FORM 10-KSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 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
Mount Laurel, New Jersey 08054
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 609-273-8888
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
Common, $0.01 per share par value
Indicate by check mark whether the Issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Issuer was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X
-----
Indicate by check mark if disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained herein, and will not be
contained, to the best of Issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. X
-----
The Issuer's revenue for the fiscal year ended December 31, 1995 was
$4,426,221.
The Market Value of voting stock held by non-affiliates of the Issuer at
March 1, 1996, based on a per share average bid and asked price of .055
was $502,538.
Number of shares of Issuer's common stock outstanding as of
March 1, 1996: 23,794,500 shares.
Transitional Small Business Disclosure Format: Yes No X
_____ _____
<PAGE>
ITEM 1. BUSINESS
GENERAL
TelVue Corporation, a Delaware corporation (the "Company"), was
incorporated on November 26, 1986. Until December 30, 1988, the Company
was a wholly-owned subsidiary of Science Dynamics Corporation ("Science").
On that date, the Company's shares of Common Stock were distributed to
Science's shareholders of record as of December 30, 1988 on the basis of
three shares of the Company's Common Stock for each share of Science's
Common Stock then outstanding. The Company is a marketing and operating
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 was incorporated to serve as a special access carrier to
test and develop markets for ANI services to both the cable television
industry and to other specialized purchasers. ANI equipment permits cable
television companies to identify subscribers and specialized program
ordering information without any interactive cable system and without any
form of operator intervention. ANI consequently permits cable television
companies to process special ordering services without the attendant
high-manpower requirements or extensive physical plant and facilities that
are otherwise required. ANI systems provide an electronic means of
recording a subscriber's telephone number together with information as to
what program or service was ordered and by whom, permitting cable
television companies to then unscramble appropriate signals and permitting
the dialing subscribers to view the desired event. At the time of dialing
the order, the recognition of the subscriber's telephone number is
automatically recorded by the Company's ANI unit, presenting the subscriber
with both a confirmation and acknowledgment of receipt of his order. In
turn, the automatically recorded information regarding placement of an
order can be utilized by cable television companies for purposes of billing
for such specialized services.
Prior to May 1992, the Company's means of servicing its cable
television customers was done by installing ANI equipment in each Local
Access Transport Area ("LATA") where its cable television customers were
located (the "Regional POPs"), and using the local telephone companies to
transport its 800 number traffic to the Regional POPs. In May 1992, the
Company installed a new POP that 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 that are not available
with the equipment located at the Regional POPs. The National POP is able
to serve cable television systems across the United States via trunk lines
and data circuits, that it leases from MCI Telecommunications Corporation
("MCI"). The lease expires June 1, 2000. The Company had been leasing its
trunk lines and data circuits from Sprint Communications, Inc. ("Sprint"),
but switched to the MCI telephone service as a result of receiving a more
favorable trunk usage per minute rate. The National POP can service,
without installing a new Regional POP, cable television systems which are
located in a state or telephone LATA where a regional POP does not exist.
The Company can also move all regional cable television systems onto the
National POP. As regional cable television 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.
As of December 31, 1995, the Company had 9 points of presence of
telephone switching equipment ("POPs"), one of which was the Company's
National POP. During 1995, the Company retired eleven Regional POPs as a
result of migrating the customers from these Regional POPs to the National
POP. The equipment located at the Regional and National POPs is owned and
installed by the Company. The Company had contracts to provide service to
438 cable television systems, serving approximately 7.2 million
subscribers, as of December 31, 1995.
The Company's contracts with cable television system operators cover
the provision of ANI order entry services at a specified rate per
subscriber order. Monthly charges are due and payable to the Company
within twenty days of the end of each month. Generally, the contracts
carry an initial term of three years with automatic renewal unless a party
gives notice of non-renewal prior to the renewal date. Generally, the
contracts are terminable at will upon ninety days prior notice (subject to
applicable cancellation fees). Each contract is also terminable upon
default by a party or upon sale or transfer of the business or assets of
the cable operator. In addition, the contract is also assignable upon the
sale or transfer of the business or assets of the cable operator.
The Company's business is oriented principally to the provision of
services, and it does not engage in the manufacture of equipment required
to provide its services. Through December 31, 1995, the Company has
purchased its required ANI equipment for the National POP from Syntellect
Network Systems, Inc. ("Syntellect"). Syntellect has purchased a
competitor of the Company and, as a result, the Company is evaluating
alternative sources for future equipment purchases. The Company previously
has purchased its required ANI equipment for the Regional POPs from
Science. During 1995, the Company purchased no equipment from Science.
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
did 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 that 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.
On September 27, 1994, the Company entered into a service agreement
with Video Jukebox Network, Inc. ("VJN"). The agreement provides that the
Company will 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"), 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. 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. As of March 1, 1996, Mr. Lenfest has 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
interest rate of PNC Bank plus 1%. The Company's had originally planned to
begin providing service to VJN cable subscribers during May 1995. This has
been rescheduled to June 1996, as a result of software development problems
that now appear to be solved.
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 1995, the Company was compensated in the
amount of $10,000 per month. During 1996, the Company was to be
compensated in the amount of $12,000 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 were at
market rates. The Company has been informed that LNI is ceasing business
as of March 31, 1996, and, as a result, the Company will no longer provide
management services.
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 sales generated from the
commercials. The Company is currently providing the service to cable
networks, some of which are owned by an affiliate, and plans eventually to
have cable systems directly using the service. During the initial test
phase in November 1995 and December 1995, the Company proved its ability to
acquire 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.
For information regarding the Company's revenue, operations and
assets, please refer to the Company's financial statements included at Item
7 of this Report.
LICENSES
The Company has purchased Switched-access Audio Response Units
("SARUs") and one communication subsystem ("HP") from Syntellect. The
Company possesses a perpetual, no charge license for the pay per view
application software residing on the SARUs it currently owns and for any
future SARUs purchased. The Company also holds a perpetual, no charge
license for the HP it purchased from Syntellect.
The Company believes Syntellect agreed to a perpetual no charge
license for the pay-per-view application software residing on the SARUs and
HP because the Company committed and purchased ten (10) SARUs from
Syntellect during 1994. The Company purchased no SARUs from Syntellect
during 1995 and has purchased one (1) SARU during February 1996. The
Company did however, purchase other peripheral hardware and software
modifications from Syntellect during 1995. There is no affiliation between
the Company and Syntellect other than a customer and supplier relationship.
The Company also uses equipment purchased from Science. Science holds
United States Patent No. 4,797,913 (issued January 10, 1989), encompassing
ANI ordering equipment and services employing the use of Feature Group D
services. The Company holds a nonexclusive license to use the Science
Patent. The Company believes that all of its pay-per-view ordering
services are performed in accordance with the procedures set forth in the
Science Patent. As a result of the potential claims described below under
"Legal Proceedings", the Company believes the Science Patent may be
material to its ability to continue operations or to continue operations
without incurring significant license fees which may have a material and
adverse affect on the Company's financial condition. (See "Legal
Proceedings", below.)
MARKETING OF SERVICES
Sales of the Company's services to date have been made to operating
cable television companies with a broad geographical distribution.
