<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 June 30, 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 August 12, 1996
Common Stock, Par Value $.001 Per Share 24,001,781
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
June 30, 1996 (Unaudited) 3
Consolidated Statements of Operations
for the Three Months and Six Months
ended June 30, 1996 and 1995 (Unaudited) 4
Consolidated Statements of Cash Flows
for the Three Months and Six Months
Ended June 30, 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 22
SIGNATURES 23
</TABLE>
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<PAGE> 3
VIDEO JUKEBOX NETWORK, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
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JUNE 30,
1996
--------------
<S> <C>
ASSETS:
CURRENT ASSETS
Cash and cash equivalents $ 2,859,909
Accounts receivable, less allowances for chargebacks
and doubtful accounts of $1,047,283 1,934,784
Receivable from officer 48,600
Prepaid expenses and other 860,638
--------------
TOTAL CURRENT ASSETS 5,703,931
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RECEIVABLE FROM OFFICER - LONG TERM 108,103
PROPERTY AND EQUIPMENT, NET 5,294,568
DEFERRED COSTS AND OTHER ASSETS, NET 1,184,192
INVESTMENT IN AND ADVANCES TO
UNCONSOLIDATED SUBSIDIARIES 579,722
--------------
TOTAL ASSETS $ 12,870,516
==============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES
Accounts payable $ 1,116,599
Accrued expenses 2,476,379
--------------
TOTAL CURRENT LIABILITIES 3,592,978
--------------
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, 23,994,281
shares issued and outstanding 23,994
Additional paid in capital 30,231,269
Accumulated deficit (20,935,252)
Cumulative foreign currency translation loss (42,473)
--------------
TOTAL STOCKHOLDERS' EQUITY 9,277,538
--------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 12,870,516
==============
</TABLE>
See Notes to Financial Statements
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VIDEO JUKEBOX NETWORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
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FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1996 1995 1996 1995
-------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
REVENUES
Net viewer revenues $ 2,677,276 $ 3,049,909 $ 5,456,361 $ 6,236,518
Advertising and other revenues 2,937,393 1,783,467 4,995,406 3,413,434
------------- ------------ ------------- --------------
5,614,669 4,833,376 10,451,767 9,649,952
Gain on sale of interest in subsidiary 0 1,354,076 0 1,354,076
Interest income 80,930 113,499 194,157 221,131
------------- ------------ ------------- --------------
5,695,599 6,300,951 10,645,924 11,225,159
------------- ------------ ------------- --------------
COSTS AND EXPENSES
Affiliate fees, site costs and
telephone service 1,623,119 1,307,636 3,033,170 3,106,994
Distribution, general and
administrative 4,254,320 3,548,873 8,185,741 6,663,987
Satellite transponder, rent and management
fees paid to related parties 149,691 499,892 495,380 1,012,059
Depreciation and amortization 325,326 386,126 564,369 738,721
Stock and warrant compensation 0 67,304 0 134,609
Interest 0 889 0 1,677
------------- ------------ ------------- --------------
6,352,456 5,810,720 12,278,660 11,658,047
------------- ------------ ------------- --------------
INCOME (LOSS) BEFORE INTEREST IN LOSS OF
UNCONSOLIDATED SUBSIDIARIES (656,857) 490,231 (1,632,736) (432,888)
INTEREST IN LOSS OF UNCONSOLIDATED
SUBSIDIARIES (207,320) 0 (454,335) 0
------------- ------------ ------------- --------------
NET INCOME (LOSS) $ (864,177) $ 490,231 $ (2,087,071) $ (432,888)
============= ============ ============= ==============
Net income (loss) per common share ($0.04) $ 0.02 ($0.09) ($0.02)
============= ============ ============= ==============
Weighted average number of
common shares outstanding 23,956,918 23,676,479 23,950,600 23,674,307
============= ============ ============= ==============
</TABLE>
See Notes to Financial Statements
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VIDEO JUKEBOX NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
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FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995
-------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,087,071) $ (432,888)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 564,369 738,721
Gain on sale of interest in subsidiary 0 (1,354,076)
Interest in loss of unconsolidated subsidiary 454,335 0
Stock and warrant compensation and amortization 0 134,609
Change in assets and liabilities:
Decrease in accounts receivable 736,492 778,060
(Increase) decrease in prepaid expenses, deferred costs and
other assets (736,830) 309,323
Increase in accounts payable and accrued expenses 328,444 60,736
Minority interest in loss of subsidiary 0 84,670
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NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (740,261) 319,155
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash received from sale of interest in subsidiary 0 1,607,574
Capital expenditures (2,706,219) (1,399,435)
Disposal of fixed assets 27,508 0
Increase in investment in and advances to unconsolidated subsidiaries (383,205) 0
------------- ------------
NET CASH USED IN INVESTING ACTIVITIES (3,061,916) 208,139
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 0 3,333
Payments of short-term borrowings 0 (865)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 0 2,468
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EFFECT OF EXCHANGE RATE CHANGES ON CASH (50,316) 72,699
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NET DECREASE IN CASH AND CASH EQUIVALENTS (3,852,493) 602,461
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,712,402 8,018,010
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,859,909 $ 8,620,471
============= ============
Stock issued for purchase of minority interest in subsidiary $ 0 $ 267,188
============= ============
</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. 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.
