<PAGE>
EXHIBIT INDEX APPEARS ON PAGE 19
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1995
Commission File Number: 0-17170
TELVUE CORPORATION
(Exact name of small business issuer as specified in its charter)
DELAWARE 51-0299879
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16000 Horizon Way, Suite 500
Mt. Laurel, New Jersey 08054
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code:(609) 273-8888
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or
for such shorter period that the issuer was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
------ ------
Number of shares of registrant's common stock outstanding as of
August 7, 1995: 23,794,500 shares.
Transitional Small Business Disclosure Form: Yes No X
------ ------
This report includes a total of 25 pages.
<PAGE>
TELVUE CORPORATION AND SUBSIDIARY
INDEX
PAGE
NO.
-----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1995
(unaudited) and as of December 31, 1994
Consolidated Statements of Operations for the
three months ended June 30, 1995 (unaudited)
and June 30, 1994 (unaudited)
Consolidated Statements of Cash Flows for the
six months ended June 30, 1995 (unaudited)
and June 30, 1994 (unaudited)
Notes to Consolidated Financial Statements
(unaudited)
Item 2. Management's Discussion and Analysis
or Plan of Operation
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
PART I. Financial Information
ITEM I. Financial Statements
TELVUE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1995 1994
----------- ------------
ASSETS (Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 145,978 $ 164,588
Accounts receivable - trade 630,525 473,924
Other receivables 42,566 66,346
Other current assets 31,537 6,330
----------- -----------
TOTAL CURRENT ASSETS 850,606 711,188
PROPERTY AND EQUIPMENT
Machinery and equipment 5,471,651 5,201,870
Less accumulated depreciation 2,250,470 2,057,863
----------- -----------
3,221,181 3,144,007
SECURITY DEPOSITS 10,050 10,050
----------- -----------
$ 4,081,837 $ 3,865,245
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable - trade $ 195,828 $ 136,097
Accounts payable - equipment 312,876 581,263
Accrued expenses 133,580 92,151
Accrued dividends 240,964 119,052
----------- -----------
TOTAL CURRENT LIABILITIES 883,248 928,563
NOTES PAYABLE - MAJORITY STOCKHOLDER 6,471,712 5,406,979
ACCRUED INTEREST - MAJORITY STOCKHOLDER 1,298,997 1,006,085
NOTE PAYABLE - SCIENCE DYNAMICS CORPORATION-
net of current portion -- 541,000
MINORITY INTEREST in equity of subsidiary (43,835) (38,987)
REDEEMABLE CONVERTIBLE PREFERRED STOCK, $1 par
value, 3,000,000 shares authorized, 2,031,877
shares issued and outstanding, (liquidation
value $2,272,841) 2,031,877 2,031,877
STOCKHOLDERS' DEFICIT
Common stock, $.01 par value, 80,000,000 shares
authorized, 23,794,500 shares issued and
outstanding 237,945 237,945
Additional paid-in capital 1,515,535 1,515,535
Accumulated deficit (8,313,642) (7,763,752)
----------- -----------
(6,560,162) (6,010,272)
----------- -----------
$ 4,081,837 $ 3,865,245
=========== ===========
The accompanying unaudited notes are an integral part of these statements.
<PAGE>
TELVUE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended June 30,
-----------------------------
1995 1994
---- ----
INCOME $ 1,048,580 $ 823,505
OPERATING EXPENSES
Service 704,951 505,004
Selling and marketing 144,410 141,801
General and administrative 177,666 90,000
Depreciation 207,249 180,410
----------- -----------
1,234,276 917,215
----------- -----------
OPERATING INCOME (LOSS) (185,696) (93,710)
OTHER INCOME (EXPENSE)
Interest expense (149,993) (86,847)
Loss on disposal of property and equipment (9,362) (3,216)
Minority interest 893 11,296
----------- -----------
(158,462) (78,767)
----------- -----------
NET LOSS (344,158) (172,477)
DIVIDENDS ON REDEEMABLE
CONVERTIBLE PREFERRED STOCK (60,956) (53,746)
----------- -----------
NET LOSS AVAILABLE TO COMMON
STOCKHOLDERS $ (405,114) $ (226,223)
=========== ===========
NET LOSS PER COMMON SHARE $(.02) $(.01)
===== =====
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 23,794,500 23,757,962
=========== ===========
The accompanying unaudited notes are an integral part of these statements.
<PAGE>
TELVUE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30,
---------------------------
1995 1994
------------ ------------
INCOME $ 2,053,736 $ 1,623,064
OPERATING EXPENSES
Service 1,148,856 1,040,640
Selling and marketing 310,219 250,607
General and administrative 304,423 179,907
Depreciation 413,066 354,469
------------ ------------
2,176,564 1,825,623
------------ ------------
OPERATING INCOME (LOSS) (122,828) (202,559)
OTHER INCOME (EXPENSE)
Interest expense (292,912) (159,879)
Loss on disposal of property and equipment (17,086) (28,210)
Minority interest 4,848 17,234
------------ ------------
(305,150) (170,855)
------------ ------------
NET LOSS (427,978) (373,414)
DIVIDENDS ON REDEEMABLE
CONVERTIBLE PREFERRED STOCK (121,912) (107,493)
------------ ------------
NET LOSS AVAILABLE TO COMMON
STOCKHOLDERS $ (549,890) $ (480,907)
============ ============
NET LOSS PER COMMON SHARE $(.02) $(.02)
===== =====
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 23,794,500 23,736,904
============ ============
The accompanying unaudited notes are an integral part of these statements.
