<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
COMMISSION FILE NUMBER 0-25112
ADVANCED MEDIA, INC
(Exact name of registrant as specified in its charter)
DELAWARE 11-2899603
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
80 ORVILLE DRIVE
BOHEMIA, NEW YORK 11716
(Address of Principal Executive Offices) (Zip Code)
(516) 244-1616
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (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
--- ---
There were 62,027,261 shares of registrant's common stock outstanding as of
April 30, 1996.
<PAGE> 2
ADVANCED MEDIA INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
----
<S> <C>
Balance Sheets 3
Statements of Operations 4
Statements of Changes in Stockholders' Equity (Deficit) 5
Statements of Cash Flows
6
Notes to Financial Statements 7-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-10
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 11
Item 2 - Changes in Securities 11
Item 3 - Defaults Upon Senior Securities 11
Item 4 - Submission of Matters to a Vote of Security Holders 11
Item 5 - Other Information 11
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
2
<PAGE> 3
ADVANCED MEDIA, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,613 $ 151,463
Accounts receivable, net of allowance for
doubtful accounts of $15,218, respectively 247,835 307,535
Note receivable from stockholder 100,000 100,000
Inventories, net 148,044 169,002
Prepaid expenses and other current assets 13,354 15,155
---------- -----------
Total current assets 513,846 743,155
Fixed assets, net 264,780 283,170
Intangible assets, net 1,653,685 1,709,859
Other assets 22,272 27,834
----------
Total assets $2,454,583 $2,764,018
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 385,749 $ 334,345
Accrued expenses and other liabilities 211,986 185,816
Payable to related parties 63,830 41,381
Due to broker 100,000 100,000
Current portion of long-term debt 8,031 9,499
---------- -----------
Total current liabilities 769,596 671,041
Loan payable - stockholder 1,047,550 1,007,550
Long-term debt - - 950,500
Payable to related parties, long term 212,808 153,608
---------- -----------
Total liabilities 2,029,954 2,782,699
---------- -----------
Stockholders' equity (deficit):
Preferred stock, par value $.0001 per share,
Shares authorized: 10,000,000, none issued and
outstanding
Common stock, par value $.0001 per share,
Shares authorized: 100,000,000,
Shares issued and outstanding:
1996 - 61,826,011
1995 - 55,319,810 6,182 5,532
Additional paid-in capital 7,492,947 6,179,372
Accumulated deficit (6,975,932) (6,093,555)
Less deferred compensation (98,568) (110,030)
---------- -----------
Total stockholders' equity (deficit) 424,629 (18,681)
---------- -----------
Commitments and contingencies
Total liabilities and stockholders' equity (deficit) $2,454,583 $2,764,018
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
ADVANCED MEDIA, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
1996 1995
---- ----
<S> <C> <C>
Net revenues $740,962 $794,313
Cost of sales 595,227 449,575
---------- ---------
Gross profit 145,735 344,738
---------- ----------
Expenses:
Development 11,416 92,149
Selling and marketing 132,662 256,707
General and administrative 440,323 466,281
Amortization of intangible assets 56,174 72,195
Debt conversion expense 309,375 -
---------- ----------
Total expenses 949,950 887,332
---------- ----------
Loss from operations (804,215) (542,594)
Interest expense (78,162) (24,628)
---------- ----------
Net loss $(882,377) $(567,222)
---------- ----------
Net loss per share $(.02) $(.01)
---------- ----------
Weighted average number of
common shares outstanding 55,512,522 48,795,908
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
ADVANCED MEDIA, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Deferred
.0001 par Paid-in Accumulated Compen-
Shares Amount Capital Deficit sation
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 48,531,144 $ 4,853 $ 4,805,621 $(1,846,669) $ (188,324)
Sales to outside investors 10,180,824 1,018 1,717,034 -- --
Sales to 401k Plan 6,391 1 3,175 -- --
Contribution by officer:
Common stock (2,000,000) (200) 200 -- --
Issuance of common stock for:
Services 20,000 2 10,935 -- --
