE CAPITAL NEEDS. To date the Company has relied on funding from its
restaurant operations. To date, the company has generated little revenue and
the Company has extremely limited cash liquidity and capital resources.
Consequently, the Company's business plan requires additional funding. Any
equity financings would result in dilution to the Company's then-existing
stockholders. Sources of debt financing may result in higher interest expense.
Any financing, if available, may be on terms unfavorable to the Company. If
adequate funds are not obtained, the Company may be required to reduce or
curtail operations.
COMPETITION. The market for capital and financing resources for emerging
growth companies is marked by numerous small, as well as large, competitors.
Additionally, the market for delivery of entertainment content over the Internet
is new, rapidly evolving and intensely competitive, and the Company expects
competition to intensify further in the future. Most of the Company's current
and potential competitors have longer operating histories, larger customer
bases, greater brand recognition and significantly greater financial, marketing
and other resources. Competitive pressures created by any one of these
companies, or by the Company's competitors collectively, could have a material
adverse effect on the Company's business, results of operations and financial
condition. We may not be able to successfully complete the launch of its Web
site or that it will be able to effectively compete with its anticipated
competitors.
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INTERNET RELATED RISKS. The Company may be subject to federal, state, and
local laws concerning the conduct of business on the Internet. Today, there are
relatively few laws specifically directed towards online services. However, due
to the increasing popularity and use of the Internet and online services, it is
possible that laws and regulations will be adopted with respect to the Internet
or online services.
DEPENDENCE ON MANAGEMENT. The Company's success depends, to a significant
extent, upon certain key employees and directors, including Marcia Allen,
Anastasia Cronin, and Mary Moriarty. The loss of services of one or more of
these employees could have a material adverse effect on the business of the
Company.
DEPENDENCE ON ADVISORY BOARD. The Company intends to engage the services
of an advisory board consisting of individuals experienced in the music and
entertainment industry to assist it in developing and promoting its music and
entertainment offerings. Currently, the Company has contracted with Arthur
("Artie") Mogul to chair the Advisory Board and to assist in recruiting
additional members of the music and entertainment industry to join the board.
Failure to retain the services of Mr. Mogul or to recruit additional persons
experienced in the music and entertainment industry may have a material adverse
effect on the Company's results of operations..
PROTECTION OF PROPRIETARY INFORMATION. The Company has applied to the U.S.
Patent and Trademarks Office for the registration of the Company's trade name,
iLive, and its logo. The Company's application is currently undergoing review.
No assurances, however, can be given as to successfulness of the Company's
application.
The Company's restaurant operations consists of Chasen's, a restaurant
located in Beverly Hills, California. The Company, through its wholly-owned
subsidiary, Asia Pacific, a Niue company, owns a 64% interest in 246 LLC, a
California limited liability company d.b.a. Chasen's. Pursuant to a licensing
agreement by and between 246 LLC and Chasen Food Specialties, Inc., a California
corporation ("Licensor") dated February 1, 1997, 246 LLC has been granted an
exclusive ten year license to use and market the name "Chasen's" with respect to
the operation of a restaurant, within a 100 mile radius of the city of Beverly
Hills, California.
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In addition, the agreement grants 246 LLC a non-exclusive license to use
the Chasen's name during the term of the agreement to market a variety of
licensed products; an exclusive license to market licensed products consisting
of cigars and other tobacco-related paraphernalia; and a non-exclusive license
to prepare and sell Chasen's famous chili. The agreement may be extended for
two successive five year periods and for up to 99 successive one year term
subject to payment of required royalties. In exchange 246 LLC is obligated to
pay a royalty equal to one and one-half percent of the restaurant's gross
proceeds for the first 18 months of the agreement increasing to 2% thereafter.
In addition, 246 LLC is obligated to pay a royalty equal to eight percent of any
licensed products sold for $75.00 or less and a royalty of 6% of any licensed
products sold for more than $75.00. Licensed products consists of any
merchandise bearing the Chasen's mark. In any event, 246 LLC is obligated to
pay a minimum royalty of $18,000 commencing 18 months from the signing of the
agreement. The minimum royalty is adjusted according to the consumer price
index each year thereafter and shall be paid in four equal installments on the
last day of each calendar quarter. Pursuant to the terms of the agreement, 246
LLC may terminate the agreement at any time given 120 days written notice.
Although the Company's relationship with Chasen's Food Specialties, Inc. is
good, are should remain so with continued contract compliance, failure to
maintain the Licensing agreement by the Company could have a material adverse
effect on the Company's restaurant and Internet business' results of operations.
DEPENDENCE ON MAJOR SUPPLIERS. The Company does not intend to host its
intended Web site through its own facilities but is dependent on a third-party
Internet Service Provider. On November 5, 1999, the Company entered into a
month-to-month Internet Colocation Service Contract with SoftAware, Inc.,
whereby SoftAware has agreed to host the Company's anticipated Web site. Under
the terms of the Agreement, the Company has agreed to pay SoftAware a $995.00
installation fee and a $3,000 per month Internet Service fee for each computer
server installed. The Company has options to purchase space for additional
computer servers at $2,000 per month for each server. Although the Company
believes that its relations with SoftAware are strong and should remain so with
continued contract compliance, the termination of the Company's contract with
SoftAware, the loss of Internet services provided by SoftAware, or a reduction
in the quality of service the Company receives from SoftAware could have a
material adverse effect on the Company's results of operations. In the event
that SoftAware were to discontinue its service to the Company, the Company
believes that it would be able to locate alternative suppliers to host its
intended Web site at comparable rates. However, there can be no assurances that
the Company will be successful in locating alternative suppliers.
DIFFICULTY OF PLANNED EXPANSION; MANAGEMENT OF GROWTH. The Company plans to
expand its level of operations. The Company's operating results will be
adversely affected if net sales do not increase sufficiently to compensate for
the increase in operating expenses caused by this expansion. In addition, the
Company's planned expansion of operations may cause significant strain on the
Company's management, technical, financial and other resources. To manage its
growth effectively, the Company must continue to improve and expand its existing
resources and management information systems and must attract, train and
motivate qualified managers and employees. There can be no assurance, however,
that the Company will successfully be able to achieve these goals. If the
Company is unable to manage growth effectively, its operating results will be
adversely affected.
12
YEAR 2000 ISSUES. The Company has completed a review of its computer systems
and non-information technology ("non-IT") systems to identify all systems that
could be affected by the inability of many existing computer and microcomputer
systems to process time-sensitive data accurately beyond the year 1999, referred
to as the Year 2000 or Y2K issue. The Company is dependent on third-party
computer systems and applications. The Company also relies on its own computer
and non-IT systems (which consist of personal computers, internal telephone
systems, internal network server, Internet server and associated software and
operating systems). In conducting the Company's review of its internal systems,
the Company performed operational tests of its systems which revealed no Y2K
problems. As a result of its review, the Company has discovered no problems
with its systems relating to the Y2K issue and believes that such systems are
Y2K compliant. The Company has obtained written assurances from SoftAware, its
major supplier, as to its Y2K readiness. However, the Company has not obtained
written assurances from any other supplier regarding the status of those
suppliers with respect to the Y2K issue, and the Company does not currently have
any plans to obtain such assurances. Costs associated with the Company's review
were not material to its results of operations and are not anticipated to be
material in the future.
The Company did not experience any adverse effect related to the Year 2000 issue
subsequent to December 31, 1999 up to the date of this report. However, because
of the complexity of the Year 2000 issue and the interdependence of
organizations using computer systems, there can be no assurances that the
Company's efforts, or those of third parties with whom the Company interacts,
have fully resolved all possible Year 2000 issues. Failure to satisfactorily
address the Y2K issue could have a material adverse effect on the Company. The
most likely worst case Y2K scenario which management has identified to date is
that, due to unanticipated Y2K compliance problems, the Company's Web site or
computer software may not function as intended or that the Company may not be
able to bill its customers on a timely basis. Should this occur, it would
result in a material loss of some or all gross revenue for an indeterminable
amount of time, which could cause the Company to cease operations. In the event
of failure of one or more of its suppliers due to Y2K issues, the Company's only
recourse for any damages suffered would be through litigation. The Company has
not yet developed a contingency plan to address this worst case Y2K scenario,
and does not intend to develop such a plan in the future.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not applicable
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 5. OTHER EVENTS
Upon execution of the Exchange Agreement and delivery of the iLive shares
to the shareholders of SEA, pursuant to Rule 12g-3(a) of the General Rules and
Regulations of the Securities and Exchange Commission, iLive became the
successor issuer to SEA for reporting purposes under the Securities Exchange Act
of 1934 and elected to report under the Act effective March 1, 2000.