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 Company's 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 June 30, 1996.
The following is a summary of VJNIL's balance sheet as of June 30, 1996
and operating results for the second quarter and the six months ended
June 30, 1996, respectively, during which period the Company's share of
these results were accounted for on the equity method by the Company:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1996
---------------- ---------------
<S> <C> <C>
Current assets $1,979,308
Noncurrent assets 993,151
----------
$2,972,459
==========
Current liabilities 1,118,289
Noncurrent liabilities 2,213
Equity, advances and notes
payable to shareholders 1,851,957
----------
$2,972,459
==========
Net revenues $ 575,799 $1,067,913
========= ==========
Net operating loss $(316,162) $ (635,975)
========= ==========
</TABLE>
The difference between the Company's recorded net investment in and
advances to VJNIL at June 30, 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
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<PAGE> 8
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. (CONTINUED)
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 (and a similar note payable to Ticketmaster)
are secured by all of VJNIL's assets. The Company recorded interest
income of approximately $37,000 and $75,000 for the quarter and six
months ended June 30, 1996, respectively, 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 as of June 30,
1996 and operating results of the other unconsolidated subsidiary, The
Box Holland, for the quarter and six months ended June 30, 1996,
respectively:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1996
------------------ ---------------
<S> <C> <C>
Current assets $ 156,414
Noncurrent assets 804,101
----------
$ 960,515
==========
Current liabilities $ 270,295
Equity, advances and notes
payable to shareholders 690,220
----------
$ 960,515
==========
Net revenues $ 74,750 $ 91,424
========= ==========
Net operating loss $(147,115) $ (368,198)
========= ==========
</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 For the Six Months Ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net viewer revenues $ 25,546 $ 325,657 $ 25,546 $ 645,420
Advertising and other revenues 9,300 84,325 $ 14,300 $ 138,439
--------- --------- --------- ----------
34,846 409,982 $ 39,846 $ 783,859
--------- --------- --------- ----------
Affiliate fees, site costs, and
telephone services $ 15,814 $ 191,377 $ 27,528 $ 293,168
Distribution, general and
administrative $ 225,288 $ 393,729 $ 363,467 $ 811,806
Depreciation and amortization 25,392 76,611 34,127 144,831
Interest expense 0 889 0 41,057
--------- --------- --------- ----------
$ 266,494 $ 662,606 $ 425,122 $1,290,862
--------- --------- --------- ----------
Net Loss $(231,648) $(252,624) $(385,276) $ (507,003)
========= ========= ========= ==========
</TABLE>
Note - The 1995 activity consists of operations from VJNIL only. The
three new subsidiaries were not yet active in the second quarter
of 1995.
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<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AS COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1995.