Commissions on
note agreement 800,000 80 296,795 -- --
Acquisition revaluations 1,031,451 103 (103) -- --
Issuance of options as commission
on note agreement -- -- 73,875 -- --
Amortization of deferred
compensation -- -- -- -- 68,559
Change in valuation allowance -- -- -- -- --
Cancellation of shares due to:
Employment termination (2,250,000) (225) (9,510) -- 9,735
Agreement termination (1,000,000) (100) (718,650) -- --
Net loss -- -- -- (4,246,886) --
----------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 55,319,810 5,532 6,179,372 (6,093,555) (110,030)
Sales to outside investors 142,500 14 30,736 -- --
Sales to 401k Plan 1,201 -- 353 -- --
Additional stock issuance 543,750 54 (54) -- --
Amortization of deferred --
compensation -- -- -- -- 10,314
Cancellation of shares due to: --
Employment termination (281,250) (28) (1,120) -- 1,148
Debt conversion 6,100,000 610 1,283,660 -- --
Net loss -- -- -- (882,377) --
----------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1996 61,826,011 $ 6,182 $ 7,492,947 $(6,975,932) $ (98,568)
----------------------------------------------------------------------------------------
Total
Valuation Dollar
Allowance Amounts
------------------------------
BALANCE AT DECEMBER 31, 1994 $ (951,563) $ 1,823,918
Sales to outside investors -- 1,718,052
Sales to 401k Plan -- 3,176
Contribution by officer:
Common stock -- --
Issuance of common stock for:
Services -- 10,937
Commissions on
note agreement -- 296,875
Acquisition revaluations -- --
Issuance of options as commission
on note agreement -- 73,875
Amortization of deferred
compensation -- 68,559
Change in valuation allowance 951,563 951,563
Cancellation of shares due to:
Employment termination -- --
Agreement termination -- (718,750)
Net loss -- (4,246,886)
--------------------------
BALANCE AT DECEMBER 31, 1995 -- (18,681)
Sales to outside investors -- 30,750
Sales to 401k Plan -- 353
Additional stock issuance -- --
Amortization of deferred
compensation -- 10,314
Cancellation of shares due to:
Employment termination -- --
Debt conversion -- 1,284,270
Net loss -- (882,377)
-----------------------------
BALANCE AT MARCH 31, 1996 $ -- $ 424,629
-----------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
ADVANCED MEDIA, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(882,377) $ (567,222)
Adjustments to reconcile net loss to net
cash provided by (used for) operating activities:
Debt conversion expense 309,375 -
Depreciation and amortization 55,018 16,551
Amortization of intangibles 56,174 72,195
Amortization of deferred compensation 10,314 18,219
Interest on loan payable - officer 21,700 21,816
Interest on notes payable - 1,814
Issuance of common stock for services - 4,063
Options issuable to officer as compensation 37,500 -
Changes in operating assets and liabilities:
Accounts receivable, net 59,700 (46,217)
Receivable from stockholder - (2,196)
Inventories 20,958 (9,524)
Prepaid expenses and other current assets 1,801 19,807
Accounts payable 51,404 166,428
Accrued expenses and other liabilities 26,170 (87,201)
Payable to related parties 22,449 11,816
-------- ---------
Net cash used for operating activities (209,814) (379,651)
-------- ---------
Cash flows from investing activities:
Additions to fixed assets (12,233) (24,924)
Increase (decrease) in security deposits 5,562 (10,000)
-------- ---------
Net cash used for investing activities (6,671) (34,924)
-------- ---------
Cash flows from financing activities:
Sale of common stock 31,103 73,050
Proceeds from loan payable - officer 40,000 148,868
Proceeds from notes payable, net - 198,958
Payments under capital lease obligations (1,468) (4,113)
-------- ---------
Net cash provided by financing activities 69,635 416,763
-------- ---------
Net increase (decrease) in cash and cash equivalents (146,850) 2,188
Cash and cash equivalents:
Beginning of period 151,463 44,195
-------- ---------
End of period $ 4,613 $46,383
-------- ---------
Cash paid during the period for:
Interest $ - $ 998
-------- ---------
Taxes $ 1,950 $ 2,553
======== =========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
The Company exchanged 6,000,000 shares for a $1,000,000 debt on March 31, 1996
(see note 3).
