<PAGE> 1
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-15445
VIDEO JUKEBOX NETWORK, INC.
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(Exact name of small business issuer as specified in its charter)
Florida 59-2605267
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
1221 Collins Avenue, Miami Beach, Florida 33139
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(Address of principal executive offices)
(305)-674-5000
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Class Number of Shares Outstanding
on August 10, 1995
Common Stock, Par Value $.001 Per Share 23,900,281
Transitional Small Business Disclosure Format: Yes No X
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<PAGE> 2
VIDEO JUKEBOX NETWORK, INC.
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1 Financial Statements
Balance Sheet at
June 30, 1995 (Unaudited) 3
Consolidated Statements of Operations
for the Three Months and Six Months ended
June 30, 1995 and 1994 (Unaudited) 4
Consolidated Statements of Cash Flows
for the Three Months and Six Months
Ended June 30, 1995 and 1994 (Unaudited) 5
Notes to Financial Statements 6
Item 2 Management's Discussion and Analysis or
Plan of Operation 8
PART II OTHER INFORMATION
Item 5 Other Information 19
Item 6 Exhibits and Reports on Form 8-K 20
SIGNATURES 21
</TABLE>
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<PAGE> 3
VIDEO JUKEBOX NETWORK, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
1995
------------
<S> <C>
ASSETS:
-------
CURRENT ASSETS
Cash and cash equivalents $ 8,620,471
Accounts receivable, less allowances for chargebacks
and doubtful accounts of $1,453,725 1,204,505
and $532,796 at December 31, 1992
Merchandise Inventory 71,752
Prepaid expenses 148,025
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TOTAL CURRENT ASSETS 10,044,753
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PROPERTY AND EQUIPMENT, NET 2,565,536
DEFERRED COSTS AND OTHER ASSETS, NET 452,387
INVESTMENT IN AND ADVANCES TO
UNCONSOLIDATED SUBSIDIARY 348,471
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TOTAL ASSETS $ 13,411,147
============
LIABILITIES AND STOCKHOLDERS' EQUITY:
-------------------------------------
CURRENT LIABILITIES
Accounts payable $ 847,454
Accrued expenses 2,319,428
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TOTAL CURRENT LIABILITIES 3,166,882
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
8% Cumulative convertible preferred
stock, $1.00 par value, 200,000 shares
authorized, none issued -
Common stock, $.001 par value,
40,000,000 shares authorized, 23,900,281
shares issued and outstanding 23,900
Additional paid in capital:
Additional paid in capital 30,119,899
Less deferred compensation (119,544)
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30,000,355
Accumulated deficit (19,766,125)
Cummulative foreign currency translation loss (13,865)
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TOTAL STOCKHOLDERS' EQUITY 10,244,265
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 13,411,147
============
</TABLE>
See Notes to Financial Statements
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<PAGE> 4
VIDEO JUKEBOX NETWORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1995 1994 1995 1994
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
REVENUES
Net viewer revenues $ 3,049,909 $ 2,911,558 $ 6,236,518 $ 5,741,307
Advertising and other revenues 1,783,467 1,626,632 3,413,434 2,802,771
----------- ------------ ----------- ------------
4,833,376 4,538,190 9,649,952 8,544,078
Gain on sale of interest in subsidiary 1,354,076 0 1,354,076 0
Interest income 113,499 52,555 221,131 63,791
----------- ------------ ----------- ------------
6,300,951 4,590,745 11,225,159 8,607,869
----------- ------------ ----------- ------------
COSTS AND EXPENSES
Affiliate fees, site costs and
telephone service 1,307,636 1,582,472 3,106,994 3,123,521
Distribution, general and
administrative 3,548,873 2,885,623 6,663,987 5,230,728
Satellite transponder, rent and management fees
paid to related parties 499,892 798,386 1,012,059 1,548,386
Depreciation and amortization 386,126 433,629 738,721 875,952
Stock and warrant compensation 67,304 68,867 134,609 136,172
Interest 889 35,600 1,677 56,949
----------- ------------ ----------- ------------
5,810,720 5,804,577 11,658,047 10,971,708
----------- ------------ ----------- ------------
INCOME (LOSS) BEFORE MINORITY INTEREST
IN LOSS OF SUBSIDIARY 490,231 (1,213,832) (432,888) (2,363,839)
MINORITY INTEREST IN LOSS OF SUBSIDIARY 0 6,956 0 15,196
----------- ------------ ----------- ------------
NET INCOME (LOSS) $ 490,231 $ (1,206,876) $ (432,888) $ (2,348,643)
=========== ============ =========== ============
Net income (loss) per common share $ 0.02 $ (0.06) $ (0.02) $ (0.13)
=========== ============ =========== ============
Weighted average number of
common shares outstanding 23,676,479 19,198,385 23,674,307 18,213,130
=========== ============ =========== ============
</TABLE>
See Notes to Financial Statements
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<PAGE> 5
VIDEO JUKEBOX NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
1995 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (432,888) $ (2,348,643)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 738,721 875,952
Gain on sale of interest in subsidiary (1,354,076) 0
Related party debt issued for services 0 1,200,000
Stock and warrant compensation and amortization 134,609 136,172
Change in assets and liabilities:
Decrease (Increase) in accounts receivable 778,060 (610,396)
Decrease (Increase) in prepaid expenses, deferred costs and
other assets 309,323 (149,451)
Increase in accounts payable and accrued expenses 60,736 562,118