Relations with all customers are good.
The Company's business is not seasonal in any material respect.
Ordering problems common to all providers of pay-per-view services are the
geographically dispersed points of sale, the high concentration of orders
around the start time of a pay-per-view event and the need to make the
ordering mechanism sufficiently easy to accommodate the impulsive
purchasing patterns of ordering subscribers. The Company believes its
services resolve these pay-per-view ordering problems. As of December 31,
1995 approximately 11% of the Company's annual service revenue was
attributable to affiliates of Tele-Communications, Inc. and 14% of the
Company's annual revenue was attributable to affiliates of Continental
Cablevision. These percentages may vary as contracts with additional cable
companies are concluded and the pay-per-view service is expanded by
existing customers of the Company and as pay-per-view acceptance increases
by consumers.
COMPETITION
The cable industry, because of government reregulation rules, regards
pay-per-view as a service with good incremental revenue potential and
therefore has instituted more aggressive marketing plans. Direct
competitors have significantly accelerated their own marketing programs to
make available ANI services. There are other competing methods of
providing pay-per-view services which include: the manual method (where
customer service representatives take orders by means of traditional
telephone call servicing); audio response units (which interact with
customers calling in who have touch-tone service); and cable communications
devices, which include equipment installed at the customer's location and
at the offering cable company's office which permit direct communication
through a two-way cable plant. The manual method, audio response units and
cable communications devices require, in the Company's view, substantial
capital or operating costs when compared to ANI. The Company, through its
digitally based National POP, now offers ARU-like features while retaining
the speed of ANI processing. The Company believes these new 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"), place the Company as a state-of-the-art
provider of automated pay-per-view order processing. The Company has a
reputation for 24 hour customer service and reliability of near zero down
time, particularly under heavy load. During 1996, the Company is planning
an aggressive advertising campaign to promote its National POP as the most
reliable, feature laden pay-per-view order processing service available.
EMPLOYEES
At December 31, 1995, the Company had 17 full-time employees.
Additional personnel will be added as the Company's business develops and
as circumstances require.
BACKLOG
The Company's revenues are computed and assessed on the basis of a
fixed charge for every order placed with a subscribing customer for
specialized cable programming service or for other services transmitted
through its equipment. As a result, no form of backlog exists, other than
as represented by accumulated service charge income which has yet to be
paid to the Company.
RESEARCH AND DEVELOPMENT
During 1995, the Company spent $63,429 in research and development to
develop software required to provide the DRTV service (see Description of
Business and Management's Discussion and Analysis or Plan of Operation).
ITEM 2. PROPERTIES
The Company leases office space of approximately 8,700 square feet in
the Mt. Laurel, New Jersey, Horizon Way Corporate Center.. The lease
expires May 31, 1999. The office space is used to house the National POP
equipment as well as the Company's present executive, sales, secretarial
and technical support personnel.
ITEM 3. LEGAL PROCEEDINGS
In July 1995, a former employee threatened litigation against the
Company for Age Discrimination in Employment, violation of the Americans
With Disabilities Act, the new Jersey Law Against Discrimination, breach of
contract and the implied covenant of good faith and fair dealings. Due to
a non-work-related auto accident, the employee was placed on medical leave
of absence. Approximately one year later, the Company informed the
employee that the Company could no longer continue his medical leave of
absence and terminated the employee. The Company subsequently received
correspondence from attorneys for the employee rejecting the Company's
offer of a severance package and demanding $400,000 in commissions, unpaid
salary, stock options and other benefits. The Company believes the
employee's claims are without merit and intends to vigorously defend any
action brought against the Company.
On December 19, 1995, the company received a letter from intellectual
property counsel to Tele-Communications, Inc. ("TCI") informing the Company
that (i) TCI had received a demand from a person asserting that certain
activities involved in TCI's delivery of cable services, including delivery
of pay-per-view services, to its subscribers may infringe certain patents
held by the person; and (ii) TCI would seek indemnification under its
contract dated April 24, 1995 with the Company should it become necessary.
The Company believes that all of its pay-per-view ordering services are
performed in accordance with the procedures set forth in the Science
Patent. The Company is unable at the present time to determine what, if
any, liability it may have to TCI or to the person claiming infringement of
such person's patents. The Company has engaged special patent counsel to
advise the Company of the Company's rights under the Science Patent.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders through solicitation
of proxies or otherwise.
ITEM 5. MARKET FOR THE ISSUER'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
The Issuer's Common Stock is traded in the Over-the-Counter Market.
Over-the-Counter market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commissions and may not represent actual
transactions. The range of high and low bid prices for the Company's
common stock for the two most recent fiscal years, as reported by Herzog,
Heine & Geduld Inc., the principal market-maker with respect to the
Company's Common Stock, is as follows:
QUARTER 1995 HIGH LOW
First $.06 $.03
Second $.06 $.03
Third $.07 $.05
Fourth $.05 $.05
QUARTER 1994
First $.19 $.19
Second $.19 $.19
Third $.19 $.06
Fourth $.06 $.03
As of March 1, 1996, there were 430 holders of record of the Common
Stock of the Company.
The Company has paid no cash dividends since its incorporation. The
Company intends to retain any future earnings for use in its business and
has no present intention to pay cash dividends on its Common Stock in the
foreseeable future. Holders of the Common Stock are entitled to share
ratably in dividends when and as declared by the Board of Directors out of
funds legally available therefore.
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 10 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 December 31, 1995, 16,725,681 shares of the Company's
Common Stock were entitled to 10 votes per share. The remaining 7,068,819
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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company's net loss was $1,045,716 for the fiscal year ended
December 31, 1995, compared to $937,688 for the fiscal year ended December
31, 1994. Service revenues for the 1995 fiscal year increased $1,003,286
over 1994. The growth in service revenues is partially attributable to the
Company serving approximately 500,000 more cable subscribers for the fiscal
year ended December 31, 1995 versus December 31, 1994. The increase is
also attributable to an increase in the average monthly buy rate from 19.6%
for the year ended December 31, 1994 to 23.3% for the year ended December
31, 1995. The Company has been experiencing a continuing upward trend in
annual buy rates. The average monthly buy rate during 1993 was 18.4% The
service revenue increase is also a result of installation and data circuit
income of $423,219 for 1995, compared to $280,167 for 1994. In addition,
the Company had National POP feature revenue of $377,147 and $144,374 for
the years ended December 31, 1995 and 1994, respectively. The Company had
Pay-per-view Plus revenue of $192,694 and $1,591 for the years ended
December 31, 1995 and 1994, respectively. 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 as well as the addition of new customers 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 1994.
Service expenses for the year ended December 31, 1995, increased
$467,273 from the comparable 1994 period. The increase in service expenses
for the year is attributable to an increase in trunk usage expense of
$531,422 as a result of an increase in the average monthly buy rate (see
above) along with the Company serving approximately 1,500,000 more
subscribers on the National POP as of December 31, 1995 when compared to
1994. There was a decrease of $85,663 in trunk facility access expenses as
a result of the retirement of eleven Regional POPs (see below).