In March 1995, the Company issued 120,000 shares of common stock valued at
$78,750 and 120,000 options to purchase common stock valued at $29,550 in
conjunction with the issuance of notes payable totaling $200,000.
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
ADVANCED MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
1 - BASIS OF PRESENTATION
The unaudited interim financial statements of Advanced Media, Inc. (the
"Company") for the three months ended March 31, 1996 and 1995 have been prepared
by management and include all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the unaudited interim periods. The
results of operations for the three months ended March 31, 1996 are not
necessarily indicative of the results to be expected for the full year. These
interim financial statements should be read in conjunction with the financial
statements and related notes contained in the Company's annual report on Form
10-K for the year ended December 31, 1995.
2 - LIQUIDITY
The Company incurred a net loss of $882,377 for the three months ended March 31,
1996 and cumulative net losses of $6,975,932 through March 31, 1996. As of March
31, 1996 the Company had a working capital deficit of $255,750 as compared to
working capital of $72,114 at December 31, 1995.
The Company's plan for improving liquidity includes both growth in its core
interactive multimedia application systems business as well as strategic
acquisitions of profitable businesses. Subject to financing, the Company has
multiple potential acquisitions under consideration and in various stages of
discussion. Although management believes, based on the development of the
Company's business and its preliminary discussions with various potential
investors and other sources of financing, that it will be able to raise
additional capital sufficient to meet its working capital needs over the next
twelve months, no assurance can be given that it will be successful in this
respect. Additionally, the Company's chief executive officer and largest
stockholder has indicated his intent to provide certain additional funding to
the Company, if necessary; however, there is no legal obligation on the part of
the Company's chief executive officer to so provide funding. The Company
currently has no line of credit or other access to debt financing from any
financial institution. Furthermore, the Company's assets are pledged as part of
the value guaranty described in Note 3 below.
3 - DEBT AND EQUITY TRANSACTIONS
In March 1996, the Company reached agreement with Suan Investments Corp. and an
assignee thereof to convert their $1,000,000 principal amount of notes into
6,000,000 shares of common stock of the Company, at a conversion price of $.1667
per share. The agreement provides the noteholders a guaranteed value of $.33 per
share, twice the conversion price, on certain valuation dates, as defined. To
secure the Company's value guaranty obligation, the Company has left in place
the security agreements relating to the original Note Purchase Agreements,
pursuant to which substantially all of the Company's assets serve as collateral
for these obligations.
Originally, Suan Investments Corp. had agreed to convert their note at a
conversion price of $.20 per share. As an inducement to convert at the March
31,1996 date, the Company agreed to the new conversion price of $.1667 per
share. An additional 100,000 shares were added as a further inducement. In
accordance with Financial Accounting Standards No. 84, the Company recorded the
additional shares converted, 1,100,000, at the fair market value of the
Company's common stock at the date of conversion as debt conversion expense,
$309,375.
As a condition of certain agreements entered into by the Company in 1995
pursuant to which 7,250,000 shares of restricted common stock were exchanged for
$1,450,000 in gross proceeds, the Company was required to issue 543,750 shares
of restricted common stock. According to the agreements, if as of January 1,
1996 the Company did not have an effective registration statement covering those
shares, then the Company would be required to make monthly payments to each
purchaser equal to 2.5% of the purchase price, valued at $.20 per share, until
such registration is declared effective. The Company has paid this obligation by
issuing these additional shares of common stock.
7
<PAGE> 8
ADVANCED MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
4 - RELATED PARTY TRANSACTIONS
Expenses for the three months ended March 31, 1996 include certain amounts
payable to the Company's chief executive officer, $37,500 representing
compensation payable, and $21,700 representing interest on the loan from
officer. The Company incurred consulting expenses of $19,103 to a stockholder.
During the three months ended March 31, 1995, interest expense of $21,816 was
contributed by the chief executive officer on his loan, and the Company incurred
rental charges of $9,600 to a stockholder.