ITEM 6. RESIGNATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
Not applicable.
ITEM 7. FINANCIAL STATEMENTS
Included in this report are the following financial statements as required
by Item 301 of Regulation S-B: 1) Interim financial statements of iLive, Inc.
for the nine-months ended September 30, 1999; 2) Interim financial statements
of Asia Pacific Ltd., for the nine-months ended September 30, 1999; 3) Audited
financial statements of iLive, Inc. for the years ended December 31, 1998, 1997,
1996, 1995, and 1994; and 4) Audited financial statements of Asia Pacific Ltd.,
for the years ended December 31, 1998 and December 31, 1997. Audited financial
statements of iLive, Inc. for the fiscal year ended December 31, 1999 will be
included in the Company's amended Form 8K-12G3 within the prescribed period.
1) Interim financial statements of iLive, Inc. for the nine-months ended
September 30, 1999:
ILIVE, INC.
Consolidated Financial Statements
September 30, 1999
(Unaudited)
13
iLive, Inc.
Consolidated Balance Sheet
(Unaudited)
ASSETS SEPTEMBER 30, 1999
-----------------
CURRENT ASSETS:
Cash $ 575,180
Inventories 77,717
Other 21,899
-----------------
TOTAL CURRENT ASSETS 674,796
PROPERTY AND EQUIPMENT, NET 1,843,379
OTHER ASSETS 66,384
-----------------
$ 2,584,559
=================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 1,109,845
Accounts payable 533,663
Accrued interest 106,209
Sales taxes 57,031
Other accrued expenses 184,422
-----------------
TOTAL CURRENT LIABILITIES 1,991,170
-----------------
MINORITY INTERESTS 18,780
-----------------
COMMITMENTS AND CONTINGENCIES -
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value, 100,000,000 shares authorized,
15,053,148 shares issued and outstanding 15,053
Additional paid-in capital 1,705,657
Accumulated deficit (1,146,101)
-----------------
TOTAL SHAREHOLDERS' EQUITY 574,609
-----------------
$ 2,584,559
=================
See notes to the financial statements.
14
iLive, Inc.
Consolidated Statements of Operations
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
1999 1998
---------- ----------
REVENUES $ - $ -
---------- ----------
EXPENSES:
General and administrative - -
---------- ----------
- -
---------- ----------
LOSS FROM OPERATIONS - -
INTEREST EXPENSE - -
---------- ----------
NET LOSS $ - $ -
========== ==========
BASIC AND DILUTED NET LOSS PER SHARE $ - $ -
========== ==========
BASIC AND DILUTED WEIGHTED AVERAGE SHARES
OUTSTANDING 5,297,408 4,363,148
========== ==========
See notes to the financial statements.
15
iLive, Inc.
Consolidated Statements of Shareholders' Equity
For the Nine Months Ended September 30, 1999
(Unaudited)
COMMON STOCK
------------------- ADDITIONAL TOTAL
NUMBER AMOUNT PAID-IN ACCUMULATED SHAREHOLDERS'
OF SHARES PER SHARE PAR VALUE CAPITAL DEFICIT EQUITY
------------ ----------- ---------- ------------- -------------- ------------
BALANCE, DECEMBER 31, 1998 4,363,148 $ 4,363 $1,141,738 $ (1,146,101) $ -
Common stock
issued for cash 10,000,000 $ 0.050 10,000 490,000 - 500,000
Common stock issued
for purchase of Asia
Pacific Co., LTD 690,000 $ 0.108 690 73,919 0 74,609
------------ ---------- ------------- -------------- ------------
BALANCE, SEPTEMBER 30, 1999 15,053,148 $ 15,053 $1,705,657 $ (1,146,101) $ 574,609
============ =========== ========== ============== ============
See notes to the financial statements.
16
iLive, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
1999 1998
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash acquired in purchase of Asia Pacific Co., LTD $ 75,180 $ -
Net cash provided by investing activities 75,180 -
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock 500,000 -
------------ -----------
Net cash provided by financing activities 500,000 -
------------ -----------
Net increase in cash 575,180 -
CASH, BEGINNING OF PERIOD - -
------------ -----------
CASH, END OF PERIOD $ 575,180 $ -
============ ===========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Purchase of all the common stock of Asia Pacific Co., LTD
in cxchange for 690,000 shares of common stock valued
at $74,609
Fair value of assets acquired, including $75,180 in cash $ 2,084,559 $ -
Fair value of liabilities assumed $ (1,934,770)
Common stock issued (74,609) -
------------ -----------
$ 75,180 $ -
============ ===========
See notes to the financial statements.
17
iLive, Inc.
Notes to Financial Statements
September 30, 1999
(Unaudited)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-------------------------------------------------------------------------
Nature of Business
- --------------------
iLive, Inc. (formerly Powerhouse International Corporation) was incorporated in
1987 in the state of Nevada, has been inactive since 1996, and had no assets or
liabilities at August 31, 1999. On September 7, 1999 iLive issued 10,000,000
shares of common stock for $500,000 and on September 30, 1999, it acquired Asia
Pacific Co., LTD ("Asia Pacific") by issuing 690,000 of its common shares in
exchange for all of the outstanding common shares of Asia Pacific. This
acquisition was accounted for as a purchase.
Asia Pacific was incorporated in October 1995 in Niue (a foreign country). In
1996 Asia Pacific acquired a controlling 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.
Prior to the acquisition, Asia Pacific had $2,084,559 in assets and $2,009,950
in liabilities, which approximate their fair value. The 690,000 shares issued
were valued at $74,609, which equals the net assets acquired and therefore, no
goodwill was recorded.
The following summarized pro forma (unaudited) information assumes the
acquisition had occurred on January 1, 1998.
NINE MONTHS ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- ------------------- -------------------
REVENUE $ 2,434,580 $ 3,611,508 $ 2,713,162
==================== =================== ===================
NET LOSS $ (821,917) $ (317,272) $ (1,159,731)
==================== =================== ===================
NET LOSS PER SHARE $ (0.14) $ (0.06) $ (0.23)
==================== =================== ===================
The accompanying consolidated financial statements include the accounts of
iLive, Inc. ("iLive") and its wholly owned subsidiary, Asia Pacific Co., LTD
("Asia Pacific") and Asia Pacific's majority owned subsidiary, 246 LLC (dba
Chasen's), (collectively, the "Company"). All material intercompany
transactions and accounts have been eliminated in consolidation.
18
iLive, Inc.
Notes to Financial Statements
(Unaudited)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Cash and equivalents
- ----------------------
The Company considers all liquid investments with a maturity of three months or
less from the date of purchase that are readily convertible into cash to be cash
equivalents.
Inventories
- -----------
Inventories, consisting of food, liquor, wine and cigars and cigarettes, are
stated at the lower of cost (first-in, first-out) or market.
Property and equipment
- ------------------------
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is provided over the assets' estimated useful lives of 5-7 years
using accelerated methods. Amortization of leasehold improvements is provided
over the lease term using the straight line method.
Long-lived assets are reviewed annually for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset 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.
Income taxes
- -------------
The Company accounts for income taxes under Statement of Financial Accounting
Standards (SFAS) 109. Under the asset and liability method of SFAS 109,
deferred income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory rates applicable to future years to
the difference between the financial statement carrying amounts and the tax
bases of existing assets and liabilities.
Minority interests
- -------------------
Minority interests represent the minorities' 37.25% equity in 246 LLC.
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.
19
iLive, Inc.
