UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
for the fiscal year ended December 31, 1995 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
for the transition period from ____ to ______
COMMISSION FILE NUMBER 1-13084
BYRON PREISS MULTIMEDIA COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
New York 13-3676574
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
24 West 25th Street, New York, New York 10010
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
Issuer's telephone number: (212) 989-6252
Securities registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value $.001 per share Boston Stock Exchange
Redeemable Common Stock Purchase Warrants Boston Stock Exchange
Securities registered under Section 12(g) of the Act:
Units, each Unit consisting of two shares of Common Stock and two
Redeemable Common Stock Purchase Warrants
(Title of class)
Common Stock, par value $.001 per share
(Title of class)
Redeemable Common Stock Purchase Warrants
(Title of class)
CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OR 15(D) OF THE EXCHANGE ACT 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. YES X NO ___
<PAGE>
CHECK IF THERE IS NO DISCLOSURE OF DELINQUENT FILERS IN RESPONSE TO ITEM 405 OF
REGULATION S-B CONTAINED IN THIS FORM, AND NO DISCLOSURE WILL BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-KSB OR ANY
AMENDMENT TO THIS FORM 10-KSB. [ ]
THE ISSUER'S REVENUES FOR YEAR ENDED DECEMBER 31, 1995 WERE $6,314,501.
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES AT MARCH
25, 1996, WAS APPROXIMATELY $12,502,633, COMPUTED BY REFERENCE TO THE CLOSING
BID PRICE AS REPORTED ON THE NASDAQ SMALL CAP MARKET ON THAT DATE.
THE NUMBER OF SHARES OF THE ISSUER'S COMMON STOCK, PAR VALUE $.001 PER SHARE,
OUTSTANDING AS OF MARCH 25, 1996 WAS 4,261,875. THE NUMBER OF THE ISSUER'S
REDEEMABLE COMMON STOCK PURCHASE WARRANTS OUTSTANDING AS OF MARCH 25, 1996 WAS
1,207,500. NONE OF THE ISSUER'S UNITS (EACH UNIT CONSISTING OF TWO SHARES OF
COMMON STOCK AND TWO REDEEMABLE COMMON STOCK PURCHASE WARRANTS) WERE OUTSTANDING
AS OF MARCH 25, 1996.
DOCUMENTS INCORPORATED BY REFERENCE. PORTIONS OF THE ISSUERS'S PROXY STATEMENT
FOR THE 1996 ANNUAL MEETING OF SHAREHOLDERS ARE INCORPORATED BY REFERENCE INTO
PART III HERETO.
<PAGE>
Item 7. Financial Statements.
The following financial statements are furnished as part of this Annual Report
on Form 10-KSB:
Index to Financial Statements Pages
Report of Independent Public Accountants F-1
Consolidated Balance Sheet as of December 31, 1995 F-2
Consolidated Statements of Operations For the Years Ended
December 31, 1995 and December 31, 1994 F-3
Consolidated Statements of Changes in Shareholders' Equity for
the Years Ended December 31, 1995 and December 31, 1994 F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995 and December 31, 1994 F-5
Notes to Consolidated Financial Statements F-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Byron Preiss Multimedia Company, Inc.:
We have audited the accompanying consolidated balance sheet of Byron Preiss
Multimedia Company, Inc. (a New York corporation) and subsidiaries as of
December 31, 1995, and the related consolidated statements of operations,
changes in shareholders' equity and cash flows for each of the two years in the
period then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Byron Preiss
Multimedia Company, Inc. and subsidiaries as of December 31, 1995, and the
results of their operations and their cash flows for each of the two years in
the period then ended, in conformity with generally accepted accounting
principles.
New York, New York
March 15, 1996
F-1
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BYRON PREISS MULTIMEDIA COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,593,120
Marketable securities 982,710
Accounts receivable 1,078,431
Other current assets 315,708
-----------
Total current assets 6,969,969
PREPUBLICATION COSTS AND RIGHTS PURCHASED 2,656,420
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, less accumulated
depreciation of $190,719 562,002
OTHER ASSETS 39,949
-----------
Total assets $10,228,340
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 890,980
Deferred income 666,032
Other current liabilities 574,198
-----------
Total current liabilities 2,131,210
DEFERRED INCOME 98,735
-----------
Total liabilities 2,229,945
-----------
COMMITMENTS (Note 8)
SHAREHOLDERS' EQUITY:
Preferred stock, 5,000,000 shares authorized; -0- shares
issued and outstanding --
Common stock, 30,000,000 shares authorized;
4,261,875 shares issued and outstanding, $.001 par value 4,262
Additional paid-in capital 10,723,371
Retained deficit (2,729,238)
-----------
Total shareholders' equity 7,998,395
-----------
Total liabilities and shareholders' equity $10,228,340
===========
The accompanying notes are an integral part of this balance sheet.
