EXHIBIT INDEX APPEARS ON PAGE
U.S. 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, 1996
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 November 4,
1996: 23,794,500 shares.
Transitional Small Business Disclosure Form: Yes No X
------ ------
This report includes a total of 16 pages.
<PAGE>
TELVUE CORPORATION AND FORMER SUBSIDIARY
INDEX
PAGE
NO.
-----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of September 30, 1996
(unaudited) and as of December 31, 1995
Statements of Operations for the three
months ended September 30, 1996 (unaudited)
and September 30, 1995 (unaudited)
Statements of Operations for the nine
months ended September 30, 1996 (unaudited)
and September 30, 1995 (unaudited)
Statements of Cash Flows for the nine
months ended September 30, 1996 (unaudited)
and September 30, 1995 (unaudited)
Notes to Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis or Plan
of Operation
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
<TABLE>
<PAGE>
PART I. Financial Information
ITEM I. Financial Statements
TELVUE CORPORATION
BALANCE SHEETS
September 30, December 31,
1996 1995
------------- -----------
<S> <C> <C>
ASSETS (Unaudited) *
CURRENT ASSETS
Cash and cash equivalents $ 495,719 $ 216,409
Accounts receivable - trade 878,128 783,588
Other receivables 4,667 15,525
Other current assets 20,476 4,219
----------- -----------
TOTAL CURRENT ASSETS 1,398,990 1,019,741
PROPERTY AND EQUIPMENT
Machinery and equipment 5,078,168 5,007,768
Less accumulated depreciation 2,515,983 2,198,719
----------- -----------
2,562,185 2,809,049
SECURITY DEPOSITS 8,800 8,800
----------- -----------
$ 3,969,975 $ 3,837,590
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable - trade $ 192,223 $ 342,947
Accounts payable - equipment 6,060 28,114
Accrued expenses 155,531 247,469
Accrued dividends 78,745 -
Deferred trunk credit 222,450 -
Notes payable - majority stockholder 600,000 -
----------- -----------
TOTAL CURRENT LIABILITIES 1,255,009 618,530
NOTES PAYABLE - MAJORITY STOCKHOLDER 5,919,712 6,526,712
ACCRUED INTEREST - MAJORITY STOCKHOLDER 1,795,600 1,462,576
REDEEMABLE CONVERTIBLE PREFERRED STOCK, $1 par
value, 6,900,000 shares authorized, 2,789,192
shares issued and outstanding (liquidation
value $2,789,192 and $2,532,895, respectively) 2,789,192 2,532,895
STOCKHOLDERS' DEFICIT
Common stock, $.01 par value, 100,000,000
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 (9,543,018) (9,056,603)
----------- -----------
(7,789,538) (7,303,123)
----------- -----------
$ 3,969,975 $ 3,837,590
=========== ===========
* Derived from audited financial statements.
The accompanying unaudited notes are an integral part of these statements.
<PAGE>
TELVUE CORPORATION AND FORMER SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months Ended September 30,
--------------------------------
1996 1995
---- ----
REVENUES $ 1,403,410 $ 1,226,315
OPERATING EXPENSES
Service 769,196 784,947
Research and development - 39,955
Selling and marketing 157,153 126,233
General and administration 127,537 175,374
Depreciation 225,280 210,673
----------- -----------
1,279,166 1,337,182
----------- -----------
OPERATING INCOME (LOSS) 124,244 (110,867)
OTHER INCOME (EXPENSE)
Interest income 2,712 -
Interest expense (145,479) (149,477)
Gain (loss) on disposal of property and equipment 200 (44,938)
Minority interest in net loss of former subsidiary - 1,737
Loss on disposition of subsidiary - (45,572)
----------- -----------
(142,567) (238,250)
----------- -----------
NET LOSS (18,323) (349,117)
DIVIDENDS ON REDEEMABLE
CONVERTIBLE PREFERRED STOCK (78,745) (60,956)
----------- -----------
NET LOSS AVAILABLE TO
COMMON STOCKHOLDERS $ (97,068) $ (410,073)
=========== ===========
NET LOSS PER COMMON SHARE $(.004) $(.017)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 23,794,500 23,794,500
=========== ===========
The accompanying unaudited notes are an integral part of these statements.