<PAGE>
TELVUE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months Ended June 30,
-------------------------
1995 1994
---- ----
ASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (427,978) $ (373,414)
Adjustments to reconcile net loss to net
cash provided(used) by operating
activities:
Depreciation 413,066 354,469
Loss on disposal of property and equipment 17,086 28,210
Minority interest in net loss of subsidiary (4,848) (17,234)
Changes in assets and liabilities:
Decrease (increase) in -
Accounts receivable (156,601) (30,394)
Other receivables 23,780 (81,495)
Other current assets (25,207) (13,420)
Security deposits -- 22,335
Increase (decrease) in -
Accounts payable - trade 59,731 62,297
Accounts payable - equipment (268,387) 136,554
Accrued expenses 41,429 25,789
Accrued interest - majority stockholder 292,912 159,663
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES (35,017) 273,360
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (507,526) (1,219,373)
Proceeds from sale of property and equipment 200 5,340
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (507,326) (1,214,033)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock options -- 4,500
Proceeds from notes payable - majority 523,733 815,000
stockholder
Payments on notes payable-
Science Dynamics Corporation -- (15,243)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 523,733 804,257
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (18,610) (136,416)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 164,588 197,203
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 145,978 $ 60,787
=========== ===========
The accompanying unaudited notes are an integral part of these statements.
<PAGE>
TELVUE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
----------------------
Summary Financial Information and Results of Operations
- - -------------------------------------------------------
In the opinion of the Company, the accompanying unaudited financial
statements have been prepared in conformance with generally accepted
accounting principles and with the regulations of the Securities and Exchange
Commission and contain all adjustments (consisting of only normal recurring
adjustments) necessary to make the financial statements not misleading and to
present fairly the financial condition as of June 30, 1995, the results of
operations for the three months ended June 30, 1995 and 1994, and cash flows
for the three months ended June 30, 1995 and 1994.
Interim Financial Information
- - -----------------------------
While the Company believes that the disclosures presented are adequate to
prevent misleading information, it is suggested that these unaudited
financial statements be read in conjunction with the audited financial
statements and notes included in the Company's Form 10-KSB report for the
fiscal year ended December 31, 1994 as filed with the Securities and Exchange
Commission.
Prior period financial statements have been reclassified to conform with
current quarter presentation.
2. SUPPLEMENTAL CASH FLOW INFORMATION:
-----------------------------------
For purposes of Statements of Cash Flows, the Company considers investment
instruments with an original maturity of three months or less to be cash
equivalents.
Supplemental disclosures of cash paid/received during the period-
1995 1994
---- ----
Interest received $ 0 $ 0
Interest paid $ 0 $ 216
3. NET LOSS PER COMMON SHARE:
--------------------------
The net loss per Common Share is based on the weighted average number of
shares of Common Stock outstanding during each period.
4. DIVIDENDS ON REDEEMABLE CONVERTIBLE PREFERRED STOCK:
----------------------------------------------------
As of June 30, 1995, preferred undeclared dividends amounted to $240,964.
<PAGE>
5. INCOME TAXES:
-------------
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes". At January 1,
1995, the cumulative temporary differences between the Company's financial
statement losses and the losses reported on the Company's tax returns
consisted of accelerated tax depreciation of $369,000 and nondeductible
interest expense of $1,006,000. In addition, the Company has a net operating
loss carry forward of approximately $5,500,000 that may be offset against
future taxable income through 2009. The Company has not recorded a deferred
tax asset at June 30, 1995, because the Company believes there is at least a
50% chance that the carryforward will expire unused. Accordingly, any tax
benefit of the loss carryforward and of the other cumulative temporary
differences has been offset by a valuation allowance of the same amount.
6. NOTES PAYABLE AND ACCRUED INTEREST - MAJORITY STOCKHOLDER:
----------------------------------------------------------
As of June 30, 1995, the Company had various outstanding notes due to the
majority stockholder in the aggregate amount of $6,471,712 and accrued
interest due on these notes of $1,298,997. Included in the $6,471,712 is a
note in the amount of $541,000 which the majority stockholder acquired from
Science Dynamics Corporation during January 1995. Effective as of March 31,
1995, the Company obtained from the majority stockholder an extension to
January 1, 1997, of his prior agreement not to demand repayment of his loans
or the accrued interest on the loans. The Company has, therefore, classified
the notes and accrued interest as long-term liabilities.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
TelVue Corporation (the "Company") is a marketing and service company
primarily selling automatic number identification ("ANI") telecommunications
services to the cable television industry for the automated ordering of pay-
per-view features and events (the "Service"). The Company provides the
Service through equipment it purchases. The Company also leases trunk
telephone lines from local and long distance telephone companies to connect
present cable television subscribers to the Company's Points of Presence
("POPs") for ordering the Service from their local cable television systems.
The Company also leases data circuits from local and long distance telephone
companies to link the POPS to the cable systems' billing vendors.
The acquisition of the Company's equipment and the installation of the
leased local and long distance telephone company's trunks require a
substantial expenditure of capital before meaningful revenues can be
realized. In addition, revenues are affected by the "buy rates" of
subscribers connected to the Service. The Company considers the buy rates of
its subscribers to be low compared to long term buy rates projected by
industry pay-per-view analysts.
