-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QwStgo9JSPpw3KDFJ2wUIo+SW2prbRaF/PXsUfdp8wv7ev4Bzk8vpqYSk9xsPpwC B8zjFvdtaIFq5Tj6hhlLKg== 0000927550-96-000057.txt : 19961106 0000927550-96-000057.hdr.sgml : 19961106 ACCESSION NUMBER: 0000927550-96-000057 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19961105 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: JAM INC CENTRAL INDEX KEY: 0000765449 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 161092174 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-15355 FILM NUMBER: 96654209 BUSINESS ADDRESS: STREET 1: 530 WILLOWBROOK OFFICE PARK CITY: FAIRPORT STATE: NY ZIP: 14450 BUSINESS PHONE: 7163856740 MAIL ADDRESS: STREET 1: 530 WILLOW BROOK OFFICE PARK CITY: FAIRPORT STATE: NY ZIP: 14450 10-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A AMENDMENT NO. 1 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [x] ANNUAL REPORT PURSUANT TO 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] Commission file number 0-15355 J.A.M., INC. (exact name of registrant as specified in its charter) NEW YORK 16-1092174 (State of Incorporation) (IRS Employer Identification No.) 530 WILLOWBROOK OFFICE PARK, FAIRPORT, NEW YORK 14450 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code 716-385-6740 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common STOCK, $.01 par value (Title of Class) 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______ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] -1- The aggregate market value of common stock held by non-affiliates of the Registrant at March 29, 1996 was not verifiable due to delisting. The number of shares of the Registrant's voting stock outstanding on March 29, 1996 was 15,274,447. Portions of the 1995 Annual Report to stockholders of Registrant are incorporated by reference in Parts I and II of this Report. The Index of Exhibits filed with this Report begins at page 16. The total number of pages in this Report is 39. PART I ITEM 1. DESCRIPTION OF BUSINESS GENERAL DEVELOPMENT OF BUSINESS. The information contained in the J.A.M., Inc. 1995 Annual Report to Stockholders for the year ended December 31, 1995 ("1995 Annual Report") on pages 1 through 7 inclusive is incorporated herein by reference. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS. The business operations of J.A.M., Inc. are primarily development of interactive multimedia products and services. At the present time, J.A.M. can offer clients "Total Turnkey Solutions" that encompass both hardware and customized software and applications. Such solutions might range from stand alone CD-ROM based multimedia applications to video-on-demand computer-based multimedia applications such as kiosks or server-based applications utilizing local and wide area networking. Using our technology and expertise, J.A.M. can offer immensely effective solutions to our clients in the areas of training, education, public information, corporate communications, sales, and marketing. INFORMATION AS TO LINES OF BUSINESS. The Company's multimedia product and services include: SALES OF IT2000 PRODUCT AND RELATED HARDWARE AND SOFTWARE -- This includes IT2000 digital video file servers, kiosks, PCs, and support hardware and software including DCP (Digital Conversion Process) which consists of the conversion of existing paper and analog-based materials to digital platforms. DCP is ideal for the conversion of video and videodisc programs to multimedia PC platforms. DEVELOPMENT OF MULTIMEDIA APPLICATIONS AND CONTENT -- Sales of production services and custom development of projects to meet the various needs to our customers (training, informational, sales and marketing, database requirements). NETWORK CONSULTING AND INTEGRATION SERVICES -- Sales of consulting and integration services to enable customers to upgrade their computing environments and implement multimedia networking. IN-HOUSE SERVICES include: * Multimedia Design/Production * Video Production/Post Production/Computer Graphics * Instructional Design/Writing * CD-ROM & CD-i Production/Mastering * Conversion of Existing Material to Digital Platforms * Network Design/Integration NARRATIVE DESCRIPTION OF BUSINESS. The information contained in the J.A.M., Inc. 1995 Annual Report, page 4, is incorporated herein by reference, to sub-paragraphs (i) and (ii) of this sub item. PRINCIPAL PRODUCTS CUSTOM-DESIGNED TRAINING PROGRAMS. For the years ended December 31, 1995, 1994, and 1993, the Company derived approximately 95%, 95%, and 75%, respectively, of its revenues from the production and design of interactive multimedia training and communications programs. VIDEO PRODUCTION AND POST- PRODUCTION SERVICES. Video production and post- production services, which include production related to training programs, accounted for approximately 5%, 5%, and 10% of the Company's revenues for the years ended December 31, 1995, 1994, and 1993 respectively. DEPENDENCE UPON KEY CUSTOMERS. During 1995, the Company had three (3) major customer which had approximately $721,600 (46%) of total revenues for 1995, as compared to approximately $200,000 (38%) in 1994, and approximately $388,000 (47%) in 1993. BACKLOG. In 1995, the Company produced multimedia and communications services under contracts with its customers. The backlog at the end of 1995 was approximately $350,000. COMPETITION. In marketing its services, the Company competes for sales with many other businesses in training and multimedia communication services. Several companies also compete directly with the Company in providing video- based, computer-based, and interactive videodisc training programs. Many of the Company's competitors have available greater financial, technical, and marketing resources than the Company. EMPLOYEES. At December 31, 1995, the Company employed 20 full-time employees. Such employees included 3 officers, 4 administrative and sales personnel, 2 video production professionals, 7 software programmers and designers, and 4 instructional designers. The Company also employs a number of part-time employees and independent contractors depending on the volume and types of services required for various contracts. None of the Company's employees currently are represented