F-2
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BYRON PREISS MULTIMEDIA COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
---- ----
NET REVENUES $ 6,314,501 $ 3,108,755
COST OF REVENUES 4,440,919 1,867,216
----------- -----------
Gross profit 1,873,582 1,241,539
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,748,652 2,031,199
----------- -----------
Loss from operations (1,875,070) (789,660)
OTHER INCOME, net 333,186 72,428
----------- -----------
Net loss $(1,541,884) $ (717,232)
=========== ===========
NET LOSS PER WEIGHTED AVERAGE SHARES
OUTSTANDING $ (0.38) $ (0.24)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 4,072,718 2,945,205
=========== ===========
The accompanying notes are an integral part of these statements.
F-3
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BYRON PREISS MULTIMEDIA COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Additional
Common Paid-in Retained
Stock Capital Deficit Total
----- ------- ------- -----
BALANCE, December 31, 1993 $2,200 $ -- $ (470,122) $ (467,922)
Proceeds from initial public
offering, net 1,208 4,837,880 -- 4,839,088
Issuance of restricted shares 2 13,498 -- 13,500
Net loss for the year ended
December 31, 1994 -- -- (717,232) (717,232)
------ ----------- ----------- -----------
BALANCE, December 31, 1994 3,410 4,851,378 (1,187,354) 3,667,434
Proceeds from sale of common
stock, net 852 5,871,993 -- 5,872,845
Net loss for the year ended
December 31, 1995 -- -- (1,541,884) (1,541,884)
------ ----------- ----------- -----------
BALANCE, December 31, 1995 $4,262 $10,723,371 $(2,729,238) $ 7,998,395
====== ========== ========== ==========
The accompanying notes are an integral part of these statements.
F-4
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BYRON PREISS MULTIMEDIA COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
---- ----
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss $ (1,541,884) $ (717,232)
Adjustments to reconcile net loss to net cash
provided by operating activities-
Depreciation and amortization:
Fixed assets and organizational costs 121,970 56,520
Prepublication costs and rights purchased 3,367,217 1,551,909
Changes in operating assets and liabilities-
Accounts receivable 79,901 (1,282,412)
Other assets (178,257) (166,154)
Accounts payable and accrued expenses 336,095 385,739
Deferred income and customer deposit (592,187) 321,954
Other liabilities 396,994 268,694
------------- -----------
Net cash provided by operating
activities 1,989,849 419,018
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of marketable securities 11,739,810 3,697,737
Purchase of marketable securities (11,248,565) (4,416,170)
Prepublication costs and rights purchased (4,654,363) (2,562,669)
Acquisition of fixed assets (335,501) (234,795)
------------- -----------
Net cash used in investing activities (4,498,619) (3,515,897)
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of long-term debt -- (801,166)
Proceeds from issuance of common stock, net 5,872,845 4,993,458
------------- -----------
Net cash provided by financing activities 5,872,845 4,192,292
------------- -----------
Net increase (decrease) in cash and cash
equivalents 3,364,075 1,095,413
CASH AND CASH EQUIVALENTS, beginning of year 1,229,045 133,632
------------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 4,593,120 $ 1,229,045
============= ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Taxes $ 9,205 $ 729
Interest $ 3,587 $ 27,161
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
BYRON PREISS MULTIMEDIA COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. ORGANIZATION
Byron Preiss Multimedia Company, Inc. and its subsidiaries (the "Company" or
"BPMC") was incorporated in July 1992, to develop and publish interactive
multimedia software on CD-ROM ("titles"). The Company's primary strategy is to
develop software based on licenses of media products or talents in specific
areas with proven consumer, educational, or professional appeal. Its products
target the North American consumer, school, library, and small business markets.