<PAGE>
TELVUE CORPORATION AND FORMER SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine months Ended September 30,
-------------------------------
1996 1995
---- ----
REVENUES $ 3,987,525 $ 3,280,051
OPERATING EXPENSES
Service 2,206,052 1,933,803
Research and development - 49,827
Selling and marketing 523,837 454,570
General and administration 390,705 451,807
Depreciation 678,553 623,739
----------- -----------
3,799,147 3,513,746
----------- -----------
OPERATING INCOME (LOSS) 188,378 (233,695)
OTHER INCOME (EXPENSE)
Interest income 2,712 -
Interest expense (437,347) (442,389)
Loss on disposal of property and equipment (9,440) (62,024)
Minority interest in net loss of former subsidiary - 6,585
Loss on disposition of subsidiary - (45,572)
----------- -----------
(444,075) (543,400)
----------- -----------
NET LOSS (255,697) (777,095)
DIVIDENDS ON REDEEMABLE
CONVERTIBLE PREFERRED STOCK (230,719) (182,868)
----------- -----------
NET LOSS AVAILABLE TO
COMMON STOCKHOLDERS $ (486,416) $ (959,963)
=========== ===========
NET LOSS PER COMMON SHARE $(.02) $(.04)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 23,794,500 23,794,500
=========== ===========
The accompanying unaudited notes are an integral part of these statements.
<PAGE>
TELVUE CORPORATION AND FORMER SUBSIDIARY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months Ended September 30,
-------------------------------
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (255,697) $ (777,095)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 678,553 623,739
Loss on disposal of property and equipment 9,440 62,024
Minority interest in net loss of former subsidiary - (6,585)
Loss on disposition of subsidiary - 45,572
Changes in assets and liabilities:
Decrease (increase) in -
Accounts receivable - trade (94,540) (281,864)
Other receivable 10,858 38,552
Other current assets (16,257) (14,746)
Increase (decrease) in -
Accounts payable - trade (150,724) 234,458
Accounts payable - equipment (22,054) (444,928)
Accrued expenses (91,938) 96,788
Accrued interest - majority stockholder 437,347 442,389
Deferred trunk credit 222,450 -
----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 727,438 18,304
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (441,328) (537,595)
Proceeds from sale of property and equipment 200 200
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (441,128) (537,395)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - majority stockholder 143,000 523,733
Payments on notes payable - majority stockholder (150,000) -
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES (7,000) 523,733
----------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 279,310 4,642
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 216,409 164,588
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 495,719 $ 169,230
=========== ===========
The accompanying unaudited notes are an integral part of these statements.
<PAGE>
TELVUE CORPORATION AND FORMER SUBSIDIARY
NOTES TO 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, 1996, the results
of operations for the three and nine months ended September 30, 1996 and 1995
and cash flows for the nine months ended September 30, 1996 and 1995.
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, 1995, 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 during the period-
1996 1995
---- ----
Income taxes $ 0 $ 0
Interest $ 0 $ 0
Non-cash Investing and Financing Transactions
- ---------------------------------------------
The Company accrued dividends on its redeemable convertible preferred stock
of $230,719 and $182,868 during the nine months ended September 30, 1996 and
1995, respectively. During the nine months ended September 30, 1996, the
Company issued 151,974 shares of redeemable convertible preferred stock in
payment of one semi-annual 1996 dividend. During the nine months ended
September 30, 1995, no shares of preferred stock were issued in payment of
preferred stock dividends. During the nine months ended September 30, 1996
and 1995, the Company issued 104,323 and 0 shares, respectively, of
redeemable convertible preferred stock in payment of interest on a line of
credit.
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. INCOME TAXES:
-------------
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes". At January 1,
1996, 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 $529,000 and nondeductible
interest expense of $1,462,576. In addition, the Company has a net operating
loss carry forward of approximately $6,400,000 on a tax reporting basis. The
carryforward will begin to expire in 2004, if not utilized. The Company has
not recorded a deferred tax asset at September 30, 1996, 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.
