<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
Commission file number: 0-27862
REALITY INTERACTIVE, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1781991
--------------------------------- -----------------------------------
State or other jurisdiction of I.R.S. Employer Identification No.
incorporation of organization
SUITE 400
7500 FLYING CLOUD DRIVE
EDEN PRAIRIE, MINNESOTA 55344 (612) 996-6777
--------------------------------- -----------------------------------
Address of principal executive offices Registrant's telephone number
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. / X / Yes / / No
At April 30, 1997, 4,677,407 shares of registrant's $.01 par value Common
Stock were outstanding.
Transitional Small Business Issuer Format / / Yes / X / No
1
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FORM 10-QSB INDEX
PART I - FINANCIAL INFORMATION
- --------------------------------
Item 1. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . .3
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . .7
PART II - OTHER INFORMATION
- ----------------------------
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . .9
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
EXHIBIT INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SAFE HARBOR STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report on Form 10-QSB contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements involve risks and uncertainties that may cause the
Company's actual results to differ materially from the results discussed in
the forward-looking statements. Factors that might cause such differences
include, but are not limited to, the uncertainty in growth of a development
stage company; limited growth of the market for multimedia education and
training products; lack of market acceptance of the Company's products;
inability of the Company to expand its marketing capability; inability of the
Company to diversify its product offerings; failure of the Company to respond
to evolving industry standards and technological changes; inability of the
Company to meet its future additional capital requirements; inability of the
Company to compete in the business education and training industry; loss of
key management personnel; inability to retain subject matter experts; failure
of the Company to secure adequate protection for the Company's intellectual
property rights; and the Company's exposure to product liability claims. The
forward-looking statements are qualified in their entirety by the cautions
and risk factors set forth in Exhibit 99.1, under the caption "Cautionary
Statement," to this Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1997.
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REALITY INTERACTIVE, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . $ 311,227 $ 508,728
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . 3,815,905 4,744,712
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . 148,117 97,396
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179,545 134,853
Prepaid expenses and other current assets. . . . . . . . . . . . . . 35,175 62,835
------------ -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 4,489,969 5,548,524
------------ -----------
Fixed assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 192,156 191,936
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,800 116,800
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,250 28,481
------------ -----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,819,175 $ 5,885,741
------------ -----------
------------ -----------
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 117,220 $ 116,388
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 143,606 118,686
Other current liabilities. . . . . . . . . . . . . . . . . . . . . . . 5,169 12,345
------------ -----------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . 265,995 247,419
Long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 0 0
------------ -----------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 265,995 247,419
------------ -----------
Stockholders' equity:
Common stock, $.01 par value, 20,000,000 shares authorized;
4,677,407 shares outstanding . . . . . . . . . . . . . . . . . . . . 46,774 46,774
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 15,386,692 15,386,692
Accumulated deficit during the development stage . . . . . . . . . . . (10,880,286) (9,795,144)
------------ -----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . 4,553,180 5,638,322
------------ -----------
Total liabilities, mandatorily redeemable preferred
stock and stockholders' equity . . . . . . . . . . . . . . . . . . $ 4,819,175 $ 5,885,741
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to the financial statements.
3
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REALITY INTERACTIVE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . $ 148,346 $ 122,809
Cost of revenues . . . . . . . . . . . . . . . . . . . . 37,934 23,852
----------- -----------
Gross profit . . . . . . . . . . . . . . . . . . . . . . 110,412 98,957
----------- -----------
Operating expenses:
Sales and marketing. . . . . . . . . . . . . . . . . 405,963 432,320
Research and development . . . . . . . . . . . . . . 396,281 346,337
General and administrative.. . . . . . . . . . . . . 454,139 278,113
----------- -----------
Total operating expenses . . . . . . . . . . . . 1,256,383 1,056,770
----------- -----------
Operating loss . . . . . . . . . . . . . . . . . . . . . (1,145,971) (957,813)
----------- -----------
Other income (expense):
Interest income (expense), net . . . . . . . . . . . 60,829 (172,356)
Debt offering costs. . . . . . . . . . . . . . . . . 0 (74,741)
----------- -----------
Total other income (expense) . . . . . . . . . . 60,829 (247,097)
----------- -----------
Net loss . . . . . . . . . . . . . . . . . . . . $(1,085,142) $(1,204,910)
----------- -----------
----------- -----------
Net loss per common and common equivalent share. . . . . $ (0.23) $ (0.73)
----------- -----------
----------- -----------
Weighted average common and common equivalent shares . . 4,677,407 1,643,611
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to the financial statements.
4
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REALITY INTERACTIVE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,085,142) $(1,204,910)
Reconciliation of net loss to net cash used by operating
activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 22,500 30,000
Noncash interest expense related to warrants. . . . . . . . . . . . 0 124,702
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . (50,721) (63,106)
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44,692) (6,831)
Prepaid expenses and other current assets . . . . . . . . . . . . . 27,660 (212,279)
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . 833 54,452
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . 24,920 20,792
Other current liabilities . . . . . . . . . . . . . . . . (7,176) (1,751)
------------ ------------
Net cash used by operating activities. . . . . . . . . . . . . . (1,111,818) (1,258,931)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets, net of retirements.. . . . . . . . . . . . . (22,721) (193,651)
Purchase of other assets . . . . . . . . . . . . . . . . . . . . . . . 0 (2,665)
Purchases of short-term investments. . . . . . . . . . . . . . . . . . (71,193) 0
Sale of short-term investments . . . . . . . . . . . . . . . . . . . . 1,000,000 0
Sale of other assets . . . . . . . . . . . . . . . . . . . . . . . . . 8,231 0
------------ ------------
Net cash used by investing activities. . . . . . . . . . . . . . 914,317 (196,316)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of capital lease obligation . . . . . . . . . . . . . . . . 0 (4,926)
Proceeds from convertible note payable . . . . . . . . . . . . . . . . 0 2,800,000
Repayment of notes payable . . . . . . . . . . . . . . . . . . . . . . 0 (201,002)
------------ ------------
Net cash provided by financing activities. . . . . . . . . . . . 0 2,594,072
------------ ------------
Net cash provided (used) during period . . . . . . . . . . . . . . . . . (197,501) 1,138,825
CASH AND CASH EQUIVALENTS:
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . 508,728 118,916
------------ ------------
End of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 311,227 $ 1,257,741
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . $ 0 $57,672
------------ ------------
------------ ------------
See accompanying notes to the financial statements.
5
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REALITY INTERACTIVE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
NOTE 1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
The Company was formed in May 1994 to design, develop and market
interactive multimedia knowledge solutions to the industrial marketplace.
The Company's business strategy is to identify industry standards and
practices that affect business productivity and profitability, where the
adoption of such standards and practices require enterprise-wide education
and training. To address this education and training need, the Company
creates products that incorporate digital multimedia elements, such as
animation, video, graphics, audio and text, into a rich, interactive learning
environment. Also, each of the Company's products contain productivity
tools, such as word processors, budget forms and custom tailored project
plans, to allow the user to organize, analyze and produce documents using
company-specific information. The Company believes the interactivity of its
products allows the user to control the learning environment, including the
pace, sequence and level of instruction, as well as improve memory retention,
compress learning time and reduce costs compared to traditional learning
methods.
The Company considers itself to be a development stage company as its
sales and marketing efforts have not yet generated predictable or significant
revenues. The Company has a deficit accumulated during the development stage
of $10,880,286. To become profitable and to conserve capital, the Company
must significantly increase revenues and manage expenses. Future operating
results will depend upon many factors, including the rate at which industry
adopts interactive multimedia technology for education and training, the
level of product and price competition, the Company's success in maturing its
direct and indirect sales channels and the ability of the company to manage
its expenses in relation to sales.
Basis of Presentation
The accompanying unaudited financial statements of the Company have been
prepared in accordance with generally accepted accounting principles for
interim financial information. The preparation of financial statements in
accordance with generally accepted accounting principles require management
to make estimates and assumptions. Such estimates and assumptions affect the
reported amounts of assets and liabilities as well as disclosure of
contingent assets and liabilities at the date of the accompanying interim
financial statements, and the reported amounts of revenue and expenses during
the reporting period. In the opinion of management, the interim financial
statements include adjustments necessary for a fair presentation of the
results of operations for the interim periods presented. Operating results
for the three months ended March 31, 1997 are not necessarily indicative of
the operating results to be expected for the year ending December 31, 1997.