by a labor union. Management believes that employee relations are good. In its production of recorded performances, the Company engages various artists and other production personnel who may be members of unions. The Company has not entered into any labor agreement with any such union, but complies with the terms of union agreements when dealing with union members. EXECUTIVE OFFICERS OF THE REGISTRANT. John A. Marszalek is the founder of the Company and has served as its President and as a Director since its incorporation in 1977. Prior to founding the Company, Mr. Marszalek served as general manager of two radio broadcast facilities in Rochester. He holds a Masters Degree from the University of Katowicace, Poland. ITEM 2. PROPERTIES. During August of 1992, the Company moved its headquarters to Fairport, which is a suburb of Rochester, New York, to reduce its expenses. The President of the Company personally guaranteed the five year lease agreement. The Company leases approximately 5,000 square feet of office space under a six-year net lease agreement expiring August 31, 1998, at an annual rental of approximately $70,000. This is a reduction of the Company's former annual rental by $36,000 per year. In December, 1995, the Company signed a second lease agreement for an additional 2,300 square feet on a one-year net lease at an annual rental of approximately $36,000 per year. ITEM 3. LEGAL PROCEEDINGS. Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not Applicable. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. The information concerning the principal market, sales, prices, number of holders, dividends and dividend policy for the common stock of the Company, contained in the J.A.M., Inc. 1995 Annual Report, Page 5, is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA. The information contained in the tabulation "Five Year Summary of Selected Financial Information" in the J.A.M., Inc. 1995 Annual Report, page 8, is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information bearing the same title contained in the J.A.M., Inc. 1995 Annual Report, pages 6 through 7, is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements, prepared by the Company and contained in the J.A.M., Inc. 1995 Annual Report, pages 9 through 14 inclusive, are incorporated herein by reference. Other financial schedules are filed herewith as part of this Report, see Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES. The information concerning this matter appears at page 7 of the Company's 1995 Annual Report, and is incorporated herein by reference. PART III ITEM 10. DIRECTORS OF THE REGISTRANT. The Company was not able to hold an Annual Meeting in 1995 due to lack of a quorum. JOHN A. MARSZALEK. Mr. Marszalek, 47 years of age, is the founder of the Company and has served as its President and as a Director since its incorporation in 1977. Prior to founding the Company, Mr. Marszalek served as general manager of two radio broadcast facilities in Rochester, New York. PETER A. SPINA. Dr. Spina, 57 years of age, has been a Director since June, 1989. He is President of Monroe Community College in Rochester, New York. He also serves as a director and officer of Blue Cross and Blue Shield of Rochester, New York, a director of Trinity Liquid Assets Trust, a director of Home Care Research of Rochester, New York, and is past president of the Association of Public Community Colleges. DAVID DELLA PENTA. Mr. DellaPenta, 47 years of age, was elected to the Board of Directors at the September 22, 1994 meeting. He is the President of Nalge Corporation, a Rochester, NY-based manufacturer of high-quality plastic products sold into the scientific research, industrial, and consumer markets worldwide. There are no family relationships between any Director, executive officer, or person nominated or chosen by the Board to become a Director or executive officer. The Board of Directors held four meetings during 1995, and all of the incumbent Directors attended more than 75% of the aggregate of the total number of Board meetings and total number of meetings held by all committees of the Board on which they serve. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and the National Association of Securities Dealers, Inc. Officers, directors, and greater than ten percent shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. As of March 29, 1996, Directors Peter Spina and David Della Penta had not yet filed Form 3 Reports in connection with their election as Directors, nor Form 4 Reports to report on the Stock Appreciation Rights ("SARs") they each were granted on December 14, 1995. Also as of March 29, 1996, John Marszalek had not filed various Form 4 Reports required to report on private sales he had made of the Company's Sommon Stock at various times from April 1993 through March 1995, nor to report on the 3,000,000 shares he was granted by the Board on December 14, 1995 as partial repayment of a loan he had previously made to the Company. All of these situations were rectified by these individuals with Form 3 and 4 filings that were made by each of them during September and October 1996. ITEM 11. EXECUTIVE COMPENSATION. Under the SEC's executive compensation disclosure rules, information is required to be provided with respect to the compensation and benefits paid by the Company for all services rendered during 1995, 1994 and 1993 to five individuals: the person who was, at December 31, 1995, serving as the Company's Chief Executive Officer, and the four other individuals who were, as of December 31, 1995, the other four most highly compensated executive officers of the Company whose 1995 salary and bonus exceeded $100,000 in amount. No officers of the Company received compensation exceeding $100,000 in any of such years. Accordingly, information is presented only for Mr. Marszalek: SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION NAME AND PRINCIPAL ALL OTHER POSITION YEAR SALARY($) BONUS($) COMPENSATION($) John A. 1995 $61,836 -0- $11,481 (1) Marszalek 1994 $47,470 -0- $ 9,710 (2) 1993 $23,576 -0- $11,761 (3) ______________________ (1) Of this total, $9,000 represents the value of Mr. Marszalek's car allowance and $2,481 represents additional health insurance