5. NOTES PAYABLE AND ACCRUED INTEREST - MAJORITY STOCKHOLDER:
----------------------------------------------------------
As of September 30, 1996, the Company had various outstanding notes due to
the majority stockholder in the aggregate amount of $6,519,712 and accrued
interest due on these notes of $1,795,600. Effective as of December 31,
1995, the Company obtained from the majority stockholder an extension to
January 1, 1998, of his prior agreement not to demand repayment of his loans
or the accrued interest on the loans. The Company has decided to voluntarily
make, and the majority stockholder has agreed to accept, monthly payments
against loan principal in the amount of $50,000. The Company has, therefore,
classified $600,000 of the notes payable to the majority stockholder as a
short-term liability and has classified the remaining balance on the notes
payable and the accrued interest as long-term liabilities.
6. DISPOSITION OF SUBSIDIARY
-------------------------
On July 28, 1995 the Company terminated its partnership with Voice FX
Corporation. The September 30, 1995, Statements of Operations and Statements
of Cash Flows 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>
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 requires 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 necessary
for it to remain competitive within the pay-per-view ANI industry. The
National POP can also speak promotional messages for products and services at
the time a cable subscriber is placing an order for a pay-per-view movie or
event (the "Pay-per-view Plus service"). 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 MCI Telecommunications Corporation
("MCI"). The Company's amended lease agreement with MCI expires July 10,
2001.
The National POP can service, without installing a new regional 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. As of September 30, 1996, the Company has only one regional
POP remaining. Cable television systems using the National POP are charged,
in addition to their per order fee, installation and setup fees, monthly data
circuit fees, enhanced service feature fees, and Pay-per-view Plus service
fees.
On September 27, 1994, the Company entered into a service agreement
with Video Jukebox Network, Inc. ("VJN"). The agreement provided that the
Company would act as a 900 call service bureau to facilitate the ordering, by
VJN customers, of music videos on the cable or home dish of the VJN customer.
Mr. H.F. Lenfest, the majority stockholder of the Company and an affiliate of
VJN ("Mr. Lenfest"), had 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. Mr. Lenfest is the Chairman of the Board of Directors of
VJN. He also controls a corporation that is a partner in a partnership that
controls a majority of the voting stock of VJN. The Company believes that
the terms of the service agreement with VJN were at market rates. As of
November 4, 1996, Mr. Lenfest had loaned the Company $358,267 to purchase
equipment and software needed to provide service to VJN (the "VJN Loan"),
Interest on the VJN Loan is set at the prime rate of PNC Bank plus 1%. VJN
has informed the Company that VJN has developed its own voice recognition
system and intends to process its 900 number calls internally. VJN has
agreed to reimburse the Company $284,619. The $284,619 covers costs incurred
by the Company for software development to provide service to VJN and costs
incurred to convert hardware originally purchased to service VJN to a
configuration the Company can use to provide service to its cable customers
for ordering pay-per-view movies and events. Upon payment of the $284,619 by
VJN the Company will pay Mr. Lenfest $284,619 which will represent a partial
repayment of the VJN loan. VJN has agreed to pay the Company the $284,619
when it receives financing which it is currently pursuing. There can be no
assurances that VJN will complete its proposal or complete the financing on
terms which would permit it to reimburse the Company, therefore, no
receivable has been recorded. The management of the Company believes that
the termination of the VJN contract will not have a material effect on the
Company operations.
The Company had an agreement to provide management services to Lenfest
Networks, Inc. ("LNI"), a company wholly-owned by Mr. Lenfest. LNI owned and
operated a personal advertising television video programming service with
pay-per-call applications, and did business as "INTRONET". The Company had
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. During 1996, the Company was compensated in the amount of $12,000
per month. The Company believes the terms of the management agreement with
LNI were at market rates. LNI substantially reduced operations on March 31,
1996, and as a result, the Company stopped performing its management duties
effective February 29, 1996.
The Company's net loss was $18,323 for the three months ended September
30, 1996, compared to $349,117 for the three months ended September 30, 1995.
The net losses for the nine months ended September 30, 1996 and 1995 were
$255,697 and $777,095, respectively. Service revenues for the third quarter
and the nine months ended September 30, 1996 increased $177,095 and $707,474,
respectively, over comparable periods from the prior year. The growth in
service revenues is partially attributable to the Company serving
approximately 1,300,000 more cable subscribers during the nine months ended
September 30, 1996, than were served during the nine months ended September
30, 1995. The increase is also attributable to an increase in the average
monthly buy rate from 23.2% for the nine months ended September 30, 1995, to
24.9% for the nine months ended September 30, 1996. The increase in the buy
rate was generated during the first quarter of 1996 when an average monthly
buy rate of 26% was achieved compared to 20.9% for the first quarter of 1995.
