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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998
[ ] Transition Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number 0-21201
iMALL, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 87-0553169
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(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
4400 Coldwater Canyon Boulevard, Suite 200, Studio City, California 91604
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(Address of principal executive offices)
(Zip Code)
(818) 509-3600
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(Issuer's telephone number including area code)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of May 13, 1998, the Issuer had outstanding an aggregate of 7,713,366 common
shares, par value $0.008.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited condensed consolidated financial statements of iMALL, Inc. and
subsidiaries (the "Company") as of March 31, 1998 and for the three month
periods ended March 31, 1998 and 1997 are attached hereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION.
The following Management's Discussion and Analysis of Financial Condition or
plan of operation contains forward-looking statements involving risks and
uncertainties based on management's current expectations, estimates and
projections about the Internet industry and the evolution of on-line commerce
and electronic commerce services. All statements in this report related to the
Company's changing financial operations and expected future growth constitute
forward-looking statements. The actual results may differ materially from those
anticipated or expressed in such statements. The following discussion and
analysis of the Company's financial condition as of March 31, 1998 and the
Company's results of operations for the three month periods ended March 31, 1998
and 1997 should be read in conjunction with the Company's unaudited condensed
consolidated financial statements and notes thereto included elsewhere in this
Form 10-QSB. These results are not necessarily indicative of the results that
may be achieved by the Company for the entire year ending December 31, 1998.
OVERVIEW
The Company is an electronic commerce and Internet services
company that maintains an Internet destination called "iMALL", located at
www.imall.com. The iMALL Web site offers goods and services for sale from a
variety of merchants, either through a Web site or classified advertisements
within iMALL. The Company believes that the iMALL is currently one of the most
popular online shopping sites on the Internet, with an Internet "consumer reach"
three times greater than wal-mart.com, and almost equal to iQVC, according to
the Internet Retailing Report published by Morgan Stanley & Co. on May 28, 1997.
Consumer reach is defined as the percentage of Web-active persons who visit at
least one page within a domain during that month.
The Company currently derives the majority of its revenues from
Web site sales and maintenance fees, Internet training, education and consulting
services. The Company believes its future revenues will include those sources as
well as revenue from selling products over the Internet, providing electronic
commerce services to businesses (through Web sites which include the tools
necessary to consummate transactions online), and selling Internet advertising.
The Company is now focusing on what it believes to be more profitable areas such
as the building and hosting of transactional Web sites, the sale of the
Company's proprietary Electronic Commerce services, maximizing the Company's
Internet advertising revenues, and growing its online commerce revenue (by
earning a percentage of the gross sales made through iMALL merchants' Web
sites). The Company anticipates the new strategy will positively impact the
Company's revenues in the latter half of 1998.
The Company's mission is to maintain and expand its position as a
pioneer and leader in Electronic Commerce services and a prominent Internet
commerce destination where businesses and consumers from around the world go to
engage in the sale and purchase of goods, services and information. To achieve
this mission, the Company will focus on expanding the sales of its Electronic
Commerce services and on further building its Internet presence by acquiring new
merchants and products and increasing its shopper base of two million visitors
per month.
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SUBSEQUENT EVENT
On April 1, 1998 the Company entered into an agreement with Universal/Hyundai
LLC dba Animalhouse.com in which the Company secured a five year exclusive right
to operate the majority of Animalhouse.com's on-line shopping activities. In
April of 1998 the Company paid $500,000 to Animalhouse.com as an advance against
first-year royalties in accordance with this contract. Animalhouse.com is a
recently launched joint venture of Universal Studios and Hyundai Technologies,
the goal of which is to become an on-line community serving the needs of college
students worldwide.
RESULTS OF OPERATIONS
Comparison of Three-Month Periods Ended March 31, 1998 and 1997
Revenues. Revenues for the three months ended March 31, 1998 were $3,472,000
compared to $4,078,000 for the three months ended March 31, 1997, a decrease of
$606,000 or 15%. The decrease was due primarily to a planned decrease in the
number of Internet training workshops offered by the Company and a consequent
decrease in the Web site sales resulting from those workshops. During the
quarter the Company began the process of shifting resources to develop its new
businesses in electronic commerce. Management expects a greater percentage of
its revenue to be derived from electronic commerce services in the latter half
of 1998. The resulting effect on revenues from the shift in the Company's
current product line can not currently be determined.