premiums paid by the Company on his behalf. (2) Of this total, $6,264 represents the value of Mr. Marszalek's car allowance and $3,446 represents additional health insurance premiums paid by the Company on his behalf. (3) Of this total, $8,509 represents the value of Mr. Marszalek's car allowance and $3,252 represents additional health insurance premiums paid by the Company on his behalf. MANAGEMENT COMPENSATION. The Company's President, Mr. Marszalek, has an employment agreement with the Company, effective as of December 3, 1986. The agreement extends through December 31, 2000, and provides that Mr. Marszalek is to serve full-time Chief Executive Officer and Chairman of the Board of the Company. Pursuant to this agreement, Mr. Marszalek is entitled to participate in any benefit plans or programs for executive officers or employees that may be in effect from time to time and is entitled to reimbursement for the use of an automobile. It also provides for the payment of the greater of one year's salary or his then current salary for the remainder of the contract term in connection with his termination without cause prior to the expiration of the agreement. COMPENSATION OF DIRECTORS. Directors do not receive any compensation for services as a Director. Directors of the Company are reimbursed for out-of- pocket expenses incurred on the Company's behalf. However, in December 1995, the Board approved teh grant of 100,000 SARs to each of Messrs. Spina and Della Penta for their services rendered to the Company. These SARs entitle these individuals, upon the exercise of an SAR, to receive the difference between the then-fair market value of a share of the Company's Common Stock and $.04 per share, which will be paid in cash by the Company to the SAR holder within five days following the Company's receipt of the holder's notice of exercise of an SAR; provided, however, that the Company reserves the right, at any time and in its sole discretion, to convert these SARs into non-qualified stock options to purchase the same number of shares of its Common Stock at an exercise price of $.04 per share and on the same terms and conditions as are applicable to these SARs. These SARs are for a term of ten years from their grant date. None of them are exercisable for two years following their grant date. Thereafter, 25% ofthese SARs become exercisable on the second anniversary of their grant date and an additional 25% become exercisable on each of the third, fourth and fifth anniversaries of their grant date. COMPENSATION PURSUANT TO PLANS. STOCK OPTION PLAN. In May of 1986, the shareholders of the Company approved the Incentive Stock Option Plan (the "ISO Plan") for officers and key employees. The ISO Plan authorizes the issuance of options to purchase up to 200,000 shares of the Company's common stock. Options granted under the ISO Plan are intended to qualify as "incentive stock options" under the Internal Revenue Code of 1986, as amended. Under the ISO Plan, options may be granted at not less than 100% (110% in the case of 10% or greater shareholders) of the fair market value of the Company's common stock on the date of grant. Options granted under the ISO Plan must be exercised, if at all, within ten years from the date of grant (five years in the case of 10% or greater shareholders) and no option may be granted more than ten years from the date of adoption of the Plan. Options granted under the ISO Plan may not be transferred, except by will or by the laws of descent and distribution. Options granted under the plan must be exercised, if at all, within three months after termination of employment for any reason except death or disability and within 60 days after death or within one year after termination of employment due to disability. The Board of Directors of the Company, or the Compensation Committee of the Board, has the power to impose limitations, conditions, and restrictions in connection with the grant of any option. -8- 1987 STOCK OPTION PLAN. In May of 1988, the shareholders of the Company approved the 1987 Stock Option Plan (the "1987 Plan") under which options to purchase stock may be granted to officers and other key employees of the Company. The 1987 Plan authorizes the issuance of options to purchase up to 500,000 shares of the common stock of the Company. The provisions of this plan are substantially the same as those of the Incentive Stock Option Plan, except that the 1987 Plan authorizes the issuance of both options intended to qualify as "incentive stock options" under the Internal Revenue Code of 1986, as well as options that do not so qualify. As of December 31, 1995, there were options outstanding to purchase up to 365,000 shares of Common Stock of the Company. During 1995, no options were exercised under the 1987 Plan. During 1995, Mr. Marszalek was not granted any options under either of these Plans, nor did he hold or exercise any options under either of these Plans. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth as of March 29, 1996, the number and percentage of outstanding shares of common stock beneficially owned by each Director of the Company, by all Directors and current officers of the Company as a group, and by each person known to the Company to be the beneficial owner of more than 5% of the Company's common stock. The Company believes that each individual in this group has sole investment and voting power with respect to his shares unless otherwise noted: Number of Percentage of Shares NAME OF NOMINEE SHARES OUTSTANDING John A. Marszalek 3,587,572 23.5% 211 Inspiration Point Webster, NY 14580 Peter A. Spina -0- -0- David DellaPenta -0- -0- Charles D. Wimmer 896,000 5.9% 3163 Canoga Road Seneca Falls, NY 13148 Cede & Co.* 6,600,997 43.2% Box 20, Bowling Gren Stn. New York, NY 10274 ___________________________ * The shares held in this account are held in "street name" for the beneficial owners of such shares. The Company is unable to determine whether any of the beneficial owners of these shares owns more than 5% of its outstanding shares. