<PAGE> 1
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 March 31, 1996
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
----- -----
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 May 13, 1996
Common Stock, Par Value $.001 Per Share 23,944,281
Transitional Small Business Disclosure Format: Yes No X
---- ----
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VIDEO JUKEBOX NETWORK, INC.
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1 Financial Statements
Consolidated Balance Sheet at
March 31, 1996 (Unaudited) 3
Consolidated Statements of Operations
for the Three Months ended March 31,
1996 and 1995 (Unaudited) 4
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1996
and 1995 (Unaudited) 5
Notes to Financial Statements 6
Item 2 Management's Discussion and Analysis or
Plan of Operation 9
PART II OTHER INFORMATION
Item 6 Exhibits 15
SIGNATURES 16
</TABLE>
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VIDEO JUKEBOX NETWORK, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
1996
ASSETS: ----------
CURRENT ASSETS
<S> <C>
Cash and cash equivalents $ 4,508,677
Accounts receivable, less allowances for chargebacks
and doubtful accounts of $1,163,016 1,790,406
Receivable from officer 75,146
Prepaid expenses and other 806,275
-----------
TOTAL CURRENT ASSETS 7,180,504
-----------
RECEIVABLE FROM OFFICER - LONG TERM 105,178
PROPERTY AND EQUIPMENT, NET 3,761,218
DEFERRED COSTS AND OTHER ASSETS, NET 992,387
INVESTMENT IN AND ADVANCES TO
UNCONSOLIDATED SUBSIDIARIES 654,331
-----------
TOTAL ASSETS $ 12,693,618
===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES
Accounts payable $ 702,669
Accrued expenses 1,870,200
-----------
TOTAL CURRENT LIABILITIES 2,572,869
-----------
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, 23,944,281
shares issued and outstanding 23,944
Additional paid in capital 30,190,104
Accumulated deficit (20,071,074)
Cummulative foreign currency translation loss (22,225)
-----------
TOTAL STOCKHOLDERS' EQUITY 10,120,749
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 12,693,618
===========
</TABLE>
See Notes to Financial Statements
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VIDEO JUKEBOX NETWORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995
----------------------------------
<S> <C> <C>
REVENUES
Net Viewer revenues $ 2,779,085 $ 3,186,609
Advertising and other revenues 2,058,013 1,629,967
------------ -----------
Interest income 4,837,098 4,816,576
113,227 107,632
------------ -----------
4,950,325 4,924,208
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COSTS AND EXPENSES
Affiliate fees, site costs and
telephone service 1,410,051 1,799,358
Distribution, general and
administrative 3,931,421 3,138,008
Satellite transponder, rent and
management fees paid to related parties 345,689 512,167
Depreciation and amortization 239,043 353,595
Stock and warrant compensation 0 67,305
Interest 0 788
------------ -----------
5,926,204 5,870,221
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INCOME (LOSS) BEFORE MINORITY INTEREST IN LOSS
OF SUBSIDIARY AND INTEREST IN LOSS OF
UNCONSOLIDATED SUBSIDIARIES (975,879) (946,013)
MINORITY INTEREST IN LOSS OF SUBSIDIARY 0 22,894
INTEREST IN LOSS OF UNCONSOLIDATED
SUBSIDIARIES (247,015) 0
NET INCOME (LOSS) $ (1,222,894) $ (923,119)
============ ===========
Net income (loss) per common share ($0.05) ($0.04)
============ ===========
Weighted average number of
common shares outstanding 23,944,281 23,672,111
============ ===========
</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 THREE MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995
--------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(1,222,894) $ (923,119)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 239,043 352,595
Interest in loss of unconsolidated subsidiary 247,015 0
Stock and warrant compensation and amortization 0 67,305
Change in assets and liabilities:
Decrease in accounts receivable 855,033 463,507
(Increase) decrease in prepaid expenses, deferred costs and
other assets (458,250) 216,203
Decrease in accounts payable and accrued expenses (732,194) (59,014)
Minority interest in loss of subsidiary 0 (16,323)
----------- ----------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (1,072,247) 101,154
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (883,684) (776,420)
Disposal of fixed assets 15,756 0
Increase in investment in and advances to unconsolidated subsidiaries (250,494) 0
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES (1,118,422) (776,420)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 0 1,333
Payments of short-term borrowings 0 (440)
----------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 0 893
----------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (13,056) 30,203
----------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,203,725) (644,170)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,712,402 8,018,010
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,508,677 $7,373,840
=========== ==========
</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, 1995. 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. Loss per share is computed based on the weighted average shares of common
stock outstanding during the quarter. Since the Company has experienced
net operating losses, common stock equivalents are not considered in the
computation of loss per share as their effect would be to decrease net
loss per share.
