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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1
to
FORM 10-SB
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GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
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takeoutmusic.com Holdings Corp.
(f/k/a Shampan, Lamport Holdings Limited)
(Name of Small Business Issuer in Its Charter)
Washington 98-0138706
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
10013
381 Broadway, Suite 201 (Zip Code)
New York, New York
(Address of Principal Executive
Offices)
Issuer's Telephone Number, Including Area Code: (212) 871-0714
Securities to be registered under Section 12(b) of the Exchange Act:
None
Securities to be registered under Section 12(g) of the Exchange Act:
Common Stock, par value
$0.01 per share
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SPECIAL NOTE REGARDING SUBSEQUENT EVENTS
Unless otherwise indicated herein, all references to shares of the
Registrant's common stock, par value $0.01 per share (the "Common Stock"), and
to prices with respect to shares of the Registrant's Common Stock, give effect
to a one-for-three reverse stock split effective December 20, 1999 and a one-
for-four reverse stock split effective July 21, 1998.
FORWARD-LOOKING STATEMENTS
Statements in this registration statement, to the extent that they are not
based on historical events, constitute forward-looking statements. These
statements appear in a number of different places in this registration
statement and include statements regarding the intent, belief or current
expectations of takeoutmusic.com Holdings Corp. and its directors or officers.
Forward-looking statements include, without limitation, statements regarding
the outlook for future operations, forecasts of future costs and expenditures,
evaluation of market conditions, the outcome of legal proceedings, the adequacy
of reserves, or other business plans. Investors are cautioned that any such
forward-looking statements are not guarantees and may involve risks and
uncertainties, and that actual results may differ from those in the forward-
looking statements as a result of various factors such as general economic and
business conditions, including changes in interest rates, prices and other
economic conditions; actions by competitors; natural phenomena; actions by
government authorities, including changes in government regulation;
uncertainties associated with any legal proceedings; technological development;
future decisions by management in response to changing conditions; the ability
to execute prospective business plans; and misjudgments in the course of
preparing forward-looking statements. These forward-looking statements speak as
of the date of this registration statement and the Company undertakes no
obligation to update such statements in light of new events or otherwise.
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PART I
Item 1. Description of Business.
General
takeoutmusic.com Holdings Corp. (hereinafter referred to as the "Company")
was originally organized under the laws of the State of Washington on December
28, 1993 under the name "Allegiant Technologies Inc." On July 21, 1998 the
Company changed its name to "Shampan, Lamport Holdings Limited" in order to
comply with the rules of the Vancouver Stock Exchange, where the Company's
stock was traded at that time, which state that a listed company that undergoes
a capital reorganization must change its name. Following the merger (described
below), on February 9, 2000, the Company changed its name to its present name.
The Company's wholly-owned subsidiary, takeoutmusic.com, Inc., was organized
under the laws of the State of Delaware on April 12, 1999.
Certain Background Information
Limited History of Operations
The Company has a limited history of operations. On December 28, 1993, the
Company acquired SuperCard, a multimedia software development tool, together
with its customer franchise, from Aldus Corporation on February 4, 1994, and
thereafter developed for sale various product upgrades and ancillary software
products. The Company incurred substantial start up, development and other
expenses in excess of revenues, which resulted in cumulative net losses as of
December 31, 1999 that exceeded $5.0 million. The Company's revenues were
substantially derived from the sale of SuperCard and to a much lesser extent
the sale of ancillary software products, all for the Macintosh platform.
The Company's results of operations were adversely impacted by the following
factors: (1) the Company was not able to secure adequate financing to complete
new product under development, including a Windows version of SuperCard, and to
maintain effective marketing strategies, (2) the Company's existing products
were sold into a market segment that had experienced significant sales
declines, and (3) the decline in sales of Macintosh computers and related
Macintosh software in general particularly in 1995 and 1996. As a consequence
of these factors the Company was forced to cease operations, change management
and undertake a reorganization of its capital.
On May 31, 1998, the Company disposed of its technology assets to an arms
length purchaser for $40,000. The proceeds from the sale were used to settle
certain obligations of the Company. Following such sale, management explored
new lines of business and remained dormant except for activities in connection
with securing additional financing and such new operations.
Changes in Capitalization During the Fiscal Year Ended December 31, 1999
On December 20, 1999, the Company effected a one-for-three reverse stock
split of its issued and outstanding Common Stock, resulting in each 3 issued
and outstanding shares of the Common Stock being changed into one share.
Following the reverse split, the total number of shares of Common Stock of the
Company issued and outstanding as of December 31, 1999 was 2,438,889. In
addition, the Company had, at December 31, 1999, outstanding warrants entitling
the holders to purchase, in the aggregate, an additional 561,111 shares of
Common Stock at a purchase price of $0.5175 per share. The warrants as amended,
expire at the close of business on October 15, 2004 and provide for a cashless
exercise. Additionally, included in liabilities are notes payable to a former
director of the Company in the amount of $183,000. These notes, and interest
accrued thereon, are automatically converted into common stock of the Company
at $3.50 per share if the market price of the Company's common stock is equal
to or in excess of $7.00 per share for a period of ten consecutive trading days
at anytime after August 4, 2000 and before February 4, 2003. See Note 3 to the
Financial Statements.
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Recent Merger
As disclosed in the Company's Current Report on Form 8-K filed with the
Commission on February 18, 2000, on February 4, 2000, TOMCI Acquisition Corp.,
a wholly-owned subsidiary of the Company, merged (the "Merger") with and into
takeoutmusic.com pursuant to an Agreement and Plan of Merger dated January 26,
2000 (the "Merger Agreement"). takeoutmusic.com is a development stage company
engaged in the business of developing and marketing musical recordings, and
offering such recordings by direct file transfer, or "downloading" to consumers
over the Internet. Following the Merger, the business to be conducted by the
Company will be the business conducted by takeoutmusic.com prior to the Merger.
Pursuant to the terms of the Merger Agreement, the Company issued 10,046,344
shares of its authorized but previously unissued Common Stock to the former
holders of takeoutmusic.com common stock based on a conversion ratio of 1.15
shares of the Company's Common Stock for each share of takeoutmusic.com common
stock issued and outstanding as of the effective time of the Merger. The shares
issued to the former takeoutmusic.com stockholders represent approximately
80.5% of the outstanding Common Stock of the Company following the Merger, and
the shareholders of the Company prior to the Merger represent approximately
19.5% of the outstanding Common Stock of the Company following the Merger.
Immediately prior to the Merger, Sofisco Nominees Limited, Mori S. Ninomiya,
John Lavallo, Jason Brunka and Richard Pangilinan beneficially owned
approximately 17.2%, 16.2%, 13.4%, 11.7% and 11.0% of takeoutmusic.com,
respectively, on a fully diluted basis.
In addition, pursuant to the Merger, all outstanding options and warrants to
purchase takeoutmusic.com common stock were converted into options and warrants
to purchase common stock of the Company. The sole outstanding warrant to
purchase an aggregate of 273,598 shares of takeoutmusic.com Common Stock at an
exercise price of $0.666667 was converted into a warrant to purchase an
aggregate of 314,638 shares of the Company's Common Stock at an exercise price
of $0.579710. takeoutmusic.com employee stock options to purchase an aggregate
of 392,000 shares of takeoutmusic.com Common Stock at an exercise price of
$0.67 per share were converted into options to purchase 450,800 shares of the
Company's Common Stock at an exercise price of $0.58 per share.
takeoutmusic.com is engaged in the business of developing and marketing
musical recordings and offering such recordings by digital download over the
Internet on its website, takeoutmusic.com. The site employs a record industry
accepted technology licensed from Liquid Audio that allows downloads of samples
and full songs directly from its website to PC player programs, CD recorder
devices, and portable digital music players.
Content offered on the website is focused on modern independent music for
audiences aged 14-34, and is specifically targeted to the young, computer-savvy
music consumer. The site offers artist's biographies and discographies, news
clippings and concert listings. Visitors to the site may hear and view
cybercasts, recordings and video samples, purchase sound recordings and music-
related merchandise, and chat with artists and other visitors to the site.
Artists on the site represent the dance, hip hop, rock, jazz, electronica, and
drum and bass music genres. The Company intends to add additional websites to
include artists from other genres, including pop and Latin, and to expand
internationally. The first such site, takeoutpop.com, was launched in April,
2000.
takeoutmusic.com currently represents approximately 305 artists and 1,707
tracks, and currently has approximately 250,000 unique users per month.
takeoutmusic.com intends to increase the size of its user base and consequently
increase revenues from sales of music, clothes, concert tickets and related
merchandise, in addition to advertising and sponsorship programs. In addition
to employing traditional forms of media for promotion, takeoutmusic.com has
established a "Rep Network" comprised of approximately 400 representatives at
over 200 college campuses in the United States. These representatives promote
the site through give-aways and campus activities, market company-sponsored
promotional events and advise takeoutmusic.com of prospective independent
artists.
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Risk Factors
Historical Losses; Working Capital Deficit. The Company has sustained
substantial operating losses and has used substantial amounts of working
capital in its operations to date. As at December 31, 1999, the Company had
cash equivalents of $8,497 and a working capital deficit of $91,689. Total
liabilities exceeded the book value of total assets by $274,689. Through March
31, 2000, the Company had an accumulated deficit of $638,474. The Company
expects substantial net losses and negative cash flow for the foreseeable
future.
Limited Revenues and Operating History. takeoutmusic.com was organized on
April 12, 1999 and completed the Merger described above in February 2000. As of
the date of this registration statement, the Company has generated nominal
revenues and has a minimal operating history upon which an evaluation of its
prospects can be made. In fact, the Company does not have meaningful historical
financial data upon which to forecast quarterly revenues and results of
operations. The Company's operating expense levels are based, in significant
part, on the Company's expectations of future revenue and only a relatively
small amount of the Company's costs and expenses varies with its revenues in
the short term. If actual revenue levels are below management's expectations,
both gross margins and results of operations are likely to be adversely
affected. To date, the Company's operating activities have consisted largely of
developing the infrastructure necessary to download music on the Internet. As a
developing company, the Company is subject to the risks inherent in the
building of a new business and the creation of new products and services. The
Company's limited operating history makes it difficult to evaluate its current
business and prospects. As a result of its limited operating history, potential
investors in the Company should evaluate the risks, expenses and problems
frequently encountered by similar companies that are in the early stages of
development.
The Company's model for conducting business and generating revenues is new
and unproven and if it fails to develop as planned, its business may not
succeed. The Company's business model depends upon its ability to generate
revenue streams from multiple sources through its website, including:
. online sales of downloadable music;
. website advertising fees from third parties;
. licensing of musical recordings for use by others; and
. online sales of music-related merchandise.
It is uncertain whether a music-based website that relies on attracting
people to purchase and download music, mostly from lesser-known artists, can
generate sufficient revenues to survive. This business model may not succeed or
it may not be sustainable as the Company's business grows. In order for its
business to be successful, the Company must not only develop services that
directly generate revenue, but also provide content and services that attract
consumers to its website frequently. The Company will need to develop new
offerings as consumer preferences change and new competitors emerge. The
Company may not be able to provide consumers with an acceptable blend of
products, services, and informational and community offerings that will attract
consumers to its website frequently. The Company provides many of its products
and services without charge, and it may not be able to generate sufficient
revenue to pay for these products and services. Accordingly, the Company is not
certain that its business model will be successful or that it can sustain
revenue growth or be profitable.
Dependence on Business Partnerships. In an attempt to increase its customer
base and traffic on the Company's website, build brand recognition, attract
paid advertising and enhance content, distribution and commerce opportunities,
the Company plans to enter into strategic alliances with various media,
hardware device and Internet-related companies. The Company's failure to
maintain or renew its existing strategic alliances or to establish and
capitalize on new strategic alliances could harm its business. The Company's
future success depends to a significant extent upon the success of such
alliances. Moreover, the Company is substantially dependent upon its ability to
advertise on other Internet sites and the willingness of the owners of other
sites to direct users to the Company's Internet sites through hypertext links.
The Company may not
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achieve the strategic objectives of these alliances, and parties to strategic
alliance agreements with it may not perform their obligations as agreed upon.
Such agreements also may not be specifically enforceable by the Company. In
addition, some of the Company's strategic alliances are short term in nature
and may be terminated by either party on short notice. The termination or
impairment of these strategic alliances could reduce the Company's ability to
attract new customers and, thus adversely effect the Company's operating
results and financial condition.
Dependence on Market Acceptance. The market for online music promotion and
distribution is new and rapidly evolving. As a result, demand and market
acceptance for the Company's products and services are subject to a high degree
of uncertainty and risk. The Company is attempting to capitalize on a talent
pool of artists underserved by the traditional recording industry. Consumers
may not continue to be interested in listening to, or purchasing music from,
these artists. If this new market fails to develop, develops more slowly than
expected or becomes saturated with competitors, or if the Company's products
and services do not achieve or sustain market acceptance, the Company may not
generate sufficient revenues to become profitable.
The future popularity of downloadable music will depend on consumer
acceptance of downloading music generally. The Company believes that consumer
acceptance is, in part, dependent on the availability of portable devices to
store and play this music. To the extent that devices are not available at
affordable prices, or consumer acceptance or distribution of these portable
devices is delayed, the Company's potential market, and thus its ability to
increase its revenues, may be reduced.
Dependence on Expansion into International Markets. The Company's future
growth and success will depend in part on its ability to generate international
sales. There can be no assurance, however, that it will be successful in
generating international sales of its products. Sales to customers in certain
international countries may be subject to a number of risks, including:
currency exchange rate risk; the risks that agreements may be difficult or
impossible to enforce and receivables difficult to collect through an
international country's legal system; foreign customers may have longer payment
cycles; or foreign countries could impose withholding taxes or otherwise tax
the Company's foreign income, impose tariffs, embargoes, or exchange controls,
or adopt other restrictions on foreign trade. In addition, the laws of certain
countries do not protect the Company's offerings and intellectual property
rights to the same extent as the laws of the United States. If the Company
fails to compete successfully or to expand the distribution of its offerings in
international markets the growth of its business could be limited.
Dependence on Brand Name Acceptance. During the quarter ended March 31,
1999, the Company began to operate under the name takeoutmusic.com and launched
a marketing campaign to establish the brand name "takeoutmusic." The Company
believes that establishing and maintaining the takeoutmusic brand is a critical
aspect of its efforts to attract and expand its Internet audience and acquire
new content and that the importance of brand recognition will increase due to
the growing number of Internet sites and the relatively low barriers to entry
in providing Internet content. The Company intends to incur significant
expenses in its brand building efforts. If these efforts do not generate
increased revenues, the Company's operating results will suffer. If the Company
is unable to provide high quality content or otherwise fails to promote and
maintain its brand, its business will be harmed.
Dependence on Expanding Contracts for Music Content and Licensing and
Selling such Content. The Company believes that a primary draw to its website
is the ability to access music from known artists and independent record
labels. Currently, the Company has multi-year contracts for much of its music
library content. However, if the Company is unable to sign contracts for new
content, or if it is unable to extend the terms of existing contracts as they
expire, the website may fail to attract new, or retain existing, customers
which would harm the Company's business.
Dependence on Third Parties for the Hosting of the Company's Website. The
Company currently relies on a third party to host its website at a single
location. The Company currently does not maintain a redundant website. If for
any reason its current website hosting services become unavailable or if its
hosting service
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experiences technical problems, customers will not be able to access the
Company's website until these services are restored or until the Company is
able to make arrangements with an alternate provider.
Dependence on the Continued Development and Maintenance of the Internet and
the Availability of Increased Bandwidth to Consumers. The success of the
Company's business will depend largely on the development and maintenance of
the Internet infrastructure. This includes maintenance of a reliable network
with the necessary speed, data capacity and security, as well as timely
development of complementary products such as high-speed modems, for providing
reliable Internet access and services. Because global commerce on the Internet
and the online exchange of information is new and evolving, the Company cannot
predict whether the Internet will prove to be a viable commercial marketplace
in the long term.
The success of the Company's business will rely on the continued improvement
of the Internet as a convenient means of consumer interaction and commerce, as
well as an efficient medium for the delivery and distribution of music. The
Company's business will depend on the ability of its artists and consumers to
continue to upload and download music file formats, as well as to conduct
commercial transactions with it, without significant delays or aggravation that
may be associated with decreased availability of Internet bandwidth and slower
access to the Company's website. The Company's penetration of a broader
consumer market will depend, in part, on continued proliferation of high speed
Internet access. Even in compressed format, a typical three-minute song file
can occupy more than three megabytes of storage space. This file could take
approximately seven minutes to download over a conventional 56 kbps modem
compared to less than one minute over an xDSL or cable modem.