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Not Applicable -9- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. The following documents are filed as part of this Report. The following financial statements are contained in the J.A.M., Inc. 1995 Annual Report and are incorporated herein by reference in Item 8 of this Report: - Balance Sheets, December 31, 1995 and 1994 - Statements of Operations for the years ended December 31, 1995, 1994 and 1993. - Statements of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993. - Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993. - Notes to Financial Statements SCHEDULES - The following schedules are filed as a part of this Report: - V Property, plant and equipment - VI Accumulated depreciation, depletion and amortization - VIII Valuation and qualifying accounts and reserves - X Supplemental Income Statement Information Other schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or the notes thereto. EXHIBITS - See Exhibit Index attached. REPORTS ON FORM 8-K. No report on Form 8-K was filed during the fourth quarter of 1995. SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT For The Years Ended December 31, 1995, 1994, and 1993 Balance at Balance beginning at end CLASSIFICATION OF YEAR ADDITIONS RETIREMENTS OF YEAR December 31, 1995: Leasehold improvements $ 13,183 $ 14,766 $ 0 $ 27,949 Production equipment 258,732 242,640 0 501,372 Design and development equipment 137,416 0 511 136,905 Office furniture and equipment 151,239 0 88,025 63,214 $ 560,570 $257,406 $88,536 $729,440 December 31, 1994: Leasehold improvements $ 10,722 $ 17,227 $ 14,766 $ 13,183 Production equipment 327,955 23,277 92,500 258,732 Design and development equipment 190,268 2,644 55,496 137,416 Office furniture and equipment 112,514 65,758 27,033 151,239 $ 641,459 $108,906 $189,795 $ 560,570 December 31, 1993: Leasehold improvements $ 10,722 $ 0 $ 0 $ 10,722 Production equipment 327,955 0 0 327,955 Design and development equipment 147,943 42,325 0 190,268 Office furniture and equipment 87,508 25,292 286 112,514 $ 574,128 $ 67,617 $ 286 $641,459 -11- SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT For the Years Ended December 31, 1995, 1994 and 1993 Balance at Balance beginning at end CLASSIFICATION OF YEAR ADDITIONS RETIREMENTS OF YEAR December 31, 1995: Leasehold improvements $ 969 $ 1,843 $ 0 $ 2,812 Production equipment 243,598 138,772 0 382,370 Design and development equipment 132,153 11,789 0 143,942 Office furniture and equipment 65,651 0 34,144 31,507 $ 442,371 $152,404 $ 34,144 $ 560,631 December 31, 1994: Leasehold improvements 2,820 940 2,791 969 Production equipment 275,822 94,109 126,333 243,598 Design and development equipment 131,405 63,159 62,411 132,153 Office furniture and equipment 46,077 32,691 13,117 65,651 $ 456,124 $190,899 $ 204,652 $ 442,371 December 31, 1993: Leasehold improvements $ 120 $ 2,700 $ 0 $ 2,820 Production equipment 254,222 21,600 0 275,822 Design and development equipment 120,605 10,800 0 131,405 Office furniture and equipment 27,177 18,900 0 46,077 $ 402,124 $ 54,000 $ 0 $ 456,124 -12- SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES For the Years Ended December 31, 1995, 1994 and 1993 Additions Balance at Charged to Balance beginning Costs and Deduc- at end DESCRIPTION OF YEAR EXPENSES TIONS (1) OF YEAR Allowance for doubtful accounts - deducted from accounts and notes receivable in the balance sheet December 31, 1995 $ 3,600 $ 0 $ 1,803 $1,797 December 31, 1994 $ 3,600 $ 0 $ 0 $3,600 December 31, 1993 $ 3,600 $ 0 $ 0 $3,600 (1) uncollectable accounts written off. -13- SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION For The Years Ended December 31, 1995, 1994, and 1993 ITEM CHARGED TO COSTS AND EXPENSES 1995 1994 1993 Maintenance and repairs $ * $ 8,609 $ *____ Depreciation and amortization of intangible assets, pre- operating costs and similar deferrals $ 0 $46,082 $55,000 Taxes, other than payroll and income taxes $ * $ * $ *_____ Royalties $ 0 $ 0 $ *_____ Advertising costs $28,409 $ 8,072 $ *_____ * Less than 1% of total sales. -14- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized. J.A.M., Inc. Dated: October 31, 1996 By:/s/John A. Marszalek President and Chief Executive Officer EXHIBIT INDEX Exhibit NUMBER DESCRIPTION LOCATION 3-1 Restated Certificate of Previously Filed Incorporation of J.A.M., Inc., as amended. 3-2 Bylaws of J.A.M., Inc. Previously Filed 4-1 Form of Common Stock Certificate of Incorporated by Reference to J.A.M., Inc. Exhibit 4 (a) to Registrant's S-18, registration no. 33-7486-NY, declared effective November 10, 1986 10-1 Employment Agreement between Registrant Previously Filed and John A. Marszalek dated July 17, 1986. 10-2 Registrant's Incentive Stock Option Plan Previously Filed 10-3 Registrant's 1987 Stock Option Plan Previously Filed 10-4 Employee Agreement Regarding Previously Filed Proprietary Information and Inventions between Registrant and John A. Marszalek 10-5 Form of Stock Appreciation Rights Filed herewith Agreement between the Company and certain Directors and Consultants, dated December 14, 1995 11 Statement re: Computation of Per Share * Earnings. 13 J.A.M., Inc. 1995 Annual Report Filed herewith to Shareholders 27 Financial Data Schedule Previously Filed *See Note 2 to the Notes to Consolidated Financial Statements incorporated by reference in Item e of this Report. EX-10 2 STOCK APPRECIATION RIGHTS CONTRACT This STOCK APPRECIATION RIGHTS CONTRACT (the "Contract") is made between J.A.M., INC., a New York corporation (the "Company") and ______________________________ (the "Holder"). The parties agree as follows: 1. GRANT OF SARS. The Company hereby grants to the Holder ________________ stock appreciation rights ("SARs") in respect of the Company's common stock, par value $.01 per share. Each SAR represents the right, upon the Holder's exercise thereof, to receive the difference between the then-fair market value of a share of the Company's common stock and $.04 per share (the "Spread"). The Spread shall be paid in cash by the Company to the Holder within five days following the Company's receipt of the Holder's notice of exercise of an SAR. The Company reserves the right, however, at any time and in its sole discretion, to convert these SARs into Non-Qualified Stock Options to purchase shares of its common stock at an exercise price of $.04 per share on