Certain information and footnote disclosures normally included in
financial statements in accordance with generally accepted accounting
principles have been omitted. The statements should be read in conjunction
with the Company's Annual Report on Form 10-KSB for the year ended December
31, 1996.
6
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following presentation of management's discussion and analysis of
the Company's financial condition and results of operation should be read in
conjunction with the Company's financial statements and notes contained
herein for the first quarter ended March 31, 1997 and 1996.
RESULTS OF OPERATIONS
REVENUES. Revenues were $148,346 for the first quarter of 1997, a 21%
increase from revenues of $122,809 for the first quarter of 1996. The
revenue increase was due primarily to sales of the Company's QS-9000
COMPLIANCE SERIES and ISO 14000 EMS CONFORMANCE SERIES, which were released
in August 1996 and February 1997, respectively. Sales of the Company's first
product, the ISO 9000 REGISTRATION SERIES, decreased 46% between the first
quarter of 1997 and 1996. The ISO 9000 REGISTRATION SERIES accounted for all
of the Company's revenue for the first quarter of 1996.
COST OF REVENUES. Cost of revenues were $37,934 for the first quarter
of 1997, compared to $23,852 for the first quarter of 1996. The increase in
cost of revenues was primarily due to royalties paid on an increasing level
of sales, as well as a minimum quarterly royalty paid to a partner to market
the Company's ISO 14000 EMS CONFORMANCE SERIES. Cost of revenues also
includes the cost of media duplication and packaging materials.
OPERATING EXPENSES. The Company's operating expenses for the first
quarter of 1997 were $1,256,383, a 19% increase from operating expenses of
$1,056,770 in the first quarter of 1996. This increase in operating
expenses between the first quarter of 1997 and 1996 was due primarily to the
following:
(a) Sales and marketing expenses were $405,963 for the first quarter of 1997
compared to $432,320 for the first quarter of 1996, a 6% decrease. This
decrease was due primarily to fewer direct marketing programs. The Company
expects its sales and marketing expenses will continue to decrease in 1997
compared to 1996 as a result of fewer direct sales personnel and marketing
programs.
(b) Research and development expenses were $396,281 for the first quarter of
1997 compared to $346,337 for the first quarter of 1996, a 14% increase.
This increase was primarily attributed to the February 1997 completion of
the Company's ISO 14000 EMS CONFORMANCE SERIES, a project that was started
in August 1995. The Company's multimedia development experience has shown
that expenses increase toward the end of a project as video, audio and
authoring activities increase to finish a project.
The Company expects that development expenses for its second quarter ended
June 30, 1997 will substantially increase over development expenses for the
first quarter as it completes the translation of the QS-9000 COMPLIANCE
SERIES into the German language. Thereafter, the Company expects that
development expenses will decrease as the Company shifts its focus away
from the development of off-the-shelf multimedia products.
During the remainder of 1997, the Company's business strategy will include
developing customer relationships that result in the delivery of custom
multimedia development services. The Company expects that such services
will allow the Company to leverage the talent of its development staff.
The Company will also begin to focus its attention towards Internet and
Intranet delivery of its current products, as well as other Web development
opportunities related to its core business
7
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strategy. Although these strategies represent a shift from the Company's
historical focus of developing off-the-shelf CD-ROM products, the Company
believes this change will better position the Company to become a complete
source for multimedia content development.
(c) General and administrative expenses were $454,139 for the first quarter of
1997 compared to $278,113 for the first quarter of 1996, a 63% increase.
This increase was due primarily to increased travel, office rent,
depreciation expense, operating leases and professional fees. The Company
expects that its general and administrative expenses for the remainder of
1997 will remain consistent with first quarter 1997 levels.
OTHER INCOME (EXPENSE). The Company's net other income was $60,829 for
the first quarter of 1997, compared to net other expense of $247,097 for the
first quarter of 1996. For 1997, net other income consists of interest the
Company earned on its short-term investments. For 1996, net other expense
primarily consists of expenses associated with the Company's January 1996
bridge note financing, including interest expense and amortization of
offering costs, as well as interest earned from the investment of proceeds
from its bridge note financing.
NET LOSS. Net loss was $1,085,142 for the first quarter of 1997,
compared to a net loss of $1,204,910 for the first quarter of 1996. The
Company expects to continue to incur losses for the foreseeable future as it
continues to develop the market for its off-the-shelf products and custom
multimedia development services.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and short-term investments were
$4,127,132 as of March 31, 1997, compared to $5,253,440 as of December 31,
1996. This decrease in cash, cash equivalents and short-term investments was
due primarily to the net loss from operations for the quarter.
Although the Company anticipates that it will experience operating
losses and negative cash flow from operations at least through 1997, the
Company has developed plans to decrease its expenditures as a measure to
conserve capital. Based on these plans, the Company believes that its current
cash balances will be sufficient to meet its working capital and capital
expenditure needs at least through the middle of 1998. Thereafter, the
Company may need to raise additional funds to finance its operations. In
addition, to the extent the Company's revenues do not meet management's
expectations, or the Company's growth exceeds management's expectations, the
Company may require additional financing prior to the end of 1997. In such
an event, there can be no assurance that debt or equity financing would be
available on favorable terms or at all.
8
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
EXHIBIT NO. DESCRIPTION
+ 10.1 Master Distribution Agreement between Reality Interactive, Inc.
and Interactive Media Communications, dated February 24, 1997
10.2 Multinational Copyright Exploitation Agreement between Reality
Interactive, Inc. and the International Organization for
Standardization, dated February 17, 1997
10.3 Multinational Copyright Exploitation Agreement between Reality
Interactive, Inc. and the International Organization for
Standardization, dated February 17, 1997
27.1 Financial Data Schedules
99.1 Cautionary Statement
+ Pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934,
confidential portions of Exhibit 10.1 have been deleted and filed
seperately with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended
March 31, 1997
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
REALITY INTERACTIVE, INC.
Dated: May 15, 1997 By /s/ Paul J. Wendorff
-----------------------------
Paul J. Wendorff
Its Chief Executive Officer
Dated: May 15, 1997 By /s/ Wesley W. Winnekins
-----------------------------
Wesley W. Winnekins
Its Chief Financial Officer
10
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EXHIBIT INDEX
Exhibit
No. Description Page No.
- -------- -------------------------------------------------------------------------------- --------
<S> <C> <C>
+ 10.1 Master Distribution Agreement between Reality Interactive, Inc. and Interactive
Media Communications, dated February 24, 1997 . . . . . . . . . . . . . . . . . 12
10.2 Multinational Copyright Exploitation Agreement between Reality Interactive, Inc.
and the International Organization for Standardization,
dated February 17, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
10.3 Multinational Copyright Exploitation Agreement between Reality Interactive, Inc.
and the International Organization for Standardization, dated
February 17, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
27.1 Financial Data Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
99.1 Cautionary Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
+ Pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, confidential
portions of Exhibit 10.1 have been deleted and filed seperately with the Securities
and Exchange Commission pursuant to a request for confidential treatment.
</TABLE>
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EXHIBIT 10.1
MASTER DISTRIBUTION AGREEMENT
THIS AGREEMENT is being entered into as of this 24th day of February,
1997, between REALITY INTERACTIVE, INC., a Minnesota corporation with its
principal office at 7500 Flying Cloud Drive, Fourth Floor, Eden Prairie,
Minnesota 55344 ("RII") and INTERACTIVE MEDIA COMMUNICATIONS, a Massachusetts
corporation, with its principal place of business at 204 Second Avenue,
Waltham, MA 02154 ("IMC").
RECITALS
WHEREAS, RII is the developer and publisher of certain interactive
multimedia Products in electronic digital format as identified at EXHIBIT A to
this Agreement (the "Products");
WHEREAS, IMC desires to sell and distribute the Products through its
distribution channels;
WHEREAS, RII is willing to grant IMC the right to sell and distribute the
Products and to allow IMC to earn a Distribution Royalty in accordance with the
terms and conditions as set forth herein.
