EXHIBIT INDEX APPEARS ON PAGE 17
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 September 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 October 23,
1995: 23,794,500 shares.
Transitional Small Business Disclosure Form: Yes No X
------ ------
This report includes a total of 18 pages.
<PAGE>
TELVUE CORPORATION AND SUBSIDIARY
INDEX
PAGE
NO.
-----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1995
(unaudited) and as of December 31, 1994
Consolidated Statements of Operations for the
three months ended September 30, 1995 (unaudited)
and September 30, 1994 (unaudited)
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1995 (unaudited)
and September 30, 1994 (unaudited)
Notes to Consolidated Financial Statements (unaudited)
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
<TABLE>
PART I. Financial Information
ITEM I. Financial Statements
TELVUE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1995 1994
------------- -----------
<S> <C> <C>
ASSETS (Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 169,230 $ 164,588
Accounts receivable - trade 755,788 473,924
Other receivables 27,794 66,346
Other current assets 21,076 6,330
----------- -----------
TOTAL CURRENT ASSETS 973,888 711,188
PROPERTY AND EQUIPMENT
Machinery and equipment 5,266,154 5,201,870
Less accumulated depreciation 2,270,516 2,057,863
----------- -----------
2,995,638 3,144,007
SECURITY DEPOSITS 10,050 10,050
----------- -----------
$ 3,979,576 $ 3,865,245
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable - trade $ 370,555 $ 136,097
Accounts payable - equipment 136,335 581,263
Accrued expenses 188,939 92,151
Accrued dividends 301,920 119,052
----------- -----------
TOTAL CURRENT LIABILITIES 997,749 928,563
NOTES PAYABLE - MAJORITY STOCKHOLDER 6,471,712 5,406,979
ACCRUED INTEREST - MAJORITY STOCKHOLDER 1,448,474 1,006,085
NOTE PAYABLE - SCIENCE DYNAMICS CORPORATION-
net of current portion -- 541,000
MINORITY INTEREST in equity of subsidiary -- (38,987)
REDEEMABLE CONVERTIBLE PREFERRED STOCK, $1 par
value, 6,900,000 and 3,000,000 shares
authorized, respectively, 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, 100,000,000
and 80,000,000 shares authorized, respectively,
23,794,500 shares issued and outstanding 237,945 237,945
Additional paid-in capital 1,515,535 1,515,535
Accumulated deficit (8,723,716) (7,763,752)
----------- -----------
(6,970,236) (6,010,272)
----------- -----------
$ 3,979,576 $ 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 September 30,
--------------------------------
1995 1994
---- ----
REVENUES $ 1,226,315 $ 917,709
OPERATING EXPENSES
Service 784,947 560,575
Selling and marketing 180,183 82,378
General and administration 161,379 117,985
Depreciation 210,673 199,214
----------- -----------
1,337,182 960,152
----------- -----------
OPERATING INCOME (LOSS) (110,867) (42,443)
OTHER INCOME (EXPENSE)
Interest expense (149,477) (105,006)
Loss on disposal of property and equipment (44,938) (79,082)
Minority interest in net loss of former subsidiary 1,737 2,953
Loss on disposition of subsidiary (45,572) -
----------- -----------
(238,250) (181,135)
----------- -----------
NET LOSS (349,117) (223,578)
DIVIDENDS ON REDEEMABLE
CONVERTIBLE PREFERRED STOCK (60,956) (58,399)
----------- -----------
NET LOSS AVAILABLE TO
COMMON STOCKHOLDERS $ (410,073) $ (281,977)
=========== ===========
NET LOSS PER COMMON SHARE $(.02) $(.01)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 23,794,500 23,773,848
=========== ===========
The accompanying unaudited notes are an integral part of these statements.
<PAGE>
<PAGE>
TELVUE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended September 30,
-------------------------------
1995 1994
---- ----
REVENUES $ 3,280,051 $ 2,540,773
OPERATING EXPENSES
Service 1,933,803 1,601,216
Selling and marketing 490,402 332,985
General and administration 465,802 297,892
Depreciation 623,739 553,683
----------- -----------
3,513,746 2,785,776
----------- -----------
OPERATING INCOME (LOSS) (233,695) (245,003)
OTHER INCOME (EXPENSE)
Interest expense (442,389) (264,885)
Loss on disposal of property and equipment (62,024) (107,292)
Minority interest in net loss of former subsidiary 6,585 20,187
Loss on disposition of subsidiary (45,572) -
----------- -----------
(543,400) (351,990)
----------- -----------
NET LOSS (777,095) (596,993)
DIVIDENDS ON REDEEMABLE
CONVERTIBLE PREFERRED STOCK (182,868) (165,892)
----------- -----------
NET LOSS AVAILABLE TO
COMMON STOCKHOLDERS $ (959,963) $ (762,885)
=========== ===========
NET LOSS PER COMMON SHARE $(.04) $(.03)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 23,794,500 23,749,353
=========== ===========
The accompanying unaudited notes are an integral part of these statements.
