<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
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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 September 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 (305) 674-5000
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Address of principal executive offices (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 November 10, 1995
Common Stock,Par Value $.001 Per Share 23,942,281
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
September 30, 1995 (Unaudited) 3
Consolidated Statements of Operations
for the Three Months and Nine Months ended
September 30, 1995 and 1994 (Unaudited) 4
Consolidated Statements of Cash Flows
for the Three Months and Nine Months
Ended September 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 4 Submission of Matters to a Vote of Security Holders 19
Item 6 Exhibits and Reports on Form 8-K 19
SIGNATURES 20
</TABLE>
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<PAGE> 3
VIDEO JUKEBOX NETWORK, INC.
BALANCE SHEET
(UNAUDITED)
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<TABLE>
<CAPTION>
SEPTEMBER 30,
1995
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<S> <C>
ASSETS:
CURRENT ASSETS
Cash and cash equivalents $ 6,786,200
Accounts receivable, less allowances for chargebacks
and doubtful accounts of $1,298,041 2,622,071
Merchandise Inventory 56,587
Prepaid expenses 219,912
------------
TOTAL CURRENT ASSETS 9,684,770
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PROPERTY AND EQUIPMENT, NET 2,913,943
DEFERRED COSTS AND OTHER ASSETS, NET 658,823
INVESTMENT IN AND ADVANCES TO
UNCONSOLIDATED SUBSIDIARY 431,630
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TOTAL ASSETS $ 13,689,166
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LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES
Accounts payable $ 522,298
Accrued expenses 2,392,188
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TOTAL CURRENT LIABILITIES 2,914,486
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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, 23,927,281
shares issued and outstanding 23,927
Additional paid in capital:
Additional paid in capital 30,161,872
Less deferred compensation (52,239)
------------
30,109,633
Accumulated deficit (19,351,403)
Cummulative foreign currency translation loss (7,477)
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TOTAL STOCKHOLDERS' EQUITY 10,774,680
------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 13,689,166
</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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
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<S> <C> <C> <C> <C>
REVENUES
Net viewer revenues $ 2,989,477 $ 3,277,415 $ 9,225,995 $ 9,018,722
Advertising and other revenues 2,973,827 1,497,197 6,387,261 4,299,968
----------- ----------- ----------- ------------
5,963,304 4,774,612 15,613,256 13,318,690
Gain on sale of interest in subsidiary 22,823 0 1,376,899 0
Interest income 166,919 87,708 388,050 151,499
----------- ----------- ----------- ------------
6,153,046 4,862,320 17,378,205 13,470,189
----------- ----------- ----------- ------------
COSTS AND EXPENSES
Affiliate fees, site costs and
telephone service 1,512,867 1,654,560 4,619,861 4,778,081
Distribution, general and
administrative 3,398,339 2,870,928 10,062,326 8,101,656
Satellite transponder, rent and management
fees paid to related parties 480,373 819,505 1,492,432 2,367,891
Depreciation and amortization 237,307 471,950 976,028 1,347,902
Stock and warrant compensation 67,305 67,305 201,914 203,477
Interest 0 47,470 1,677 104,419
----------- ----------- ----------- ------------
5,696,191 5,931,718 17,354,238 16,903,426
----------- ----------- ----------- ------------
INCOME (LOSS) BEFORE MINORITY
INTEREST IN LOSS OF SUBSIDIARY
AND INTEREST IN LOSS OF
UNCONSOLIDATED SUBSIDIARY 456,855 (1,069,398) 23,967 (3,433,237)
MINORITY INTEREST IN LOSS OF SUBSIDIARY 0 (94) 0 15,102
INTEREST IN LOSS OF UNCONSOLIDATED
SUBSIDIARY (42,130) 0 (42,130) 0
----------- ----------- ----------- ------------
NET INCOME (LOSS) $ 414,725 $(1,069,492) $ (18,163) $ (3,418,135)
=========== =========== =========== ============
Net income (loss) per common share $0.02 ($0.05) ($0.00) ($0.18)
=========== =========== =========== ============
Weighted average number of
common shares outstanding 23,903,748 21,089,481 23,751,628 19,182,450
=========== =========== =========== ============
</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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
-------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (18,163) $ (3,418,135)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 976,028 1,347,902
Gain on sale of interest in subsidiary (1,376,899) 0
Interest in loss of unconsolidated subsidiary (42,130) 0
Related party debt issued for services 0 1,400,000