Cost of Revenues. The cost of revenues for the three months ended March 31, 1998
were $1,031,000 compared to $1,254,000 for the three months ended March 31,
1997, a decrease of $223,000 or 18%. Cost of revenues consisted primarily of
direct costs related to training workshops and the provision of Web sites
offered through those workshops. Cost of revenues also includes the direct cost
of products sold on-line. The gross profit margin remained relatively constant
increasing to 70% of revenues in the three months ended March 31, 1998 from 69%
of revenues in the three months ended March 31, 1997 due to the relative
consistency of the revenue streams in the periods.
Selling Expenses. Selling expenses for the three months ended March 31, 1998
were $1,966,000 compared to $1,305,000 for the three months ended March 31,
1997, an increase of $661,000 or 51%. The increase is primarily due to the
implementation of an on-line advertising campaign that began at the end of 1997.
The Company spent $300,000 in this on-line advertising campaign during the
quarter in an attempt to increase its branding and further promote its new focus
on on-line commerce. Management expects this campaign to continue growing
gradually throughout the year as it expands its existing product base. The
Company also increased its direct mail expense that is incurred for sending
information to targeted recipients promoting its Web site sales. In addition,
the Company hired a new advertising agency to further expand awareness of its
brand and products.
General and Administrative Expenses. General and administrative expenses for the
three months ended March 31, 1998 were $1,755,000 compared to $2,208,000 for the
three months ended March 31, 1997, a decrease of $453,000 or 20%. This decrease
was primarily due to lower payroll expense during 1998. The Company had
approximately 141 employees in the first quarter of 1998 versus 194 employees
during the first quarter of 1997. The Company consolidated its two technology
offices into one in Provo, Utah at the end of the first quarter in 1997 leading
to a substantial reduction in overhead and personnel costs.
Other Income, net. The Company sold mailing lists to outside vendors during
1997. This activity is considered to be peripheral to its operations. The
$18,000 decrease was because the Company discontinued the selling of mailing
lists.
Interest income (expense), net. Net interest income for the three months ended
March 31, 1998 was $61,000 compared to a net expense of $12,000 for the three
months ended March 31, 1997. This increase was due to the investment of
available funds in short-term debt securities as well as the pay down of all
outstanding debt in the first quarter of 1998.
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LIQUIDITY AND CAPITAL RESOURCES
The Company completed raising $20,000,000 in equity capital in December of 1997
through a private placement of units consisting of Series A Convertible
Preferred Stock and Warrants to purchase Common Stock. As of March 31, 1998, the
Company had current assets of $13,616,000 and current liabilities of $2,016,000.
The Company is currently generating cash receipts (exclusive of
financing activities) of approximately $1,200,000 per month and incurring cash
expenses in the amount of approximately $1,700,000 per month, of which fixed
costs account for approximately $400,000. The Company anticipates capital
expenditures will be approximately $3,000,000 in 1998. The Company will also
spend funds to invest in strategic alliances and various forms of advertising to
increase awareness of the Company and its services. The Company believes that it
will be able to fund its ongoing operations with existing cash and from cash
expected to be generated by ongoing operations for at least the next twelve
months.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in various legal proceedings in the ordinary course
of business, but is aware of no legal proceedings which appear at this time as
if they might have a material impact on its financial position, results of
operations or business.
ITEM 2. CHANGES IN SECURITIES
On February 12, 1998, the Company effected a 1 for 8 reverse stock
split.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.1 - Agreement between Universal/Hyundai LLC dba
Animalhouse.com and iMALL, Inc. dated April 1, 1998.
Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended March 31,
1998.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
iMALL, INC.