<PAGE>
<PAGE>
TELVUE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months Ended September 30,
-------------------------------
1995 1994
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES $ (777,095) $ (596,993)
Net Loss
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation 623,739 553,683
Loss on disposal of property and equipment 62,024 107,292
Minority interest in net loss of subsidiary (6,585) (20,187)
Loss on disposal of subsidiary 45,572 -
Changes in assets and liabilities:
Decrease (increase) in -
Accounts receivable (281,864) (114,664)
Other receivable 38,552 (35,918)
Other current assets (14,746) (5,611)
Security deposits - 22,335
Increase (decrease) in -
Accounts payable - trade 234,458 14,320
Accounts payable - equipment (444,928) 423,834
Accrued expenses 96,788 47,160
Accrued interest - majority stockholder 442,389 264,669
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES 18,304 659,920
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (537,595) (1,828,913)
Proceeds from sale of property and equipment 200 9,413
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (537,395) (1,819,500)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock options - 8,250
Proceeds from notes payable - majority stockholder 523,733 1,148,000
Payments on notes payable -
Science Dynamics Corporation - (15,243)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 523,733 1,141,007
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 4,642 (18,573)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 164,588 197,203
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 169,230 $ 178,630
=========== ===========
The accompanying unaudited notes are an integral part of these statements.
<PAGE>
<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 management, 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 September 30, 1995, the results
of operations for the three and nine months ended September 30, 1995 and
1994, and cash flows for the three and nine months ended September 30, 1995
and 1994.
Interim Financial Information
- -----------------------------
While management 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 September 30, 1995, preferred undeclared dividends amounted to
$301,920.
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 September 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 September 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 $1,448,474. 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.
7. AUTHORIZED SHARES OF COMMON STOCK
---------------------------------
In September 1995, the Company's shareholders approved an increase in the
number of authorized shares of Common Stock and Redeemable Convertible
Preferred Stock to 100,000,000 and 6,900,000, respectively.
8. DISPOSITION OF SUBSIDIARY
-------------------------
On July 28, 1995 the Company terminated its partnership with Voice FX
Corporation. The consolidated financial statements include the accounts of
the Company and the accounts of the TelVue-Voice FX Joint Venture, a
partnership owned seventy percent (70%) by the Company, up until July 28,
1995. The Company is continuing to independently provide the services that
were previously offered under the partnership.
<PAGE>
<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. The Company
believes 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
for it 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 both
Sprint Communications ("Sprint") and MCI Telecommunications Corporation
("MCI"). On May 31, 1995, the Company entered into a lease agreement with
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 receives from Sprint.
The MCI lease expires June 1, 2000. The Company began moving its customers
onto the MCI telephone network during September 1995, and plans to have all
of its customers using the MCI telephone network by December 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.
The Company's net loss was $349,117 and $223,578 for the three months
ended September 30, 1995 and 1994, respectively. The net loss for the nine
months ended September 30, 1995 and 1994 was $777,095 and $596,993,
respectively. Service revenue for the third quarter and the nine months
ended September 30, 1995 increased $308,606 and $739,278, respectively, over
comparable periods from the prior year. The growth in service revenue is
attributable to an increase in the average monthly buy rate from 21.1% and
19.8% for the third quarter and the nine months ended September 30, 1994,
respectively, to 24.5% and 23.2% for the third quarter and the nine months
ended September 30, 1995, respectively. The service revenue increase is also
a result of an increase in installation and data circuit revenue of $35,563
for the third quarter of 1995 and $101,063 for the nine months ended
September 30, 1995, over comparable periods from the prior year. In
addition, the Company had an increase in National POP feature revenue of
$46,000 and $195,927 for the third quarter and the nine months ended
September 30, 1995, respectively, over comparable periods from the prior
year. The Company had Pay-Per-View Plus revenue of $79,016 and $141,912 for
the third quarter and the nine months ended September 30, 1995, respectively,
compared to $1,231 for both the third quarter and the nine months ended
September 30, 1995 (see below). The installation and data circuit revenue
as well as the feature revenue are a result of customer additions to the
National POP. The Pay-Per-View Plus revenue increased over 1994 because the
Pay-Per-View Plus service was still being tested during the majority of the
first nine months of 1994.