Provision for bad debts and estimated chargebacks 0 50,000
Stock and warrant compensation and amortization 201,914 203,477
Change in assets and liabilities:
(Increase) in accounts receivable (639,507) (572,806)
Decrease (Increase) in prepaid expenses, deferred costs and
other assets 25,696 (259,001)
(Decrease) Increase in accounts payable and accrued expenses (191,662) 591,358
Increase in interest payable due to related parties 0 102,309
(Decrease) Increase in amount due from subsidiary (16,784) 0
Minority interest in loss of subsidiary 84,670 (9,326)
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NET CASH (USED IN) OPERATING ACTIVITIES (996,837) (564,222)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash received from sale of interest in subsidiary 1,630,398 0
Capital expenditures (1,964,680) (818,738)
Increase in amount due from subsidiary (24,245) 0
------------ ------------
NET CASH (USED IN) INVESTING ACTIVITIES (358,527) (818,738)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 45,332 8,656,780
Payments of short-term borrowings (865) (120,466)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 44,467 8,536,314
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EFFECT OF EXCHANGE RATE CHANGES ON CASH 79,087 9,868
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,231,810) 7,163,222
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,018,010 1,702,533
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,786,200 $ 8,865,755
------------ ------------
SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
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 $429,000. 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 September 30,
1995. A summary of the operating results consolidated in the
Company's statements of operations for VJNIL is as follows:
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
9/30/95 9/30/94 9/30/95 9/30/94
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<S> <C> <C> <C> <C>
Net viewer revenues $ 0 $ 352,842 $ 645,420 $ 837,904
Advertising and other
revenues 0 27,534 138,439 51,137
------- --------- --------- ----------
0 380,376 783,859 889,041
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Affiliate fees, site costs
and telephone 0 83,058 293,168 213,706
Distribution, General
and administrative 0 205,872 811,806 625,292
Depreciation/Amort 0 59,043 144,831 121,621
Interest Expense 0 31,360 41,057 96,218
------- --------- --------- ----------
0 379,333 1,290,862 1,056,837
------- --------- --------- ----------
Net Income (Loss) $ 0 $ 1,043 $(507,003) $ (167,796)
======= ========= ========= ==========
</TABLE>
During July 1995, the Company negotiated lower legal expenses for
certain of the legal charges incurred with these transactions, thereby
recording in the third quarter of 1995 an additional $22,823 gain
related to these transactions.
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, Inc. 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 SEPTEMBER 30, 1995 AS COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1994.
The Company recognized a net income of $414,725 for the three months ended
September 30, 1995 as compared to a net loss of ($1,069,492) for the comparable
prior year period.
Overall, total revenues for the quarter ended September 30, 1995 increased
approximately $1,291,000, or 26.5 percent, from $4,862,000 for the three months
ended September 30, 1994 to $6,153,000 for the same current year period. Net
viewer revenues decreased approximately $288,000 for the three months ended
September 30, 1995 as compared with the three months ended September 30, 1994.
The main reason for the decrease in reported revenues relates to the viewer
revenues of the United Kingdom operations which were consolidated during the
third quarter of 1994 (approximately $353,000), but are no longer consolidated
as the Company currently accounts for its fifty percent investment by the
equity method. See footnote number two to the financial statements for
complete detailed financial information on the United Kingdom operations as
included in the Company's financial statements for the periods reported.
Net domestic viewer revenues for the third quarter of 1995 increased by
$65,000. 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 ($348,000 positive impact on net viewer revenue),
offset by the net 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 ($283,000 negative impact on net viewer
revenue). Gross revenue per box for the third quarter of 1995 was
approximately equivalent with the same prior year period. However, net
collected revenue per box increased 8% as a result of the lower chargeback
levels in third quarter 1995 as compared to the quarter ended September 30,
1994.
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 $348,000 for the third 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 which resulted in a lower reserve required for future
chargebacks.