Increase in interest payable due to related parties 0 55,657
Minority interest in loss of subsidiary 84,670 (11,467)
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 319,155 (290,058)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash received from sale of interest in subsidiary 1,607,574 0
Capital expenditures (1,399,435) (349,496)
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 208,139 (349,496)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 3,333 4,699,128
Payments of short-term borrowings (865) (80,292)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 2,468 4,618,836
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EFFECT OF EXCHANGE RATE CHANGES ON CASH 72,699 4,682
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NET INCREASE IN CASH AND CASH EQUIVALENTS 602,461 3,983,964
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,018,010 1,702,533
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,620,471 $ 5,686,497
=========== ============
SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Financing of unexpired insurance premium $ 0 $ 39,728
=========== ============
Stock issued for purchase of minority interest in subsidiary $ 267,188 $ 0
=========== ============
</TABLE>
See Notes to Financial Statements
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<PAGE> 6
VIDEO JUKEBOX NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
1. The financial information included herein is submitted pursuant to the
requirements of Form 10-QSB and does not include all disclosures
required by generally accepted accounting principles. It is suggested
that these unaudited financial statements be read in conjunction with
the financial statements and notes thereto included in the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1994. The accompanying interim financial statements reflect all
normal recurring adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods
presented. The results of operations for interim periods are not
necessarily indicative of the results to be obtained for the entire
year.
2. In February 1992, the Company initiated operations in the United
Kingdom through an international subsidiary, Video Jukebox Network
International Limited, ("VJNIL"), which was 91% owned by the Company.
On June 30, 1995, the Company purchased the remaining nine percent of
VJNIL from its minority shareholder in exchange for 225,000 shares of
the Company's common stock, which was valued at $267,188.
Also on June 30, 1995, the Company completed the sale of a 50 percent
equity interest in VJNIL to a wholly-owned subsidiary of
Ticketmaster Corporation ("Ticketmaster") for $2,225,000 in cash.
Legal and investment banking expenses related to this transaction
totaled approximately $452,000. As part of such transaction,
Ticketmaster loaned to VJNIL $1,500,000 which approximated the
aggregate amount of the advances that had been made from time to time
by the Company to VJNIL. Such loan from Ticketmaster and advances by
the Company are secured by all of the assets of VJNIL and will accrue
interest at the rate of prime plus one percent. Simultaneously, an
administrative services agreement was executed among the Company,
VJNIL and Ticketmaster through which Ticketmaster purchased a portion
of its 50 percent equity interest in VJNIL by issuing to VJNIL a
promissory note payable in the amount of 625,400 pounds sterling (the
equivalent of U.S.$1 million). This administrative services
agreement, which expires June 30, 2000, requires Ticketmaster to
provide VJNIL with strategic and marketing related services,
particularly with respect to sponsorship and promotional
opportunities, advertising sales, merchandising and other home
shopping projects undertaken by VJNIL. Principal amounts due under
the promissory note will not accrue interest and monthly payments of
principal will be forgiven in full so long as Ticketmaster is
providing services to VJNIL under the administrative services
agreement.
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<PAGE> 7
Accordingly, the remaining investment in the international subsidiary
is accounted for on the equity method of accounting effective June 30,
1995. Prior to June 30, 1995, the subsidiary's assets, liabilities
and operations had been consolidated with the Company. The Company's
remaining investment in and advances to VJNIL reflect its remaining
interest in VJNIL's losses recognized through June 30, 1995. A summary
of the operating results for VJNIL is as follows:
<TABLE>
<CAPTION>
For the three months ended For the six months ended
6/30/95 6/30/94 6/30/95 6/30/94
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net viewer revenues $ 325,657 $269,576 $ 645,420 $ 485,062
Advertising and other 84,325 10,694 138,439 23,603
--------- -------- ---------- ---------
409,982 280,270 783,859 508,665
--------- -------- ---------- ---------
Affiliate fees, site costs
and telephone 191,377 74,077 293,168 130,648
Distribution, General
and administrative 393,729 221,104 811,806 419,420
Depreciation/Amort 76,611 34,891 144,831 62,578
Interest Expense 889 27,482 41,057 64,858
--------- -------- ---------- ---------
662,606 357,554 1,290,862 677,504
--------- -------- ---------- ---------
Net Loss $(252,624) $(77,284) $ (507,003) $(168,839)
========= ======== ========== =========
</TABLE>
3. Net income and net loss per share computations are based on the
weighted average shares of common stock outstanding during the
quarter. Common stock equivalents were not considered in the
computation of net income or loss per share as their effect was
immaterial to net income per share or resulted in a decrease in net
loss per share.