AGREEMENTS
NOW, THEREFORE, in consideration of the recitals and the mutual
agreements and acknowledgments made herein, the parties agree as follows:
1. APPOINTMENT. RII grants to IMC the nonexclusive right, under
the terms of this Agreement, to sell and distribute the Products through its
distribution channels in the United States and Canada (the "Territory"). RII
agrees not to sell its Products directly through IMC's distributors, unless
mutually agreed to by both RII and IMC in writing. IMC agrees to make
reasonable efforts to ensure that the RII Products are not sold to companies
that would be deemed to be competitors of RII, and IMC agrees to confer with
RII on such matters if IMC is unsure of whether a customer is a competitor of
RII's.
2. CUSTOMER ORDERS. IMC shall notify RII of all customer orders
using the Order Form reflected at EXHIBIT B. RII shall drop ship all orders
received from IMC to IMC directly, unless otherwise noted by IMC. IMC shall
invoice and collect all customer orders that are generated through its
distribution channels. RII shall invoice IMC for the retail value of the
sale, less the amount of the Distribution Royalty calculated in section 3.
3. DISTRIBUTION ROYALTY. IMC shall be entitled to a Distribution
Royalty on the cumulative yearly sales of the Products in accordance with the
following tiers:
RETAIL SALES OF PERCENTAGE
--------------- ----------
$0 - $ 99,999 (***)%
$100,000 - $199,999 (***)%
$200,000 and above (***)%
*** Pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934,
confidential portions of Exhibit 10.1 have been deleted and filed
seperately with the Securities and Exchange Commission pursuant to
a request for confidential treatment.
12
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Any sales discounts extended by IMC to its customers shall not decrease the
amount owed to RII. Likewise, any sales discounts extended by IMC and
approved by RII shall decrease the amount owed to RII.
4. PAYMENT. IMC agrees to pay RII in accordance with its invoice
payment terms of net 30 days.
5. MARKETING COLLATERAL MATERIALS AND EVALUATION INVENTORY. RII
shall provide all IMC distributors with a starter package of marketing
materials for the Products (the "Marketing Materials") in quantities
reflected at EXHIBIT C. IMC may purchase additional materials from RII, at
RII's cost to produce, by using the order form attached hereto at EXHIBIT D.
IMC agrees to use its best efforts to sell the Products in the Territory.
For product evaluation purposes, RII shall provide each of
IMC's distributors, at no cost, with two (2) units of each Product, and shall
provide IMC, at no cost, with five (5) units of each Product. IMC shall
manage the Product evaluation process, and shall be financially responsible
to RII, except for normal wear and tear, for the cost of Product replacement
in such cases where Product is lost or stolen during the evaluation process.
6. TRAINING. RII shall, at its own cost, provide one training
session to IMC at its main place of business regarding the proper operation
and selling of the Products. IMC shall, at its own cost, provide training to
its distributors regarding the proper operation and selling of the Products.
RII may assist IMC in the training of its distributors primarily through
telephone support.
7. TERM AND TERMINATION. The term of this Agreement is two years
from the date of its execution. The term may be extended by mutual consent
of the parties. This Agreement may be terminated by either party, without
cause, providing the terminating party provides a 30 day written notice.
This Agreement will terminate automatically in the event either party ceases
to do business, in the event of either party's bankruptcy, insolvency, or
assignment for the benefit of creditors.
Upon termination of this Agreement, RII shall buy back from
IMC, at the original IMC purchase price, all unused and undamaged Marketing
Materials. At the same time, IMC shall cease using any references to RII or
its Products. In addition, upon termination of this Agreement, RII agrees to
refrain from contracting with IMC distributors for a period of eighteen (18)
months from the date of such termination.
8. PRICE OF PRODUCTS. RII retains the right to establish the
retail price of the Products (the "Retail Price") and to adjust the Retail
Price from time to time. The initial Retail Price for each Product is set
forth in EXHIBIT A hereto.
13
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9. QUALITY AND WARRANTIES. RII warrants that the digital media
on which the Products is distributed is free from defects in materials and
workmanship. EXCEPT AS SPECIFICALLY PROVIDED IN THE PRECEDING SENTENCE, RII
MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, WITH RESPECT
TO THE PRODUCTS, INCLUDING ITS CONTENT, QUALITY, PERFORMANCE, MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE. This section shall not limit RII's
liability with respect to intellectual property rights and indemnification.
RII shall extend its standard warranty to purchasers of the Products, a copy
of which is attached as EXHIBIT E, in the form in which it appears on the
Products Registration Card packaged with the Products. IMC shall not
represent that RII makes any warranty other than this standard warranty.
10. OWNERSHIP AND PROPRIETARY RIGHTS. RII represents and
warrants that (i) it has all rights in and to copyrights, trade secrets and
trademarks associated with the Products under this Agreement, (ii) the use of
the literary and artistic materials and ideas contained or embodied in the
Products, containers and advertising materials, if any, furnished to IMC by
RII in accordance with the terms of this Agreement, will not violate any law,
or infringe upon, or violate any rights of any person, firm or corporation,
and (iii) RII has no knowledge of any litigation, proceeding or claim pending
or threatened against RII which may materially affect RII's rights in and to
the Products, or the works and performances embodied thereon, the copyrights
pertaining thereto, or the rights, licenses and privileges granted to IMC
hereunder.
11. INDEMNIFICATION. RII shall indemnify and hold harmless
IMC, its officers, employees and agents, from and against all loss, damages,
liability, and expense, including attorney fees, incurred by reason of any
claims, actions, suits or governmental investigations or proceedings, brought
against or involving them or any of them, and which (i) relate to or arise
out of a breach by RII of its warranties relating to intellectual property
rights, or (ii) are brought by a third party and arise out of a claimed
defect in the Product or a claim that the Products fail to meet warranties,
representations or specifications made by RII.
IMC will indemnify and hold harmless RII, its officers,
employees and agents, harmless from and against all loss, damages, liability,
and expense, including attorney fees, incurred by reason of any claims,
actions, suits or governmental investigations or proceedings, brought against
or involving them or any of them, and which relate to or arise out of a
breach by IMC of its obligations under this Agreement.
12. RELATIONSHIP OF PARTIES. During the term of this Agreement,
the relationship between RII and IMC is that of independent contractors.
Under no circumstances shall any of the employees of one party be deemed the
employees, agents or partners of the other for any purpose.
13. CONFIDENTIALITY. Any proprietary business information or
data, written, oral or otherwise, disclosed by one party to the other
("Confidential Information") shall remain the property of the disclosing
party. The parties agree to hold all such Confidential Information in strict
confidence and not to disclose same to any third party without the disclosing
party's prior written consent. Upon expiration or termination of this
Agreement, each party shall return to the other all such Confidential
Information in its possession.
14
<PAGE>
14. NOTICE. All notices shall be in writing and will be
delivered personally, by confirmed facsimile transmission, by certified mail,
or overnight courier, to the addresses specified below:
If to IMC: IMC If to RII: Reality Interactive, Inc.
204 Second Avenue 7500 Flying Cloud Drive, 4th Floor
Waltham, MA 02154 Eden Prairie, MN 55344
Attn: James L. Mason Attn: Wes Winnekins, CFO
Telephone: (617) 890-7707 Telephone: (612) 996-6777
Fax: (617) 890-0163 Fax: (612) 996-6799
Notice will be effective only upon receipt.
15. MISCELLANEOUS.
(a) ASSIGNMENT, AMENDMENT AND SEVERABILITY. Neither this
Agreement nor any rights hereunder or interest herein may be assigned by
either party without the prior written consent of the other. This Agreement
and the Exhibits hereto constitute the entire agreement between RII and IMC.
In the event any provision of this Agreement is found to be void or
unenforceable, all remaining provisions of this Agreement will remain in full
force and effect.
(b) GOVERNING LAW. This Agreement and the relationship
between the parties hereto will be governed by and construed in accordance
with the laws of the State of Minnesota.