Notes to Financial Statements
(Unaudited)
1. NATURE OF BUSINESS AND 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 certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Fair value of financial instruments
- ---------------------------------------
The fair value of financial instruments, consisting primarily of notes payable
and long-term debt, is based on interest rates available to the Company and
comparison to quoted prices. The fair value of these financial instruments
approximates carrying values.
Concentration of credit risk
- -------------------------------
Financial instruments that potentially subject the Company to concentrations of
credit risk consist of cash maintained at two high credit quality financial
institutions located in Los Angeles, California. There were no uninsured
balances at December 31, 1998.
2. PROPERTY AND EQUIPMENT
ESTIMATED
USEFUL LIVES AMOUNT
-------------- ----------
Leasehold improvements Life of lease $1,906,207
Kitchen equipment 5 years 279,157
Furnishings and fixtures 7 years 704,545
China and silverware 5 years 96,420
Sound system equipment 5 years 69,501
Office and computer equipment 5 years 42,060
----------
3,097,890
Accumulated depreciation (1,254,511)
--------------
$1,843,379
==========
20
iLive, Inc.
Notes to Financial Statements
(Unaudited)
3. NOTES PAYABLE
Various unsecured demand notes payable to minority interests,
with interest rates at 10% and 19.99% $ 336,439
Unsecured 10% and 12% demand note payable to affiliates 199,397
Secured 10% demand note payable to affiliate 455,000
Other 119,009
----------
$1,109,845
==========
4. CONVERTIBLE NOTE
The Company has a convertible note in the amount of $1,500,000 with an annual
interest rate of 12%. Pursuant to the terms of the note, the Company is
required to repay the principal and interest on or before March 7, 2001. 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. The Company received proceeds from the note subsequent to September 30,
1999.
5. REVERSE COMMON STOCK SPLIT
On September 13, 1999 the Company effected a 5-for-1 reverse split of its common
stock. Accordingly, all references to number of common shares, except shares
authorized, and to per share information in the consolidated financial
statements have been adjusted to reflect the reverse stock split on a
retroactive basis.
6. INCOME TAXES
The Company recognizes deferred tax assets and liabilities for temporary
differences between the financial reporting and tax bases of its assets and
liabilities. Deferred tax assets are reduced by a valuation allowance when
deemed appropriate.
Under Section 382 of the Internal Revenue Code, the utilization of net operating
loss carryforwards is limited after an ownership change, as defined, to an
annual amount equal to the market value of the loss corporation's outstanding
stock immediately before the date of the ownership change multiplied by the
highest Federal long-term tax exempt rate in effect for any month in the 3
calendar month period ending with the calendar month in which the ownership
change occurred. Due to the ownership change as a result of the issuance of
10,000,000 shares of common stock, the Company's utilization of net operating
losses may be limited. The determination of whether a change in control has
occurred can be a very complex and time consuming process. The Company is not
currently in a position to determine specifically whether or not a change in
control has occurred.
21
iLive, Inc.
Notes to Financial Statements
(Unaudited)
6. COMMITMENTS AND CONTINGENCIES
Lease obligations
- ------------------
The Company leases office space at a monthly rental rate of $13,500 per month on
a month to month basis. The monthly rental amount is scheduled to increase to
$14,500 on January 1, 2000, to $15,000 per month beginning July 1, 2000, and
adjusted annually according to the Consumer Price Index beginning on July 1,
2001.
The Company's restaurant and office facilities operating lease expires February
28, 2006, with two 5-year renewal options. The lease calls for payment of the
Company's share of the common area expenses in addition to minimum monthly lease
payments. The minimum monthly lease payment of $23,400 through March 1999 is
adjusted annually thereafter based on the Consumer Price Index.
In addition the Company is obligated to pay percentage rent equal to 7.5% of
monthly gross sales in excess of $250,000 and $10,000 annually, in the form of
unrestricted credit, towards any purchases of food, beverage, or other
restaurant services.
The Company leases point-of-sale computer equipment and related software for
$1,940 per month under an operating lease expiring February 2000.
Future minimum annual lease payments under all non-cancelable operating leases
are:
1999 $ 304,080
2000 284,680
2001 280,800
2002 280,800
2003 280,800
Thereafter 608,400
--------
$2,039,560
===========
License agreement
- ------------------
The Company has entered into an agreement to the use the name "Chasen's" through
February 1, 2007 with an option to renew for two successive 5-year periods,
followed by successive periods of 1 year each up to 99 years. The agreement
grants the Company exclusive license of the name for the operation of a
restaurant in the city of Beverly Hills and other exclusive and non-exclusive
licenses relating to the sale of certain products at the restaurant bearing the
"Chasen's" name. The Company has agreed to pay a royalty of 1-1/2% of the
restaurant gross receipts for the first 18 months and 2% for each year
thereafter, an 8% royalty on the sale of licensed products sold for $75 or less
and 6% on licensed products sold for more than $75. The royalty payments are
subject to an $80,000 annual minimum after the first 18 months of the agreement.
The Company has the right to terminate the agreement for any reason upon not
less than 120 days written notice to licensor. The licensor can only terminate
the agreement for cause as described in the agreement.
22
2) Interim financial statements of Asia Pacific Ltd., for the nine-months
ended September 30, 1999:
ASIA PACIFIC CO., LTD
Consolidated Financial Statements
September 30, 1999
(Unaudited)
23
ASIA PACIFIC CO., LTD
Consolidated Balance Sheet
(Unaudited)
SEPTEMBER 30, 1999
--------------------
ASSETS
CURRENT ASSETS:
Cash $ 75,180
Inventories 77,717
Other 21,899
--------------------
TOTAL CURRENT ASSETS 174,796
PROPERTY AND EQUIPMENT, NET 1,843,379
OTHER ASSETS 66,384
--------------------
$ 2,084,559
====================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 1,109,845
Accounts payable 533,663
Accrued interest 106,209
Sales taxes 57,031
Other accrued expenses 184,422
--------------------
TOTAL CURRENT LIABILITIES 1,991,170
MINORITY INTERESTS 18,780
COMMITMENTS AND CONTINGENCIES -
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value, 10,000,000 shares authorized,
6,866,089 shares issued and outstanding 6,866
Additional paid-in capital 3,383,041
Accumulated deficit (3,315,298)
--------------------
TOTAL SHAREHOLDERS' EQUITY 74,609
--------------------
$ 2,084,559
====================
See note A to the financial statements.
24
ASIA PACIFIC CO., LTD
Consolidated Statements of Operations
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
-------------------- --------------------
REVENUES $ 2,434,580 $ 2,548,175
-------------------- --------------------
EXPENSES:
Cost of food and beverage 755,110 790,599
Labor 1,209,187 1,033,502
Rent 449,100 247,776
Licensing fee 71,115 34,530
Other restaurant operating 278,757 292,361
General and administrative 389,045 241,412
Depreciation and amortization 559,324 281,047
-------------------- --------------------
3,711,638 2,921,227
-------------------- --------------------
LOSS FROM OPERATIONS (1,277,058) (373,052)
INTEREST EXPENSE 43,674 40,679
-------------------- --------------------
LOSS BEFORE MINORITY INTERESTS (1,320,732) (413,731)
MINORITY INTERESTS 498,815 199,448
-------------------- --------------------
NET LOSS $ (821,917) $ (214,283)
==================== ====================
BASIC AND DILUTED NET LOSS PER SHARE $ (0.12) $ (0.03)
==================== ====================
BASIC AND DILUTED WEIGHTED AVERAGE SHARES
OUTSTANDING 6,866,089 6,769,089
==================== ====================
See note A to the financial statements.
25
ASIA PACIFIC CO., LTD
Statements of Cash Flows
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
-------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (821,917) $ (214,283)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 559,324 281,047
Minority interest (498,815) (59,448)
Changes in assets and liabilities:
Inventories 45,879 7,802
Other current assets (11,183) (11,362)
Deposits and other assets 202,105 3,175
Accounts payable 6,771 (15,020)
Accrued interest 37,799 34,060
Advances from affiliates (91,573) 116,841
Sales taxes (22,536) 60,604
Other accrued expenses 103,591 (296,782)
-------------------- --------------------
Net cash used by operating activities (490,555) (93,366)
-------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (10,274) (75,647)
Net cash used by investing activities (10,274) (75,647)
-------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 556,464 169,047
Net cash provided by financing activities 556,464 169,047
-------------------- --------------------
Net increase in cash 55,635 34
CASH, BEGINNING OF PERIOD 19,545 18,872
-------------------- --------------------
CASH, END OF PERIOD $ 75,180 $ 18,906
==================== ====================
See note A to the financial statements.
