SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHNAGE
ACT OF 1934
For the quarterly period ended September 30, 1997
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[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from_________________________to_______________________
Commission file number 0-25276
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ALGORHYTHM TECHNOLOGIES CORPORATION
- --------------------------------------------------------------------------------
Exact name of small business issuer as specified in its charter
Nevada 88-0320364
- ---------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
5310 NW 33rd Drive, Ft. Lauderdale, FL 33309
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(Address of principal executive offices and Zip code)
(954) 739-7005
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(Issuer'stelephone number, including area code)
4330 NW 207th Drive, Miami, FL 33055
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(Former name, former address and former fiscal year,
if changed since last report)
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 [ ]
APPLICBLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by Court. Yes No x
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: November 7, 1997: 11,923,556
shares of common stock
Transitional Small Business Disclosure Format (check one): Yes No x
--- ---
<PAGE>
INDEX
Page
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Part I
Condensed Balance Sheets 3
Statement of Operations 4
Statement of Cash Flows 5
Notes to Condensed Financial Statements 6
Management's Discussion and Analysis or Plan of Operations 7
Part II
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
Signatures 10
<PAGE>
Part 1. Financial Information
Algorythm Technologies Corporation
(f/k/a Nitros Franchise Corporation and Digimedia USA, Inc.)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
----------- -----------
ASSETS (Unaudited) (Note)
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,336 $ 32,079
Accounts receivable -- 57,400
----------- -----------
Total current assets 1,336 89,479
PROPERTY, PLANT AND EQUIPMENT -- 123,675
Less allowances for depreciation -- (75,991)
----------- -----------
-- 47,684
OTHER ASSETS 250,500 60,613
----------- -----------
$ 251,836 $ 197,776
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 252,250 $ 26,675
Accrued expenses -- 52,276
----------- -----------
Total current liabilities 252,250 78,951
LONG-TERM DEBT 16,667 16,667
STOCKHOLDERS' EQUITY
Preferred Stock; 1,000,000 shares authorized; $1 par value;
no shares issued or outstanding 37,683 37,683
Common stock; 25,000,000 shares authorized; $.002 par value;
967,397 shares issued and outstanding at December 31,1996 and
9,603,556 shares issued and outstanding at September 30, 1997 19,207 1,935
Additional paid in capital 1,485,052 1,456,324
Accumulated deficit (1,559,023) (1,393,784)
----------- -----------
(17,081) 102,158
----------- -----------
$ 251,836 $ 197,776
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
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Algorythm Technologies Corporation
(f/k/a Nitros Franchise Corporation and Digimedia USA, Inc.)
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
------------------------ ------------------------
1997 1996 1997 1996
----------- --------- ----------- ---------
(Note) (Note)
<S> <C> <C> <C> <C>
Revenues $ -- $ -- $ -- $ 12,400
Costs and expenses
General and administrative 45,044 57,018 73,493 95,142
Loss on abandonment of property -- -- 91,746 --
----------- --------- ----------- ---------
45,044 57,018 165,239 95,142
----------- --------- ----------- ---------
Earnings (loss) before taxes (45,044) (57,018) (185,239) (82,742)
Income taxes -- -- -- --
----------- --------- ----------- ---------
Net earnings (loss) $ (45,044) (57,018) (185,239) (82,742)
=========== ========= =========== =========
Net earnings (loss) per share $ (0.005) $ -- $ (0.036) $ --
=========== ========= =========== =========
Weighted average shares outstanding 9,270,223 -- 4,583,467 --
=========== ========= =========== =========
</TABLE>
See notes to condensed consolidated financial statements.
4
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Algorythm Technologies Corporation
(f/k/a Nitros Franchise Corporation and Digimedia USA, Inc.)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
1997 1996 1997 1996
-------- ---------- -------- ----------
(Note) (Note)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATIONS $(20,291) $ -- $(76,743) $ --
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment -- -- -- --
-------- ---------- -------- ----------
Net cash provided by investing activities -- -- -- --
-------- ---------- -------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipt of proceeds from stock sales -- -- 46,000 --
-------- ---------- -------- ----------
Net cash provided by financing activities -- -- 46,000 --
-------- ---------- -------- ----------
NET INCREASE (DECREASE) IN CASH $ 18,051 $ -- $(30,743) $ --
======== ========== ======== ==========
Note: The previous management of the Company failed to file a condensed Statement of Cash Flow on
the Quarterly Report Form 10-Q for the period ended September 30, 1996, therefore the
comparative data for that period is not available. It will be filed by amendment.
</TABLE>
See notes to condensed consolidated financial statements.
5
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Algorythm Technologies Corporation
(f/k/a Nitros Franchise Corporation and Digimedia USA, Inc.)