(c) MODIFICATION. No modification, amendment, supplement to
or waiver of any provision of this Agreement shall be binding upon the
parties hereto unless made in writing and duly signed by all parties.
(d) ARBITRATION. All disputes arising out of or relating to
this Agreement shall be submitted to arbitration by the American Arbitration
Association ("AAA") in the City of Minneapolis, Minnesota, or the AAA in the
City Boston, Massachusetts, at the option of the petitioner. In no event
shall the arbitrator have the power to include any element of punitive,
incidental or consequential damages in the arbitration award. Judgment on
the arbitration award in accordance with this Agreement may be entered in any
state or federal court of competent jurisdiction.
IN WITNESS WHEREOF, the parties have caused the Agreement to be executed as
of the date written above.
REALITY INTERACTIVE, INC. INTERACTIVE MEDIA COMMUNICATIONS, INC.
BY /S/ Wesley W. Winnekins BY /S/ James L. Mason
--------------------------- ---------------------------
ITS Chief Financial Officer ITS President
--------------------------- ---------------------------
15
<PAGE>
EXHIBIT A
PRODUCT AND RETAIL PRICING SCHEDULE
- ------------------------------------------------------------------------------
ISO 9000 REGISTRATION SERIES RETAIL PRICE
- ------------------------------------------------------------------------------
The Executive Guide to ISO 9000 $99
- ------------------------------------------------------------------------------
Understanding the ISO 9000 Process $1,295
- ------------------------------------------------------------------------------
Preparing for Registration $1,795
- ------------------------------------------------------------------------------
The Registration Process $1,795
- ------------------------------------------------------------------------------
Internal Auditing $895
==============================================================================
ISO 9000 Registration Series (5-CD set) $4,995
==============================================================================
ISO 9000 Registration Maintenance Toolkit (2-CD set) $1,995
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
QS-9000 COMPLIANCE SERIES RETAIL PRICE
- ------------------------------------------------------------------------------
Starting the QS-9000 Process $995
- ------------------------------------------------------------------------------
Managing the QS-9000 Process $995
- ------------------------------------------------------------------------------
Building and Implementing the QS-9000 Quality System $995
- ------------------------------------------------------------------------------
Internal Auditing for QS-9000 $995
==============================================================================
QS-9000 Compliance Series $3,595
==============================================================================
- ------------------------------------------------------------------------------
ISO 14000 EMS CONFORMANCE SERIES AND POLLUTION PREVENTION RETAIL PRICE
- ------------------------------------------------------------------------------
Understanding ISO 14000 $995
- ------------------------------------------------------------------------------
Getting Started with ISO 14000 $995
- ------------------------------------------------------------------------------
Building and Implementing an EMS for ISO 14000 $995
- ------------------------------------------------------------------------------
Internal Auditing and Management Review for ISO 14000 $995
- ------------------------------------------------------------------------------
Project Planning for ISO 14000 $995
==============================================================================
ISO 14000 EMS Conformance Series (5-CD set) $4,495
==============================================================================
Pollution Prevention $995
- ------------------------------------------------------------------------------
16
<PAGE>
EXHIBIT B
PRODUCT ORDER FORM
FOR INFORMATION ON VOLUME DISCOUNTS, NETWORK PRICING, AND ENTERPRISE LICENSES,
CALL (800) 675-7789. OUTSIDE US AND CANADA
CALL (612) 996-9600. PLEASE FAX THIS ORDER FORM TO (612) 996-6799.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL MANAGEMENT ISO 14000 EMS CONFORMANCE SERIES AND P2 UNIT PRICE QUANTITY TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Understanding ISO 14000 $995
- ----------------------------------------------------------------------------------------------------------------------------------
Getting Started With ISO 14000 $995
- ----------------------------------------------------------------------------------------------------------------------------------
Building and Implementing the ISO 14000 EMS $995
- ----------------------------------------------------------------------------------------------------------------------------------
Managing ISO 14000 Implementation $995
- ----------------------------------------------------------------------------------------------------------------------------------
Internal Auditing for an ISO 14001 EMS $995
==================================================================================================================================
ISO 14000 EMS Conformance Series (5-CD set) $4,495
==================================================================================================================================
Pollution Prevention (single CD) $995
==================================================================================================================================
Introductory package: Understanding ISO 14000 and Pollution Prevention $1,495
- ----------------------------------------------------------------------------------------------------------------------------------
QUALITY STANDARDS ISO 9000 REGISTRATION UNIT PRICE QUANTITY TOTAL
SERIES
- ----------------------------------------------------------------------------------------------------------------------------------
The Executive Guide to ISO 9000 $99
- ----------------------------------------------------------------------------------------------------------------------------------
Understanding the ISO 9000 Process $1,295
- ----------------------------------------------------------------------------------------------------------------------------------
Preparing for Registration $1,795
- ----------------------------------------------------------------------------------------------------------------------------------
The Registration Process $1,795
- ----------------------------------------------------------------------------------------------------------------------------------
Internal Auditing $895
==================================================================================================================================
ISO 9000 Registration Series (5-CD set) $4,995
- ----------------------------------------------------------------------------------------------------------------------------------
ISO 9000 Registration Maintenance Toolkit (2-CD set) $1,995
- ----------------------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE QUALITY QS-9000 COMPLIANCE SERIES UNIT PRICE QUANTITY TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
Starting the QS-9000 Process $995
- ----------------------------------------------------------------------------------------------------------------------------------
Managing the QS-9000 Process $995
- ----------------------------------------------------------------------------------------------------------------------------------
Building and Implementing the QS-9000 Quality System $995
- ----------------------------------------------------------------------------------------------------------------------------------
Internal Auditing for QS-9000 $995
==================================================================================================================================
QS-9000 Compliance Series (4-CD set) $3,595
- ----------------------------------------------------------------------------------------------------------------------------------
Subtotal $
-----------------------------------
Less discount (if applicable) less___% -
-----------------------------------
Shipping $4.00
-----------------------------------
(Minnesota residents please add 6.5% sales tax) $
---------------------
TOTAL ORDER $
---------------------
- ----------------------------------------------------------------------------------------------------------------------------------
METHOD OF PAYMENT: / / VISA / / MASTERCARD / / AMER. EXPRESS CARD #:_________________ EXP DATE:________.
/ / CORPORATE CHECK / / PO PO/CHECK #_______________ SIGNATURE_________________
_______________________
NAME_____________________________ TITLE _____________________________________
COMPANY__________________________ ADDRESS ___________________________________
CITY/STATE/ZIP _________________________________ PHONE (___)_________________
</TABLE>
17
<PAGE>
EXHIBIT C
MARKETING AND SALES STARTER PACKAGE
- ------------------------------------------------------------------------------
ITEM DESCRIPTION QUANTITY
- ------------------------------------------------------------------------------
LITERATURE:
- ------------------------------------------------------------------------------
Marketing Collateral Order Form (May Copy) 1
- ------------------------------------------------------------------------------
ISO 9000/QS-9000 Demo CD 20
- ------------------------------------------------------------------------------
Full Product Line Demo CD (Avail. In March) 20
- ------------------------------------------------------------------------------
ISO 9000 Product Brochures 20
- ------------------------------------------------------------------------------
QS-9000 Product Brochures 20
- ------------------------------------------------------------------------------
ISO 14000 Product Brochures 20
- ------------------------------------------------------------------------------
Pollution Prevention Product Brochures 20
- ------------------------------------------------------------------------------
PRODUCT:
- ------------------------------------------------------------------------------
ISO 9000 Registration Series (1 - 5) 1
- ------------------------------------------------------------------------------
QS-9000 Compliance Series (1 - 4) 1
- ------------------------------------------------------------------------------
ISO 14000 Conformance Series (1 - 5) 1
Titles 1 and 2 available immediately
Titles 3 and 4 available February 14, 1997
Title 5 available March 15, 1997
- ------------------------------------------------------------------------------
Pollution Prevention (1) 1
- ------------------------------------------------------------------------------
The above materials and products are the recommended starter allocations for
each distributor. Reality will ship the necessary start up quantities to IMC
for distribution to the selected agents within your network. Replacement and
supplemental materials can be ordered using the Marketing Collateral Order
Form at Exhibit C.