The Company migrated approximately 1,000,000 subscribers from the
regional POPs to the National POP during the twelve months ended December
31, 1995. As of December 31, 1995, the Company was serving approximately
6,900,000 cable subscribers on the National POP compared to approximately
5,400,000 cable subscribers served as of December 31, 1994. The Company
had originally planned to have its remaining 300,000 Regional POP cable
subscribers migrated to the National POP by December 31, 1995. This has
been rescheduled to the second quarter of 1996. 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 that 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 by the Company. Depreciation
accounted for 18% of the total operating expenses for the year ended
December 31, 1995, compared to 20% for the year ended December 31, 1994.
For the year ended December 31, 1995, selling and marketing expenses
increased 31% and general and administrative expenses increased 43% over
the comparable 1994 period. The increase in selling and marketing expenses
is primarily attributable to an increase in payroll and payroll tax expense
of $75,560 as a result of three additional personnel; two for the Pay-per-
view Plus service (see below), and one for the DRTV service (see below).
There was an increase of $25,967 in cable show expense as a result of the
Company renting booth space at cable shows to make itself more visible as
well as a increase in travel expenses of $17,177 as a result of the
additional personnel. The increase in general and administrative expenses
is due to an increase in payroll and payroll tax expense of $116,997 as a
result of salary increases and the addition of one staff member to fulfill
the Company's obligation under its management agreement with LNI (see
Description of Business). The management services will cease as of March
31, 1996, thereby causing a decrease in 1996 in expenses related to
managing LNI as well as a decrease in management revenue. There was an
increase in rent and utilities of $15,697 as a result of locating to a
larger office space during July 1994, and an increase in travel expenses of
$9,246 as a result of the additional staff member.
For the year ended December 31, 1995, the Company recorded a loss on
the disposal of property and equipment of $73,525. This loss was a result
of being unable to use or sell excess equipment inventory made available by
the retirement of eleven regional POPs. The retirement of the eleven
regional POPs resulted from the migration of customers from the regional
POPs to the National POP. As the remaining eight 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 $1,265,196 along with a decrease in total
assets of $27,655 for the year ended December 31, 1995. The increase in
total liabilities was primarily a result of the Company's draws of a total
of $578,733 under funding arrangements with Mr. Lenfest, plus an increase
in accrued interest of $456,491 on outstanding loans from Mr. Lenfest and
an increase in preferred stock issued to Mr. Lenfest in the amount of
$501,018. The decrease in assets is attributable to writing off obsolete
property and equipment (see above). The Company's days for sales in
accounts receivable is 52 days for the year ended December 31, 1995
compared to 45 days for the year ended December 31, 1994. The Company
believes the increase of 7 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 year ended December 31, 1995, the Company purchased
$579,878 of equipment compared with $2,415,631 purchased during year ended
December 31, 1994. Included in the 1995 equipment purchases are software
enhancements and peripheral equipment for the National POP totaling
$434,891, caller recording software enhancements in the amount of $53,954
that is to be used for the Pay-per-view Plus service, and $91,033 in
software to be used to provide service to VJN.
The TelVue FX Partnership, that was terminated on July 28, 1995 (see
Description of Business), had revenue of $45,354 for the year ended
December 31, 1995, compared to $1,591 for 1994. The Partnership had a net
loss of $21,950 for the year ended December 31, 1995 compared to a net loss
of $120,409 for the year ended December 31, 1994. The loss for the year
ended December 31, 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 is included in the
Company's net loss for the year ended December 31, 1995. The Company also
incurred a loss of $45,572 resulting from the write off of a loan and
interest receivable due from the Partnership, net of losses previously
recognized on the consolidated financial statements prior to termination.
During 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 utilize the equipment that it purchased for use by the Partnership for
the Company's business operations.
The DRTV service (see Description of Business) generated revenue of
$10,351 and expenses of $137,063 for the year ended December 31, 1995. The
expenses included $10,473 for cable operator commissions and production
costs, $62,021 for payroll and payroll taxes and benefits, and $63,429 in
research and development required for software development for the DRTV
service.
The Company had positive cash flow from operations of $47,131 during
the year ended December 31, 1995. 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 negative cash flow from operating
activities of $97,730 for the year ended December 31, 1995, compared to
negative cash flow of $35,894 for the for the year ended December 31, 1994.
The primary 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 as a result of Mr. Lenfest agreeing to
defer cash interest payments of $591,324 during the year ended December 31,
1995. Mr. Lenfest has agreed to defer cash interest payments on
outstanding borrowings through January 1. 1997, thereby increasing cash
available for operations.
The Company's 1996 budget indicates that the Company will have
sufficient cash flow to meet operating expenses for its pay-per-view core
business through 1996 as long as Mr. Lenfest continues to allow the
deferment of principal and interest. The 1996 budget also anticipates
insufficient availability of cash during the first half of 1996 to purchase
two additional SARUs that are required to meet the Company's growing cable
subscriber base. Mr. Lenfest has therefore, agreed to fund the purchase
of two additional SARUs during 1996 (the "SARU Loan"). It has been orally
agreed that interest on the SARU Loan is to be set at the floating prime
interest rate of PNC Bank plus 1%. During February 1996, the Company
borrowed from Mr. Lenfest $143,000 to purchase one SARU under the terms of
the SARU Loan.
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. Cash flow from operations is
sufficient to fund current operations but is insufficient to fund debt
repayment or necessary capital expenditures. At present, the only source
of financing available to the Company is from Mr. Lenfest, who has agreed
to fund specified additional necessary capital expenditures. 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, 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 (see Note 10 of the 1995
financial statements of the Company, for a description of the 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 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
March 1, 1996 the Company has borrowed $1,471,272 under the terms of the
National Equipment Loan. Interest due on the National Equipment Loan
through September 30, 1995, in the amount of $162,210 has been paid with
162,210 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 has been orally agreed that interest on the Advertising Loan is
set at the floating prime interest rate of PNC Bank plus 1%. During
January 1995, Mr. Lenfest purchased a $541,000 non-interest bearing note
from Science Dynamics Corporation. As of March 1, 1996, Mr. Lenfest had
loaned $411,173 under the TelVue Partnership Loan, $358,267 under the VJN
loan and $143,000 under the SARU loan, bringing aggregate borrowings from
Mr. Lenfest to $6,669,712. Interest on $5,217,539 of the borrowings is set
at the floating prime interest 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 interest rate of PNC Bank plus 2%. In addition, effective
as of March 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, 1997.
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 principal and interest
payments due to Mr. Lenfest in order to fund its operations. 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, it will seek additional
financing from Mr. Lenfest and other sources. In the event Mr. Lenfest
should decide to terminate 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
existing POPS 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.
ITEM 7. FINANCIAL STATEMENTS
See Item 13 for a list of financial statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements of any nature at any time with the
Company's auditors with regard to any aspect of the Company's statements,
its financial disclosure or its accounting practices.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF ISSUER
The following table sets forth certain information as of December 31,
1995 with respect to each of the Company's directors and officers.