Notes to Condensed Financial Statements
(Unaudited)
June 30, 1997
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. For further information, refer to the refer to the financial
statements and footnotes thereto included in the Digimedia USA, Inc. annual
report on FORM 10-KSB for the period ended December 31, 1996.
NOTE B - ABANDONMENT OF PROPERTY
During the quarter ended June 30, 1997, the Company has come under new
management. Various options are under consideration concerning a new direction
for the Company. In the meantime, management has abandoned the former corporate
facilities, the remaining lease term was assumed by another party. Additionally,
the Company has written off intangible assets that were deemed to have no future
value.
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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Results of Operations
- ---------------------
During the three month period ended September 30, 1997 the Company had no
revenues and had no revenues during the three month period ended September 30,
1996. During the nine month period ended September 30, 1997 the Company had no
revenues against revenues of $12,400 during the nine month period ended
September 30, 1996. During the three month period ended September 30, 1997 the
Company had general and administrative expenses of $45,044 as against $57,018
during the three month period ended September 30, 1996; and in the nine month
period ended September 30, 1997 the Company had general and administrative
expenses of $73,493 as against $95,142 during the nine month period ended
September 30, 1996.
Liquidity and Capital Resources
- -------------------------------
The Company's cash on hand decreased by $19,291 during the three month
period ended September 30, 1997 and decreased by $29,743 during the nine month
period ended September 30, 1997. As shown on the financial statements and notes
thereto, the Company has written off intangible assets that were deemed to have
no future value. The Company's accounts payable has increased from $5,500 to
$252,250 in the three month period ended September 30, 1997 and has increased
from $26,675 to $252,250 in the nine month period ended September 30, 1997.
$237,500 of the increase in the accounts payable in the three month period ended
September 30, 1997 is attributable to the aquisition of the rights to the Nitros
Franchise theme restaurant concept.
As a result of the merger with Nitros Franchise Corporation in May 1997
and the change in management as a result of the merger, the Company is
considering a new direction, including the focusing on internet related
businesses. The Company upon the expiration of its current contract obligations
will discontinue its CD Rom training division.
The Company, in order to implement its new business plan and meet its
obligations will seek to raise capital and/or make acquisitions. There is no
assurance that the Company will be successful in obtaining capital or in making
any acquisition. Subsequent to the peroid ended September 30, 1997, the Company
acquired ADS Advertising Corporation a/k/a The Smith Agency, a fully integrated
marketing and advertising firm.
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PART II
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
On July 18, 1997 the Company issued 1,000,000 shares of its Common Stock
to Telephonetics International, Inc. in connection with the acquisition of
Telephonetics' subsidiary, Algorhythm Technologies, Inc. The shares were issued
pursuant to Sec. 4(2) of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On November 7, 1997, the acquisition by the Registrant of ADS Advertising
Corporation a/k//a the Smith Agency ("ADS") was completed. ADS is in the
business of electronic advertising, has been in business since 1983 and is a
fully integrated marketing and advertising firm. The acquisition was effected by
the exchange of 6,500 shares of ADS for 2,300,000 shares of the Registrant which
were issued to Andrew Smith, the principal of ADS. The financial statements will
be filed within 60 days of the acquisition. Upon the completion of the
acquisition the following changes in the management of the Registrant were
effected: Andrew Smith was appointed President (in place of David Bawarsky) and
a director; David Bawarsky was appointed Secretary, in addition to being CEO and
a director; Alan Kvares resigned as Secretary and a director; Parker Yates
resigned as a director; Jason Sherman resigned as a director, but continues as
Vice President and Treasurer. Mr. Kvares and Mr. Yates resigned to devote more
time to their firm Telephonetics International, Inc.
On November 17, 1997 Dr. Bohdan S. Moroz was appointed to the board of
directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibit 2.2 - Acquisition Agreement Between Algorhythm Technologies
Corporation and ADS Advertising Corporation, dated October 30, 1997.
Exhibit 10.1 - Employment agreement between ADS Advertising
Corporation and Andrew Smith, dated October 30, 1997.
Exhibit 27 - Financial Data Schedule (Electronic filing only).
B. In its 10Q-SB for the period ended June 30, 1997 the Registrant stated
that it had been advised by the previous management that two reports on Form 8-K
had been filed during the period ended June 30, 1997, but for some reason, they
were not shown as filed by the SEC. The reports were refiled in August 1997 and
concern the following:
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May 8, 1997: reducing the authorized shares from 75,000,000 to 10,714,275
which effected a reverse split of 7 to 1.
May 14, 1997: the merger of Nitros Franchise Corporation with the
Registrant; the change of name of the Registrant to Nitros Franchise
Corporation; the resignation of the officers and directors and the appointment
of David Bawarsky, Alan Kvares and Jason Sherman as directors and David Bawarsky
as President and CEO.