The Company's products employ interactive multimedia technology designed to make
them easy to use. The Company develops and publishes its software on CD-ROMs for
use with popular personal computers such as IBM and IBM-compatible PCs as well
as for certain titles for use on the Apple Macintosh and Power PC platforms. The
Company also publishes other multimedia formats with widespread consumer
acceptance in the marketplace. Other products include "on-line" services and
audiovisual books that the Company deems commercially viable. In an effort to
create unique and refreshing content that can be marketed on a profitable basis,
the Company has embarked on a strategy that contemplates vertical integration of
developing content through book publishing, which content will migrate to an
electronic format.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, Byron Preiss Multimedia
On-Line Services, Inc. and Byron Preiss Multimedia Holdings, Inc. These
subsidiaries have had no activity in 1995 and 1994.
Revenue Recognition
Copublishing Arrangements -- Revenues related to the development of a CD-ROM
titles under copublishing agreements are recorded upon completion and
delivery of each title. Revenues from the sale of CD-ROM and book titles to
end users are recorded upon shipment.
Sale of Titles -- Revenues related to the sale of titles not covered by
copublishing agreements (which are generally made by distributors) are
recorded upon shipment to end users, subject to appropriate reserve for
returns. As of December 31, 1995, the Company maintained a reserve of
$447,632 which is included in other current liabilities. Subsequent to the
delivery of the titles, the Company does not have any material or
significant obligations. In addition, minimum guaranteed sales to
distributors are recognized as revenue upon completion and delivery of each
title.
F-6
<PAGE>
Equipment and Leasehold Improvements
Equipment is stated at cost. For financial reporting purposes, equipment is
being depreciated over five years using the straight-line method. Leasehold
improvements will be amortized over the term of the lease for office space,
which is four and one half years, or the life of the improvement, whichever is
shorter.
Cash and Cash Equivalents
Highly liquid investments purchased with an original maturity of three months or
less are considered cash equivalents.
Marketable Securities
The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," which require investments in debt and marketable equity
securities, other than investments accounted for by the equity method, to be
categorized as either trading, available-for-sale or held-to-maturity. At
December 31, 1994 and 1995, the Company has classified all marketable securities
as held-to-maturity which are stated at amortized cost.
Prepublication Costs and Rights Purchased
Prepublication costs are capitalized and represent the time and expenses
relating to work performed in order to get a working product ready for sale. For
financial reporting purposes, these costs will be charged to operations as
revenues are earned on the related titles, but in no event over a period longer
than eighteen months.
Rights purchased represent prepaid royalty expenses and relate to contracts
between the Company and various third parties which enable the Company to use
the said parties' material to create and produce products that contain such
material. For financial reporting purposes, these costs will be charged to
operations as revenues are earned on the related titles, but in no event over a
period longer than eighteen months.
The Company continually evaluates whether events and circumstances have occurred
that indicate the remaining useful life of prepublication costs or rights
purchased may warrant revision or that the remaining balances may not be
recoverable, using an estimate of undiscounted cash flows over the remaining
life of the related products. The Company's management believes, based on these
continuing analyses, that all capitalized prepublication costs and rights
purchased will be fully realized.
Deferred Income
Deferred income primarily represents amounts received under copublishing
relationships (Note 10). These amounts are recorded as deferred income pending
the final testing and acceptance of each title.
F-7
<PAGE>
Net Loss Per Weighted
Average Shares Outstanding
Net loss per weighted average shares outstanding is computed based on the
weighted average number of common shares outstanding during the period. All
common stock equivalents were determined to be antidilutive.
Utilization of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has issued SFAS No. 121,
"Accounting for the Impairment of Long Lived Assets," which is effective for
fiscal years beginning after December 15, 1995. This statement requires that
long-lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
Company does not expect the adoption of this standard to have a material effect
on its financial position or results of operations.
Additionally, the FASB has issued SFAS No. 123, "Accounting for Stock Based
Compensation." This statement establishes financial accounting and reporting
standards for stock-based employee compensation plans. The accounting
requirements of SFAS No. 123 are effective for transactions entered into in
fiscal years that begin after December 15, 1994, though they may be adopted upon
issuance. The disclosure requirements of SFAS No. 123 are effective for
financial statements for fiscal years beginning after December 15, 1995. The
Company does not expect the adoption of this standard to have a material effect
on its financial position or results of operations.
Reclassifications
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year presentation.
3. RELATED PARTY TRANSACTIONS
Byron Preiss, a principal shareholder and CEO of the Company, is also the owner
and CEO of Byron Preiss Visual Publications ("BPVP"). BPVP functions as a book
producer, acquiring licenses from authors and institutions. BPMC has purchased
several such licenses from BPVP upon terms, including royalties in certain
cases, which the Company believes are as favorable as the terms which the
Company could have obtained in dealing with unaffiliated parties, and will have
the opportunity to purchase additional licenses under similar terms and
conditions.