POSITION(S) WITH DIRECTOR
NAME AGE THE COMPANY SINCE
H.F. (Gerry) Lenfest 65 Chairman of the 1989
Board and Director
Frank J. Carcione 55 President, 1990
Chief Executive
Officer, and Director
Carl J. Cangelosi 53 Director 1990
Robert Lawrence 37 Director 1990
Donald L. Heller 50 Director 1993
Thomas J. Fennell 34 Director 1995
Irene A. DeZwaan 32 Secretary/Treasurer 1993
Joseph M. Murphy 41 Executive Vice 1994
President of Sales
& Operations
All directors serve until the next annual meeting of shareholders and
until their successors have been elected and have qualified. All officers
serve at the discretion of the Board of Directors.
BUSINESS EXPERIENCE
H. F. Lenfest is the President, CEO and a director of Lenfest
Communications, Inc. and each of its subsidiaries (the "Lenfest Group").
The Lenfest Group of companies are engaged in operating cable television
systems, providing cable advertising and programming. Mr. Lenfest's
principal occupation since 1974 has been President and CEO of Lenfest
Communications, Inc. and The Lenfest Group of companies. He is a director
of Video Jukebox Networks, Inc.
Frank J. Carcione became the Executive Vice President, Treasurer and
Director of the Company in May 1990, and was elected President and Chief
Executive Officer in May 1991. From August 1989 to May 1990, he held the
position of Vice President (marketing, sales, pay-per-view and franchise
relations) with Garden State Cablevision, L.P., a New Jersey cable
television operator. From November 1980 until August 1989, he held the
same position with New York Times Cable TV, the predecessor to Garden State
Cablevision, L.P.
Carl J. Cangelosi has been the President of MicroNet, Inc. a
provider of video, voice and data transmission services, since October
1990. MicroNet, Inc., is a wholly-owned subsidiary of Suburban Cable TV
Co. Inc., a Pennsylvania cable television company ("Suburban"). Suburban
is a wholly-owned subsidiary of Lenfest Communications, Inc. Prior to
assuming his current position, Mr. Cangelosi was, from October 1989 to
October 1990, a management consultant of communications services. From
September 1976 through September 1989, Mr. Cangelosi was general counsel of
GE American Communications, Inc., a provider of satellite communications
services.
Robert Lawrence is a Executive Vice President of Suburban. Mr.
Lawrence has been a Executive Vice President since January 1, 1996. From
March 1992 to January 1, 1996, Mr. Lawrence was Vice President and General
Manager of Suburban. Mr. Lawrence was General Manager of Suburban from
1982 to March 1992.
Donald L. Heller has been a Vice President of Lenfest Communications,
Inc. since March 1993. Prior to assuming his current position, Mr. Heller
was, from June 1984 to January 1993, the Vice President and General Manager
of Sports Channel Prism Associates, a regional cable television service
that provides movies and professional sports.
Thomas J. Fennell has been the Vice President of Affiliate Sales and
Marketing for Starnet, Inc., a provider of marketing services to the cable
industry, since October 1994. Starnet, Inc. is a wholly-owned subsidiary
of Lenfest Communications, Inc. Prior to assuming his current position,
Mr. Fennell was Vice President of Affiliate Sales Eastern Region for Black
Entertainment Television/Action pay-per-view from April 1992 to October
1994. From January 1989 through April 1992, Mr. Fennell was Director of
Affiliate Sales for Sports Channel America, a basic cable network.
Irene A. DeZwaan, CPA, became the Manager of Finance and
Administration of the Company in November 1990, and was elected Secretary
and Treasurer in July 1993. From September 1988 through November 1990, Ms.
DeZwaan was self-employed as an accountant. Ms. DeZwaan was employed by
Shotz, Miller & Glusman, P.C., a certified public accounting firm, from
September 1986 through 1988.
Joseph M. Murphy is the Executive Vice President of Sales and
Operations of the Company. Mr. Murphy was appointed to this position
during September 1994. Prior to this appointment, Mr. Murphy had been Vice
President of Sales since joining the Company in 1986.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
NAME AND ANNUAL COMPENSATION
PRINCIPAL POSITION YEAR SALARY COMMISSIONS
Frank J. Carcione 1995 108,000 -
CEO 1994 104,102 -
1993 87,203 -
Joseph Murphy 1995 81,623 30,461
Executive Vice President 1994 71,523 6,495
of Sales & Operations 1993 65,807 23,486
<PAGE>
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FY-END OPTION VALUES
VALUE OF
NUMBER OF UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
NAME ACQUIRED OPTIONS OPTIONS
ON VALUE EXERCISABLE/ EXERCISABLE/
EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
Frank J. Carcione
CEO - - - -
Joseph M. Murphy - - 15,000 $825(1)
The Directors of the Company receive no compensation.
(1) Value calculated based upon the average of the bid and ask price on
such dates.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 1, 1996, certain
information with respect to each person who was known to the Company to be
a beneficial owner of more than five percent (5%) of the Company's Common
Stock.
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP CLASS (1)
H.F (Gerry) Lenfest 61,359,424 (2) 86.9% (2)
202 Shoemaker Road
Pottstown, PA 19464
Chairman of the Board and Director
(1) As of March 1, 1996, 23,794,500 shares of Common Stock were
outstanding.
(2) Includes 16,886,811 shares of Common Stock issuable upon conversion
of Preferred Stock owned by Mr. Lenfest. Includes Warrants to
acquire up to 29,915,160 additional shares of Common Stock. Does not
include principal or accrued but unpaid interest on the subordinated
$500,000 Note which may be converted into shares of Common Stock.
Also does not include accrued interest, as of December 31, 1995, on
the National Equipment Loan, which the Company may elect to pay in
shares of Preferred Stock.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of March 1, 1996, certain
information with respect to the Common Stock beneficially owned by the
directors and executive officers of the Company and by all directors and
executive officers as a group. The address of all directors and executive
officers is c/o TelVue Corporation, 16000 Horizon Way, Suite 500, Mt.
Laurel, NJ 08054.
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP CLASS (1)
H.F. (Gerry) Lenfest 61,359,424 (2) 86.9% (2)
Chairman of the Board
and Director
Joseph M. Murphy 90,000 (3) .4%
Executive Vice President
of Sales and Operations
All Directors and 61,476,224 (2) (3) (4) 87.1%
Officers as a Group
(8 Persons)
(1) As of March 1, 1996, 23,794,500 shares of Common Stock were
outstanding.
(2) Includes 16,886,811 shares of Common Stock issuable upon conversion
of Preferred owned by Mr. Lenfest. Includes Warrants to acquire up
to 29,915,160 additional shares of Common Stock. Does not include
principal or accrued but unpaid interest on the subordinated $500,000
Note which may be converted into shares of Common Stock. Also does
not include accrued interest, as of December 31, 1995, on the
National Equipment Loan, which the Company may elect to pay in shares
of Preferred Stock.
(3) Includes 15,000 shares issuable to Joseph M. Murphy upon exercise of
currently exercisable stock options held by Mr. Murphy.
(4) Includes 3,000 shares issuable to Randy Gilson upon exercise of
currently exercisable incentive stock options held by such person.
Though designated an officer, he does not have a policy making role
with the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At December 31, 1995, the Company was indebted to Mr. Lenfest in the
principal amount of $6,526,712.(See Management's Discussion and Analysis or
Plan of Operation and Note 7 of the 1995 financial statements of the
Company).