Technology Systems Must be Expanded and Enhanced to Grow Business. In order
to support a growing business, the Company will need to continue to enhance and
expand its technology infrastructure, which supports its business. As business
continues to grow, the Company will need to add additional servers and other
hardware and software systems as well as additional sites for website hosting.
If the Company fails to successfully implement these new and enhanced systems,
its operations could be disrupted, and it may become less competitive,
resulting in decreased revenues and increased expenses aimed at addressing
these issues.
Need for Future Capital; Uncertainty of Additional Funding. In order to
accomplish all of its business objectives, the Company may require additional
financing. There can be no assurance that the Company will be able to secure
additional debt or equity financing or that such financing will be available on
favorable terms. The failure to obtain additional funds, when required, on
satisfactory terms and conditions, will have a material and adverse effect on
the Company's business, operating results and financial condition.
Risks Relating to Internet-Based Commerce. Rapid growth in the use of and
interest in the Internet and online computer services is a recent phenomenon,
and there can be no assurance that acceptance and use will continue to develop
or that a sufficiently broad base of consumers will adopt, and continue to use,
the Internet and online computer services as a medium for commerce. In
addition, although security of credit card purchasing over the Internet has
improved since its inception, there can be no assurance that breaches in
security will not occur. If consumers, now or in the future, do not perceive
the Internet to be a safe medium for commerce, it would have a material adverse
effect on the Company's business, financial condition and results of operation.
Risks Related To Internet-Based Advertising. The Company expects to derive a
substantial portion of its revenues in the foreseeable future from the sale of
advertising on, and sponsorships of various areas of, its Internet site. To the
extent that the Company establishes relationships with advertisers and sponsors
the Company anticipates that many of such relationships may be terminable at
will. Consequently, the Company's advertising customers may have the ability to
cancel or move their advertising and the Company's sponsors may have the
ability to cancel or move their sponsorship to competing Internet sites,
quickly and at relatively low costs, thereby increasing the Company's exposure
to competing pressures and fluctuations in revenues and operating results. In
addition, the Company anticipates that substantially all of its advertising
contracts will require the Company to guarantee a minimum number of people
viewing the advertisements ("hits"). In order
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to generate significant advertising revenues, the Company will seek to develop
a larger base of users of the Company's Internet site possessing demographic
characteristics attractive to advertisers. If the Company is unable to attract
and retain paying advertising customers, the Company's business, financial
condition and operating results could be materially and adversely affected.
Limited Marketing and Sales Capability. The Company has limited internal
marketing and sales resources and personnel. In order to market the products
and services the Company has developed and may develop in the future, the
Company will have to expand its marketing and sales force. There can be no
assurance that the Company will be able to establish such capabilities or that
the Company will be successful in gaining market acceptance for any products it
may develop. There can be no assurance that any of the Company's proposed
marketing schedules or plans can or will be met.
Competition. Many of the Company's current and potential competitors in the
Internet and music entertainment businesses may have substantial competitive
advantages relative to it, including:
. longer operating histories;
. significantly greater financial, technical and marketing resources;
. greater brand name recognition;
. larger existing customer bases; and
. more popular content or artists.
These competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements and devote greater resources
to the development, promotion, and sale of their products or services than the
Company can. Websites maintained by the Company's existing and potential
competitors may be perceived by consumers, artists, talent management companies
and other music-related vendors or advertisers as being superior to that of the
Company's. In addition, the Company may not be able to maintain or increase its
website traffic levels, purchase inquiries and number of click-throughs on its
online advertisement. Further, the Company's competitors may experience greater
growth in these areas than the Company. Increased competition could result in
advertising price reduction, reduced margins or loss of market share, any of
which could harm the Company's business.
In 1999, Time Warner and Sony's Columbia House unit announced an agreement
to merge with CDNow. Also in 1999, Microsoft Corporation and Sony Corporation
announced an agreement to pursue a number of cooperative activities. Sony has
announced that it will make its music content downloadable from the Internet
using Microsoft's multimedia software. In addition, Universal Music Group and
BMG Entertainment have announced a joint venture to form an online music store.
The announced acquisition of Time Warner by America Online could also result in
increased competition to the Company. Finally, MusicMaker, Inc. announced in
January 2000 that it was examining its strategic options.
Uncertainty of Projected Financial Information. The operating and financial
information contained in the Company's projected financial data have been
prepared by management based upon its current estimates of the Company's future
performance. In addition, the projected results are dependent on the successful
implementation of management's growth strategies and are based on hypothetical
assumptions and events over which the Company has only partial or no control.
To date, the Company has marketed a small portion of its anticipated products
and services. The selection of assumptions underlying such projected
information required the exercise of judgment, and the projections are subject
to uncertainty and changes. Changes in the facts or circumstances underlying
such assumptions could materially affect the projections. To the extent that
assumed events do not materialize, actual results may vary substantially from
the projected results. As a result, no assurance can be made that the Company
will achieve the operating or financial results set forth in the Company's
financial projections.
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While the Company believes that assumptions underlying the projected
financial information are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the forward-looking
financial information will prove to be accurate. In addition, as disclosed in
this registration statement under "Risk Factors," the business and operations
of the Company are subject to substantial risks which increase the uncertainty
inherent in such projected financial information. Numerous factors, including
any of the factors disclosed in the "Risk Factors" and elsewhere in this
registration statement, could cause the actual revenues, operating income and
net income of the Company to differ materially from the projected financial
information described in this registration statement. Accordingly, for these
reasons it is expected that there will be differences between the actual and
projected results, and actual results may be materially higher or lower than
those indicated in the projected financial information.
In light of the significant uncertainties inherent in forward-looking
financial information of any kind, the inclusion of such information herein
should not be regarded as a representation by the Company or any other person
that any of the projected financial results will be achieved. Investors are
cautioned that these projected financial results should not be regarded as fact
and should not be relied upon as an accurate representation of future results.
Further, the projected financial results furnished by the Company were not
prepared with a view to public disclosure or in compliance with the established
guidelines concerning financial projections promulgated by the American
Institute of Certified Public Accountants. In addition, such projected
financial results do not purport to present operations in accordance with
generally accepted accounting principles and have not been audited, compiled or
otherwise examined by any independent third party. Such forward-looking
financial information is subjective in many respects, and thus susceptible to
interpretations and periodic revision based on actual experience and business
development. The Company does not intend to update or otherwise revise the
projected financial information disclosed in this registration statement to
reflect circumstances existing after the date of its preparation.
Dependence on Qualified Personnel. The Company's success, development,
operations and business are highly dependent upon its ability to attract and
retain qualified creative, technical and managerial personnel. The loss of the
services of existing personnel, including particularly Mori Ninomiya, its
President, and additional key employees, as well as the failure to recruit key
creative, technical and managerial personnel in a timely manner would be
detrimental to the Company's business. The Company's anticipated growth and
expansion into areas and activities requiring additional expertise, such as
marketing and customer service, will require the addition of new management
personnel. Competition for qualified personnel is intense and there can be no
assurance that the Company will be able to attract and retain qualified
personnel necessary for the development of its business. In addition, companies
in the Internet and music industries whose employees accept positions with
competitive companies frequently claim that their competitors have engaged in
unfair hiring practices. The Company may be subject to claims in the future as
it seeks to hire qualified personnel and those claims may result in material
litigation involving the Company. Even if unsuccessful, these claims could harm
the Company's business by damaging its reputation, requiring it to incur legal
costs and diverting management's attention away from the Company's business.
Ability to Support User Base. The Company may be required to expand its
network infrastructure and customer support capabilities in connection with an
expanded user base, which expansion may require significant up-front
expenditures by the Company for software, servers, routers and computer
equipment, to increase bandwidth for Internet connectivity. Expansion must be
completed without system disruptions. The Company's failure to properly expand
its network infrastructure would have a material adverse affect upon the
Company's business, results of operations and financial condition.
Reliance on Third-Party Technology. The Company is dependant upon direct
file transfer technology licensed from Liquid Audio ("Liquid"). Termination of
the licensing agreement with Liquid would interrupt the Company's services,
resulting in reduced traffic to the Company's website, which would have a
material adverse effect on the Company's results of operations. There can be no
assurance that the Company will be able to replace such technology if the
licensing agreements were terminated.
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Access to Sufficient Commercial Content. The Company does not create its own
content and relies upon third-party content providers, such as publishing
companies, artists and music companies. The Company's ability to obtain
compelling content may be adversely impacted by the price imposed by third-
parties on the content they provide. The Company anticipates that it may enter
into contracts with third-party content providers that will be short-term and
may be canceled if the Company does not fulfill its obligations. If the Company
fails to aggregate and deliver compelling content to its users, traffic at the
Company's website might decline and, as a result, advertising and commerce
revenue would decrease, with resulting adverse effects on the Company's
operating results and financial condition.
System Failures and Service Interruptions. Heavy stress placed on the
Company's software and hardware systems by high levels of user traffic,
failures of third-party systems, or other acts beyond the control of the
Company could cause such systems to fail or operate at an unacceptably low
speed. Such failure could be caused by online service providers, record keeping
and data processing functions, and third-party software such as Internet
browsers, databases and load balancing software.
Since the Company's data warehousing, web server and network facilities are
all located in one location, a fire, flood, explosion, earthquake or other
natural or man-made disaster could affect all of its facilities simultaneously.
An unexpected event such as a power or telecommunications failure, fire, flood
or earthquake at the Company's on-site data warehousing facility or at its
Internet service providers' facilities could cause the loss of critical data
and prevent the Company from offering its services to artists and consumers.
The Company does not carry business interruption insurance and any such losses,
should they occur, would therefore have to be borne by the Company and these
losses might be significant. In addition, the Company relies on third parties
to securely store its archived data, house its web server and network systems,
and connect it to the Internet. A failure by any of these third parties to
provide these services satisfactorily could harm the Company's business. If
system failures were sustained or repeated, the Company's revenues, commerce
partners and the attractiveness of the Company's brand name would be adversely
affected.
Credit Card or Other Confidential Information Transmitted Over the Web Could
Limit the Company's Growth and Subject it to Liability. A significant barrier
to e-commerce and communications over the Internet has been the need for secure
transmission of confidential information over public networks. Internet usage
may not increase at the rate the Company expects unless some of these concerns
are adequately addressed and found acceptable by the market. Internet usage
could also decline if any well-publicized compromise of security occurred. The
Company may incur significant costs to protect against the threat of security
breaches or to alleviate problems caused by such breaches. Protections against
security breaches may not be available at a reasonable price or at all. If a
third party were able to circumvent the Company's security measures and
misappropriate its users' personal information, it may cause interruptions to
the Company's retail website operation, damage its reputation or subject it to
claims by users. Any compromise of confidential data during transmission over
the Internet may harm the Company's business.
Failure of the Company's Internal Security Measures. The Company's business
is dependent upon maintaining a database of confidential user information,
including credit card numbers. If the security measures that the Company uses
to protect personal information are ineffective, it may lose customers and its
business would be harmed. The Company relies on security and authentication
technology licensed from third parties. With this technology, the Company
performs real-time credit card authorization and verification. The Company
cannot predict whether new technological developments could allow these
security measures to be circumvented.
Computer Viruses, Physical or Electronic Break-ins and Similar
Disruptions. The Company may need to spend significant resources to protect
against security breaches or to alleviate problems caused by any breaches and
it may not be able to prevent all security breaches.
Dependence on Intellectual Property Protection. The Company's intellectual
property includes trademarks and copyrights, proprietary software, and other
proprietary rights. The Company believes that its
10
<PAGE>
intellectual property is important to its success and its competitive position,
and tries to protect it. However, the Company's efforts to protect its
intellectual property could be inadequate. Use of the "takeoutmusic" name by
others could dilute the Company's brand identity and confuse the market. In
addition, the Company's ability to conduct its business may be harmed if others
claim it violates their intellectual property rights. Currently, record
companies are suing MP3.com, alleging that MP3.com violated the companies'
intellectual property rights by uploading unlicensed music to the MP3.com
website. Although the Company uses only licensed music, claims such as those
made in the MP3.com suit could harm the Company's business by damaging its
reputation, requiring it to incur increased costs and diverting management's
attention away from the Company's business.
Liability for Content on Company's Website and Liability for Other Materials
Distributed. The Company may be liable to third parties for content on its
website and any other materials which it distributes if:
. the music, text, graphics or other content on the website violates
copyright, trademark, or other intellectual property rights;
. the Company's artists or labels violate their contractual obligations to
others by providing content on the Company's website; or
. content the Company distributes is deemed obscene, defamatory or
excessively violent.
Liability or alleged liability for content or other materials could harm the
Company's business by damaging its reputation, requiring it to incur legal
costs in defense, exposing it to significant awards of damages, fines and costs
and could divert management's attention away from the Company's business. In
particular, in addition to civil damages, liability for violations of copyright
law currently can result in penalties of up to $10,000 per occurrence.
Rapid Technological Change. Online services are characterized by rapidly
changing technology, developing legal issues, changing user requirements,
frequent new product and service introductions and enhancements, and evolving
industry standards in computer hardware, operating systems, database technology
and information delivery systems. The Company's success will depend on its
ability to obtain competitive technologies to enhance its software and services
and to introduce new services in a timely and cost-effective manner. There can
be no assurance that the Company will be able to respond quickly, cost-
effectively or sufficiently to these developments. If the Company is unable to
respond to rapid technological changes, its services may become less attractive
to potential users, which would have a material adverse affect on the Company's
business, financial condition and results of operations.
Development of New Standards for the Electronic Delivery of Music may
Threaten the Company's Business. The Company currently relies on Liquid Audio
technology as a delivery method for the digital distribution of music. The
Company does not own or control this technology and is dependent upon a license
to obtain rights to certain patents relating to the technology. The onset of
competing industry standards for the electronic delivery of music could
significantly affect the way the Company operates as well as the public's
perception of takeoutmusic as a company. For example, some of the major
recording studios formed the Secured Digital Music Initiative in early 1999 to
develop a framework and standard for the electronic delivery of music. If new
standards are developed and adopted by consumers, the Company may not be able
to obtain a license to such technology on favorable terms or at all and the
Company's business could be harmed.
Liquid Audio technology is not fully accepted by all segments of the
traditional music industry and the Company may face continued opposition to its
use of it, which may slow market development and harm the Company's business.
The Company believes that its success is largely dependent upon the ease
with which customers can download and play music. The Company may face
opposition from a number of different music industry sources including record
companies and studios, the Recording Industry Association of America and
certain
11
<PAGE>
artists. The adoption of competing standards may slow the development of the
market for downloadable music or result in increased costs of doing business,
which could harm the Company's business.
Recent press reports described software programs, such as Freenet and
Gnutella, that might allow persons to obtain digital information from an
Internet site without their identity being revealed. These programs, if fully
developed and widely used, could have a significant adverse impact on the
digital downloading of music in general and the Company and the way it conducts
its business.
Potential Infringement and Other Claims. As a publisher and a distributor of
content over the Internet, the Company faces potential liability for
defamation, negligence, copyright, patent or trademark infringement and other
claims based on the nature and content of the materials that it publishes or
distributes. Such claims have been brought, and sometimes successfully pressed,
against Internet services. Although the Company intends to carry general
liability insurance, the Company's insurance may not cover potential claims of
this type or may not be adequate to indemnify the Company for all liability
that may be imposed. Any imposition of liability that is not covered by
insurance or is in excess of insurance coverage could have a material adverse
effect on the Company's business, financial condition and operating results.
Concentration of Stock Ownership. Executive officers and directors, in the
aggregate, beneficially own approximately 40% of the Company's outstanding
Common Stock. These stockholders are able to significantly influence all
matters requiring approval by the Company's stockholders, including the
election of directors and the approval of significant corporate transactions.
This concentration of ownership may also have the effect of delaying, deterring
or preventing a change in control of the Company and may make some transactions
more difficult or impossible without the support of these stockholders.
