<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM________________ TO_________________
Commission file number: 1-9724
SpectraVision, Inc.
-------------------
(Exact name of Registrant as specified in its charter)
Delaware 75-2182004
------------------ --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1501 North Plano Road, Richardson, Texas 75081
---------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
(214) 234-2721
--------------
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has
filed all documents and reports required to be filed by Section 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes X No
----- -----
Number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
Outstanding at
Title of each Class May 8, 1995
-------------------------------------- -----------
Class A Common Stock, $0.001 Par Value 4,593,526
Class B Common Stock, $0.001 Par Value 19,390,379
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
<PAGE>
SPECTRAVISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $ 102 $ 1,317
Accounts Receivable 22,063 20,417
Debt Issuance Costs (net) 6,488 6,797
Prepaids and Other Assets 8,456 8,933
Video Systems
Installations In-Process 39,284 38,144
Completed Systems 249,103 257,484
--------- ---------
288,387 295,628
Less accumulated depreciation and
amortization (153,927) (149,045)
--------- ---------
Total Video Systems 134,460 146,583
Building and Equipment
Building 4,294 4,294
Furniture, fixtures and other equipment 6,895 6,887
--------- ---------
11,189 11,181
Less accumulated depreciation (5,310) (4,965)
--------- ---------
Total Building and Equipment 5,879 6,216
Land 2,559 2,559
Hotel Contracts (net) 49,351 50,000
--------- ---------
TOTAL ASSETS $ 229,358 $ 242,822
========= =========
</TABLE>
See Accompanying Notes to the Condensed Consolidated Financial Statements
2
<PAGE>
SPECTRAVISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
----------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities
Accounts Payable $ 42,189 $ 48,807
Accrued Liabilities
Interest 13,791 3,413
Other 21,909 26,017
Income Taxes 290 290
Deferred Income Taxes 6,515 6,757
Debt
Revolving Credit Facility 12,500 12,500
Canadian Bank Credit Facility 7,350 7,350
11.5% Senior Discount Notes 177,111 172,295
11.65% Senior Subordinated Reset Notes 294,768 294,768
Capitalized Lease Obligations 25,970 23,492
Other Debt 152 158
--------- ---------
Total Debt 517,851 510,563
--------- ---------
Total Liabilities 602,545 595,847
Contingent Value Rights 20,000 20,000
Stockholders' Deficit
Class A Common Stock - $0.001 par value,
authorized 6,000,000 shares, issued and
outstanding 4,593,526 at March 31, 1995
and December 31, 1994, respectively. 5 5
Class B Common Stock - $0.001 par value,
authorized 144,000,000 shares, issued and
outstanding 19,390,379 at March 31, 1995
and December 31, 1994, respectively. 19 19
Paid in Capital 392,185 392,185
Retained Deficit (785,683) (765,729)
Foreign Currency Translation Adjustment 287 495
--------- ---------
Total Stockholders' Deficit (393,187) (373,025)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 229,358 $ 242,822
========= =========
</TABLE>
See Accompanying Notes to the Condensed Consolidated Financial Statements
3
<PAGE>
SPECTRAVISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1995 1994
------- --------
<S> <C> <C>
REVENUES:
Pay-Per-View $ 28,084 $ 31,614
Free-To-Guest 3,458 3,868
Other 1,593 1,618
---------- ----------
TOTAL REVENUES 33,135 37,100
DIRECT COSTS:
Pay-Per-View 9,628 10,719
Free-To-Guest 2,833 3,130
Other 535 370
---------- ----------
TOTAL DIRECT COSTS 12,996 14,219
DEPRECIATION AND AMORTIZATION 8,974 11,469
OPERATING EXPENSES 10,182 8,441
SALES, GENERAL AND ADMINISTRATIVE EXPENSES 5,602 5,681
RESEARCH AND DEVELOPMENT (NET) 601 620
EXCHANGE LOSS 145 62
---------- ----------
TOTAL COSTS AND EXPENSES 38,500 40,492
---------- ----------
OPERATING LOSS (5,365) (3,392)
INTEREST EXPENSE, NET 14,830 13,647
---------- ----------
LOSS BEFORE INCOME TAXES (20,195) (17,039)
INCOME TAXES
State and Foreign Provision 1 331
Deferred Benefit (242) (2,152)
---------- ----------
TOTAL INCOME TAX (BENEFIT) (241) (1,821)
---------- ----------
NET LOSS $ (19,954) $ (15,218)
========== ==========
NET LOSS PER COMMON SHARE $ (0.83) $ (0.63)
========== ==========