26
ASIA PACIFIC CO., LTD.
NOTE A TO FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
A. SALE OF THE COMPANY
On September 30, 1999, iLive, Inc. (formerly known as Powerhouse International
Corporation) acquired the Company by issuing 690,000 of its common shares in
exchange for all the outstanding common shares of the Company.
27
3) Audited financial statements of iLive, Inc. for the years ended December
31, 1998, 1997, 1996, 1995, and 1994.
POWERHOUSE INTERNATIONAL CORPORATION
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, 1996, 1995 AND 1994
28
DAVID M. RASKIN
Certified Public Accountant
530 South Federal Highway, Suite 160
Deerfield Reach, Florida 33441
(954) 421-5055 Fax (954) 426-4611
Independent Auditor's Report
To the Board of Directors
Powerhouse International Corporation
Boca Raton, Florida
I have audited the accompanying consolidated balance sheets of Powerhouse
International Corporation as of December 31, 1998, 1997, 1996, 1995 and 1994 and
the related consolidated statements of operations and retained earnings
(accumulated deficit), consolidated statements of stockholders' equity
(deficit), and consolidated statements of cash flows for the years then ended.
Thcsc financial statements are the responsibility of the Companys management.
My responsibility is to express and opinion on these financial statements bored
on my audits.
I conducted any audits in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain treasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the accompanying financial statements present fairly, in all
material respects, the financial position of Powerhouse International
Corporation as of December 31, 1998,1997, 1996, 1995 and 1994, the results of
opcrations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
David M. Raskin
Certified Public Accountant
July 16, 1999
29
POWERHOUSE INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998, 1997, 1996, 1995 AND 1994
ASSETS
1998 1997 1996 1995 1994
----- ----- ----- ---------- --------
Current assets:
Cash $ - $ - $ - $ 33,973 $(1,318)
Accounts receivable -trade - - - - -
Inventory - - - - -
Loans receivable - officers - - - 6,600 6,600
Notes receivable - shareholders - - - - -
Prepaid expenses - - - 68,983 72,228
Deferred charges - - - - -
------ ----- ----- --------- -------
Total current assets - - - 109,556 77,510
------ ----- ----- --------- -------
Property, plant, and equipment:
Office equipment - - - 55,008 2,850
Machinery and equipment - - - 401,686 -
Vehicles - - - 6,330 2,500
Leashold improvements - - - 573,000 -
------ ----- ----- --------- -------
Sub-totals - - - 1,036,024 5,350
Less: Accumulated depreciation - - - 1,008,035 -
------ ----- ----- --------- -------
Net property, plant, and equipment - - - 27,989 5,350
------ ----- ----- --------- -------
Other assets:
Organizational costs - - - - -
Goodwill, net of amortization - - - 98,750 -
Covenant, net of amortization - - - 33,265 -
Deposits - - - 43,454 7,900
------ ----- ----- --------- ------
Total other assets - - - 175,469 7,900
------ ----- ----- --------- ------
Total assets $ - $ - $ - $ 313,014 $90,760
------ ----- ----- ---------- -------
30
POWERHOUSE INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998, 1997, 1996, 1995 AND 1994
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ---------
Current liabilities:
Accounts payable end
accrued expenses $ - $ - $ - $ 598,731 $ 33,880
Loans payable - shareholders - - - 1,065 7,336
Notes payable - - - 457,621 6,206
----------- ----------- ----------- ----------- ---------
Total current liabilities - - - 1,057,417 47,442
----------- ----------- ----------- ---------- ---------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock -10,000,000 shares author-
ized, none issued and outstanding - - - - -
Common stock - $.001 par value
100,000,000 shares authorized, issued,
And outstanding at December 31:
1998 - 21,815,737 shares 21,816 - - - -
1997 - 21,815,737 shares - 21,816 - - -
1996 - 21,815,737 shares - - 21,816 - -
1995 - 7,613,034 shares - - - 7,613 -
1994 - 234,030 shares - - - - 234
Paid-in capital in excess of par value
On common stock 1,124,285 1,124,285 1,124,285 1,118,286 71,671
Notes receivable from officers - - - - -
Retained earnings (accumulated deficit) (1,146,101) (1,146,101) (1,146,101) (1,870,302) (28,567)
---------- ----------- ----------- ----------- --------
Total stockholders' equity (deficit) - - - (744,403) 43,338
---------- ----------- ----------- ----------- -------
Total liabilities and stockholders'
Equity (deficit) $ - $ - $ - $ 313,014 $ 90,760
----------- ----------- ----------- ----------- --------
31
POWERHOUSE INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND
RETAINED EARNINGS (ACCUMULATED DEFICIT) .
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, 1996,1995 AND 1994
1998 1997 1996 1995 1994
----- ----- ---------- ------------ ---------
Gross revenues $ - $ - $ 391,001 $ 810,154 $ -
Less: Sales returns and allowances - - - - -
----- ----- --------- ----------- --------
Net revenues - - 391,101 810,154 -
Cost of goods sold - - 165,267 289,344 -
----- ----- -------- ---------- -------
Gross profit on sales - - 225,734 520,810 -
General and administrative expenses:
Professional fees - - 350 272,401 2,240
Rent and real estate taxes - - 143,184 156,158 3,900
Depreciation and amortization - - - 48,933 -
Interest - - - 14,098 743
Other - - 363,730 681,378 6,479
----- ----- -------- ---------- ------
Total general and administrative - - 507,264 1,172,968 13,362
----- ----- -------- ---------- -------
Income (loss) before other income
and expenses - - (281,530) (652,158) (13,362)
Other income and expenses
Gain (loss) on abandonment
sale of equipment - - 5,975 - -
Asset Impairment - - (3,221) (1,210,585) -
Interest income - - - - -
Other income - - - 21,575 -
----- ----- -------- ---------- ------
Total other income and expenses - - 2,754 (1,189,010) -
----- ----- -------- ----------- ------
Income (loss) from continueing operations
Before provision for income taxes - - (278,776) (1,841,168) (13,362)
32
POWERHOUSE INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND
RETAINED EARNINGS (ACCUMULATED DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, 1996, 1995 AND 1994
1998 1997 1996 1995 1994
----------- ----------- ------------ ------------ --------
Provision for income taxes - - - 567 -
----------- ---------- ------------ ----------- -------
Income (loss) from continuing operations - - (278,776) (1841,735) (13,362)
Discontinued operations (Read Note 3)
Loss from discontinued operations (Less
applicable income taxes $-0-) - - (2,115,836) - -
---------- --------- ----------- --------- ------
Net income (loss) before
extraordinary item - - (2,394,612) (1,841,735) (13,362)
---------- --------- ------------ ---------- --------
Extraordinary item
Gain on early extinguishment of debt
(less applicable income taxes $-0-) - - 3,118,813 - -
---------- --------- ----------- --------- --------
Net income (loss) - - 724,201 (1,841,735) (13,362)
Retained earnings (accumulated
deficit) - beginnning of year - - (1,870,301) (18,567) (15,205)
--------- --------- ----------- ---------- ---------
Retained earnings (accumulated
deficit) - end of year $ - $ - $( 1,146,101) $(1,870,302) $(28,567)
----------- ----------- ------------- ------------ ---------
Weighted average number of
Common shares outstanding 21,815,737 21,815,737 16,353,159 3,702,356 93,004
----------- ----------- ------------ ------------ ---------
Earnings (loss) per common share: $ - $ - $ 0.044 $ (0.497) $ (0.144)
----------- ----------- ------------- ------------ ---------
Income (loss) from continuing operations $ - $ - $ (0.017) $ (0.497) $ (0.144)
Loss from discounted operations $ - $ - (0.129) - -
Extraordinary items - - 0.190 - -
Net income (loss) per share $ - $ - 0.044 (0.497) $ (0.144)
----------- ------------ ------------- ------------ ---------
33
POWERHOUSE INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,1998, 1997, 1996, 1995 AND 1994
1998 1997 1996 1995 1994