5 - INCOME TAXES
At March 31, 1996 the Company has net operating loss carryforwards for tax
purposes of approximately $5,000,000, which expire through 2011. Deferred tax
assets are comprised of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Gross deferred tax assets $1,855,893 $ 1,576,855
Valuation allowance (1,855,893) (1,576,855)
---------- -----------
Net deferred tax asset $ -- $ --
---------- -----------
</TABLE>
The gross deferred tax assets arise primarily from net operating loss
carryforwards and differences in the valuation of receivables, inventory,
accruals and deferred compensation. The Company did not record a net tax benefit
from its gross deferred tax assets because a valuation allowance of an equal
amount was provided.
The Company had a significant change in its ownership during the nine months
ended December 31, 1993, which will result in a statutory annual limitation on
utilization of the loss carryforwards. Any significant future changes in
ownership could require further limitations of the loss carryforwards.
6 - JOINT VENTURE AGREEMENT
On May 2, 1996 the Company entered into a joint venture agreement with a
privately held corporation located in Ohio who specializes in the design and
development of interactive kiosks. The purpose of the joint venture is to
develop and service a kiosk project for a mutual customer. The parties have
agreed to share profits and losses equally.
7 - CONTINGENCIES
Legal Proceedings
On September 29, 1995, a former employee and owner of a business acquired by the
Company, Decision Vision, Inc., initiated a lawsuit seeking damages of
$2,850,000 from the Company, and certain present and former officers. The
lawsuit is for claims arising from the employee's alleged termination, and
alleged misrepresentations made in connection with the Company's acquisition and
plan of reorganization for Decision Vision, Inc. The Company had previously
filed an action against the plaintiff in the aforementioned matter, which is
pending in the Supreme Court of the State of New York, seeking $53,000 in
damages for alleged breaches arising from the same acquisition and plan of
reorganization. Management believes the former employee's case is a reaction to
this case and is without merit. The Company plans to vigorously contest the
action. The Company has not set aside any reserves for this matter as management
believes that it is not probable that the Company will suffer any material loss
as a result.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this Form 10-Q.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Revenue for the three months ended March 31, 1996 decreased $53,351, or 6.7%,
and gross profit declined by $199,003, or 57.7%, as compared to the three months
ended March 31, 1995. The decline in revenue and gross profit resulted from the
Company's shift in emphasis from the hardware and software resale business to
interactive kiosks and solution based sales products. The latter business is
more labor intensive and the Company has not yet been able to price its products
competitively due to the low product volumes associated with existing orders.
There is also a higher labor cost associated with kiosk design. Management
believes the costs incurred, and which are reflected in the reduced margins, are
indicative of the efforts to design and develop high quality interactive
applications which are expected to provide increases in future sales and
marketing activities. Management has geared its sales efforts at larger volume
orders which are expected to have a positive impact on the Company's gross
profit. Additionally, proprietary software sales declined $100,616 on a
comparative period basis primarily because the Company has not had the ability
to allocate resources to selling it's proprietary software products. Margins on
proprietary software were approximately 35%.
Expenses for the three months ended March 31, 1996 increased $62,618, or 7%.
Development expense decreased $80,733, or 87.6%, due to the Company focusing
more on revenue producing activities, trying to bring to market development
activities incurred over the past years of operations. Selling and marketing
expense decreased $124,045, or 48.3%, reflecting a reduction in the Company's
salesforce. General and administrative expenses decreased $25,958, or 5.5%,
which reflects savings related to both a reduction in travel related
expenditures, and rental costs since the San Diego office was open during the
1995 quarter. The decrease of $16,021, or 22.2%, in amortization of intangible
assets is related to the reduction in goodwill recorded by the Company in the
fourth quarter of 1995 and reflected as an impairment loss. The debt conversion
expense of $309,375 was related to the costs associated with inducing Suan
Investments Corporation to retire their outstanding debt in the first quarter of
1996 in exchange for the Company's equity securities and is more fully described
in Note 3 to the accompanying unaudited financial statements.