AVERAGE COMMON SHARES OUTSTANDING 23,983,905 23,983,905
</TABLE>
See Accompanying Notes to the Condensed Consolidated Financial Statements
4
<PAGE>
SPECTRAVISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1995 1994
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(19,954) $(15,218)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 8,974 11,469
Other non-cash items:
Increase in accrued interest paid in kind 12,429 11,088
Deferred income tax benefit (242) (2,152)
Accretion of discount on senior notes 4,816 4,314
Amortization of debt issuance costs 309 334
Exchange loss 145 62
Increase (decrease) in:
Accounts payable (204) 4,167
Accrued interest (2,051) (2,508)
Other accrued liabilities 4,887 477
Income taxes payable - 23
Decrease (increase) in:
Accounts receivable (1,688) (1,125)
Prepaids and other assets 260 (1,017)
-------- --------
Net cash provided by operating activities 7,681 9,914
INVESTING ACTIVITIES:
Cost of in-process systems and capital
expenditures (7,528) (13,435)
-------- --------
Net cash used in investing activities (7,528) (13,435)
FINANCING ACTIVITIES:
Repayment of other debt and capitalized leases (1,303) (803)
-------- --------
Net cash used in financing activities (1,303) (803)
Effect of exchange rate changes on cash (65) (10)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,215) (4,334)
Cash and cash equivalents at beginning of period 1,317 14,285
-------- --------
Cash and cash equivalents at end of period $ 102 $ 9,951
======== ========
</TABLE>
See Accompanying Notes to the Condensed Consolidated Financial Statements
5
<PAGE>
SpectraVision, Inc.
Notes to the Condensed Consolidated Financial Statements
March 31, 1995
1. General
-------
These consolidated financial statements should be read in the context of
the financial statements and notes thereto filed with the Securities Exchange
Commission in the 1994 Annual Report on Form 10-K of SpectraVision, Inc.
("SpectraVision", or the "Company"). The accompanying unaudited condensed
consolidated financial statements include SpectraVision and all of its
subsidiaries. Intercompany transactions have been eliminated. Certain prior
period amounts have been reclassified to conform with the current period
presentation. In the opinion of management, these financial statements include
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the Company's financial position and results of its operations
for the periods presented. The results of operations for such interim periods
are not necessarily indicative of results of operations for the entire year.
2. Organization and Basis of Presentation
--------------------------------------
The Company is the leading provider of in-room entertainment services to
the lodging industry. Founded in 1971, the Company originally developed and
patented a system, known as "Spectravision," which provides in-room television
viewing of recently released major and other motion pictures on a pay-per-view
("PPV") basis.
Unless the context otherwise requires, all references herein to the
Company are not intended to imply exact corporate relationships and include
SpectraVision and its subsidiaries, including SPI Newco, Inc., its direct
subsidiary, and Spectradyne, Inc. ("Spectradyne") the direct subsidiary of SPI
Newco, Inc.
3. 1995 Restructuring
------------------
The Company's independent public accountants included in their report on the
Company's consolidated financial statements for the year ended December 31, 1994
an explanatory paragraph that describes the uncertainty about the Company's
ability to continue as a going concern. The Company believes cash flow from
operations (earnings before interest, taxes, depreciation, amortization and
other non-cash items) in 1995 will not be sufficient to satisfy its known
demands for cash. The Company has no borrowing availability under its current
revolving line of credit to meet its cash flow shortfalls. Additionally, the
Company is not in compliance with certain financial covenants under the terms of
the revolving credit facility, which has an outstanding balance of $12.5
million. The lenders under the revolving credit facility may, at their option,
give notice to the Company that amounts owed are immediately due and payable,
and the Company does not have sufficient resources to repay this obligation.