May 13, 1998
By: /s/ RICHARD M. ROSENBLATT
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Richard Rosenblatt, Chairman of the
Board and Chief Executive Officer
By: /s/ ANTHONY P. MAZARELLA
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Anthony P. Mazarella
Executive Vice President,
Chief Financial Officer,
Secretary/Treasurer, Director
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IMALL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
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ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 7,997,864 $ 5,536,978
Short term investments 5,000,300 10,000,600
Accounts receivable, net 79,143 137,690
Inventory 120,073 144,945
Prepaid expenses 146,535 69,220
Income tax receivable 162,696 166,231
Other current assets 109,105 109,105
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Total Current Assets 13,615,716 16,164,769
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Property and Equipment, Net 1,441,931 610,477
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Other Assets:
Intangible assets, net 246,607 259,015
Deposits and other 21,671 21,411
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Total Other Assets 268,278 280,426
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Total Assets $ 15,325,925 $ 17,055,672
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,124,406 $ 1,060,799
Accrued expenses and other current liabilities 475,937 553,837
Deferred revenues 402,741 392,778
Notes payable to related parties -- 662,420
Current portion of capitalized lease obligations 12,637 20,835
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Total Current Liabilities 2,015,721 2,690,669
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Capitalized Lease Obligations, net of current portion 6,515 10,788
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Commitments and contingencies -- --
Stockholders' Equity
Preferred stock, liquidation value of $20,000,000;
10,000,000 shares authorized, 5,000,000 shares
issued and outstanding at March 31, 1998 and
December 31, 1997 respectively 19,524,452 19,355,788
Common stock, par value $.008; 37,500,000 shares
authorized, 7,713,366 and 7,651,810 shares issued
and outstanding at March 31, 1998 and
December 31, 1997 respectively 62,606 62,114
Accumulated deficit (5,878,369) (4,658,687)
Common stock held in treasury, at cost (405,000) (405,000)
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Total Stockholders' Equity 13,303,689 14,354,215
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Total Liabilities and Stockholders' Equity $ 15,325,925 $ 17,055,672
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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IMALL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Three Months Ended
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March 31, 1998 March 31, 1997
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(unaudited) (unaudited)
<S> <C> <C>
REVENUES $ 3,472,299 $ 4,078,434
COST OF REVENUES 1,031,397 1,254,181
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GROSS MARGINS 2,440,902 2,824,253
SELLING EXPENSES 1,966,025 1,304,770
GENERAL AND ADMINISTRATIVE EXPENSES 1,755,291 2,207,598
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Operating Loss (1,280,414) (688,115)
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OTHER INCOME AND EXPENSES:
Other Income, net -- 17,608
Interest Income (Expense), net 60,732 (11,699)
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Total Other Income, net 60,732 5,909
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LOSS BEFORE PROVISION FOR
INCOME TAXES (1,219,682) (682,206)
PROVISION FOR INCOME TAXES -- --
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NET LOSS (1,219,682) (682,206)
============ ============
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.22) $ (0.09)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 7,652,494 7,410,566
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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IMALL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Three Months Ended
------------------------------------
March 31, 1998 March 31, 1997
-------------- --------------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,219,682) $ (682,206)
Adjustments to reconcile net
loss to net cash used in operating activities
Depreciation and amortization 147,543 131,131
Provision for losses on accounts receivable -- 8,288
Loss on sale of furniture, fixtures and equipment -- 1,236
Changes in assets and liabilities, net of
Effects from purchase of subsidiaries:
(Increase) decrease in:
Accounts receivable 58,547 (100,537)
Related-party receivable -- 85,521
Employee receivable -- 14,536
Prepaid expenses (77,316) (108,891)
Income tax receivable 3,535 --
Inventory 24,872 (53,571)
Deposits (260) (5,505)
Increase (decrease) in:
Accounts payable 63,607 159,656
Accrued liabilities 117,846 276,206
Accrued interest payable to related party -- 14,750
Income tax payable -- (41,068)
Deferred revenues 9,963 62,377
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Net Cash Used in Operating Activities (871,345) (238,077)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Cash collections on notes receivable -- 24,500
Purchase of property and equipment (931,718) (17,266)
Increase in intangible assets (34,869) --
Proceeds from sales and maturity of investments in
marketable securities 5,000,300 --
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Net Cash Provided by Investing Activities 4,033,713 7,234
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable to stockholder -- 500,000
Financing cost related to private placement of
preferred stock (26,591) --
Principal payments on notes payable (662,420) (12,500)
Principal payments on obligations under capital leases (12,471) (9,632)
------------ ------------
Net Cash (Used in) Provided by Financing Activities (701,482) 477,868
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 2,460,886 247,025
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,536,978 40,264
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,997,864 $ 287,289
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 2,838 $ 17,342
============ ============
Income taxes paid $ 2,572 $ 4,639
============ ============
</TABLE>
See notes to condensed consolidated financial statements
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IMALL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Interim Condensed Consolidated Financial Statements.