---- ---- ------------ ------------ ---------
Cash flows from operating activities:
Net income (loss) - - $ 724,201 $(1,841,735) $(13,362)
---- ----- ----------- ------------ ---------
Adjustments to reconcile net income (loss)
To net cash provided by (used in) oper-
Ating activities:
Depreceiation and amortization - - - 63,174 -
Loss on impairment of assets - - 3,221 1,210,585 -
(Gain) loss on sale and abandon-
ment of equipment - - (5,975) 5,875 -
(Gain) on early extinguishment of debt - - (3,118,813) - -
Loss from discontinued operations - - 2,115,836 - -
Changes in assets and liabilities
Accounts receivable - trade - - - - -
Inventory - - - - -
Loans receivable - officers - - (6,600) - (6,600)
Notes receivable - shareholders - - - - -
Prepaid expenses - - (68,983) (27,386) (38,944)
Deferred charges - - - - -
Goodwill - - (98,750) - -
Covenant - - (33,265) - -
Deposits - - (43,454) (35,554) (7,900)
Accounts payable and
Accrued expenses - - 598,731 102,709 33,880
Loans payable - shareholders - - 1,065 (6,271) 13,541
Notes payable - - 457,621 - -
---- ---- --------- --------- -------
Total adjustments - - (199,366) 1,313,132 6,023
Net cash provided by (used in) oper-
ating activities - - 524,835 (528,603) (19,385)
---- ---- ---------- ---------- --------
34
POWERHOUSE INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,1998, 1997, 1996, 1995 AND 1994
1998 1997 1996 1995 1994
----- ----- ---------- ---------- ---------
Cash flows from investing activities:
Payments to acquire property, plant,
and equipment - - - (247,457) (5,350)
Organizational costs - - (98,750) - (33,284)
Goodwill - - - - -
Covenant - - (33,265) - -
---- ----- ---------- -------- ----------
Net cash provided by (used in)
investing activities - - (132,015) (247,457) (38,634)
---- ----- ---------- --------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock - - 20,202 197,211 56,701
Proceeds from the issuance of notes payable - - - (38,393) -
Repayment of notes payable - - (457,621) 50,000 -
Repayment of shareholders loans - - 10,626 602,533 -
---- ----- ----------- --------- --------
Net cash provided by (used in)
financing activities - - (426,793) 811,351 56,701
---- ----- ----------- --------- --------
Net increase (decrease) in cash - - (33,973) 35,291 (1,318)
Cash balance - beginning of year - - 33,973 (1,318) -
---- ----- ---------- --------- --------
Cash balance - end of year $ - $ - $ - $ 33,973 $ (1,318)
----- ----- ----------- ----------- ---------
35
POWERHOUSE INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31,1998,1997, 1996,1995 AND 1994
Paid-in capital Retained
in excess of earnings Notes
Preferred shares Common shares par value on (Accumulated receivable
Number Amount Number Amount common stock deficit) from officers Total
------- ------- ------ ------- ------------- ------------- ------------- -------------------
Balance - $ - 67,363 $ 67 $ 15,138 $ (15,205) $ - $ -
September
8, 1994
(inception)
Issuance of - - 166,667 167 56,533 - - 56,700
common stock
Net loss
inception to
December 31,
1994 - - - - - (13,362) - (13,362)
------- ------- -------- ------- ------------ ------------ ------------ ----------------
Balance
December 31,
1994 234,030 234 71,671 (28,567) - 43,338
Proceeds of
limited offering
(Note 14) - - 330,781 331 108,827 - - 109,158
Exercise of
stock options
(Note 15) - - 3,765,831 3,766 584,624 - (446,657) 141,733
Stock exchanged
for services
(Note 11) - - 2,382,392 2,382 537,121 - - 539,503
Issuance of
common stock
(Note 16) - - 900,000 900 262,700 - - 263,600
Notes receivable
from officers - - - - (446,657) - 446,657 -
Net loss
December 31, 1995 - - - - - (1,841,735) - (1,841,735)
---- ----- -------- ------- ---------- ----------- -------- ------------
Balance
December 31, 1995 - - 7,613,034 7,613 1,118,286 (1,870,302) - (744,403)
Issuance of
common stock - - 14,202,703 14,203 5,999 - - 22,202
Net income
December 31, 1996 - - - - - 724,201 - 724,201
---- ----- ---------- ------- ------------- ------------ ----------- -----------
Balance
December 31,
1998, 1997,
and 1996 - $ - 21,815,737 $ 21,816 $ 1,124,285 $ (1,146,101) $ - $ -
----- ------ ---------- -------- ------------- ------------- ----------- -----------
36
POWERHOUSE INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997, 1996, 1995 and 1994
1. INCORPORATION AND ORGANIZATION
Powerhouse International Corporation originally was incorporated In April, 1987,
in the State of Nevada as Sandalwood Corporation (Sandalwood). In 1988,
Sandalwood sold its existing operations and became inactive. In November, 1994,
Sandalwood acquired Spaceplex-One, Inc. (Spaceplex-One). a corporation
incorporated in the State of New York, on September 8, 1994. The acquisition was
accounted for as a recapitalization of Spaceplex-One and a purchase by
Spaceplex-One of Sandalwood. On November 21, 1994, the legal name of Sandalwood
was changed to Spaceplex Amusement Centers International. Ltd. ("Spaceplex") .
Spaceplex through its subsidiaries engaged in the business of operating family
amusement centers.
In May, 1996, the majority of Spaceplex's shares were acquired by new owners. In
May, 1996, Spaceplex changed its name to Air Energy, Inc., and in December,
1997, Air Energy, Inc. changed its name to Powerhouse International Corporation
(the "Company"). (See Note 5.)
In December, 1997, the Company was in the process of acquiring all of the issued
end outstanding shares of stock of Checking Exchange, Inc., a Florida
corporation ("Checking Exchange"). The Company, through Checking Exchange was
engaged in the business of check cashing. (See Note 6.) This transaction was
never finalized.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
- -------------
The consolidated financial statements include the accounts of Spaceplex and its
wholly-owned subsidiary and the Company. All material Iintercompany accounts
and transactions have been eliminated.
Goodwill
- --------
Goodwill represents the excess of the cost of the net assets acquired over the
fair value at the date of acquisition. The goodwill is amortized on the
straight-line method.
Basis of presentation
- -----------------------
In April, 1996, Spaceplex filed Chapter 11 bankruptcy proceedings. Accordingly.
Spaceplex reduced its assets to fair value and recognized impairment loss in the
Income statement. The impaired assets are property and equipment, goodwill,
covenant not to compete, and deferred charges. The fair value was determined
based upon estimated market values at that time. The impairment loss was valued
at $1,210,585.
37
POWERHOUSE INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997, 1996, 1995 and 1994
In April, 1996, Spaceplex satisfied all outstanding debts and claims utilizing
all of its remaining assets and was discharged from bankruptcy. In April, 1996,
Spaceplex discontinued all operations. (See Notes 3 and 4.)
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 disclosures 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 different from those estimates, Significant estimates
include those related to valuation of fixed assets and intangibles. It is as
leased reasonably possible that the significant estimates used will change
within the next year.
Property and equipment
- ------------------------
Property and equipment is stated at cost. Major expenditures for property and
equipment and those which substantially increase the useful lives are
capitalized. Maintenance, repairs, and minor renewals are expensed as incurred.
When assets are retired or otherwise disposed of, their cost and related
accumulated depreciation are removed from the accounts and resulting gains or
losses are included In Income.
Depreciation will be provided by accelerated methods over the estimated useful
lives of the assets.
Covenant not to-compete
- -----------------------
In August, 1995, as part of a purchase of assets by Spaceplex, the sellers
entered into a covenant not to compete with Spaceplex, which is amortized using
the straightline method over an eight month period. Amortization expense was
$7,397 in 1995.