Further, the Company will not have sufficient resources to service its
outstanding debt, including interest payments of $18 million on the 11.65% Reset
Notes (defined below) due December 1, 1995, payment of the EDS Deferred Amount
(defined in Note 5) due August 31, 1995 and payment of the Canadian Bank Credit
Facility due June 30, 1995.
6
<PAGE>
SpectraVision, Inc.
Notes to the Condensed Consolidated Financial Statements
March 31, 1995
In February 1995, the Company retained a financial advisor and announced its
plan to restructure its debt and equity. The Company has had preliminary
discussions with holders of its 11.5% senior discount notes, due 2001 ("Senior
Discount Notes") and 11.65% senior subordinated reset notes due 2002 ("Reset
Notes") to discuss the Company's proposed restructuring plan (the "Restructuring
Plan"). The Restructuring Plan contemplates the exchange of most of the
Company's debt for the issuance of new common stock ("New Common Stock"). The
principal components of the Restructuring Plan include the exchange of (i)
$177.1 million principal amount of senior discount notes, plus accrued interest,
for $75 million principal amount of 11.5% senior discount notes, due 2003 and
50% of the New Common Stock outstanding; (ii) $294.8 million principal amount of
Reset Notes, plus accrued interest, for 35% of the New Common Stock outstanding;
(iii) $33.9 million of unsecured obligations to EDS for 15% of the New Common
Stock outstanding; (iv) 3,269,544 Contingent Value Rights ("CVRs") for warrants
to purchase 1% of the New Common Stock outstanding on a fully diluted basis; and
(v) all of the outstanding Class A and Class B Common Stock for warrants to
purchase 3.5% of the New Common Stock outstanding on a fully diluted basis. The
Restructuring Plan contemplates that the Company's trade debt will be
unaffected. There can be no assurance that an agreement with the Company's
creditors and other necessary parties on any proposed restructuring plan will be
reached or that any proposed restructuring plan will be implemented. The terms
of any restructuring plan may vary substantially from the terms described above.
The Company is also seeking new sources of capital to remedy its
liquidity deficiency, including refinancing its bank credit facility and
potentially the sale of certain of its foreign businesses. If the Restructuring
Plan, or any variations thereto, is unsuccessful and the Company cannot obtain
additional capital, the Company will be forced to seek protection under
applicable bankruptcy laws. The condensed consolidated financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
4. Debt
----
Revolving Credit Facility: The Company is not in compliance with the
financial covenants relating to its operating cash flow and total debt to cash
flow ratio requirements. Under the terms of the Revolving Credit Facility, the
lenders may, at their option, give notice that the amounts outstanding are
immediately due and payable. In connection with the Restructuring Plan, the
Company will be seeking new sources of financing to replace and extend its
Revolving Credit Facility.
Senior Subordinated Reset Notes: The Company currently has outstanding
$294,768,000 principal amount of Reset Notes. Interest is payable semi-
annually on June 1 and December 1. Subject to the provisions of the Reset Note
indenture, the Company could, at its option, pay interest on the Reset Notes on
June 1, 1994, December 1, 1994 and June 1, 1995 through the issuance of
additional Reset Notes valued at 100% of the principal amount (the "PIK
Option"). If the PIK Option is exercised, the annual interest rate on the Reset
Notes for the interest period for which such option is exercised is increased by
100 basis points to 12.65% The Company elected to exercise the PIK Option for
the interest periods ending June 1, 1994 and December 1, 1994 and has announced
that it intends to exercise the PIK Option with respect to the interest due on
June 1, 1995.
7
<PAGE>
SpectraVision, Inc.