The Company reimburses BPVP for certain itemized expenses, including partial
salary reimbursements. Effective January 1, 1995, the Company entered into the
Management Services Agreement with BPVP covering the use of certain services,
office space, employees and office
F-8
<PAGE>
equipment. The Agreement was subsequently amended to provide for termination on
December 31, 1996. Total amounts paid to BPVP for the years ended December 31,
1995 and 1994 were approximately $195,736 and $167,438, respectively. As of
December 31, 1995, there were no amounts due BPVP.
4. STOCK PURCHASE
Pursuant to the terms of a Stock Purchase Agreement dated as of March 22, 1995,
the Company sold to Viacom International Inc., a subsidiary of Viacom Inc. and
an affiliate of Simon & Schuster, Inc.: (i) 852,375 unregistered shares of the
Company's common stock (representing an aggregate of approximately 20% of the
Company's outstanding common stock), (ii) warrants to purchase an additional
315,000 shares of the Company's common stock at an exercise price of $7.00 each
and (iii) an additional warrant (the "additional warrants") to purchase up to an
aggregate of a number of shares of common stock equal to, at anytime, 20% of the
shares of Common Stock issuable upon the exercise of stock options granted
pursuant to the Company's 1993 Stock Option Plan, as such plan may be amended
from time to time, and granted to employees not pursuant to any stock option
plan, at an exercise price of $7.00 per share of common stock. The total
consideration of $5,964,000 was paid in cash.
Pursuant to the terms of the Stock Purchase Agreement, the Company may not pay
any cash dividends without the written consent of Viacom.
5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following at December 31,
1995:
Equipment $589,785
Furniture and fixtures 41,845
Leasehold improvements 121,091
--------
752,721
Less- Accumulated depreciation 190,719
--------
$562,002
========
6. STOCK OPTION PLAN
During 1993, the Company adopted the 1993 stock option plan (the "1993 Plan")
which provided for the granting of stock options to employees, officers,
directors, consultants and others to purchase up to 260,000 shares of common
stock. On June 1, 1995, the shareholders approved an amendment to the 1993 Plan
to increase the number of shares of common stock available for issuance,
pursuant to the 1993 Plan, by 165,000 shares to a total of 425,000 shares of
common stock of the Company.
Options may be either "incentive stock options" within the meaning of Section
422A of the United States Internal Revenue Code of 1986, as amended, or
nonqualified options. Incentive stock options may be granted only to employees
of the Company.
The per share exercise price of the common stock subject to an incentive stock
option may not be less than the fair market value of the common stock on the
date the option is granted. The per share exercise price of the common stock
subject to a nonqualified option may be established by the Board of Directors of
the Company, except that the Company will not grant nonqualified
F-9
<PAGE>
options at an exercise price of less than 50% of the fair market value of the
common stock on the date the option is granted. No person who owns, directly or
indirectly, at the time of the granting of an incentive stock option to him, 10%
or more of the total combined voting power of all classes of stock of the
Company (a "10% Stockholder") will be eligible to receive any incentive stock
options under the Plan unless the option price is at least 110% of the fair
market value of the common stock subject to the option, as determined on the
date of grant.
Stock options may not be transferred by an optionee other than by will or the
laws of descent and distribution, and, during the lifetime of an optionee, the
option will be exercisable only by him or by his legal guardian or legal
representative. In the event of termination of employment other than by death or
for cause, the optionee will have three months after such termination during
which he can exercise the option. Upon termination of employment of an optionee
by reason of death, his option remains exercisable for one year thereafter to
the extent it was exercisable on the date of such termination.
No options under the 1993 Plan are permitted to be granted after the tenth
anniversary of the effective date of the 1993 Plan. The majority of options
granted under the 1993 Plan are five year options and vest equally over three
years. All options granted under the Plan provide for the payment of the
exercise price in cash or, with the approval of the Board of Directors of the
Company, by delivery to the Company of shares of common stock already owned by
the optionee having a fair market value equal to the exercise price of the
options being exercised, or by a combination of those methods of payment.
Therefore, an optionee may be able to tender shares of common stock to purchase
additional shares of common stock and may theoretically exercise all of his
stock options with no additional investment other than his original shares.
Any unexercised option that is terminated, canceled or expires for any reason
without being exercised in full may again become available for issuance under
the 1993 Plan, unless the 1993 Plan has been terminated.