Dilution. As of March 31, 2000, there were approximately 12,580,000 shares
of Common Stock outstanding, of which approximately one million were tradable
without restriction under the Securities Act, tradable under Rule 144 or
covered by an effective resale registration statement. The Company's market
price may be adversely affected when additional shares become available for
sale. In the event that the Company may need to seek additional capital at some
time for any reason, holders of the Company's Common Stock could suffer
dilution to their ownership percentages and/or the price per share. Depending
on the situation at the time, such dilution could be substantial.
Stock Price has Been and May Continue to be Volatile. The Company's Common
Stock is currently traded on the OTC Bulletin Board under the ticker symbol
"TOMU." The stock is held by a limited number of investors and there can be no
assurance that an active trading market will be sustained in the future. In
addition to fluctuations in the Company's operating results, the following
factors could cause the price of its securities to be volatile:
. development of the downloadable music market;
. technological innovations;
. new products;
. acquisitions or strategic alliances entered into by the Company or its
competitors;
. failure to meet securities analysts' expectations;
. government regulatory action;
. patent or proprietary rights developments; and
. market conditions for Internet and technology stocks in general.
Absence of Dividends. The Company has never paid any dividends on its Common
Stock and does not anticipate that dividends will be paid on any shares of its
capital stock in the foreseeable future.
12
<PAGE>
Government Regulation. Laws and regulations directly applicable to Internet
communications, commerce and advertising are becoming more prevalent. The
United States Congress has enacted Internet laws regarding children's privacy,
copyrights and taxation. Such legislation could dampen the growth in use of the
Internet generally and decrease the acceptance of the Internet as a
communications, commercial and advertising medium. The governments of any state
or foreign country might attempt to regulate the Company's transmissions or
levy sales or other taxes relating to its activities regardless of the
origination point of its transmissions. The European Union recently enacted its
own privacy regulations that may result in limits on the collection and use of
certain user information.
The laws governing the Internet, however, remain largely unsettled, even in
areas where there has been some legislative action. It may take years to
determine whether and how existing laws such as those governing intellectual
property, privacy, libel and taxation apply to the Internet and Internet
advertising. In addition, the growth and development of the market for Internet
commerce may prompt calls for more stringent consumer protection laws, both in
the United States and abroad, that may impose additional burdens on companies
conducting business over the Internet. Furthermore, the Federal Trade
Commission has recently investigated the disclosure of personal identifying
information obtained from individuals by Internet companies. Evolving areas of
law that are relevant to the Company's business include privacy law, proposed
encryption laws, content regulation and sales and use tax. For example, changes
in copyright law could require the Company to change the manner in which it
conducts business or increase its costs of doing business. Because of this
rapidly evolving and uncertain regulatory environment, the Company cannot
predict how these laws and regulations might affect its business. In addition,
these uncertainties make it difficult to ensure compliance with the laws and
regulations governing the Internet. These laws and regulations could harm the
Company by subjecting it to liability or forcing it to change how it does
business. In the event the Federal Trade Commission or other governmental
authorities adopt or modify laws or regulations applicable to the Company's
business, including those relating to the Internet and copyright matters, the
Company's business could be harmed.
Taxes on E-commerce Transactions May Impair Company's Revenues. Except for
sales of tangible merchandise into certain states, the Company does not collect
sales or other taxes on sales of its products through its websites. Although
the Internet Tax Freedom Act precludes, for a period of three years ending
January 2002, the imposition of state and local taxes that discriminate against
or single out the Internet, it does not currently impact existing taxes.
However, one or more states may seek to impose sales tax collection obligations
on out-of-state companies such as takeoutmusic.com, which engage in or
facilitate online commerce. A number of proposals have been made at the state
and local level that would impose additional taxes on the sale of goods and
services through the Internet. Such proposals, if adopted, could substantially
impair the growth of electronic commerce and could adversely affect the
Company's opportunity to derive financial benefit from electronic commerce.
Moreover, if any state or foreign country were to successfully assert that the
Company should collect sales or other taxes on the exchange of merchandise on
its system, it could affect the Company's cost of doing business.
Legislation limiting the ability of states to impose taxes on Internet based
transactions has been proposed in the U.S. Congress. The Company cannot assure
investors that this legislation will ultimately become law or that the tax
moratorium in the final version of this legislation will be ongoing. Failure to
enact or renew this legislation, if enacted, could allow various states to
impose taxes on Internet-based commerce, which could harm the Company's
business.
Item 2. Management's Discussion And Analysis And Plan Of Operations.
The following discussion should be read in conjunction with the financial
statements of the Company and related notes included elsewhere in this Report,
in the Company's Form 10-K for the year ended December 31, 1999, and in the
Company's Form 10-Q for the quarter ended March 31, 2000. All statements
contained herein (other than historical facts) including, but not limited to,
statements regarding the Company's future development plans, the Company's
ability to generate cash from its operations and any losses related hereto,
13
<PAGE>
are based upon current expectations. These statements are forward looking in
nature and involve a number of risks and uncertainties. Actual results may
differ materially from the anticipated results or other expectations expressed
in the Company's forward looking statements. Generally, the words "anticipate,"
"believe," "estimate," "expects," and similar expressions as they relate to the
Company and/or its management, are intended to identify forward looking
statements. Among the factors that could cause actual results to differ
materially are the following: the inability of the Company to obtain additional
financing to meet its capital needs and general business and economic
conditions as well as technological developments.
Overview
The Company has a limited history of operations and no history of
profitability. It was incorporated as Allegiant Technologies Inc. on December
28, 1993 and thereafter until the cessation of operations developed for sale
various software products primarily for the Macintosh platform. On May 31, 1998
the Company sold its technology assets and product inventory to an arms length
purchaser, commenced a reorganization of its capital and thereafter remained
dormant in search of a new line of business.
On December 9, 1999 the Company announced and reported on Form 8-K that it
entered into a letter of intent to merge with takeoutmusic.com, Inc. The merger
was completed on February 4, 2000.
As of March 31, 2000 the Company had a total accumulated deficit of
$638,474.
See Notes to the Financial Statements for a description of the Company's
significant accounting policies.
Capital Reorganization
The Company completed the following reorganization of its capital prior to
its merger with takeoutmusic.com, Inc.:
1. During the years ended December 31, 1998 and 1997, former principals
of the Company surrendered for cancellation 166,666 escrowed shares of
common stock (2,000,000 shares adjusted for reverse share splits described
below).
2. On July 21, 1998 the Company completed a four for one reverse split
of its common stock and changed its name from Allegiant Technologies Inc.
to Shampan, Lamport Holdings Limited.
3. On January 15, 1998, the Company issued 1,200,000 shares of common
stock at a deemed price of $0.45 per share, adjusted for reverse share
splits, and a non-transferable warrant to purchase 94,444 shares of common
stock at $0.5175 per share until October 15, 1999, in full settlement and
satisfaction of debts of the Company amounting to $540,000. The warrant, as
amended, expires at the close of business on October 15, 2004 and provides
for a cashless exercise.
4. On January 15, 1998, the Company issued 466,666 Units at $0.45 per
unit, adjusted for reverse splits, for aggregate proceeds of $210,000. Each
Unit consisted of one share of common stock and one non-transferable
warrant to purchase one additional share of common stock at $0.5175 per
share until October 15, 1999. The warrants as amended, expire at the close
of business on October 15, 2004 and provide for a cashless exercise. The
proceeds of the private placement were primarily used to fund the
settlement of trade debts of the Company.
5. On May 31, 1998, the Company sold its technology assets and product
inventory for $40,000. The proceeds were used to fund the settlement of
trade debts of the Company.
6. During May 1998, the Company borrowed $55,000 from a director of the
Company. The proceeds were used to fund certain ongoing obligations of the
Company. In addition, during May 1998, the Company negotiated new terms of
payment on an outstanding secured promissory note in the amount of
$100,000, which was in default as a result of the Company having failed to
make timely interest payments. Subsequent to the year ended December 31,
1999, these notes were amended such that the
14
<PAGE>
principal together with accrued interest in the amount of $28,000 ($183,000
in total) are automatically converted into common stock of the Company at
$3.50 per share if the market price of the Company's common stock is equal
to or in excess of $7.00 per share for a period of ten consecutive trading
days at anytime after August 4, 2000 and before February 4, 2003.
7. On December 20, 1999 the Company completed a three for one reverse
split of its common stock and on February 9, 2000 changed its name from
Shampan, Lamport Holdings Limited to takeoutmusic.com Holdings Corp. in
connection with the announced merger with takeoutmusic.com, Inc.
8. In July 1999 takeoutmusic.com, Inc. issued 1,500,003 shares of its
common stock in a private placement receiving net proceeds of $94,332
(after issuance costs of approximately $16,000).
9. In December 1999 takeoutmusic.com, Inc. issued 2,735,948 shares of
its common stock in a private placement receiving net proceeds of
$1,560,460 (after issuance costs of approximately $264,000).
10. As of February 4, 2000 the Company issued 10,046,344 shares of its
common stock in connection with the merger described above under "Recent
Merger."
Results of Operations
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenues in the 1998 fiscal year were generated from the sale of its
inventory of software products. The Company did not have the requisite capital
to maintain sales and marketing staff or to undertake an effective marketing
campaign and as a consequence sales declined precipitously from prior periods.
As a further consequence, the Company was not able to continue product
development, which was necessary if it were to continue with the business as a
going concern. On May 31, 1998 the Company ceased operations and sold the
balance of its product inventory and technology assets for $40,000.
During the year ended December 31, 1999, management pursued numerous
business opportunities until it reached an agreement to merge with
takeoutmusic.com, Inc. As a consequence the Company's only material expense
during the period was administrative in nature.
General and administrative expenses consist primarily of the costs of the
Company's finance and administrative personnel, including the chief executive
officer, rent, telephone, legal and other expenses incurred in pursuit of new
business opportunities and all general costs associated with maintaining a
public company in good standing. General and administrative expenses decreased,
as expected, from $123,116 in 1998 to $78,170 in 1999. The decrease in general
and administrative expenses is attributable primarily to a reduction in
staffing and the closure of the San Diego office. It is expected that these
expenses will increase with the development of the Company's new line of
business.
Quarter Ended March 31, 2000 Compared to Quarter Ended March 31, 1999
Financial results for the three-month period ended March 31, 1999 consisted
entirely of the results of the predecessor company whose operations were
discontinued in 1999 and which were in an entirely different field of business.
Results for the three months ended March 31, 2000 are solely the results of the
music business conducted by the Company, which is a development stage company.
Therefore, comparing the results of operations for the two periods would be
without meaning, and could be misleading in achieving an understanding of the
Company's current operations and business plans.
As reported in the Form 10-Q filed by the Company's predecessor for the
three months ended March 31, 1999 net revenue for those three months was
$46,833 resulting in a net loss of $25,897. The Company's results for the
quarter ended March 31, 2000 show net revenue of $2,972 and a net loss of
$312,483.
15
<PAGE>
Liquidity and Capital Resources
As of March 31, 2000 the Company had a cash balance of $1,179,922, down from
a total of $1,405,898 of cash and short-term investments at December 31, 1999.
Working capital decreased from the calendar 1999 year-end total of $1,305,447
to $893,509 as at March 31, 2000. The Company's total accumulated deficit also
rose from the 1999 year-end balance of $325,991 to $638,474 at March 31, 2000.
The $183,000 included in Company long-term debt is represented by two notes,
one for $128,000, with interest at 8%, and one for $55,000, without interest.
Both notes mature on February 3, 2003. Both notes, however, automatically
convert into common stock at $3.50 per share (requiring the issuance of 52,285
shares) if the market price of the common stock is $7.00 per share or more for
a period of ten consecutive trading days. See item 6 under "Capital
Reorganization" above.
The Company believes its cash on hand and cash from operations will be
sufficient to meet its cash requirements over the next 12 months. However, if
the Company should need to obtain additional capital by the sale of equity or
debt securities there can be no assurance that such capital or borrowings could
be obtained on terms favorable to the Company, or at all.
YEAR 2000
Some currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates or have been programmed with default
dates ending in 99, the common two-digit reference for 1999. As a result, as
the Company continues its transition from the 20th century to the 21st century,
computer systems and software used by some companies and organizations in a
wide variety of industries will produce erroneous results or fail unless they
have been modified or upgraded to process date information correctly.
Significant uncertainty exists concerning the scope and magnitude of problems
associated with the year 2000 issue but press reports indicate only a minimal
number of problems in this area.
Through May 2000 the Company has experienced no malfunctions in its
information technology systems as the result of the Year 2000 date change. The
Company could experience future malfunctions but the Company believes that
these future malfunctions, if any, will not have a material impact on the
Company's results of operations or financial condition.
The Company is in part dependent on third party suppliers. Through May 2000,
the Company's key third party suppliers have not reported any significant Year
2000 compliance problems. However, because the Company's continued Year 2000
compliance is in part dependent on the continued compliance of third parties,
there can be no assurance that problems with third party suppliers will not
have an adverse affect on the Company's results of operations or financial
condition.
Item 3. Description Of Property.
As of May 31, 2000, the Company did not own any property. The Company leases
approximately 700 square feet of office space at 381 Broadway, Suite 201, New
York, NY 10013 for which it pays monthly rent of $1,750.
Item 4. Security Ownership Of Certain Beneficial Owners And Management.
The following table sets forth certain information as of May 31, 2000 with
respect to the ownership of Common Stock by (i) the persons (including any
"group" as that term is used in Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended), known by the Company to be the beneficial owner of more
than five percent of any class of the Company's voting securities, (ii) each
director and each officer identified in the Summary Compensation Table, and
(iii) directors and executive officers as a group.
Effective February 4, 2000, in connection with the Merger, the Company
issued 10,046,344 shares of its authorized but unissued Common Stock to the
former holders of takeoutmusic.com common stock based on a
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<PAGE>
conversion ratio of 1.15 shares of the Company's Common Stock for each share of
takeoutmusic.com common stock issued and outstanding as of the effective time
of the Merger. The shares issued to the former takeoutmusic.com stockholders
represent approximately 80.5% of the outstanding Common Stock of the Company
following the Merger, and the shareholders of the Company prior to the Merger
represent approximately 19.5% of the outstanding Common Stock of the Company
following the Merger. Ownership is direct with voting and disposition rights
except where indicated otherwise and includes options exercisable within 60
days of May 31, 2000.
<TABLE>
<CAPTION>
Name and Address Amount of and Nature of Percentage
of Beneficial Owner Beneficial Ownership of Class
------------------- ----------------------- ----------
<S> <C> <C>
Sofisco Nominees Limited........... 1,724,964 13.7%
Le Panorama AB
57 Rue Grimaldi, Mc 98000 Monaco
Mori S. Ninomiya................... 1,642,660(1) 12.9%
381 Broadway, Suite 201
New York, NY 10013
Jason Brunka....................... 1,188,410(2) 9.4%
381 Broadway, Suite 201
New York, NY 10013
Rich Pangilinan.................... 1,109,750(3) 8.8%
381 Broadway, Suite 201
New York, NY 10013
John Lavallo....................... 987,160(4) 7.8%
381 Broadway, Suite 201
New York, NY 10013
Steven A. Rothstein................ 610,633(5) 4.8%
2737 Illinois Road
Chicago, Illinois 60091
Steven A. Saltzman................. 43,125(6) *
6, Rue Malher
Code de Porte B247
75004 Paris, France
Edwin O'Loughlin................... 43,125(6) *
381 Broadway, Suite 201
New York, NY 10013
All Current Officers and Directors
as a Group (4 persons in number).. 5,014,230(1)(2)(3)(4)(6) 39.3%
</TABLE>
--------
* Less than one percent.
(1) Includes 1,527,660 shares of Common Stock and options to purchase 115,000
shares of Common Stock.
(2) Includes 1,113,660 shares of Common Stock and options to purchase 74,750
shares of Common Stock.
(3) Includes 1,035,000 shares of Common Stock and options to purchase 74,750
shares of Common Stock.
(4) Includes 895,160 shares of Common Stock and options to purchase 92,000
shares of Common Stock.
(5) Consists of 29,774 shares of Common Stock and warrants to purchase 233,333
shares of Common Stock held directly by Mr. Rothstein, and 77,526 shares of
Common Stock held by minor children of Mr. Rothstein.
(6) Consists of options to purchase 43,125 shares of Common Stock.
17
<PAGE>
Item 5. Directors, Executive Officers, Promoters And Control Persons;
Compliance With Section 16(a) Of The Exchange Act.