For the quarter ended June 30, 1996, the Company realized a consolidated
net loss of $(864,177) compared to consolidated net income of $490,231 for the
quarter ended June 30, 1995. Domestic net loss exclusive of international
developmental costs and charges for any international operations for the quarter
ended June 30, 1996 was approximately $(176,000) as compared with a domestic net
loss of $(377,000) for the same prior year period. In the consolidated
financial statements for the quarter ended June 30, 1996, the Company recognized
$(688,000) in losses from corporate international departmental expenditures and
subsidiary international operations ($481,000 in consolidated operations and
$207,000 through the equity method), while the Company recognized $868,000 in
income from international operations (all consolidated) for the same prior year
period, which included a gain of $1,354,000 recognized from the sale of 50%
interest in VJNIL, the Company's United Kingdom subsidiary.
All viewer, advertising and other call revenues resulted from the
distribution of THE BOX. Net viewer revenues decreased $373,000 from $3,050,000
to $2,677,000 or 12.2% for the three months ended June 30, 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 cable
system, which totaled approximately 904,000 cable subscribers. The New York City
system produced approximately $347,000 in gross viewer revenues and a gross
margin contribution after affiliate fees and direct costs associated with
operating the 10 boxes of approximately $289,000 for the quarter ended June 30,
1995. In February 1996, in order to compensate for 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
three low power television stations reach approximately 3.8 million households
in the New York City area. Unless the Company is able to renew its affiliation
with the New York City cable system, or the system is replaced with comparable
levels of subscribers at other systems, the annualized loss of gross margin
contribution after affiliate fees and direct costs in 1996 from these New York
City cable systems is anticipated to be approximately $617,000. The Company
additionally delaunched four boxes (approximately 126,000 cable subscribers) in
the Detroit market on June 3, 1996 when another cable company elected to
discontinue its affiliation with the Company's programming service. While the
financial impact in the second quarter of 1996 was less than $20,000, unless the
Company is able to renew its affiliation with the Detroit cable system, the
expected annualized loss of gross margin contribution after affiliate fees and
direct costs in 1996 is expected to be approximately $285,000, unless the system
is replaced with comparable subscribers at other systems. The cable operator
removed the programming at the request of the local franchise authority. While
it cannot be assured that all launches will occur, this same multiple cable
system operator has tentative plans to launch over 300,000 cable subscribers in
three systems during the remainder of 1996.
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<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
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RESULTS OF OPERATIONS (CONTINUED)
The remaining domestic boxes produced approximately $68,000 more in
gross viewer revenues during second quarter of 1996 as compared with the same
prior year quarter. The Company has continued to improve the domestic viewer
revenues generated per box from average monthly gross viewer revenues of $9,670
per box in the quarter ended June 30, 1995 to average monthly gross viewer
revenues of $9,916 per box in the quarter ended June 30, 1996, a 2.5% increase.
Management believes that this improvement is due primarily to the continued
broadening of the type of music videos available and of the launching of the
digital box in twenty markets as of June 30, 1996. The digital box, due to its
virtually instantaneous back-to-back play of videos, can play more videos in
each broadcast hour than could the analog tape machine and laser disc player
technology.
A further factor in the decrease in net viewer revenues is that gross
viewer revenues 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 financial results from United Kingdom
operations utilizing the equity method of accounting. As a result, United
Kingdom viewer revenues were included in the Company's net viewer revenues for
the quarter ended June 30, 1995, totaling $326,000, while for the quarter ended
June 30, 1996, no United Kingdom viewer revenues were included in the Company's
consolidated net viewer revenues total.
The final element of the net revenues decrease is the change in
chargebacks. Viewer revenues are adversely affected by customers who deny
having made music video requests on THE BOX, which result in chargebacks of
such calls to the Company for the Company's telephone service providers. 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, the
Company has seen the amount of chargebacks reduced by $133,000, from $523,000
for the quarter ended June 30, 1995 to $390,000 for the quarter ended June 30,
1996 primarily due to these procedures and to a lesser extent due to lower
gross viewer revenues. To further reduce chargebacks and decrease
telecommunications charges, beginning in January 1996 the Company introduced a
new program to allow customers to directly purchase on a prepaid basis. In
addition to generating additional viewer revenues from customers since they may
then exceed the monthly credit limits, this program has also been designed to
eliminate customer chargebacks and billing charges from service providers, as
well as reduce transport costs. $372,000 in revenue was generated from this
program for the quarter ended June 30, 1996. Revenues from this program are
recognized only as videos are selected, while prepaid customer account balances
are included in current liabilities.