Since May 1992, the Company has had a POP which is located at the
Company's home office in Mt. Laurel, New Jersey (the "National POP"). The
National POP was established to provide enhanced service features which are
not available with the equipment located at the regional POPs. These
enhanced service features, which identify the cable operator by name ("Custom
Greeting") and, on accepted orders, speaks the movie or event title, start-
time and channel appearance ("Title Speak"), are required to remain
competitive within the pay-per-view ANI industry. The National POP is able
to serve cable television systems across the United States via trunk lines
and data circuits which it currently leases from Sprint Communications
("Sprint"). On May 31, 1995, the Company entered into a lease agreement with
MCI Telecommunications Corporation ("MCI") for the leasing of trunk lines and
data circuits. The trunk usage per minute rate is at a lower cost than what
the Company is currently receiving from Sprint. The MCI lease expires June
1, 2000. The Company will begin moving its customers onto the MCI telephone
network during August 1995.
The National POP can service, without installing a new POP, cable
television systems which are located in a state or telephone Local Access
Transport Area ("LATA") where a regional POP does not exist. The Company
can also move all regional cable television systems onto the National POP.
As these systems are moved to the National POP, the regional POPs will be
eliminated. Cable television systems using the National POP are charged, in
addition to their per order fee, installation and setup fees, monthly data
circuit fees and enhanced feature fees.
<PAGE>
The Company's net loss was $344,158 and $172,477 for the three months
ended June 30, 1995 and 1994, respectively. The net loss for the six months
ended June 30, 1995 and 1994 was $427,978 and $373,414, respectively.
Service income for the second quarter and the six months ended June 30, 1995
increased $225,075 and $430,672, respectively, over comparable periods from
the prior year. The growth in service income is attributable to an increase
in the average monthly buy rate from 18.4% and 19.1% for the second quarter
and the six months ended June 30, 1994, respectively to 24% and 22.5% for the
second quarter and the six months ended June 30, 1995, respectively. The
service income increase is also a result of an increase in installation and
data circuit income of $48,560 for the second quarter of 1995 and $65,500 for
the six months ended June 30, 1995, over comparable periods from the prior
year. In addition, the Company had National POP feature income of $92,937
and $180,477 for the second quarter and the six months ended June 30, 1995,
respectively, compared to $22,624 for the second quarter of 1994 and $30,550
for the six months ended June 30, 1994. The installation and data circuit
income as well as the feature income are a result of the establishment of the
National POP.
Service expenses for the second quarter and the six months ended June
30, 1995, increased $199,947 and $108,216, respectively, over comparable
periods from the prior year. The increase in service expenses is partially
attributable to an increase in trunk telephone usage as a result of an
increase in the average monthly buyrate (see above) along with the Company
serving approximately 2,500,000 more subscribers on the National POP as of
June 30, 1995 when compared to June 30, 1994. However, reducing trunk usage
expense for the six months ended June 30, 1995 are credits earned for trunk
usage during the first quarter of 1995 in the amount of $173,709 in
accordance with the Company's agreement with Sprint. The Company had earned
$50,000 in trunk usage credits during the second quarter of 1994.
The Company migrated approximately 800,000 subscribers from the regional
POPs to the National POP during the first half of 1995. As of June 30, 1995,
the Company was serving approximately 6,300,000 cable subscribers on the
National POP compared to approximately 3,800,000 cable subscribers served as
of June 30, 1994. The Company had originally planned to have its remaining
500,000 regional POP cable subscribers migrated to the National POP by the
end of the second quarter of 1995. This has been rescheduled to the fourth
quarter of 1995 as a result of additional time being required to migrate the
remaining regional subscribers to the National POP. Some regional POP cable
customers are reluctant to move to the National POP because they will be
required to pay a monthly data circuit fee which they are not currently
paying on the regional POPs.
<PAGE>
The National POP currently requires and the regional POPs had required a
substantial purchase of equipment. Depreciation accounted for 17% and 19% of
the total operating expenses for the second quarter and six months ended June
30, 1995, compared to 19% for both the second quarter and six months ended
June 30, 1994. For the six months ended June 30, 1995, selling and
marketing expenses increased 24% and general and administrative expenses
increased 69% over the comparable 1994 period. The increase in selling and
marketing expenses is attributable to an increase in commissions of $13,453
as a result of customer additions and contract renewals, an increase in rent
and utilities of $14,360 as a result of relocating to a larger office during
July 1994, and an increase of $20,267 in cable show expense as a result of
the Company renting booth space at cable shows to make itself more visible.
The increase in general and administrative expenses is due to an increase in
payroll and payroll tax expense of $50,018 as a result of additional
personnel and salary increases, an increase in office rent and utilities
expense of $14,360, and an increase in consulting expenses of $41,858. A
portion of the consulting expenses are related to computer programming
expenses incurred in relation to new product development.
For the six months ended June 30, 1995, the Company recorded a loss on
the disposal of property and equipment of $17,086. This loss was a result of
being unable to use or sell excess equipment inventory made available by the
retirement of four regional POPs. The retirement of the four regional POPs
resulted from the migration of customers from the regional POPs to the
National POP. As additional regional POPs are retired, the Company will have
a surplus of equipment inventory. The Company will need to dispose of this
excess equipment if it is unable to obtain a purchaser.
Total liabilities increased by $766,482 along with an increase in total
assets of $216,592 for the six months ended June 30, 1995. The increase in
total liabilities was partially due to the Company's draws of a total of
$523,733 under funding arrangements with H.F. Lenfest, the Company's
principal stockholder ("Mr. Lenfest") plus an increase in accrued interest of
$292,912 on outstanding loans from Mr. Lenfest. The increase in assets is
attributable to an increase in property and equipment purchased for the
National POP, the Pay-Per-View Plus service (see below) and the VJN service
(see below), as well as an increase in accounts receivable of $156,601 as a
result of increased billings. The Company's number of days for sales in
accounts receivable is 49 days for the six months ended June 30, 1995
compared to 47 days for the six months ended June 30, 1994. The Company
believes the increase of two days is not material. The Company does not
offer incentives/discounts to its customers, nor has it changed its credit
terms with its customers.