3. The consolidated financial statements include the balance sheet and
operating results of the Company's wholly-owned subsidiaries, VJN LPTV
CORP.(incorporated in February, 1994), The Box Worldwide Europe, B.V.,
(incorporated in August, 1995), Video Jukebox Network Europe,
Ltd.(incorporated in January, 1996), and The Box Worldwide-Latin America,
Inc. (incorporated in January, 1996); and include the operating results of
Video Jukebox Network International, Limited ("VJNIL") for the first six
months of 1995. Effective July 1, 1995, the Company's interest in VJNIL
was reduced to 50% and the Company began to account for VJNIL on the
equity method. The Company also accounts for its 50% owned subsidiary,
The Box Holland (incorporated in October, 1995) on the equity method of
accounting. All significant consolidating and eliminating entries have
been included.
UNCONSOLIDATED SUBSIDIARIES
VJNIL --- In September 1991, Video Jukebox Network International Limited
("VJNIL"), which began operations in 1992, was founded in the United
Kingdom to develop and launch a United Kingdom version of the Company's
music video television programming. The Company had beneficially owned
91% of the outstanding common stock of VJNIL from inception through June
29, 1995. 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 were valued at $267,187 on
that day. 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
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<PAGE> 7
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. (CONTINUED)
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 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 agreement.
The remaining investment in VJNIL 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
March 31, 1996.
The following is a summary of VJNIL's balance sheet and operating results
for the quarter ended March 31, 1996, during which period the Company's
share of these results were accounted for on the equity method by the
Company:
Current assets $1,238,705
Noncurrent assets 921,210
----------
$2,159,915
==========
Current liabilities 583,421
Noncurrent liabilities 3,269
Equity, advances and notes
payable to shareholders 1,573,225
----------
$2,159,915
==========
Net revenues $ 492,114
==========
Net operating loss $ (319,813)
==========
The difference between the Company's recorded net investment in and
advances to VJNIL at March 31, 1996 and the underlying equity in VJNIL's
net assets relates primarily to previously recognized net losses prior
to the sale of 50% of its interest in VJNIL. Gross advances totaling
$1,500,000 are represented by a note receivable from VJNIL which bears
interest at prime plus 1%. No principal or interest payments are due
under the note until the third quarter of 1997. This note
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<PAGE> 8
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. (CONTINUED)
(and a similar note payable to Ticketmaster) are secured by all of
VJNIL's assets. The Company recorded interest income of approximately
$37,000 in the quarter ended March 31, 1996 related to this note. Any
future payments received on the note in excess of recorded amounts will
be recognized as income when received.
