UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Fiscal Year Ended September 30, 1997
Commission file Number 0-14411
Instructivision, Inc.
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(Exact name of registrant as specified in its charter)
New Jersey 22-2386359
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 Regent Street, Livingston, NJ 07039
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(973) 992 9081
Securities registered pursuant to Section 12(b) of the ACT:
Title of each Class: Name of each exchange on which registered:
- -------------------- ------------------------------------------
Common Stock none
Securities registered pursuant to Section 12(g) of the ACT:
Common Stock $0.001 par value
- -----------------------------
(Title of Class)
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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-KSB or any amendment to this Form 10-KSB.
YES [X] NO [ ]
The aggregate market value of the voting stock held by non-
affiliates of the Company as of December 30, 1997, was $837,500
based on the over-the-counter closing bid price of $.25 per share on
December 30, 1997.
The number of shares of Common Stock, .001 par value, of the
Company, issued and outstanding as of December 30, 1997 was
3,350,000.
This document contains certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995.
Statements made that are not historic facts are forward-looking and,
accordingly, involve risks and uncertainties that could cause actual
results or outcomes to differ materially from those expressed in the
forward-looking statements. Although such forward-looking statements
have been based on reasonable assumptions, there is no assurance that
the expected results will be achieved. Some of the factors that could
cause actual results to differ materially include, but are not limited
to the development of competing products by other publishers, the
degree of acceptance by the educational market, and obsolescence due
to changes in high school and college testing requirements and formats.
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PART I
ITEM 1. BUSINESS
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The Company
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Instructivision, Inc. (the "Company") is a multimedia publishing
and production company that develops a broad line of educational software,
video tapes, and related workbooks, and instructional video tapes for
businesses, principally for employee training and product advertisement.
Educational products, which accounted for approximately 40% of the
Company's sales in fiscal 1997 are sold to middle and high schools
throughout the United States to prepare students for college admissions
tests and to pass minimum basic skills tests for high school graduation.
The Company produces software and textbooks for other publishers
under royalty agreements and/or fixed fee contracts. Royalties accounted
for approximately 10% of revenues in 1997.
The Company owns a video production studio and post-production
digital editing facility in which it creates video programs for schools,
historic and cultural organizations, as well as industry. Corporate
customers use the Company's video services to create employee orientation
videos, medical information, product introductions and infomercials. The
Company performs creative services, script writing, on-location and studio
recording, teleconferencing, audio recording, digital and analog editing,
graphics, animation, translating and duplication services.
Background
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The Company, a New Jersey corporation, was established in 1981 to
develop and market multi-media educational products principally for
high school students preparing for college entrance tests. The Company's
catalog of school products currently includes workbooks, computer software,
and video programs for high school and middle school students, as well as
video tapes for teachers, administrators and parents.
The Company's inhouse video production was established in 1986 to
produce instructional video tapes for its own distribution and to service
the corporate and advertising community in central New Jersey. Corporate
video production sales now account for approximately 50% of the Company's
revenues.
Current Activities
- ------------------
1. Commercial video production
The Company's video production facility is being marketed through
yellow page advertising and the Company's sales staff to the corporate,
industrial and service industry in the central New Jersey area, located
between Rt 80 in the North and Rts 78 and 287 to the South. The Company
seeks out large and mid-sized companies who utilize video as a tool for
employee orientation, meetings, product training, and advertising.
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The Company's full service video production facility consists of
a studio, two interformat digital editing suites, one non-linear
editing room, audio recording, animation and graphics equipment. The
Company purchased new video equipment and upgraded existing video equipment
at a cost of $61,000 in fiscal 1997 compared to $3,000 in 1996 and $190,000
in fiscal 1995.
2. Educational video tapes, software and workbooks:
The Company's software products are available for MS-Dos, Windows
and Macintosh formats. Individual products are priced from $89 for
single computer use to $1100 for site and network licenses. Workbooks
are generally priced from $6 to $10/ea. The Company sells its video
tapes for $39 - $350/ea. The principal educational products sold during
the fiscal year ended September 30, 1997 were as follows:
HSPT, EWT SUCCESS, PRE-HSPT consist of a series of software,
textbooks and video tapes sold to individual middle and high schools in
New Jersey. The State of New Jersey has since 1986 mandated that all
students in public high schools must pass a basic skills test. In 1991
the State's Department of Education introduced an "Early Warning Test"
for students entering high school. The Company introduced its first
High School Proficiency test preparation material in 1987 and has updated
and revised it since to conform to changes in format and types of
questions. The Company's HSPT and EWT software and workbooks are widely
used in many of the state's public high schools. These products account
for approximately 15% of the Company's sales. The Company has three sales
representatives for its New Jersey school markets and advertises its
product through catalog mailings and participation at State and local
publishing exhibits.
SAT and ACT software and video products are sold nationally by
the Company to high school administrators through its network of sales
representatives, direct mail catalog sales and distributors. The first
multimedia SAT test preparation video and software material produced by
the Company was published in 1983 by the National Association of
Secondary School Principals (NASSP). The current test preparation titles
being marketed by the Company and NASSP are: Improving College
Admission Test Scores on the ACT, SAT Excellerator (workbooks and software)
ACT Excellerator (workbooks and software), SAT EDGE (video course with
workbooks), Improving Students' College Admission Test Scores on the SAT
and ACT videos for teachers. The Company receives a royalty of 15 - 33%
on NASSP's gross sales. The Company pays the NASSP a royalty on its sales
of 20 - 30% on the products. Sales from these products account for
approximately 8% of the Commany's revenues.
In 1995 the Company entered the Florida high school test market
with programs similar to the New Jersey products. The HSCT SUCCESS series
of software and textbooks prepare students for the Florida minimum basic
skills tests. These products are being distributed through Southern Media
Systems, a marketing group based in Florida. Revenues from the sale of
the Company's products in Florida were approximately 5% of the Company's
gross sales for the fiscal year ended September 30, 1997.