Set forth below is certain information relating to the members of the Board
of Directors of the Company as of May 31, 2000. There are no family
relationships between any of the Directors and officers.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Mori S. Ninomiya.... 26 Chairman of the Board of Directors, President and
Chief Executive Officer
John Lavallo........ 31 Executive Vice President Business Affairs, Secretary
and Director
Edwin O'Loughlin.... 55 Director since February 4, 2000
Steven A. Saltzman.. 41 Director since April 9, 2000
</TABLE>
At the effective time of the Merger, the then current directors of the
Company were to elect to the Board of Directors between five and seven nominees
of the former takeoutmusic.com stockholders, as designated by such
stockholders, and immediately thereafter tender their own resignations from the
Board of Directors of the Company. At that time, the former takeoutmusic.com
stockholders nominated Messrs. Ninomiya, Lavallo and O'Loughlin to the Board of
Directors. Mr. Saltzman was elected to the Board of Directors of the Company by
the then existing members of the Board effective as of April 9, 2000.
The following sets forth certain biographical information for the current
Directors and officers:
Mori S. Ninomiya. Mr. Ninomiya was elected to the Board of Directors on
February 4, 2000, at which time he was also appointed President and Chief
Executive Officer of the Company. Mr. Ninomiya has served as Chairman of the
Board, President and Chief Executive Officer of takeoutmusic.com, Inc. from
July 1999 until present. From February 1999 through July 1999, Mr. Ninomiya was
primarily engaged in activities related to the formation of takeoutmusic.com,
Inc. From September, 1997 until February, 1999, Mr. Ninomiya served in the
Artist & Repertoire department at Tommy Boy Music LLC, an affiliate of Time-
Warner, Inc. From June, 1995 until September, 1997, Mr. Ninomiya was an audio
and music producer for Time Warner Interactive. From June, 1991 until
September, 1992, Mr. Ninomiya was an audio engineer at Atlantic Recording
Studios. Mr. Ninomiya obtained a B.M. from New York University in 1994.
John Lavallo. Mr. Lavallo was elected to the Board of Directors on February
4, 2000, at which time he was also appointed Executive Vice-President, Business
Affairs and Secretary of the Company. Mr. Lavallo has served as Executive Vice-
President, Business Affairs and Secretary of takeoutmusic.com, Inc. from August
1999 until present. From December 1997 through August 1999, Mr. Lavallo served
as an attorney in the Business Affairs/Legal Department at Tommy Boy Music LLC.
From August 1997 through December 1997, Mr. Lavallo served as a legal
consultant to the law firm of McCarter & English, LLP. From March 1995 through
May, 1997, Mr. Lavallo worked as a Contract/Business Analyst at EMI Capital
Music. Mr. Lavallo holds a J.D., cum laude, from Michigan State University and
a B.A., cum laude, from Drew University.
Edwin O'Loughlin. Mr. O'Loughlin was elected to the Board of Directors on
February 4, 2000. Mr. O'Loughlin has served as a Director of takeoutmusic.com,
Inc. from August 2, 1999 until present. From December 1999 through the present,
Mr. O'Loughlin has served as an advisor to Sharp End Records Ltd. From April
1998 through present Mr. O'Loughlin has served as a producer in the Artist &
Repertoire Department at Tommy Boy Music LLC. Prior to such time, Mr.
O'Loughlin served as Chairman of Next Plateau Records, a rap and dance music
label, where Mr. O'Loughlin was credited with over thirty top-40 Billboard hits
and the sextuple-platinum "Very Necessary" by Salt N' Pepa. In addition, during
the 1970's Mr. O'Loughlin founded Midland International, a Disco label whose
roster included Silver Convention and Carol Douglas.
Steven A. Saltzman. Mr. Saltzman was elected to the Board of Directors on
April 9, 2000. Since October, 1998, Mr. Saltzman has been a radio consultant
for the Finelco radio group, based in Milan and Monaco. During 1997 through
1998, Mr. Saltzman was a founder and director of a German radio consortium,
Mega Radio. During 1993 through 1997, Mr. Saltzman was the radio consultant to
Scandinavian Broadcasting (SBS).
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<PAGE>
Over the last ten years, Mr. Saltzman has served as a consultant to various
radio groups including Hachette/Europe Communications of France. In 1983, Mr.
Saltzman set up global radio syndicator Radio International Inc. Mr. Saltzman
received his B.A. from the University of South Florida in 1981.
Item 6. Executive Compensation.
The following provides certain information concerning all plan and non-plan
(as defined in Item 402 (a)(ii) of Regulation S-B) compensation awarded to,
earned by, paid or accrued by the Company during the years ended December 31,
1999, 1998 and 1997, to the former Chief Executive Officer. No director or
executive officer received total compensation in respect of the 1999 or 1998
fiscal year exceeding $100,000.
Summary Compensation Table.
<TABLE>
<CAPTION>
Long Term
Compensation Awards
-------------------
Restricted
Annual Compensation Securities Payouts
------------------- ------------------- ------------
Name and Principal Other Annual Stock Underlying All Other
Position Year Salary Compensation Award(s) Options Compensation
------------------ ---- ------ ------------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Steven A. Rothstein..... 1999 -- $26,917(2) -- -- --
President and Chief 1998 -- $34,333(3) -- -- --
Executive Officer(1) 1997 -- $ 8,000(4) -- -- --
</TABLE>
--------
(1) President and Chief Executive Officer from November 1, 1997 to February 4,
2000.
(2) Includes: (i) $14,000 in management fees which included assisting the
Company in finding new business opportunities; and (ii) $12,917 in interest
accrued on certain notes issued by the Company, of which a portion was paid
through the issuance of Common Stock of the Company and the balance was
aggregated with the principal under the Note (as defined in "Item 7--
Certain Relationships and Related Transactions").
(3) Includes: (i) $6,000 in accrued management fees which included assisting
the Company in finding new business opportunities; (ii) $15,000 in finance
fees paid in connection with the granting of a loan to the Company; and
(iii) $13,333 in interest accrued on certain notes issued by the Company to
Mr. Rothstein, of which a portion was paid through the issuance of Common
Stock of the Company and the balance was aggregated with the principal
under the Note (see "Item 7--Certain Relationships and Relations
Transactions").
(4) Includes $8,000 in interest accrued on certain notes issued by the Company
to Mr. Rothstein, of which a portion was paid through the issuance of
Common Stock of the Company and the balance was aggregated with the
principal under the Note (see "Item 7--Certain Relationships and Related
Transactions").
19
<PAGE>
Options/SAR Grants in Fiscal Year Ended December 31, 1999
There were no option/SAR grants awarded to Mr. Rothstein in fiscal year
ended December 31, 1999.
Aggregated Options/SAR Exercises in Most Recent Fiscal Year and Fiscal Year-
End Options/SAR Values.
The following table summarizes options exercised by the named executive
officers during the year ended December 31, 1999, and the number and value of
options held by Mr. Rothstein at the year end. The Company does not have any
outstanding stock appreciation rights granted to executive officers.
<TABLE>
<CAPTION>
Number of Value Of
Unexercised In-the-Money
Options/Warrants Options/Warrants
Shares at Fy-End at Fy-End ($)
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable(1)
---- ----------- -------- ---------------- ----------------
<S> <C> <C> <C> <C>
Steven A. Rothstein...... -- -- 233,333/0 $2,199,980/0
</TABLE>
--------
(1) Calculation based on the excess of fair market value over the exercise
price.
Compensation of Directors
Employee and non-employee Directors of the Company did not receive any fees
for serving on the Board of Directors during the year ended December 31, 1999.
However, such Directors were reimbursed for travel expenses for attendance at
board meetings.
Item 7. Certain Relationships and Related Transactions.
Pemcorp Management Inc., a management advisory services company controlled
by Mr. McCartney, a Director of the Company during the fiscal year ended
December 31, 1999 and Mr. Petersen, a Secretary of the Company during the
fiscal year ended December 31, 1999, was paid $18,000 for services rendered
and $8,750 for the use of office facilities during the year ended December 31,
1999, through the issuance by the Company of 56,138(1) shares of Common Stock
of the Company (see "Part II Item 4. Recent Sales of Unregistered
Securities").
The Company accrued management fees related to the Company finding new
business opportunities that amounted to $14,000 and $6,000 during the fiscal
years ended December 31, 1999 and 1998, respectively, payable to Mr.
Rothstein, the Company's Chief Executive Officer during the fiscal year ended
December 31, 1999, and $7,000 and $3,000 during the fiscal years ended
December 31, 1999 and 1998, respectively, payable to Mr. Daskal, the Company's
Chief Financial Officer during the year ended December 31, 1999. These accrued
management fees plus interest in the amount of $6,250, which interest was not
aggregated into the Note (as defined below), were paid through the issuance by
the Company issued of an aggregate of 133,333(1) shares of Common Stock (see
"Part II Item 4. Market for Common Equity and Related Stockholder Matters--
Recent Sales of Unregistered Securities").
On February 13, 1997, the Company issued a secured promissory note in the
amount of $100,000 to Mr. Rothstein. The note was in default during the year
ended December 31, 1999 as a result of the Company's failure to make timely
interest payments. The terms of the note were amended on May 1, 1998 to
provide that it is not secured and is payable on demand together with interest
accrued at the rate of 10% per annum. On February 4, 2000, the principal
amount of $100,000 and accrued interest in the amount of $28,000 were
aggregated into a three year long term convertible note (the "Note") which
Note, commencing August 4, 2000, automatically converts as to principal and
interest into Common Stock of the Company at $3.50 per share, if the price of
the Common Stock is equal to or in excess of $7.00 per share for a period of
ten consecutive trading days. The Note bears interest at the rate of 8% per
annum, which interest is payable at maturity or upon conversion. No cash
payments are due under the Note unless it remains outstanding at the end of
the 3-year term, at which time the Note shall be paid in cash in full,
including accrued interest. The Note is attached hereto as Exhibit 10.3.
20
<PAGE>
In May, 1998 and April, 1999, the Company borrowed $50,000 and $5,000,
respectively, from Mr. Rothstein. The proceeds were used to fund certain
ongoing obligations of the Company. In May, 1998, the Company issued
50,000(/1/) shares of Common Stock at a value of $0.30 per share as a finance
fee to Mr. Rothstein in connection with the loans. The promissory note was
amended July 31, 1999 to provide that it was unsecured and payable on demand
without interest. Interest was paid on the note to July 31, 1999. On February
4, 2000, the Company agreed that that the note payable to Mr. Rothstein in the
principal amount of $55,000 would be restated upon the same terms as the Note,
except that it would not bear interest. This note is attached hereto as Exhibit
10.4.
During the fiscal year ended December 31, 1999, the Company accrued interest
payable in the amount of $12,917 on the then outstanding notes payable to Mr.
Rothstein.
Item 8. Description of Securities
The following constitutes a brief summary of the Company's Articles of
Incorporation and Bylaws as they relate to the Company's stock. Such summary
does not purport to be fully complete and is qualified in its entirety by
reference to the full text of the Articles of Incorporation and Bylaws of the
Company.
COMMON STOCK
The Company's Articles of Incorporation authorize it to issue up to one
hundred million (100,000,000) Shares of Common Stock, which carry a par value
of $0.01 per Share. All outstanding Shares of Common Stock are fully paid and
non-assessable.
PREFERRED STOCK
The Company's Articles of Incorporation authorize it to issue up to fifty
million (50,000,000) Shares of Preferred Stock. The Board of Directors have the
authority to divide the Shares of Preferred Stock into one or more series; to
designate the number of shares of each series and the designation thereof; to
fix and determine the relative rights and preferences as between series,
including the dividend rate, conversion rights, voting rights and terms of
redemption; and to amend the relative rights and preferences of any series that
is wholly issued. There are no Shares of Preferred Stock issued at the date of
this registration statement.
LIQUIDATION RIGHTS
Upon liquidation or dissolution, each outstanding Share of Common Stock will
be entitled to share equally in the assets of the Company legally available for
distribution to shareholders after the payment of all debts and other
liabilities subject to the rights and preferences of any issued preferred
stock.
DIVIDEND RIGHTS
There are no limitations or restrictions upon the rights of the Board of
Directors to declare dividends out of any funds legally available therefor. The
Company has not paid dividends to date and it is not anticipated that any
dividends will be paid in the foreseeable future. The Board of Directors
initially will follow a policy of retaining earnings, if any, to finance the
future growth of the Company. Accordingly, future dividends, if any, will
depend upon, among other considerations, the Company's need for working capital
and its financial conditions at the time.
--------
(/1/The)number of shares issued has been adjusted to reflect the one for three
reverse stock split effective December 20, 1999.
21
<PAGE>
VOTING RIGHTS
Holders of Shares of Common Stock are entitled to cast one vote for each
share held at all shareholders meetings for all purposes.
OTHER RIGHTS
Shares of Common Stock are not redeemable, have no conversion rights and
carry no preemptive or other rights to subscribe to or purchase additional
Common Shares in the event of a subsequent offering.
22
<PAGE>
PART II
Item 1. Market Price Of And Dividends On The Registrant's Common Equity And
Related Stockholder Matters.
MARKET INFORMATION
Since February 10, 2000, the Company's Common Stock has been traded on the
OTC Bulletin Board under the symbol "TOMU". From July 21, 1998 through February
10, 2000, the Company's Common Stock traded on the OTC Bulletin Board under the
symbol "SLHX". Prior to such time, the Company's Common Stock traded on the OTC
Bulletin Board under the symbol "ALGT".
The Company's Common Stock was also traded on the Vancouver Stock Exchange
under the symbol "SLL.U" for the period commencing July 21, 1998 through May
28, 1999, when the Company voluntarily delisted the Common Stock from trading
on the Vancouver Stock Exchange. Prior to July 21, 1998, the Common Stock
traded on the Vancouver Stock Exchange under the symbol "AGH.U".
The following table sets forth the high and low prices per share of the
Company's Common Stock on the OTC Bulletin Board for all fiscal quarters since
January 1, 1998. These quotations reflect prices between dealers and do not
reflect retail mark-ups, mark-downs or commissions and may not necessarily
represent actual transactions. The information has been adjusted, where
appropriate, to reflect the one for three reverse stock split effective
December 20, 1999 and the one for four reverse stock split effective July 21,
1998.
<TABLE>
<CAPTION>
Bid Prices
of Common
Stock
------------
High Low
------ -----
<S> <C> <C>
Year Ended December 31, 2000
First Quarter................................................... $11.13 $4.00
Second Quarter (through May 31, 2000)........................... $ 5.50 $1.25
Year Ended December 31, 1999:
First Quarter................................................... $ 0.15 $0.03
Second Quarter.................................................. $ 0.15 $0.15
Third Quarter................................................... $ 1.13 $0.15
Fourth Quarter.................................................. $11.00 $0.30
Year Ended December 31, 1998:
First Quarter................................................... $ 0.75 $0.24
Second Quarter.................................................. $ 1.08 $0.48
Third Quarter................................................... $ 0.84 $0.21
Fourth Quarter.................................................. $ 0.90 $0.03
</TABLE>
23
<PAGE>
The following table sets forth the high and low prices per share of the
Company's Common Stock on the Vancouver Stock Exchange for all fiscal quarters
from January 1, 1998 through May 28, 1999, when the Company voluntarily
delisted the Common Stock from trading on the Vancouver Stock Exchange. These
prices have been adjusted, where appropriate, to reflect the one for three
reverse stock split effective December 20, 1999 and the one for four reverse
stock split effective July 21, 1998.
<TABLE>
<CAPTION>
Bid Prices
of Common
Stock
-----------
High Low
----- -----
<S> <C> <C>
Year Ended December 31, 1999:
First Quarter.................................................... $0.30 $0.27
Second Quarter................................................... $0.30 $0.27
Third Quarter.................................................... N/A N/A
Fourth Quarter................................................... N/A N/A
Year Ended December 31, 1998:
First Quarter.................................................... $0.84 $0.48
Second Quarter................................................... $0.84 $0.48
Third Quarter.................................................... $0.60 $0.60
Fourth Quarter................................................... $0.60 $0.27
</TABLE>
24
<PAGE>
HOLDERS
As of May 31, 2000, there were approximately 160 holders of record of the
Company's Common Stock. Such number of record owners was determined from the
Company's shareholder records, and does not include beneficial owners of its
Common Stock whose shares are held in the names of various security holders,
dealers and clearing agencies. The Company believes that the number of
beneficial owners of Common Stock held by others as or in nominee names exceeds
300 in number.