Other --- The following is a summary of the balance sheet and operating
results of the other unconsolidated subsidiary, The Box Holland, as of
and for the quarter ended March 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Current assets $ 88,479
Noncurrent assets 705,766
---------
$ 794,245
=========
Current liabilities $ 199,150
Equity, advances and notes
payable to shareholders 595,095
---------
$ 794,245
=========
Net revenues $ 16,674
=========
Net operating loss $(221,083)
=========
</TABLE>
CONSOLIDATED INTERNATIONAL SUBSIDIARIES
The following is a summary of operating results for the three
international consolidating subsidiaries which are included in the
Company's consolidated financial statements:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Net viewer revenues $ 0 $ 319,763
Advertising and other revenues 5,000 54,114
5,000 373,877
Affiliate fees, site costs, and
telephone services $ 11,714 $ 101,791
Distribution, general and
administrative $ 138,179 $ 418,077
Depreciation and amortization 8,735 68,220
Interest expense 0 40,168
--------- ---------
$ 158,628 $ 628,256
--------- ---------
Net Loss $(153,628) $(254,379)
========= =========
</TABLE>
Note - The 1995 activity consists of operations from VJNIL only. The
three new subsidiaries were not yet active in the first quarter of
1995.
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<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AS COMPARED TO THE THREE MONTHS ENDED MARCH
31, 1995.
For the quarter ended March 31, 1996, the Company realized a consolidated net
loss of $(1,222,894) compared to a consolidated net loss of $(923,119) for the
quarter ended March 31, 1995. Domestic net loss exclusive of international
developmental costs and charges for any international operations for the
quarter ended March 31, 1996 was approximately $(516,400) as compared with a
domestic net loss of ($655,000) for the same prior year period. In the
consolidated financial statements for the quarter ended March 31, 1996, the
Company recognized $(706,500) in losses from corporate international
departmental and subsidiary international operations ($459,000 in consolidated
operations and $247,000 through the equity method), while the Company
recognized $268,000 in losses from international operations (all consolidated)
for the same prior year period.
All viewer, advertising and other call revenues resulted from the distribution
of THE BOX. Net viewer revenue decreased $408,000 from $3,187,000 to
$2,779,000 or 12.8% for the three months ended March 31, 1996 as compared with
the same prior year period. The majority of this decrease resulted from the
loss of ten boxes in the New York City market which occurred on January 2, 1996
when a large cable company elected to discontinue its affiliation with the
Company's programming service. The Company had installed 10 box units to serve
that market, which totaled approximately 904,000 cable subscribers. The New
York City systems produced approximately $342,000 in gross viewer revenue and a
gross margin contribution after affiliate fees and direct costs associated with
operating the 10 boxes of approximately $64,000 for the quarter ended March 31,
1995. In February 1996, in order to replace the lost cable subscribers, the
Company began additional transmission of its programming by adding a third low
power broadcast station in the New York City area to the two that were already
broadcasting the Company's programming. The Company believes that the low
power television stations reach approximately 3.8 million households. The new
low power station is currently providing gross viewer revenue of approximately
$24,000 per month and provided $42,000 of gross viewer revenue during the first
quarter of 1996. Therefore, unless the Company is able to renew its
affiliation with the New York City cable system, the expected annualized loss
of net viewer revenue in 1996 will be approximately $937,000. The remaining
domestic boxes produced approximately $45,000 more in gross viewer revenue
during first quarter 1996 as compared with the same prior year quarter. The
Company has, however, continued to improve the domestic viewer revenue
generated per box from an average monthly gross viewer revenue of $9,870 per
box in the quarter ended March 31, 1995 to an average monthly gross viewer
revenue of $10,593 per box in the quarter ended March 31, 1996, a 7.3%
increase. Management believes that this improvement is due primarily to the
continued broadening the type of music videos available and consolidation of
underperforming boxes.
A further factor in the decrease in net viewer revenue is that gross viewer
revenue generated from the United Kingdom were consolidated for only the first
half of 1995, while the United Kingdom subsidiary was majority owned. When the
Company became a 50% owner of this United Kingdom subsidiary on June 30, 1995,
it began to account for all
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<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
financial results from United Kingdom operations utilizing the equity method of
accounting. As a result, United Kingdom viewer revenue was included in the
Company's financial statements for the quarter ended March 31, 1995, totaling
$320,000, while for the quarter ended March 31, 1996, no viewer revenue was
included in the Company's financial statements.
The final element of the net revenue decrease is the change in chargebacks.