The buy rate for the third quarter of both 1996 and 1995 has remained flat at
approximately 24.5%. The service revenue increase is also a result of an
increase in installation and data circuit income of $59,546 for the third
quarter of 1996 and $119,010 for the nine months ended September 30, 1996,
over comparable periods from the prior year. In addition, the Company had
National POP feature revenue of $178,984 and $421,038 for the third quarter
and nine months ended September 30, 1996, respectively, compared to $95,136
and $275,613 for the third quarter and nine months ended September 30, 1995,
respectively. The Company had Pay-per-view Plus revenue of $97,620 and
$252,542 for the third quarter and nine months ended September 30, 1996,
respectively compared to $79,016 and $141,912 for the third quarter and nine
months ended September 30, 1995. The installation and data circuit revenue
as well as the feature revenue are a result of the migration of additional
customers from the regional POPs to the National POP, the internal growth of
customers of cable television systems already using the Service, and the
addition of new customers to the National POP. The Pay-per-view Plus revenue
increased over 1995 because the Pay-per-view Plus service had just become
active during January 1995, and there were not as many promotions being
offered or customers using the Pay-per-view Plus service.
Service expenses for the third quarter decreased $15,751 and increased
$272,249 for nine months ended September 30, 1996, from the comparable 1995
periods. The decrease in service expenses for the third quarter is a result
of the Company paying a lower per minute usage rate with MCI. In addition,
there was a decrease in trunk facility access expenses of $12,489 as a result
of the elimination of the regional POPs (see below). The increase in service
expenses for the nine months ended September 30, 1996, is primarily
attributable to an increase in trunk usage expense of $223,298. The trunk
usage expense increase is a result of an increase in the average monthly buy
rate during the first quarter of 1996 (see above). In addition, during the
first quarter of 1995 service expenses were reduced by $173,709 for one-time
credits earned from Sprint Communications, Inc. ("Sprint"), the Company's
former telecommunications provider, against trunk usage expense in accordance
with the Company's contract agreement with Sprint.
The National POP and the regional POPs had required, a substantial
purchase of equipment by the Company. Depreciation accounted for 18% of the
total operating expenses for both the third quarter and the nine months ended
September 30, 1996, compared to 16% and 18% for the third quarter and nine
months ended September 30, 1995, respectively. For the nine months ended
September 30, 1996, selling and marketing expenses increased 15% and general
and administrative expenses decreased 14% over the comparable 1995 period.
The increase in selling and marketing expenses is partially attributable to
an increase in commission expense of $35,038 as a result of customer
additions and contract renewals. Payroll taxes and benefits increased
$32,169 as a result of salary increases and the addition of one employee to
the Pay-per-view Plus department. General and administrative expenses
decreased as a result a decrease in expenses related to the management of
Intronet (see above).
The Company migrated approximately 293,000 subscribers from the
regional POPs to the National POP during the nine months ended September 30,
1996. As of September 30, 1996, there remains one customer with 7,400
subscribers on one regional pop. The Company is attempting to move this
customer to the National POP by the end of 1996. As a result of migrating
customers from the regional POPS to the National POP during the nine months
ended September 30, 1996, the Company recorded a loss on the disposal of
property and equipment of $9,440. This loss was a result of being unable to
use or sell excess equipment inventory made available by the retirement of
seven regional POPs.
Total liabilities increased $618,800 and total assets increased
$132,385 for the nine months ended September 30, 1996. The increase in total
liabilities was primarily a result of an increase in accrued interest of
$333,024 on outstanding loans from Mr. Lenfest and an increase in preferred
stock of 256,297 for stock issued to Mr. Lenfest for payment of the June 30,
1996, preferred stock dividend and payment of interest on the National
Equipment Loan through June 30, 1996, with shares of preferred stock . In
addition, there was an increase in deferred trunk credit of $222,450. This
increase in deferred trunk credit represents credits received, but not yet
earned, by the Company from MCI under the terms of the five year contract.