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<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
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RESULTS OF OPERATIONS (CONTINUED)
Advertising sales and other revenues increased from $1,783,000 for the
second quarter of 1995 to $2,937,000 for the same current year period. The
increase resulted from improved performance in most categories of advertising:
national sales were up 218.1% for second quarter of 1996 as compared with the
same prior year period and direct response advertising increased by 47.6% from
1995 to 1996. Advertising sales from the record industry and radio
sponsorships were down 27.1% for the second quarter of 1996 as compared to the
same prior year period due to lower advertising by certain labels due to
delayed releases on new music product by several labels and the Company's
concentration on obtaining advertising from rock, pop and alternative music
label sources. While it cannot be assured that all advertising booked will
result in revenue to the Company, over $3 million in advance bookings have been
committed for third and fourth quarters 1996 at this date. Advertising
revenue generated from the United Kingdom in the amount of $84,000 is included
in the second quarter of 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 second quarter of 1996 totaled
approximately $211,000 which consisted of contests and promotions sponsorship
revenue ($130,000); merchandise revenues from the Company's retail store
location in Miami Beach ($49,000); and license fees related to the Company's
United Kingdom operations, affiliate programming fees paid by certain operators
to the Company and other miscellaneous revenue ($32,000). Miscellaneous income
for the same period for 1995 totaled $41,000.
Expenses for affiliate fees, site costs and telephone services were
60.6% and 42.9% of net viewer revenue for the quarters ended June 30, 1996 and
1995, respectively. The increase in expenses between the quarters ended June
30, 1996 and 1995 was approximately $315,000. The increase was primarily due
to an increase in domestic cable affiliation fees of $134,000. During second
quarter 1995, an adjustment of $140,000 was made related to cable affiliate
fees previously accrued pending final renegotiated reduced fee contract
documentation. This adjustment, offset by slightly lower affiliation fees for
boxes operating in second quarter 1995, resulted in the $134,000 increase from
the second quarter 1995 to the current year period. The Company also
experienced an increase in low power television affiliation and site cost fees
of approximately $150,000 due to new launches of LPTV affiliated boxes.
Telephone services increased by $79,000, due mostly to implementation in the
second quarter of 1996 of a VSAT communication system intended to be used as
the primary communication method associated with the rollout of the new digital
box. Once fully rolled out, this system of communication is expected to reduce
telephone services costs as a percentage of net viewer revenues. The second
quarter of 1996 also includes $127,000 for satellite uplink charges paid to a
non-related third party. There is no similar item included in telephone
services in 1995, when this service was provided by a related party.
International expenses for affiliate fees, site costs and telephone services
was $175,000 lower for the second quarter of 1996 as compared to the second
quarter of 1995 due to new international operations expense in 1996 of $16,000,
as offset by $191,000 in consolidated United Kingdom operations expenditures
in the second quarter of 1995, with no comparable amount included for the same
period in the current year (accounted for on the equity method).
-11-
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
Distribution, general and administrative expenses for the quarter ended
June 30, 1996 increased by approximately $705,000 from $3,549,000 for the
second quarter of 1995 to $4,254,000 for the second quarter of 1996. A
majority of the increase, $458,000, 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 $132,000 in the second quarter of 1996 as compared with the
same prior year period.
The increased national and direct response advertising sales revenues
for the second quarter of 1996 as compared with 1995 resulted in higher agency
commissions of approximately $189,000 in the current year period. Other
administrative expenses which have increased in the second quarter of 1996 as
compared with 1995 include: fees for an investor relations firm ($18,000),
increased legal expenses due to increased legal activity associated with the
terminated Liberty Media transaction ($24,000), higher insurance costs
associated with the Company's South Beach office location and increased
equipment levels ($30,000) and costs related to merchandise sold at the
Company's retail store ($9,000). The Company experienced a net increase of
$19,000 in rent for changes in office space charges for non-related party
leases at our headquarter and satellite locations. Further, 1996 rent was
higher due to a reclassification of $79,000 in the second quarter of 1995
financials, which reclassified rent incurred for the first quarter of 1995 from
distribution, general and administrative expense to related party expense.