4. Effective January 1, 1995, the Company terminated its obligations
under separate agreements to pay management/consulting fees in the
aggregate amount of $43,333 per month to three stockholders of the
Company. Prior to such termination, the Company was required to pay:
(I) a fee of $12,500 per month to StarNet, Inc. for consulting
services related to the development of the Company's domestic
operations; (ii) a fee of $25,000 per month to Communications Equity
Associates for consulting services related to the Company's
international operations; and (iii) a fee of approximately $5,833 per
month to Island Trading Company, Inc. for consulting services related
to merchandising and music programming.
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<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1995 AS COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1994.
The Company recognized a net income of $490,231 for the three months ended June
30, 1995 as compared to a net loss of ($1,206,876) for the comparable prior
year period. Of the net income, $1,354,076, is attributable to the gain
realized on the sale by the Company of fifty percent of its ownership in the
Company's United Kingdom subsidiary, Video Jukebox Network International
Limited ("VJNIL"). Without this gain, the Company experienced a net loss for
the quarter ended June 30, 1995 of ($863,845), which represents an improvement
in financial results for the second quarter of 1995 over the net results of
second quarter 1994 of 28.4 percent.
Net viewer revenue increased $138,000 from $2,912,000 to $3,050,000 or 4.7% for
the three months ended June 30, 1995 as compared with the same prior year
period. This net increase resulted from a combination of factors: the
reduction in the number of chargebacks related to customers who deny having
made music video requests ($121,000 positive impact on net viewer revenue) and
the improvement in the transactional viewer revenues of the United Kingdom
subsidiary ($56,000 positive impact on net viewer revenue), offset by a small
decline in domestic gross viewer performance and the related decrease in fixed
billing charges from the Company's telephone service provider related to the
lower revenue level ($39,000 negative impact on net viewer revenue).
The Company's domestic gross viewer revenues decreased by approximately
$42,000, from $3,572,000 for the second quarter of 1994 to $3,530,000 in the
second quarter of 1995. On February 28, 1995, in order to dramatically reduce
the Company's satellite transponder and uplink expenditures, the Company
converted its analog satellite signal to a digital feed. With this transition,
the satellite box unit was no longer receivable by home satellite dishes unless
the owner purchased a digital receiver, which currently costs approximately
$1,900 each. This price is expected to be reduced over the next year as the
next generation of digital technology is released in the homes. Until that
time or until any further cable or broadcast carriage is attained,
transactional viewer revenues for this box would not realize the net monthly
levels of approximately $21,000 achieved in prior periods. Further, in light
of these reduced revenue levels, the Company decided to program the satellite
box as an alternative music product which is preprogrammed based upon viewer
selections nationwide and thereby eliminated the 900 request line from the
satellite service in May 1995. Unless the Company reinstates the 900 request
line, which is not planned at this time, it is expected that the net annual
viewer revenues after variable costs in 1995 related to the satellite box will
total less than $40,000 as compared with $263,000 realized for the year ended
December 31, 1994.
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<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Average monthly gross viewer revenue per box for the two periods indicates
improvement, however, with the average totaling $9,549 per box per month for
the second quarter of 1994 as compared to $9,670 for the same 1995 period, a
1.3% increase. With the reduction in gross domestic revenue, the related 8%
fixed billing charge from the Company's telephone provider decreased by
approximately $3,000 from second quarter 1994 to second quarter 1995.
A positive impact on net viewer revenue was made through the reduction in
chargebacks related to customers who deny having made music video requests.
These chargebacks decreased by $121,000 for the second quarter 1995 as compared
with the same prior year period due to the improvement realized from the
Company's credit limiting and call blocking procedures plus the decreased
revenue level experienced resulted in a lower reserve required for future
chargebacks. The remainder of the net revenue increase resulted from the
Company's expansion of its operations in the United Kingdom and internal
subscriber growth on the cable systems carrying the Company's programming. The
average number of boxes in the United Kingdom in second quarter 1994 totaled 19
as compared with an average of 19.7 boxes in service during second quarter
1995. As a result, international revenues increased by $56,000 from $270,000
for the three months ended June 30, 1994 to $326,000 for the three months ended
June 30, 1995.
Advertising sales and other revenues increased 9.6% from $1,627,000 for the
second quarter of 1994 to $1,783,000 for the same current year period. The
increase resulted from improved performance in national advertising and record
industry advertising. National sales increased modestly by 1.1 % for the second
quarter of 1995 over the same 1994 period. Record industry sales were up 8.5 %
from the 1994 level, while direct response advertising decreased by 6.7% from
1994 to 1995. While the advertising improved overall in 1995, the Company is
only starting to realize the impact of initiating an internal national sales
effort. Strong advanced bookings have been placed for third and fourth
quarter 1995 totaling over $3.85 million. While there can be no assurance that
all of these non-binding commitments to advertise will be honored, the Company
is encouraged by the heightened interest in its programming service as an
advertising vehicle. With the late 1994 employment of an advertising
salesperson by the Company's United Kingdom subsidiary, advertising revenues
realized by the United Kingdom subsidiary increased from approximately $11,000
for the second quarter of 1994 to over $84,000 for the same quarter 1995.