18
<PAGE>
EXHIBIT D
MARKETING COLLATERAL ORDER FORM
PLEASE FAX THIS ORDER FORM TO (612) 996-6799
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
DESCRIPTION MINIMUM QUAN. PRICE/UNIT EXTENDED
ORDER PRICE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ISO/QS 9000 Demo CD 50 $1.50
- ------------------------------------------------------------------------------------------------
ISO 9000 Spec Sheet (16 pgs) 25 $0.50
- ------------------------------------------------------------------------------------------------
ISO 9000 Brochure 25 $0.30
- ------------------------------------------------------------------------------------------------
QS 9000 Brochure 25 $0.30
- ------------------------------------------------------------------------------------------------
ISO 14000 Brochure 25 $0.30
- ------------------------------------------------------------------------------------------------
Pollution Prevention Brochure 25 $0.20
- ------------------------------------------------------------------------------------------------
Multimedia For Business World Brochure 25 $0.25
- ------------------------------------------------------------------------------------------------
Quality Profile (Dysinger, Inc.) 25 $0.10
- ------------------------------------------------------------------------------------------------
Quality Profile (Lake Air Metal) 25 $0.10
- ------------------------------------------------------------------------------------------------
Shipping &
Handling
------------------------------
Order Total
------------------------------
</TABLE>
METHOD OF PAYMENT: / / Check #______________________________
/ / Credit Card #________________________
Exp.Date________________
Name:__________________________ Telephone:(____)__________________________
Address:_______________________ Fax:(____)______________________________
City:__________________________ State:______ Zip Code:___________________
Signature:_______________________________________________________________
All order fullfillments are subject to availability of stock. Some items may
need to be backordered.
19
<PAGE>
EXHIBIT E
STANDARD WARRANTY
Licensor warrants that the optical media on which the Products is
distributed is free from defects in materials and workmanship. Licensor will
replace defective media at no charge, provided you return the defective item
with dated proof of payment to Licensor within ninety (90) days of the date
of delivery. This is your sole and exclusive remedy for any breach of
warranty. EXCEPT AS SPECIFICALLY PROVIDED ABOVE, LICENSOR MAKES NO WARRANTY
OR REPRESENTATION, EITHER EXPRESSED OR IMPLIED, WITH RESPECT TO THE PRODUCTS,
INCLUDING ITS CONTENT, QUALITY, PERFORMANCE, MERCHANTABILITY, OR FITNESS FOR
A PARTICULAR PURPOSE. IN NO EVENT WILL LICENSOR BE LIABLE FOR DIRECT,
INDIRECT, SPECIAL; INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE
OR INABILITY TO USE THE PRODUCTS OR DOCUMENTATION. EVEN IF ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. IN NO CASE SHALL LICENSOR'S LIABILITY EXCEED
THE AMOUNT OF THE LICENSE FEE PAID. THE WARRANTY AND REMEDIES SET FORTH
ABOVE ARE EXCLUSIVE AND IN LIEU OF ALL OTHERS, ORAL OR WRITTEN, EXPRESS OR
IMPLIED. Some states do not allow the exclusion or limitation of implied
warranties or limitation of liability for incidental or consequential
damages, so that the above limitation or exclusion may not apply to you.
20
<PAGE>
EXHIBIT 10.2
MULTINATIONAL COPYRIGHT EXPLOITATION AGREEMENT
Between
REALITY INTERACTIVE, INC., SUITE 400, 7500 FLYING CLOUD DRIVE, EDEN PRAIRIE, MN
55344 USA
hereinafter referred to as "the Licensee"
and
THE INTERNATIONAL ORGANIZATION FOR STANDARDIZATION, ISO, 1, RUE DE VAREMBE, CASE
POSTALE 56, 1211 GENEVA, SWITZERLAND
hereinafter referred to as "the Licensor".
PREAMBLE
I The licensor holds the copyright on ISO 14001:1996, ISO 14004:1996, ISO
14010:1996, ISO 14011:1994, ISO 14012:1996, in English and French.
II The Licensee wishes to store these ISO standards in English and French
in an electronic management software product (hereinafter referred to as
"the product") which it wishes to market outside the United States of
America.
DEFINITIONS
For the purposes of this agreement, the following definitions, unless otherwise
stated, will mean the following:
- - CUSTOMER: Organization or company having purchased a copy of
the product
- - DISTRIBUTE(D): Market and sell
- - FACSIMILE FORMAT: Imagine-based text and graphics (raster-scanned
electronic format as opposed to free text format).
- - LICENSOR'S MEMBERS: ISO national member bodies and correspondent members
21
<PAGE>
1 GRANTING OF LICENCE
1.1 The licensor grants to the Licencee the non-exclusive right to store and
distribute worldwide, to the exception of the countries listed in the
annex, the ISO standards in facsimile format listed in Preamble I above
(hereinafter referred to as "the Licensed Standards") as part of the
product.
1.2 The Licensor shall provide the Licencee with a copy of the ISO standards
constituting the Licenced Standards.
2 INDICATION OF COPYRIGHT
2.1 The Licencee undertakes to affix to each copy of the Licenced product the
following copyright notice:
THIS MATERIAL IS REPRODUCED FROM ISO STANDARDS UNDER INTERNATIONAL
ORGANIZATION FOR STANDARDIZATION (ISO) COPYRIGHT LICENCE NUMBER
REAL/2CC/1997. NOT FOR RESALE. NO PART OF THESE ISO STANDARDS MAY BE
REPRODUCED IN ANY FORM, ELECTRONIC RETRIEVAL SYSTEM OR OTHERWISE WITHOUT
THE PRIOR WRITTEN CONSENT OF ISO, (CASE POSTALE 56, 1211 GENEVA 20,
SWITZERLAND, FAX +41 22 734 10 79) OR OF THE ISO NATIONAL MEMBER BODIES.
2.2 The above notice in paragraph 2.1 should automatically appear on-screen and
be printed on hard copies of the Licensed Standards.
3 LICENSOR'S COPIES
The Licensor and, upon request, the Licensor's members will receive for their
own use one copy of the product free of charge.
4 LICENSOR'S MEMBERS' RIGHTS
Under the terms of this Licence Agreement, the Licensor's member in the country
of distribution is entitled to become an official distributor of the product
under the same conditions as those granted to the distributors appointed by the
Licensee.
5 ROYALTIES
5.1 In Return for granting the licence, the Licensor will receive yearly
royalties in respect of the total sales quantity of the product, the first
year starting on 1 January, according to the following rules:
- An access fee for storing the text of Licensed Standard in the
Licensee's computer system amounting to CHF 566.
- A base royalty fee of CHF 283 for each product distributed in each
language version. This royalty fee shall be reviewed in the event of
a change in the price charged by ISO or in the event of a change in
the edition number of the current standards. The change shall take
place on the first (1) of January for ISO price changes, and three (3)
months after updates or revisions are provided under paragraph 6.2 to
this Licence Agreement.
22
<PAGE>
- The following cumulative volume discount royalty fees as shown in
Table 1 shall be applied at the end of each quarter on the basis of
the recorded number of products distributed.
TABLE 1 - VOLUME DISCOUNTS FOR PRODUCTS DISTRIBUTED
NUMBER OF PRODUCTS DISTRIBUTED BASE ROYALTY FEE BY UNIT
up to 50 Base royalty fee
51 to 100 Base minus 10%
101 to 200 Base minus 20%
201 to 300 Base minus 25%
301 and over Base minus 30%
In the case of networking (LAN only) the customer discounts, as shown in
Table 2, shall be applied on the base royalty fee, established in Table 1,
for the second and any additional networked users for its site:
TABLE 2 - CUSTOMER DISCOUNTS FOR NETWORKED USERS
NUMBER OF NETWORKED USERS AMOUNT
1 1,75 x base royalty fee
2 to 5 2,50 x base royalty fee
6 to 10 4,50 x base royalty fee
11 to 15 6,00 x base royalty fee
16 to 20 7,50 x base royalty fee
21 to 35 9,00 x base royalty fee
36 to 50 12,5 x base royalty fee
50 and over 75% rebate on base royalty fee
x number of networked users
5.2 Any hard copies made shall be for the internal use of the customer only and
shall be limited to one copy per networked user or per product distributed
as defined in paragraph 5.1 Table 1 above. These copies may not be sold,
traded or given to third parties. Copies in addition to those allowed
shall be purchased from the ISO Central Secretariat or from the Licensor's
members. The Licensee shall ensure that this paragraph is included in its
agreements with its customers.