Costs related to production and disc and tape preparation were lower in
the second quarter of 1996 as compared with 1995 by approximately $24,000 due
to lower production expenditures for on-air contests and promotions during the
current year. 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 $11,000 reduction in
expense in the current year period as compared with the second quarter of 1995.
Due to the elimination of any advertising sales representation by an outside
agency, there were no commissions to such agencies in the second quarter of
1996, as compared to $8,000 incurred in the same period of 1995.
-12-
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
Expenditures for affiliate marketing support decreased by $52,000, in
accordance with the terms of the renegotiated and all new affiliation
agreements, and consulting expense decreased by $16,000. Investment spending
for the development of international operations for the quarter ended June 30,
1996 was $258,000 higher than the same prior year period, offset by United
Kingdom distribution, general and administrative expenses of $400,000 included
in the quarter ended June 30, 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 $150,000 for the second quarter
of 1996 as compared to $500,000 for the second quarter of 1995, a reduction of
$350,000. The major part of the reduction relates to $233,000 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 its related party, 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. A long term
agreement is under negotiation with WTCI with monthly charges which are
anticipated to be no more than the Company is currently paying.
Consulting fees of approximately $34,500 were incurred in the second
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. This employee was
hired directly by the Company in October 1995, so no comparable expense for
second quarter 1996 exists. During the second quarter of 1996, a reduction of
$82,500 in related party rent expense was recognized as the Company incurred
rental expense payable to Island for its new corporate headquarters of
approximately $126,000 in second quarter 1996, as compared to $208,500 recorded
in the second quarter of 1995 ($129,000 for second quarter of 1995 rent, and
$79,500 in rent recorded in the second quarter financials which represents
related party rent incurred for the first quarter of 1995 which was
reclassified from rent to a related party classification in second quarter
1995).
Depreciation and amortization expenses for the quarter ended June 30,
1996 decreased by approximately $61,000 from the comparable prior year period
due to a significant amount of the Company's box units becoming fully
depreciated after second quarter of 1995. Depreciation related to new
acquisitions during second quarter 1996 have yet to exceed such levels to
offset these fully depreciating assets.
-13-
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
Stock and warrant compensation, a non-cash expenditure, decreased by
approximately $67,000 for the quarter ended June 30, 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.
-14-
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AS COMPARED TO THE SIX MONTHS ENDED JUNE 30,
1995.
For the six months ended June 30, 1996, the Company realized a consolidated net
loss of $(2,087,071) compared to a consolidated net loss of $(432,888) for the
six months ended June 30, 1995. Domestic net loss exclusive of international
developmental costs and charges for any international operations for the six
months ended June 30, 1996 was approximately $(693,000) as compared with a
domestic net loss of $(1,032,000) for the same prior year period. In the
consolidated financial statements for the six months ended June 30, 1996, the
Company recognized $(1,395,000) in losses from corporate international
departmental expenditures and subsidiary international operations ($941,000 in
consolidated operations and $454,000 through the equity method), while the
Company recognized $600,000 in income from international operations (all
consolidated) for the same prior year period which included a gain of
$1,354,000 recognized from the sale of 50% interest in VJNIL, the Company's
United Kingdom subsidiary.
All viewer, advertising and other call revenues resulted from the distribution
of THE BOX. Net viewer revenues decreased $780,000 from $6,236,000 to
$5,456,000 or 12.5% for the six months ended June 30, 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 $689,000 in gross viewer revenues and a
gross margin contribution after affiliate fees and direct costs associated with
operating the 10 boxes of approximately $353,000 for the six months ended June
30, 1995. In February 1996, in order to compensate for the delaunched 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. Unless the Company
is able to renew its affiliation with the New York City cable system, or
replace these delaunched subscribers with new subscribers at comparable cable
systems, the annualized loss of gross margin contribution after affiliate fees
and direct costs in 1996 from these New York cable systems is anticipated to be
approximately $617,000. The Company additionally removed four boxes
(approximately 126,000 cable subscribers) in the Detroit market on June 3, 1996
when another cable company elected to discontinue its affiliation with the
Company's programming service. While the financial impact in the first half of
1996 was immaterial, unless the Company is able to renew its affiliation with
the Detroit cable system, or replace the delaunched cable subscribers with new
cable systems, the annualized loss of gross margin contribution after
affiliate fees and direct costs in 1996 is anticipated to be approximately
$285,000.