Shares Under Option
1995 1994
Shares Under Option Shares Under Option
------------------------ -----------------------
Option Price Number Option Price Number
Per Share of Shares Per Share of Shares
--------- --------- --------- ---------
Balance, beginning of year $2.18 - $5.50 183,000 $2.18 20,000
Granted 5.75 - 7.50 82,000 4.00 - 5.50 163,000
Canceled 2.18 - 5.13 (24,000) --
------- -------
Balance, end of year $2.18 - $7.50 241,000 $2.18 - $5.50 183,000
======= =======
Any differences between the option price and the fair market value of the common
stock at the date of grant of the options have properly been recorded as
additional compensation. The Company believes that the $2.18 per share exercise
price of the options granted prior to the Offering represented the fair market
value for a share of common stock at the time of the grant of these options.
F-10
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7. INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the year in which those temporary
differences are expected to be recovered or settled. At December 31, 1995,
deferred taxes consisted of the following:
Net operating loss carryforwards $877,000
Reserve for product returns 192,000
Other (23,000)
-----------
1,046,000
Valuation reserve (1,046,000)
-----------
Net deferred tax asset $ --
===========
The Company has incurred net operating loss carryforwards of approximately
$2,000,000 which will begin to expire in 2008 unless utilized or limited. A
change in ownership under Section 382 of the Internal Revenue Code (as amended)
could significantly limit the future utilization of the Company's net operating
losses.
8. COMMITMENTS AND CONTINGENCIES
In November 1993, the Company entered into a lease for office space for a term
of four and one half years. The lease requires initial rental payments of
$51,970 with annual escalation adjustments of four percent. The Company may
cancel this lease effective as of September 30, 1996.
In September 1995, the Company entered into a lease for additional office space
which provides for minimum annual lease payments of $48,750 and expires in April
1998. The Company may cancel this lease effective as of September 30, 1996.
Future minimum payments under noncancelable operating leases with terms of one
year or more consisted of the following:
Operating
Leases
1996 $105,336
1997 107,599
1998 36,516
--------
Total lease payments $249,451
========
The Company may be subject to an additional future liability for royalties
depending on the sales volume of its titles.
9. EMPLOYMENT AGREEMENT
In April 1994, the Company entered into an Employment Agreement with its chief
executive officer. The Employment Agreement, as amended, provides for
compensation of $250,000 in 1995; $300,000 in 1996; $350,000 in 1997; and
$350,000 plus such additional amounts as is determined by the Board of Directors
in 1998.
F-11
<PAGE>
10. PUBLISHING AND DISTRIBUTION
AGREEMENTS
Publishing Agreement
In July 1993, the Company entered into a multimedia publishing agreement (the
"Microsoft Agreement") with Microsoft to develop six multimedia (CD-ROM)
software titles. The Microsoft Agreement identified six titles to be developed
with an option for a seventh title, which was exercised in 1994.
In June 1995, the Microsoft Agreement was further amended, whereby the Company
regained the rights to publish and distribute three titles. Microsoft paid the
Company for all development works on titles completed by the Company prior to
the amendment. Microsoft will continue to distribute and support titles
previously delivered by the Company.
Distribution Agreements
In June 1994, the Company entered into an agreement with Time Warner Interactive
Group ("TWIG") to distribute ten CD-ROM titles in both the U.S. and Canada.
Under the agreement, TWIG, after it has accepted the titles, is obligated to
commence commercial distribution through its normal distribution channels. TWIG
will receive a distribution fee based on the number of copies sold and will
arrange for product packaging at the Company's expense. The Company will earn
its revenues based on units sold. The Company is responsible for certain
marketing costs and providing end user technical support for each title under
the agreement.
TWIG has notified the Company that it intends to terminate the Time Warner
Agreement on June 17, 1996 in accordance with the terms of such agreement.
However, the Company was verbally presented with the opportunity to continue a
distribution relationship directly WEA Visual Entertainment.
The Company has had and intends to continue to have discussions with TWIG in
connection with the termination of the Time Warner Agreement and related claims
by the parties. At this time, management believes, based upon available
information, that the outcome of the foregoing matter should not have a material
adverse effect on the financial position and results of operations of the
Company.