The Company markets some of its video tapes under the trade
name Inservice Video Network to school administrators and educators.
The Company has an agreement with the NASSP under which the NASSP
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also markets the video tapes for which it receive a royalty of 15% on
annual net sales of the products (gross sales less returns and royalties
paid to the authors). The Company has published over 85 video tapes since
1986. The authors of the individual tapes receive a 5% to 12% royalties
from the sales of their respective tapes. Revenues from the sale of
these products were approximately 5% of the Company's sales in fiscal
1997.
Other programs published by the Company consist of a video
tape entitled THE FROG: INSIDE-OUT, software programs MASTERING THE GED,
STUDY SKILLS FOR SUCCESS, video programs for elementary school teachers,
school teachers, and KEY IT IN, a calculator practice textbook.
Revenues from these programs account for less than 3% of the Company's
sales. The Company has not entered into any material contracts for the
sale of these products.
The Company is obligated to pay royalties to authors of some of
the Company's products. Such royalties payable range from 5% to 10%.
All of the Company's software products are available for Macintosh,
MS Dos, and Windows formats. Site licenses and networking rights give a
school license to duplicate and network the program. The Company updates
its various software products from time to time to be compatible with
new hardware which becomes available to the school market.
c) Other Revenues
- -----------------
The Company receives a royalty of 1.5 to 3% from Steck-Vaughn
Company as author of components of TEST BEST, a workbook series
published since 1991. Revenues from the product during the fiscal
year ended September 30 1997 were approximately $61,000.
SAT-1 EXCELLERATOR, ACT TEST EXCELLERATOR, and IMPROVING COLLEGE
ADMISSION SCORES ON THE ACT: The Company receives a royalty of 15%
on workbooks and 20% to 33% on software sold by the NASSP. The Company
also has a license to sell the programs. The NASSP receives a royalty
of 15% to 20% from the sale of the programs by the Company.
WORKLINK: In 1994 the Company entered into an agreement with ETS
for the development of a software program which provides a database of
students' records to link schools with prospective employers. An updated
version for Windows was completed in 1997. The Company receives a 5%
royalty from the sale of the program and related material. Revenues from
this product were approximately $22,000 during fiscal year 1997.
New Product Development
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The Company does not separately account for research and development
costs but estimates that on average such costs are not a material
portion of cost of sales.
The Company's new projects under development are:
LEAP Success, a test preparation software package for students taking
the Louisiana basic skills test. The mathematics software program was
completed in November 1997.
The Company is developing a CD ROM version of the SAT EDGE program
for students preparing for the SAT. The product is scheduled to be
completed in spring 1998.
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The Company has plans to produce three new video tapes during
the fiscal year 1998.
Future Plans
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The Company intends to continue expanding its product lines, and to
update existing software in step with new technological developments.
The Company continually seeks out new concepts to develop new instructional
methods utilizing various media that assist children and adults gain
proficiency in academic and work skills.
The Company frequently revises and updates its educational products
to conform to any changes in testing standards and formats or replaces
any product determined to be obsolete.
The Company's video production facility offers competitive rates
and is being expanded to offer non-linear editing and CD-ROM mastering
and duplication services.
Marketing
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The Company's products are sold in highly competitive markets. The
school publishing industry is dominated by Fortune 100 companies who have
superior marketing resources and advertising funds. The Company has been
successful in providing other publishers with quality products on a fee
plus royalty basis.
The Company has collaborated with the NASSP in the development of
various programs and, as a result, has transferred several of the programs
it has created to the NASSP for direct marketing to schools throughout the
country. The NASSP, of which Dr. Thomas Koerner, a director of the Company,
is Associate Executive Director, accounted for approximately 4% of the
Company's sales during the fiscal year ended September 30, 1997 (see
Item 13 hereof).
The Company has agreements with the NASSP to share in the marketing
of several of its educational programs. The Company receives a royalty of
15% to 35% from the sale of the programs.
The Company employs three full-time commission salespersons in New
Jersey. The Company has agreements with independent sales representatives
in thirty-six states to sell its education products. The Company also
markets its products through periodic catalog mailings and third party
mail-order distributors throughout the United States. The Company pays
commissions of 5% to 50% to sales representatives and distributors on the
sale of the Company's products.
While a significant portion of the Company's sales is made to schools,
the Company does not generally enter into long-term contracts with such
customers, but instead sells pursuant to specific orders with a short
delivery schedule, or under a price quotation valid for no more than one
year. Therefore, a material portion of the Company's business is not
subject to renegotiation of profits or termination of contracts at the
election of the government.
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Seasonality of the Business
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The bulk of the Company's educational product sales are realized
during the fourth quarter of its fiscal year, when school districts make
their purchasing decision for the academic year. Approximately 50% of the
Company's educational sales are made during the summer months. However,
revenues from video production services have in the past not been affected
by season, thereby providing year-round cash flow for the Company.
Employees
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The Company had 11 full-time employees at September 30, 1997.
The Company's full time staff includes an Executive Producer/Director,
three video engineers, a software programmer, one sales manager, one
editor, a director of educational marketing and an administrative
and customer support staff. The Company does not believe that the
departure of any particular employee would materially affect Company's
operation.
The Company utilizes outside writers, freelance production crews and
other support personnel as needed to assist in development of educational
programs and its video production services. Contracts for services of
outside contractors are normally on a fee basis; however, some may receive
a percentage of revenues as a royalty from the Company for their program
participation. This practice has allowed the Company to draw on outside
technical personnel and writers, while maintaining lower overhead and
employment costs. The Company anticipates maintaining this employment
approach in the next fiscal year.
Copyrights and Trademarks
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The Company has applied for copyrights for certain of its
programs and software documentation related to these programs.