During the period ended September 30, 1997, the Registrant also filed the
following 8Ks:
8K dated August 1, 1997: the change in control by the transfer of
4,675,889 shares of common stock in the aggregate by David Bawarsky and Alan J.
Kvares to Telephonetics International, Inc. ("Telephonetics"); the issuance of
1,000,000 shares of common stock by the Registrant to Telephonetics in
connection of the acquisition by the Registrant of Telephonetics' subsidiary
Algorhythm Technologies, Inc. Under Other Events the reporting of the
termination of the proposed merger between the Registrant's subsidiary, Quicklab
Multimedia Centers, Inc. (a Nevada Corporation) and Quicklab Multimedia Centers,
Inc. (a Florida corporation); the change of name of the Registrant to Algorhythm
Technologies Corporation.
8K dated August 20, 1997, reporting under Other Events the signing of the
letter of intent for the acquisiton by the Registrant of ADS Advertising
Corporation.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ALGORHYTHM TECHNOLOGIES CORPORATION
-----------------------------------
Registrant
Date: November 19, 1997 s/ANDREW SMITH
-----------------------------------
Andrew Smith, President
Date: November 19, 1997 s/JASON SHERMAN
-----------------------------------
Jason Sherman, Treasurer
10
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ACQUISITION AGREEMENT
---------------------
THIS ACQUISITION AGREEMENT wherein the participants are ALGORHYTHM
TECHNOLOGIES, INC. ("ALGOR") and ADS ADVERTISING CORP. ("ADS").
W I T N E S S E T H:
WHEREAS, ALGOR a) is a Nevada corporation in good standing which is
currently a publicly traded SEC reporting company, traded on the OTC bulletin
board under the symbol ALGOR, and b) ALGOR is a holding company which includes
or will include in its holdings other corporate entities such as ADS, and c)
has 9,603,556 shares presently issued and outstanding; and
WHEREAS, ADS a) is a Florida corporation in good standing and
utilizes a fictitious name "The Smith Agency" and is in the business of creating
and providing advertising and marketing services to parties such as ALGOR, and
b) has 6,500 authorized shares, of which 6,500 shares have been issued; and
WHEREAS, the Board of Directors of ALGOR and the Board of Directors
of ADS deem it advisable that ALGOR acquire ADS as a wholly owned subsidiary of
ALGOR with certain principals of ADS continuing on to head up operations for ADS
for a period of time, subject to employment agreements and other conditions; and
WHEREAS, ADS shall perform certain services for ALGOR; and
WHEREAS, ALGOR has furnished or will furnish ADS with a copy of its
10-K submission for the year 1996 and copies of its 10-Q submission for the
first quarter and the second quarter of 1997. These submissions, to the extent
required, (i) are/shall be in accordance with the books and records of ALGOR;
(ii) do and shall fairly represent the financial condition of ALGOR as of those
dates and the results of its operations as of and for the periods specified, all
prepared in accordance with generally accepted accounting principles; and (iii)
do and shall contain and reflect, in accordance with generally accepted
accounting principles consistently applied, reserves for all liabilities, losses
and costs in excess of expected receipts and all discounts and refunds for
services and products already rendered or sold that are reasonably anticipated
and based on events or circumstances in existence or likely to occur in the
future with respect to any of the contracts or commitments of ALGOR.
Specifically, but not by way of limitation, if customary, the submissions shall
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disclose, in accordance with generally accepted accounting principles, all of
the debts, liabilities, and obligations of any nature (whether absolute,
accrued, contingent or otherwise, and whether due or to become due) of ALGOR at
the Balance Sheet Date, and shall include appropriate reserves for all taxes and
other liabilities accrued or due at that date but not yet payable; and
WHEREAS, ADS has furnished ALGOR with unaudited financial statements
of ADS for the years 1994, 1995 and 1996 and for the first nine months of 1997
and the related statement of income for the first nine months of 1997. These
financial statements (i) are and shall be in accordance with the books and
records of ADS; (ii) do and shall fairly represent the financial condition of
ADS as of those dates and the results of its operations as of and for the
periods specified, all prepared in accordance with generally accepted accounting
principles; (iii) do and shall contain and reflect, in accordance with generally
accepted accounting principles consistently applied, reserves for all
liabilities, losses and costs in excess of expected receipts and all discounts
and refunds for services and products already rendered or sold that are
reasonably anticipated and based on events or circumstances in existence or
likely to occur in the future with respect to any of the contracts or
commitments of ADS, and shall be warranted as true and correct by the
hereinafter named principals of ADS. Specifically, but not by way of limitation,
the Balance Sheet shall disclose, in accordance with generally accepted
accounting principles, all of the debts, liabilities, and obligations of any
nature (whether absolute, accrued, contingent or otherwise, and whether due or
to become due) of ADS at the Balance Sheet Date, and shall include appropriate
reserves for all taxes and other liabilities accrued or due at that date but not
yet payable; and
WHEREAS, all required federal, state and local tax returns of ALGOR
and ADS have been accurately prepared and duly and timely filed, and all
federal, state and local taxes required to be paid with respect to the periods
covered by the returns have been paid including, but not limited to, income,
employment, property, franchise and sales tax. ALGOR and ADS have not been
delinquent in the payment of any tax or assessment; and
WHEREAS, all named parties represent unto the other that they have
authority to enter in to this Agreement; and
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WHEREAS, neither corporate entity is a party to any pending or
threatened litigation and/or legal action, other than claims by the Ft.