The remaining domestic boxes produced approximately $63,000 more in gross
viewer revenues during first half of 1996 as compared with the same prior year
quarter. The Company has continued to improve the domestic viewer revenues
generated per box from average monthly gross viewer revenues of $9,851 per box
in the six months ended June
-15-
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
30, 1995 to average monthly gross viewer revenues of $10,255 per box in the six
months ended June 30, 1996, a 4.1% increase. Management believes that this
improvement is due primarily to the continued broadening of the type of music
videos available and the launching of the more efficient digital box in twenty
markets.
A further factor in the decrease in net viewer revenues is that gross viewer
revenues 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 financial results from United Kingdom operations
utilizing the equity method of accounting. As a result, United Kingdom viewer
revenues were included in the Company's net viewer revenues for the six months
ended June 30, 1995, totaling $645,000, while for the six months ended June 30,
1996, no viewer revenues were included in the Company's consolidated net viewer
revenues total.
The final element of the net revenues 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 implementation
for nearly two years of these procedures, the Company has seen the amount of
chargebacks reduced by $282,000, from $1,134,000 for the six months ended June
30, 1995 to $851,000 for the six months ended June 30, 1996. To further reduce
chargebacks and decrease telecommunications charges, beginning in January 1996
the Company introduced a new program to allow customers to establish a prepaid
account for the selection of videos. In addition to generating additional
viewer revenue from customers who would have previously been blocked due to
credit limits, this program has been designed to eliminate customer chargebacks
and billing charges from service providers, as well as reduce transport costs.
$593,000 in revenue was generated from this program for the six months ended
June 30, 1996. Revenues from this program are recognized only as videos are
selected, while prepaid account balances are included in current liabilities.
Advertising sales and other revenues increased from $3,413,000 for the first
half of 1995 to $4,995,000 for the same current year period, an increase of
$1,582,000. The increase resulted from improved performance in most categories
of advertising: national sales were up 166.5% for the first half of 1996 as
compared with the same prior year period and direct response advertising
increased by 82.3% from 1995 to 1996. Advertising sales from the record
industry and radio sponsorships were down 27.7% for the first half of 1996 as
compared to the same prior year period due to lower advertising by certain
labels who had delays in new product releases and due to concentrated efforts
by the sales staff to improve advertising participation by non-urban labels.
Advertising revenue generated from
-16-
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
the United Kingdom in the amount of $138,000 is included in the first half of
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 half of 1996 totaled approximately $274,000 which
consisted of contests and promotions sponsorship revenue ($130,000);
merchandise revenues from the Company's retail store location in Miami Beach
($62,000); and license fees related to the Company's United Kingdom operations,
affiliate programming fees paid by certain operators to the Company, and other
miscellaneous revenue ($82,000). Miscellaneous income for the same period for
1995 totaled $128,000, including approximately $87,000 of income recognized on
the sale of certain LPTV assets and no revenue related to promotions or
merchandise.
Expenses for affiliate fees, site costs and telephone services were 55.6% and
49.8% of net viewer revenues for the six months ended June 30, 1996 and 1995,
respectively. The net decrease in expenses between the six months ended June
30, 1996 and 1995 was approximately $74,000. This decrease was primarily due
to reduced domestic cable affiliation fees of approximately $231,000 from the
second quarter 1995 to second quarter 1996 which was the result of the net
effect of lower affiliation fees in 1996 due to the carriage loss of a cable
company's New York systems, as offset by an adjustment in 1995 to recognize
the effects of renegotiation of the cable agreements for the Company's two
largest multiple system operators. The Company also experienced an increase in
low power television affiliation and site cost fees of approximately $216,000
due to new launches of LPTV affiliated boxes, with fees totaling $183,000 for
the new LPTV station in New York City for the first half of 1996. Telephone
services increased by $79,000, due mostly to implementation in the second
quarter of 1996 of a VSAT communication system intended to be used as the
primary communication method associated with the rollout of the new digital
box. Once fully rolled out, this system of communication is expected to reduce
telephone services costs as a percentage of net viewer revenue. The first half
of 1996 also includes $127,000 for satellite uplink to a non-related third
party. There is no similar item included in telephone services in 1995, when
this service was provided by a related party. International expenses for
affiliate fees, site costs and telephone services was $265,000 lower for the
first half of 1996 as compared to the first half of 1995 due to new
international operations expense in 1996 of $28,000, as offset by $293,000 in
consolidated United Kingdom operations expenditures in the first half 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 six months ended June
30, 1996 increased by approximately $1,522,000 from $6,664,000 for the first
half of 1995 to $8,186,000 for the first half of 1996. A majority of the
increase, $851,000, 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
-17-
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
programming distribution were added in late 1995 and first half 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.