The accompanying condensed consolidated financial statements have been prepared
by the Company and have not been audited. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly the financial position, results of operations and cash flows as of the
dates and for the periods presented herein have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the Securities and Exchange
Commission rules and regulations. It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Form 10K-SB.
The results of operations for the three months ended March 31, 1998, are not
necessarily indicative of the operating results for the year ended December 31,
1998. The accounting policies followed by the Company are set forth in the notes
to the Company's consolidated financial statements in its Form 10K-SB.
(2) Net Income (Loss) Per Common Share.
Net income (loss) per common share is based on the weighted average number of
common shares outstanding for each period reported. In February 1997, the
Financial Accounting Standards Board released Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS No. 128"). This statement
specifies the computation, presentation, and disclosure requirements for
earnings per share ("EPS") for financial statements issued for all periods
ending after December 15, 1997. SFAS No. 128 simplifies the standards for
computing EPS in comparison to APB Opinion No. 15 and replaces the presentations
of Primary EPS and Fully Diluted EPS with a presentation of Basic EPS and
Diluted EPS. In preparing the calculation of earnings per share, the net loss
was increased by $450,000 to $1,670,000 or $0.22 per common share due to the
effect of cumulative preferred stock dividends that were not declared in the
first quarter of 1998. The earnings per share computation for the 1998 period
excludes 1.6 million shares for stock options/compensation plans, 6.25 million
shares for convertible securities, and warrants convertible into 3.5 million
shares of common stock because their effect would have been antidilutive. There
were no common stock equivalents in existence during the first quarter of 1997.
Share and per share data presented reflect a one for eight reverse stock split
effective February 12, 1998.
(3) Recent Accounting Pronouncements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income." SFAS
130 establishes standards for reporting comprehensive income and its components
in a financial statement. Comprehensive income as defined includes all changes
in equity (net assets) during a period from non-owner sources. Examples of items
to be included in comprehensive income, which are excluded from net income,
include foreign currency translation adjustment and unrealized gain/loss on
available for sale securities. The Company had no income that would fall under
the comprehensive income rules in the 1998 or 1997 periods.
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In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards for
the way companies report information about operating segments in annual
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The Company
believes that its operations do not include multiple segments and therefore no
disclosures are necessary at this time. The disclosures prescribed by SFAS 131
are effective for fiscal years beginning after December 15, 1997.
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EXHIBIT 10.1
ONLINE COMERCE REPRESENTATION AGREEMENT
PARTIES. This Agreement dated as of April 1, 1998 is entered into by and between
the Universal/Hyundai LLC dba animalhouse.com currently located at 100 Universal
City Plaza, Suite 509/32, Universal City, CA 91608 Attn. Michelle Katz ("AH")
and iMALL, Inc. located at 4400 Coldwater Canyon Blvd., Suite 200, Studio City,
CA 91604, Attn. Richard Rosenblatt ("iMALL") for the purpose of building and
maintaining an online commerce center (the "AH Mall") that enables merchants
("Tenants"), including AH, to have listings ("Merchant Listings") that promote
and market consumer-oriented goods and services to the public on the AH Internet
site located at http//www.animalhouse.com ("the AH Site").