However the granting of copyright protection cannot prevent the
unauthorized copying of the Company's products. Where applicable,
the Company utilizes non-disclosure and confidentiality agreements
and other contractual arrangements with customers, consultants,
employees and others. While the enforceability of such agreements
cannot be assured, the Company believes that they provide a
deterrent to the use of information which may be proprietary to the
Company, and in the event of any breach of such agreements, the
Company intends to take appropriate legal action. There can be no
assurance that competitors with substantially greater financial
resources will not develop similar products outside the protection
of any copyright that may be granted to the Company. Management
believes that the competitive position of the Company depends
primarily on the creative ability and technical competence of its
personnel and that its business will not be materially dependent
on copyright protection.
The Company markets a portion of its products under the
Company's name of Instructivision. The Company has been denied
trademark protection by the U.S. Patent and Trademark Office for this
name because, in the view of the examiners, the Company's name is not
easily distinguishable from a registered trademark belonging to a
Canadian firm. The Company does not believe that the absence of
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trademark protection for its name will cause any marketing
difficulties for its products. Nevertheless, the Company cannot rule
out the possibility of having the use of its name challenged and/or
having to change its name. The Company may not have the resources to
successfully defend an infringement action. Should the Company be
required to change its name or adopt another name for marketing
purposes, the cost of such change or adoption is presently un-
determinable.
The Company markets some of its video programs under the trade
name INSERVICE VIDEO NETWORK, and VIDEO WORKSHOP. The Company markets
some of its educational services under the trade name KNOWLEDGE
NAVIGATORS.
Backlog
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The Company's sales backlog at September 30, 1997 consisted of
contractual video production obligations to be filled over the next
90 days of approximately $95,000. Orders for existing computer
software and books are currently processed and shipped within 3 to
10 days.
Competition
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The educational publishing industry is an intensely competitive
business, dominated by certain large corporations. The Company's
competitors have greater financial resources, more extensive business
experience and larger manufacturing, marketing, and servicing capabilities
than the Company. There already is a large number of software programs
directed at preparing students for test-taking on the market.
The Company competes with other video production companies
producing commercials and instructional video programs in the central
New Jersey area. Many large corporations have their own inhouse production
capabilities. The recent introduction of lower priced non-linear PC video
editing equipmente has eliminated the need for many free-lance producers
to outsource video editing.
The Company plans to continue competing in the multimedia educational
market on the basis of its previous experience in developing test preparation
software and video tapes and its ability to integrate video, audio and
software production for a wide range of applications: CD-ROM, LAN,
television and the internet.
ITEM 2. Property
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The Company's executive facilities, teleproduction studio and
software production facilities are housed in approximately 7,300 sq.ft. of
leased office space at 3 Regent Street, Livingston, New Jersey. The monthly
rent as of September 30, 1997 was $9,133.75. The lease will expire on
June 30, 2001. Under the lease, the Company is responsible for insurance,
maintenance, property taxes and other costs of occupancy. The Company
believes that the space will meet its needs for the foreseeable future and
would accommodate a significant increase in its business.
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ITEM 3. Legal Proceedings
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none
ITEM 4. Submission of Matters to a Vote of Security Holders
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none
PART II
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ITEM 5. Market for the Company's Common Equity and Related
Shareholder Matters.
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The Company's Common Stock has been traded on a limited and
sporadic basis in the over-the-counter market. The following table
sets forth for the Company's fiscal periods indicated the high and
low bid quotation in the over-the-counter market for the Company's
Common Stock. Quotations represent inter-dealer quotations without
adjustment for retail mark-ups, mark-downs or commissions and may
not necessarily represent actual transactions.
Period Common Stock
High Low
- ------- ---- ---
<TABLE>
<S> <C> <C>
1/1/96 - 3/31/96 1/4 1/8
4/1/96 - 6/30/96 1/4 1/8
7/1/96 - 9/30/96 1/4 1/8
10/1/96 - 12/30/96 1/4 1/8
1/1/97 - 3/31/97 1/3 1/4
4/1/97 - 6/30/97 1/3 1/4
7/1/97 - 9/30/97 1/3 1/4
10/1/97 - 12/30/97 1/3 1/4
</TABLE>
At December 30, 1997 management believes that the approximate
number of holders of the Company's Common Stock was 260. This number
is based upon the Company's stockholder mailing list and information
provided to the Company by investors. At December 30, 1997 the
Company's transfer agent advised that there were 199 holders of
record of the Company's Common Stock. The Company has not paid any
cash dividends on its Common Stock and does not anticipate paying
dividends in the foreseeable future. As of March 1, 1992 the
Company's stock is no longer traded on the NASDA system.
ITEM 6. Management's Discussion and Analysis of Financial Condition
and Results of Operation.
- -------------------------------------------------------------------
Net sales showed a slight increase in the fiscal year ended
September 30, 1997 from the previous year. Sales from educational products
and services were lower: $559,179 and $564,902 for 1997 and 1996
respectively, while video production sales rose from $573,269 to $585,695
during the same period. The lower educational sales reflect a general
saturation of test preparation material in schools, and production delays of
new products previously scheduled for completion before the school
purchasing season: the CD-Rom version of the SAT Edge - now scheduled for
completion in spring 1998, and LEAP Success - completed in October 1997.
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The Company incurred an operating loss for 1997 of 8.8% or $101,259
compared to a loss of 9.7% in 1996. In 1995 the Company reported a net
income of 1.5% from operations.
Cost of sales were 69.5% in 1997 up from 66% in 1996 and 57% in 1995,
reflecting increased paper, printing and distribution costs. Due to the
highly competitive nature of both the school and video service industry,
management decided to delay price increases of the Company's school products
and its video rates until 1998.