DIVIDENDS
The Company has never paid a dividend, whether in cash or property, on its
shares of Common Stock, and has no present expectation of doing so in the
future.
Item 2. Legal Proceedings.
As of May 31, 2000, the Company was not party to any pending legal
proceeding.
Item 3. Changes in and Disagreement With Accountants on Accounting and
Financial Disclosure.
By resolution of the Board of Directors adopted as of May 10, 2000, the
Board of Directors of the Company approved the engagement of Arthur Andersen
LLP as its independent auditors for the fiscal year ending December 31, 2000 to
replace the firm of Moss Adams LLP, who were dismissed as auditors of the
Company effective May 10, 2000.
The reports of Moss Adams LLP on the Company's financial statements for the
past two fiscal years did not contain an adverse opinion or a disclaimer of
opinion and were not qualified as to audit scope, or accounting principles.
However, such reports included a qualification concerning the ability of the
Company to continue as a going concern and that the financial statements of the
Company did not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of that
uncertainty.
In connection with the Company's financial statements for each of the two
fiscal years ended December 31, 1999, and in the subsequent interim periods,
there were no disagreements with Moss Adams LLP on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope and
procedures which, if not resolved to the satisfaction of Moss Adams LLP would
have caused Moss Adams LLP to make reference to the matter in their report.
The Company has requested Moss Adams LLP to furnish to it a letter addressed
to the Commission stating whether it agrees with the above statements. A copy
of that letter, dated May 10, 2000, is referenced as Exhibit 16.1 to this
registration statement.
Item 4. Recent Sales of Unregistered Securities.
Sales of unregistered securities by the Company since January 1, 1999 are as
follows:
On July 31, 1999, the Company issued 56,138(/1/) shares of Common Stock to
certain creditors of the Company in settlement of debt of the Company in the
amount of $26,750. The issuance was made pursuant to Regulation S of the
Securities Act of 1933, as amended (the "Act") (see "Part I Item 7. Certain
Relationships and Related Transactions").
--------
(/1/The)number of shares issued have been adjusted to reflect the one for three
reverse stock split effective December 20, 1999.
25
<PAGE>
On July 31, 1999, the Company issued an aggregate of 133,333(1) shares of
Common Stock to certain creditors of the Company in settlement of debt of the
Company in an aggregate amount equal to $36,250. The issuance was made pursuant
to Section 4(2) of the Act (see "Part I Item 7. Certain Relationships and
Related Transactions").
Item 5. Indemnification of Officers and Directors
The Business Corporation Act of the State of Washington provides generally
that a corporation may indemnify any person who was or is a party to or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, or investigative
in nature, whether formal or informal, by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, against reasonable expenses (including attorneys' fees)
and, in a proceeding not by or in the right of the corporation, judgments,
fines and amounts paid in settlement, reasonably incurred by him in connection
with such suit or proceeding, if, in the case of conduct in the individual's
official capacity with the corporation, he acted in a manner believed to be in
the best interests of the corporation, and in all other cases that his conduct
was not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, he had no reasonable cause to believe his
conduct was unlawful. Washington law further provides that, unless otherwise
provided in the articles of incorporation or a bylaw, contract, or resolution
approved or ratified by the shareholders, a corporation will not indemnify any
person against expenses incurred in connection with an action by or in the
right of the corporation if such person shall have been adjudged to be liable
to the corporation or, in connection with any proceeding in which he was
adjudged liable on the basis that personal benefit was improperly received,
whether or not involving action in his official capacity, unless the court in
which such action or suit was brought shall determine that, despite the
adjudication of liability but in view of all the relevant circumstances, such
person is fairly and reasonably entitled to indemnification for the reasonable
expenses incurred.
The ByLaws of the Company provide for indemnification of officers and
directors of the Company to the full extent permitted by Washington law for any
and all fees, costs and expenses incurred in connection with any action, suit
or other proceeding, whether civil, criminal, administrative or investigative,
commenced or threatened, arising out of services by or on behalf of the
Company. The ByLaws also provide for advancing funds to pay for anticipated
costs and authorize the Board to enter into an indemnification agreement with
each officer or director.
In accordance with Washington law, the Company's Articles of Incorporation
contain provisions eliminating the personal liability of directors, except for
(i) liability for unlawful distributions if it is established that the director
did not perform his duties in compliance with the applicable standard of
conduct for directors, (ii) acts or omissions which involve intentional
misconduct or a knowing violation of the law, and (iii) any transaction in
which a director receives an improper personal benefit. These provisions only
pertain to breaches of duty by directors as such, and not in any other
corporate capacity, e.g., as an officer. As a result of the inclusion of such
provisions, neither the Company nor its stockholders may be able to recover
monetary damages against directors for actions taken by them which are
ultimately found to have constituted negligence or gross negligence, or which
are ultimately found to have been in violation of their fiduciary duties,
although it may be possible to obtain injunctive or equitable relief with
respect to such actions. If equitable remedies are found not to be available to
stockholders in any particular case, stockholders may not have an effective
remedy against the challenged conduct.
The Company has entered into Indemnification Agreements with each of its
directors and officers (the "Indemnitees") pursuant to which it has agreed to
provide for indemnification, to the fullest extent permitted by law and the
Company's ByLaws, against any and all expenses, judgments, fines, penalties and
amounts paid in settlement arising out of any claim in connection with any
event, occurrence or circumstance related to such
26
<PAGE>
individual serving as a director or officer of the Company. Such
indemnification includes the advance of expenses to the Indemnitees (including
the payment of funds in trust therefor under certain circumstances) and is
subject to there not having been determined that the Indemnitee would not be
permitted to be indemnified under applicable law. The rights of indemnification
are in addition to any other rights which the Indemnitees may have under the
Company's Certificate of Incorporation, ByLaws, the Washington Business
Corporation Act or otherwise.
PART F/S
See Index to Financial Statements attached hereto.
27
<PAGE>
PART III
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Page
------- ----------------
<C> <S>
2.1 Agreement and Plan of Merger dated January 26, 2000 among
takeoutmusic.com Holdings Corp. (f/k/a Shampan, Lamport Holdings
Limited), TOMCI Acquisition Corp. and takeoutmusic.com, Inc. filed on
February 18, 2000 as Exhibit 2.1 to Current Report on Form 8-K and
hereby incorporated by reference.
3.1 Articles of Incorporation filed with the Secretary of State of the
State of Washington on December 28, 1993 filed as Exhibit 3.1 to
Registration Statement on Form SB-2, File No. 333-07727 and hereby
incorporated by reference.
3.2+ Articles of Amendment to Articles of Incorporation filed with the
Secretary of State of the State of Washington effective as of June 6,
1996.
3.3+ Articles of Amendment to Articles of Incorporation filed with the
Secretary of State of the State of Washington effective as of July 21,
1998.
3.4+ Articles of Amendment to Articles of Incorporation filed with the
Secretary of State of the State of Washington effective as of December
20, 1999.
3.5 Articles of Amendment to Articles of Incorporation filed with the
Secretary of State of the State of Washington effective as of February
9, 2000 filed February 18, 2000 as Exhibit 3.1 to Current Report on
Form 8-K and hereby incorporated by reference.
3.6 By-Laws filed as Exhibit 3.2 to Registration Statement on Form SB-2,
File No. 333-07727 and hereby incorporated by reference.
4.1 Common Stock Purchase Warrant dated May 4, 2000 issued to Steven A.
Rothstein.
4.2 Common Stock Purchase Warrant dated May 4, 2000 issued to Steven
Rabinovici.
4.3 Common Stock Purchase Warrant dated February 4, 2000 issued to Geller
& Friend Partnership I filed as Exhibit 4.3 to Annual Report on Form
10-KSB, File No. 333-07727 and hereby incorporated by reference.
4.4 Common Stock Purchase Warrant dated February 4, 2000 issued to
National Securities Corporation to purchase 314,638 shares of Common
Stock at an exercise price of $.579713 per share filed as Exhibit 4.4
to Annual Report on Form 10-KSB, File No. 333-07727 and hereby
incorporated by reference.
10.1 Incentive Compensation Plan filed as Exhibit 10.1 to Annual Report on
Form 10-KSB, File No. 333-07727 and hereby incorporated by reference.
10.2 Form of Indemnification Agreement filed as Exhibit 10.2 to Annual
Report on Form 10-KSB, File No. 333-07727 and hereby incorporated by
reference.
10.3 Convertible Promissory Note dated February 4, 2000 in the amount of
$100,000 issued to Steven A. Rothstein (IRA) filed as Exhibit 10.3 to
Annual Report on Form 10-KSB, File No. 333-07727 and hereby
incorporated by reference.
10.4 Convertible Promissory Note dated February 4, 2000 in the amount of
$55,000, issued to Steven A. Rothstein filed as Exhibit 10.4 to Annual
Report on Form 10-KSB, File No. 333-07727 and hereby incorporated by
reference.
16.1 Letter from Moss Adams LLP required pursuant to Rule 304(a)(3) of
Regulation S-B filed as Exhibit 99.1 to the Current Report on Form 8-
K, File No. 333-07727 and hereby incorporated by reference.
</TABLE>
--------
+ Previously filed.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this amended registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
takeoutmusic.com Holdings Corp.
/s/ Mori S. Ninomiya
By:__________________________________
Mori S. Ninomiya
Chairman, President and Chief
Executive Officer
Date: August 4, 2000
29
<PAGE>
FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
REPORT OF INDEPENDENT AUDITORS OF SHAMPAN, LAMPORT HOLDINGS LIMITED....... F-2
FINANCIAL STATEMENTS OF SHAMPAN, LAMPORT HOLDINGS LIMITED
BALANCE SHEETS OF SHAMPAN, LAMPORT HOLDINGS LIMITED AS OF DECEMBER 31,
1998 AND 1999.......................................................... F-3
STATEMENTS OF OPERATIONS OF SHAMPAN, LAMPORT HOLDINGS LIMITED FOR THE
YEARS ENDED DECEMBER 31, 1998 AND 1999................................. F-4
STATEMENTS OF STOCKHOLDERS' EQUITY OF SHAMPAN, LAMPORT HOLDINGS LIMITED
FOR THE YEARS ENDING DECEMBER 31, 1998 AND 1999........................ F-5
CASH FLOW STATEMENTS OF SHAMPAN, LAMPORT HOLDINGS LIMITED FOR THE YEARS
ENDED DECEMBER 31, 1998 AND 1999....................................... F-6
NOTES TO FINANCIAL STATEMENTS OF SHAMPAN, LAMPORT HOLDINGS LIMITED...... F-7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS OF TAKEOUTMUSIC.COM, INC......... F-12
FINANCIAL STATEMENTS OF TAKEOUTMUSIC.COM, INC.
BALANCE SHEET OF TAKEOUTMUSIC.COM, INC. AS OF DECEMBER 31, 1999......... F-13
STATEMENT OF OPERATIONS OF TAKEOUTMUSIC.COM, INC. FOR THE PERIOD FROM
APRIL 12, 1999 (INCEPTION ) TO DECEMBER 31, 1999....................... F-14
STATEMENT OF STOCKHOLDERS' EQUITY OF TAKEOUTMUSIC.COM, INC.FOR THE
PERIOD FROM APRIL 12, 1999 (INCEPTION ) TO DECEMBER 31, 1999........... F-15
CASH FLOW STATEMENT OF TAKEOUTMUSIC.COM, INC. FOR THE PERIOD FROM APRIL
12, 1999 (INCEPTION) TO DECEMBER 31, 1999.............................. F-16
NOTES TO FINANCIAL STATEMENTS OF TAKEOUTMUSIC.COM, INC.................. F-17
UNAUDITED PRO FORMA FINANCIAL STATEMENTS OF TAKEOUTMUSIC.COM, INC. AND
SHAMPAN LAMPORT HOLDINGS LIMITED
INTRODUCTION TO PRO FORMA FINANCIAL STATEMENTS.......................... F-24
PRO FORMA BALANCE SHEET AS OF DECEMBER 31, 1999......................... F-25
PRO FORMA INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1999......... F-26
NOTES TO THE PRO FORMA FINANCIAL STATEMENTS............................. F-27
UNAUDITED INTERIM FINANCIAL STATEMENTS
BALANCE SHEETS AS OF DECEMBER 31, 1999 AND MARCH 31, 2000............... F-28
STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND
THE PERIOD FROM APRIL 12, 1999 (INCEPTION) TO MARCH 31, 2000........... F-29
STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31,
2000 AND THE PERIOD FROM APRIL 12, 1999 (INCEPTION ) TO MARCH 31,
2000................................................................... F-30
CASH FLOW STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND THE
PERIOD FROM APRIL 12, 1999 (INCEPTION) TO MARCH 31, 2000............... F-31
NOTES TO THE INTERIM FINANCIAL STATEMENTS............................... F-32
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Shampan, Lamport Holdings Limited
We have audited the balance sheets of Shampan, Lamport Holdings Limited as
of December 31, 1998 and 1999, and the related statements of operations,
shareholders' deficit, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Shampan, Lamport Holdings
Limited as of December 31, 1998 and 1999, and the results of its operations and
cash flows for the years then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that
Shampan, Lamport Holdings Limited will continue as a going concern. As
discussed in Note 1 to the financial statements, the Company has sustained
substantial operating losses since inception and has a working capital deficit
of approximately $275,000 at December 31, 1999. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The 1999 financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classifications of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
Moss Adams LLP
Seattle, Washington
January 26, 2000, except for Notes 1(b), 3(a) and
5(b), as to which the date is February 4, 2000
F-2
<PAGE>
SHAMPAN, LAMPORT HOLDINGS LIMITED
BALANCE SHEETS
As of December 31, 1999
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................... $ 10,776 $ 8,497
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Notes payable to shareholder....................... $ 150,000 $ --
Notes payable...................................... 42,500 67,500
Accounts payable................................... 31,522 31,522
Accrued liabilities................................ 33,336 1,164
----------- -----------
Total current liabilities........................ 257,358 100,186
----------- -----------
Notes payable to shareholder......................... -- 183,000
----------- -----------
Shareholders' deficit:
Preferred stock, 50,000,000 shares authorized,
$0.01 par value,
none issued or outstanding........................ -- --
----------- -----------
Common stock, 100,000,000 shares authorized, $0.01
par value, 2,249,417 and 2,438,889 issued and
outstanding, in 1998 and 1999, respectively....... 22,494 24,389
Additional paid-in capital......................... 4,888,671 4,949,776
Accumulated deficit................................ (5,157,747) (5,248,854)
----------- -----------
(246,582) (274,689)
----------- -----------
$ 10,776 $ 8,497
=========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
SHAMPAN, LAMPORT HOLDINGS LIMITED
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
NET REVENUE........................................... $ 62,541 $ --
COST OF REVENUE....................................... 18,415 --
---------- ----------
GROSS PROFIT.......................................... 44,126 --
---------- ----------
EXPENSES
Sales and marketing................................. 24,837 --
General and administrative.......................... 123,116 78,170
---------- ----------
147,953 78,170
LOSS FROM OPERATIONS.................................. (103,827) (78,170)
OTHER INCOME (EXPENSE)
Interest expense.................................... (13,333) (12,937)
Finance fee......................................... (15,000) --
Gain on disposal of property and equipment.......... 4,972 --
---------- ----------
LOSS BEFORE EXTRAORDINARY ITEM........................ (127,188) (91,107)
EXTRAORDINARY ITEM, gain on settlement of
obligations.......................................... 7,113 --
---------- ----------
NET LOSS.............................................. $ (120,075) $ (91,107)
========== ==========
BASIC LOSS PER SHARE.................................. $ (0.06) $ (0.04)
========== ==========
SHARES USED IN COMPUTING PER SHARE AMOUNTS............ 2,153,116 2,328,363
========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
SHAMPAN, LAMPORT HOLDINGS LIMITED
STATEMENT OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------ Paid-in Accumulated Shareholders'
Shares Amount Capital Deficit Deficit
--------- ------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1997................... 645,250 $ 6,452 $4,139,713 $(5,037,672) $(891,507)
Shares issued........... 1,666,667 16,667 733,333 -- 750,000
Shares cancelled........ (112,500) (1,125) 1,125 -- --
Shares issued--bonus.... 50,000 500 14,500 -- 15,000
Net loss................ -- -- -- (120,075) (120,075)
--------- ------- ---------- ----------- ---------
Balances at December 31,
1998................... 2,249,417 22,494 4,888,671 (5,157,747) (246,582)
Shares issued--
settlement............. 189,472 1,895 61,105 -- 63,000
Net loss................ -- -- -- (91,107) (91,107)
--------- ------- ---------- ----------- ---------
Balance at December 31,
1999................... 2,438,889 $24,389 $4,949,776 $(5,248,854) $(274,689)
========= ======= ========== =========== =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
SHAMPAN, LAMPORT HOLDINGS LIMITED
STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
1998 1999
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................................ $(120,075) $(91,107)
Adjustments to reconcile net loss to net cash from
operating activities
Gain on disposal of property and equipment............ (4,972) --
Expenses settled through issuance of common stock....... -- 63,000
Extraordinary gain on settlement of obligations......... (7,113) --
Accrued interest converted to notes payable............. -- 28,000
Finance fee paid in common stock........................ 15,000 --
Changes in operating assets and liabilities
Accounts receivable................................... 12,642 --
Inventories........................................... 38,146 --
Accounts payable and accrued liabilities.............. (7,208) (32,172)
--------- --------
(73,580) (32,279)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on sale of property and equipment.............. 21,611 --
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable................. 50,000 30,000
Payments on notes payable............................... (22,500) --
--------- --------
27,500 30,000
--------- --------
Change in cash and cash equivalents....................... (24,469) (2,279)
Cash and cash equivalents, beginning of year.............. 35,245 10,776
--------- --------
Cash and cash equivalents, end of year.................... $ 10,776 $ 8,497
========= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Common stock issued for settlement of share
subscriptions.......................................... $ 750,000 $ --
========= ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
SHAMPAN, LAMPORT HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1999
1. ORGANIZATION AND SUBSEQUENT EVENT
(a) Nature of Operations
The Company was incorporated in Washington State, U.S.A. on December 28,
1993 and changed its name from Allegiant Technologies Inc. to Shampan, Lamport
Holdings Limited effective July 21, 1998. In February 2000 the Company changed
its name to takeoutmusic.com Holdings Corp.