Viewer revenues are adversely affected by customers who deny having made music
video requests on THE BOX. In an effort to reduce chargebacks from telephone
companies due to such customers, the Company is in the second year of
implementation of call blocking for previous non-paying customers and credit
limitations for all participants in the Company's interactive process. The
information necessary to institute these procedures had not been previously
available from the Company's telephone service provider. With nearly two years
of these procedures undertaken, and lower gross viewer revenue, the Company has
seen the amount of chargebacks reduced by $167,000, from $611,000 for the
quarter ended March 31, 1995 to $444,000 for the quarter ended March 31, 1996.
To further reduce chargebacks and decrease telecommunications charges,
beginning in January 1996 the Company introduced a new program to allow
customers who would like to exceed the Company's 900 service credit limit to
establish a prepaid account for the selection of videos. In addition to
generating additional viewer revenue from customers, this program has been
designed to eliminate customer chargebacks and billing charges from service
providers, as well as reduce transport costs. $222,000 of revenue was generated
from this program for the quarter ended March 31, 1996. Revenue from this
program is recognized only as videos are selected, while prepaid account
balances are included in current liabilities.
Advertising sales and other revenues increased from $1,630,000 for the first
quarter of 1995 to $2,058,000 for the same current year period. The increase
resulted from improved performance in most categories of advertising: national
sales were up 104.4% for first quarter 1996 as compared with the same prior
year period and direct response advertising increased by 121.3% from 1995 to
1996. Advertising sales from the record industry and radio sponsorships were
down 28.4% for the first quarter of 1996 as compared to the same prior year
period due to lower advertising by certain labels who did not have new product
to be advertised. Advertising revenue generated from the United Kingdom in the
amount of $54,000 is included in the first quarter 1995 (when it was
consolidated), while no amount is included for the same period in the current
year (accounted for on the equity method). Miscellaneous income for the first
quarter of 1996 totaled approximately $62,000 which consisted of merchandise
revenues from the Company's retail store location in Miami Beach, license fees
related to the Company's United Kingdom operations and affiliate programming
fees paid by certain operators to the Company.
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<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Expenses for affiliate fees, site costs and telephone services were 50.7% and
56.5% of net viewer revenue for the quarters ended March 31, 1996 and 1995,
respectively. The decrease in expenses between the quarters ended March 31,
1996 and 1995 of approximately $389,000 was primarily due to a decrease in
domestic cable affiliation fees of approximately $372,000 due to the effects of
renegotiation of the cable agreements for the Company's two largest multiple
system operators and the carriage loss of a cable company's New York systems.
This decrease was offset by an increase in low power television affiliation and
site cost fees of approximately $73,000 due to new launches of LPTV affiliated
boxes. International expenses for affiliate fees, site costs and telephone
services was $90,000 lower for the first quarter of 1996 as compared to the
first quarter of 1995 due to new international operations expense in 1996 of
$11,000 as offset by $101,000 in consolidated United Kingdom operations
expenditures in the first quarter of 1995, with no comparable amount included
for the same period in the current year (accounted for on the equity method).
Distribution, general and administrative expenses for the quarter ended March
31, 1996 increased by approximately $793,000 from $3,138,000 for the first
quarter of 1995 to $3,931,000 for the first quarter of 1996. A majority of the
increase, $412,000, resulted from additional staffing for affiliate sales,
advertising sales, marketing (both consumer and radio affiliation), production
and operations. In order to develop additional transactional and advertising
revenues, personnel who could produce sales, develop marketing and promotional
tie-ins, create the related programming requirements and support expanded
programming distribution were added in late 1995 and first quarter 1996.
Additionally, staff has been added for development and implementation of the
digital box. In order to increase industry awareness of the Company's
programming, industry trade event participation and related sales calls have
been increased, resulting in increased travel and entertainment expenses and
related sales premiums and materials production and on-air promotions and
marketing expenditures were undertaken to increase consumer viewing levels, in
total increasing these costs by approximately $240,000 in the first quarter of
1996 as compared with the same prior year period. Costs related to production
and disc and tape preparation were higher in the first quarter 1996 as compared
with 1995 by approximately $50,000 due to the increased production of laser
discs for music videos, creating more space on tapes needed for increased
advertising content. Savings were realized in telecommunications expense due
to switching long distance carriers and the elimination of monitoring United
Kingdom box units in the field, primarily resulting in a $67,000 reduction in
expense in the current year period as compared with the first quarter of 1995.