During the six months ended June 30, 1995, the Company purchased
$507,526 of equipment compared with $1,219,373 purchased during the six
months ended June 30, 1994. Included in the equipment purchases are software
enhancements and peripheral equipment for the National POP totaling $296,743,
caller recording software enhancements in the amount of $51,304, which is to
be used for the Pay-Per-View Plus service (see below), and $91,033 in
software to be used to provide service to Video Jukebox Network, Inc. ("VJN")
(see below).
<PAGE>
During October 1993, the Company entered into a Joint Venture with Voice
FX Corporation ("Voice FX"). The name of the Joint Venture is "TelVue-Voice
FX Joint Venture" (the "Partnership"), and the Partnership is doing business
as "TelVue FX". The business of the Partnership is to target the cable
television subscriber market for direct response type products, order
processing and for the sale and/or marketing of products and services,
including, but not limited to, coupons, audio-text, information, polling,
surveys, fax-back and database marketing (the "Pay-Per-View Plus Service").
The participation percentage for the Partnership is 70% for the Company and
30% for Voice FX. On July 28, 1995, the Company and Voice FX agreed to
terminate the Partnership. The Partnership was terminated because the only
promotions which the Partnership was handling were pay-per-view industry
promotions and the Company is able to market and handle these promotions
alone. Under the terms of the Partnership dissolution, the Company must pay
to Voice FX 30% of gross revenues received by the Company for the period June
1, 1995 through December 31, 1995 for premium channel upgrade promotions
under contracts which Voice FX had originally sold. In addition, the Company
must pay to Voice FX 10% of gross revenues received by the Company for the
period January 1, 1996 through December 31, 1996 for premium channel upgrade
promotions under contracts which Voice FX had originally sold.
The Partnership had revenue of $23,492 and $43,791 for the second quarter
and six months ended June 30, 1995, respectively, compared to $0 for the same
periods of 1994. The Partnership had net income of $3,189 and a net loss of
$16,160 for the second quarter and six months ended June 30, 1995, compared
to a net loss of $37,923 and $57,445 for the second quarter and six months
ended June 30, 1994. The loss for the six months ended June 30, 1995, is
attributed to payroll, advertising and travel expenses associated with
marketing the Pay-Per-View Plus Service. After intercompany adjustments, 70%
or $1,191 of the second quarter 1995 net income and $5,397 of the net loss
for the six months ended June 30, 1995, is included in the Company's net loss
for the second quarter and six months ended June 30, 1995. During the six
months ended June 30, 1995, the Company borrowed from Mr. Lenfest, under the
terms of the TelVue Partnership loan, $132,612 to pay for equipment required
for use in the Partnership as well as to pay other Partnership expenses.
On September 27, 1994, the Company entered into a service agreement with
VJN. The Company acts as a 900 call service bureau to facilitate the
ordering, by VJN customers, of music videos on the cable home dish of the VJN
customer. Mr. Lenfest has guaranteed the obligation of the Company to remit
the funds received by the Company on behalf of VJN under the terms of the
service agreement. As of August 7, 1995, Mr. Lenfest has loaned the Company
$358,267 for equipment purchases required to provide service to VJN (the
"VJN" loan). Interest on the loan is set at the floating prime rate of PNC
Bank, Philadelphia plus 1%. Mr. Lenfest is the Chairman of the Board of
Directors of VJN. He also controls a corporation which is a partner in a
partnership which is the principal stockholder of VJN. The Company believes
that the terms of the service agreement with VJN are at market rates. The
Company plans to begin service to the VJN cable customers in September 1995.
<PAGE>
The Company has entered into an agreement to provide management services
to Lenfest Networks, Inc. ("LNI"), a company wholly-owned by Mr. Lenfest.
LNI owns and operates a personal advertising television video programming
service with pay-per-call applications, and does business as "INTRONET". The
Company has authority to perform all services necessary for the management of
the business, other than to acquire or dispose of assets, to incur debt other
than in the ordinary course of business or to encumber the assets of the
business. The Company will be compensated in the amount of $10,000 per month
plus reimbursement for expenses and costs incurred in performing its
management duties.
The Company had negative cash flow from operations of $35,017 during the
six months ended June 30, 1995. Ignoring changes in operating assets and
liabilities which result from timing issues, and considering only adjustments
to reconcile net loss to net cash provided by operating activities, the
Company would have negative cash flow from operating activities of $2,674 for
the six months ended June 30, 1995 compared to negative cash flow of $7,969
for the six months ended June 30, 1994. The Company was able to continue
operations without borrowing additional funds for operating activities as a
result of Mr. Lenfest agreeing to defer interest payments of $292,912 during
the six months ended June 30, 1995. Mr. Lenfest has agreed to defer interest
payments on outstanding borrowings through January 1, 1997, thereby,
increasing cash available for operations.
The Company's 1995 unconsolidated budget indicates that the Company will
have sufficient cash flow to meet operating expenses for its pay-per-view
core business through 1995 as long as Mr. Lenfest continues to defer payment
of principal and interest. Based upon the 1995 unconsolidated budget, the
Company plans to pay for 1995 National POP equipment purchases made during
1995 from its earnings before depreciation and interest expense.