Further, 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 $375,000 in the first half of
1996 as compared with the same prior year period. Costs related to production
and disc and tape preparation were higher in the first half of 1996 as compared
with 1995 by approximately $25,000 due to the increased production of laser
discs for music videos, creating more space on tapes needed for increased
advertising content.
The increased national and direct response advertising sales revenues for the
first half of 1996 as compared with 1995 resulted in higher advertising agency
commissions of approximately $299,000 in the current year period. Due to the
elimination of any advertising sales representation by an outside agency, there
were no commissions to such agencies in the first half of 1996, as compared to
$8,000 incurred in the same period of 1995. Other administrative expenses
which have increased in the first half of 1996 as compared with 1995 include:
fees for an investor relations firm ($36,000), increased legal expenses due to
increased legal activity related to the terminated Liberty Media transaction
($16,000), higher insurance costs related to increased equipment levels and the
Company's South Beach office location ($37,000), increased marketing
expenditures related to development of affiliate sales materials and new trade
advertising materials ($64,000), higher state and local taxes due to more
operating locations ($35,000) and costs related to merchandise sold at the
Company's retail store ($16,000). The Company experienced a net increase of
$96,000 in rent for changes in office space at our headquarter and satellite
locations. Investment spending for the development of international
operations for the six months ended June 30, 1996 was $647,000 higher than the
same prior year period, offset by United Kingdom distribution, general and
administrative expenses of $772,000 included in the six months ended June 30,
1995 (consolidated), while no comparable amount is included for the same period
in the current year (accounted for on the equity method).
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 $79,000 reduction in expense in the current
year period as compared with the first half of 1995. Expenditures for
affiliate marketing support decreased by $103,000 in accordance with terms of
new and renegotiated affiliation agreements, and miscellaneous other expenses
had a net decrease of $13,000.
-18-
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
Expenditures for satellite transponder, rent and management fees paid to
related parties decreased to approximately $495,000 for the first half of 1996
as compared to $1,012,000 for the first half of 1995, a reduction of $517,000.
The major part of the reduction relates to $477,000 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. A long term agreement is under
negotiation with WTCI which is anticipated to result in monthly transponder and
uplink charges at no more than the current monthly price.
Consulting fees of approximately $80,000 were incurred in the first half of
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. This employee was hired directly
by the Company in October 1995, so no comparable expense for the first six
months of 1996 exists. During the first half of 1996, an increase of $40,000
in related party rent expense was realized as the Company incurred rental
expense payable to Island for its new corporate headquarters of approximately
$250,000, for the first six months of 1996 as compared to $210,000 recorded in
the first half of 1995.
Depreciation and amortization expenses for the six months ended June 30, 1996
decreased by approximately $175,000 from the comparable prior year period due
to a significant amount of the Company's box units becoming fully depreciated
after first half of 1995. Depreciation related to new acquisitions during the
first six months of 1996 has not exceeded the level necessary to offset fully
depreciating assets.
Stock and warrant compensation, a non-cash expenditure, decreased by
approximately $135,000 for the six months ended June 30, 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.
-19-
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS (CONT'D)
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio (current assets to current liabilities) was 1.59 to
1.00 at June 30, 1996 as compared to 3.17 to 1.00 at June 30, 1995. At June
30, 1996, the Company's current assets exceeded its current liabilities by
approximately $2,111,000.