Lauderdale Police Department and a party named Paul Parshall for $25,000.00
against ALGOR, which claims are not in litigation; and
WHEREAS, neither party has consulted with a broker or a finder in
arranging the instant transaction.
NOW, THEREFORE, based upon the statements made hereinabove and the
covenants and conditions set forth hereinbelow, the parties agree and
acknowledge as follows:
1. All of the above statements are true and correct.
2. The parties shall cause the following to simultaneously with
the execution of this Agreement:
(a) All of the stockholders of ADS shall surrender their
shares to the Secretary of ADS, resulting in there being______ shares in the
treasury of ADS.
(b) ALGOR shall demonstrate that it has 2,300,000 shares of
restricted common stock available for issuance to ADS and/or as directed by ADS,
which shares shall be restricted.
(c) ALGOR shall acquire all of the ADS authorized shares in
exchange for such 2,300,000 shares of ALGOR stock to be vested as of execution
hereof, and ALGOR shall own 100% of the stock of ADS.
(d) ALGOR will cause ADS, as a wholly owned subsidiary of
ALGOR, to issue an employment agreement for ANDY SMITH ("SMITH") for five years
at a base rate of $100,000.00 annually, with yearly increases of 10% to start
one year from the initial date of employment, with such agreement to also
provide an acceptable compensation package; such employment agreement shall be
otherwise in form as approved by SMITH and the other directors. Additionally,
ALGOR will also issue a total of 200,000 options (on a one time basis) of common
S-8 stock, at par value, to SMITH, within 5 working days from the date of
execution of this Agreement; these options will be for a period of two years.
Additionally, SMITH is to continue to receive a company car comparable to the
1998 Volvo presently leased, telephone and health insurance. Further, SMITH
shall be President of ADS and shall serve as a President and as a Director on
the Board of ALGOR.
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(e) ALGOR will cause ADS, as a wholly owned subsidiary of
ALGOR, to enter in to an employment agreement with its principal, CHARLIE ROBB
("ROBB"), for three years at a base rate of $60,000.00 annually, with yearly
increases of 10% to start in the year 1999, with such agreement to also provide
an acceptable stock incentive options package; such employment agreement shall
be otherwise in form as approved by the attorney for ALGOR.
(f) ADS shall rebate to ALGOR fifty percent of any media
commissions as paid by the media in connection with advertising placed for ALGOR
and any of its subsidiaries and Telephonetics International, Inc. and any of its
subsidiaries.
3. The parties recognize that all of the statements made herein
by each party are made as material inducements to the other party to execute
this Agreement and perform obligations under this Agreement.
4. Pending consummation of all of the obligations under this
Agreement, ALGOR and ADS will carry on their business in substantially the same
manner as before and each will use its best efforts to maintain its business
organization intact, to retain its present employees, and to maintain its
relationships with suppliers and other business contacts. Except with the prior
consent in writing of ALGOR, pending consummation of the obligations under this
Agreement, ADS shall not:
(a) Declare, pay any dividend or make any other distribution
on its shares.
(b) Create or issue any indebtedness for borrowed money.
(c) Enter into any transaction other than those involved in
carrying on its ordinary course of business.
5. Except as may be expressly waived in writing by ADS, all of
the obligations of ADS under this Agreement are subject to the satisfaction,
prior to or on the closing/completion of obligations, of each of the following
conditions by ALGOR:
(a) The representations and warranties made by ALGOR to ADS
herein and in any document delivered pursuant to this Agreement shall be deemed
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to have been made again at the time of the exchange and shall then be true and
correct in all material respects. If ALGOR shall have discovered any material
error, misstatement or omission in those representations and warranties on or
before closing, it shall report that discovery immediately to ADS and shall
either correct the error, misstatement, or omission or obtain a written waiver
from ADS. The parties agree to resolve any disputes regarding material error,
misstatement or omission through arbitration following the Rules of the American
Arbitration Association. The results of such arbitration shall be binding upon
the parties.