The Company believes that increases in accrued interest under the loans
from Mr. Lenfest do not have a direct material effect on operations or
continued availability of credit. The Company believes its suppliers look
primarily to the Company's timely payment of outstanding invoices.
Historically, the Company has paid all the suppliers it deals with on a
timely basis and, therefore, the cash flow from operations has no effect on
the Company's availability of credit from key suppliers of goods and
services. The payment terms with Syntellect Network Systems, Inc.
("Syntellect"), the Company's major equipment supplier, vary based upon the
terms the Company negotiates with Syntellect. The negotiated terms are
affected by the equipment purchased, the date by which the equipment is
needed and the Company's ability to pay. The negotiated payment terms range
from net 30 days to net 90 days or to installment payments over a period of
months. The payment terms for the Company's equipment supplier of peripheral
equipment, Dacon Corporation, is net 30 days.
<PAGE>
Since November 2, 1989, the Company has funded its expansion and
operating deficit from the $2,500,000 of proceeds from the sale of shares of
the Company's Common Stock and Preferred Stock to Mr. Lenfest and from
borrowings from Mr. Lenfest. From November 2, 1989 through December 31, 1993
the Company had borrowed $3,690,000 from Mr. Lenfest under various loan
agreements. On March 8, 1994, Mr. Lenfest agreed to loan to the Company up
to $1,500,000 for the purchase of additional equipment needed to expand the
National POP. Interest on the National Equipment Loan is set at the floating
prime rate of PNC Bank plus 1%. Interest on the National Equipment Loan is
to be paid quarterly. At the option of the Company, the interest may be paid
by the delivery of shares of the Company's Preferred Stock at the rate of one
share of Preferred Stock for each one dollar of accrued interest. As of
August 7, 1995 the Company had borrowed $1,471,272 under the terms of the
National Equipment Loan. The Company had paid accrued interest on the
National Equipment Loan through September 30, 1994, in the amount of $27,377
with 27,377 shares of Preferred Stock. As of June 30, 1995, interest in the
amount of $98,681 had been accrued, but not paid, on the National Equipment
Loan. It has not been determined whether the interest will be paid with
shares of preferred stock. As of August 7, 1995, Mr. Lenfest had loaned
$411,173 under the TelVue Partnership Loan and $358,267 under the VJN loan,
bringing aggregate borrowings from Mr. Lenfest to $6,471,712. Interest on
$5,019,539 of the borrowings is set at the floating prime rate of PNC Bank
plus 1%. Interest on $500,000 of the loan is set at 12%. Interest on
$411,173 is set at the floating prime rate of PNC Bank plus 2%. During
January 1995, Mr. Lenfest purchased a $541,000 non-interest bearing note from
Science Dynamics Corporation. In addition, effective as of March 31, 1995,
the Company obtained from Mr. Lenfest an extension to January 1, 1997, of his
prior agreement not to demand cash repayment of his loans or the accrued
interest on the loans.
The Company's ability to fund its operating expenses is directly related
to the cable industry's buy rates and, therefore, is volatile. The Company
is also dependent upon the deferral of interest payments due to Mr. Lenfest
in order to fund its operating expenses. Since the Company's cash flow is
subject to factors over which the Company has no control, there can be no
assurance that the Company will continue to fund its operations without
seeking outside financing. Should the Company require funding in the future
for operations or National POP equipment purchases, it will seek additional
financing from Mr. Lenfest and other sources. In November 1994, Mr. Lenfest
expressed his desire to review the nature and terms of his continued equity
and debt investments in the Company with the goal of realizing a return in
the near term on his investments. In the event Mr. Lenfest should decide to
terminate funding, for either equipment purchases, or future operations, the
Company will seek additional funds from other third parties, although there
can be no assurance that such funds will be available or will be available on
terms that are acceptable to the Company. The Company has been unable to
obtain such funding in the past. In the event that the Company is unable to
secure additional needed funds, the Company will take actions necessary to
continue operations with the funds available, including, without limitation,
reducing capital expenditures for existing POPS and downsizing the work
force. If additional needed funds do not become available, unless the
Company is able to continue to fund its operating activities, it will not be
able to continue its business operations.
<PAGE>
Shares of Common Stock which have had the same beneficial owner since
April 21, 1988, or which have had the same beneficial owner for a continuous
period in excess of two years prior to the record date of any meeting of
stockholders, are entitled to ten votes per share in any matters submitted
for vote, at a meeting of stockholders. All other stockholders have one vote
per share unless this limitation is waived by the Board of Directors. As of
June 30, 1995, 16,725,609 shares of the Company's Common Stock were entitled
to ten votes per share. The remaining 7,068,891 shares of Common Stock were
entitled to one vote per share. Mr. Lenfest owns 12,896,968 shares of Common
Stock which are entitled to ten votes per share and 1,660,485 shares of
Common Stock which are entitled to one vote per share.
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Certificate of Incorporation of the Company (incorporated by
reference to the Company's Registration Statement on Form S-8,
dated March 30, 1989 (the "Registration Statement")).
3.2 Bylaws of the Company (incorporated by reference to the Company's
Registration Statement).
3.3 Certificate of Amendment of Certificate of Incorporation of the
Company, dated April 11, 1990 (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December
31, 1991, (the "1991 Form 10-K")).
3.4 Certificate of Amendment of Certificate of Incorporation of the
Company, dated March 15, 1991 (incorporated by reference to the
1991 Form 10-K).
4.1 Incentive Stock Option Plan (incorporated by reference to the
Company's Registration Statement).