Service expenses for the third quarter and the nine months ended
September 30, 1995, increased $224,372 and $332,587, 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 buy rate (see above) along with the
Company serving approximately 2,100,000 more subscribers on the National POP
as of September 30, 1995 when compared to September 30, 1994. However,
reducing trunk usage expense for the nine months ended September 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 900,000 subscribers from the regional
POPs to the National POP during the nine months ended September 30, 1995. As
of September 30, 1995, the Company was serving approximately 6,700,000 cable
subscribers on the National POP compared to approximately 4,600,000 cable
subscribers served as of September 30, 1994. The Company had originally
planned to have its remaining 400,000 regional POP cable subscribers migrated
to the National POP by the end of the third 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.
The National POP currently requires and the regional POPs had required
a substantial purchase of equipment. Depreciation accounted for 16% and 18%
of the total operating expenses for the third quarter and nine months ended
September 30, 1995, compared to 21% and 20% for the third quarter and nine
months ended September 30, 1994, respectively. For the nine months ended
September 30, 1995, selling and marketing expenses increased 47% and general
and administrative expenses increased 56% over the comparable 1994 period.
The increase in selling and marketing expenses is attributable to an increase
in commissions of $29,154 as a result of customer additions and contract
renewals, an increase in payroll and payroll tax expense of $83,883 as a
result of three additional personnel; one for the Pay-Per-View Plus service
(see below), one for the DRTV (see below), and one in connection with the
fulfillment of the Company's obligation under its management agreement with
Lenfest Networks, Inc. which is prorated between general and administrative
expenses and selling and marketing expenses (see below). There was an
increase of $22,032 in cable show expense as a result of the Company renting
booth space at cable shows to make itself more visible as well as an increase
in travel expenses of $24,598 as a result of additional personnel. The
increase in general and administrative expenses is due to an increase in
payroll and payroll tax expense of $55,188 as a result of additional
personnel and salary increases, an increase in office rent and utilities
expense of $16,870 as a result of locating to a larger office space during
July 1994, and an increase in consulting expenses of $65,587. Of the
consulting expense increase, $49,827 is related to computer programming
expenses incurred in relation to DRTV development (see below).
For the nine months ended September 30, 1995, the Company recorded a
loss on the disposal of property and equipment of $62,024. This loss was a
result of being unable to use or sell excess equipment inventory made
available by the retirement of eight regional POPs. The retirement of the
eight 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 $1,074,295 along with an increase in
total assets of $114,331 for the nine months ended September 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
$442,389 on outstanding loans from Mr. Lenfest. The increase in assets is
attributable to an increase in accounts receivable of $281,864 as a result of
increased billings. The Company's number of days for sales in accounts
receivable is 51 days for the nine months ended September 30, 1995 compared
to 50 days for the nine months ended September 30, 1994. The Company
believes the increase of one day 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 nine months ended September 30, 1995, the Company purchased
$537,595 of equipment compared with $1,828,913 purchased during the nine
months ended September 30, 1994. Included in the equipment purchases are
software enhancements and peripheral equipment for the National POP totaling
$318,447, 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).
During October 1993, the Company entered into a Joint Venture with Voice
FX Corporation ("Voice FX"). The name of the Joint Venture was "TelVue-Voice
FX Joint Venture" (the "Partnership"), and the Partnership was doing business
as "TelVue FX". The business of the Partnership was 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 was 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 that 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 that Voice FX had originally sold. The
Company had a loss of $45,572 resulting from the write off a loan and
interest receivable due from the partnership, net of losses previously
recognized on the consolidated financial statements prior to termination.
The Partnership had revenue of $45,354 for the nine months ended
September 30, 1995, compared to $1,231 for the same period of 1994. The
Partnership had a net loss of $21,950 for the nine months ended September 30,
1995, compared to a net loss of $67,291 for the nine months ended September
30, 1994. The loss for the nine months ended September 30, 1995, is
attributed to payroll, advertising and travel expenses associated with
marketing the Pay-Per-View Plus Service. After intercompany adjustments, 70%
or $7,918 of the net loss for the nine months ended September 30, 1995, is
included in the Company's net loss for the nine months ended September 30,
1995. During the nine months ended September 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. The Company will continue to utilize the equipment
that it previously purchased for use in the partnership for the Company's
business operations.
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 October 23, 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 November 1995.
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 is compensated in the amount of $10,000 per month plus
reimbursement for expenses and costs incurred in performing its management
duties. The Company believes the terms of the management agreement with LNI
are at market rates.