(b) ALGOR shall have performed and complied with all
agreements and conditions required by this Agreement to be performed and
complied with by it prior to or at closing.
(c) No action or proceeding by any governmental body or
agency shall have been threatened, asserted, or instituted to restrain or
prohibit the carrying out of the transactions contemplated by this Agreement.
(d) All corporate and other proceedings and action taken in
connection with the transactions contemplated by this Agreement and all
certificates, opinions, agreements, instruments, and documents shall be
satisfactory in form and substance to counsel for ADS.
6. Except as may be expressly waived in writing by ALGOR, all of
the obligations of ALGOR under this Agreement are subject to the satisfaction,
prior to or on the closing/completion of obligations, of each of the following
conditions by ADS:
(a) The representations and warranties made by ADS to ALGOR
herein and in any document delivered pursuant to this Agreement shall be deemed
to have been made again at the time of the exchange and shall then be true and
correct in all material respects. If ADS shall have discovered any material
error, misstatement or omission in those representations and warranties on or
before closing, it shall report that discovery immediately to ALGOR and shall
either correct the error, misstatement, or omission or obtain a written waiver
from ALGOR.
(b) ADS shall have performed and complied with all
agreements and conditions required by this Agreement to be performed and
complied with by it prior to or at closing.
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(c) No action or proceeding by any governmental body or
agency shall have been threatened, asserted, or instituted to restrain or
prohibit the carrying out of the transactions contemplated by this Agreement.
(d) All corporate and other proceedings and action taken in
connection with the transactions contemplated by this Agreement and all
certificates, opinions, agreements, instruments, and documents shall be
satisfactory in form and substance to counsel for ALGOR.
(e) ALGOR shall have received (and approved for its purposes
in completing the proposed acquisition) that certain documentation previously
requested from ADS.
Notwithstanding anything stated to the contrary herein, the parties
understand and acknowledge that a line of credit and long-term debt for ADS
exists at the time of this acquisition. It is the understanding and agreement of
ADS and ALGOR that the parties shall terminate and close ADS's lines of credit
no later than sixty (60) days after the closing of this transaction. After the
date of this transaction, all of the net profits and dividends of ADS shall be
applied first to the payment of the credit line and other long-term debt until
paid in full. Further, subject to ADS generating sufficient profits to retire
this debt, ALGOR and its representatives shall indemnify SMITH and be
responsible to and for all claims related to the credit line account and other
long term debt after the date of this Agreement.
7. The ALGOR stock issued to ADS or as directed by ADS shall be
restricted.
8. The Bylaws of ALGOR, as existing on this date, shall continue
in full force as the Bylaws of ALGOR until altered amended or repealed, as
provided in the Bylaws or as provided by law. Appropriate corporate
documentation in the form of minutes, resolutions, et al, shall be executed
memorializing and authorizing the actions provided for herein.
9. All statements contained in any memorandum, certificate,
letter, document, or other instrument delivered by or on behalf of ADS, ALGOR,
or the stockholders identified in this Agreement shall be deemed representations
and warranties made by the respective parties to each other under this
Agreement. The covenants, representations, and warranties of the parties and the
stockholders shall survive for a period of three years after the Effective Date.
No inspection, examination or audit made on behalf of the parties or the
stockholders shall act as a waiver of any representation or warranty made under
this Agreement.
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10. ADS and ALGOR shall mutually indemnify and hold each other
harmless against and in respect of all damages. Damages, as used in this
paragraph, shall include any claim, action, demand, loss, cost, expense,
liability, penalty and other damage, including without limitation, counsel fees
and other costs and expenses incurred in investigating, in attempting to avoid
damages or to oppose the imposition of damages, or in enforcing this indemnity,
resulting to ALGOR or ADS, as the case may be, from (i) any inaccurate
representation made by or on behalf of the other or its stockholder(s) in or
pursuant to this Agreement; (ii) breach of any of the warranties made by or on
behalf of the other or the stockholder(s), in or pursuant to this Agreement;
(iii) breach or default in the performance by the other of any of the
obligations to be performed by it under this Agreement; or (iv) breach or
default in the performance by the stockholder(s) of any of the obligations to be
performed by them under any agreement delivered to them by the other pursuant to
this Agreement. The defaulting entity shall reimburse the non-defaulting entity
on demand for any payment made or for any loss suffered by the non-defaulting
entity at any time after execution hereof, based on the judgment of any court of
competent jurisdiction or pursuant to a bona fide compromise or settlement of
claims, demands, or actions, in respect of any damages specified by the
foregoing indemnity. The defaulting entity shall satisfy its obligations to the
other by the payment of cash on demand. The defaulting entity shall have the
opportunity to defend any claim, action, or demand asserted against the other
for which the other claims indemnity provided that (i) the defense is conducted
by reputable counsel approved by the non-defaulting entity, which approval shall
not be unreasonably withheld; (ii) the defense is expressly assumed in writing
within ten days after written notice of the claim, action or demand is given to
the stockholder(s); and (iii) counsel for the non-defaulting entity may
participate at all times and in all proceedings (formal and informal) relating
to the defense, compromise, and settlement of the claim, action, or demand, at
the expense of the other. By their signatures hereinbelow, SMITH guarantees the
obligations of ADS set forth in this paragraph 10.