4.2 Form of Stock Option Agreement (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December
31, 1989, (the "1989 Form 10-K")).
<PAGE>
4.3 Warrant Agreement, dated March 15, 1991, between the Company and
H.F. Lenfest (incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1990, (the
"1990 Form 10-K")).
4.4 Certificate of Designation of Class A Preferred Stock (incorporated
by reference to the June 30, 1990 Form 10-Q).
10.1 Distributorship Agreement, dated November 2, 1989, between the
Company and Science (incorporated by reference to the 1989
Form 10-K).
10.2 Stock Purchase Agreement, dated November 2, 1989, between the
Company and H.F. Lenfest (incorporated by reference to the
Company's Report on Form 8-K, dated November 15, 1989, (the "1989
Form 8-K")).
10.3 Shareholder's Agreement, dated November 2, 1989, among the Company
and certain of its stockholders (incorporated by reference to the
Company's 1989 Form 8-K).
10.4 Option Agreement, dated November 2, 1989, among the Company and
certain of its stockholders (incorporated by reference to the 1989
Form 8-K).
10.5 Form of Credit Agreement between the Company and H.F. Lenfest
(incorporated by reference to the 1990 Form 10-K).
10.7 Form of Line of Credit Agreement between the Company and H.F.
Lenfest (incorporated by reference to the 1990 Form 10-K).
10.8 Subordinated Promissory Note, dated November 15, 1994 the principal
amount of $541,000 payable to Science Dynamics Corporation
(incorporated by reference to the 1994 Form 10K-SB).
10.10 Letter Agreement dated November 8, 1990 between Science Dynamics
Corporation and H.F. Lenfest (incorporated by reference to the
Company's Report on Form 8-K for November 16, 1990).
10.11 Loan Agreement dated December 24, 1991, between the Company and
H.F. Lenfest (incorporated by reference to the 1991 Form 10-K).
10.12 General Partnership Agreement of TelVue-Voice FX Joint Venture
dated October 12, 1993 (incorporated by reference to the September
30, 1993 Form 10-QSB).
<PAGE>
10.13 Letter effective as of March 31, 1995, from H.F. Lenfest, waiving
the repayment of loans and accrued interest until January 1, 1997
(incorporated by reference to the Company's Form 10Q-SB for the
period ended March 31, 1995).
10.14 Lease Agreement for office space and the First Amendment to Lease
dated March 30, 1994, between the Company and Bloom Associates
(incorporated by reference to the 1994 Form 10-KSB).
10.15 Maximum Value Plan Agreement dated January 27, 1994, between Sprint
Communications Company L.P. and the Company (incorporated by
reference to the Company's Form 10Q-SB for the period ended
September 30, 1994, (the September 30, 1994 Form 10Q-SB)).
10.16 Addendum to Clarity Maximum Value Plan Agreement dated March 3,
1994, between Sprint Communications Company L.P. and the Company
(incorporated by reference to the September 30, 1994 Form 10Q-SB).
10.17 Service Agreement dated September 27, 1994, between Video Jukebox
Network, Inc., and the Company (incorporated by reference to the
September 30, 1994 Form 10Q-SB).
10.18 Management Agreement, dated March 10, 1995, between the Company and
Lenfest Networks, Inc.
11. Statement re: Computation of Per Share Earnings (see the Company's
June 30, 1995 Financial Statement included herein).
<PAGE>
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.
TELVUE CORPORATION
Dated: August 10, 1995 By: /s/Frank J. Carcione
---------------------------------------
Frank J. Carcione, (Chief Executive
Officer)
Dated: August 10, 1995 By: /s/Irene A. DeZwaan
---------------------------------------
Irene A. DeZwaan, Treasurer (Controller)
<PAGE>
EXHIBIT INDEX
Page No.
--------
10.18 Management Agreement, dated March 10, 1995 between the
Company and Lenfest Networks, Inc. 20
<PAGE>
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT ("Management Agreement"), is made and
entered into as of March 10, 1995, by and between LENFEST NETWORKS, INC., a
Delaware corporation ("Owner"), and TELVUE CORPORATION, a Delaware
corporation ("Manager").
BACKGROUND
A. Owner owns and operates a personal advertising television
video programming system with pay-per-call applications service (the
"Business").
B. Manager has experience in the pay-per-call business and the
ability to manage the Business, and is willing to do so.
C. Owner desires Manager to manage the Business, subject to the
terms and conditions hereof.
NOW, THEREFORE, for and in consideration of the foregoing recitals
and the mutual covenants and agreements contained herein and the mutual
benefits to be derived therefrom, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Owner and
Manager hereby agree as follows:
I. Appointment of Manager. Owner hereby designates Manager and
Manager hereby accepts the designation as exclusive Manager of the Business,
upon the conditions and for the term and compensation set forth herein.
II. Term.
2.1 The term of this Agreement shall commence on the date hereof
and shall continue until terminated pursuant to Subsection 2.2 below.
2.2 This Agreement shall terminate on the earliest to occur of the
following:
(a) Owner or Manager shall have the right to terminate this
Agreement on written notice to the other party in the event of a material
default by the other party in the performance of its obligations under this
Agreement which continues uncured for thirty (30) days after written notice
specifying the nature of such default, provided, however, that if such
default cannot reasonably be cured within such thirty (30) day period, the
non-defaulting party shall not have the right to terminate this Agreement if
the other party commences to cure such default within such thirty (30) day
period and thereafter acts with diligence to complete the curing thereof.