1. EXCLUSIVE REPRESENTATION. Pursuant to the terms and conditions of this
Agreement, AH grants iMALL the exclusive rights during the Term set forth below
to: (a) act as AH's representative for sales to Tenants of Merchant Listings on
the AH Mall; (b) establish and administer Merchant Listings on the AH Mall; (c)
establish links to local malls composed of Merchant Listings ("Local Malls"), as
more fully described below; (d) sell and administer Tenant promotions on the AH
Mall and Local Malls to manufacturers and suppliers of products and services
offered to the public (with AH, as more fully described below); and (e)
establish and administer an official "Animalhouse.com Store" on the AH Site from
which branded and non-branded merchandise will be sold on-line to consumers
visiting the AH Site (the "AH Store"), as described more fully below. During the
Term of this Agreement, iMALL will host the AH Mall and Local Malls on its
servers and otherwise leverage its technical infrastructure and experience to
create a shopping destination in each Merchant Listing and Local Mall, subject
to AH guidelines and review.
iMALL shall use commercially reasonable efforts to : (a) solicit and obtain
Merchant Listings on the AH Mall and administer all Merchant Listings and Local
Malls in accordance with the standards and subject to AH's approval rights set
forth below; (b) collect all accounts receivable on a timely basis; (c) require
that all Tenants comply with the policies and procedures set forth for Tenants
in their Merchant Listing agreements, and (d) require Tenants to adhere to the
standards of operation described below. All Merchant Listings will be hosted on
iMALL's servers with an interface that will allow consumers to access such
Merchant Listings by clicking on an icon on the AH Mall or Local Mall.
For purposes of this Agreement, "Promotion" shall refer to copy or graphics
which link to a storefront in the Mall and/or to a direct purchase opportunity
within the Mall and/or AH Store, or which describe or promote and market a
storefront or purchase opportunity within the Mall and/or AH Store. "Advertising
and Sponsorship" refer to, without limitation, banner advertising, pop-up and/or
interstitial advertising or framing of a site by a company with respect to its
product or services and brands.
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All CD-ROMs published by AH concerning the AH Site shall display the iMALL logo
and an iMALL brand. The AH Mall and AH Store shall have a credit in a place and
size subject to AH's reasonable prior approval, as follows: "Powered by iMALL."
2. LOCALIZED SALES TRAINING. iMALL shall provide Internet seminars at many of
the college campuses. At such seminars, college students will be advised of AH
membership benefits (i.e. free credit card, e-mail, etc.) and will be trained to
sell Merchant Listings to local merchants on Local Malls and the AH Mall.
3. EXCLUSIONS. Unless otherwise agreed to by the parties, the following are
excluded from iMALL's exclusive rights: (a) sales to consumers of tickets,
classified ads, job search and placement services, entertainment and travel
ticketing and sales, and sales by and between consumers (but not retailers); (b)
direct response sales through a banner offering of a few products, supplied by a
single advertiser, for immediate purchase, provided such banner offering does
not provide a link to another retail site on the Internet and iMALL performs no
services in connection with the development, management or operation of such
banner advertising at the request of the advertiser or AH; and (c) the
pre-existing Internet web sites maintained by Universal Studios, Inc.
("Universal") and its subsidiary, Universal Music, and Hyundai Information
Technologies ("Hyundai"), whether or not there are links to such sites on the AH
Site; and (d) limited promotions of Universal or Hyundai services or products
bearing the trademarks of such companies made from such pre-existing sites or on
the AH Site, where iMALL performs no services in connection with the
development, management administration, or operation thereof at the request of
Universal or Hyundai.
4. ANIMALHOUSE.COM STORE. iMALL will also develop, manage and administer the AH
Store. iMALL will be responsible for arranging all order processing and
fulfillment for the AH store. The AH store will be used to sell consumer-type
merchandise directly to the public visiting the AH Site and contain a variety of
merchandise from AH, Spencer Gifts and other Universal subsidiaries, and other
manufacturers and suppliers selected by iMALL in accordance with the standards
and subject to AH's approval rights described below. There will be only one
location on the AH Site like the AH Store. AH shall use its best efforts to
promote the AH Store and AH Mall on the AH Site and shall provide icons and
identification that are at least as prominent as any other service offered on
the AH Site.