-8-
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Advertising sales and other revenues increased 98.7% from $1,497,000 for the
third quarter of 1994 to $2,974,000 for the same current year period. The
increase resulted from improved performance in all categories of advertising:
national, record industry and direct response. National sales increased
dramatically, by $828,000 or 154%, from the third quarter of 1994 to the third
quarter of 1995. Record industry sales were up $335,000, or 42%, from the 1994
level, while direct response advertising increased by $278,000, or 158%, from
1994 to 1995. While advertising sales continue the improvement started in
earlier quarters of 1995, management believes that the Company is only starting
to realize the impact of initiating an internal national sales effort. Strong
advanced bookings have been placed for fourth quarter 1995 advertising of
approximately $3 million and up-front advertising orders for 1996 of over $3.7
million have already been received. While there can be no assurance that all
of these non-binding commitments to advertise will be honored, the Company is
encouraged by the continued interest in its programming service as an
advertising vehicle.
During the third quarter of 1995, the Company recognized approximately $36,000
in net miscellaneous revenue related to various sources.
Affiliate fees, site costs and telephone service expenses were 50.5% and 50.6%
of net viewer revenue for the three months ended September 30, 1994 and 1995,
respectively. This reflects a decrease of $142,000 from $1,655,000 to
$1,513,000 for the three months ended September 30, 1994 and 1995,
respectively, which resulted mainly from a reduction 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 $52,000 for the three months ended September 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 $47,000 from the third quarter of 1994 as compared to the
third quarter of 1995, which resulted from the increased number of LPTV
affiliates and improved revenue performance. 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 $54,000. In the third quarter
of 1994, approximately $83,000 in expenses were incurred by the United Kingdom
subsidiary which were consolidated into the financial operations reported for
that quarter. Due to the equity method of accounting for the Company's fifty
percent investment in the United Kingdom operations, no similar expenses were
included in third quarter 1995.
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<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Distribution, general and administrative expenses for the three months ended
September 30, 1995 totaled approximately $3,398,000 which was $527,000 more
than the comparable prior year period. Approximately $296,000 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 and improved in-house sales. Approximately $212,000 of the
increase resulted from expanded sales and promotional efforts, with higher
levels of spending for consumer marketing, trade advertising, cable and music
industry events, premiums, travel and entertainment and viewer demographic
market research. Office and administration expenditures (exclusive of rent for
the Company's Miami Beach corporate headquarters) and operations and
telecommunications expense increased by $167,000 from third 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, office supplies expenditures and telecommunications costs. During
the third quarter of 1995, the Company began retail operations with the opening
of a store at the Company's headquarters in South Beach. The store sells
merchandise with the BOX logo and incurred $22,000 in expenses during the first
month of operations in September 1995. Due to the increase in national
advertising sales, the commissions paid to advertising agencies increased by
$163,000 from the third quarter of 1994 to the current year period.
For the three months ended September 30, 1995, expenditures for the United
Kingdom operations included in the consolidated statements totaled $206,000,
with no comparable expenditure in the 1995 same period. Costs related to
production, disc and tape preparation and related shipping expenditures
decreased by approximately $47,000 for the quarter ended September 30, 1995 as
compared with the same prior year period due to reimbursements received for
more production expenditures related to on-air promotions during the current
year period as compared to the same prior year period. Legal expenses decreased
by $29,000 for the quarter ended September 30, 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
through the development of an in-house national advertising sales department,
the commission related to such sales decreased by $51,000 for the third quarter
of 1995 as compared with the third quarter of 1994.
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<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Satellite transponder and uplink charges, management fees and rent for the
Company's corporate headquarters in Miami Beach paid to related parties totaled
$480,000 for the three months ended September 30, 1995, as compared with
$819,000 for the comparable period of 1994, representing a decrease of
$339,000, or 41.4%, in such costs. Of this decrease, $380,000 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 reduced monthly charge of
$73,500. 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 $133,000 that were paid
during the third 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
third quarter 1995 was a reimbursement of approximately $30,000 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 third quarter
1995 and a one-month international consulting agreement with Communications
Equity Associates, Inc., which along with expenses incurred in association with
its services, totaled approximately $56,000. Also offsetting the reduction in
related party expenditures for the third quarter 1995 were the expenses related
to rent for the Company's corporate headquarters of $174,000. 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 stockholders. As a
result of this move, monthly rent and the related security, utilities and
landlord pass-through expenses have increased from a total of approximately
$29,000 per month to approximately $57,000 per month.