5.3 Payments are due quarterly, with the quarters ending 31 March, 30 June, 30
September and 31 December. This payment shall be made to the Licensor
within thirty (30) days of the end of each quarter. It shall be based on
the total sales quantity reached during this period without deduction of
the discounts shown in Tables 1 and 2 above. Discounts shown in these
tables shall be calculated at the end of each fiscal year ending 31
December on the yearly sales quantity reached. The payment for the last
quarter shall deduct these discounts. Amounts paid in excess shall be
credited to the next quarter payment. Each payment shall be accompanied
with a statement, signed by an officer of the company, of the Licensee's
account of the products distributed per country.
5.4 The Licensee shall provide at its own expense an audit report for each
fiscal year prepared by an independent auditor who is bound by professional
secrecy.
23
<PAGE>
6 PROPERTY RIGHTS, INTEGRITY AND LIABILITY
6.1 All of the Licensor's standards and all copyrights, ownership and rights
therein and thereto shall remain the sole and exclusive property of the
Licensor.
6.2 The Licensor shall promptly provide the Licensee with new editions of the
Licensed Standards, as soon as they are reissued. The Licensee undertakes
to update the product within three (3) months from receipt of the new
editions of the Licenced Standards.
6.3 The Licensee shall be responsible for ensuring that the Licensed Standards
have been correctly and accurately reproduced in each product. The
Licensor shall in no event be held responsible for the quality of the
product and on no account be liable for any damages that may result from
utilization of the Licensed Standards contained in the product.
6.4 The Licensee shall apply its best efforts to ensure that customers of the
Licensed Standards are made aware that ISO standards are included for
reference only and that official ISO standards are those available from
Licensor's office and from the Licensor's members. This undertaking shall
be deemed discharged by the Licensee upon providing a written communication
to its customers, in accordance with clause 2.1 of this agreement.
7 TRANSFER TO THIRD PARTIES
Without prior written permission on the part of the Licensor, the Licensee is
not authorized to transfer the licence or rights and obligations deriving from
the present agreement to third parties. In the event of the Licensee's
obtaining permission from the Licensor for contracting out the manufacture or
distribution of the product to any subcontractor of the Licensee's choice, the
Licensee will guarantee that any such manufacturer, subcontractor or distributor
will abide by the terms of this agreement. The Licensee will be liable to the
Licensor for any infringement on the part of the manufacturer, subcontractor or
distributor appointed by the Licensee. The Licensee will immediately inform the
Licensor in writing of any violation.
8 DURATION, TERMINATION, APPLICABLE LAW AND VENUE
8.1 This Licence Agreement is valid for an initial period of two (2) years as
from the date of signature. Thereafter, it shall be automatically renewed
for successive periods of one (1) year unless terminated by either party
serving not less than six (6) months written notice, prior to its
anniversary date.
8.2 Except as provided in paragraph 8.1, this Licence Agreement may be
terminated by the parties only as follows:
(i) By written mutual agreement of the Licensor and the Licensee;
(ii) If the Licensee is declared a bankrupt, or makes an assignment for
the benefit of its creditors, or takes advantage of any insolvency
law in its jurisdiction, or if a receiver or trustee be appointed
for its property, or if it liquidates its business or if it ceases
its usual operations for any reason, this Licence Agreement shall
immediately come to an end on the happening of the event;
24
<PAGE>
(iii) By either party, in the event of a material breach of this Licence
Agreement by the other party (other than a payment default), if such
breach is not cured within thirty (30) days after written notice
thereof.
8.3 This Licence Agreement shall be governed exclusively by the laws of
Switzerland and construed accordingly. The courts of the Republic and
Canton of Geneva shall have exclusive jurisdiction over any dispute arising
out of or in connection with this Licence Agreement subject to the appeal
to the Federal Tribunal in Lausanne.
9 STOCK CLEARANCE AFTER TERMINATION
The Licensee is entitled, upon termination of the licence agreement, to sell off
any remaining stocks of the product during a period of six (6) months as from
the date of termination. All sales made during that period shall remain subject
to payment of the royalties specified in paragraph 5 above. At the end of that
period, the Licensee shall destroy any remaining stock of the product and
confirm in writing that the destruction has been accomplished.
/S/ Lawrence D. Eicher February 11, 1997
- ------------------------------------------- ---------------------
For the International Organization for Date
Standardization the Licensor
/S/ Wesley W. Winnekins February 17, 1997
- ------------------------------------------- ---------------------
For Reality Interactive, Inc. Date
the Licensee
25
<PAGE>
ANNEX TO THE MULTINATIONAL COPYRIGHT EXPLOITATION AGREEMENT -
REAL/2CC/1997 - BETWEEN ISO AND REALITY INTERACTIVE, INC.
LIST OF COUNTRIES WHERE THE SALE IS PROHIBITED
United Kingdom
______________________________________________________________________________
NOTE: SALES IN THE UNITED STATES ARE AUTHORIZED BY THE AMERICAN NATIONAL
STANDARDS INSTITUTE (ANSI) UNDER A SEPARATE BILATERAL AGREEMENT CURRENTLY IN
FORCE BETWEEN THE LICENSEE AND ANSI.
26
<PAGE>
EXHIBIT 10.3
MULTINATIONAL COPYRIGHT EXPLOITATION AGREEMENT
Between
REALITY INTERACTIVE, INC., SUITE 400, 7500 FLYING CLOUD DRIVE, EDEN PRAIRIE, MN
55344 USA
hereinafter referred to as "the Licensee"
and
THE INTERNATIONAL ORGANIZATION FOR STANDARDIZATION, ISO, 1, RUE DE VAREMBE, CASE
POSTALE 56, 1211 GENEVA, SWITZERLAND
hereinafter referred to as "the Licensor".
PREAMBLE
I The licensor holds the copyright on ISO 8402:1994, ISO 9000-1:1994, ISO
9001:1994, ISO 9002:1994, ISO 9003:1994, and ISO 9004-1:1994 in English and
French.
II The Licensee wishes to store these ISO standards in English and French in
an electronic management software product (hereinafter referred to as "the
product") which it wishes to market worldwide.
DEFINITIONS
For the purposes of this agreement, the following definitions, unless otherwise
stated, will mean the following:
- - CUSTOMER: Organization or company having purchased a copy
of the product
- - DISTRIBUTE(D): Market and sell
- - FACSIMILE FORMAT: Imagine-based text and graphics (raster-scanned
electronic format as opposed to free text
format).
- - LICENSOR'S MEMBERS: ISO national member bodies and correspondent
members
27
<PAGE>
1 GRANTING OF LICENCE
1.1 The licensor grants to the Licencee the non-exclusive right to store and
distribute worldwide, to the exception of the countries listed in the
annex, the ISO standards in facsimile format listed in Preamble I above
(hereinafter referred to as "the Licensed Standards") as part of the
product.
1.2 The Licensor shall provide the Licencee with a copy of the ISO standards
constituting the Licenced Standards.
2 INDICATION OF COPYRIGHT
2.1 The Licencee undertakes to affix to each copy of the Licenced product the
following copyright notice:
THIS MATERIAL IS REPRODUCED FROM ISO STANDARDS UNDER INTERNATIONAL
ORGANIZATION FOR STANDARDIZATION (ISO) COPYRIGHT LICENCE NUMBER
REAL/1CC/1997. NOT FOR RESALE. NO PART OF THESE ISO STANDARDS MAY BE
REPRODUCED IN ANY FORM, ELECTRONIC RETRIEVAL SYSTEM OR OTHERWISE WITHOUT
THE PRIOR WRITTEN CONSENT OF ISO, (CASE POSTALE 56, 1211 GENEVA 20,
SWITZERLAND, FAX +41 22 734 10 79) OR OF THE ISO NATIONAL MEMBER BODIES.