3. DISCONTINUED OPERATIONS
In April, 1996, Spaceplex filed Chapter 11 bankruptcy proceedings. As a result
of those proceedings, in April, 1996, Spaceplex satisfied all outstanding debts
and claims utilizing all of its remaining assets to satisfy such outstanding
debts and claims and was discharged from bankruptcy. As a result of utilizing
all of its assets to satisfy all outstanding debts and claims. Spaceplex
discontinued all operations in April, 1996.
38
POWERHOUSE INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997, 1996, 1995 and 1994
4. EARLY EXTINGUISHMENT OF DEBT
Due to Spaceplex's bankruptcy and the satisfaction of all of its outstanding
debts and claims utilizing all of its remaining assets to satisfy such
outstanding debts and claims, certain notes payable totaling $739,118.00 were
extinguished in April, 1996. (See Notes 3 and 12.)
5. CHANGE OF CONTROL
On May 17, 1996, the control of Spaceplex changed as a result of the exchange of
21,030,351 share of common stock, $.001 par value of American Powerhouse, Inc.
(American Powerhouse) for $52,575,877 authorized, but previously unissued shares
of the common capital stock $.001 par value, of Spaceplex. This resulted in
Spaceplex having 54,539,342 shares of common stock, $.001 par value issued and
outstanding as of that date. On May 17, 1996, the directors of Spaceplex
approved a 1-for-2.5 stock split resulting In the reduction of the issued and
outstanding shares of Spaceplex's common stock, $.001 par value, and after
giving effect to the 1-for-2.5 reverse stock split, Spaceplex had 21.815,737
shares of common stock $.001 par value issued and outstanding as of that date.
6. ACQUISITION OF CHECKING EXCBANGE
On December 5, 1997, the Company was to issue 500,000 shares of its common
stock, $.001 par value share of stock to acquire Its wholly-owned subsidiary,
Checking Exchange, which would have resulted in the Company having 22,315,737
shares of common stock $.001 par value issued and outstanding. The transaction
was never finalized and the stock was never issued.
7. NET INCOME (LOSS) PER SHARE
Net income (loss) per share Is computed based on the weighted average number of
common and common stock equivalent shares.
8. FINANCIAL INSTRUMENTS
The Company's financial instruments include cash and payables for which carrying
amounts approximate fair value.
39
POWERHOUSE INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997, 1996, 1995 and 1994
9. PROPERTY, EQUIPMENT, AND. DEPRECIATION
Major classes of property and equipment consist of the following:
1998 1997 1996 1995 1994
----- ----- ----- ---------- ------
Office equipment $ - $ - $ - $ 55,008 $2,850
Machinery and equipment - - - 401,686 -
Vehicles - - - 6,330 2,500
Leashold improvements - - - 573,000 -
Sub-total - - - 1,036,024 5,350
Less: Accuulated depreciation
and amortization - - - 1,008,035 -
Net property and equipment $ - $ - $ - $ 27,989 $5,350
The depreciation expense was $41,536 in 1995.
Spaceplex did not record any depreciation on the assets in 1994 as they had not
been placed in service.
Spaceplex discontinued all operations in. April, 1996. (See Notes 2, 3, and 4.)
10. RECAPITALIZATION
Effective November 9, 1994, Spaceplex acquired the stock of Spaceplex-One in a
reverse acquisition in which the shareholders of Spaceplex-One acquired control
of Spaceplex. The acquisition was accomplished through an exchange of stock In
which Spaceplex exchanged 5 million shares of newly Issued $.001 par value
common stock for 100% of the outstanding stock of Spaceplex-One. Upon completion
of this transaction, the shareholders of Spaceplex-One controlled approximately
71% of the voting rights of the combined company.
For financial reporting purposes, Spaceplex-one is deemed to be the acquiring
entity. The merger has been reflected as a recapitalization of Spaceplex-One
with the capital restated as of the date of inception.
On May 17,1896, the control of Spaceplex changed as a result of the exchange of
21,030,351 shares of common stock, $.001 par value of American Powerhouse, Inc.
for $52,575,877 authorized but previously unissued share of the common capital
stock $.001 par value, of Spaceplex. This resulted in Spaceplex having
40
POWERHOUSE INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31. 1998, 1997, 1996, 1995 and 1994
54,539,342 shares of common stock, $.001 par value issued and outstanding as of
that date. On May 22, 1996, the directors of Spaceplex approved a 1-for-2.5
stock split resulting in the reduction of the issued and outstanding shares of
Spaceplex's common stock, $.001 par value, and after giving effect to the 1-for-
2.5 reverse stock split, Spaceplex had 21,815,737 shares of common stock $.001
par value issued and outstanding as of that date.
On December 5, 1997, the Company was to issue 500,000 shares of its common
stock, $.001 par value shares of stock to acquire its wholly-owned subsidiary,
Checking Exchange, resulting in the Company having 22,315,737 shares of common
stock $.001 par value issued and outstanding. The transaction was never
finalized and the stock was never issued.
11. NON-MONETARY TRANSACTIONS
Asset acquisition
- ------------------
On August 9, 1995, Spaceplex-One executed an asset purchase agreement, which was
valued at $1,335,200, to acquire assets of Complesports, Inc and its affiliates
(Complesports), an existing family amusement center In St. James, NY. The
purchase was inclusive of existing leases, trademarks, registrations of names,
as well as goodwill and a covenant not to compete. Spaceplex-One effectively
acquired the operations of the facility.
In connection with the acquisition, Spaceplex paid $179,000 in cash, executed
promissory notes in the amount of $300,000, assumed debt of Complesports of
$650,000, and exchanged 400,000 shares of common stock valued at $1,031,000.
Spaceplex discontinued ail operations in April, 1996. (See Notes 2, 3, and 4.)
Shareholder loans
- ------------------
In June, 1995, the Company issued common stock in exchange for promissory notes
from officers of the Company in the amount of $602,533. In May, 1996, these
shareholder loans were written off as worthless:
Stock exchanged for services
- -------------------------------
In July and August, 1995, the Company issued common stock in exchange for
services valued at $48,050.
Spaceplex discontinued all operations in April, 1996. (See Notes 2, 3, and 4.)
41
POWERHOUSE INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997, 1996, 1995 and 1994
12. NOTES PAYABLE
Notes payable consist of the following:
1998 1997 1996 1995 1994
------- ----- ----- -------- ------
Cash flows from investing activities
Promissory note, interest, non-
compounded at 6%, payable in full
on March 22, 1995 $ - $ - $ - $ 50,000 $ -
Promissory note, payable in three equal
installments of $100,000 due in
November, 1995 - - - 300,000 -
Notes payable, due on demand with
interest paid monthly at rates of 13% to
15% per annum - - - 60,901 6,206
Notes payable, due on demand with
interest of 11% per annum - - - 46,720 -
$ - $ - $ - $457,621 $6,206
These notes were extinguished in April, 1996, in connection with Spaceplex's
bankruptcy. (See Notes 3 and 4.)
13. COMMITMENTS AND-CONTINGENCIES
In August, 1995, upon consummation of an acquisition agreement, Spaceplex
assumed the operating lease for the St. James, NY facility. The lease expires
May 31, 2000, and provides for minimum annual rentals plus Increases based on
real estate taxes. The lease was terminated In April, 1996, due to Spaceplex
discontinuing all operation in April, 1996. (See Notes 2, 3, and 4.)
14. SHAREHOLDERS' EQUITY
On November 4, 1994, the Board of Directors authorized a one-for-ten (1-for-10)
reverse stock split, thereby decreasing the number of issued and outstanding
shares of common stock to 2,020,900. Additionally, Spaceplex amended its
Articles of Incorporation, authorizing 10,000,000 shares of $.01 par value
Preferred Stock, which at the discretion of the Board of Directors may be
divided into classes at a future date.
42
POWERHOUSE INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997, 1996, 1995 and 1994
Effective November 4, 1994, Spaceplex issued an additional 5,000,000 shares of
common stock pursuant to the Plan of Acquisition of Spaceplex-One. This
increased the total number of shares outstanding to 7,020,900 (234,030 shares,
as restated for the February 28, 1995, reverse stock split).