The Company discontinued its principal line of business, developing,
marketing and supporting interactive multimedia development software during
1997. On May 31, 1998 the Company disposed of its remaining inventory and
technology assets.
(b) Management Plans on Continued Existence, Merger Agreement and Subsequent
Event
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, in the United States, which
contemplates the continuation of the Company as a going concern. However, the
Company sustained substantial operating losses and used substantial amounts of
working capital in its prior operations. As of December 31, 1999, current
liabilities exceeded current assets by $274,689.
On January 26, 2000, the Company entered into an Agreement and Plan of
Merger (the "Merger") with takeoutmusic.com, Inc. ("takeoutmusic"), a privately
held Delaware corporation engaged in the business of distributing music in
digital format over the world wide web. The Merger provides for the issuance of
approximately 10 million shares of the Company's common stock in exchange for
all of the issued and outstanding shares of takeoutmusic.com. The Merger will
be accounted for as a reverse merger with takeoutmusic being the accounting
acquirer.
The Company's ability to continue as a going concern is dependent upon,
among other things, its ability to integrate the operations of
takeoutmusic.com. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) 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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
(b) Revenue Recognition
Prior to the Company being dormant, revenue was derived from product sales
and licenses, maintenance contracts and consulting, training and other
services. Revenues from product sales and licenses were recognized upon
shipment of the products. Revenue from software maintenance contracts was
recognized on a straight-line basis over the term of the contract, generally
one year. Revenues from consulting, training and other services were recognized
in the period in which services were performed and earned in accordance with
the respective agreements. To the extent that an engagement was projected to be
completed at a loss, a provision for the full amount of the loss was provided
at that time.
F-7
<PAGE>
SHAMPAN, LAMPORT HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998 AND 1999
(c) Stock Options
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals, or
is greater than, the market price of the underlying stock on the date of grant,
no compensation expense is recognized.
(d) Stock Split
In July 1998, outstanding shares of common stock were reverse split one-for-
four. In December 1999, outstanding shares of common stock were reverse split
one-for-three. All share and per share amounts have been restated.
(e) Earnings Per Share
In accordance with SFAS No. 128 "Earnings Per Share", basic earnings per
share (EPS) of common stock is calculated based upon the weighted average
number of common stock outstanding. The computation of diluted EPS is similar
to the computation of basic EPS except that the denominator is increased to
include the number of additional common shares that would have been outstanding
if the dilutive potential common shares had been issued. As the Company
recorded losses in 1998 and 1999 there were no dilutive potential common
shares.
F-8
<PAGE>
SHAMPAN, LAMPORT HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998 AND 1999
3. NOTES PAYABLE
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
(a) Notes Payable to Shareholder
Note payable to Shareholder--On February 13, 1997 the
Company issued a note payable in connection with a proposed
private placement of debt securities in the amount of
$750,000. The Company was advanced the sum of $100,000
under the Note. The Note is secured by the assets of the
Company and bore interest at 10% per annum. On February 3,
2000 the Note was amended to include accrued interest
through December 31, 1999 of $28,000, commencing six months
from the closing of the Merger, the automatic conversion
into common stock at $3.50 per share, if the market price
of the common stock is equal to or in excess of $7 per
share for a period of 10 consecutive trading days, and
accrue interest at 8% per annum payable on conversion or
maturity. If not converted, the Note matures three years
from the closing date of the Merger. ...................... $100,000 $128,000
Note payable to Shareholder--On May 1, 1998, the Company
issued a note payable in connection with the receipt of
$50,000. The Note is unsecured and bears interest at the
fixed rate of 10% per annum. The Shareholder advanced the
further sum of $5,000 in 1999. On July 31, 1999, the
Shareholder agreed not to accrue interest thereafter on the
Note. On February 3, 2000, the Note was amended to,
commencing six months from the closing of the Merger, the
automatic conversion into common stock at $3.50 per share,
if the market price of the common stock is equal to or in
excess of $7 per share for a period of 10 consecutive
trading days. If not converted the Note matures three years
from the closing date of the Merger. ...................... 50,000 55,000
-------- --------
The conversion feature represents a beneficial conversion,
which at issuance had a value of $183,000. The Company will
recognize a charge to interest expense, based on the value
of the beneficial conversion at issuance, upon conversion
of the notes. ............................................. $150,000 $183,000
======== ========
Note payable, due November 4, 1998. The Note is unsecured,
non-interest bearing and currently in default. ............ $ 42,500 $ 42,500
Notes payable--On December 15, 1999, the Company issued a
note payable to takeoutmusic in connection with the receipt
of $25,000. The Note is unsecured and bears interest at the
fixed rate of 6% per annum. The principal amount of the
Note together with interest is due and payable upon demand
but not prior to the earlier to occur of 60 days following
the effective date of the Merger (Note 1) or April 15,
2000. ..................................................... -- 25,000
-------- --------
$ 42,500 $ 67,500
======== ========
</TABLE>
(b) Note Payable
F-9
<PAGE>
SHAMPAN, LAMPORT HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998 AND 1999
4. INCOME TAXES
Significant components of the Company's deferred tax assets as of December
31, 1998 and 1999, respectively, are shown below. A valuation allowance has
been recognized to offset the deferred tax assets, as realization of such
assets is uncertain.
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................. $ 2,007,000 $ 1,781,000
Research and development credits................. 157,000 114,000
Other--net....................................... 26,000 --
----------- -----------
Total deferred tax assets.......................... 2,190,000 1,895,000
Valuation allowance for deferred tax assets........ (2,190,000) (1,895,000)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
At December 31, 1999, the Company has federal net operating loss
carryforwards of approximately $5.2 million. The Company also has federal
research credit carryforwards of approximately $114,000. The federal tax loss
carryforward and the research credit carryforwards will begin expiring in 2009
unless previously utilized. During 1999 the Company filed for withdrawal with
the Secretary of State in California. As such, in the State of California, the
Company lost the potential future benefit of net operating loss carryforwards
of approximately $2.2 million and research credits of approximately $64,000.
In accordance with certain provisions of the Internal Revenue Code, a change
in ownership of a corporation of greater than 50 percent within a three-year
period will place an annual limitation on the corporation's ability to utilize
its existing tax loss and tax credit carryforwards.
5. CAPITAL STOCK
(a) Stock options
The Company established a stock option plan ("the Plan") to grant options to
purchase common stock to employees, officers, non-employee directors of the
Company and certain other individuals. The Plan authorizes the Company to issue
or grant stock options to purchase up to 209,825 shares of its common stock as
of December 31, 1999. As of December 31, 1999, the Company has no outstanding
stock options.
(b) Warrants
As of December 31, 1999, the Company has outstanding warrants, issued in
connection with a private placement of common stock during 1997, entitling the
holders to purchase a total of 561,111 common shares of the Company at $0.5175
per share originally to expire October 15, 1999. During 1999, the warrant
expiration date was extended to the close of business on October 15, 2004. On
February 4, 2000, warrants for the purchase of 406,667 shares were further
amended to provide for the cashless exercise of the warrants.
F-10
<PAGE>
SHAMPAN, LAMPORT HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998 AND 1999
6. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1998 and 1999, the Company paid or
accrued, the following amounts to related parties:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Management fees.............................................. $45,000 $42,000
Rent......................................................... 15,000 8,750
Interest..................................................... 13,333 12,937
Finance fee.................................................. 15,000 --
------- -------
$88,333 $63,687
======= =======
</TABLE>
Notes payable to a director are $150,000 and $183,000 at December 31, 1998
and 1999, respectively.
Included in accrued liabilities at December 31, 1998 is $21,333 of accrued
interest due to a director of the Company.
F-11
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of takeoutmusic.com
We have audited the accompanying balance sheet of takeoutmusic.com, Inc. (a
Delaware corporation in the development stage) as of December 31, 1999, and the
related statement of operations, stockholders' equity and cash flows for the
period from April 12, 1999 (inception) to December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of takeoutmusic.com, Inc. as
of December 31, 1999, and the results of its operations and its cash flows for
the period from April 12, 1999 (inception) to December 31, 1999, in conformity
with accounting principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP
New York, New York
May 12, 2000
F-12
<PAGE>
takeoutmusic.com, Inc.
(a development stage company)
BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................ $1,105,898
Certificate of deposit........................................... 300,000
Other current assets............................................. 4,932
----------
Total current assets........................................... 1,410,830
PROPERTY AND EQUIPMENT, net........................................ 81,619
OTHER ASSETS....................................................... 5,707
----------
Total assets..................................................... $1,498,156
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses................................................. $ 92,514
Obligations under capital leases--current portion................ 12,869
----------
Total current liabilities...................................... 105,383
OBLIGATIONS UNDER CAPITAL LEASES, less current portion............. 9,033
----------
STOCKHOLDERS' EQUITY
Common Stock; $0.01 par value; 50,000,000 shares authorized,
10,046,344 issued and outstanding at December 31, 1999.......... 100,464
Additional paid-in capital....................................... 1,643,579
Deferred compensation............................................ (34,312)
Accumulated deficit during development stage..................... (325,991)
----------
Total stockholders' equity..................................... 1,383,740
----------
Total liabilities and stockholders' equity................... $1,498,156
==========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-13
<PAGE>
takeoutmusic.com, Inc.
(a development stage company)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM APRIL 12, 1999 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<S> <C>
REVENUE............................................................. $ --
OPERATING EXPENSES:
General and administration........................................ 172,482
Selling and marketing............................................. 63,771
Business development.............................................. 42,541
Non-cash compensation expense..................................... 3,188
---------
Total operating expenses........................................ (281,982)
INTEREST INCOME: 7,692
Net loss before income taxes...................................... (274,290)
---------
Provision for income taxes...................................... --
Net loss........................................................ $(274,290)
=========
Loss per share:
Basic and diluted--diluted........................................ $ (0.04)
Weighted average shares outstanding:
Basic and diluted................................................. 6,324,756
</TABLE>
The accompanying notes are an integral part of this statement.
F-14
<PAGE>
takeoutmusic.com, Inc.
(a development stage company)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 12, 1999 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Common Stock Additional
------------------- Paid in Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
---------- -------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of stock to
founders............... 5,750 $ 58 $ -- $ -- $ (8) $ 50
Stock Split--900 to 1... 5,169,250 51,693 -- -- (51,693) --
Proceeds from issuance
of common stock in
connection with private
placement, net of
issuance costs of
$15,668................ 1,725,004 17,250 77,082 -- -- 94,332
Proceeds from issuance
of common stock in
connection with private
placement net of
issuance costs of...... 3,146,340 31,463 1,528,997 -- -- 1,560,460
Issuance of options to
consultants for
services............... -- -- 37,500 (37,500) -- --
Amortization of deferred
compensation........... -- -- -- 3,188 -- 3,188
Net loss for the year
ended December 31,
1999................... -- -- -- -- (274,290) (274,290)
---------- -------- ---------- -------- --------- ----------
BALANCE AT DECEMBER 31,
1999................... 10,046,344 $100,464 $1,643,579 $(34,312) $(325,991) $1,383,740
========== ======== ========== ======== ========= ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-15
<PAGE>
takeoutmusic.com, Inc.
(a development stage company)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM APRIL 12, 1999 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................................... $ (274,290)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization.................................... 6,044
Non-cash compensation expense.................................... 3,188
Increase in other asset.......................................... (10,639)
Increase in accounts payable and accrued expenses................ 92,514
----------
Net cash used in operating activities.......................... (183,183)
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in short term investments............................... (300,000)
Capital expenditures............................................. (35,864)
Capitalization of web-site development costs..................... (26,170)
Payment of capital lease liabilities............................. (3,727)
----------
Net cash used in investing activities.......................... (365,761)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions on initial capitalization.................. 50
Proceeds from issuance of stock, net of issuance costs........... 1,654,792
----------
Net cash provided by financing activities...................... 1,654,842
----------
Net increase in cash and cash equivalents.................... 1,105,898
CASH AND CASH EQUIVALENTS, beginning of period..................... --
----------
CASH AND CASH EQUIVALENTS, end of period........................... $1,105,898
==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-16
<PAGE>
takeoutmusic.com, Inc.
(a development stage company)
NOTES TO THE FINANCIAL STATEMENTS
1. THE COMPANY
takeoutmusic.com, Inc. (the "Company" or "takeoutmusic.com"), a Delaware
corporation, was incorporated on April 12, 1999. The Company is in the
development stage and is engaged in the business of developing and marketing
musical recordings, and offering such recordings by direct file transfer, or
"downloading" to consumers over the Internet on its websites. The sites employ
a record industry accepted technology licensed from Liquid Audio that allows
downloads of samples and full songs directly from its website to PC player
programs, CD recorder devices, and portable digital music players. The company
also undertakes internet and traditional marketing activities for third party
companies. The Company operates within one industry segment.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Risks and Uncertainties
The Company is in the development stage and is subject to various risks,
including the need for additional financing, dependence on key personnel and
the establishment of its operations as a viable business model. Furthermore,
the Company is subject to the risks and uncertainties associated with Internet
commerce.
Revenue Recognition
Advertising, marketing and promotion revenues will be derived principally
from short-term agreements. These revenues will be generally recognized ratably
over the term of the agreements, provided the Company has no significant
obligations and collection of receivable is probable. Revenue from music
downloads and merchandise sales will be recognized in the period in which the
download or shipment occurs.
Advertising Costs
Advertising costs are expensed as incurred. The Company expenses the
production costs of advertising the first time the advertising takes place. For
the period from inception (April 12, 1999) to December 31, 1999 advertising
costs were approximately $41,000.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Fair Value of Financial Instruments
The carrying amounts of the Company's accounts receivable, accounts payable,
accrued liabilities and debt approximate fair market value based upon the
relatively short-term nature of these financial instruments.
F-17
<PAGE>
takeoutmusic.com, Inc.
(a development stage company)
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
are depreciated on the straight-line method over the estimated useful lives of
the assets, ranging from three to five years. Expenditures for maintenance and
repairs are charged to operations as incurred.
Software Costs
In accordance with Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use", issued in March 1998
and adopted by the Company, external direct costs of materials and services
incurred in connection with developing or obtaining internal use software and
payroll costs of employees working solely on the application development stage
of the project have been capitalized. Such costs will be amortized using the
straight-line method over an estimated useful life of 3 years beginning when
the software is ready for its intended use or over its known useful life,
whichever is shorter.