General and administrative expenses increased 9% in 1997 from 1996
principally due to a 70% increase in healthcare premiums. Increase in
staffing also contributed to the increase in administrative costs.
At September 30, 1997 the Company had cash and securities with a
market value of approximately $900,000. The Company invests approximately
75% of its cash in growth mutual funds with the balance in a government
securities fund.
Cash provided by operating activities has been and is expected to
continue to be the primary source of funds. The Company utilizes
income from its securities portfolio for operating funds and capital
equipment purchase.
For the fiscal year ended September 30, 1997, 1996 and 1995, the
Company's net sales were $1,144,874, $1,138,171 and $1,224,282,
respectively.
Accounts receivable were $356,836 and $296,728, respectively for
the years ended September 30, 1997 and 1996.
Management believes that the Company's cash and marketable
securities position, along with funds generated from operating activities
will be sufficient to meet cash requirements for the foreseeable future.
ITEM 7. Financial Statements and Supplementary Data
- ----------------------------------------------------
See attached Financial Statements.
ITEM 8. Disagreements on Accounting and Financial Disclosure
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None
PART III
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ITEM 9. Directors and Executive Officers of Registrant
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The executive officers and directors of the Company, and further
information concerning them, are as follows:
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Rosemary Comras 57 President, Secretary/Treasurer and
Director
Thomas Koerner 65 Director
Marcus Ruger 66 Director
David Sousa 57 Director
Rosemary Comras was elected President of the Company on September 4,
1996 following the death of Jay Comras, the founder,former Chairman of the
Board, President and Chief Executive Officer of the Company. Ms. Comras
had been Vice President, Secretary/Treasurer and a director of the Company
since its inception. Ms. Comras is the widow of Jay Comras.
Dr. Thomas F. Koerner has been a director of the Company since
March 1985. Dr. Koerner has been Associate Executive Director for
the NASSP since 1971. Dr. Koerner will continue to devote only as
much time to the affairs of the Company as is necessary to carry out
his duties as a director, which is estimated to be a minimal amount
of his time.
Dr. Marcus Ruger has been a director of the Company since March
1986. Dr. Ruger was employed as Director of Assessment Services for
the Mountain Plains Regional Office of American College Testing (ACT)
from 1983 until his retirement in September 1995. Dr. Ruger will continue
to devote only as much time to the affairs of the Company as is
necessary to carry out his duties as a director, which is estimated
to be a minimal amount of time.
Dr. David Sousa has been a director of the Company since April
1994. Dr. Sousa was employed as Superintendent for the New Providence
New Jersey School district from 1991 till July 1994. Dr. Sousa conducts
training seminars and provides consulting services to schools thoughout the
United States. Dr. Sousa will continue to devote only as much time
to the affairs of the Company as is necessary to carry out his duties
as a director, which is estimated to be a minimal amount of his time.
All of the directors of the Company were elected in 1997 to serve
until the next annual meeting of the stockholders and until their
successors have been elected and have qualified. Officers are appointed
to serve until the meeting of the Board of Directors following the next
annual meeting of stockholders and until their successors have been
elected and have qualified.
ITEM 10. Executive Compensation
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The following table sets forth information concerning the com-
pensation paid to Rosemary Comras, the Company's Chairman of the Board,
President, and Chief Executive Officer, during each of the last three
fiscal years. There are no excecutive officers of the Company for whom
total annual salary and bonus exceeds $100,000.
<TABLE>
Fiscal Salary Annual Other
year Bonus Compensation(1)
- ------------- ------ --------- ------- ---------------
<S> <C> <C> <C> <C>
Rosemary Comras, 1995 $70,000 $ 4,825 $
Chairman of the 1996 72,000 22,425 315
Board, President 1997 75,000 -- 3,780
and CEO
</TABLE>
(1) Compensation consists of reimbursement of health insurance premiums.
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The Company has a three year employment agreement with Rosemary
Comras, President and Secretary/Treasurer of the Company, which
commenced September 1, 1996, for an annual salary of $75,000, which
increases to $78,500 on September 1, 1997, and $83,000 on September 1,
1998 . In addition Ms. Comras receives a cash bonus of 2.5% of the
Company's net profit before taxes.
The Company may, in the future, offer disability insurance,
reimbursement of medical expenses and such other benefits as may be
authorized by the Board of Directors. Presently, all full-time employees
are eligible to receive Company paid health and dental insurance
premiums. No retirement, pension, profit sharing, or other similar
program has been adopted by the Company. No surviving warrants or stock
options have been granted to any officer, director or other employee of
the Company. However, such benefits may be adopted or options granted in
the future, if they are authorized by the Board of Directors.
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
Dr. Thomas Koerner is a director of the Company. Dr. Koerner is
also Associate Executive Director of the NASSP, a customer of the
Company. During the fiscal years ended September 30, 1997 and 1996, the
Company derived revenues of approximately $48,000 and $95,000,
respectively, from sales and consulting services to the NASSP.
Compensation of Directors
- -------------------------
Outside directors receive $250 for each board meeting and
committee meeting attended and are reimbursed for the reasonable
out-of-pocket expenses incurred by them in connection with the
performance of their services as directors.
ITEM 12. Security ownership of certain beneficial owners and Management
- ------------------------------------------------------------------------
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of the date hereof
by (i) each person who is known by the Company to own beneficially more
than 5% of the Company's outstanding Common Stock; (ii) each of the
Company's officers and directors; and (iii) officers and directors of the
Company as a group:
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<TABLE>
Name and address of Amount and Nature of Percentage of
Beneficial Owner Beneficial Ownership Ownership
- ------------------- -------------------- -------------
<S> <C> <C>
Rosemary Comras 1,100,000 33%
14 Tilden Drive
East Hanover NJ
Rosemary Comras 975,000 29%
ITF Kevin Comras and
Joann Doniloski
Thomas F. Koerner --- --
Tumbletree Way
Reston VA
Marcus C. Ruger --- --
3131 South Vaughn Way
Aurora CO
David Sousa 6,000 --
729 Belvidere Avenue
Plainfield NJ
- --------------------------------------------------------------
All officers and directors
as a group (4 persons) 2,081,000 62%
</TABLE>
ITEM 12. Certain relationships and related transactions
- -------------------------------------------------------
Dr. Thomas Koerner is a director of the Company. Dr. Koerner is
also Associate Executive Director of the NASSP, a customer of the
Company. During the fiscal years ended September 30, 1997 and 1996 the
Company derived revenues of approximately $48,000 and $95,000,
respectively, from sales and consulting services to the NASSP.