the same terms and conditions as are applicable to these SARs as set forth herein. For purposes of this Contract, the "fair market value" of a share of the Company's common stock on any given date means (i) the Closing Price quoted for the Company's common stock in trading on The Nasdaq Stock Market on the date the Holder gives notice of an exercise of an SAR; or (ii) if there are no reported sales on such date, then the mean between the closing high bid and low asked prices as reported by The Nasdaq Stock Market for such date (or, if not so reported, then as reported for that date by the system then regarded as the most reliable source of such quotations); or (iii) if there are no reported sales or quotations, as the case may be, on the given date, the value determined pursuant to (i) or (ii) using the reported sale prices or quotations on the last previous date on which so reported; or (iv) if none of the foregoing clauses apply, the fair market value as determined in good faith by the Company's Board of Directors. 2. EXERCISABILITY. These SARs may be exercised at any time and from time to time, in whole or in part, subject to the following conditions: No portion of these SARs shall be exercisable for two years following the grant date hereof. Thereafter, 25% of these SARs shall become exercisable on the second anniversary date hereof, and an additional 25% of these SARs shall become exercisable on each of the third, fourth and fifth anniversaries of the date hereof. 3. TERM. This Contract shall terminate on the expiration of ten years from the date hereof. 4. NONTRANSFERABILITY.. This Contract is not transferable by the Holder other than by Will or the laws of descent and distribution and is exercisable, during his/her lifetime, only by the Holder. 5. BINDING EFFECT. This Contract shall be binding upon and inure to the benefit of any successor or assignee of the Company and any executor, administrator, legal representative, legatee or distributee entitled by law to exercise the Holder's rights hereunder. 6. NOTICES. Notices hereunder shall be in writing and shall be deemed to have been duly given (i) upon hand delivery, or (ii) on the third day following delivery to the U.S. Postal Service as certified mail, return receipt requested and postage prepaid, or (iii) on the first day following delivery to a nationally recognized U.S. overnight courier service, fee prepaid and return receipt or other confirmation of delivery requested, or (iv) when telecopied or sent by facsimile transmission. Any such notice shall be delivered to a party at its address set forth by its signature below, or at such other address as may be designated by one party in a notice given to the other from time to time in accordance with the terms of this paragraph. 7. GOVERNING LAW. This Contract and the rights of the parties hereto shall be governed by and construed in accordance with the laws of the State of New York pertaining to contracts made and to be wholly performed within such state, without taking into account conflict of laws principles. IN WITNESS WHEREOF, the Company has caused this Contract to be executed on its behalf by its duly authorized officer, and the Holder has hereunto set his/her hand, on the date shown below. J.A.M., INC. By:_____________________________ John A. Marszalek, President Address: 530 Willowbrook Office Park Fairport, NY 14450 Dated: December 14, 1995 Holder: ________________________________ Address: ____________________________ ____________________________ G:\UKIJK\JAM\GENSEC\SARGRANT.CNT NOTE: DIRECTORS PETER SPINA AND DAVID DELLA PENTA HAVE EACH RECEIVED SAR GRANTS WITH RESPECT TO 100,000 SARS, AND A TOTAL OF 165,000 SARS HAVE BEEN GRANTED TO THREE OTHER PERSONS. EX-13 3 Exhibit 13 1995 ANNUAL REPORT FINANCIAL HIGHLIGHTS ______________________________________________________________________________ For the Year 1995 1994 ______________________________________________________________________________ Net sales $1,567,748 $537,696 Earnings (loss) before income taxes and extraordinary credit 45,532 (185,747) Net earnings (loss) 45,183 Net earnings (loss) per share $.003 $(0.02) ______________________________________________________________________________ At Year End Total assets $482,227 $293,749 Total liabilities 663,034 699,189 ______________________________________________________________________________ Total stockholders' equity (180,807) (405,440) _______________________________________________________________________________ Working Capital (360,835) (523,639) _______________________________________________________________________________ Current ratio 0 0 _______________________________________________________________________________ MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED MATTERS ______________________________________________________________________________ The number of stockholders of record on January 31, 1996 was approximately 1,702. The Company was delisted by NASDAQ in 1992. To the best knowledge of the Company, management does not have any market makers. In 1995, it was impossible to establish any quotes for the JAM Company stock. The Company still believes that its JAMY common stock is traded in the over-the-counter market. The following table summarizes by quarter the high and low bid prices for the Company's common stock during 1995 and 1994. 1995 1994 HIGH LOW HIGH LOW First Quarter No quotables No quotables Second Quarter No quotables No quotables Third Quarter No quotables No quotables Fourth Quarter No quotables No quotables -5- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ______________________________________________________________________________ 1995 COMPARED TO 1994 Net sales for 1995 totaled $1,568,748, an increase of $1,031,052, or 150% from sales of $537,696 in 1994. This increase was due to receiving several contracts from new and previous client base. Cost of sales in 1995 totaled $924,011, an increase of $578,559, or 297% from 1994. This increase was due to payroll and outside vendor activity for multi- media projects. Gross profits increased $401,811 in 1995 from $242,926 to $644,737, due to managing cost controls and project management systems. 