During the second quarter of 1995, the Company recognized $24,000 in
miscellaneous revenue related to various sources.
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<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Affiliate fees, site costs and telephone service expenses were 54.4% and 42.9%
of net viewer revenue for the three months ended June 30, 1994 and 1995,
respectively. This reflects a decrease of $274,000 from $1,582,000 to
$1,308,000 for the three months ended June 30, 1994 and 1995, respectively,
which resulted mainly from a decrease in the cable affiliation fees associated
with the carriage of the Company's programming service. During early 1995, the
Company was able to renegotiate the affiliate fee payments for its largest
multiple system operators from minimum monthly guarantees of nine cents per
subscriber to five cents per subscriber. Consequently, cable affiliation fees
decreased by $366,000 for the three months ended June 30, 1995 from the same
prior year period. Offsetting these cost savings were increased site costs and
affiliation fees related to the low power television ("LPTV") stations of
$6,000 from the second quarter of 1994 as compared to the second quarter of
1995, which resulted from the increased number of LPTV affiliates and improved
revenue performance. The Company also experienced an increase of approximately
$117,000 in United Kingdom affiliation fees and telecommunication charges
related to the increased level of United Kingdom operations in the quarter
ended June 30, 1995 as compared with the same prior year period. Due to the
reduced level of viewer transactions domestically and the reduction in
unnecessary box phone lines, transport and telecommunications expenses
associated with each local box and the 900 number calls delivered decreased by
$31,000.
Distribution, general and administrative expenses for the three months ended
June 30, 1995 totaled approximately $3,549,000 which was $663,000 more than the
comparable prior year period. Approximately $329,000 of this increase
resulted from higher salaries, wages, sales commissions, relocation and
recruitment expenditures associated with the increased staffing levels in
affiliate sales, marketing, programming and production, the employment of a
Chief Executive Officer and increased advertising sales commissions for the
Company's expanded in-house sales efforts. Approximately $147,000 of the
increase resulted from expanded sales and promotional efforts, with higher
levels of spending for trade advertising, cable and music industry events,
premiums, travel and entertainment and viewer demographic market research.
For the three months ended June 30, 1995, expenditures for the United Kingdom
operations as compared to the same prior year period increased by $178,000,
with the increases resulting from higher expenditures of $106,000 for salaries,
benefits and taxes, $37,000 for expanded office space, legal and administrative
costs and $35,000 for programming, production and shipping. Costs related to
production, disc and tape preparation and related shipping expenditures
increased by approximately $70,000 for the quarter ended June 30, 1995 as
compared with the same prior year period due to increased production
expenditures for on-air promotions during the current year period. Office and
administration expenditures (exclusive of rent for the Company's Miami Beach
corporate headquarters) and operations and telecommunications
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<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
expense increased by $17,000 from second quarter 1994 to the same 1995 period
as the net result of increased costs due to the March 1995 expansion of the
Company's Los Angeles sales office to incorporate additional affiliate sales
and international development personnel, the establishment in March 1995 of the
New York national sales office, and the related equipment rentals and office
supplies expenditures, offset by improvements in telecommunications rates and
other lower operational costs.
Legal expenses decreased by $25,000 for the second quarter of 1995 as compared
with the same 1994 period due to minimal 1995 costs incurred in connection with
the Company's litigation with Healthcare Communications, Incorporated. Due to
the elimination of any advertising sales representation by an outside agency,
the commission related to such sales decreased by $53,000 for the second
quarter of 1995 as compared with the second quarter of 1994.
Satellite transponder and uplink charges, management fees and rent for the
Company's corporate headquarters in Miami Beach paid to related parties totaled
$500,000 for the three months ended June 30, 1995, as compared with $798,000
for the comparable period of 1994, representing a 37.3% decrease in such costs.
$343,000 of the decrease is attributable to a reduction in the Company's
monthly satellite transponder fee from the $200,000 per month fee incurred in
1994 to the monthly total of $110,000 incurred in April 1995 and the new
monthly reduced fee of $73,500 incurred in May and June 1995, and which will be
charged in all future months. The fee was reduced when the Company converted
from analog to digital satellite transmission in February 1995. In addition,
the 1995 period costs do not include consulting fees totaling approximately
$198,000 that were paid during the second quarter of 1994. These fees were
eliminated effective January 1, 1995 through the Company's cancellation of
three consulting agreements with stockholders of the Company. The only related
party consulting expenses for second quarter 1995 related to a reimbursement of
approximately $34,500 to Island Trading Company, Inc. ("Island") for the
salary, taxes and benefits related to an Island employee whose services were
used by the Company during second quarter 1995. Also offsetting the reduction
in related party expenditures for the second quarter 1995 were the expenses
related to rent for the Company's corporate headquarters of $129,000 for the
second quarter cost and $79,500 in related party rent expenses reclassified in
the second quarter financials which was rent incurred for the first quarter of
1995. During February 1995, the Company relocated its corporate headquarters
from North Miami to a Miami Beach location that is owned by one of the
Company's shareholders. As a result of this move, monthly rent has increased
from approximately $29,000 per month to approximately $41,000 per month.