The Company continues to use the proceeds from 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 including the staffing
of a larger and more experienced cable affiliate sales staff; (iii) research,
develop, maintain and improve the Company's software and equipment including
the development of the digital box; (iv) fund working capital; and (v) purchase
technical equipment for programming production. 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's internally developed digital box allows
operational advantages but is more significantly important due to the sales and
marketing advantages of purely localized programming and advertising by
specific box location that is not currently feasible with the Company's analog
technology. Additional financing will 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, including the
redeployment of digital boxes in all programming locations. There can be no
assurance that financing will be available on terms satisfactory to the Company
nor that expanded distribution of its programming will result in additional
advertising sales or higher viewership.
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 and all new
agreements are signed at these similar reduced monthly guaranteed affiliation
payments, it is not known if the Company may be required to increase such
affiliation fees in order to renew affiliation with the delaunched 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. Only partial savings will be realized if the Company does not obtain
the funds necessary to completely distribute its programming to new digital box
locations, including the redeployment of digital boxes at current analog boxes.
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
-20-
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS (CONT'D)
LIQUIDITY AND CAPITAL RESOURCES (CONT'D)
believes it will be able to continue to reduce chargebacks further. With the
implementation of the new prepaid video program, the Company also anticipates
reduced chargebacks, reduced transportation and telecommunications expenses as
well as elimination of the eight percent billing fee imposed on all gross
transactional revenue handled by the Company's current telephone service
provider. The Company is also reviewing the use of other telephone service
providers as well as the possibility of handling all transactional calls
through its own telephone system. While exact cost savings are not known, and
cannot be assured, significant savings would be expected if such a complete
transfer were to occur.
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 continued using record label promotions and national
advertising account value added promotions such as the 96 Dayz of Summer
fourteen week promotion. With increased distribution and the overall impact of
the Company's programming, rates for all time segments, including prime time,
have increased as a response to demand.
During the six months ended June 30, 1996, the Company spent approximately
$2,706,000 on the development of the digital box, enhancements to its in-house
computer system, furniture and tenant improvements for the additional new
corporate office location, 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. The marketing advantages provided by the
digital box will allow enhanced localized programming and advertising plus
programming improvements through enhanced audio and video quality, superior
graphic quality, consumer friendly responsiveness (such as nearly immediate
video play), and the 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, all move the Company towards
deploying the digital box in replacement of all boxes if adequate financing is
obtained. 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, additional funding will
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, of which $319,000 has already been paid.
-21-
<PAGE> 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS (CONT'D)
LIQUIDITY AND CAPITAL RESOURCES (CONT'D)
In the six months ended June 30, 1996, the Company incurred expenses totaling
approximately $560,000 in its international expansion program, along with a
contribution of cash and equipment totaling $789,000 expended directly for the
newly launched Holland and Box Worldwide - Europe operations and $220,467 for
the initiation of operations related to licensing affiliations in Argentina and
Venezuela, Peru and Chile. 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, Venezuela,
Peru and Chile will be possible, at least for the immediate future.
PART 11: OTHER INFORMATION
ITEM 6. EXHIBITS
Exhibit 27 - Financial Data Schedule (for SEC use only)
-22-
<PAGE> 23
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 12, 1996 By: /s/ Alan McGlade
-------------------------------------
Alan McGlade
President and Chief Executive Officer
Date: August 12, 1996 By: /s/ Luann M. Hoffman
-------------------------------------
Luann M. Hoffman
Chief Financial and
Administrative Officer
-23-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF VIDEO JUKEBOX NETWORK, INC. FOR THE SIX MONTHS ENDED
JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,859,909
<SECURITIES> 0
<RECEIVABLES> 2,982,067
<ALLOWANCES> 1,047,283
<INVENTORY> 0
<CURRENT-ASSETS> 5,703,931
<PP&E> 13,888,468
<DEPRECIATION> 8,593,900
<TOTAL-ASSETS> 12,870,516
<CURRENT-LIABILITIES> 3,592,978
<BONDS> 0
0
0
<COMMON> 23,994
<OTHER-SE> 9,253,544
<TOTAL-LIABILITY-AND-EQUITY> 12,870,516
<SALES> 0
<TOTAL-REVENUES> 10,645,924
<CGS> 3,033,170
<TOTAL-COSTS> 9,245,490
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,087,071)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,087,071)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,087,071)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