5. PROMOTIONS WITHIN THE AH MALL. Pursuant to the terms and conditions of this
Agreement, iMALL may solicit and sell promotional opportunities, storefronts
and/or direct purchase opportunities within AH Mall, Local Malls and AH store as
well as e-commerce partnerships and promotions (such as FAO Schwarz). iMALL
shall make best efforts to solicit such promotions and e-commerce opportunities
and to administer such sales in accordance with the provisions of this
Agreement. iMALL shall manage mall promotions and e-commerce partnerships.
Notwithstanding the foregoing, all Advertising, such as banners, interstitials
and pop-ups, will be managed by AH then current banner advertising
representative.
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iMALL will use commercially reasonable efforts to collect all
accounts receivable in connection with advertising and sponsorships on a timely
basis, and to tender AH's share of Gross Receipts, as defined and at the times
described in Paragraph 8, below.
6. TERM. The Term of this Agreement shall be effective upon the date hereof and
shall continue for five (5) years following the date (the "Effective Date") that
an AH credit card is first issued to AH users and/or members for their use in
ordering goods and services from retailers, including Tenants on the AH Mall and
from the AH Store. At the expiration of the Term, this Agreement shall be
automatically renewed for successive periods of one (1) year each in the absence
of at least ninety (90) days prior written notice by any party of its desire to
terminate this Agreement upon the expiration of the Term then in effect.
7. EXCLUSIVITY. iMALL's rights hereunder shall be exclusive during the Term,
provided, however, that commencing at the end of the second year of the Term, AH
may at its option terminate such exclusivity by giving written notice thereof to
iMALL within thirty days after the end of any year of the Term in which AH has
maintained at least One Million members (subscribers) throughout the year, and
in which AH has not received at least $500,000 in that year pursuant to this
Agreement. The first year of the Term, for purposes of this Paragraph 7 shall
commence on the Effective Date and each subsequent year shall commence on the
anniversary of the Effective Date. Notwithstanding the foregoing, iMALL shall
have the right to make up any shortfall by tendering the requisite payment in
order to retain its rights of exclusivity within thirty days after receiving
AH's notice described above.
8 REVENUE SHARING:
a. In consideration of the services rendered hereunder, during the Term hereof,
iMALL shall retain Fifty Percent (50%) and AH shall receive the remainder:
(1) Of Gross Receipts from AH Mall and Local Mall leases and set up
fees, less only actual costs of establishing Merchant Listings;
(2) Of Gross Receipts from basis points received from the local
college merchants paid to iMALL by Cardservice International on
account of leases from such merchants on the AH Mall and Local
Malls;
(3) Of Gross Receipts from basis points received by AH from its
credit card partners in connection with college students
recruited by iMALL who sign up for such credit cards, such
receipts being calculated for as long as AH continues to receive
such payments commencing the student's receipt of the credit
card;
(4) Of Gross Receipts from promotions and e-commerce partners on the
AH Mall and Local Malls, with the exception of excluded commerce
and/or promotions;
(5) Of AH's Gross Receipts from advertising and sponsorships of the
Mall and/or AH S tore; and
(6) Of Gross Receipts derived from the exploitation of any other of
iMALL's rights under this Agreement.
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b. As used in this Agreement, "Gross Receipts" means the total revenues actually
received in the applicable category, less (a) actual sales, use and similar
taxes collected and paid to a governmental authority, refunds, allowances, and
collection costs; and (b) in the case of revenues derived from sales of
products, the actual cost of goods, and bona fide returns; or (c) in the case of
revenues derived from AH Mall leases and Local Mall leases and AH Mall
advertising, the actual costs of producing the applicable Merchant Listing or
advertising.
c. In further consideration of the rights granted iMALL hereunder, iMALL shall
spend at least $500,000 in promotions and costs attributed to holding localized
AH Internet training on college campuses for AH advertising, customer service,
follow-up, and merchant management, etc., relating to the localized AH merchant
program for the AH Mall.
d. Upon execution hereof, iMALL shall pay AH a non-refundable Advance of
$500,000 against the amounts described in subparagraph a of this Paragraph 8;
provided, however, if for any reason the AH Site shall permanently cease
operating during the first year of the Term, AH shall refund such Advance to
iMALL on a prorated basis, less any amounts actually earned from Gross Receipts
hereunder.