-11-
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Depreciation and amortization for the three months ended June 30, 1995
decreased by approximately $48,000, or 11.0% from the prior year period, as a
result of certain equipment becoming fully depreciated. The Company does
expect depreciation and amortization to increase in future quarters due to new
furniture and equipment purchases and leasehold improvements associated with
the new corporate headquarters office space and the expanded Los Angeles
satellite office space.
Stock and warrant compensation, a non-cash expenditure, was approximately
$67,000 and $69,000 for the three month periods ended June 30, 1995 and 1994
due to no new employee stock options issued above market price since second
quarter 1994.
Interest expense decreased approximately $35,000 for the three months ended
June 30, 1995 as compared to the same period in 1994 due to the fact that
certain of the Company's long-term debt related to the payment of the satellite
transponder and uplink charges was converted into shares of the Company's
common stock in December 1994.
-12-
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1995 AS COMPARED TO THE SIX MONTHS ENDED JUNE 30,
1994.
The Company recognized a net loss of ($432,888) for the six months ended June
30, 1995 as compared to a net loss of ($2,348,643) for the comparable prior
year period. Reducing the net loss for the first half of 1995 was a gain of
$1,354,076, such gain attributable to the sale by the Company of fifty
percent of its ownership in its United Kingdom subsidiary, Video Jukebox
Network International Limited ("VJNIL"). Without this gain, the Company's net
loss for the six months ended June 30, 1995 would have been ($1,786,964), which
represents an improvement in financial results for the first six months of
1995 over the net results for the first six months of 1994 of 23.9 percent.
Net viewer revenue increased $495,000 from approximately $5,741,000 to
$6,236,000 or 8.6% for the six months ended June 30, 1995 as compared with the
same prior year period. This net increase resulted from an increase in the
gross domestic viewer revenue ($332,000 positive impact on net viewer revenue),
a reduction in the number of chargebacks related to customers who deny having
made music video requests ($29,000 positive impact on net viewer revenue) and
the improvement in the transactional viewer revenues of the United Kingdom
subsidiary ($160,000 positive impact on net viewer revenue), offset by the
related increase in fixed billing charges from the Company's telephone service
provider related to the higher revenue level ($26,000 negative impact on net
viewer revenue).
The Company's domestic gross viewer revenues increased by approximately
$332,000, from $6,977,000 for the six months ended June 30, 1994 to $7,309,000
for the six months ended June 30, 1995. Management attributes this domestic
increase to programming enhancements and improved marketing efforts for the
Company's programming. However, the growth was not as significant as it could
be due to the loss of home satellite dish subscribers and the elimination of
the satellite box 900 toll request line. On February 28, 1995, in order to
significantly reduce the Company's satellite transponder and uplink
expenditures, the Company converted its analog satellite signal to a digital
feed. With this transition, the satellite box unit no longer was receivable by
home satellite dishes unless the owner purchased a digital receiver. Until
that time or until any further cable or broadcast carriage is attained,
transactional viewer revenues for this box will not achieve the levels of prior
periods. Further, to provide an alternative music product to the Company's
current and potential programming distributors, the 900 request line was
eliminated from the satellite box. Unless the Company reinstates the 900
request line, which is not planned at this time, it is expected that the net
annual viewer revenues after variable costs in 1995 related to the satellite
box will total less than $40,000 as compared with $263,000 realized for the
year ended December 31, 1994.
-13-
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Average monthly gross viewer revenue per box for the six month periods ended
June 30, 1994 and 1995, totaled $9,062 and $9,851, respectively, an 8.7%
increase. With an increase in gross domestic revenue, the related 8% fixed
billing charge from the Company's telephone provider increased by approximately
$26,000 from the first six months of 1994 as compared to the first six months
of 1995.
A positive impact on net viewer revenue was made through the reduction in
chargebacks related to customers who deny having made music video requests.
These chargebacks decreased by $29,000 for the first six months of 1995 as
compared with the same prior year period due to the improvement realized from
the Company's credit limiting and call blocking procedures. The remainder of
the net revenue increase resulted from the Company's expansion of its
operations in the United Kingdom. The average number of boxes in the United
Kingdom in the first six months of 1994 totaled 17.3 as compared with an
average of 19.3 boxes in service during the first six months of 1995. As a
result, international net viewer revenues increased by $160,000 from $485,000
for the six months ended June 30, 1994 to $645,000 for the six months ended
June 30, 1995.
Advertising sales and other revenues increased 21.8% from $2,803,000 for the
six months ended June 30, 1994 to $3,413,000 for the same current year period.
The increase resulted from improved performance in national advertising, record
industry advertising and advertising related to the United Kingdom subsidiary.
National sales increased by $69,000 or 7.4% for the first six months of 1995 as
compared with the same 1994 period. Beginning in the first half of 1994, the
Company brought the national advertising sales in-house with the employment
of a sales person for movie industry accounts in January 1994 and a Vice
President - Advertising Sales in May 1994. These efforts continued with the
hiring of two additional national account sales directors in the New York sales
office. Record industry advertising improved 24.1% for the first six months of
1995 as compared to the 1994 sales, while direct response advertising was flat,
with no change in revenue levels from the first six months of 1994 to the same
1995 period. While the advertising improved overall in 1995, the Company is
only starting to realize the impact of initiating an internal national sales
effort. Strong advanced bookings have been placed which could result in
significantly increased advertising sales for 1995 as compared with 1994.