The Company is developing a new line of business. The purpose of the
business is to provide cable systems with direct response commercials from a
number of sources, and then pay the cable operators a percentage of sales
generated from the commercials ("DRTV"). The Company is currently providing
the service to cable networks, some of which are owned by an affiliate, and
plans to eventually have cable systems directly using the service. As of
September 30, 1995, the Company has earned $1,975 in service revenue and has
incurred $98,366 of expenses in connection with developing the DRTV service
(see discussion above regarding selling and marketing and general and
administrative expenses).
The Company had positive cash flow from operations of $18,304 during the
nine months ended September 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 $52,345 for the nine months ended September 30, 1995, compared
to positive cash flow of $43,795 for the nine months ended September 30,
1994. The primarily reason for the decrease in cash flow is due to the
additional expenses incurred in relation to the DRTV service (see above).
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 $442,389 during the nine months ended September 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.
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 October 23, 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 September 30, 1995, interest in the amount of $134,833 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.
During January 1995, Mr. Lenfest purchased a $541,000 non-interest bearing
note from Science Dynamics Corporation. As of October 23, 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%. 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.
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
September 30, 1995, 16,707,225 shares of the Company's Common Stock were
entitled to ten votes per share. The remaining 7,087,275 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 that 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).
3.5 Form of copy of Amendment of Certificate of Incorporation of the
Company, filed September 25, 1995.
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")).
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 in 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).
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 (incorporated by reference to the Company's Form
10Q-SB for the period ended June 30, 1995).
11. Statement re: Computation of Per Share Earnings (see the Company's
September 30, 1995 Financial Statement included herein).
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: 11/07/95 By: /s/Frank J. Carcione
--------------------------------------------
Frank J. Carcione, (Chief Executive Officer)
Dated: 11/07/95 By: /s/Irene A. DeZwaan
-------------------------------------------
Irene A. DeZwaan, Treasurer (Controller)
<PAGE>
EXHIBIT INDEX
Page No.
--------
3.5 Form of copy of Amendment of Certificate of
Incorporation of the Company, filed September
25, 1995.
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TELVUE CORPORATION
********************
TELVUE CORPORATION, a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, as amended
(the "Corporation"), DOES HEREBY CERTIFY:
FIRST: That by Unanimous Written Consent of the Board of Directors
of the Corporation resolutions were duly adopted setting forth a proposed
amendment to the Certificate of Incorporation, declaring said amendment to be
advisable and calling a meeting of the stockholders of the Corporation for
consideration thereof. The resolution setting forth the proposed amendment
is as follows:
RESOLVED, that the Certificate of Incorporation of the Corporation
be, and it hereby is, amended by changing the Article thereof numbered
"Fourth" so as to read in full as follows:
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is 100,000,000 common shares with a par value
of one cent ($0.01) per share and 6,900,000 shares of Class A Cumulative
($0.06 semi-annual dividend) Convertible, Redeemable, Payment-in-Kind,
Non-Voting Preferred Stock with a par value of one dollar ($1.00) per share.
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, a meeting of the stockholders of the Corporation was duly called
and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, as amended, at which meeting the
necessary number of shares as required by statute were voted in favor of the
amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware, as amended.
FOURTH: That the capital of the Corporation shall not be reduced
under or by reason of said amendment.
IN WITNESS WHEREOF, said Telvue Corporation has caused its
corporate seal to be hereunto affixed and this certificate to be signed by
Frank J. Carcione, its President, and Irene A. DeZwaan, its Secretary, this
day of September, 1995.
TELVUE CORPORATION
BY: /s/Frank J. Carcione
-----------------------------------------
President
(CORPORATE SEAL)
ATTEST:
BY: /s/Irene A. DeZwaan
----------------------------------
Secretary
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 169,230
<SECURITIES> 0
<RECEIVABLES> 755,788
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 973,888
<PP&E> 5,266,154
<DEPRECIATION> 2,270,516
<TOTAL-ASSETS> 3,979,576
<CURRENT-LIABILITIES> 997,749
<BONDS> 0
<COMMON> 237,945
0
2,031,877
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,979,576
<SALES> 3,280,051
<TOTAL-REVENUES> 3,280,051
<CGS> 0
<TOTAL-COSTS> 1,933,803
<OTHER-EXPENSES> 1,579,943
<LOSS-PROVISION> 107,596
<INTEREST-EXPENSE> 442,389
<INCOME-PRETAX> (777,095)
<INCOME-TAX> 0
<INCOME-CONTINUING> (777,095)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (777,095)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.01)
</TABLE>