Possible conflict of interest
- -----------------------------
Any conflict of interest between the Company and the personal
interests of its officers and directors will be resolved to the best
ability and in the best judgment of the officers and directors of the
Company, in a manner which protects the interest of the Company. The
officers and directors of the Company have agreed to present any
opportunities to the Company first, when possible, for review and
evaluation by the other directors of the Company.
If the Company enters into transactions in the future with any of
its officers and/or directors or companies affiliated with them, the
terms of such transactions will be as favorable to the Company as those
which could be obtained from an unrelated party in the arms-length
transaction.
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PART IV
-------
ITEM 13. Exhibits, Financial Statements, Schedules and Reports on
Form 10-K
- -----------------------------------------------------------------
(a) 1. Financial Statements
2. Schedules
(b) Reports on Form 8-K
none
(c) Exhibits required by Item 601(b) of Regulation 5-K:
1.1 Form of Common Stock(A)
1.2 Form of Warrant Agreement (B)
1.2A Amendment No. 1 to Warrant Agreement with Amended Warrant
annexed. (D)
1.2B Amendment No. 2 to Warrant Agreement with Amended Warrant
annexed (H)
1.2C Amendment No. 3 to Warrant Agreement with Amended Warrant
annexed (J)
1.2D Amendment No. 4 to Warrant Agreement with Amended Warrant
annexed (K)
1.2E Amendment No. 5 to Warrant Agreement with Amended Warrant
annexed (L)
1.3 Form of Sellling Agreement (B)
1.4 Form of Agreement among Underwriters (B)
1.5. Form of Represantive's Stock Purchase Options (B)
1.6 Selling Security Holder's Options (H)
3.1 Certificate of Incorporation of the Registrant (A)
3.2 Certificate of Amendment to the Certificate of Incorporation (A)
3.3 Certificate of change to the Certificate of Incorporation (A)
3.4 By-Laws of the Registrant (A)
10.2 Contract of Employment with Rosemary Comras (A)
10.2a Renewal of Employment Contract with Rosemary Comras (O)
10.2b Renewal of Employment Contract with Rosemary Comras (P)
10.3 Memorandum of Agreement with the NASSP (A)
10.4 Memorandum of Agreement with the NASSP and CBS Software (A)
10.5 Memorandum of Agrement with the NASSP (Achievment Tests (A)
10.6 Agreement with Research for Better Schools (A)
10.7 Memorandum of Agreement with the NASSP (ACT Preparation
Program (A)
10.8 Agreement with Peterson's Guides Inc. (A)
10.9 Agreement with Hayden Software (A)
10.10 Assignment of income from Jay Comras to Instructivision (B)
10.11 intentionally omitted
10.12 intentionally omitted
10.13 Loan Document with Howard Savings Bank (D)
10.14 Letter Agreement (April 2, 1986 with NASSP (D)
10.15 Agreement with Research for Better Schools dated April 1986 (D)
10.16 Lease for 3 Regent Street, Livingston NJ (F)
10.16a Amendment to Lease (G)
10.16b Amendment No. 2 to Lease (O)
10.17 Release from Hayden Software Company (F)
10.18 intentionally omitted
10.19 intentionally omitted
10.20 Loan Agreement with Jay and Rosemary Comras (J)
10.21 Agreement with NASSP for Inservice Video Network (K)
10.22 Agreement with NASSP (ACT preparation Programs (M)
Page 14
<PAGE>
(A) Incorporated by reference, filed with the initial filing of
the Company's Registration Statements, File No. 2-98176-NY on
or about June 4, 1985
(B) Incorporated by reference, filed with Pre-Effective Amendment
No. 2 of the Company's Registration Statement, File No.
2-98176-NY on or about July 18 1985
(C) Incorporated by Reference, filed with form 8-K, dated
August 12, 1986
(D) Filed with Post-Effective Amendment No. 1 to the Company's
Registration Statement, File No. 2-98176-NY on October 1, 1986
(E) Incorporated by Reference, filed with Form 8-K, dated August
12, 1986
(F) Filed with Post-Effective Amendment No. 1 on October 1, 1986
(G) Incorporated by Reference, filed with Form 10-K on January 13,
1987
(H) Filed with Post-Effective Amendment No. 3 on March 9, 1987
(I) Filed with Post-Effective Amendment No. 4 on July 13, 1987
(J) Filed with 10-K on January 8, 1988
(K) Filed with Post-Effective Amendment No. 6 on April 1, 1988
(L) Filed with Post-Effective amendment No. 7 on July 12, 1988
(M) Filed with Form 10-K on December 29, 1988
(N) Filed with Form 10-K on December 29, 1990
(O) Filed with Form 10-K on December 28, 1994
(P) Filed with From 10-K on December 30, 1996
Page 15
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Instructivision, Inc.
We have audited the accompanying balance sheet of Instructivision,
Inc. as of September 30, 1997, and the related statements of operations,
stockholders' equity and cash flows for the years ended September 30,
1997 and 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 our audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
Instructivision, Inc. as of September 30, 1997, and the results of its
operations and its cash flows for the years ended September 30, 1997, and
1996 in conformity with generally accepted accounting principles.