While there can be no assurance that all of these non-binding commitments to
advertise will be honored, the bookings demonstrate an increased interest in
the Company's programming service as an advertising vehicle. Advertising sales
efforts initiated in late 1994 resulted in improvement by the Company's United
Kingdom subsidiary from approximately $24,000 in advertising sales in the first
six months of 1994 to over $138,000 for the same period in 1995. The Company
also recognized income on the sale of certain LPTV assets totaling
approximately $87,000 during the first six months of 1995, with no comparable
revenue in the same prior year period.
-14-
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Affiliate fees, site costs and telephone service expenses were 54.4% and 49.8%
of net viewer revenue for the six months ended June 30, 1994 and 1995,
respectively. This reflects a decrease of $17,000 from $3,124,000 to
$3,107,000 for the six months ended June 30, 1994 and 1995, respectively, which
resulted mainly from a decrease in the cable affiliation fees of $373,000
associated with the carriage of the Company's programming service. During
early 1995, the Company was able to renegotiate the affiliate fee payments for
its largest multiple system operators from minimum monthly guarantees of nine
cents per subscriber to five cents per subscriber. Consequently, cable
affiliation fees decreased from $1,227,000 for the six months ended June 30,
1994 to $854,000 for the same current year period. Offsetting these cost
savings were increased site costs and affiliation fees related to the low power
television ("LPTV") stations of approximately $167,000 for the six months ended
June 30, 1994 as compared to the six months ended June 30, 1995. The Company
also experienced an increase totaling approximately $163,000 in United Kingdom
affiliation fees and telecommunication charges related to the increased level
of United Kingdom operations in the six months ended June 30, 1995 as compared
with the same prior year period. Due to an increase in the level of viewer
transactions domestically, transport and telecommunications expenses associated
with each local box and the 900 number calls delivered, increased by $26,000.
Distribution, general and administrative expenses for the six months ended June
30, 1995 totaled approximately $6,664,000 which was $1,433,000 more than the
comparable prior year period. Approximately $728,000 of this increase
resulted from higher salaries, wages, sales commissions, relocation and
recruitment expenditures associated with the increased staffing levels in
affiliate sales, marketing, programming and production, the employment of a
Chief Executive Officer and increased advertising sales commissions for the
Company's expanded in-house sales efforts. Approximately $264,000 of the
increase resulted from expanded sales and promotional efforts, with higher
levels of spending for trade advertising, cable and music industry events,
premiums, consumer marketing efforts, travel and entertainment, viewer
demographic market research and sales materials. Office and administration
expenditures (exclusive of rent for the Company's Miami Beach corporate
headquarters) and operations and telecommunications expense increased by
$159,000 from six months ended June 30, 1994 to the same 1995 period as the
net result of increased costs due to the March 1995 expansion of the Company's
Los Angeles sales office (which was first established in March 1994) to
incorporate additional affiliate sales and international development personnel,
the establishment in March 1995 of the New York national sales office, and the
related equipment rentals, office supplies and telecommunications expenditures.
For the six months ended June 30, 1995, expenditures for the United Kingdom
operations as compared to the same prior year period increased by $395,000,
with the increase resulting from higher expenditures of $192,000 for salaries,
benefits and taxes, $83,000 for expanded office space, legal and administrative
costs and
-15-
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
$120,000 for increased programming, production and shipping. Costs related to
production, disc and tape preparation and related shipping expenditures
increased by approximately $57,000 for the six months ended June 30, 1995 as
compared with the same prior year period due to increased production
expenditures for on-air promotions during the current year period.
Legal expenses decreased by $83,000 for the first six months of 1995 as
compared with the same 1994 period due to minimal 1995 costs incurred in
connection with the Company's litigation with Healthcare Communications,
Incorporated. Due to the elimination of any advertising sales representation
by an outside agency, the commission related to such sales decreased by $87,000
for the first half of 1995 as compared with the same prior year period.