On December 19, 1994, Spaceplex initiated a limited offering for 3,030,303
shares of common stock at a price of $.33 per share.
On February 28, 1995, the Board of Directors authorized a one-for-thirty
(1-for-30) reverse stock split, with fractional shares receiving a full share of
stock. The number of issued and outstanding shares was decreased to 271,014
without affecting par value. All references in the accompanying financial
statements to the number of common shares and per share amounts have been
restated to reflect the reverse stock split.
At June 30, 1995, 330,781 shares of stock related to the limited offering were
outstanding.
On May 17, 1996, the control of Spaceplex changed as a result of the exchange of
21,030,351 shares of common stock, $.001 par value of American Powerhouse, Inc.,
for 52,575,877 authorized, but previously unissued shares of the common capital
stock $.001 par value, of Spaceplex. This resulted in Spaceplex having
54,539,342 shares of common stock, $.001 par value issued and outstanding as of
that date, On May 22, 1996, the directors of Spaceplex approved a 1-for-2.5
stock split resulting in the reduction of the issued and outstanding shares of
Spaceplex's common stock, $.001 par value, and after giving effect to the
1-for-2.5 reverse stock split, Spaceplex had 21,815,737 shares of common stock
$.001 par value issued and outstanding as of that date.
Spaceplex discontinued all operations in April, 1996. (See Notes 2, 3, and 4.)
15. STOCK OPTION PLAN
On March 1, 1995, Spaceplex adopted an Incentive Stock Option Plan (the Plan)
whereby options to purchase 10 million shares of common stock may be granted
until March 1, 2005. The Plan is administered by and the terms of stock
purchases are established by the Board of Directors. Qualified options, under
the Plan, may be granted only to key employees and/or officers of the Company at
fair market value at the time the option is granted. Options may be exercised at
any time prior to the expiration date of the option.
43
On March 1, 1995, Spaceplex granted stock options to the Company's Chief
Executive Officer and Chief Operating Officer entitling them each to purchase
5,000,000 shares of common stock at a purchase price of $0.16 per share. The
options expire on March 1, 2005.
On March 6, 1995, the officers exercised their options and purchased 1,600,000
shares each In exchange for promissory notes totaling $512,000. The promissory
notes are due March 5, 2001, with simple interest charged at 5% per annum.
On April 14, 1995, the officers exercised additional options for a total of
565,831 shares in exchange for promissory notes totaling $90,533. The notes are
due April 13, 2011.
Promissory notes receivable, totaling $143,500 at June 30, 1995, have
subsequently been collected and, accordingly, are included in current assets.
The remaining promissory notes receivable are shown on the balance sheets as a
reduction in equity.
At June 30, 1995, options to purchase 3,214,169 shares were outstanding.
In April, 1996, all remaining notes given for options were extinguished in
exchange for cancellation of all outstanding options.
16. RELATED PARTY TRANSACTION
On May 22, 1996, the Company sold 21,030,315 shares of common stock, $.001 par
value of American Powerhouse, Inc., to Denis C. Tseklenls in exchange for a
promissory note in the amount of $20,202.00 which has been satisfied.
44
4) Audited financial statements of Asia Pacific Ltd., for the years ended
December 31, 1998 and December 31, 1997.
ASIA PACIFIC CO., LTD
Consolidated Financial Statements
December 31, 1998
45
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Asia Pacific Co., LTD
We have audited the accompanying consolidated balance sheet of Asia Pacific Co.,
LTD (the "Company") as of December 31, 1998, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
two years in the two year period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Asia Pacific Co.,
LTD as of December 31, 1998, and the results of its operations and its cash
flows for each of the two years in the two year period ended December 31, 1998
in conformity with generally accepted accounting principles.
CACCIAMATTA ACCOUNTANCY CORPORATION
Irvine, California
December 6, 1999
46
ASIA PACIFIC CO., LTD.
Consolidated Balance Sheet
DECEMBER 31, 1998
-------------------
ASSETS
CURRENT ASSETS:
Cash $ 19,545
Inventories 123,596
Other 10,716
-------------------
TOTAL CURRENT ASSETS 153,857
PROPERTY AND EQUIPMENT, NET 2,392,429
OTHER 268,489
-------------------
$ 2,814,775
===================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 644,954
Accounts payable 526,892
Accrued interest 68,410
Sales taxes 79,567
Other accrued expenses 80,831
-------------------
TOTAL CURRENT LIABILITIES 1,400,654
MINORITY INTERESTS 517,595
COMMITMENTS AND CONTINGENCIES -
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value, 10,000,000 shares authorized,
6,866,089 shares issued and outstanding 6,866
Additional paid-in capital 3,383,041
Accumulated deficit (2,493,381)
-------------------
TOTAL SHAREHOLDERS' EQUITY 896,526
-------------------
$ 2,814,775
===================
The accompanying notes are an integral part of these consolidated financial
statements.
47
ASIA PACIFIC CO., LTD.
Consolidated Statements of Operations
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997
---------- ------------
REVENUES:
Food and beverage $ 3,249,064 $ 2,674,758
Club memberships 362,444 38,404
---------- ------------
3,611,508 2,713,162
EXPENSES:
Cost of food and beverage 1,135,604 1,013,266
Labor 1,408,995 1,401,192
Rent 337,195 310,356
Licensing fee 87,898 40,121
Other restaurant operating 398,813 525,229
General and administrative 381,909 966,546
Depreciation and amortization 428,810 266,376
----------- ------------
4,179,224 4,523,086
----------- ------------
LOSS FROM OPERATIONS (567,716) (1,809,924)
INTEREST EXPENSE 36,942 4,807
----------- ------------
LOSS BEFORE MINORITY INTERESTS (604,658) (1,814,731)
MINORITY INTERESTS 287,386 655,000
----------- ------------
NET LOSS $ (317,272) $(1,159,731)
=========== ============
BASIC AND DILUTED NET LOSS PER SHARE $ (0.05) $ (0.17)
=========== ============
BASIC AND DILUTED WEIGHTED AVERAGE SHARES 6,769,089 6,769,089
=========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
48
ASIA PACIFIC CO., LTD.
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1998 and 1997
COMMON STOCK ADDITIONAL TOTAL
NUMBER AMOUNT PAID-IN NOMINEE ACCUMULATED SHAREHOLDERS'
OF SHARES PER SHARE PAR VALUE CAPITAL INTERESTS DEFICIT EQUITY
BALANCE, DECEMBER 31, 1996 6,739,089 $6,739 $ 2,899,196 $ - $(2,627,163) $ 278,772
Common stock issued for cash 30,000 $ 1.00 30 29,970 - - 30,000
Cash contribution from nominee interests - - - 2,083,301 - 2,083,301
Net loss - - - (1,247,169) 87,438 (1,159,731)
--------- ---------- ----------- ----------- ------------ ------------
BALANCE, DECEMBER 31, 1997 6,769,089 6,769 2,929,166 836,132 (2,539,725) 1,232,342
Common stock issued to nominee
interests 97,000 $ 3.68 97 356,875 (356,972) - -
Net loss - - - (479,160) 161,888 (317,272)
--------- ---------- ----------- ------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 6,866,089 $6,866 $ 3,286,041 $ - $(2,377,837) $ 915,070
========= ========== =========== ============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
49
ASIA PACIFIC CO., LTD.
Statements of Cash Flows
YEAR ENDED DECEMBER 31,
1998 1997
---------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(317,272) $(1,159,731)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 428,810 266,376
Minority interest (287,386) (655,000)
Changes in assets and liabilities:
Inventories 19,078 (142,674)
Other current assets 10,492 (21,208)
Deposits and other assets 1,070 (33,159)
Accounts payable (69,497) 572,380
Accrued interest 25,550 42,860
Sales taxes 45,793 33,774
Other accrued expenses (288,587) 638,148
---------- ------------
Net cash used by operating activities (431,949) (458,234)
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (75,117) (2,189,978)
Net cash used by investing activities (75,117) (2,189,978)
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 481,808 59,838
Payments on notes payable (211,069) (721,004)
Contribution from minority interests 140,000 1,060,000
Contribution from nominee interests - 2,083,301
Issuance of common stock 97,000 30,000
Net cash provided by financing activities 507,739 2,512,135
---------- ------------
Net increase (decrease) in cash 673 (136,077)
CASH, BEGINNING OF PERIOD 18,872 136,750
---------- ------------
CASH, END OF PERIOD $ 19,545 $ 673
========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 11,392 $ 14,016
Franchise taxes $ 1,600 $ 800
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Note payable incurred for purchase of equipment $ - $ 64,549
The accompanying notes are an integral part of these consolidated financial
statements.