During 1995, the Company entered into an agreement to provide
management services to Lenfest Networks Inc., a company wholly-owned by Mr.
Lenfest. (See Description of Business, Management's Discussion and
Analysis or Plan of Operation, and Note 13 of the 1995 financial statements
of the Company).
The Company provided its ANI services to subsidiaries of Lenfest
Communications, Inc. ("LCI"), a company operating under the control of Mr.
Lenfest.. The Company recognized revenues of approximately $190,000 from
LCI subsidiaries during 1995. (See Note 13 of the 1995 financial
statements of the Company).
Other related transactions are described in Notes 10 and 13 of the
1995 financial statements of the Company.
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES & REPORTS ON
FORM 8-K
FINANCIAL STATEMENTS
Independent Auditor's Report dated March 21, 1996.
Consolidated Balance Sheets as of December 31, 1995 and 1994.
Consolidated Statements of Operations for the years ended December
31, 1995 and 1994.
Consolidated Statements of Stockholders' Deficit for the years ended
December 31, 1995 and 1994.
Consolidated Statements of Cash Flows for the years ended December
31, 1995 and 1994.
Notes to Consolidated Financial Statements.
REPORT ON FORM 8-K.
None.
<PAGE>
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, (the
September 30, 1995 Form 10-QSB)).
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 the principal
amount of $541,000 payable to Science Dynamics Corporation.
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 10Q-SB).
10.13 Letter effective 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 (the June 30, 1995
Form 10Q-SB)).
11. Statement re: Computation of Per Share Earnings (see the Company's
1995 Financial Statement included herein).
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: 3/25/96 By: /s/Frank J. Carcione
----------------------------------
Frank J. Carcione
President (Chief Executive Officer)
DATED: 3/25/96 By: /s/Irene A. DeZwaan
----------------------------------
Irene A. DeZwaan
Treasurer (Controller)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
- -------------------------------- Chairman of the
H.F. Lenfest Board and Director
/s/Frank J. Carcione Director 3/25/96
- --------------------------------
Frank J. Carcione
/s/Carl J. Cangelosi Director 3/25/96
- --------------------------------
Carl J. Cangelosi
/s/Robert Lawrence Director 3/25/96
- --------------------------------
Robert Lawrence
/s/Donald Heller Director 3/25/96
- --------------------------------
Donald Heller
/s/Thomas J. Fennell Director 3/25/96
- --------------------------------
Thomas J. Fennell
<PAGE>
TABLE OF CONTENTS
Page No.
--------
INDEPENDENT AUDITORS' REPORT
FINANCIAL STATEMENTS
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Deficit
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
TelVue Corporation
We have audited the balance sheet of TelVue Corporation (a Delaware
corporation) as of December 31, 1995 and the consolidated balance sheet of
TelVue Corporation and former subsidiary as of December 31, 1994, and the
related consolidated statements of operations, stockholders' deficit and
cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TelVue Corporation as
of December 31, 1995 and TelVue Corporation and former subsidiary as of
December 31, 1994, and the results of their operations and their cash flows
for the years then ended in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in
Note 1 to the financial statements, the Company has incurred losses since
its inception, has stockholders' deficit of $7,367,720 as of December 31,
1995, and is unable to make interest payments to the majority stockholder
on a current basis. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements
do not include any adjustments related to the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.
As discussed in Note 3, the Company dissolved its subsidiary during 1995.
PRESSMAN, CIOCCA & SMITH
Hatboro, Pennsylvania
March 21, 1996
<PAGE>
TELVUE CORPORATION AND FORMER SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
1995 1994
ASSETS ---- ----
CURRENT ASSETS
Cash and cash equivalents $ 216,409 $ 164,588
Accounts receivable - trade 783,588 473,924
Other receivables 15,525 66,346
Other current assets 4,219 6,330
----------- ------------
TOTAL CURRENT ASSETS 1,019,741 711,188
PROPERTY AND EQUIPMENT 5,007,768 5,201,870
Less accumulated depreciation and amortization 2,198,719 2,057,863
----------- ------------
2,809,049 3,144,007
DEPOSITS 8,800 10,050
------------ ------------
$ 3,837,590 $ 3,865,245
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable - trade $ 342,947 136,097
Accounts payable - equipment 28,114 581,263
Accrued expenses 247,469 92,151
Accrued dividends - 119,052
------------ ------------
TOTAL CURRENT LIABILITIES 618,530 928,563
NOTES PAYABLE - MAJORITY STOCKHOLDER 6,526,712 5,406,979
ACCRUED INTEREST - MAJORITY STOCKHOLDER 1,462,576 1,006,085
NOTES PAYABLE - SCIENCE DYNAMICS CORPORATION - 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, 2,532,895 and
2,031,877 shares issued and outstanding,
respectively (liquidation value $2,532,895 and
$2,150,929, respectively) 2,532,895 2,031,877
COMMITMENTS AND CONTINGENCIES
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 (9,056,603) (7,763,752)
------------ ------------
(7,303,123) (6,010,272)
------------ ------------
$ 3,837,590 $ 3,865,245
============ ============
See accompanying notes.
<PAGE>
TELVUE CORPORATION AND FORMER SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
December 31, 1995 and 1994
1995 1994
---- ----
REVENUES $ 4,426,221 $ 3,422,935
OPERATING EXPENSES
Service 2,647,485 2,180,212
Research and development 63,429 -
Selling and marketing 618,263 472,473
General and administrative 603,667 422,123
Depreciation 835,474 760,415
----------- ------------
4,768,318 3,835,223
----------- ------------
OPERATING LOSS (342,097) (412,288)
OTHER INCOME (EXPENSE)
Interest expense (591,324) (384,021)
Interest income 217 -
Loss on disposal of property and equipment (73,525) (177,502)
Loss on termination of partnership (45,572) -
Minority interest in net loss
of former subsidiary 6,585 36,123
------------ ------------
(703,619) (525,400)
------------ ------------
NET LOSS (1,045,716) (937,688)
DIVIDENDS ON REDEEMABLE CONVERTIBLE
PREFERRED STOCK (247,135) (226,545)
------------ ------------
NET LOSS AVAILABLE TO
COMMON STOCKHOLDERS $(1,292,851) $(1,164,233)
============ ============
NET LOSS PER
COMMON SHARE $ (.05) $ (.05)
============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARE OUTSTANDING $23,794,500 $23,760,870
============ ============
See accompanying notes.