The increase in interest expense of $53,534 was primarily due to the Suan
Investments Note which was converted to equity at March 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company incurred a net loss of $882,377 for the three months ended March 31,
1996 and cumulative net losses of $6,975,932 through March 31, 1996. As of March
31, 1996 the Company had a working capital deficit of $255,750 as compared to
working capital of $72,114 at December 31, 1995. The decrease in working capital
is primarily attributable to the provision of $69,635 from financing activities
less the use of $209,814 for operating activities. Financing activities included
private sales of the Company's common stock for $31,103, and $40,000 in
additional loans from the Company's chief executive officer.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONT.)
The Company's plan for improving liquidity includes both growth in its core
interactive multimedia application systems business as well as strategic
acquisitions of profitable businesses. Subject to financing, the Company has
multiple potential acquisitions under consideration and in various stages of
discussion. Although management believes, based on the development of the
Company's business and its preliminary discussions with various potential
investors and other sources of financing, that it will be able to raise
additional capital sufficient to meet its working capital needs over the next
twelve months, no assurance can be given that it will be successful in this
respect. Additionally, the Company's chief executive officer and largest
stockholder has indicated his intent to provide certain additional funding to
the Company, if necessary; however, there is no legal obligation on the part of
the Company's chief executive officer to so provide funding. The Company
currently has no line of credit or other access to debt financing from any
financial institution. Furthermore, the Company's assets are pledged as part of
the value guaranty described in Note 3 in the accompanying unaudited financial
statements.
10
<PAGE> 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.25 Joint Venture Agreement between Advanced Media, Inc. and
Performance Concepts, Inc.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended March
31, 1996.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADVANCED MEDIA, INC.
Date: 5/13/96 By /s/ Hans Kaemmlein
---------- ---------------------------------------------
Hans Kaemmlein, Chairman of the Board,
President and Chief Executive Officer
Date: 5/13/96 By /s/ Alan W. Schoenbart
---------- ---------------------------------------------
Alan W. Schoenbart,
Chief Financial Officer
12
<PAGE> 13
EXHIBIT INDEX
Exhibit No. Description
- - ---------- -----------
10.25 Joint Venture Agreement between Advanced Media, Inc.
and Performance Concepts, Inc.
27 Financial Data Schedule
<PAGE> 1
JOINT VENTURE AGREEMENT
This agreement, made an entered into as of the second day of May, 1996, by and
among:
ADVANCED MEDIA, INC., a New York corporation with principal offices situated as
80 Orville Drive, Bohemia, New York 11716 (hereinafter referred to as "AMI");
PERFORMANCE CONCEPTS, INC., an Ohio corporation with principal offices situated
at 7855 Division Drive, Mentor, Ohio 44060 (hereinafter referred to as "PCI").
The foregoing may be referred to hereinafter both individually as the "VENTURER"
and collectively as the "VENTURERS."
WITNESSETH:
WHEREAS, AMI and PCI desire to form a joint-venture (hereinafter referred to as
the "Venture") for the term and upon the conditions set forth hereinafter;
NOW, THEREFORE, for and in consideration of the terms, conditions and covenants
stated herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby stated, AMI and PCI agree to the following:
ARTICLE I:
BASIC STRUCTURE
1.1. FORM. AMI and PCI hereby form the Venture and agree to be governed by
the Laws of the State of New York.
1.2. NAME. The business of the Venture shall be conducted under the name of
AMI/PCI Joint-Venture.
1.3. PLACE OF BUSINESS. The principal offices and places of business of the
Venture shall be jointly located at 80 Orville Drive, Bohemia, New York
and 7855 Division Drive, Mentor, Ohio, or such other place as the
VENTURERS may from time to time designate.
1.4. TERM: The Venture shall commence on April 11, 1996 and shall continue
until terminated by mutual consent of the parties or should the parties
successfully complete a merger with each other.
1.5. PURPOSE: The purpose of the Venture shall be to exploit any opportunity
which the joint venture partners mutually deem as beneficial to be
included in the venture. The initial opportunity for which the joint
venture has been formed is for the purpose of the development and
service of the VitaPak/BNE kiosk project for General Nutrition Centers
on behalf of General Nutrition Corporation ("GNC"). To the extent that
new projects are agreed to be included in the venture, this section
shall be amended.