2.2 The above notice in paragraph 2.1 should automatically appear on-screen and
be printed on hard copies of the Licensed Standards.
3 LICENSOR'S COPIES
The Licensor and, upon request, the Licensor's members will receive for their
own use one copy of the product free of charge.
4 LICENSOR'S MEMBERS' RIGHTS
Under the terms of this Licence Agreement, the Licensor's member in the country
of distribution is entitled to become an official distributor of the product
under the same conditions as those granted to the distributors appointed by the
Licensee.
5 ROYALTIES
5.1 In Return for granting the licence, the Licensor will receive yearly
royalties in respect of the total sales quantity of the product, the first
year starting on 1 January, according to the following rules:
- An access fee for storing the text of Licensed Standard in the
Licensee's computer system amounting to CHF 890.
- A base royalty fee of CHF 445 for each product distributed in each
language version. This royalty fee shall be reviewed in the event of
a change in the price charged by ISO or in the event of a change in
the edition number of the current standards. The change shall take
place on the first (1) of January for ISO price changes, and three (3)
months after updates or revisions are provided under paragraph 6.2 to
this Licence Agreement.
28
<PAGE>
- The following cumulative volume discount royalty fees as shown in
Table 1 shall be applied at the end of each quarter on the basis of
the recorded number of products distributed.
TABLE 1 - VOLUME DISCOUNTS FOR PRODUCTS DISTRIBUTED
NUMBER OF PRODUCTS DISTRIBUTED BASE ROYALTY FEE BY UNIT
up to 50 Base royalty fee
51 to 100 Base minus 10%
101 to 200 Base minus 20%
201 to 300 Base minus 25%
301 and over Base minus 30%
In the case of networking (LAN only) the customer discounts, as shown in Table
2, shall be applied on the base royalty fee, established in Table 1, for the
second and any additional networked users for its site:
TABLE 2 - CUSTOMER DISCOUNTS FOR NETWORKED USERS
NUMBER OF NETWORKED USERS AMOUNT
1 1,75 x base royalty fee
2 to 5 2,50 x base royalty fee
6 to 10 4,50 x base royalty fee
11 to 15 6,00 x base royalty fee
16 to 20 7,50 x base royalty fee
21 to 35 9,00 x base royalty fee
36 to 50 12,5 x base royalty fee
50 and over 75% rebate on base royalty fee
x number of networked users
5.2 Any hard copies made shall be for the internal use of the customer only and
shall be limited to one copy per networked user or per product distributed
as defined in paragraph 5.1 Table 1 above. These copies may not be sold,
traded or given to third parties. Copies in addition to those allowed
shall be purchased from the ISO Central Secretariat or from the Licensor's
members. The Licensee shall ensure that this paragraph is included in its
agreements with its customers.
5.3 Payments are due quarterly, with the quarters ending 31 March, 30 June, 30
September and 31 December. This payment shall be made to the Licensor
within thirty (30) days of the end of each quarter. It shall be based on
the total sales quantity reached during this period without deduction of
the discounts shown in Tables 1 and 2 above. Discounts shown in these
tables shall be calculated at the end of each fiscal year ending 31
December on the yearly sales quantity reached. The payment for the last
quarter shall deduct these discounts. Amounts paid in excess shall be
credited to the next quarter payment. Each payment shall be accompanied
with a statement, signed by an officer of the company, of the Licensee's
account of the products distributed per country.
5.4 The Licensee shall provide at its own expense an audit report for each
fiscal year prepared by an independent auditor who is bound by professional
secrecy.
29
<PAGE>
6 PROPERTY RIGHTS, INTEGRITY AND LIABILITY
6.1 All of the Licensor's standards and all copyrights, ownership and rights
therein and thereto shall remain the sole and exclusive property of the
Licensor.
6.2 The Licensor shall promptly provide the Licensee with new editions of the
Licensed Standards, as soon as they are reissued. The Licensee undertakes
to update the product within three (3) months from receipt of the new
editions of the Licenced Standards.
6.3 The Licensee shall be responsible for ensuring that the Licensed Standards
have been correctly and accurately reproduced in each product. The
Licensor shall in no event be held responsible for the quality of the
product and on no account be liable for any damages that may result from
utilization of the Licensed Standards contained in the product.
6.4 The Licensee shall apply its best efforts to ensure that customers of the
Licensed Standards are made aware that ISO standards are included for
reference only and that official ISO standards are those available from
Licensor's office and from the Licensor's members. This undertaking shall
be deemed discharged by the Licensee upon providing a written communication
to its customers, in accordance with clause 2.1 of this agreement.
7 TRANSFER TO THIRD PARTIES
Without prior written permission on the part of the Licensor, the Licensee is
not authorized to transfer the licence or rights and obligations deriving from
the present agreement to third parties. In the event of the Licensee's
obtaining permission from the Licensor for contracting out the manufacture or
distribution of the product to any subcontractor of the Licensee's choice, the
Licensee will guarantee that any such manufacturer, subcontractor or distributor
will abide by the terms of this agreement. The Licensee will be liable to the
Licensor for any infringement on the part of the manufacturer, subcontractor or
distributor appointed by the Licensee. The Licensee will immediately inform the
Licensor in writing of any violation.
8 DURATION, TERMINATION, APPLICABLE LAW AND VENUE
8.1 This Licence Agreement is valid for an initial period of two (2) years as
from the date of signature. Thereafter, it shall be automatically renewed
for successive periods of one (1) year unless terminated by either party
serving not less than six (6) months written notice, prior to its
anniversary date.
8.2 Except as provided in paragraph 8.1, this Licence Agreement may be
terminated by the parties only as follows:
(i) By written mutual agreement of the Licensor and the Licensee;
(ii) If the Licensee is declared a bankrupt, or makes an assignment for
the benefit of its creditors, or takes advantage of any insolvency
law in its jurisdiction, or if a receiver or trustee be appointed for
its property, or if it liquidates its business or if it ceases its
usual operations for any reason, this Licence Agreement shall
immediately come to an end on the happening of the event;
30
<PAGE>
(iii) By either party, in the event of a material breach of this Licence
Agreement by the other party (other than a payment default), if such
breach is not cured within thirty (30) days after written notice
thereof.
8.3 This Licence Agreement shall be governed exclusively by the laws of
Switzerland and construed accordingly. The courts of the Republic and
Canton of Geneva shall have exclusive jurisdiction over any dispute arising
out of or in connection with this Licence Agreement subject to the appeal
to the Federal Tribunal in Lausanne.
9 STOCK CLEARANCE AFTER TERMINATION
The Licensee is entitled, upon termination of the licence agreement, to sell off
any remaining stocks of the product during a period of six (6) months as from
the date of termination. All sales made during that period shall remain subject
to payment of the royalties specified in paragraph 5 above. At the end of that
period, the Licensee shall destroy any remaining stock of the product and
confirm in writing that the destruction has been accomplished.
/S/ Lawrence D. Eicher February 11, 1997
- ------------------------------------------- -------------------
For the International Organization for Date
Standardization the Licensor
/S/ Wesley W. Winnekins February 17, 1997
- ------------------------------------------- -------------------
For Reality Interactive, Inc. Date
the Licensee
31
<PAGE>
ANNEX TO THE MULTINATIONAL COPYRIGHT EXPLOITATION AGREEMENT -
REAL/1CC/1997 - BETWEEN ISO AND REALITY INTERACTIVE, INC.