<PAGE>
TELVUE CORPORATION AND FORMER SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
December 31, 1995 and 1994
Additional Total
Common Paid-In Accumulated Stockholders'
Stock Capital Deficit Deficit
--------- --------- ----------- ------------
BALANCE, DECEMBER 31, 1993 $ 236,945 $1,508,285 $(6,599,519) $(4,854,289)
Accrued dividends on
redeemable convertible
preferred stock - - (226,545) (226,545)
Issuance of common stock
- stock options 1,000 7,250 - 8,250
Net loss - - (937,688) (937,688)
---------- ---------- ------------ -----------
- -
BALANCE, DECEMBER 31, 1994 237,945 1,515,535 (7,763,752) (6,010,272)
Accrued dividends on
redeemable convertible
preferred stock - - (247,135) (247,135)
Net loss - - (1,045,716) (1,045,716)
---------- ---------- ------------ ------------
BALANCE, DECEMBER 31, 1995 $ 237,945 $1,515,535 $(9,056,603) $(7,303,123)
========== ========== ============ ============
<PAGE>
TELVUE CORPORATION AND FORMER SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
December 31, 1995 and 1994
1995 1994
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(1,045,716) $ (937,688)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation 835,474 760,415
Loss on disposal of property and equipment 73,525 177,502
Loss on termination of partnership 45,572 -
Minority interest in net loss of former
subsidiary (6,585) (36,123)
Changes in operating assets and liabilities:
Accounts receivable - trade and other (258,843) (136,895)
Other current assets 2,111 (1,042)
Deposits 1,250 22,410
Accounts payable - trade 206,850 (25,434)
Accounts payable - equipment (553,149) 436,263
Accrued expenses 155,318 56,757
Accrued interest - majority stockholder 591,324 384,019
----------- ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 47,131 700,184
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (579,878) (2,415,631)
Proceeds from sale of property and equipment 5,835 5,846
------------ ------------
NET CASH (USED BY)
INVESTING ACTIVITIES (574,043) (2,409,785)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable
- majority stockholder 578,733 1,683,979
Debt reduction:
Notes payable - Science Dynamics Corporation - (15,243)
Issuance of common stock - 8,250
------------ ------------
NET CASH PROVIDED
BY FINANCING ACTIVITIES 578,733 1,676,986
------------ ------------
NET INCREASE (DECREASE)
IN CASH & CASH EQUIVALENTS 51,821 (32,615)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 164,588 197,203
------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 216,409 $ 164,588
============ ============
See accompanying notes.
<PAGE>
TELVUE CORPORATION AND FORMER SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995 and 1994
NOTE 1 - BACKGROUND AND BUSINESS ACTIVITY
TelVue Corporation ("the Company") primarily provides automatic telephone
number identification services to the cable television industry throughout
the United States for the automated ordering of pay-per-view features and
events. The Company was a wholly-owned subsidiary of Science Dynamics
Corporation ("SDC") until December 30, 1988, the effective date of the
spin-off of the Company's common stock to shareholders of SDC.
As indicated in the accompanying financial statements, the Company has
incurred losses since its inception and is unable to make interest payments
to the majority stockholder on a current basis. As discussed in Notes 7, 8
and 10, the Company has received additional financing to address its short-
term funding needs. Although this financing will provide the Company with
working capital in the short-term, the continuation of the Company and the
realization of the carrying value of its assets is dependent on improving
operating cash flow, achieving a profitable level of operations and
obtaining additional sources of long-term financing.
Concentrations of Credit Risk
- -----------------------------
The Company grants credit to cable television operators throughout the
nation. Consequently, the Company's ability to collect the amounts due
from customers is affected by economic fluctuations in the cable television
industry.
The Company maintains cash balances at a financial institution located in
the Philadelphia Area. Accounts at this institution are insured by the
Bank Insurance Fund up to $100,000. The Company maintains cash balances in
excess of the insured amount.
During 1995 and 1994, one customer accounted for 11% and 14% of sales,
respectively, and 7% of receivables at December 31, 1995. Another customer
accounted for 14% of sales in 1995, and 15% of receivables at December 31,
1995.
Currently, the Company's sole source of financing is the majority
stockholder. In the past, the Company has been unable to obtain funding
from other third parties on terms that are acceptable to the Company.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented
to assist in understanding its financial statements. These accounting
policies conform to generally accepted accounting principles and have been
consistently applied in the preparation of the financial statements.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Basis of Consolidation
- ----------------------
The consolidated financial statements include the accounts of TelVue
Corporation and the accounts of TelVue-Voice FX Joint Venture, a
partnership owned seventy percent (70%) by the Company up until July 28,
1995, when the partnership was terminated. Significant intercompany
accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
- -------------------------
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with an original maturity of three (3)
months or less to be cash equivalents.
Accounts Receivable
- -------------------
The Company evaluates its accounts receivable on a customer by customer
basis and has determined that no allowance for doubtful accounts is
necessary at December 31, 1995 and 1994. Historically, the Company has
experienced virtually no bad debt.
Revenue Recognition
- -------------------
The Company recognizes revenue in the month service is provided, net of an
estimate for programs not billable by the cable television operator.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation and amortization
is provided over five years using the straight-line method. Property and
equipment consists primarily of operating equipment. For income tax
purposes, recovery of capital costs for property and equipment is made
using accelerated methods over statutory recovery periods.
Expenditures for renewals and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and
repairs are charged to expense as incurred.
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.
NOTE 3 - DISPOSITION OF SUBSIDIARY
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"). 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. The participation percentage for the Partnership was seventy
percent (70%) for the Company and thirty percent (30%) for Voice FX. On
July 28, 1995, the Company and Voice FX agreed to terminate the Partnership.
Under the terms of the Partnership dissolution, the Company must pay to Voice
FX thirty percent (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 1995,
this expense amounted to $4,388 and has been included with service expense.
In addition, the Company must pay to Voice FX ten percent (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 incurred aloss of $45,572
from the write-off of the loan and interest receivable due from the
Partnership, net of losses previously recognized on the consolidated
financial statements prior to termination. The Company is continuing
to provide the services that were previously offered under the Partnership.
NOTE 4 - SUPPLEMENTARY DISCLOSURES TO STATEMENT OF CASH FLOWS
Cash paid during the year for:
1995 1994
------- -------
Interest $ - $ 215
======= =======
Income taxes $ - $ -
======= =======
Noncash Investing and Financing Transactions
- --------------------------------------------
The Company accrued dividends on its redeemable convertible preferred stock
of $247,135 and $226,545 in 1995 and 1994, respectively. In 1995, the
Company issued 366,185 shares of redeemable convertible preferred stock in
payment of one semi-annual 1994 dividend and both semi-annual 1995
dividends. In 1994, the Company issued 212,949 shares of redeemable
convertible preferred stock in payment of one semi-annual 1993 dividend and
one semi-annual 1994 dividend. In 1995 and 1994, the Company issued
134,833 and 27,377 shares, respectively, of redeemable convertible
preferred stock in payment of interest on a line of credit.
NOTE 5 - NEW BUSINESS
On September 27, 1994, the Company entered into a service agreement with
Video Jukebox Network, Inc. ("VJN"). The Company will act as a 900 call
service bureau to facilitate the ordering of music videos by VJN customers.
The Company borrowed approximately $350,000 from the majority stockholder
to purchase equipment to provide this service. The majority stockholder 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 are at market rates.
On March 10, 1995, the Company entered into an agreement to provide
management services to Lenfest Networks, Inc. ("LNI"), a company wholly-
owned by the majority stockholder. LNI owns and operates a personal
advertising television video programming service with pay-per-call
applications. 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 that the terms of the management
agreement are at market rates. The Company has been informed that LNI is
restructuring and downsizing its business, and, as of March 31, 1996, the
Company will no longer be providing management services.