13
<PAGE> 2
ARTICLE II:
FINANCIAL ARRANGEMENTS
2.1. INITIAL CONTRIBUTIONS OF THE VENTURERS. No initial capital
contributions from the VENTURERS shall be required, as GNC will be
paying each VENTURER separately.
2.2. PERCENTAGE SHARE OF PROFITS. The Percentage Share of Profits of each
VENTURER shall be 50% each.
2.3. RECEIPTS, EXPENSES, ACCOUNTING. It is expressly understood that all
receipts and expenses of the Venture including licensing and service
fees shall be shared equally by the VENTURERS. In the event that a
VENTURER expends more than its pro rata share of budgeted expenses than
the other, it shall be entitled to reimbursement from the other
VENTURER on a monthly basis. The budget is appended in Exhibit B and
shall be updated on a mutually agreed upon basis, as necessary. Budget
overruns are the responsibility of the respective parties. Each party
agrees to account for all receipts received from GNC in connection with
the Venture.
2.4. BUDGET. Attached in Exhibit A are the budget concepts and factors to be
considered in income and expense resolution. As final numbers for the
pilot project, roll out and any subsequent projects (see Section 1.5),
such agreements shall be appended to this agreement as exhibits and
shall become part of this agreement, as Exhibit B.
ARTICLE III:
DISSOLUTION
3.1 DISSOLUTION. In the event that the Venture shall hereafter be dissolved
for any reason whatsoever, a full and final reconciliation of income
and costs shall be made and final reimbursement of one party to the
other shall be made within 60 days.
ARTICLE IV:
MISCELLANEOUS
4.1 BANKRUPTCY. Any failure by a party to pay, within 30 days, the monthly
reimbursement (Section 2.3) shall be a lien on the first and any
subsequent billings from GNC necessary to cover the shortfall and shall
be the first priority of payout. In the event of bankruptcy by either
party, and that party's continuing incapability to execute new
projects, this joint venture agreement will not apply to such new
projects. Further, amounts due to either party are first preference
liens, to be satisfied out of revenues from GNC.
14
<PAGE> 3
4.2 DISPUTE RESOLUTION. In the event of any dispute, which the parties
(Michael Cavotta and Michael Stone, respectively) can not resolve, both
parties agree to present the facts and circumstances, etc. to a third
party facilitator, whose resolution shall be binding upon both parties.
The cost of such dispute resolution facilitator shall be shared
equally.
4.3 LIABILITY. Potential liability for injuries, infringement (except as
stated in section 4.4) and any other unforseen liability, shall be a
cost of the venture. Payroll taxes shall be each separate party's
responsibility and become charged against future income of the
offending party should any judgments be levied against the venture.
4.4 TECHNOLOGY. To the extent that either party owns any technology to
be used in the joint venture, access to it shall be provided to the
other party at no cost. To the extent that either party is a licensee
of technology to be used in the joint venture, access to it shall be
provided to the other party at no cost. The licensee shall indemnify
the other party against any costs (including legal fees) from the
licensor and such indemnification shall be a first lien on the next
revenues until it is paid.
4.5 CONFIDENTIALITY. Neither party may disclose the nature of this
agreement without notice and mutual consent in writing to such
disclosure, including wording of press releases, etc. Such consent will
not be unreasonably withheld.
4.6 CHANGE IN CONTROL/MERGER OR ACQUISITION OF THE JOINT VENTURERS BY OTHER
THIRD PARTIES. In the event of a change in control (more than 51% of
such venturer) or sale, merger of a venturer into or by a third party
Section 4.8 shall not apply and nothing herein shall require consent of
a venturer for such action by a venturer.
4.7 ENFORCEMENT OF THE JOINT VENTURE CONTRACT WITH CUSTOMERS. Both
parties agree to enforce all contracts and to the extent that there are
costs, therefore to share jointly such costs.
4.8 NON-ASSIGNABILITY. Neither VENTURER shall have the right to assign its
rights or delegate its obligations under the auspices of the Venture to
any other party without the express prior written consent of the other
VENTURER. Consent may be withheld in the sole and absolute discretion
of other VENTURER.