9. ACCOUNTING, ADMINISTRATION, BOOKS AND RECORDS. iMALL will tender a monthly
report of all Gross Receipts from the AH Site. iMALL will tender the above
report, along with AH's share of revenue within fifteen days after the end of
the month in which Gross Receipts were received. AH will similarly account for
and pay to iMALL its share of any Gross Receipts collected by AH as to which
iMALL is entitled to a share under Paragraph 8.
10. AUDIT. Upon demand of AH, at AH's cost, except as provided below in this
Paragraph 10, iMALL shall furnish to AH a statement by an independent certified
public accountant the books of account and records pertaining to transactions
arising from or pertaining to this Agreement. In the event there is a negative
deviation of five percent (5%) or more between the amount of revenue received by
iMALL on behalf of AH, and the amount forwarded to AH, for the time period
subject to the audit, then iMALL shall immediately forward the difference, plus
five percent (5%), to AH. In such event, iMALL shall be responsible for the cost
of the Audit. Such books and records shall be kept available for a minimum of
three years from the expiration of this Agreement.
11. APPROVALS. The AH Mall and the Local Malls shall have a policy which
prohibits Merchant Listings, promotions and/or e-commerce involving pornographic
or sexual content or materials, firearms, get-rich-quick schemes, products or
services that involve illegal or deceptive marketing practices, and gambling. AH
shall have the right to approve the standard rates established by iMALL for
Merchant Listings, advertising and sponsorships. If AH disapproves of any AH
Mall tenants, or any advertiser, sponsor, or content on the AH Mall or AH Store,
AH shall have the right to notify
<PAGE> 5
iMALL in writing of such disapproval, whereupon iMALL shall, as soon as possible
terminate such Merchant Listing or discontinue such advertising or sponsorship
to which AH objects, or cause the change of the objectionable content. AH shall
make good faith efforts to respond to submissions within five business days and
shall exercise its approval and disapproval rights reasonably.
12. INTELLECTUAL PROPERTY. Each party shall exclusively own its respective
trademarks and service marks, copyrights, trade secrets, and patents
(collectively, "Intellectual Property") and no party will have any claim or
right to the Intellectual Property of the other by virtue of this Agreement or
the performance of services hereunder. Neither party will take any action or
make any claim to any Intellectual Property belonging to the other party,
whether during the Term or thereafter, which is inconsistent with this
Paragraph.
13. TERMINATION. In the event that either party is in default of its material
obligations hereunder, or either party ceases to do business, the other party
shall have a right to terminate this Agreement upon thirty days' written notice
to the defaulting party, should the default not be cured within such thirty-day
period. In the event that either party files for bankruptcy or insolvency or has
involuntary bankruptcy proceedings initiated against it, all rights granted
hereunder shall revert to AH, AH shall have the right to terminate the Agreement
and shall have no other obligation to iMALL except payment for services
requested and actually rendered. Any further claims shall not be affected
thereby.
AH shall have the right, but not the obligation, to terminate this Agreement on
thirty days prior written notice within sixty days after the event in question,
if there is merger, consolidation or other reorganization of or involving iMALL
in which iMALL is not the surviving entity, or any change in control of iMALL on
account of the sale of at least thirty (30%) of the equity interests of iMALL .
14. REPRESENTATIONS AND WARRANTIES. Each party represents and warrants that it
has the right, title, interest and authority to enter into this Agreement and to
fully perform its obligations hereunder, and that the rights granted hereunder
shall not violate the rights of any third party. Each party represents and
warrants that its conduct hereunder shall conform to all applicable federal,
state and local law and regulation.
15. INDEMNIFICATION. Each party hereby indemnifies and holds harmless the other
party, its parent, affiliated and subsidiary companies, their officers,
directors and employees ("Indemnities") from any and all liabilities, claims,
causes of actions, suits, losses damages, fines, judgments and expenses
(including reasonable attorney's fees) which may be incurred by the Indemnities
arising out of any breach of the covenants, warranties, representations and
agreements herein.