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. 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. The
Company incurred research and development costs of $63,429 during 1995 in
connection with the development of this business.
NOTE 6 - PROPERTY AND EQUIPMENT
The schedule of property and equipment at December 31, 1995 and 1994, is as
follows:
Estimated
Useful Lives
1995 1994 in Years
----- ----- ------------
Operating equipment inventory -
not in service $ - $ 527,528 -
Operating equipment 4,816,969 4,557,464 5
Office furniture and equipment 151,115 94,634 5
Leasehold improvements 39,684 22,244 5
---------- ----------
$5,007,768 $5,201,870
========== ==========
NOTE 7 - NOTES PAYABLE - MAJORITY STOCKHOLDER
Notes payable to the majority stockholder consisted of the following at
December 31, 1995 and 1994:
1995 1994
--------- ---------
Original line of credit (a) $ 500,000 $ 500,000
Line of credit (TelVue-Voice FX) (b) $ 411,173 $ 278,561
National equipment loan (c) $1,471,272 $1,330,181
Additional lines of credit (d) $3,603,267 $3,298,237
Notes payable (SDC) (e) $ 541,000 $ -
---------- ----------
$6,526,712 $5,406,979
========== ==========
(a) The outstanding borrowings of $500,000 represent the maximum available
under this line. The line bears interest at 12% and accrued interest on
outstanding borrowings was $294,907 and $234,907 as of December 31, 1995
and 1994, respectively. Principal and accrued interest under this note are
convertible into Redeemable Convertible Preferred Stock (see Note 10) at $1
per share at the option of the note holder.
(b) In October 1993, the Company's majority stockholder provided an
additional $650,000 line of credit to fund a now defunct joint venture (see
Note 3). Amounts outstanding bear interest at prime plus two percent (2%).
The effective interest rate at December 31, 1995 and 1994 was 10.5%.
(c) In March 1994, the Company's majority stockholder provided an
additional $1,500,000 line of credit for the purchase of additional
equipment to expand the National POP (Point of Presence). Amounts
outstanding bear interest at prime plus one percent (1%) and is payable
quarterly. At the option of the Company, interest may be paid by the
delivery of shares of Redeemable Convertible Preferred Stock (see Note 10)
at $1 per share. In 1995 and 1994, the Company issued 134,833 and 27,377
shares of redeemable convertible preferred stock in payment of interest,
respectively.
(d) The Company's majority stockholder has provided several additional
lines of credit. Borrowings under all of these lines of credit bear
interest at prime plus one percent (1%). The effective interest rate at
December 31, 1995 and 1994, was 9.5%. The availability of additional
funding may be terminated at any time if the majority stockholder
determines that there is no reasonable prospect that the Company will be
able to achieve net income on a consistent basis.
(e) In January 1995, the Company's majority stockholder acquired from SDC
the subordinated note in the amount of $541,000 (see Note 8). The note is
noninterest-bearing and repayment is restricted to cash not needed for
operations as determined by the Company.
Pursuant to an agreement dated March 31, 1995, the majority stockholder has
agreed not to demand repayment in 1996. Therefore, the notes payable and
related accrued interest are presented as noncurrent liabilities on the
accompanying balance sheets.
NOTE 8 - NOTES PAYABLE - SCIENCE DYNAMICS CORPORATION
In connection with the spin-off of the Company from SDC, SDC provided the
Company funding in order to provide it with resources and funds with which
to commence its separate, discrete and independent operations. In November
1990, a restructuring of the note payable resulted in the forgiveness by
SDC of $505,811 (including accrued interest of $86,747). This forgiveness
of debt was recorded as an increase to additional paid-in capital in 1990.
The restructured note was noninterest-bearing. In January 1995, the
majority stockholder acquired this note from SDC (See Note 7).
NOTE 9 - LEASES
The Company leases office facilities and trunk lines and data circuits.
Future minimum lease payments under non-cancelable operating leases
consisted of the following:
YEAR ENDING OPERATING
DECEMBER 31, LEASE
---------------- ---------
1996 $ 617,705
1997 1,005,694
1998 1,015,153
1999 949,118
2000 375,000
----------
$3,962,670
==========
Rental expense under the operating lease for office facilities amounted to
$97,798 and $65,383 for the years ended December 31, 1995 and 1994,
respectively.
It is expected that, in the normal course of business, expiring leases will
be renewed or replaced by leases on other properties; thus, it is
anticipated that future minimum operating lease commitments will not be
less than the amount shown for 1996.
NOTE 10 - CAPITAL STOCK
Authorized Shares of Stock
- --------------------------
In September 1995, the Company's stockholders 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.
Common Stock Voting Rights
- --------------------------
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 2 years prior to the record date of any meeting of
stockholders, will be entitled to 10 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.
Concentration of Control
- ------------------------
In November 1989, the Company issued 12,896,968 shares of Common Stock for
$1,250,000 to an individual who effectively acquired control of the
Company. In connection with this sale, the Board of Directors waived the
waiting period for these shares of Common Stock related to full voting
rights described above. In January 1995, this individual acquired an
additional 1,660,485 shares of common stock of the Company from SDC.
Redeemable Convertible Preferred Stock
- --------------------------------------
In April 1990, the Company issued 1,250,000 shares of Class A Redeemable
Convertible Preferred Stock (Preferred Stock) for $1,250,000. The
Preferred Stock has a par value of $1 per share and pays a cumulative $.06
semiannual dividend. The dividend is payable in cash or additional shares
of Preferred Stock at $1 per share, at the option of the Company. Each
share of Preferred Stock is convertible into 6.667 shares of Common Stock
at any time, at the option of the holder. The Preferred Stock has a
preference of $1 per share plus unpaid dividends in the event of
liquidation. As of December 31, 1994, preferred undeclared dividends in
arrears amounted to $119,052. In December 1995, the balance of 1994
dividends and the 1995 semiannual dividends were declared and paid with
366,185 shares of Preferred Stock. In 1994, the balance of the 1993
dividends and first of semiannual dividends were declared and paid with
212,949 shares of Preferred Stock.
The Company may redeem the Preferred Stock at any time for $2 per share.
The stockholder of the Preferred Stock is the majority stockholder. The
majority stockholder can designate all of the Company's six directors and,
therefore, could influence the Company's willingness to cause a redemption
of the Preferred Stock. As a result, the Preferred Stock has been
classified outside of the stockholders' deficit section of the accompanying
consolidated balance sheets.
Stock Options
- -------------
Under the Company's 1988 Incentive Stock Option Plan, options to acquire up
to 1,400,000 shares of Common Stock may be granted to directors and
employees. Options are granted at 100% of fair market value at the grant
date and expire ten years after the date of grant. Options vest ratably
over four years beginning one year after the date of grant. As of December
31, 1995, options to purchase 93,000 shares of the Company's Common Stock
are outstanding, at exercise prices ranging from $.05 to $.15 per share
with a weighted-average exercise price of $.07 per share. During 1994,
100,000 options were exercised. During 1995, 25,000 options were canceled.
At December 31, 1995, all 93,000 options were vested and exercisable.