4.9 BINDING EFFECT. The covenants, agreements and conditions contained
herein shall inure to the benefit of and bind the parties and the
respective successors, legal representatives, and assigns, as of the
date first stated above, provided, however, that nothing contained in
this paragraph (5.4) shall be construed as a consent to an assignment
of this Join-Venture Agreement or of any interest herein, and provided
in paragraph 5.3 hereof.
4.10 INSURANCE. Each party shall obtain such insurance coverage as may be
necessary to cover the activities contemplated under this joint venture
and provide an insurance agent's opinion or certificate of insurance to
the other party and name such party as appropriate.
15
<PAGE> 4
IN WITNESS WHEREOF, AMI and PCI have hereunto set their hands and seals or
caused these presents to be signed by their proper corporate officers and caused
their proper corporate seal to be hereto affixed on this, the second day of May,
1996:
ATTEST: ADVANCED MEDIA, INC.
By /s/ Wendy Sayer By /s/ Michael Stone
------------------------- -----------------------------------
Witness Executive Vice President
ATTEST: PERFORMANCE CONCEPTS, INC.
By /s/ Kerry Dustin By /s/ Michael Cavotta
------------------------- --------------------------------
Witness President
16
<PAGE> 5
EXHIBIT A
Budget
DIRECT HARDWARE COSTS
Components including any purchased software shall be at invoice cost.
SOFTWARE DEVELOPMENT COSTS
Labor - Actual labor rates X 122%.
OUTSIDE PRODUCTION (VIDEO COSTS)
Shall be at invoice cost.
SYSTEMS INTEGRATION
Outside vendor @ cost (or if required to do inhouse, labor figured at
labor rate).
SPECIAL EQUIPMENT
Charged off to project 100% by mutual agreement.
ENCLOSURE
Client Cost/Client Selection
TRAVEL & OUT OF POCKET EXPENSES
$25,000 built into budget for GNC for Phase I. Reimbursable to each
party at actual costs charged to travel budget. After Phase I, travel, etc. will
be charged to GNC through executed change orders. If costs become a problem,
reimbursement will be decided by mutual agreement.
OVERHEAD
None to be billed to joint venture
BILLING TO GNC
Monthly by mutual agreement on the invoices. Any shortfall or
delinquency by either party is reimbursement which will be adjusted in the GNC
billings to the appropriate party.
TIME OF EXECUTIVES
Michael F. Cavotta will serve as project Manager as well as manage his
team.
Michael A. Stone will manage his team.
Rates will be charged at $50/hour for time directly expended on
project.
Time related to sales activity, client management and contract
negotiations will not be charged.
CASH FLOW
Shared equally, 50% up front (approx. $320,000), balance (approx.
$320,000 plus) after delivery for Phase I.
SERVICE
$200 per unit per month charged to GNC for Phase I, to be shared
revenue/expense of joint venture partners.
WARRANTY
90 Days for Phase I, part of joint venture project cost.
APPROVALS
All outside vendors and agreements therewith require joint written
approval (over $1,000)
PROPOSAL COSTS
Proposal-related out of pocket costs shall be charged to the travel
budget.
AFTER PILOT COSTS
Travel, follow up to the extent that it can be charged to GNC will be,
as part of travel budget or change orders. Any other reimbursement
requires mutual agreement.
17
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,613
<SECURITIES> 0
<RECEIVABLES> 263,053
<ALLOWANCES> (15,218)
<INVENTORY> 148,044
<CURRENT-ASSETS> 513,846
<PP&E> 472,064
<DEPRECIATION> (207,284)
<TOTAL-ASSETS> 2,454,583
<CURRENT-LIABILITIES> 769,596
<BONDS> 1,260,358
0
0
<COMMON> 6,182
<OTHER-SE> 418,447
<TOTAL-LIABILITY-AND-EQUITY> 2,454,583
<SALES> 740,962
<TOTAL-REVENUES> 740,962
<CGS> 595,227
<TOTAL-COSTS> 592,227
<OTHER-EXPENSES> 949,950
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,162
<INCOME-PRETAX> (882,377)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (882,377)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
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