1994 COMPARED TO 1993 Net sales for 1994 totaled $537,696, a decrease of $288,641, or 35% from sales of $826,337 in 1993. This decrease was due to the Company spending much of its time on research and development. Cost of sales in 1994 totaled $294,770, a decrease of $124,752, or 30% from 1993. This decrease in cost of sales was due to the decrease in sales and the need for outside services. Gross profits decreased $163,889 in 1994 from $406,815 to $242,926, due largely to the concentration on research and develop which caused the drop in gross sales. Liquidity and Capital Resources At December 31, 1995, the Company had negative working capital of $360,835 and total stockholders' equity (deficit) of $(180,807). This compares to the negative working capital of $523,639 and total stockholders' equity (deficit) of $(405,440) in 1994. Liquidity and capital resources increased in 1995 as a result of the operating profit. The Company acknowledges that additional resources may be needed to continue growth in 1996 as well as additional sources of capital may be necessary. Inflation During 1995, 1994 and 1993, inflation had no material effect on the costs incurred by the Company or the demand for the Company's services. Status of Certified Public Accountants In December, 1995, the Company retained the accounting firm of Bonn & Shortsleeve, CPA's to audit the 1995 and 1994 Financial Statements. FIVE YEAR SUMMARY OF SELECTED FINANCIAL INFORMATION ______________________________________________________________________________ The table below represents a summary of selected components of the Company's balance sheets and statements of operations of the five years ended December 31, 1995. All information concerning the Company should be read in conjunction with the other financial statements and related notes included elsewhere herein. AS OF AND FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993 1992 1991 BALANCE SHEET DATA: Current assets $ 302,199 $ 175,550 $ 61,998 $ 60,388 $ 43,939 Current liabilities 663034 699189 414,023 415,984 368,689 Working capital $ (360,835) $ (523,639) $ (352,025) $ (355,596) $ (324,750) Total assets $ 482,227 $ 293,749 $ 247,333 $ 232,392 $ 821,690 Long-term obligations $ - $ - $ - $ 10,671 $ 269,842 - - - Stockholders' equity $ (180,807) $ (405,440) $ (166,890) $ (187,212) $ 362,859 OPERATING DATA: Net sales $ 1,568,748 $ 537,696 $ 826,337 $ 651,876 $ 1,021,451 Cost of sales 924,011 294,770 419,522 415,351 832,379 Gross profit $ 644,737 $ 242,926 $ 406,815 $ 236,525 $ 189,072 Selling, general and administrative expenses 556,481 394,109 374,593 785,039 781,605 Operating profit (loss) $ 88,256 $ (151,183) $ 32,222 $ (548,514) $ (592,533) Other income (deductions), net $ (43,073) $ (34,563) $ (13,101) $ (1,557) $ 7,958 Net earnings (loss) $ 45,183 $ (185,746) $ 19,121 $ (550,071) $ (584,575) Net earnings (loss) per share $0.00 ($0.01) $0.00 ($0.04) $0.05
See accompanying notes to financial statements. -8- BALANCE SHEETS December 31, 1995 and 1994 ASSETS
1995 1994 AUDITED Unaudited CURRENT ASSETS: Cash $ 4,705 $ - Accounts receivable, less allowance for doubtful accounts of $1,747 in 1995 and $3,600 in 1994 (Note 5) 288,126 200,557 Inventories (Note 2) 2,988 2,814 Prepaid expenses 6,380 6,549 302,199 209,920 PROPERTY AND EQUIPMENT (NOTES 2 AND 3): Leasehold improvements 27,949 13,183 Production equipment 501,372 258,732 Office furniture and equipment 200,119 288,655 729,440 560,570 Less: Accumulated depreciation 560,631 442,371 168,809 118,199 Other Assets: Deposits 11,219 - $ 482,227 $ 328,119
See accompanying notes to financial statements. -9- BALANCE SHEETS (CONT'D) LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1994 AUDITED Unaudited CURRENT LIABILITIES: Checks drawn in excess of deposits $ - $ 34,370 Payroll taxes payable - 53,075 Accrued Income Tax 349 - Accounts payable 87,535 155,564 Accrued expenses 138,975 12,784 Billings in excess of costs and estimated earnings (Notes 2 and 4) - 19,262 Loan - Officer 146,175 323,504 Loans - Miscellaneous 290,000 135,000 $ 663,034 $ 733,559 STOCKHOLDERS' EQUITY (NOTE 7): Common stock - $.01 par value, authorized 16,000,000 shares; issued and outstanding 15,274,447 and 12,274,447 at December 31, 1995 and 1994 respectively 152,745 122,744 Additional paid-in capital 3,147,227 3,027,227 Accumulated deficit (3,480,779) (3,555,411) (180,807) (405,440) $ 482,227 $ 328,119
See accompanying notes to financial statements. STATEMENTS OF OPERATIONS For the Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993 AUDITED Unaudited Unaudited Net sales (Notes 2 and 5) $ 1,568,748 $ 537,696 $ 826,337 Cost of sales 924,011 294,770 419,522 Gross profit 644,737 242,926 406,815 Selling, general and administrative expenses 556,481 394,109 374,593 Operating income (loss) 88,256 (151,183) 32,222 Other income (expense): Interest income - - 15 Interest expense (47,724) (25,163) (22,216) Gain on sale of asset 5,000 10,500 (9,400) (42,724) (34,563) (11,701) Income (loss) before income taxes and extraordinary items 45,532 (185,746) 20,521 Provision for income taxes (Notes 2 and 7) 1,400 349 366 Income (loss) for the year $ 45,183 $ (186,112) $ 19,121 Earnings per share of common stock (Note 2) Net income (loss) per share $0.00 ($0.01) $0.00
See accompanying notes to financial statements. STATEMENTS OF STOCKHOLDERS' EQUITY For the Years Ended December 31, 1995, 1994, and 1993 COMMON STOCK
Paid In Number Capital In Total Of Excess of Stockholder's Accumulated SHARES Amount Par Value Equity Deficit Balance December 31, 1992 12,274,447 122,744 3,027,227 $ (187,212) $ (3,337,183) Net income for the year 19,121 19,121 - - - Balance December 31, 1993 12,274,447 122,744 3,027,227 $ (168,091) $ (3,318,062) Net loss for the year - - - (160,028) (195,513) Balance December 31, 1994 12,274,447 122,744 3,027,227 $ (328,119) $ (3,513,575) Net income for the year 3,000,000 30,000 120,000 $ 45,183 $ 195,183 Balance December 31, 1995 15,274,447 152,744 3,147,227 $ (282,936) $ (3,318,392)