(b) Owner shall have the right to terminate this Agreement on
written notice to Manager given at least sixty (60) days before the date of
termination in the event of a sale or other disposition of all or
substantially all of (i) the assets of the Business to an unaffiliated third
party.
<PAGE>
(c) Manager shall have the right to terminate this Agreement, with
or without cause, upon at least sixty (60) days written notice to Owner.
(d) Owner or Manager shall have the right to terminate this
Agreement on written notice to the other party if a petition in bankruptcy is
filed by the other party, or if the other party shall make an assignment for
the benefit of creditors, or if the other party shall file a petition for a
reorganization, or for the appointment of a receiver or trustee of all or a
substantial portion of its property, or if a petition in bankruptcy or for a
reorganization is filed against the other party which is not dismissed or
discharged within ninety (60) days thereafter.
3. Duties of Manager. Subject to the limitations on the
authority of the Manager set forth in Section 4 below, and in each case where
the same would not violate any license, contract, law or regulation
applicable to the Business, Manager shall have the following authority:
3.1 Supervision and Consulting. Manager shall supervise and
conduct the day-to-day operations of the Business in the ordinary course of
business.
3.2 Maintenance and Construction of Business. To the extent funds
are available from Owner, Manager shall maintain the Business in good working
order and repair and shall cause to be made such capital improvements as are
necessary or appropriate to maintain the Business, all in accordance with the
budget approved by the Owner as provided in Section 3.11.
3.3 Employees. All employees of the Business are and shall
continue to be employees of Owner. Manager shall select, determine the
compensation of, supervise, instruct, discharge and otherwise manage all
employees, agents, consultants or contractors considered by Manager to be
necessary for the efficient operation of the Business. Owner shall defend,
indemnify and hold harmless Manager from and against all claims of such
employees for wages, fringe benefits or other compensation, and against
payments due any government agency or other party on account of such
employees, and all damages, expenses and costs, including reasonable
attorneys' fees arising therefrom.
3.4 Negotiations of Contracts. Manager shall negotiate all
contracts and perform all tasks necessary for the operation, acquisition,
construction, installation, maintenance, servicing, repair, protection,
improvement, expansion, upkeep, and other management of the Business, which
contracts may be executed by Manager on behalf of the Owner as owner of the
Business.
<PAGE>
3.5 Filings. Manager shall assist Owner in the timely filing of
all federal, state and local reports with respect to the Business as may be
required by the Federal Communications Commission, the U.S. Copyright Office
or any other authority.
3.6 Records. Manager shall keep or cause to be kept all necessary
books and records of all affairs relating to the Business. Originals or
copies of such books and records shall be maintained at the principal office
of Manager or at the principal office of Owner and shall be open to
inspection and examination by the Owner or its representatives at any
reasonable time during the term of this Agreement. To the extent required by
any other authority, Manager shall maintain records of the Business at the
business office of the Business in the state where the Business are located.
3.7 Representation. Unless Owner shall elect to perform such
functions itself, Manager shall, to the extent appropriate, at Owner's
expense, represent Owner and the Business before all governmental authorities
with respect to any matter necessary or desirable to the efficient management
thereof.
3.8 Other Responsibilities. Manager shall perform all other
management services necessary or desirable for the management of the Business
which may be agreed to from time to time by Owner and Manager. The
enumeration of services to be performed by Manager herein shall not be deemed
to be exclusive.
3.9 Cooperation. Owner shall cooperate with Manager in the
performance of Manager's duties hereunder and shall execute such documents,
instruments and certificates as may be necessary to evidence Manager's
authority hereunder, or to permit Manager to finalize necessary reports,
filings, contracts or other matters.
3.10 Insurance. On behalf of Owner, at Owner's expense,
Manager shall maintain insurance on the Business at commercially reasonable
levels, including, without limitation, liability insurance coverage under
which Manager shall be named an additional insured.
3.11 Budgets. Manager shall prepare annual operating and
capital budgets for the approval of Owner.
4. Authority of Manager. Manager shall be authorized to perform
all services necessary for the management of the Business, except as Owner
shall otherwise direct. Notwithstanding any other provision of this
Agreement, Manager shall not have the authority to sell or trade any assets
of the Business, other than in the ordinary course of business; to incur
indebtedness other than in the ordinary course of business or to pledge or
otherwise encumber all or substantially all of the assets of the Business; to
commence, institute or settle any legal action in the name of Owner, except
in the ordinary course of business; or to negotiate or enter into any
collective bargaining agreement or employment contracts with any employee or
employees of the Business.
<PAGE>
5. Compensation of Manager.
(a) As compensation for Manager's services hereunder, Owner shall
pay Manager a management fee (the "Management Fee") in the amount of TEN
THOUSAND DOLLARS ($10,000) per month. Payment of such Management Fee shall
be made within twenty (20) days after the end of each month.
(b) In addition to the Management Fee, Owner shall reimburse
Manager for all reasonable expenses and costs incurred by Manager in
performing its duties under this Agreement, including, without limitation,
telephone, travel and the allocated costs of (i) overhead for management
services which are performed at a location other than the principal place of
business of the Business and (ii) employees of Manager substantially all of
whose work time is devoted to the management of the Business. Within ten
(10) days after the end of each month, Manager shall submit a detailed
accounting of each item for which it seeks reimbursement. Reimbursement
shall be made at the same time as the Management Fee is paid.