In connection with the spin-off from SDC (see Note 1), the Company granted
options to purchase shares of the Company's Common Stock to certain
employees of SDC. These options have the same terms and conditions as the
1988 Incentive Stock Option Plan described above. As of December 31, 1995,
options to purchase 88,800 shares of Common Stock are outstanding. These
options are exercisable at $.05 per share. During 1994, 48,000 options
were canceled, and no additional options were granted. At December 31,
1995, all 88,800 of these options are vested and exercisable.
Common Stock Warrants
- ---------------------
In connection with one of the lines of credit discussed in Note 7, the
Company agreed to issue warrants to the majority stockholder to purchase
29,915,160 shares of the Company's Common Stock for $.01 per share, the
fair market value of the Common Stock on the grant date. The warrants
provide for adjustments of the exercise price and the number of shares
issuable thereunder in the event that the Company issues additional shares
of Common Stock and other events as defined in the warrant agreement. The
warrant holder is entitled, at the Company's expense, to certain
registration rights under the Securities Act of 1933 in connection with any
shares of the Company's Common Stock issued pursuant to exercise of the
warrants.
NOTE 11 - CORPORATE INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes in accordance with Financial Accounting Standards Board Statement
(SFAS) No. 109, "Accounting for Income Taxes". SFAS 109 requires
recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the differences between the financial
statement carrying amounts and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are
expected to reverse. Differences between financial reporting and tax bases
arise most frequently from differences in timing of income and expense
recognition. Deferred income tax expense is measured by the change in the
net deferred income tax asset or liability during the year.
The provisions for income tax benefit (expense) consist of the following
components:
1995 1994
---- ----
CURRENT
Federal $ - $ -
State - -
----------- -----------
- -
DEFERRED
Federal $ 374,517 $ 283,069
State 105,388 79,673
----------- -----------
479,905 362,742
Valuation allowance increase (479,905) (362,742)
----------- -----------
- -
----------- -----------
$ - $ -
=========== ===========
The categories of temporary differences that give rise to deferred tax
assets and liabilities are as follows:
FEDERAL STATE
---------------- ----------------
1995 1994 1995 1994
---- ---- ---- ----
DEFERRED TAX ASSETS:
Accrued interest -
stockholder $ 450,532 $ 310,000 $ 137,079 $ 94,320
Net operating loss
carryforward 2,168,336 1,868,157 597,887 515,117
----------- ----------- --------- ----------
GROSS DEFERRED TAX ASSET 2,618,868 2,178,157 734,966 609,437
DEFERRED TAX LIABILITIES:
Property and equipment,
principally due to
differences in
depreciation (179,947) (113,753) (54,751) (34,610)
----------- ----------- --------- ----------
Net deferred tax asset
before valuation
allowance 2,438,921 2,064,404 680,215 574,827
Valuation allowance (2,438,921) (2,064,404) (680,215) (574,827)
----------- ----------- ---------- ----------
NET DEFERRED TAX ASSET $ - $ - $ - $ -
=========== =========== ========== ==========
The Company believes that there is at least a 50% chance that the
carryforward may expire unused and accrued interest to stockholder may not
be paid. Accordingly, a valuation allowance has been provided to offset
any income tax benefit or deferred tax asset which will likely expire
unused.
The Company has a net operating loss carryforward of approximately
$6,400,000 on a tax reporting basis. The carryforward will begin to expire
in 2004, if not utilized.
Differences between the effective income tax rate and the statutory federal
income tax rate were primarily the result of the valuation allowance which
fully reserved the deferred tax assets which arose from the taxable losses
and temporary differences generated during the years ended December 31,
1995 and 1994.
NOTE 12 - PENSION PLAN
The Company maintains a Simplified Employee Pension (SEP) plan under
section 408(k) of the Internal Revenue Code for all eligible employees.
Employees are eligible to participate if they are at least 21 years old and
have been employed by the Company for at least 90 days. Under the plan,
employees may elect to defer up to 13.0435% of their salary, subject to
Internal Revenue Service limits. The Company may make discretionary
contributions for the participants. The Company elected to match fifty
percent (50%) of 1995 contributions by participating eligible employees up
to five percent (5%) of their salary, for a maximum contribution of 2.5% of
salary. The Company's contributions for 1995 amounted to $16,363. The
Company did not make any contributions in 1994.
NOTE 13 - RELATED PARTY TRANSACTIONS
In 1995, the Company entered into an agreement to provide management
services to a company wholly-owned by the majority stockholder. The
Company recognized revenues of approximately $97,000 from this company in
1995 and had a receivable of $10,000 due at December 31, 1995. (See Note
5).
The Company has several notes payable to the majority stockholder. (See
note 7).
The Company provided its automated number identification services to
subsidiaries of Lenfest Communications, Inc. ("LCI"). The Company
recognized revenues of approximately $190,000 and $174,000 from LCI
subsidiaries in 1995 and 1994, respectively and had a receivable of $13,311
due from LCI at December 31, 1995. These services were provided at normal
billing rates. The Company and LCI are under the control of the majority
stockholder of the Company.
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Cash Equivalents, Receivables, Accounts Payable and Accrued
Expenses.
The carrying amount approximates fair market value because of the short
maturity of those instruments
Long-term Debt and Accrued Interest
Due to the going concern issue discussed in Note 1, and the related party
nature, it is uncertain at what rate the Company could borrow funds from an
unrelated party, if at all. Therefore, it is not practical to estimate the
fair market value of the long-term debt and accrued interest.
NOTE 15 - COMMITMENTS AND CONTINGENCIES
The Company received a letter from intellectual property counsel to a major
customer (See Note A - Concentrations of Credit Risk) informing the Company
that the major customer had received a demand from a person asserting that
the major customer's delivery of pay-per-view services, among other cable
services, may infringe certain patents held by the person, and that the
major customer would seek indemnification under its contract with the
Company should it become necessary. The Company believes that all of its
pay-per-view services are performed in accordance with the procedures set
forth in the SDC Patent. The Company is unable at the present time to
determine what, if any, liability it may have to the major customer or to
the person claiming infringement of certain patents.
The Company received correspondence from attorneys representing a former
employee demanding $400,000 in commissions, unpaid salary, stock options
and other benefits. The Company believes that the former employee's claims
are without merit and intends to vigorously defend any action brought
against it. The Company believes that the outcome of this claim will not
have a material impact on the Company's financial position or results of
operations.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 216,409
<SECURITIES> 0
<RECEIVABLES> 799,113
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,019,741
<PP&E> 5,007,768
<DEPRECIATION> 2,198,719
<TOTAL-ASSETS> 3,837,590
<CURRENT-LIABILITIES> 618,530
<BONDS> 0
<COMMON> 237,945
0
2,532,895
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,837,590
<SALES> 4,426,221
<TOTAL-REVENUES> 4,426,221
<CGS> 0
<TOTAL-COSTS> 2,647,485
<OTHER-EXPENSES> 2,120,833
<LOSS-PROVISION> 119,097
<INTEREST-EXPENSE> 591,324
<INCOME-PRETAX> (1,045,716)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,045,716)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,045,716)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.02)
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