Notes to the Condensed Consolidated Financial Statements
March 31, 1995
5. EDS Service and Technology Agreement
------------------------------------
At December 31, 1994 the Company had amounts payable to Electronic Data
Systems Corporation ("EDS") for equipment purchased and services rendered during
1994 of $40.6 million. On January 1, 1995 the Company entered into a special
provisions agreement with EDS (the "Special Provisions Agreement") which
converted $16 million of the amount owed EDS to an operating lease and provided
for the payment of $24.6 million due for services rendered by EDS (the "EDS
Deferred Amount"). The EDS Deferred Amount accrues interest at 11.5% per annum
with payment in full on or before August 31, 1995. Accordingly, $16.0 million of
system components classified in video systems at December 31, 1994, were
converted to an operating lease effective January 1, 1995. Because of the
Company's failure to make certain payments due under the Special Provisions
Agreement, the Company is in breach of all of its agreements with EDS, including
the EDS technology agreements, operating lease and the Special Provisions
Agreement, and all amounts owed by the Company to EDS, including the EDS
Deferred Amount, are now due and payable. Consequently, EDS has the right to
terminate the agreements that are in default, remove the equipment it has
provided to the Company under the operating lease and discontinue providing
services in support of the Company's compressed digital video network. In the
event that EDS takes any of these actions, the Company may be forced to seek
protection under applicable bankruptcy laws.
6. Contingencies
-------------
On October 20, 1994, a purported class action complaint was filed in the
United States District Court alleging misrepresentations and omissions
concurrent with and following the Company's 1993 offerings of Class B Common
Stock and Senior Discount Notes. The plaintiff seeks unspecified damages,
prejudgment interest, and fees and costs of the plaintiff. The Company believes
that it has meritorious defenses to the claims, and it intends to vigorously
defend itself.
The Company and its subsidiaries and related companies are potential and
named defendants in several other lawsuits and claims arising in the ordinary
course of business. While the outcome of such claims, lawsuits or other
proceedings against the Company cannot be predicted with certainty, management
expects that such liability, to the extent not provided for through insurance or
otherwise, will not have a material adverse effect on the operating results or
financial condition of the Company.
7. Subsequent Event
----------------
On May 1, 1995, the American Stock Exchange (the "Exchange") halted trading
on the Company's Class B Common Stock and CVRs following the Company's
announcement on Friday, April 28, that it had presented the Restructuring Plan
to certain holders of its Senior Discount Notes and Reset Notes. Exchange
officials expressed concern about current or potential shareholders' ability to
value the Company's Class B Common Stock and CVRs in light of the Restructuring
Plan, and there can be no assurance that trading in the Class B Common Stock and
CVRs will be resumed. The Company no longer meets the continuing listing
guidelines of the Exchange. The Company's Reset Notes (AMEX: SVN C) continue to
trade on the Exchange.
8
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
Financial Condition, Liquidity and Capital Resources
The Company's independent public accountants included in their report on the
Company's consolidated financial statements for the year ended December 31, 1994
an explanatory paragraph that describes the uncertainty about the Company's
ability to continue as a going concern. The Company has total liabilities of
approximately $602.0 million and assets of $228.0 million. The Company's cash
flow from operations (earnings before interest, taxes, depreciation,
amortization and other non-cash items) in 1995 will not be sufficient to satisfy
its known demands for cash. The Company has no borrowing availability under its
current revolving line of credit to meet its cash flow shortfalls. Additionally
the Company is not in compliance with certain financial covenants under the
terms of the revolving credit facility which has an outstanding balance of $12.5
million. The lenders under the revolving credit facility may, at their option,
give notice to the Company that amounts owed are immediately due and payable,
and the Company does not have sufficient resources to repay this obligation. The
Company is also a defendant in a purported class action complaint. The outcome
of the case cannot be predicted with any certainty. The Company believes that it
has meritorious defenses to the claims, and it intends to vigorously defend
itself. However, the Company is currently unable to determine the sufficiency of
its resources with respect to any material adverse effects of an unsuccessful
defense of the suit.