The increased national and direct response advertising sales revenues for the
first quarter of 1996 as compared with 1995 resulted in higher agency
commissions of approximately $110,000 in the current year period. Other
administrative expenses which have increased
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<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
in the first quarter of 1996 as compared with 1995 include: fees for an
investor relations firm ($18,000), higher state and local taxes due to more
operating locations ($38,000) and costs related to merchandise sold at the
Company's retail store ($6,000). Legal expenses were decreased by $8,000 due
to less legal activity. Investment spending for the development of
international operations for the quarter ended March 31, 1996 was $389,000
higher than the same prior year period, offset by United Kingdom distribution,
general and administrative expenses of $395,000 included in the quarter ended
March 31, 1995 (consolidated), while no comparable amount is included for the
same period in the current year (accounted for on the equity method).
Expenditures for satellite transponder, rent and management fees paid to
related parties decreased to approximately $346,000 for the first quarter of
1996 as compared to $512,000 for the first quarter of 1995, a reduction of
$166,000. The major part of the reduction relates to $244,000 in lower
expenditures for the satellite transponder and service fees paid to transmit
the Company's satellite programming service. During February 1995, the Company
switched its satellite signal from analog to digital, thereby reducing the
monthly charge from $200,000 for January 1995 to $155,000 for February and
$110,000 for March 1995. Then, beginning May 1, 1995, the Company paid $73,500
per month for transponder and uplink services. The Company has terminated its
satellite agreement with StarNet, Inc. effective April 1996. A new three-month
transitional agreement has been signed with WTCI, a subsidiary of
Tele-Communications, Inc. The Company, beginning in April 1996, is
broadcasting from Hughes Satellite's Galaxy 7, transponder 13 at a transponder
and uplink service charge of $42,500 per month.
Consulting fees of approximately $47,000 were incurred in the first quarter
1995 related to payments made to one of the Company's principal shareholders
for reimbursement of the salary and benefits of an Island Trading Company, Inc.
("Island") employee utilized by the Company. During the first quarter of 1996,
the Company also incurred rental expense payable to Island for its new
corporate headquarters of approximately $125,000, with no comparable prior year
related party expenditure.
Depreciation and amortization expenses for the quarter ended March 31, 1996
decreased by approximately $114,000 or 32% from the comparable prior year
period due to a significant amount of the Company's box units becoming fully
depreciated after first quarter 1995.
Stock and warrant compensation, a non-cash expenditure, decreased by
approximately $67,000 for the quarter ended March 31, 1996 as compared to the
same prior year period. This decrease was due to no new issuance of stock
options at an exercise price lower than the market price on the date of grant.
-12-
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio (current assets to current liabilities) was 2.79 to
1.00 at March 31, 1996 as compared to 2.63 to 1.00 at March 31, 1995. At March
31, 1996, the Company's current assets exceeded its current liabilities by
approximately $4,607,000.
The Company is using the proceeds of 1994 financing transactions which provided
the Company with $9 million in gross proceeds before transactional expenses 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. The Company has used the funds
to develop the digital box, hire sales personnel to obtain distribution of the
Company's programming and market such programming, all in an effort to expand
distribution. 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 maximize 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.
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. In 1995, the Company completed the renegotiation of affiliation
agreements with the two largest multiple system operators. While considerable
savings have resulted from the renegotiation of these agreements, the Company
may be required to increase such affiliation fees in order to renew affiliation
with the lost New York City systems.