Depreciation and amortization for the three months ended September 30, 1995
decreased by approximately $235,000, or 50% 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 for the three month periods ended September 30, 1995 and 1994 due to no
new employee stock options issued with an exercise price below market price
since third quarter 1994.
Interest expense decreased approximately $47,000 for the three months ended
September 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.
-11-
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AS COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1994.
The Company recognized a net loss of ($18,163) for the nine months ended
September 30, 1995 as compared to a net loss of ($3,418,135) for the comparable
prior year period. Reducing the net loss for 1995 was a gain of $1,376,899
which was 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 nine
months ended September 30, 1995 would have been ($1,395,062), which represents
an improvement in financial results for the first nine months of 1995 over the
net results for the first nine months of 1994 of 59 percent.
Net viewer revenue increased $207,000 from approximately $9,019,000 to
$9,226,000 for the nine months ended September 30, 1995 as compared with the
same prior year period. This net increase resulted from an increase in the
gross domestic viewer revenue ($23,000 positive impact on net viewer revenue)
and a reduction in the number of chargebacks related to customers who deny
having made music video requests ($377,000 positive impact on net viewer
revenue). These increases were offset by a reduction of $193,000 in
transactional viewer revenues of the United Kingdom operations included in the
consolidated operations. Effective June 30, 1995, the Company is reporting its
interest in the United Kingdom operations through the equity method, therefore,
only six months of activity have been included in the 1995 consolidated
financial statements for the nine-month period ending September 30, 1995, while
nine months of activity had been included in the same prior year period.
The Company's domestic gross viewer revenues increased by approximately
$23,000, from $10,984,000 for the nine months ended September 30, 1994 to
$11,007,000 for the nine months ended September 30, 1995. Average monthly
gross viewer revenue per box for the nine month periods ended September 30,
1994 and 1995, totaled $9,526 and $9,944, respectively, a 4.4% increase.
Management attributes this domestic increase to programming enhancements and
improved marketing efforts for the Company's programming, but recognizes that
factors such as credit limiting and call blocking have resulted in reduced
levels of gross viewer revenue since callers who have not paid their call
charges in the past will not be allowed to order videos. Net revenue in total
has improved by five percent as a result. Further, efforts to grow viewership
for advertising support has become a priority for the Company as well,
therefore, certain popular, but controversial, videos have been removed from
the selection playlist. While some viewer revenue has been lost as a result of
the elimination of the controversial videos, management believes it is more
important for distribution and advertising purposes to eliminate these
controversial roadblocks.
-12-
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Additionally, the revenue 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.
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 $377,000 for the first nine 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.
Advertising sales and other revenues increased $2,087,000, or 49%, from
$4,300,000 for the nine months ended September 30, 1994 to $6,387,000 for the
same current year period. The increase resulted from improved performance in
national, record industry and direct response advertising. National sales
increased by $896,000 or 61.3% for the first nine months of 1995 as compared
with the same 1994 period. During the first six months of 1994, the Company
brought the national advertising sales efforts 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. Record industry advertising improved
$675,000, or 30.6%, for the first nine months of 1995 as compared to the 1994
sales, indicating continued support from the record labels. Direct response
advertising increased by 44.8%, or by $278,000 for the nine months ended
September 30, 1995 as compared with the same prior year 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 1996 as compared with record 1995 levels. 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.
-13-
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
While the third quarter of 1995 did not include any consolidated financial
results of the United Kingdom operations, part of the Company's increase in
advertising and other revenue, approximately $87,000, for the nine months ended
September 30, 1995, as compared with the same prior year period, resulted from
consolidated United Kingdom advertising revenues of $138,000 for the six months
ended June 30, 1995 as compared with advertising revenues of $51,000 for the
nine months ended September 30, 1994.