Satellite transponder and uplink charges, management fees and rent for the
Company's corporate headquarters in Miami Beach paid to related parties totaled
$1,012,000 for the six months ended June 30, 1995, as compared with $1,548,000
for the same period in 1994, representing a $536,000, or 35%, decrease in such
costs. $478,000 of the decrease is attributable to a reduction in the
Company's monthly satellite transponder fee from the $200,000 per month fee
incurred in 1994 and for the first 45 days of 1995 to the monthly total of
$110,000 incurred from February 15, 1995 through April 30, 1995 and the new
monthly reduced fee of $73,500 incurred in May and June 1995, and which will be
charged in all future months. The fee was reduced when the Company converted
from analog to digital satellite transmission in February 1995. The further
reduction occurred when a third party lower competitive price quote was
received. In addition, the 1995 period costs do not include consulting fees
totaling approximately $348,000 that were paid during the first six months of
1994. These fees were eliminated effective January 1, 1995 through the
Company's cancellation of three consulting agreements with stockholders of the
Company. The only related party consulting expense for the first half of 1995
related to a reimbursement of approximately $80,000 to Island Trading Company,
Inc. ("Island") for the salary, taxes and benefits related to an Island
employee whose services were used by the Company during the first six months of
1995. This Island employee will be added to the payroll of the Company during
August 1995. Also offsetting the reduction in related party expenditures for
the first six months of 1995 were the expenses related to rent for the
Company's corporate headquarters of $210,000. During February 1995, the
Company relocated its corporate headquarters from North Miami to a Miami Beach
location that is owned by one of the Company's shareholders. As a result of
this move, monthly rent has increased from approximately $29,000 per month to
approximately $41,000 per month.
-16-
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Depreciation and amortization for the six months ended June 30, 1995 decreased
by approximately $137,000, or 15.7% from the prior year period, as a result of
certain equipment becoming fully depreciated. The Company does expect
depreciation and amortization to increase in future quarters due to new
furniture and equipment purchases and leasehold improvements associated with
the new corporate headquarters office space and the expanded Los Angeles
satellite office space.
Stock and warrant compensation, a non-cash expenditure, was approximately
$135,000 and $136,000 for the six month periods ended June 30, 1995 and 1994
due to no new employee stock options issued above market price since December
1993.
Interest expense decreased approximately $55,000 for the six months ended June
30, 1994 as compared to the same period in 1995 due to the fact that certain of
the Company's long-term debt related to the payment of the satellite
transponder and uplink charges was converted into shares of the Company's
common stock in December 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio (current assets to current liabilities) was 3.17 to
1.00 at June 30, 1995 as compared to 2.52 to 1.00 at June 30, 1994. At June
30, 1995, the Company's current assets exceeded its current liabilities by
approximately $6,878,000.
The Company is using the proceeds from two financing transactions in 1994 to:
(I) expand the distribution of the Company's programming by constructing and
installing additional box units; (ii) advertise, market and promote the
Company's programming; (iii) research, develop, maintain and improve the
Company's software and equipment; (iv) fund working capital; and (v) purchase
technical equipment for programming production. In order to expand
distribution, the Company is examining upfront cash payments in the aggregate
amount of up to approximately $3,000,000 which would be made for guaranteed
long-term cable affiliation agreements. Although there can be no assurances,
management believes that expansion of the distribution of the Company's
programming will lead to increased advertising and viewer revenues and will
enable the Company to more efficiently utilize fixed cost expenditures. The
Company will additionally continue its efforts to relocate existing box units
to more profitable locations in order to attempt to improve the revenues
generated by the Company's existing box units. Additional financing may be
needed in order for the Company to achieve its goal of significantly expanding
the distribution of its programming to a level which will allow the Company to
operate profitably.
-17-
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
To provide capital for the United Kingdom and the Company's other planned
international operations, the Company completed an agreement on June 30, 1995
which involved the sale of 50% of the Company's interest in its United Kingdom
subsidiary to Ticketmaster for $2,225,000. Net cash received from this
transaction after investment banking and legal expenses totaled approximately
$1,608,000. See Item 5 of this report for further details.
Management has and will continue to undertake several operational measures in
an effort to continue to improve the Company's liquidity and cash flow
position. On February 14, 1995, the Company renegotiated its affiliation
agreement with Tele-Communications, Inc. ("TCI") to provide that TCI's cable
systems are compensated based on a specified percentage of net revenues
generated by the Company with a reduced guaranteed minimum monthly fee. Annual
savings of approximately $436,000 are expected to result from this
renegotiation. Additionally, another large multiple system operator has
verbally agreed to match TCI's terms which would result in annual savings of
approximately $449,000. However, there are no assurances that this cable
operator will formally agree to honor its verbal commitment. Management has
effected certain measures which have reduced overhead and operating expenses,
particularly fees paid to the telephone companies, but continues to analyze
additional changes which can further reduce such expenses. A new method of
handling the 900 telephone calls is scheduled to be implemented by September
1995 which, the Company estimates, will save over $200,000 per year in
telecommunications costs.
In an effort to increase net viewer revenue, the Company continues to rewrite
key portions of its interactive computer software allowing for easier consumer
ordering, reduction in duplicate orders (which had often resulted in
non-payment) and constant on-air reminders of the appropriate order telephone
numbers. Advertising revenues have been increasing every quarter over the
previous year's quarter since the Company's sales efforts began. To continue
this trend, the Company has increased sales staff, scheduled special record
label promotions, value added promotions and has also increased rates for prime
time advertising space due to the increased demand.
The Company has used approximately $1,400,000 during the first half of 1995 to
purchase a new production edit suite, new graphics station, furniture and
equipment for the new corporate location, upgrade of the Company's computer
network and telephone system and miscellaneous leasehold improvements. Further
cash outlays of approximately $500,000 are expected to complete the leasehold
improvements for the new office space, computer system requirements for the
additional staffing levels and develop the digital box technology during the
remainder of 1995.