The increase in assets is attributable to an increase in cash and an increase
in accounts receivable as a result of increased billings. The increases in
cash and accounts receivable are partially offset by increases in accumulated
depreciation. The Company's days for sales in accounts receivable is 57 days
for the nine months ended September 30, 1996, compared to 51 days for the
nine months ended September 30, 1995. The Company believes the increase of 6
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 nine months ended September 30, 1996, the Company purchased
$441,328 of equipment compared with $537,595 purchased during the nine months
ended September 30, 1995. The 1996 equipment purchases consisted primarily
of one switched access audio response unit ("SARU") and software enhancements
and peripheral equipment for the National POP totaling $362,514 and $75,790
in software which was to be used to provide service to VJN (see above). The
Company had previously purchased the SARUs from Syntellect Network Systems,
Inc. ("Syntellect"). However, during April 1996 the division of Syntellect
that manufactures the SARUs was sold to Atlas Telecom ("Atlas"). Equipment
that was previously purchased to provide service to VJN (see above) has been
reconfigured to operate as a SARU which the Company is currently using to
provide Service to its cable customers (see above).
The Company is developing a new line of business to provide cable
systems with direct response commercials from a number of sources ("DRTV").
Cable operators would receive a percentage of the proceeds from sales,
generated from the commercials. The Company is currently providing the
service to cable networks, some of which are owned by an affiliate. During
the initial test phase in November 1995 and December 1995, the Company proved
its ability to obtain and distribute direct response commercials in addition
to tracking sales by commercial and location. It remains to be seen,
however, whether enough cable operators will participate to generate the
revenue necessary to make this line of business profitable. The DRTV service
generated revenue of $3,928 and $21,320 for the third quarter and nine months
ended September 30, 1996, respectively. Expenses for the third quarter and
nine months ended September 30, 1996 were $21,488 and $73,395, respectively.
During the nine months ended September 30, 1995, the Company incurred $49,827
in research and development costs required for software development for the
DRTV service. There were no comparable research and development expenses for
the nine months ended September 30, 1996.
The Company had positive cash flow from operations of $727,438 during
the nine months ended September 30, 1996. Ignoring changes in operating
assets and liabilities that result from timing issues, and considering only
adjustments to reconcile net loss to net cash provided by operating
activities, the Company would have positive cash flow from operating
activities of $432,296 for the nine months ended September 30, 1996, compared
to negative cash flow from operating activities of $52,345 for the nine
months ended September 30, 1995. The increase in cash flow for the nine
months ended September 30, 1996, is primarily a result of increased revenue
(see above) along with the Company paying a lower per minute usage rate with
MCI. Mr. Lenfest had agreed to defer cash interest payments of $437,347
during the nine months ended September 30, 1996. The deferring of the
interest payments along with the increase in revenue has enabled the Company
to accumulate cash. Although Mr. Lenfest has agreed not to demand repayment
of principal and interest before January 1, 1998, the Company has voluntarily
decided to make principal payments of $50,000 a month to Mr. Lenfest. As of
September 30, 1996, the Company's has paid Mr. Lenfest $150,000 in principal
payments. Mr. Lenfest has agreed to accept payments of principal for the
time being, but he has reserved the right to request payments of interest on
the various loans made by him to the Company (see below).
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. In connection with the purchase of the stock,
the Company borrowed $500,000 from Mr. Lenfest at an interest rate of 12%
(the "Original Line of Credit"). As of November 4, 1996, the Company has
repaid $2,000 of the principal of the Original Line of Credit. From November
15, 1990, through December 31, 1993, the Company borrowed an additional
$3,190,000 from Mr. Lenfest under various loan agreements (the "Other
Loans"). The interest rates on the Other Loans is set at the floating prime
interest rate of PNC Bank plus 1%. 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 (the "National Equipment Loan"). Interest
on the National Equipment Loan is set at the floating prime interest 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 November
4, 1996, the Company had borrowed $1,471,272 under the terms of the National
Equipment Loan. Interest due on the National Equipment Loan through June 30,
1996, in the amount of $266,533 has been paid with 266,533 shares of
Preferred Stock. On December 22, 1995, the Company borrowed $55,000 from Mr.
Lenfest to meet advertising expenses and programming expenses that were not
budgeted for 1995 (the "Advertising Loan"). It was orally agreed that
interest on the Advertising Loan would be set at the floating prime interest
rate of PNC Bank plus 1%. As of November 4, 1996, the principal on the
Advertising Loan of $55,000 has been repaid. During January 1995, Mr.