STANLEY J. MORIN & ASSOCIATES
Cedar Knolls, New Jersey
December 23, 1997
Page 16
<PAGE>
<TABLE>
<CAPTION>
INSTRUCTIVISION, INC
BALANCE SHEET
September 30, 1997
1997
-----------
<S> <C>
Current assets
Cash $ 1,637
Accounts receivable - unaffiliated 312,729
Accounts receivable - affiliated 44,107
Investments 905,485
Inventory 203,713
Prepaid expenses 1,640
Deferred income taxes 10,000
----------
Total current assets 1,479,311
Property and equipment at cost, less
accumulated depreciation 289,239
Other assets
Capitalized software - net of amortization 180,862
Deposits 13,125
Deferred income taxes 28,000
----------
Total other assets 221,987
----------
Total assets $1,990,537
==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current liabilities
Accounts payable $ 93,822
Accrued expenses 58,384
Notes payable - current portion 28,475
Notes payable - shareholder 2,000
----------
Total current liabilities 182,681
Notes payable, less current portion 13,406
----------
Total liabilities 196,087
----------
Stockholder's equity
Common Stock, $.001 par value, 10,000,000
shares authorized, 3,350,000 shares issued
and outstanding 3,350
Additional paid-in capital 1,425,218
Accumulated earnings 322,012
Unrealized gain on investment, net 43,870
of income tax
----------
Total stockholder's equity 1,794,450
----------
Total liabilities and stockholders equity $1,990,537
==========
</TABLE>
[FN]
See accompanying notes to financial statements
Page 17
<PAGE>
<TABLE>
<CAPTION>
INSTRUCTIVISION, INC.
STATEMENT OF OPERATIONS
For each of the Two Years ended September 30, 1997
1997 1996
---------- ----------
Revenues
<S> <C> <C>
Net sales: Products $ 504,112 $ 469,980
Services - unaffiliated 585,695 573,269
Services - affiliated 55,067 94,922
----------- -----------
Total revenues 1,144,874 1,138,171
Costs and expenses
Cost of sales
Products 319,106 322,334
Services - unaffiliated 435,582 353,980
Services - affiliated 40,953 75,660
----------- -----------
Total cost of sales 795,641 751,974
General and administrative expenses 521,493 477,610
Interest expenses 9,192 18,827
Investment income (80,193) --
----------- -----------
Income (loss) before income taxes,
and extraordinary items (101,259) (110,240)
Provision for income taxes 20,000 9,000
----------- -----------
Income (loss) before extraordinary
items (121,259) (119,240)
Extraordinary item -
Life insurance proceeds (net of
income taxes of $62,000) -- 938,000
----------- -----------
Net income (loss) $ (121,259) $ 818,760
=========== ===========
Earnings per share -income before
extraordinary item (.04) (.04)
Earnings per share - extraordinary
item -- .28
----------- -----------
Earnings per share $ (.04) $ .24
=========== ===========
</TABLE>
[FN]
See accompanying notes to financial statements
Page 18
<PAGE>
<TABLE>
<CAPTION>
INSTRUCTIVISION, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
For the Two Years Ended September 30, 1997
Common Stock Additional Accum. Unrealized Total
Shares Amount paid-in (Deficit) Gain on
Capital Earnings Investments
--------- ------ ---------- --------- ---------- -------
Balance,
<S> <C> <C> <C> <C> <C> <C>
Sept.30,1995 3,350,000 $3,350 $1,425,218 $(375,489) $ -- $1,053,079
Net income
for year -- -- -- 818,760 -- 818,760
--------- ------- ---------- -------- ------- ----------
Balance,
Sept.30,1996 3,350,000 $3,350 $1,425,218 $ 443,271 -- $1,871,839
Net loss
for year -- -- -- (121,259) 43,870 (77,389)
--------- ------ ---------- --------- ------- ----------
Balance
Sept.30,1997 3,350,000 $3,350 $1,425,218 $322,012 $43,870 $1,794,450
========= ====== ========== ======== ======= ==========
</TABLE>
[FN]
See accompanying notes to financial statements
Page 19
<PAGE>
<TABLE>
<CAPTION>
INSTRUCTIVISION, INC.
STATEMENT OF CASH FLOWS
For each of the Two Years Ended September 30, 1997
1997 1996
---------- ----------
<S> <C> <C>
Operating activities:
Net income (loss) $(121,259) $ 818,760
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 112,072 132,833
Amortization of capitalized software 38,344 45,969
Deferred income taxes 20,000 31,000
Changes in operating assets and liabilities:
(In)decrease in accounts receivable
- unaffiliated (77,484) 28,332
- affiliated 17,376 (8,301)
Increase in inventory and prepaid expenses 79,326 136,805
(De)increase in accounts payable and
accrued expenses (29,993) 4,784
----------- -----------
Net cash provided by operating activities 38,382 1,190,182
Investing Activities:
Additions to capitalized software (22,678) (127,693)
Purchases of property, plant and equipment (101,287) (7,116)
Purchases of investments (832,615) --
----------- -----------
Net cash utilized in investing activities (956,580) (134,809)
Financing activities:
Principal payment on credit lines,notes
payable and capital lease obligations (88,071) (48,713)
----------- -----------
Net cash (utilized) provided by
financing activities ( 88,071) (48,713)
(De)increase in cash (1,006,269) 1,006,660
Cash at beginning of year 1,007,906 1,246
----------- -----------
Cash at end of year $ 1,637 $1,007,906
=========== ===========
<CAPTION>
Supplemental disclosure of cash flow information:
1997 1996
------- --------
Cash paid during the year for
<S> <C> <C>
Interest $ 8,447 $16,808
Income taxes 38,969 62
</TABLE>
[FN]
See accompanying notes to financial statements
Page 20
<PAGE>
INSTRUCTIVISION, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
NOTE 1. Formation and Nature of Business
Instructivision, Inc. operates in the educational service industry
and produces educational software, workbooks, and video programs, and
provides video production services, primarily directed at students,
teachers, administrators and local businesses for in-house training
purposes.