See accompanying notes to financial statements. STATEMENTS OF CASH FLOWS For The Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993 AUDITED Unaudited Unaudited Cash flows from operation activities: Income (loss) before extraordinary item $ 45,183 $ (154,362) $ 19,121 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Write off of capitalized software - 6,212 - Depreciation and amortization 42,057 (14,666) 55,000 Provision for doubtful accounts - - - (Increase) decrease in: Accounts receivable (103,532) (148,503) (3,393) Inventories (174) 358 274 Prepaid expenses (6,380) - 1,275 Costs and estimated earning in excess - - - Other assets (4,755) - - Increase (decrease) in: Checks drawn in excess of deposits 34,148 (18,059) Accounts payable (69,975) (4,484) (63,561) Accrued expenses 55,658 33,678 (9,416) Billings in excess of costs and estimated earnings - (19,262) (65,861) (87,101) (112,519) (103,741) Cash flows from investing activities: Capital expenditures (65,739) (62,819) (67,291) (65,739) (62,819) (67,291)
See accompanying notes to financial statements. STATEMENTS OF CASH FLOWS, (CONT'D)
1995 1994 1993 AUDITED Unaudited Unaudited Cash flows from financing activities: Loans from shareholders $ (8,268) $ 295,107 $ 163,398 Proceeds from demand loan 55,000 - - Proceeds from line of credit 100,000 - - Payments of long-term debt - - (10,671) Payments of capital lease obligations - - (1,050) 146,732 295,107 151,677 Net increase (decrease) in cash and cash equivalents $ 39,075 $ (34,593) $ 189 Cash and cash equivalents at beginning of year (34,370) 223 34 Cash and cash equivalents at end of year $ 4,705 $ (34,370) $ 223 Supplemental disclosure of cash flow information: Cash paid during the year for $ 34,730 $ 25,163 $ 22,216 interest Cash paid during the year for income taxes $ 366 $ 748 $ 1,400
See accompanying notes to financial statements. NOTES TO FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS The Company provides training and information communication services, including instructional design and training program development; video production and post production; graphics and animation; and software design and programming for computer based training and interactive simulations. As shown in the financial statements as of December 31, 1995, the Company's accumulated deficit was $3,480,779 including total net losses for the three-year period ended December 31, 1995 of $121,818. During 1995, there was an increase in working capital of $162,804 and as of the date of this financial statement, the Company had borrowed $146,175 from a shareholder at prime plus 2%. The financial statements have been prepared in accordance with generally accepted accounting principles. Management of the Company has a plan to improve liquidity and attain future profitable operations. The plan includes aggressive marketing of company capabilities and services to interactive multi-media markets. Management believes that the operations of the Company will provide sufficient cash flow to fund its on-going operations, if the objectives of their plan are attained. The continued support and forbearance of the Company's creditors will also be required. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) INVENTORY Inventories are stated at the lower of cost, using the first- in, first-out (FIFO) method, or market. b) PROPERTY, EQUIPMENT AND DEPRECIATION Property and equipment are stated at cost. Property and equipment under capital leases are stated at the lower of the present value of minimum lease payments at the beginning of the lease term or fair market value at the inception of the lease. Normal repairs and maintenance are charged to operations as incurred. Depreciation is calculated using straight-line and declining- balance methods over the estimated useful lives of the assets. Equipment held under capital leases is amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset. The estimated useful lives are as follows: Leasehold improvements 5-10 years Production equipment 5-7 years Office furniture and equipment 5-8 years c) REVENUE RECOGNITION Revenue is recognized upon the completion and delivery to the customer of products and services except for long-term contracts (usually three to sixteen months in duration), for which revenue is recognized on the percentage-of-completion method as the contracts progress. d) INCOME TAXES Certain income and expense items are accounted for in different periods for financial and tax reporting purposes. These timing differences consist primarily of different methods of accounting for depreciation and any unrealized gain or loss on the U.S. Government Mutual Fund. e) EARNINGS PER COMMON SHARE Net income per share is based on the weighted average number of common shares and common share equivalents (stock operation and warrants with a dilutive effect) outstanding during each period. The weighted average number of common and common equivalent shares outstanding during 1995 was 15,274,447 and during 1994 and 1993 was 12,274,447 each year. f) Reclassifications Certain items in the 1995 and 1994 financial statements were reclassified for comparative purposes and do not affect the 1995 and 1994 net income (loss) as originally reported. 3. LEASES AND LEASE COMMITMENTS At December 31, 1995, there was no equipment under capital lease agreements. At December 31, 1994, there was no equipment under capital lease agreements. At December 31, 1993, there was no equipment under capital lease agreements The company leases office space under a non-cancelable lease which required minimum monthly payments of approximately $6,288 through July, 1997. In December, 1995, the Company signed for additional office space of approximately 2300 square feet at $3,000/mo. with a one (1) year commitment beginning January 1, 1996. Total rental expense under noncancellable operating leases for office facilities and equipment amounted to $78,736 in 1995, $74,485 in 1994, and $76,348 in 1993. 4. CONTRACTS IN PROGRESS As of December 31, 1995, the company had a signed backlog of $350,000. Accumulated costs and estimated earnings and billings on contracts in progress at December 31, 1994 and 1993 are as follows: 1995 1994 Accumulated costs and estimated earnings $N/A $ 0 Less: Billings N/A 19,262 $N/A $19,262 Contracts in progress are included in the accompanying balance sheets under the following captions: 1995 1994 Costs and estimated earnings in excess of billings $0 $0 Billings in excess of costs and estimated earnings 0 19,262 $0 $19,262 5. SIGNIFICANT CUSTOMERS AND ACCOUNTS RECEIVABLE The Company has received approximately 30% of its revenue from various divisions of a Fortune 50 company, each of which separately and independently contracts with the Company for such services. The Company by the end of 1995 was in the process of negotiating a contract with some of the same customers for 1996. There were four (4) significant customers in accounts receivable as of December 31, 1995. 