11. This Agreement may be terminated and the actions contemplated
herein abandoned at any time within 7 days prior to the closing of this
transaction based upon the following:
(a) By mutual consent of the Board of Directors of both
corporate entities.
(b) At the election of the Board of Directors of either
corporate entity if:
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(1) Any material litigation or proceeding shall be
instituted or threatened against the other corporate entity or any of its
assets, that, in the correct opinion of such Board of Directors, renders the
instant transaction inadvisable or undesirable.
(2) Any legislation shall be enacted that materially
renders the proposed transaction inadvisable or undesirable.
(3) Between the date of this Agreement and the
completion of obligations provided for herein there shall have been, in the
opinion of the Board of Directors of either corporation, any materially adverse
change in the business or condition, financial or otherwise, of the other
corporate entity.
(4) Counsel for either corporation shall have
determined, prior to the completion of obligations herein, that (a) the exchange
of stock provided for herein shall result in the requirement of one or more of
the parties to this transaction to pay United States federal income tax as a
result of ordinary or capital gain, or (b) the proposed transaction is in
violation of federal, state and local law.
(c) At the election of the Board of Directors of ALGOR if
without the prior consent in writing of ALGOR, ADS shall have:
(1) Declared or paid a cash dividend on its common
stock or declared or paid any other dividend or made any other distribution on
its shares.
(2) Created or issued any indebtedness for borrowed
money.
(3) Entered into any transaction other than those
involved in carrying on its business in the usual manner. On or before , ALGOR
shall perform all due diligence, and ADS shall perform all obligations referred
to herein and required by each of them prior to closing. Within 7 days of the
date of closing, ALGOR shall advise ADS in writing at the address set forth
herein of its intention to terminate this Agreement. In the event ALGOR does not
terminate this Agreement on the date of closing, the stock which is the subject
of this transaction shall vest and the matter shall be closed. However, the
representations and warranties made herein shall survive as indicated herein.
The cost of all due diligence, investigations including audits,
etc., as ordered by ALGOR, shall be borne exclusively by ALGOR.
19
<PAGE>
12. Any notice or other communication required or permitted under
this Agreement shall be properly given when deposited with the United States
Postal Service for transmittal by certified or registered mail, postage prepaid,
or when deposited with a public telegraph company for transmittal, charges
prepaid, addressed as follows:
(a) In the case of ADS, to: Andy Smith, President, ADS
Advertising Corp., 5310 N.W. 33rd Avenue, Suite 212, Fort Lauderdale, FL 33309,
or to such other person or address as ADS may from time to time request in
writing.
(b) In the case of ALGOR, to: DAVID BAWARSKY, CEO,
Algorhythm Technologies, 4330 N.W. 207th Drive, Carol City, FL 33055, or to such
other person or address as ALGOR may from time to time request in writing.
13. Marks and Truppman, P.A./Jeffrey N. Marks, Esq. (collectively
"Marks") acts as local counsel for ALGOR and has prepared this Agreement in
accordance with instructions received from BAWARSKY individually and on the part
of ALGOR and SMITH individually and on the part of ADS, and, therefore, for the
purposes of resolving any ambiguities, if any, both ALGOR and ADS, as well as
their principals, BAWARSKY and SMITH, respectively, shall be deemed to have
participated in the preparation of all terms and conditions in this Agreement.
Further, ADS and SMITH are not relying on Marks as their counsel, as they have
and will continue to consult with other counsel. The foregoing provisos shall
also apply to any and all agreements, documentation, consents, minutes, etc.
contemplated by and/or referred to in this Agreement.
14. In the event of litigation arising out of a breach of any of
the terms and/or conditions of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees and court costs, at all trial and
appellate levels, from the nonprevailing party.
15. This Agreement and the exhibits to this Agreement contain the
entire agreement between the parties with respect to the contemplated
transaction. This Agreement may be executed in any number of counterparts, all
of which taken together shall be deemed one original.
20
<PAGE>
16. The validity, interpretation and performance of this Agreement
shall be governed by, construed and enforced in accordance with the laws of the
State of Florida, and exclusive venue shall be in Broward County, Florida.
IN WITNESS WHEREOF, this Agreement was executed on the dates set
forth after signatures hereinbelow.