Upon full implementation of the digital box, the Company will save
approximately $82,000 in operating costs per month, or annual savings of
$984,000. Chargebacks of the Company's phone call revenue have been
significantly reduced by blocking requests of viewers who have a history of
denying having made music video requests and applying credit limits on customer
accounts. As the Company obtains additional information about its customer
base and improves upon the time taken by the Company's phone provider to report
denied payments, the Company believes it will be able to continue to reduce
chargebacks further. 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 been developing new record label promotions and
national advertising account value added promotions. With increased
distribution and the overall impact of the
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<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Company's programming, rates for all time segments, including prime time, have
increased as a response to demand.
During the quarter ended March 31, 1996, the Company spent nearly $884,000 on
the purchase of a new production edit suite, enhancements to its in-house
computer system, furniture and tenant improvements for the new corporate office
location, development costs for the digital box and digital box equipment.
The Company believes that the newly developed technology known as the digital
box is a critical element of the Company's future. In order to provide
programming improvement through enhanced audio and video quality, superior
graphic quality, consumer friendly responsiveness (such as nearly immediate
video play), plus provide operational efficiencies such as reduction of
expenses associated with the manual process of tapes, discs, weekly change outs
of music product and limited availability for advertising, the Company has
decided to deploy the digital box in replacement of all boxes. Initially, the
Company plans to replace all current analog boxes at cable installations, four
low power stations including the three New York City low power stations, plus
launch all new cable distribution with the digital box. It is expected that
this deployment will cost the Company approximately $3 million. In order to
continue with this deployment, the Company is in the process of securing
financing in the amount of $1 million collateralized by cash and cash
equivalents. This note would be repaid over four years with monthly payments
of approximately $25,000. Additional funding may be required to complete full
implementation of the digital box. There can be no assurance that financing
will be available on terms satisfactory to the Company nor that this new
technology will result in additional distribution, additional advertising sales
or higher viewership.
In February 1996, the Company entered into a five-year agreement with
an unaffiliated party to purchase satellite receiving equipment and satellite
transponder time for sending digitized video segments from the Company's
headquarters to the various box unit locations at cable head end and broadcast
station sites. The minimum cash commitment of the Company under this agreement
is approximately $1.9 million.
In the quarter ended March 31, 1996, the Company incurred expenses totaling
approximately $308,000 in its international expansion program, along with
$204,000 expended directly for the newly launched Holland and Box Worldwide -
Europe operations and $144,000 for the initiation of operations related to
licensing affiliationsin Argentina and Venezuela. The Company has determined
that unless additional financing is obtained, no further international
expansion beyond the United Kingdom, Aruba (a satellite delivered service),
Holland, Argentina and Venezuela will be possible, at least for the immediate
future.
-14-
<PAGE> 15
PART 11: OTHER INFORMATION
ITEM 6. EXHIBITS
Exhibit 27 - Financial Data Schedule (for SEC use only)
-15-
<PAGE> 16
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)
By:/s/ Alan McGlade
Date: May 13, 1996 ----------------------------------
Alan McGlade
President and Chief Executive Officer
Date: May 13, 1996 By: /s/Luann M. Hoffman
---------------------------------
Luann M. Hoffman
Chief Financial and
Administrative Officer
- -16-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF VIDEO JUKEBOX NETWORK, INC. FOR THE THREE MONTHS ENDED
MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,508,677
<SECURITIES> 0
<RECEIVABLES> 2,953,422
<ALLOWANCES> 1,163,016
<INVENTORY> 0
<CURRENT-ASSETS> 7,180,504
<PP&E> 12,314,628
<DEPRECIATION> 8,553,410
<TOTAL-ASSETS> 12,693,618
<CURRENT-LIABILITIES> 2,572,869
<BONDS> 0
23,944
0
<COMMON> 0
<OTHER-SE> 10,096,805
<TOTAL-LIABILITY-AND-EQUITY> 12,693,618
<SALES> 0
<TOTAL-REVENUES> 4,950,325
<CGS> 1,410,051
<TOTAL-COSTS> 4,516,153
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,222,894)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,222,894)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,222,894)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