During 1995, Simon & Schuster Interactive Distribution Services ("S&S"
Distribution"), a division of Simon & Schuster, Inc., distributed three (3) of
the Company's titles without a formal agreement. The Company entered into a
Distribution Services Agreement (the "S&S Distribution Agreement"), dated as of
January 1, 1996 with S&S Distribution pursuant to which the Company, among other
things, granted to S&S Distribution the right to distribute certain titles in
the United States and Canada (the "Exclusive Territory"). The Company retained
the right, directly and through other distributors, to market and distribute the
titles in certain channels in the Exclusive Territory as well as all other
territories other than the Exclusive Territory. The S&S Distribution Agreement
also provides for the availability of manufacturing services and technical
support services to be provided by S&S Distribution. S&S Distribution is
required to use commercially reasonable efforts to actively promote and sell
each of the agreed upon titles. S&S Distribution shall be entitled to receive,
among other things, a monthly distribution fee for rendering services pursuant
to the S&S Distribution Agreement. Pursuant to the S&S Distribution Agreement,
the Company is responsible for product and packaging design as well as technical
support if the Company elects not to utilize S&S Distribution technical support
services. The S&S Distribution Agreement commenced on January 1, 1996 and shall
continue for a term of two years through December 31, 1997. The S&S Distribution
Agreement is automatically renewable for successive
F-12
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one-year terms unless either party thereto elects to terminate such S&S
Distribution Agreement, effective on the anniversary date of January 1, on not
less than sixty (60) days prior written notice. The Company agreed to grant S&S
Distribution the right to distribute any and all titles that the Company
develops, publishes or for which the Company gains distribution rights
throughout the term of the S&S Distribution Agreement, with permitted
exceptions.
Copublishing Agreement
In September 1994, the Company entered into a copublishing agreement with the
Putnam Berkley Group ("Putnam") for the publication of hardcover and softcover
books. This agreement runs concurrently with a licensing agreement the Company
has entered into with Marvel Entertainment Group, Inc. ("Marvel") for the rights
to use Marvel's comic book characters in the publication of between four and
twelve books each year, for the three years beginning September 1, 1994. The
copublishing agreement stipulates that the Company and Putnam will share profits
and losses from the acquisition, development, publication, sale, and
distribution of novels. The Company's responsibilities under the copublishing
agreement include payments to Marvel under the licensing agreement, payments to
writers and illustrators, and payments for edit, design, and illustration of
each book. The Company is also obligated to expend an agreed amount of
advertising funds to promote sales of each Marvel novel published. In addition
to the revenue generated from the book publishing, the Company uses the content
of the novels in the development of its CD-ROM titles.
Development Agreements
The Company entered into a Software Development Agreement, dated as of March 21,
1995, with Simon & Schuster Interactive ("S&S"), a division of Simon & Schuster,
Inc. (the "Simon & Schuster Agreement"). Pursuant to the terms thereof, the
Company and S&S will jointly develop a minimum of four (4) products in digital
electronic media, based upon preexisting third party and original works, using
and contributing their joint property, resources, names, talent and know-how. It
is anticipated that the joint works will initially consist of CD-ROM computer
software products. In connection with each joint work developed, S&S is to pay
the Company a fee of up to $375,000. For the products developed under the Simon
& Schuster Agreement, S&S has the exclusive right and license (subject to any
agreed-upon third party license restrictions) to copy, reproduce, manufacture,
market, publish, distribute, sell for rental and sell any joint works and to
sublicense the rights to do the same in all markets and through all channels of
distribution throughout the world. All aspects of the promotion, marketing and
distribution of the joint works is in S&S's sole and exclusive control
including, but not limited to, the pricing and other terms and conditions of the
marketing or sublicensing of the joint works.
Penguin
In October, 1995 the Company entered into an agreement with Penguin Electronic
Publishing, a division of Penguin Books USA, Inc. ("Penguin") pursuant to which,
the Company and Penguin will develop three (3) CD-ROM projects. Penguin was
appointed the exclusive distributor of such CD-ROMs in the English language and
all markets in the U.S., its territories and Canada and a nonexclusive right
throughout most of the world. The Penguin Agreement runs for a period of seven
(7) years from the initial publication of each CD-ROM project, respectively and
shall continue thereafter until terminated upon thirty (30) days notice by
either party. Penguin shall obtain the rights and clearances for the literary
materials published by Penguin used in the CD-ROMs. The Company is required to
develop such CD-ROMs in conformity with certain specifications and within an
agreed upon budget.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BYRON PREISS MULTIMEDIA COMPANY, INC.
Date: June 3, 1996 By: /s/ Byron Preiss
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Byron Preiss, Chief Executive Officer
and President