Lenfest purchased from Science Dynamics Corporation ("Science") the Company's
non-interest bearing note in the amount of $541,000 held by Science (the
"Prior Science Note"). During February 1996, the Company borrowed from Mr.
Lenfest $143,000 to purchase one SARU (the "SARU Loan"). It was orally
agreed that interest on the SARU Loan would be set at the floating prime
interest rate of PNC Bank plus 1%. As of November 4, 1996, the principal on
the SARU loan of $143,000 has been repaid. As of November 4, 1996, the
outstanding loan balances due to Mr. Lenfest are $411,173 under the TelVue
Partnership Loan, $358,267 under the VJN loan, $498,000 under the Original
Line of Credit, $3,190,000 under Other Loans, $1,471,272 under the National
Equipment Loan, and $541,000 under the Prior Science Note bringing aggregate
outstanding loans from Mr. Lenfest to $6,469,712, (see the Company's December
31, 1995 Form 10-KSB for a description of the TelVue Partnership Loan).
Interest on $5,019,539 of the borrowings is set at the floating prime
interest rate of PNC Bank plus 1%. Interest on $498,000 of the loan is set
at 12%. Interest on $411,173 is set at the floating prime interest rate of
PNC Bank plus 2%. In addition, effective as of December 31, 1995, the
Company obtained from Mr. Lenfest a written agreement stating he will not
demand repayment of his loans or the cash payment of accrued interest on the
loans through January 1, 1998. Although Mr. Lenfest has agreed not to demand
repayment of his loans or accrued interest, as indicated above, the Company
is voluntarily making principal payments of $50,000 each month to Mr.
Lenfest. Mr. Lenfest has agreed to accept payments of principal for the time
being, but reserves the right to request payments of interest on the various
loans made by him to the Company.
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 remains dependent upon the deferral of principal and interest
payments due to Mr. Lenfest in order to fund operations and required
equipment purchases. 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 or equipment purchases without
seeking outside financing. Should the Company require funding in the future
it will seek additional financing from Mr. Lenfest and other sources. In the
event Mr. Lenfest should decline to provide additional funding, for either
equipment purchases or future operations, the Company will seek additional
funds from 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
the National POP and downsizing the work force. If additional needed funds
do not become available, unless the Company is able to continue to achieve
positive cash flow on a consistent basis, it will not be able to continue its
business operations.
Shares of Common Stock that have had the same beneficial owner since
April 21, 1988, or that 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, 1996, 7,014,928 shares of the Company's Common Stock were
entitled, to one vote per share. The remaining 16,779,572 shares of Common
Stock were entitled to one vote per share. Mr. Lenfest owns 12,896,968
shares of Common Stock that 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 4. Submission of Matters to a Vote of Security Holders
The Company held an annual meeting of the shareholders on July 10, 1996.
A quorum was present and the shareholders elected six directors to serve on
the Company's Board of Directors until the next annual meeting of
stockholders: H.F. Lenfest, Carl Cangelosi, Donald Heller, Thomas Fennell,
Frank Carcione and Robert Lawrence.
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 (incorporated by reference to the
Company's Form 10-QSB for the period ended September 30, 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 10-KSB).
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).
10.14 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 10-QSB for the period ended September 30, 1994,
(the September 30, 1994 Form 10-QSB)).
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 10-QSB).
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 10-QSB).
10.18 Management Agreement, dated March 10, 1995, between the Company and
Lenfest Networks, Inc (incorporated by reference to the Company's Form
10-QSB for the period ended September 30, 1995).
10.19 Letter effective as of December 31, 1995, from H.F. Lenfest, waiving
the repayment of loans and accrued interest until January 1, 1998
(incorporated by reference to the Company's Form 10-QSB for the period
ended March 31, 1996).
11. Statement re: Computation of Per Share Earnings (see the Company's
September 30, 1996 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: 11/12/96 By: /s/Frank J. Carcione
--------------------------------------------
Frank J. Carcione, (Chief Executive Officer)
Dated: 11/12/96 By: /s/Irene A. DeZwaan
-------------------------------------------
Irene A. DeZwaan, Treasurer (Controller)
<PAGE>
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