Because of the Company's failure to make certain payments due under the
Special Provisions Agreement, the Company is in breach of all of its agreements
with EDS, including the EDS technology agreements, operating lease and the
Special Provisions Agreement, and all amounts owed by the Company to EDS,
including the EDS Deferred Amount, are now due and payable. Consequently, EDS
has the right to terminate the agreements that are in default, remove the
equipment it has provided to the Company under the operating lease and
discontinue providing services in support of the Company's compressed digital
video network.
The Company's cash flow from operations (earnings before interest, taxes,
depreciation, amortization and other non-cash items) for the quarter ended March
31, 1995 was $3.8 million as compared to $8.1 million cash flow from operations
for the quarter ended March 31, 1994. Cash and Cash Equivalents were $102,000
and $1,317,000 at March 31, 1995 and December 31, 1994, respectively. During the
quarter ended March 31, 1995, the Company used cash available of $1.2 million,
cash flow from operations of $3.8 million and working capital resources to fund
capital expenditures of $7.5 million, payment of capital leases in the amount of
$1.3 million, payment of 1994 property taxes of $1 million and cash interest in
the amount of $360,000 under the revolving credit facility. Completed video
systems decreased during the three months ended March 31, 1995 due to the
conversion of $16 million of EDS equipment to the operating lease. Accounts
Payable and Accrued Liabilities associated with the EDS equipment converted to
the operating lease in the amount of $16 million were reversed during the first
quarter of 1995.
The Company has retained a financial advisor and has had preliminary
discussions with holders of Senior Discount Notes and Reset Notes to discuss the
Restructuring Plan. The Restructuring Plan contemplates the exchange of most of
the Company's debt for the issuance of New Common Stock. The principal
components of the Restructuring Plan include the exchange of (i) $177.1 million
principal amount of Senior Discount Notes, plus accrued interest, for $75
million principal amount of 11.5% Senior Discount Notes, due 2003 and 50% of the
New Common Stock outstanding; (ii) $294.8 million principal amount of Reset
Notes, plus accrued interest, for 35% of the New Common Stock outstanding; (iii)
$33.9 million of unsecured obligations to EDS for 15% of the New Common stock
outstanding; (iv) 3,269,544 CVRs for warrants to purchase 1% of the New Common
Stock outstanding on a fully diluted basis; and (v) all of the outstanding Class
A and Class B Common Stock for
9
<PAGE>
warrants to purchase 3.5% of the New Common Stock outstanding on a fully diluted
basis. The Restructuring Plan contemplates that the Company's trade debt will
be unaffected. There can be no assurance that an agreement with the Company's
creditors and other necessary parties on any proposed restructuring plan will be
reached or that any proposed restructuring plan will be implemented. The terms
of any restructuring plan may vary substantially from the terms described above.
The Company is also seeking new sources of capital to remedy its liquidity
deficiency, including obtaining a new bank credit facility and potentially the
sale of certain of its foreign businesses. If the Restructuring Plan, or any
variations thereto, is unsuccessful and the Company cannot obtain additional
capital, the Company will be forced to seek protection under applicable
bankruptcy laws. The consolidated financial statements do not include any
adjustments that might result from these uncertainties.
Results of Operations
- ---------------------
The following discussion and analysis addresses the results of operations
for the three month periods ended March 31, 1995 (the "1995 First Quarter") and
March 31, 1994 (the "1994 First Quarter"). The Company's operations consist
primarily of its pay-per-view and free-to-guest services through its ownership
of Spectradyne and the Company's other operating subsidiaries.
The following table sets forth certain information regarding the
Company's pay-per-view customer base and certain statistical data affecting pay-
per-view revenues.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1995 1994
-------- --------
<S> <C> <C>
Hotels Served at March 31 2,236 2,432
Rooms Served at March 31 619,615 680,099
Average Price per View $7.73 $7.70
Revenue per Equipped Room per Day ("RER") $0.51 $0.51
</TABLE>
First Quarter Ended March 31, 1995 compared
to First Quarter Ended March 31, 1994
Total revenues decreased to $33.1 million in the 1995 First Quarter
from $37.1 million in the 1994 First Quarter, a decrease of $4.0 million or
10.7%. Of the total revenues reported in the 1994 First Quarter, 84.8% were
revenues from pay-per-view, 10.4% were from free-to-guest, 4.8% were from
interactive and other services.