LIST OF COUNTRIES WHERE THE SALE IS PROHIBITED
United Kingdom
32
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 311,227
<SECURITIES> 3,815,905
<RECEIVABLES> 148,117
<ALLOWANCES> 0
<INVENTORY> 179,545
<CURRENT-ASSETS> 4,489,969
<PP&E> 444,403
<DEPRECIATION> 252,246
<TOTAL-ASSETS> 4,819,175
<CURRENT-LIABILITIES> 265,995
<BONDS> 0
0
0
<COMMON> 46,774
<OTHER-SE> 4,506,406
<TOTAL-LIABILITY-AND-EQUITY> 4,819,175
<SALES> 148,346
<TOTAL-REVENUES> 209,175
<CGS> 37,934
<TOTAL-COSTS> 37,934
<OTHER-EXPENSES> 1,256,383
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,085,142)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,085,142)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,085,142)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
CAUTIONARY STATEMENT
Reality Interactive, Inc. (the "Company"), or persons acting on behalf of
the Company, or outside reviewers retained by the Company making statements on
behalf of the Company, or underwriters, from time to time make, in writing or
orally, "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. When used in conjunction with an identified forward-
looking statement, this Cautionary Statement is for the purpose of qualifying
for the "safe harbor" provisions of such sections and is intended to be a
readily available written document that contains factors which could cause
results to differ materially from such forward-looking statements. These
factors are in addition to any other cautionary statements, written or oral,
which may be made or referred to in connection with any such forward-looking
statement.
The following matters, among others, may have a material adverse effect on
the business, financial condition, liquidity, results of operations or
prospects, financial or otherwise, of the Company. Reference to this Cautionary
Statement in the context of a forward-looking statement or statements shall be
deemed to be a statement that any or more of the following factors may cause
actual results to differ materially from those in such forward-looking statement
or statements:
DEVELOPMENT STAGE COMPANY. The Company was incorporated in May 1994. The
Company has only a limited history of operations, and its sales and marketing
efforts have not yet generated predictable or significant revenues. The
Company's prospects for success must be considered in light of the problems,
expenses, difficulties, complications and delays frequently encountered in
connection with the formation and development of a new business in an emerging
industry. In addition, due to the uncertainty in growth of a development stage
company and the rate of change in the industry perceived by the Company, the
Company is uncertain of the time frame or amount of funding required to
accomplish its business objectives.
DEVELOPING MARKET; MARKET ACCEPTANCE. The market for educating and
training businesses has historically been served by consultants, instructor-led
training and training publications such as books, manuals and tapes. Currently,
there is little use of interactive multimedia education and training products by
businesses, and many of the Company's potential customers do not own or have
access to multimedia compatible equipment. The Company's future success will
depend upon, among other factors, the extent to which companies acquire
multimedia equipment compatible with the Company's products, the adoption and
use of interactive multimedia education and training programs and the Company's
ability to develop its custom multimedia service business. In addition, the
Company's success will depend in part on its ability to market and sell multiple
copies of its products to large corporate customers. In the event that adoption
and use of multimedia equipment compatible with the Company's products do not
become widespread, the number of potential customers of the Company will be
limited. There can be no assurance that the Company's products, the prices the
Company charges for its products or its custom multimedia services will be
acceptable to the market, or that the Company will be able to sell multiple
copies of its existing products to large corporate customers.
LIMITED MARKETING CAPABILITY. The Company currently has a small sales and
marketing staff and limited number of strategic alliances relating to
distribution of its products. There can be no assurance that the Company will
be able to build a suitable sales force or enter into satisfactory marketing
alliances with third parties, or that its sales and marketing efforts will be
successful.
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DEPENDENCE ON DIVERSIFICATION OF PRODUCT OFFERINGS. The Company currently
has a limited number of product offerings, and purchasers of the Company's
products are not required to purchase additional products. Accordingly, the
Company's products represent non-recurring revenue sources, and the success of
the Company is dependent, in part, on its ability to develop sustained demand
for its current products and to develop and sell additional products. There can
be no assurance that the Company will be successful in developing and
maintaining such demand or in developing and selling additional products.
DEPENDENCE ON EVOLVING INDUSTRY STANDARDS. The Company's initial product
offerings prepare businesses for adherence to worldwide management standards.
The failure of the Company to enhance its products in a timely manner to changes
in the standards, the lack of public acceptance of such standards or the delay
in introduction of or enhancement to such standards would materially adversely
affect the Company's operations.
TECHNOLOGICAL CHANGE. The industry in which the Company competes is
characterized by rapid technological change. The introduction of products
embodying new technology can render existing products and product formats
obsolete and unmarketable. The Company's success will depend on its ability to
anticipate changes in technology and to develop and introduce new and enhanced
products in a timely manner in response to technological changes, or if products
or product enhancements by the Company do not achieve market acceptance, the
Company's business would be materially adversely affected.
FUTURE ADDITIONAL CAPITAL REQUIREMENTS; NO ASSURANCE FUTURE CAPITAL WILL BE
AVAILABLE. If the Company is unable to generate substantial revenues from its
operations or if the Company's expenses exceed expectations, the Company will
likely require additional funds to meet its capital requirements. The Company
does not currently have available bank financing. The Company may be required
to raise additional funds through public or private financings, including equity
financings, or through collaborative arrangements. There can be no assurance
that additional financing would be available on favorable terms, or at all. If
funding is not available when needed or on acceptable terms, the Company may be
forced to curtail its operations significantly or cease operations and abandon
its business entirely.
COMPETITION. The business education and training industry, as well as the
custom mutlimedia services industry, is highly competitive. A large number of
companies are currently developing interactive, multimedia-based training,
educational and instructional aids. Competitors also include national, regional
and local accounting firms engaged in industrial consulting and instructor-led
training and companies which market training tools such as books, videos and
audio tapes. Some of the Company's existing competitors, as well as a number of
potential competitors, have larger technical staffs, more established marketing
and sales organizations, and greater financial resources than the Company.
There can be no assurance the Company will be able to compete successfully with
such companies, or at all.
FLUCTUATIONS IN OPERATING RESULTS. The Company's future operating results
may vary substantially from quarter to quarter. At its current stage of
operations, the Company's quarterly revenues and results of operations may be
materially affected by the timing of the development and market acceptance of
the Company's products. Generally, operating expenses will be higher during
periods in which product development costs are incurred and marketing efforts
are commenced. Due to these and other factors, including the general economy,
stock market conditions and announcements by the Company or its competitors, the
market price of the securities offered hereby may be highly volatile.
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<PAGE>
DEPENDENCE ON KEY PERSONNEL; LACK OF EMPLOYMENT AND NONCOMPETITION
AGREEMENTS. The success of the Company is dependent in large part upon the
ability of the Company to attract and retain key management and operating
personnel. Qualified individuals are in high demand and are often subject to
competing offers. There can be no assurance that the Company will be able to
attract and retain the qualified personnel needed for its business. The Company
has no employment or noncompetition agreements with any of its management or
other personnel.
DEPENDENCE ON ABILITY TO RETAIN SUBJECT MATTER EXPERTS. The Company's
product development strategy, including off-the-shelf and custom multimedia
products, may require the Company to retain third-party subject matter experts
to perform research and development functions by providing accurate and
informative content for the Company's products. There can be no assurance that
the Company will be able to continue to attract and retain qualified subject
matter experts required to develop new products, enhance existing products and
satisfy customer contractual requirements. The inability of the Company to
attract and retain such experts could have a material adverse effect on the
Company and its prospects.
INTELLECTUAL PROPERTY. The Company regards its multimedia products as
proprietary and relies primarily on a combination of statutory and common law
copyright, trademark and trade secret laws, customer licensing agreements,
employee and third-party nondisclosure agreements and other methods to protect
its proprietary rights. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain or use the Company's products or
technology without authorization, or to develop similar products or technology
independently. If unauthorized use or copying of the Company's products were to
occur to any substantial degree, the Company's business and results of
operations could be materially adversely affected. There can be no assurance
that the Company's means of protecting its proprietary rights will be adequate
or that the Company's competitors will not independently develop similar
products.
The Company believes that developers of multimedia products may
increasingly be subject to such claims as the number of products and competitors
in the industry grows and the functionality of such products in the industry
overlaps. Any such claim, with or without merit, could result in costly
litigation and could have a material adverse effect on the Company.
LACK OF PRODUCT LIABILITY INSURANCE. The Company may face a risk of
exposure to product liability claims in the event that use of its products is
alleged to have resulted in damage to its customers. The Company does not
currently carry product liability insurance. There can be no assurance that
such insurance will be available on commercially reasonable terms, or at all, or
that such insurance, even if obtained, would adequately cover any product
liability claim. A product liability or other claim with respect to uninsured
liabilities or in excess of insured liabilities could have a material adverse
effect on the business and prospects of the Company.
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