The Company accounts for long-lived assets in accordance with the provisions
of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to be
Disposed of" ("SFAS 121"). This statement establishes financial accounting and
reporting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used, and for long-lived assets and certain identifiable intangibles to be
disposed of. SFAS 121 requires, among other things, that the entity review its
long-lived assets and certain related intangibles for impairment whenever
changes in circumstances indicate that the carrying amount of an asset may not
be fully recoverable.
Organization Costs
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of Start-up
Activities." This SOP requires costs of start-up activities and organization
costs to be expensed as incurred. The Company has adopted SOP 98-5 and expensed
all costs as incurred.
Income Taxes
Income taxes are calculated using the liability method of accounting for
income taxes specified by SFAS No. 109, ACCOUNTING FOR INCOME TAXES. Deferred
income taxes are recognized for the tax consequences of temporary differences
between the financial statements and income tax bases of assets, liabilities
and carryforwards using enacted tax rates. Valuation allowances are established
when necessary, to reduce deferred tax assets to the amount expected to be
realized. Realization is dependent upon future pre-tax earnings, the reversal
of temporary differences between book and tax income, and the expected tax
rates in effect in future periods.
Stock-based Compensation
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, encourages entities
to recognize compensation costs for stock-based employee compensation plans
using the fair value based method of accounting defined in SFAS No. 123, but
allows for the continued use of the intrinsic value based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES. The Company continues to use the accounting
prescribed by APB Opinion No. 25 and as such is required to disclose pro forma
net income and earnings per share as if the fair value based method of
accounting had been applied.
F-18
<PAGE>
takeoutmusic.com, Inc.
(a development stage company)
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No.133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
SFAS No. 133 will be effective for fiscal years beginning after June 15, 2000.
The Company is currently evaluating the impact of the adoption of SFAS 133 on
its financial position and results of operations.
3. PROPERTY AND EQUIPMENT
Property and Equipment consists of the following:
<TABLE>
<S> <C>
Computer equipment.................................................. $52,836
Web site development costs.......................................... 26,170
Office equipment and furniture...................................... 8,657
-------
87,633
Less--accumulated depreciation and amortization..................... (6,044)
-------
Net................................................................. $81,619
=======
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
Professional fees................................................... $73,284
Accrued payroll taxes............................................... 1,909
Other............................................................... 17,321
-------
$92,514
=======
</TABLE>
5. INCOME TAXES
As of December 31 1999, the Company has estimated tax net operating loss
carryforwards of approximately $274,000 which begin to expire in 2020. The
Company has recorded a deferred tax asset offset by a valuation allowance of
approximately $274,000 because of uncertainty regarding their future
realizability. A change in control, as defined in Internal Revenue Code Section
382 could limit the Company's ability to utilize its tax net operating loss
carryforwards.
F-19
<PAGE>
takeoutmusic.com, Inc.
(a development stage company)
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
6. COMMITMENTS AND CONTINGENCIES
Leases
takeoutmusic.com leases office space, certain computer equipment and office
equipment and furniture under noncancellable leases expiring through fiscal
2001. As of December 31, 1999, future net minimum lease payments were as
follows:
<TABLE>
<CAPTION>
Capital Operating
Fiscal Year Lease Lease
----------- ------- ---------
<S> <C> <C>
2000...................................................... $13,775 $15,433
2001...................................................... 9,395 --
------- -------
Total minimum lease payments.............................. 23,170 15,433
Less: amounts representing interest....................... (1,268)
Present value of minimum lease payments................... $21,902
-------
Current portion........................................... $12,869
-------
Long-term................................................. $ 9,033
=======
</TABLE>
Operating lease expense for the period ended December 31, 1999 was $9,508
under noncancellable operating leases.
In August 1999, the Company entered into an operating lease for its current
facility in New York. The lease expires on July 31, 2000 and the Company has
not yet identified an alternative location.
License Agreements
takeoutmusic.com had entered into license agreements with approximately 75
recording artists at December 31, 1999. The agreements allow takeoutmusic.com
to make recordings available for sale via internet download. If the Artist
links any Artist-controlled website to the takeoutmusic.com site,
takeoutmusic.com is entitled to a royalty on all sales of sound recordings or
merchandise to visitors who enter the Artist-controlled site through the
takeoutmusic.com site. The Company pays royalties to the Artists on digital
downloads from the takeoutmusic.com website, less a distribution fee to Liquid
Audio. The Company also receives royalties on sales of recordings through the
Liquid Audio Network, a portion of which remitted to the Artist.
Consulting Agreements
During 1999, the Company entered into consulting agreements with four of its
advisors to the Board of Directors, which will continue for one year subject to
renewal. The compensation under the agreement consists of initial grants of
25,000 stock options to each advisor at an exercise price of $0.67 per share
and annual grants of 5,000 stock options commencing two years after the initial
grant. The exercise price of the subsequent grants will be the then fair market
value. The initial options vest ratably over two years, provided that the
advisors are still providing consulting services to the Company and all stock
options including the additional annual grants will terminate six years after
the date of the initial option grant. During the period ended December 31,
1999, the Company issued $33,000 of grants determined using the Black-Scholes
option pricing model, of which $2,063 was charged to expense.
During 1999, the Company entered into consulting agreements with two
independent contractors. The compensation under the agreement consists of
nonqualified stock options to purchase 5,000 shares each of
F-20
<PAGE>
takeoutmusic.com, Inc.
(a development stage company)
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
common stock at an exercise price of $0.67 per share. The options vest on
October 1, 2000. The options will expire on the earlier of 10 years from the
date of grant or 3 months after grantee is no longer employed or associated
with the Company. During the period ended December 31, 1999, the Company issued
$4,500 of grants determined using the Black-Scholes option pricing model, of
which $1,125 was charged to expense.
7. INCENTIVE COMPENSATION PLAN
On July 16, 1999, the Company adopted the 1999 Incentive Compensation Plan
(the "Plan"), under which incentive stock options, stock appreciation rights,
restricted stock units, stock awards or cash awards may be granted to
executives, employees, directors and other persons who provide services to the
Company, to the extent deemed appropriate by the Compensation Committee of the
Board of Directors. An aggregate of 1,200,000 shares of common stock of the
Company have been reserved for delivery in connection with Awards under the
Plan.
Pursuant to SFAS 123, the Company has elected to account for the 1999 Plan
under APB No. 25, under which no compensation expense is recognized for unit
option awards granted at or above fair market value. As the exercise price of
all options granted during 1999 equaled or was greater than the fair market
value, no deferred compensation expense was recorded. Under SFAS No. 123,
compensation cost is measured at the grant date based on the fair value of the
award and is recognized over the service (or vesting) period.
Had the Company recognized compensation expense in accordance with SFAS 123,
the Company's net loss would have been changed to the following pro forma
amounts for the period from inception (April 12, 1999) to December 31, 1999.
<TABLE>
<CAPTION>
1999
---------
<S> <C>
Net loss, as reported............................................ $(274,290)
Net loss, pro forma.............................................. (389,171)
</TABLE>
Under SFAS No. 123, the fair value of each option is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants in 1999: (1) expected life of
option of five to ten years; (2) dividend yield of 0%; (3) expected volatility
of 46%; and (4) risk-free interest rate of 6%.
Following is a summary of the Company's stock option activity from the
period of inception (April 12, 1999) to December 31, 1999--
<TABLE>
<CAPTION>
December 31,
1999
----------------
Weighted
Average
Exercise
Options Price
------- --------
<S> <C> <C>
Outstanding at beginning of period.......................... -- $ --
Granted..................................................... 628,000 0.67
Canceled.................................................... -- --
Terminated.................................................. -- --
Exercised................................................... -- --
Outstanding at end of period................................ 628,000 $0.67
======= =====
Options exercisable at end of period........................ -- --
-------
Weighted average fair value of options granted.............. $0.42
</TABLE>
F-21
<PAGE>
takeoutmusic.com, Inc.
(a development stage company)
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
8. STOCKHOLDER'S EQUITY
Change in Authorized Number of Shares
In June 1999, the Company amended its Certificate of Incorporation to
increase the number of authorized shares of common stock to 50,000,000 from
5,000 and to change the par value from no par value to par value per share of
$0.01.
Stock Split
Effective June 1999, the Company authorized a 900-for-1 stock split of
common shares.
Private Placement
In July 1999 the Company issued 1,725,004 shares of its common stock in a
private placement receiving net proceeds of $94,332 (after issuance costs of
approximately $16,000).
In December 1999 the Company issued 3,146,340 shares of its common stock in
a private placement receiving net proceeds of $1,560,460 (after issuance costs
of approximately $264,000).
Warrant
In connection with the December private placement, takeoutmusic.com issued a
warrant to purchase an aggregate of 314,638 shares of takeoutmusic.com Common
Stock to their placement agent at an exercise price of $0.67. The warrants are
exercisable from the closing of the private placement (December 28, 1999). The
expiration date of the warrant is December 28, 2004.
The fair value of the warrant granted, using the Black-Scholes option
pricing model with the following assumptions: dividend yield of 0%, volatility
of 46%, risk-free interest rate of 6.49% and expected life of five years, was
$89,778. takeoutmusic.com has recorded this as a transaction cost associated
with the private placement.
9. SUBSEQUENT EVENTS
Merger with Shampan Lamport Holdings Limited
On February 4, 2000, TOMCI Acquisition Corp., ("MergerSub"), a Delaware
corporation and a wholly owned subsidiary of Shampan Lamport Holdings Limited
("Shampan"), a Washington corporation, merged with and into takeoutmusic.com,
Inc., a Delaware corporation ("takeoutmusic.com"), pursuant to an Agreement and
Plan of Merger dated January 26, 2000 (the "Merger Agreement").
takeoutmusic.com was the surviving corporation in the merger. In connection
with the Merger, Shampan changed its name to takeoutmusic.com Holdings Corp.
Pursuant to the terms of the Merger Agreement, Shampan issued 10,046,344
shares of its authorized but previously unissued common stock to the former
holders of takeoutmusic.com common stock based on a conversion ratio of 1.15
shares of Shampan's common stock for each share of takeoutmusic.com common
stock issued and outstanding as of the effective time of the Merger. The shares
issued to the former takeoutmusic.com stockholders represent approximately
80.5% of the outstanding common stock of Shampan following the Merger, and the
shareholders of Shampan prior to the Merger represent approximately 19.5% of
the outstanding Common Stock of Shampan following the Merger. The merger was
accounted for as a capital
F-22
<PAGE>
takeoutmusic.com, Inc.
(a development stage company)
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
transaction which is equivalent to the issuance of stock by takeoutmusic.com
for Shampan's net liabilities of approximately $275,000, accompanied by a
recapitalization of takeoutmusic.com. All share and per share information
included in these financial statements has been adjusted retroactively to
reflect the recapitalization.
In addition, all outstanding options and warrants to purchase
takeoutmusic.com common stock were converted into options and warrants to
purchase common stock of Shampan. The sole outstanding warrant to purchase an
aggregate of 273,598 shares of takeoutmusic.com common stock at an exercise
price of $0.67 was converted into a warrant to purchase an aggregate of 314,638
shares of Shampan' common stock at an exercise price of $0.58. takeoutmusic.com
employee stock options to purchase an aggregate of 733,000 shares of
takeoutmusic.com common stock at an exercise price of $0.67 per share were
converted into options to purchase 842,950 shares of Shampan' common stock at
an exercise price of $0.58 per share.
In addition, the 1999 Incentive Compensation Plan (the "Plan") to grant
options to purchase takeoutmusic.com common stock were converted into the 1999
Incentive Plan to purchase common stock of Shampan.
Fulfillment Center Agreement
In April, 2000, takeoutmusic.com entered into an agreement with Baker &
Taylor, Inc. ("B&T"), a third party service organization whereby B&T provides
takeoutmusic.com with drop ship distribution services in support of
takeoutmusic.com's retail operations, for an initial period of one year,
renewable annually for a total of five years. All aspects relating to
fulfillment of customer orders are handled by B&T following receipt of
customers orders from takeoutmusic.com, including processing of customer orders
and shipment of merchandise.
In consideration for performance of the services provided by B&T during the
contract term, takeoutmusic.com paid an initial start-up fee and will be
charged on a fee-for-service basis.
F-23
<PAGE>
takeoutmusic.com, Inc. and Shampan Lamport Holdings Limited
Introduction to Pro Forma Financial Statements (unaudited)
On February 4, 2000, Shampan Lamport Holdings Limited, ("Shampan"), a
Washington corporation, merged with and into takeoutmusic.com, Inc., a Delaware
corporation ("takeoutmusic.com"), pursuant to an Agreement and Plan of Merger
dated January 26, 2000 (the "Merger Agreement"). Takeoutmusic.com was the
surviving corporation in the merger. In connection with the Merger, Shampan
changed its name to takeoutmusic.com Holdings Corp.
Pursuant to the terms of the Merger Agreement, each share of
takeoutmusic.com common stock issued and outstanding was exchanged for Shampan
common stock based on a conversion ratio of 1.15 shares of Shampan's common
stock for each share of takeoutmusic.com common stock. As a result of the
merger, the takeoutmusic.com Stockholders collectively acquired approximately
10,046,344 shares of Shampan Common Stock or approximately 80.5% of the
outstanding common stock of Shampan. In addition, all outstanding options and
warrants to purchase takeoutmusic.com common stock were converted into options
and warrants to purchase common stock of the Company. The merger will be
accounted for as a capital transaction, which is equivalent to the issuance of
stock by takeoutmusic.com for Shampan's net liabilities of approximately
$275,000, accompanied by a recapitalization of takeoutmusic.com.
The accompanying unaudited pro forma balance sheet presents the financial
position of takeoutmusic.com and Shampan as of December 31, 1999, assuming the
merger has been completed as of the balance sheet date. The unaudited pro forma
statement of operations for the year ended December 31, 1999 for
takeoutmusic.com and Shampan reflect the merger as if the merger had been
completed on the first day of the fiscal year presented. The historical
statements of operations for the year ended December 31, 1999 have been derived
from the audited financial statements of Shampan included in its Annual Report
on Form 10-KSB, Registration Number 333-07727 which is incorporated herein by
reference, and takeoutmusic.com's audited statement of operations for the
period ended December 31, 1999.
The unaudited pro forma financial statements are not indicative of the
results that actually would have occurred had the acquisition taken place at
the beginning of the period or of results that may be obtained in the future.
Arthur Andersen LLP
New York, New York
F-24
<PAGE>
takeoutmusic.com, Inc. and Shampan Lamport Holdings Limited
BALANCE SHEET
DECEMBER 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Takeout Shampan Pro Forma
Historical Historical Adjustments Pro Forma
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents............ $1,105,898 $ 8,497 $ -- $1,114,395
Certificate of
Deposits............... 300,000 -- -- 300,000
Other current assets.... 4,932 -- -- 4,932
---------- ----------- ----------- ----------
Total current assets.. 1,410,830 8,497 -- 1,419,327
PROPERTY AND EQUIPMENT,
net...................... 81,619 -- -- 81,619
OTHER ASSETS.............. 5,707 -- -- 5,707
---------- ----------- ----------- ----------
Total assets.......... $1,498,156 $ 8,497 $ -- $1,506,653
========== =========== =========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and
accrued expenses....... $ 92,514 $ 32,686 $ -- $ 125,200
Current portion of
capital lease
obligation............. 12,869 -- -- 12,869
Notes Payable........... -- 67,500 -- 67,500
---------- ----------- ----------- ----------
Total current
liabilities.......... 105,383 100,186 -- 205,569
CAPITAL LEASE OBLIGATION,
less current portion..... 9,033 -- -- 9,033
NOTES PAYABLE TO
SHAREHOLDER.............. -- 183,000 -- 183,000
---------- ----------- ----------- ----------
Total liabilities..... 114,416 283,186 -- 397,602
STOCKHOLDERS' EQUITY
(DEFICIT):
Common stock............ 100,464 24,389 (87,360)(b) 137,956
100,463 (a)
Additional paid-in
capital................ 1,643,579 4,949,776 (5,248,854)(c) 1,331,398
87,360 (b)
(100,463)(a)
Accumulated deficit..... (325,991) (5,248,854) 5,248,854 (c) (325,991)
DEFERRED COMPENSATION..... (34,312) -- -- (34,312)
---------- ----------- ----------- ----------
Total stockholders'
equity (deficit)..... 1,383,740 (274,689) -- 1,109,051
---------- ----------- ----------- ----------
Total liabilities and
stockholders' equity
(deficit)............ $1,498,156 $ 8,497 $ -- $1,506,653
========== =========== =========== ==========
</TABLE>
F-25
<PAGE>
takeoutmusic.com, Inc. and Shampan Lamport Holdings Limited
INCOME STATEMENT
DECEMBER 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Takeout Shampan Pro Forma
Historical Historical Adjustments Pro Forma
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
OPERATING EXPENSES............. $ 281,982 $ 78,170 $-- $ 360,152
--------- --------- ---- ---------
LOSS FROM OPERATIONS........... (281,982) (78,170) -- (360,152)
INTEREST INCOME (EXPENSE)...... 7,692 (12,937) -- (5,245)
--------- --------- ---- ---------
Net loss................... $(274,290) $ (91,107) $-- $(365,397)
========= ========= ==== =========
NET LOSS PER COMMON SHARE:
(BASIC AND DILUTED).......... $ (0.04) $ (0.04) $ (0.04)
========= ========= =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (BASIC AND
DILUTED)...................... 6,324,756 2,328,363 8,653,119
</TABLE>
F-26
<PAGE>
takeoutmusic.com, Inc. and Shampan Lamport Holdings Limited
NOTES TO THE FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The pro forma balance sheet combines the balance sheets of
takeoutmusic.com, Inc. ("takeoutmusic.com") and Shampan Lamport Holdings
Limited ("Shampan") as of December 31, 1999, assuming the merger has been
completed as of the balance sheet date. The pro forma statement of operations
for the year ended December 31, 1999 combines the statement of operations of
takeoutmusic.com for the period from inception (April 12, 1999) until December
31, 1999 with the statement of operations of Shampan for the year ended
December 31, 1999. The results of operations of Shampan for the period from
January 1, 2000 to February 4, 2000 were not material. The pro forma statement
of operations reflects the merger, as if the merger had occurred on the first
day of the fiscal year presented.