Pay-per-view revenues decreased to $28.1 million in the 1995 First
Quarter from $31.6 million in the 1994 First Quarter, a decrease of $3.5 million
or 11.2%. This decrease in pay-per-view revenues primarily reflects the decline
in the number of rooms served. Included in this rooms decrease are
approximately 20,000 rooms under the pay-per-view service contract covering
Marriott corporate owned hotels. Additional rooms lost were from various
independent hotels as a result of the intense competition in the hotel pay-per-
view industry.
Free-to-guest revenues decreased to $3.5 million in the 1995 First
Quarter from $3.9 million in the 1994 First Quarter, a decrease of $410,000 or
10.6%. This decrease primarily reflects the decline in the number of hotels
served from 986 hotels at March 31, 1994 to 883 hotels at March 31, 1995 as well
as negotiated price reductions in connection with certain PPV contract renewals.
10
<PAGE>
Interactive and other revenues were $1.6 million for both the 1995
First Quarter and the 1994 First Quarter.
Pay-per-view direct costs decreased to $9.6 million in the 1995 First
Quarter from $10.7 million in the 1994 First Quarter, a decrease of $1.1 million
or 10.2%, reflecting the decline in revenues. As a percentage of pay-per-view
revenues, pay-per-view direct costs increased to 34.3% in the 1995 First Quarter
from 33.9% in the 1994 First Quarter. This increase primarily reflects the
costs of film MPEG encoding required for the Digital Guest Choice equipped
sites.
Free-to-guest direct costs decreased to $2.8 million in the 1995 First
Quarter from $3.1 million in the 1994 First Quarter, a decrease of $297,000 or
9.5%, reflecting the decline in revenues. As a percentage of free-to-guest
revenues, free-to-guest direct costs increased to 81.9% in the 1995 First
Quarter from 80.9% in the 1994 First Quarter. The increase in free-to-guest
direct costs as a percentage of free-to-guest revenues primarily reflects the
price reductions previously described.
Other direct costs increased to $535,000 in the 1995 First Quarter
from $370,000 in the 1994 First Quarter, an increase of $165,000 or 44.6%,
primarily due to a cost increase for "TV Japan" programs and an increase in
incentives for contract renewals.
Operating expenses increased to $10.2 million in the 1995 First
Quarter from $8.4 million in the 1994 First Quarter, an increase of $1.8 million
or 20.6%. This increase is primarily due to the cost of the EDS Special
Provisions Agreement in the amount of $1.5 million during the 1995 First Quarter
(see Note 5 to the Condensed Consolidated Financial Statements) and the cost of
repairs to system components. The increase in repairs, primarily to room units,
is partially due to the omission of on-site repairs previously performed by
Company field service personnel.
Sales, general and administrative expenses were $5.6 million in the
1995 First Quarter and $5.7 million in the 1994 First Quarter. Increases in
legal and consulting fees were offset by decreases in advertising and costs
associated with new business development.
Research and development costs decreased to $601,000 in the 1995 First
Quarter from $620,000 in the 1994 First Quarter, a decrease of $19,000 or 3.1%.
Interest expense (net) increased to $14.8 million in the 1995 First
Quarter from $13.7 million in the 1994 First Quarter, an increase of $1.1
million or 8%. The increase in interest expense is attributable to the
increased outstanding balance of Reset Notes, the revolving credit facility and
the EDS Deferred Amount compared to the outstanding balances at March 31, 1994,
offset by interest capitalized in the amount of $1 million.
State and foreign income tax expense decreased to $1,000 in the 1995
First Quarter from $331,000 in the 1994 First Quarter, a decrease of $330,000,
primarily due to lower taxable income in the 1995 First Quarter.
Deferred income tax benefits decreased to $242,000 in the 1995 First
Quarter from $2.2 million in the 1994 First Quarter largely due to the write-
down of Hotel Contracts at December 31, 1994, as previously reported in the
Company's 1994 Form 10-K.