NOTE 2. Summary of Significant Accounting Policies
a. Inventory
- ------------
Inventory is valued at the lower of cost, determined on a first-
in, first-out basis, or market value.
b. Property and Equipment
- -------------------------
Property and equipment is stated at cost. Expenditures for maint-
enance and repairs are charged to expenses as incurred and major
renewals and betterments are capitalized. Depreciation is provided
on the straight-line basis over the estimated useful lives of the
related assets.
c. Income Taxes
- ---------------
The Company follows Statement of Financial Accounting Standards
(SFAS) No. 109 "Accounting for Income Taxes" which requires the liability
method of accounting for deferred income taxes. Deferred income taxes are
recognized for the effect of temporary differences between financial and
tax reporting. In addition, SFAS No. 109 requires the recognition of future
tax benefits, such as net operating loss carryforwards to the extent that
realization of such benefits is more likely than not. (See Note 10 -
Income Taxes)
d. Capitalized Software Costs
- -----------------------------
Product development includes all expenses related to future releases
and enhancements of the products, including research, development, porting
of software to new operating systems and platforms, documentation, develop-
ment of training programs, less allowable capitalized software development
costs.
In accordance with Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased
or Otherwise Marketed," the Company capitalizes the direct costs and
allocated overhead associated with the development of software products.
Initial costs are charged to operations as research prior to the develop-
ment of a detailed program design or a working model. Costs incurred
subsequent to the product release, and research and development performed
under contract are charged to operations.
Page 21
<PAGE>
INSTRUCTIVISION INC.
NOTES TO FINANCIAL STATEMENT--(Continued)
September 30, 1997
Capitalized costs are amortized over periods not exceeding five years
on the straight line basis. Unamortized costs are carried at the lower of
book value or net realizable value. Research and development costs incurred
were insignificant for the years ending September 30, 1997, and 1996 and
have been expensed.
e. Earnings per share
- ---------------------
Earnings per share are based on the weighted average number of common
shares and common equivalent shares, if any, outstanding. The weighted
average number of common shares used in computing earings per share was
3,350,000 for each of the years ended September 30, 1997 and 1996. There
were no common equivalent shares outstanding for any of those years.
f. Use of Estimates
- -------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
NOTE 3. Marketable securities available for sale
At September 30, 1997, the marketable securities portfolio was
comprised of securities classified as available for sale. The Company
has adopted FSAS 115, resulting in investment securities being carried at
market value.
Following are the market values and original cost of marketable
securities available for sale as of September 30, 1997:
[CAPTION]
Market Cost Unrealized
Value Gain
---------- --------- ----------
[S] [C] [C] [C]
Mutual Funds $ 905,485 $ 832,615 $ 72,870
Included in shareholders' equity at September 30, 1997 is $43,870
of unrealized gains on marketable securities available for sale, net of
income tax.
NOTE 4. Inventory
The components of inventory are as follows:
<TABLE>
1997
---------
<S> <C>
Work in Process (video production cost) $ 6,479
Finished Goods (video) 133,541
Finished Goods (workbooks) 63,693
---------
$ 203,713
=========
</TABLE>
Page 22
<PAGE>
INSTRUCTIVISION, INC
NOTES TO FINANCIAL STATEMENTS --(Continued)
September 30, 1997
NOTE 5. Property and Equipment
At September 30, 1997 property and equipment is comprised of the
following:
<TABLE>
Life (yrs) 1997
----------- ----------
<S> <C> <C>
Furniture and fixtures 3 - 8 $ 65,834
Video equipment and computers 3 - 10 1,332,351
Automobile 3 49,927
Leasehold improvements 5 - 10 109,520
-----------
1,557,632
Less accumulated depreciation 1,268,393
-----------
Net $ 289,239
===========
</TABLE>
NOTE 6. Capitalized Software
For the year ended September 30, 1997 accumulated amortization
of costs related to computer software products held for sale was $345,347.
NOTE 7. Notes payable
Notes payable at September 30, 1997 consisted of the following:
<TABLE>
1997
----------
<S> <C>
Installment loan with Sony Electronics Inc.
maturing March 1998, payable monthly with
interest at 11 1/2%. The loan is collateralized
by equipment of the Company $ 21,315
Installment loan with First Union Bank
maturing June 2000, payable monthly, with
interest of approximately 10.5%. This loan is
collateralized by an automobile of the Company 20,566
---------
41,881
Less current portion 28,475
---------
Amount due after one year $ 13,406
=========
<CAPTION>
The following are the maturities of long term debt outstanding at
September 30, 1997:
<S> <C>
1998 28,475
1999 7,364
2000 6,042
</TABLE>
Page 23
<PAGE>
INSTRUCTIVISION, INC.
NOTES TO FINANCIAL STATEMENTS --(Continued)
September 30, 1997
NOTE 8. Fair Value of Financial Instruments
The Company has a number of financial instruments, none of which
are held for trading purposes. The Company estimates that the fair
value of all financial instruments at September 30, 1997 does not differ
materially from the aggregate carrying values of its financial instruments
recorded in the accompanying balance sheet. The estimated fair value
amounts have been determined by the Company using available market
information and appropriate valuation methodologies. Considerable
judgment is necessarily required in interpreting market data to develop
the estimates of fair value and, accordingly, the estimates are not
necessarily indicative of the amounts that the Company could realize in
a current market exchange.
NOTE 9. Related Party Transactions
a. Pursuant to a promissory note dated June 1, 1987, the principal
stockholder has agreed to make short term cash advances to the Company.