6. STOCK OPTIONS AND WARRANTS A summary of stock option and warrant transactions during 1995 and 1994 is as follows: WARRANTS OPTIONS $.72 $.375 $.25 $.04 $1.00 $.01 Outstanding December 31, 1994 Outstanding December 31, 1995 105,000 Options to purchase a total of 105,000 shares were issued under the Company's 1987 Incentive Stock Option Plan for officers and key employees. These options are exercisable at $.04 per share. This plan authorized the issuance of options to purchase up to 500,000 shares of the Company's common stock. Options under the 1986 Incentive Stock Option Plan are granted at the discretion of the Board of Directors. The exercise price of the options is the fair market value of the Company's common stock at the date of grant, or 110 percent of fair market value for grants to employees with stockholdings greater than 10 percent. Options can be exercised in installments over a three-year period beginning one year from the date of grant. The options expire 10 years from the date of grant with the exception of options issued to more than 10 percent stockholders, which expire five years from the date of grant. Stock Appreciation Rights (SARs) with respect toa total of 365,000 shares of the Company's Common Stock were issued as of December 14, 1995 to the Company's two outside Directors, a consultant to the Company, a creditor of the Company and one key part-time Company employee. These SARs entitle these individuals, upon the exercise of an SAR, to receive the difference between the then-fair market value of a share of the Company's Common Stock and $.04 per share, which will be paid in cash by the Company to the SAR holder within five days following the Company's receipt of the holder's notice of exercise of an SAR; provided, however, that the Company reserves the right, at any time and in its sole discretion, to convert these SARs into non-qualified stock options to purchase the same number of shares of its Common Stock at an exercise price of $.04 per share and on the same terms and conditions as are applicable to these SARs. These SARs are for a term of ten years fromtheir grant date. None of them are exercisable for two years following their grant date. Thereafter, 25% ofthese SARs become exercisable on the second anniversary of their grant date and an additional 25% become exercisable on each of teh third, fourth and fifth anniversaries of their grant date. In December, 1995, $150,000 of the Officer Loan was converted to 3,000,000 shares of stock. Total shares of common stock available for issuance under option plans at December 31, 1995 amounted to 200,000 shares under the 1986 Plan and 395,000 shares under the 1987 Plan. 7. INCOME TAXES For the year ended December 31, 1990, the Company recognized a federal income tax benefit of $4,700, from the utilization of net operating loss carryforwards. No federal income tax benefit was derived from the net operating losses in current in 1991 and 1989 as taxable income within the carryback period had previously been offset by net operating loss carryforwards. The actual federal income tax expense (benefit), before consideration of the effect of the loss carryforwards, differs from the expense (benefit) computed by applying the federal corporate tax rate of 34 percent to earnings (loss) before income taxes and extraordinary credit in 1995, 1994 and 1993 as follows:
1995 1994 1993 Expected federal income tax expense (benefit) at statutory rate $ 20,321 $ 0 $ 0 Current year operating loss 0 0 0 Effect of graduated tax rates 0 366 1,400 $ 0 $ 366 $ 1,400 0
The components of current income tax expense are as follows: 1995 1994 1993 Federal $ 0 $ 0 $ 0 State 349 366 1,400 $ 34 $366 $1,400 At December 31, 1995, the Company had net operating loss carryforwards for tax purposes of $3,436,120, which expire in 1999 through 2009 and investment credit carryforwards of $46,660 which expire in 1997 through 2009. Net operating loss carryforwards for financial statement purposes do not differ significantly from those for tax purposes. BONN, SHORTSLEEVE & CO. CERTIFIED PUBLIC ACCOUNTANTS 80 LINDEN OAKS OFFICE PARK ROCHESTER, NEW YORK 14625 _______________ (716) 381-9660 FAX: (716) 248-0603 To the Board of Directors J.A.M., Inc. Fairport, New York We have audited the accompanying balance sheets of J.A.M., Inc. (a C- corporation) as of December 31, 1995 and 1994, and the related statements of income (loss) and deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsbility is to express an opinion on these financial statements based on our audits. Except as explained in the following paragraph, 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. We did not substantiate the December 31, 1993 accounts receivable and accounts payable balances since that date was prior to our appointment as auditors for the Company. The accounts receivable and accounts payable balances as of December 31, 1993, enter into the determination of net income and cash flows for the year ended December 31, 1994. Because of the matter discussed in the preceding paragraph, the scope of our audit was not sufficient to enable us to express, and we do not express, an opinion on the results of operations and cash flows for the year ended December 31, 1994. In our opinion, the balance sheets of J.A.M., Inc. as of December 31, 1995 and 1994, and the related statements of income, deficit, and cash flows for the year ended December 31, 1995, present fairly, in all materials respects, the financial position of J.A.M., Inc. as of December 31, 1995 and 1994, and the results of its operations and its cash flows for the year ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ Bonn, Shortsleeve & Co. March 5, 1996 -21- -----END PRIVACY-ENHANCED MESSAGE-----