<PAGE> 6
16. ASSIGNMENT: This Agreement is personal to the parties and may not be
assigned without the prior written consent of the parties hereto; provide,
either party may assign this Agreement to a wholly owned subsidiary.
17. PARTNERS: The parties hereto are neither partners nor joint venturers
hereunder, and neither party shall have the power or authority to bind or
obligate the other in any way.
18. MERGER. This Agreement constitutes the entire understanding of between the
parties hereto. All previous representations and undertakings whether oral or
written have been merged herein.
19. EXECUTION AND DELIVERY. This Agreement shall not be binding on the parties
until fully executed by and delivered to each of the parties hereto.
20. NOTICES AND PAYMENTS. Unless otherwise directed by AH, all notices shall be
sent by mail or facsimile to the address first set forth above for AH,
attention, Vice President, Business and Legal Affairs; payments shall be sent to
the same address attention Director of Finance. All notices to Company shall be
sent by mail or facsimile to the address set forth above, attention, Chief
Executive Officer.
21. MODIFICATION AND WAIVER. This Agreement may not be modified and none of its
terms may be waived, except in writing signed by both parties. Neither party's
failure or delay to enforce any rights hereunder shall be considered a waiver of
such rights or a modification of this Agreement
22. CONFIDENTIALITY. The parties agree that the terms of this Agreement and the
fact that the parties have entered into this Agreement shall remain confidential
as will any information provided to iMALL by any representative or employee of
AH, unless otherwise indicated or available to the public. The parties agree
that upon execution hereof they shall make a joint statement to the press and
shall develop such other publicity and/or press releases as are mutually agreed
upon and approved by both of the parties hereto.
23. GOVERNING LAW. This Agreement shall be governed by and interpreted in accord
with the laws of the State of California applicable to agreements entered into
and to be performed wholly in California. The parties hereby consent to the
exclusive
<PAGE> 7
jurisdiction of a State or Federal court empowered to enforce this Agreement in
the State of California, County of Los Angeles, and the parties waive any
objection thereto on the basis of personal jurisdiction or venue.
OTHER: Except for liability for indemnity, neither party will have liability for
any damages other than direct damages. NEITHER PARTY MAKES ANY WARRANTY
REGARDING THE QUALITY OF THEIR GOODS AND SERVICES. NEITHER PARTY MAKES ANY
WARRANTY THAT ALL ERRORS OR FAILURES IN THEIR RESPECTIVE SITES WILL BE
CORRECTED. THE PARTIES EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. BEYOND THE WARRANTIES CONTAINED IN THIS
PARAGRAPH, THE PARTIES DO NOT WARRANT THAT THEIR SITES ARE ERROR-FREE OR THAT
OPERATION OF THEIR SITES WILL BE SECURE OR UNINTERRUPTED. IN NO EVENT WILL
EITHER PARTY BE LIABLE FOR ANY REPRESENTATION OR WARRANTY MADE TO ANY END USER
OR THIRD PARTY BY THE OTHER PARTY, OR ANY AGENT OF THE OTHER PARTY. IN NO EVENT
WILL EITHER PARTY BE LIABLE FOR FAILURE OF ITS NETWORK OR SUPPORT SERVICES.
THESE LIMITATIONS SHALL SURVIVE AND APPLY NOTWITHSTANDING THE VALIDITY OF THE
LIMITED REMEDIES PROVIDED FOR IN THIS AGREEMENT.
AGREED TO AND ACCEPTED BY:
iMALL, Inc. Universal/Hyundai LLC
dba Animalhouse.com
By: By:
------------------------- -------------------------
Its: By:
------------------------ -------------------------
By:
-------------------------
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,997,864
<SECURITIES> 5,000,300
<RECEIVABLES> 139,143
<ALLOWANCES> 60,000
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0
19,524,452
<COMMON> 62,606
<OTHER-SE> (405,000)
<TOTAL-LIABILITY-AND-EQUITY> 15,325,925
<SALES> 3,472,299
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<CGS> 1,031,397
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