ALGORHYTHM TECHNOLOGIES, INC. ADS ADVERTISING CORP. d/b/a THE
SMITH AGENCY
By s/David Bawarsky By s/Andy Smith
------------------------- -------------------------
DAVID BAWARSKY, President ANDY SMITH, President
Dated: 10/30/97 Dated: 10/30/97
---------- ----------
21
22
<PAGE>
EMPLOYMENT CONTRACT FOR ANDREW SMITH
------------------------------------
This agreement is made October 30, 1997, at the City of Fort Lauderdale, County
of Broward, State of Florida, between ADS Advertising Corpora tion d/b/a The
Smith Agency, employer and Andrew Smith, employee.
Employer is engaged in the business of providing marketing and advertising
services, to corporate clients and maintains a business in the City of Fort
Lauderdale, County of Broward , State of Florida.
Employee is willing to be employed by employer, and employer is willing to
employ employee, on the terms, covenants, and conditions set forth in this
agreement.
WHEREAS it is the intent of employer to obtain a full-time em ployee with
integrity and requisite qualifications who has prior working experience with
employer, to continue to act in an executive management function with the
corporation, and it is the intent of Andrew Smith to fulfill the intent of
employer and be compensated for such employment.
In consideration of the mutual covenants and promises of the parties,
employer and employee covenant and agree as follows:
SECTION ONE: Employer does hire and employ employee as President and Chairman of
its entire corporation, and employee does accept and agree to such hiring and
employment. In consideration of the invaluable and sustaining contributions
during the inception, research and development of the company, Andrew Smith
will, in perpetuity, possess the title of founder of the company and its
subsequent holdings. This title is not related to continued employment or any
amount of stock holding retained. Subject to the supervision and pursuant to the
orders, advice, and directions of employer, employee shall direct all phases of
said corporation, subject only to the final direction of employer, and shall
perform such other duties as are customarily performed by one holding such
position in other similar businesses or enterprises as that engaged in by
employer, and shall also additionally render such other and unrelated services
and duties as may be assigned to employee from time to time by employer.
SECTION TWO: Employee agrees to perform, at all times faithfully,
industriously, and to the best of his ability, experience, and talent, all of
the duties that may be required of and from him pursuant to the express and
23
<PAGE>
implicit terms of this agreement, to the reasonable satisfaction of employer.
Such duties shall be rendered at employer's place of business and at such other
place or places as employer shall in good faith require or as the interests,
needs, business, and opportunities of employer shall require or make advisable.
SECTION THREE: The term of this agreement shall be for a period of five (5)
years, commencing on October , 1997, and terminating on October , 2002, subject,
however, to prior termination as provided below.
SECTION FOUR: Employer shall pay employee and employee agrees to accept from
employer, for employee's services under this agreement, compensation at the
gross rate of ONE HUNDRED THOUSAND ($100,000) DOLLARS per year for serving as
President and CEO. Said compensations shall be paid on a weekly basis and shall
be increased by 10% per year effective the first day of January, 1999, during
the term of this contract. It is expressly understood that employee's
compensation under this agreement may be supplemented by additional stock option
plans from employer. In addition, employer agrees to establish an expense
account from which it will reimburse employee for any and all necessary,
customary, and usual expenses incurred by him on behalf of the employer pursuant
to employer's directions.
SECTION FIVE: Employer shall provide family health insurance as well as dental
insurance to employee with no contribution required from employee.
SECTION SIX: Employer shall provide a company vehicle (1997 Volvo), or the
financial equivalent at employee's option, to employee and provide all
maintenance, insurance, repair and fuel to said vehicle.
SECTION SEVEN: Employer shall provide three (3) weeks annual paid vacation and
one (1) weeks annual paid sick leave to employee. In addition to vacation and
sick days, the employee shall have the following designated holidays: New Year's
Day, Birthday of Martin Luther King, Jr., Lincoln's Birthday, Washington's
Birthday, Good Friday, Memorial Day, July 4th, Labor Day and the following
Friday, and Christmas Day (Note: Should any of the above dates fall on Saturday
or Sunday, the following Monday shall be deemed as a holiday).
SECTION EIGHT: Employer shall compensate employee as a "Perfor mance Incentive
Bonus as follows: Sliding Scale as follows:
24
<PAGE>
Based upon Net Profit.
From 0 to $149,000 10%
From $150,000 to $299,000 15%
From $300,000 and over 20%
To be paid at the end of the fiscal year (1998).
For a period of 2 years to be reviewed at the end of term,but will not be less
than what was received in years (1) one and (2) two. Andrew Smith has choice of
cash, common stock or any combination of the two.