50
ASIA PACIFIC CO., LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
- -----------------------
The accompanying consolidated financial statements include the accounts of Asia
Pacific Co., LTD ("Asia Pacific") and its majority owned subsidiary, 246 LLC
(dba Chasen's), (collectively, the "Company"). All material intercompany
transactions and accounts have been eliminated in consolidation.
Nature of Business
- --------------------
Asia Pacific was incorporated in October 1995 in Niue (a foreign country). In
1996 Asia Pacific acquired a controlling 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.
Cash and equivalents
- ----------------------
The Company considers all liquid investments with a maturity of three months or
less from the date of purchase that are readily convertible into cash to be cash
equivalents.
Inventories
- -----------
Inventories, consisting of food, liquor, wine and cigars and cigarettes, are
stated at the lower of cost (first-in, first-out) or market.
Property and equipment
- ------------------------
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is provided over the assets' estimated useful lives of 5-7 years
using accelerated methods. Amortization of leasehold improvements is provided
over the lease term using the straight line method.
Long-lived assets are reviewed annually for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset 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.
51
ASIA PACIFIC CO., LTD.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Revenue recognition
- --------------------
Food and beverage revenues are recognized as the products are sold to the
customer. Proceeds from sales of club memberships are capitalized and
recognized as revenue ratably over the membership term. Deferred revenue of
$5,416 was included in "Other accrued expenses" in the accompanying consolidated
balance sheet.
Advertising and promotional costs
- ------------------------------------
Costs of advertising and promotion are expensed as incurred. Such costs were
$39,265 in 1998 and $39,860 in 1997.
Income taxes
- -------------
The Company accounts for income taxes under Statement of Financial Accounting
Standards (SFAS) 109. Under the asset and liability method of SFAS 109,
deferred income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory rates applicable to future years to
the difference between the financial statement carrying amounts and the tax
bases of existing assets and liabilities.
Minority interests
- -------------------
Minority interests represent the minorities' 37.25% equity in 246 LLC.
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.
The Company has no potentially dilutive securities, options, warrants or other
rights outstanding. Therefore, basic and diluted net loss per share are the
same.
52
ASIA PACIFIC CO., LTD.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND 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 certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Fair value of financial instruments
- ---------------------------------------
The fair value of financial instruments, consisting primarily of notes payable
and long-term debt, is based on interest rates available to the Company and
comparison to quoted prices. The fair value of these financial instruments
approximates carrying values.
Concentration of credit risk
- -------------------------------
Financial instruments that potentially subject the Company to concentrations of
credit risk consist of cash maintained at two high credit quality financial
institutions located in Los Angeles, California. There were no uninsured balan
2. PROPERTY AND EQUIPMENT
ESTIMATED
USEFUL LIVES AMOUNT
-------------- ----------
Leasehold improvements Life of lease $1,902,237
Kitchen equipment 5 years 279,157
Furnishings and fixtures 7 years 701,758
China and silverware 5 years 96,420
Sound system equipment 5 years 67,889
Office and computer equipment 5 years 38,249
----------
3,085,710
Accumulated depreciation (693,281)
----------
$2,392,429
==========
53
3. NOTES PAYABLE
Various unsecured demand notes payable to minority interests,
with interest rates at 10% and 19.99% $332,672
Unsecured 10% demand note payable to an affiliate 125,000
Unsecured 10% demand notes payable to shareholders 51,233
Non-interest bearing shareholder advances 91,573
Other 44,476
--------
$644,954
========
4. NOMINEE INTERESTS
In 1997, Asia Pacific entered into agreements with several individuals to share
in the profits and losses of 246 LLC as nominee interests. In accordance with
the terms of the agreements, these individuals contributed a total of $2,083,301
and were allocated 97% of Asia Pacific's share of the losses of 246 LLC for 1997
and 1998. At December 31, 1998 the balances in the nominee interests' accounts
were converted to 97,000 shares of the Company's common stock. The conversion
was calculated at a rate of one dollar per share for each dollar in the
nominee's tax basis capital account at December 31, 1998. Asia Pacific
maintained a majority interest in the capital of 246 LLC at all times.
The Company did not obtain a legal opinion for these agreements and it in
uncertain whether the Internal Revenue Service would agree with the income tax
treatment.
5. INCOME TAXES
The Company recognizes deferred tax assets and liabilities for temporary
differences between the financial reporting and tax bases of its assets and
liabilities. Deferred tax assets are reduced by a valuation allowance when
deemed appropriate.
As of December 6, 1999, no federal or state tax returns were filed for Asia
Pacific for the current year or any prior years. Management does not expect the
Company's tax liability for these periods to be material.
54
ASIA PACIFIC CO., LTD.
NOTES TO FINANCIAL STATEMENTS
6. COMMITMENTS AND CONTINGENCIES
Lease obligations
- ------------------
The Company's restaurant and office facilities operating lease expires February
28, 2006, with two 5-year renewal options. The lease calls for payment of the
Company's share of the common area expenses in addition to minimum monthly lease
payments. The minimum monthly lease payment of $23,400 through March 1999 is
adjusted annually thereafter based on the Consumer Price Index.
In addition the Company is obligated to pay percentage rent equal to 7.5% of
monthly gross sales in excess of $250,000 and $10,000 annually, in the form of
unrestricted credit, towards any purchases of food, beverage, or other
restaurant services.
The Company leases point-of-sale computer equipment and related software for
$1,940 per month under an operating lease expiring February 2000.
Future minimum annual lease payments under all non-cancelable operating leases
are:
1999 $304,080
2000 284,680
2001 280,800
2002 280,800
2003 280,800
Thereafter 608,400
-----------
$2,039,560
===========
License agreement
- ------------------
The Company has entered into an agreement to the use the name "Chasen's" through
February 1, 2007 with an option to renew for two successive 5-year periods,
followed by successive periods of 1 year each up to 99 years. The agreement
grants the Company exclusive license of the name for the operation of a
restaurant in the city of Beverly Hills and other exclusive and non-exclusive
licenses relating to the sale of certain products at the restaurant bearing the
"Chasen's" name. The Company has agreed to pay a royalty of 1-1/2% of the
restaurant gross receipts for the first 18 months and 2% for each year
thereafter, an 8% royalty on the sale of licensed products sold for $75 or less
and 6% on licensed products sold for more than $75. The royalty payments are
subject to an $80,000 annual minimum after the first 18 months of the agreement.
The Company has the right to terminate the agreement for any reason upon not
less than 120 days written notice to licensor. The licensor can only terminate
the agreement for cause as described in the agreement.
55
ASIA PACIFIC CO., LTD.
NOTES TO FINANCIAL STATEMENTS
7. CONSULTING AGREEMENT WITH RELATED PARTY
The Company entered into an agreement to provide consulting services for
$100,000 a year to an affiliate for a three year period commencing April 1,
1998. The agreement was terminated effective December 31, 1998.
8. SUBSEQUENT EVENT
On September 30, 1999, iLive, Inc. (formerly known as Powerhouse International
Corporation) acquired the Company by issuing 690,000 of its common shares in
exchange for all the outstanding common shares of the Company.
56
ITEM 8. CHANGE IN FISCAL YEAR
Not applicable.
EXHIBITS
2.1 Stock Exchange Agreement between iLive, Inc. and the shareholders of
Society of Economic Assurance, Inc., dated as of February 29, 2000.
3.1 Restated Articles of Incorporation iLive, Inc.
3.2 Bylaws of iLive, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ILIVE, INC.
Date: 3/01/2000 By /s/ Marcia Allen
----------------------
Chief Executive Officer, President
57