Net loss increased to $19.9 million in the 1995 First Quarter from a
loss of $15.2 million in the 1994 First Quarter, an increase of $4.7 million.
The increase in net loss for the 1995 First Quarter is primarily a result of
lower pay-per-view revenues.
11
<PAGE>
PART II
Item 1. Legal Proceedings
On October 2, 1992, Spectradyne filed a lawsuit in federal district
court asserting patent infringement by On Command Video Corporation
("OCV") and Comsat Video Enterprises, Inc. ("CVE"). Subsequently, OCV
filed a counterclaim against the Company charging violations of patent
rights held by OCV. The counterclaim requests an unspecified amount of
damages and injunctive relief. Spectradyne amended its original lawsuit
to, in part, assert copyright infringement regarding the PMS software
protocol against OCV and CVE.
On October 20, 1994, a purported class action complaint was filed in
the United States District Court for the Northern District of Texas,
Dallas Division, styled Seth Stern v. SpectraVision Inc., Albert D.
Jerome, Michael C. Colleran, John Davis, Marvin Davis, Gerald S. Gray,
Kenneth Ziffren, John F. Berardi, Robert D. Beyer and Danny G. Hair.
The complaint alleges violations of Sections 11, 12(2) and 15 of the
Securities Act of 1933, sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated under that Act relating
to alleged misrepresentations and omissions concurrent with and
following the Company's public offering of Class B common stock and the
Company's offering of Senior Discount Notes, both on September 28,
1993, including but not limited to alleged misrepresentations and
omissions made in the Prospectuses. The complaint asserts that it is
brought on behalf of a class consisting of purchasers of securities of
the Company, including common stock and Senior Discount Notes, between
September 28, 1993 and August 15, 1994. On December 20, 1994, the
defendants moved to dismiss the complaint. In response to that motion,
plaintiff agreed to file an amended complaint and the motions to
dismiss were withdrawn without prejudice. On February 2, 1995,
plaintiff served an amended complaint reasserting the claims set forth
in the prior complaint and adding claims under Section 33 of the Texas
Securities Act, enlarging the class period to November 7, 1994, and
altering other allegations, including some of the allegations relating
to the alleged misrepresentations and omissions. The amended complaint
is the subject of motions to dismiss filed on March 7, 1995. The
plaintiff seeks unspecified damages, prejudgment interest, and fees and
costs of the plaintiff. The outcome of the case cannot be predicted
with any certainty; however, the Company believes that it has
meritorious defenses to the claims, and it intends to vigorously defend
itself.
The Company and its subsidiaries and related companies are potential
and named defendants in several other lawsuits and claims arising in
the ordinary course of business. While the outcome of such claims,
lawsuits or other proceedings against the Company cannot be predicted
with certainty, management expects that such liability, to the extent
not provided for through insurance or otherwise, will not have a
material adverse effect on the financial condition of the Company.
Item 3. Defaults Upon Senior Securities
See Note 4 and Note 5 to the Condensed Consolidated Financial
Statements.
12
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedules for the three months ended
March 31, 1995
(b) Reports on Form 8-K
The Company filed with the Commission on April 11, 1995 a Form
8-K report dated April 11, 1995 to attach the Company's
financial projections in connection with meetings with certain
holders of the Company's Reset Notes and Senior Discount
Notes to discuss the Company's restructuring proposals.
The Company filed with the Commission on April 28, 1995 a Form
8-K report dated April 28, 1995 to attach its proposed
restructuring plan which was delivered to certain holders of
the Company's Reset Notes and Senior Discount Notes.
13
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SpectraVision, Inc.
May 12, 1995 /s/ RICHARD M. GOZIA
--------------------- ----------------------------------------
(Date) RICHARD M. GOZIA
EXECUTIVE VICE PRESIDENT
(Chief Financial Officer and officer
duly authorized to sign on behalf of
the Registrant)
14
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<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the Form 10-Q of SpectraVision, Inc. for the quarterly period ended March
31, 1995 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
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<NAME> SpectraVision, Inc.
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