SECTION NINE: Notwithstanding anything in this agreement to the contrary,
employer has the option to terminate this agreement in the event that during its
term employee shall become permanently disable as the term permanently disabled
is defined below. Such option shall be exercised by employer giving notice to
employee by registered mail The giving of such notice this agreement and the
term of this agreement come to an end on the last day of the month in which the
notice is mailed, with the same force and effect as is that day were originally
set forth as the termination date. For the purposes of the agreement, employee
shall be deemed to have become permanently disabled if, during any year of the
term of this agreement, because of ill health, physical or mental disability, or
for other causes beyond his control, he shall have been continuously unable or
unwilling or have failed to perform his duties under this contract for thirty
(30) consecutive days or if , during any year of the term of this agreement, he
shall have been unable or unwilling or have failed to perform his duties for a
total period of sixty (60) days, either consecutive of not. For the purposes of
this agreement, the term "any year of the term of this agree ment" is defined to
mean any period of twelve (12) calendar months commencing on the eighth day of
October and terminating on the last day of September, of the following year
during the term of this agreement.
SECTION TEN: Employee shall devote all his time, attention, knowledge, and skill
solely and exclusively to the business and interest of employer, and employer
shall be entitled to all of the benefits, emoluments profits, or other issues
arising from or incident to any and all work, services and advice of employee,
and employee expressly agrees that during the term of this agreement he will not
be interested, directly or indirectly, in any form, fashion manner, as partner,
officer, director, stockholder, advisor, employee, or in any other form or
capacity in any other business similar to employer's business or any allied
25
<PAGE>
trade; provide, however, that nothing shall be deemed to prevent or limit the
right of employee to invest any of his funds in the capital stock or other
securities of any corporation whose stock or securities are publicly owned or
are regularly traded on any public exchange, nor shall anything be deemed to
prevent employee from investing or limit employee's right to invest his funds in
real estate.
SECTION ELEVEN: Employee further specifically agrees that he will not at any
time, in any manner, either directly or indirectly, communicate to any person,
form, or corporation any information of any kind concerning any matters
affecting or relating to the business of employer, including, without limiting
the generality of the foregoing, the names of any of its customers, the prices
it obtains or has obtained or at which it sells or has sold its products, or any
other information of, about, or concerning the business of employer, its manner
of operation, its plans, processes, or other date of any kind, nature, or
description without regard to whether any or all of the foregoing matters would
be deemed confidential, material, or important, the parties stipulating that as
between them, the matters are important material and confidential and gravely
affect the effective and successful conduct of the business of the employer, and
its good-will, and that any breach of the terms of this paragraph is a material
breach of this agreement.
SECTION TWELVE: Anything contained in this agreement to the contrary
notwithstanding, it is understood and agreed that employee shall not have the
right to make any contracts or commitments for or on behalf of employer without
the written consent of employer.
SECTION THIRTEEN: This written agreement contains the sole and entire agreement
between the parties and shall supersede any and all other agreements between the
parties. The parties acknowledge and agree that neither of them has made any
representation with respect to the subject matter of this agreement or any
representations inducing its execution and delivery except such representations
as are specifically set forth in this writing and the parties acknowledge that
they have had the opportunity to have legal counsel of their choice review this
agreement prior to entering into the same.
SECTION FOURTEEN: It is agreed that no waiver or modification of this agreement
or of any covenant, condition, or limitation contained in it shall be valid
unless it is in writing and duly executed by the party to be charged with it,
and that no evidence of any waiver or modification shall be offered or received
in evidence in any proceeding, arbitration, or litigation between the parties
26
<PAGE>
arising out of or affecting this agreement, or the rights or obligations of any
party under it, unless such waiver or modification is in writing, duly executed
as above. The parties agree that the provisions of this paragraph may not be
waived except by a duly executed writing.
SECTION FIFTEEN: The parties agree that it is their intention and covenant that
this agreement and performance under it and all suits relating to it be
construed in accordance with and under and pursuant to the laws of the State of
Florida, with venue in Broward County.
SECTION SIXTEEN: This agreement shall be binding on and inure to the benefit of
the respective parties and their executors, administrators, heirs, personal
representatives, successors and assigns.
SECTION SEVENTEEN: Severability. Should any portion of this agreement be found
to be unenforceable at law, the remaining provisions of this agreement are to
remain in full force and effect.
NOTICE REQUIREMENTS SENT TO:
By: s/ Andrew Smith / Date: 10/30/97
---------------------------- --------
By: s/David Bawarsky / Date: 10/30/97
---------------------------- --------
27
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,336
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,336
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 251,836
<CURRENT-LIABILITIES> 252,250
<BONDS> 0
0
37,683
<COMMON> 19,207
<OTHER-SE> (73,971)
<TOTAL-LIABILITY-AND-EQUITY> 251,836
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 165,239
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (165,239)
<INCOME-TAX> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (165,239)
<EPS-PRIMARY> (.036)
<EPS-DILUTED> (.036)
</TABLE>