The Company also recognized income on the sale of certain LPTV assets totaling
approximately $87,000 during the first nine months of 1995, as well as
approximately $64,000 in other miscellaneous income from merchandise and
licensing sales, with no comparable revenue in the same prior year period.
Affiliate fees, site costs and telephone service expenses were 53.0% and 50.1%
of net viewer revenue for the nine months ended September 30, 1994 and 1995,
respectively. This reflects a decrease of $158,000 from $4,778,000 to
$4,620,000 for the nine months ended September 30, 1994 and 1995, respectively.
The decrease results mainly from a decrease in the cable affiliation fees of
$425,000 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 $1,848,000 for the nine
months ended September 30, 1994 to $1,423,000 for the same current year period.
Offsetting these cost savings were increased site costs and affiliation fees
related to the increased operations of low power television ("LPTV") stations
of approximately $215,000 for the nine months ended September 30, 1994 as
compared to the nine months ended September 30, 1995. Expenses associated with
the United Kingdom operations, while not consolidated for the third quarter of
1995, accounted for $80,000 of the increase of affiliate fees and
telecommunications for the nine months ended September 30, 1995 as compared
with the same prior year period. Due to a decrease in the level of viewer
transactions domestically, transport and telecommunications expenses associated
with each local box and the 900 number calls delivered, decreased by $28,000.
Distribution, general and administrative expenses for the nine months ended
September 30, 1995 totaled approximately $10,062,000 which was $1,961,000 more
than the comparable prior year period. Approximately $1,024,000 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 improved in-house sales efforts. Approximately $475,000 of the
increase resulted from expanded sales and promotional efforts, with higher
levels
-14-
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
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 $319,000 from the nine
months ended September 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 nine months ended September 30, 1995, expenditures for the United
Kingdom operations (six months ended June 30, 1995 consolidated as compared
with nine months ended September 30, 1994 consolidated) increased by $187,000.
This increase resulted from expanded operations and related expenditures for
salaries and personnel, expanded office space, legal and administrative costs
and increased programming, production and shipping costs.
Costs related to production, disc and tape preparation and related shipping
expenditures increased by approximately $11,000 for the nine months ended
September 30, 1995 as compared with the same prior year period due to increased
production expenditures for improved on-air look of the Company's programming
during the current year period. Due to the increase in national advertising
sales, commissions paid to advertising agencies increased by $175,000 for the
nine months ended September 30, 1995 as compared with the same prior year
period. With the start of the Company's merchandising efforts in 1995,
expenses of $32,000 have been incurred during the nine months ended September
30, 1995, while no comparable same period prior year expenses were incurred.
Legal expenses decreased by $112,000 for the first nine 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
$150,000 for the nine months ended September 30, 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
$1,492,000 for the nine months ended September 30, 1995, as compared with
$2,368,000 for the same period in 1994, representing an $876,000, or 37%,
decrease in such costs. Of this decrease, $858,000 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
-15-
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
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 from
May through September 1995. This latest reduced rate will be charged in future
months. The fee was reduced when the Company converted from analog to digital
satellite transmission in February 1995. The further reduction occurred in
response to an unaffiliated party's lower competitive price quote. In addition,
the 1995 period costs do not include consulting fees totaling approximately
$402,000 that were paid during the first nine 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. Related party
consulting expense for the first nine months of 1995 relates to a reimbursement
of approximately $110,000 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 nine months of 1995 and to international
consulting charges and reimbursed expenditures related to services provided by
Communications Equity Associates which totaled $56,000. This former Island
employee has been added to the payroll of the Company during October 1995.
Offsetting the reduction in related party expenditures for the first nine
months of 1995 were the expenses related to rent for the Company's corporate
headquarters of $384,000. 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 $57,000 per
month.
Depreciation and amortization for the nine months ended September 30, 1995
decreased by approximately $372,000, or 27.6% 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
$202,000 and $203,000 for the nine month periods ended September 30, 1995 and
1994 due to no new employee stock options issued with an exercise price below
market price since December 1993.
Interest expense decreased approximately $103,000 for the nine months ended
September 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.
-16-
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio (current assets to current liabilities) was 3.32 to
1.00 at September 30, 1995 as compared to 3.55 to 1.00 at September 30, 1994.