-18-
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company's lease on its prior corporate headquarters location expired on
August 1, 1995. The Company was unable to sublet its prior office space or
negotiate a settlement of rent, and therefore, the Company incurred payments of
approximately $110,000 for rent on its prior office space for the period from
April 1, 1995 through August 1, 1995. However, this cash outlay was offset
with initial months of free rent associated with the new office location. The
total monthly rent and associated utilities, security and lease pass-through
costs will now be approximately $57,000 per month compared with the previous
corporate office location cost of approximately $29,000 per month. The Company
converted its analog signal to a digital signal in February 1995, which has
reduced the monthly satellite transponder fee to a fee of $73,500 per month,
which will provide annualized cash savings of $1.5 million over the level of
fees charged in 1994. The Company presently has allocated $2.4 million for the
expansion of its international operations outside of the United Kingdom.
PART II: OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On June 30, 1995, the Company purchased the remaining nine percent of its 91%
owned subsidiary, Video Jukebox Network International Limited ("VJNIL") from
its minority shareholder in exchange for 225,000 shares of the Company's
common stock, which was valued at $267,188. Also on June 30, 1995, the Company
completed the sale of a 50 percent equity interest in VJNIL to a wholly-owned
subsidiary of Ticketmaster Corporation ("Ticketmaster") for $2,225,000 in
cash. Legal and investment banking expenses related to this transaction
totaled approximately $452,000. As part of such transaction, Ticketmaster
loaned to VJNIL $1,500,000 which approximated the aggregate amount of the
advances that had been made from time to time by the Company to VJNIL. Such
loan from Ticketmaster and advances by the Company are secured by all of the
assets of VJNIL and will accrue interest at the rate of prime plus one percent.
Simultaneously, an administrative services agreement was executed among
Company, VJNIL and Ticketmaster through which Ticketmaster purchased a portion
of its 50 percent equity interest in VJNIL by issuing to VJNIL a promissory
note payable in the amount of 625,400 pounds sterling (the equivalent of U.S.$1
million). This administrative agreement, which expires June 30, 2000,
requires Ticketmaster to provide VJNIL with strategic and marketing related
services, particularly with respect to sponsorship and promotional
opportunities, advertising sales, merchandising and other home shopping
projects undertaken by VJNIL. Principal amounts due under the promissory note
will not accrue interest and monthly payments of principal will be forgiven in
full so long as Ticketmaster is providing services to VJNIL under the
administrative services agreement.
-19-
<PAGE> 20
PART II: OTHER INFORMATION (CONT'D)
ITEM 5. OTHER INFORMATION
Concurrent with the appointment of Alan McGlade as the Company's Chief
Executive Officer on January 1, 1995, the Company terminated its obligations
under separate agreements to pay management/consulting fees in the aggregate
amount of $43,333 per month to three stockholders of the Company. Prior to
such termination (effective to January 1, 1995), the Company was required to
pay: (I) a fee of $12,500 per month ($25,000 per month prior to December 1994)
to StarNet, Inc. for consulting services related to the development of the
Company's domestic operations; (ii) a fee of $25,000 per month to
Communications Equity Associates for consulting services related to the
Company's international operations; and (iii) a fee of approximately $5,833 per
month to Island Trading Company, Inc. for consulting services related to
merchandizing and music programming.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule (for SEC use only)
(b) Reports
On July 12, 1995, the Company filed a Form 8-K, dated June 30,
1995, pursuant to Item 5 of Form 8-K, to report the completion
of the Company's transaction with Ticketmaster Corporation.
-20-
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VIDEO JUKEBOX NETWORK, INC.
---------------------------
(REGISTRANT)
Date: August 10, 1995 By: /s/ Alan McGlade
-----------------------------
Alan McGlade
President and Chief Executive
Officer
Date: August 10, 1995 By: /s/ Luann M. Hoffman
-----------------------------
Luann M. Hoffman
Chief Financial and
Administrative Officer
-21-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT OF VIDEO JUKEBOX NETWORK, INC. FOR THE SIX MONTH PERIOD ENDED
JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY
REPORT OF VIDEO JUKEBOX NETWORK, INC.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 8,620,471
<SECURITIES> 0
<RECEIVABLES> 2,658,230
<ALLOWANCES> 1,453,725
<INVENTORY> 71,252
<CURRENT-ASSETS> 10,044,753
<PP&E> 10,883,012
<DEPRECIATION> 8,317,476
<TOTAL-ASSETS> 13,411,147
<CURRENT-LIABILITIES> 3,166,882
<BONDS> 0
<COMMON> 23,900
0
0
<OTHER-SE> 10,220,365
<TOTAL-LIABILITY-AND-EQUITY> 13,411,147
<SALES> 0
<TOTAL-REVENUES> 11,225,159
<CGS> 3,106,994
<TOTAL-COSTS> 8,549,376
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,677
<INCOME-PRETAX> (432,888)
<INCOME-TAX> 0
<INCOME-CONTINUING> (432,888)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (432,888)
<EPS-PRIMARY> (.02)
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