The historical balance sheets used in the presentation of the pro forma
financial statements have been derived from takeoutmusic.com's and Shampan's
audited financial statements as of December 31, 1999. The historical
statements of operations for the year ended December 31, 1999 have been
derived from takeoutmusic.com's and Shampan's audited statements of
operations.
2. UNAUDITED PRO FORMA ADJUSTMENTS
A description of the adjustments included in the unaudited pro forma
financial statements are as follows:
(a) Reflects the issuance of 10,046,344 shares of $0.01 par value common
stock of Shampan in exchange for the outstanding common shares of
takeoutmusic.com.
(b) Reflects the elimination of takeoutmusic.com's common stock.
(c) Reflects the elimination of Shampan's accumulated deficit.
F-27
<PAGE>
takeoutmusic.com, Holdings Corp.
(a development stage company)
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
------------ ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................... $1,105,898 $1,179,922
Certificate of deposit.............................. 300,000 --
Other current assets................................ 4,932 21,640
---------- ----------
Total current assets.............................. 1,410,830 1,201,562
FIXED ASSETS, net..................................... 81,619 98,934
OTHER ASSETS.......................................... 5,707 5,707
---------- ----------
Total assets...................................... $1,498,156 $1,306,203
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses............... $ 92,514 $ 251,778
Notes payable....................................... -- 42,500
Obligations under capital leases--current portion... 12,869 13,775
---------- ----------
Total current liabilities......................... 105,383 308,053
OTHER LIABILITIES
Notes payable to shareholders....................... -- 183,000
Deferred revenue.................................... -- 7,167
Obligations under capital leases, less current
portion............................................ 9,033 4,571
---------- ----------
Total other liabilities........................... 9,033 194,738
---------- ----------
Total liabilities................................. 114,416 502,791
STOCKHOLDERS' EQUITY..................................
Common Stock; $0.01 par value; 100,000,000 shares
authorized,
12,579,677 issued and outstanding at March 31,
2000............................................... 100,464 124,852
Additional paid in capital.......................... 1,643,579 1,355,002
Deferred compensation............................... (34,312) (37,968)
Accumulated deficit................................. (325,991) (638,474)
---------- ----------
Total stockholders' equity........................ 1,383,740 803,412
---------- ----------
Total liabilities and stockholders' equity........ $1,498,156 $1,306,203
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-28
<PAGE>
takeoutmusic.com Holdings Corp.
(a development stage company)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three
Months From Inception
Ended (April 12, 1999)
March 31, to
2000 March 31, 2000
------------- ----------------
<S> <C> <C>
REVENUE.......................................... $ 2,972 $ 2,972
OPERATING EXPENSES:
General and administration..................... 184,248 356,728
Selling and marketing.......................... 40,330 82,871
Business development........................... 94,186 157,957
Non-cash compensation expense.................. 6,844 10,032
---------- ---------
Total operating expenses..................... 325,608 607,588
---------- ---------
Loss from operations......................... (322,636) (604,616)
INTEREST INCOME.................................. 10,153 17,845
---------- ---------
Loss before provision for income taxes....... (312,483) (586,771)
PROVISION FOR INCOME TAXES....................... -- --
---------- ---------
Net loss..................................... $ (312,483) $(586,771)
========== =========
LOSS PER SHARE (BASIC AND DILUTED)............... $ (0.03) $ (0.07)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
(BASIC AND DILUTED)............................. 12,485,233 7,899,494
</TABLE>
The accompanying notes are an integral part of these statements.
F-29
<PAGE>
takeoutmusic.com Holdings Corp.
(a development stage company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM APRIL 12, 1999 (INCEPTION) TO MARCH 31, 2000
<TABLE>
<CAPTION>
Common Stock Additional
------------------- Paid in Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
---------- -------- ---------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 12,
1999................... -- $ -- $ -- $ -- $ -- $ --
Issuance of stock to
founders, April 12,
1999................... 5,750 58 -- -- (8) 50
Stock Split--900 to 1... 5,169,250 51,693 -- -- (51,693) --
Proceeds from issuance
of common stock in
connection with private
placement, net of
issuance costs of
$15,668................ 1,725,004 17,250 77,082 -- -- 94,332
Proceeds from issuance
of common stock in
connection with private
placement net of
issuance costs of
$263,508............... 3,146,340 31,463 1,528,997 -- -- 1,560,460
Issuance of options to
consultants for
services rendered...... -- -- 37,500 (37,500) -- --
Amortization of deferred
compensation........... -- -- -- 3,188 -- 3,188
Net loss for the year
ended December 31,
1999................... -- -- -- -- (274,290) (274,290)
---------- -------- ---------- -------- --------- ---------
Balance at December 31,
1999................... 10,046,344 100,464 1,643,579 (34,312) (325,991) 1,383,740
Acquisition of common
stock as a result of
merger................. 2,438,889 24,388 (299,077) -- -- (274,689)
Issuance of options..... -- -- 10,500 (10,500) -- --
Amortization of deferred
compensation........... -- -- -- 6,844 -- 6,844
Net loss for the period
ended March 31, 2000... -- -- -- -- (312,483) (312,483)
---------- -------- ---------- -------- --------- ---------
Balance at March 31,
1999................... 12,485,233 $124,852 $1,355,002 $(37,968) $(638,474) $ 803,412
========== ======== ========== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements
F-30
<PAGE>
takeoutmusic.com Holdings Corp.
(a development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three From Inception
Months (April 12, 1999)
Ended to
March 31, 2000 March 31, 2000
-------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................... $ (312,483) $ (586,771)
Adjustments to reconcile net loss to net cash
used in operating activities--
Depreciation and amortization.............. 8,539 14,583
Non-cash compensation expense.............. 6,844 10,032
Increase in accounts receivable............ (16,708) (16,708)
Increase in other assets................... -- (10,639)
Increase in accounts payable and accrued
expenses.................................. 126,578 219,092
Decrease in notes payable.................. (25,000) (25,000)
Increase in deferred revenue............... 7,167 7,167
---------- ----------
Net cash used in operating activities.... (205,063) (388,244)
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in short term investments........... 300,000 --
Capital expenditure.......................... (14,065) (49,929)
Capitalization of web-site development
costs....................................... (11,789) (37,959)
Cash acquired through merger................. 8,499 8,497
Payment of capital lease liabilities......... (3,558) (7,285)
---------- ----------
Net cash used in investing activities.... 279,087 (86,676)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions on initial
capitalization.............................. -- 50
Proceeds from exercise of warrants........... -- --
Proceeds from private placement.............. -- 1,654,792
---------- ----------
Net cash provided by financing
activities.............................. -- 1,654,842
Net increase in cash and cash
equivalents............................. 74,024 1,179,922
CASH AND CASH EQUIVALENTS, beginning of
period........................................ 1,105,898 --
---------- ----------
CASH AND CASH EQUIVALENTS, end of period....... $1,179,922 $1,179,922
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-31
<PAGE>
takeoutmusic.com, Holdings Corp.
(a development stage company)
NOTES TO THE FINANCIAL STATEMENTS
1. THE COMPANY
takeoutmusic.com Holdings Corp. (the "Company" or "takeoutmusic.com"), a
Washington corporation, was incorporated on December 28, 1993. The Company is
in the development stage and is engaged in the business of developing and
marketing musical recordings, and offering such recordings by direct file
transfer, or "downloading" to consumers over the Internet on its websites. The
sites employ a record industry accepted technology licensed from Liquid Audio
that allows downloads of samples and full songs directly from its website to PC
player programs, CD recorder devices, and portable digital music players. The
company also undertakes internet and traditional marketing activities for third
party companies. The Company operates within one industry segment.
2. BASIS OF PRESENTATION
In the opinion of management, the unaudited consolidated condensed financial
statements included herein have been prepared on a basis consistent with prior
periods reported financial statements and include all material adjustments,
consisting of normal recurring adjustments, necessary to fairly present the
information set forth therein.
Certain information and footnote disclosures normally included in the
financial statements have been condensed or omitted pursuant to rules and
regulations of the Securities and Exchange Commission, although the Company
believes that the disclosures in the unaudited interim financial statements are
adequate to ensure that the information presented is not misleading. The
results of operations for the interim reporting periods presented herein are
not necessarily indicative of any future operating results.
The financial information as of December 31, 1999 is derived from the
Company's Current Report on Form 8-K for the period from inception (April 12,
1999) to December 31, 1999 as filed with the Securities Exchange Commission and
the Company's Annual Report on Form 10KSB for the year ended December 31, 1999.
The interim financial statements presented herein should be read in conjunction
with the financial statements and the notes thereto included in the Form 10-KSB
and the Form 8K.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from those
estimates.
3. NET LOSS PER COMMON SHARE
The weighted average shares used to compute basic net loss per share include
outstanding shares of common stock from the date of issuance. The calculation
of diluted net loss per share for all periods presented excludes shares of
common stock issuable upon exercise of employee stock options and stock options
issued to Advisors and Consultants as their effect would be antidilutive.
Therefore, the weighted average number of shares used in the calculation of
basic and dilutive net loss per common share is the same.
The Company had 781,304 outstanding warrants outstanding as of March 31,
2000 which were excluded from the above calculation as their effect would be
antidilutive for the purposes of the calculation of diluted earnings per share.
Comprehensive Net Loss
There are no differences between the Company's net loss as reported for any
of the periods reported herein and the Company's comprehensive loss, as defined
by Statement of Financial Accounting Standards No. 130, for each of these
respective periods.
F-32
<PAGE>
takeoutmusic.com, Holdings Corp.
(a development stage company)
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
4. MERGER WITH SHAMPAN LAMPORT HOLDINGS LIMITED
On February 4, 2000, TOMCI Acquisition Corp., ("MergerSub"), a Delaware
corporation and a wholly owned subsidiary of Shampan Lamport Holdings Limited
("Shampan" or the "Company"), a Washington corporation, merged with and into
takeoutmusic.com, Inc., a Delaware corporation ("takeoutmusic.com"), pursuant
to an Agreement and Plan of Merger dated January 26, 2000 (the "Merger
Agreement"). takeoutmusic.com was the surviving corporation in the merger. In
connection with the Merger, Shampan changed its name to takeoutmusic.com
Holdings Corp.
Pursuant to the terms of the Merger Agreement, Shampan issued 10,046,344
shares of its authorized but previously unissued common stock to the former
holders of takeoutmusci.com common stock based on a conversion ratio of 1.15
shares of Shampan's common stock for each share of takeoutmusic.com common
stock issued and outstanding as of the effective time of the Merger. The shares
issued to the former takeoutmusic.com stockholders represent approximately
80.5% of the outstanding common stock of Shampan following the Merger, and the
shareholders of Shampan prior to the Merger represent approximately 19.5% of
the outstanding Common Stock of Shampan following the Merger. The merger was
accounted for as a capital transaction which is equivalent to the issuance of
stock by takeoutmusic.com for Shampan's net liabilities of approximately
$275,000, accompanied by a recapitalization of takeoutmusic.com. All share and
per share information included in these financial statements has been adjusted
to retroactively reflect the recapitalization.
In addition, all outstanding options and warrants to purchase
takeoutmusic.com common stock were converted into options and warrants to
purchase common stock of Shampan. The sole outstanding warrant to purchase an
aggregate of 273,598 shares of takeoutmusic.com common stock at an exercise
price of $0.67 was converted into a warrant to purchase an aggregate of 314,638
shares of Shampan common stock at an exercise price of $0.58. takeoutmusic.com
employee stock options to purchase an aggregate of 733,000 shares of
takeoutmusic.com common stock at an exercise price of $.067 per share were
converted into options to purchase 842,950 shares of Shampan common stock at an
exercise price of $0.58 per share.
In addition, the 1999 Incentive Compensation Plan (the "Plan") to grant
options to purchase takeoutmusic.com common stock were converted into the 1999
Incentive Plan to purchase common stock of Shampan.
5. NOTES PAYABLE
(a) Notes Payable to Shareholder
<TABLE>
<CAPTION>
March 31,
2000
---------
<S> <C>
Note payable to Shareholder(i)..................................... 128,000
Note payable to Shareholder(ii).................................... 55,000
-------
183,000
=======
</TABLE>
--------
(i) Note payable to Shareholder--On February 13, 1997 the Company issued a
note payable in connection with a proposed private placement of debt
securities in the amount of $750,000. The Company was advanced the sum of
$100,000 under the Note. The Note is secured by the assets of the Company
and bore interest at 10% per annum. On February 3, 2000 the Note was
amended to include accrued interest through December 31, 1999 of $28,000;
commencing six months from the closing of the Merger, the automatic
conversion into common stock at $3.50 per share, if the market price of
the common stock is
F-33
<PAGE>
takeoutmusic.com, Holdings Corp.
(a development stage company)
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
equal to or in excess of $7 per share for a period of 10 consecutive trading
days; and accrue interest at 8% per annum payable on conversion or maturity.
If not converted, the Note matures three years from the closing date of the
Merger.
(ii) Note payable to Shareholder--On May 1, 1998, the Company issued a note
payable in connection with the receipt of $50,000. The Note is unsecured
and bears interest at the fixed rate of 10% per annum. The Shareholder
advanced the further sum of $5,000 in 1999. On February 3, 2000, the Note
was amended to include, commencing six months from the closing of the
Merger, the automatic conversion into common stock at $3.50 per share, if
the market price of the common stock is equal to or in excess of $7.00
per share for a period of 10 consecutive trading days. If not converted
the Note matures three years from the closing date of the Merger.
Both of the above notes include a beneficial conversion feature that will
result in an interest charge if and when the price of the Company's stock
exceeds $7.00 per share. Such charge will be imputed based on the difference
between $3.50 and the then current fair market value of the Company's stock.
(b) Note Payable
<TABLE>
<CAPTION>
March 31,
2000
---------
<S> <C>
Note payable....................................................... 42,500
</TABLE>
Note payable, due November 4, 1998. The Note is unsecured and non- interest
bearing.
6. SUBSEQUENT EVENTS
Fulfillment Center Agreement
In April, 2000, takeoutmusic.com entered into an agreement with Baker &
Taylor, Inc. ("B&T"), a third party service organization whereby B&T provides
takeoutmusic.com with drop ship distribution services in support of
takeoutmusic.com's retail operations, for an initial period of one year,
renewable annually for a total of five years. All aspects relating to
fulfillment of customer orders are handled by B&T following receipt of
customers orders from takeoutmusic.com, including processing of customer orders
and shipment of merchandise.
In consideration for performance of the services provided by B&T during the
contract term, takeoutmusic.com paid an initial start- up fee and will be
charged on a fee-for-service basis.
F-34