The advances are to be repaid upon demand with interest payable monthly
at 4% above the floating base commercial lending rate. The note is
collateralized by specific equipment owned by the Company. The maximum
advance amount is $75,000. The balance owed at September 30, 1997 and
1996 was $2,000 and $45,000, respectively.
b. The Company is affiliated with a major customer of the Company,
whose Associate Executive Director is a Director of the Company.
c. The Company has a three year employment agreement with Rosemary
Comras, President and principal stockholder of the Company, to employ
Ms. Comras at a salary of $75,000 per year which commenced on September 1,
1996, with increases to $78,500 on September 1, 1997 and $83,000 on
September 1, 1998. Ms. Comras receives a 2.5% bonus of the Company's net
profit before taxes, commencing September 1, 1996.
NOTE 10. Income Taxes
The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." Deferred income
taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets as of September 30, 1997 are
as follows:
Page 24
<PAGE>
INSTRUCTIVISION, INC.
NOTES TO FINANCIAL STATEMENT --(Continued)
September 30, 1997
<TABLE>
1997
----------
<S> <C>
Deferred tax liabilities :
Depreciation $ 33,000
Unrealized gain on investments 29,000
---------
Total 62,000
Deferred tax assets:
Net operating loss carryforwards 180,000
Tax credit carryforwards 35,000
Alternate minimum tax paid credit 40,000
Valuation allowance (155,000)
---------
Total 100,000
---------
Net deferred tax assets $ 38,000
=========
</TABLE>
The valuation allowance for deferred tax assets was increased
by $48,000 for the year ended September 30, 1997 due to the expectation of
Federal and State net operating loss carryforwards expiring unused.
Significant components of the provision for income taxes are as
follows:
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Current:
Federal $ --
State --
--------
Total current --
Deferred:
Federal 16,000
State 4,000
--------
Total deferred 20,000
--------
Total income tax expense * $ 20,000
========
*)Excluding 1997 unrealized gain.
<CAPTION>
The reconciliation of income tax from continuing operations computed
at statutory rates to the Company's effective tax rate is as follows:
1997
------
<S> <C>
Statutory rate (30)%
State income tax (9)
Non-deductible expenses 15
Net operating loss (54)
Changes in valuation allowances 98
----
Total 20%
====
</TABLE>
Page 25
<PAGE>
INSTRUCTIVISION, INC.
NOTES TO FINANCIAL STATEMENTS --(Continued)
September 30, 1997
The Company has available for Federal and State income tax purposes
operating loss carryforwards and unused investment tax credits which may
provide future tax benefits in the approximate amounts expiring as follows:
<TABLE>
Federal State
----------------------------------- --------------
Year of Operating Loss Investment Tax Operating Loss
Expiration Carryforward Credit Carryforward Carryforward
- --------------- -------------- ------------------- --------------
<S> <C> <C> <C>
2000 -- 1,000 --
2001 -- 34,000 --
2002 249,000 -- 77,000
2003 -- -- 80,000
2004 144,000 -- --
2006 15,000 -- --
2008 63,000 -- --
2009 82,000 -- --
--------- ---------- ---------
$ 553,000 $ 35,000 $ 157,000
========= ========== =========
</TABLE>
NOTE 11. Commitment and Contingencies
a. Leases
- ---------
The Company currently leases space at 3 Regent Street, Livingston,
New Jersey, to June 2001. Rent expense, including escalation on
certain contingent expenses, was $151,359 in 1997 and $152,597 in 1996,
respectively. Future minimum rental commitments, not including escalation
on certain contingent expenses, for the years ended September 30th, are
as follows:
1998 109,605
1999 109,605
2000 109,605
2001 82,204
b. Royalties
- ------------
The Company has entered into royalty agreements with certain
individuals who have participated in developing certain Company
products. In general, the royalties are only due after all costs,
per each contract, are recovered by the Company. The amount of future
royalties due is directly dependent on the Company's revenue on each
particular contract.
c. Concentration of Credit Risk
- -------------------------------
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of trade receivables.
Concentration of credit risk with respect to trade receivables is
limited due to the large number of customers comprising the Company's
customer base.
Page 26
<PAGE>
INSTRUCTIVISION, INC.
NOTES TO FINANCIAL STATEMENTS --(Continued)
September 30, 1997
NOTE 12. Extraordinary Item
In August of 1996 the President of the Company since inception,
passed away. During his tenure as president the Company maintained a
$1,000,000 term life insurance policy on his life. The insurance
proceeds have been reflected as an extraordinary item in the accompanying
financial statements for the year ended September 30, 1996.
Page 27
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of
1934, the registrant has duly cause this report to be signed on its
behalf by the undersigned thereunto duly authorized.
INSTRUCTIVISION, INC.
Registrant
December 30, 1997 Rosemary Comras
President
Principal Executive, Financial and
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant in the capacities and on the dates indicated:
Signature Title and Capacity Date
- ---------------- ------------------ --------
Rosemary Comras President, Secretary/Treasurer 12/30/97
Thomas F.Koerner Director 12/30/97
Marcus Ruger Director 12/30/97
David Sousa Director 12/30/97
Page 28
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Sep-30-1997
<PERIOD-END> Jun-30-1997
<CASH> 1637
<SECURITIES> 905485
<RECEIVABLES> 356836
<ALLOWANCES> 0
<INVENTORY> 203713
<CURRENT-ASSETS> 1479311
<PP&E> 1557263
<DEPRECIATION> 1268393
<TOTAL-ASSETS> 1990537
<CURRENT-LIABILITIES> 182681
<BONDS> 0
<COMMON> 3350
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1990537
<SALES> 1144874
<TOTAL-REVENUES> 1225067
<CGS> 795641
<TOTAL-COSTS> 1317134
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9192
<INCOME-PRETAX> (101259)
<INCOME-TAX> 20000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (121259)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