At September 30, 1995, the Company's current assets exceeded its current
liabilities by approximately $6,770,000.
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, including the planned change-out of all analog
boxes to the newly developed digital box; (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.
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. In order to exchange all
current boxes that are carrying the Company's interactive programming to the
new digital box, a capital expenditure of approximately $6 million will be
necessary for the purchase of the new equipment, completion of the software
engineering and testing, and the deinstall/reinstall procedures that will be
needed for all boxes. The Company believes that the change-out is necessary to
provide for the flexibility of advertising placements, the immediacy allowed
under the digital system to change music and advertising product rather than
the one change in programming product per week under the system currently used
with the analog boxes, as well as cost savings of preparation, shipping and
weekly tape changes required of the old analog system. Further, the equipment
in the field currently is aging and requiring more repairs. In order to
complete the digital change for all boxes, and to promote further distribution
of the Company's programming, additional financing may be needed. However, it
is believed by management that the Company needs to expand its distribution and
its ability to provide more flexible and immediate advertising capabilities in
order to operate at a level which will allow the Company to achieve profitably.
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
$1,631,000.
-17-
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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 in first
quarter 1996 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 $1,965,000 during the first nine months 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, miscellaneous leasehold improvements and purchase
of equipment for the expansion of international operations (approximately
$250,000 has been expended to purchase the seven boxes awaiting launch in
Holland, for example). Further cash outlays of approximately $250,000 are
expected to complete the development of the digital box technology during the
remainder of 1995.
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
-18-
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's annual meeting of stockholders was held on September 14, 1995.
At the meeting, the following persons were elected to serve as directors of the
Company until the next annual meeting of stockholders and until a successor is
elected and qualified or until the earlier resignation, removal, death or
incapacity of the director: H.F. Lenfest (by a vote of 20,047,427 in favor,
74,660 withheld and with 184,555 abstentions and no broker non-votes); Alan
McGlade (by a vote of 20,047,227 in favor, 74,860 withheld and with 184,555
abstentions and no broker non-votes); Chris Blackwell (by a vote of 20,047,227
in favor, 74,860 withheld and with 184,555 abstentions and no broker
non-votes); David Burns (by a vote of 20,047,327 in favor, 74,760 withheld and
with 184,555 abstentions and no broker non-votes); J. Patrick Michaels, Jr. (By
a vote of 20,047,427 in favor, 74,660 withheld and 184,555 abstentions and no
broker non-votes) and Leonard J. Sokolow (by a vote of 20,047,327 in favor,
74,760 withheld and with 184,555 abstentions and no broker non-votes).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule (for SEC use only)
(b) Reports
The Company filed a Form 8-K on July 12, 1995 disclosing
information pursuant to Item 5. An amendment to such Form 8-K was
filed on August 11, 1995.
-19-
<PAGE> 20
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: November 10, 1995 By: /s/Alan McGlade
--------------------
Alan McGlade
President and Chief
Executive Officer
Date: November 10, 1995 By: /s/Luann M. Hoffman
------------------------
Luann M. Hoffman
Chief Financial and
Administrative Officer
-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: November 10, 1995 By: /s/ Alan McGlade
---------------------------
Alan McGlade
President and Chief
Executive Officer
Date: November 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
FINANCIAL STATEMENTS OF VIDEO JUKEBOX NETWORK, INC. FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 6,786,200
<SECURITIES> 0
<RECEIVABLES> 3,920,112
<ALLOWANCES> 1,298,041
<INVENTORY> 56,587
<CURRENT-ASSETS> 9,684,770
<PP&E> 11,367,406
<DEPRECIATION> 8,453,463
<TOTAL-ASSETS> 13,689,166
<CURRENT-LIABILITIES> 2,914,486
<BONDS> 0
<COMMON> 23,927
0
0
<OTHER-SE> 10,750,753
<TOTAL-LIABILITY-AND-EQUITY> 13,689,166
<SALES> 0
<TOTAL-REVENUES> 17,378,205
<CGS> 4,619,861
<TOTAL-COSTS> 12,732,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,677
<INCOME-PRETAX> (18,163)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,163)
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<NET-INCOME> (18,163)
<EPS-PRIMARY> (.00)
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