(c) Manager and its affiliates may provide goods, products and
services to the Business and Owner and be paid or reimbursed therefor,
provided that except as otherwise provided in Section 3.12 above, such goods,
products and services are provided on terms no less favorable to Owner and
the Business than terms available from independent third parties providing
similar products, goods and services. Such services shall include those set
forth on Schedule 5(c) hereof at the rates specified on such Schedule, as
such Schedule may be amended from time to time hereafter upon the mutual
agreement of Owner and Manager.
(d) Manager may, in connection with the operation of the Business,
with the prior approval of the Owner, render services beyond the services
required to be performed under this Agreement. In such case, Manager shall
be entitled to be paid for such services in addition to compensation or
reimbursement to be paid pursuant to this Agreement, at reasonable rates.
6. Bank Account.
6.1 Depository Account. Manager shall create and maintain bank
accounts in which funds generated by the Business shall be deposited. All
funds in said accounts from time to time shall be property of Owner, but said
funds shall be disbursed from said account by Manager on behalf of the
Business in accordance with the provisions of this Agreement. Consistent
with the foregoing, the Manager shall be permitted to designate a person or
persons who shall have authority to draw checks or drafts upon or make
withdrawals from said accounts.
6.2 Payments. To the extent funds are available from Owner,
Manager shall make or cause to be made all payments of costs, expenses, and
charges payable with respect to the operations of the Business, for the
account of Owner.
<PAGE>
7. Limitation of Liability of Manager. Owner shall bear any and
all losses resulting from operation of the Business, and Manager shall not,
under any circumstances, be held liable therefor, except that Manager shall
be liable for any loss or damage which results from Manager's gross
negligence or willful misconduct to the extent not compensated for by
insurance. Owner agrees to defend, indemnify and hold harmless Manager, its
directors, officers and employees with respect to any and all claims,
damages, expenses and costs, including reasonable attorneys' fees and costs,
arising from or relating to this Agreement, or the services provided by
Manager hereunder, except to the extent of the grossly negligent acts or
omissions or willful misconduct of Manager, its employees or agents.
8. Notices. All notices, demands, requests or other
communications which may be or are required to be given, served or sent by a
party pursuant to this Agreement shall be in writing and shall be deemed
given upon receipt or refusal of delivery if personally delivered or on the
third day following mailing, if mailed by first-class, registered or
certified mail, postage prepaid, delivered or addressed as follows:
8.1 If to Owner:
Lenfest Networks, Inc.
c/o The Lenfest Group
202 Shoemaker Drive
Pottstown, PA 19464
Attention: H. F. Lenfest
8.2 If to Manager:
TelVue Corporation
16000 Horizon Way
Suite 500
Mt. Laurel, NJ 08054
Attention: Frank Carcione, President
9. Miscellaneous. The parties recognize that Manager is engaged
directly and through subsidiaries and affiliates in other businesses.
Nothing herein shall be construed to prevent the continued involvement of
Manager or any of its subsidiaries or affiliates in other businesses, whether
such involvement now exists or occurs in the future; provided, however, that
during the term of this Agreement and for a period of three (3) years
thereafter Manager shall not engage in any business which competes with the
Owner or the Business.
10. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns subject to all restrictions on the transfer of the
interests set forth in this Agreement.
11. Governing Law. This Agreement shall be governed by and
construed according to the laws of the State of Delaware.
<PAGE>
12. Independent Contractor. The Manager and Owner are not
partners, joint venturers, or co-employers with each other and nothing herein
shall be construed so as to make them such partners, or joint venturers, or
co-employers or impose any liability as such on either of them.
13. Assignment. No party hereto shall have the right to assign
this Agreement without the written consent of the other party, nor shall this
Agreement or any of the rights or obligations of the parties hereunder be
transferable by operation of law or otherwise, except that Owner's interest
may be transferred to an affiliate of Owner upon notice to Manager and
Manager may assign its rights to receive compensation hereunder to any of its
lenders for collateral purposes.
14. Amendment. This Agreement may not be modified, altered or
amended in any manner except by agreement in writing duly executed by the
parties thereto.
15. Entire Agreement. This Agreement contains the entire
agreement between the parties with respect to the transactions contemplated
herein, and supersedes all prior oral or written agreements, commitments or
understandings with respect to the matters provided for herein.
16. Captions. Section headings contained in this Agreement are
inserted for convenience of reference only, shall not be deemed to be part of
this Agreement for any purpose and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.
17. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be deemed in original and all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Management
Agreement as of the day and year first above written.
OWNER:
LENFEST NETWORKS, INC.
By: /s/ H. F. Lenfest
------------------------------
Its: President
------------------------------
MANAGER:
TELVUE CORPORATION
By: /s/ F. J. Carcione
------------------------------
Its: President
------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 145,978
<SECURITIES> 0
<RECEIVABLES> 630,525
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 850,606
<PP&E> 5,471,651
<DEPRECIATION> 2,250,470
<TOTAL-ASSETS> 4,081,837
<CURRENT-LIABILITIES> 883,248
<BONDS> 0
<COMMON> 237,945
0
2,031,877
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,081,837
<SALES> 2,053,736
<TOTAL-REVENUES> 2,053,736
<CGS> 0
<TOTAL-COSTS> 1,148,856
<OTHER-EXPENSES> 1,027,708
<LOSS-PROVISION> 17,086
<INTEREST-EXPENSE> 292,912
<INCOME-PRETAX> (427,978)
<INCOME-TAX> 0
<INCOME-CONTINUING> (427,978)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (427,978)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.01)
</TABLE>
