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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, 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
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
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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, 1996 was
$5,458,610.
The Market Value of voting stock held by non-affiliates of the Issuer at
February 28, 1997, based on a per share average bid and asked price of .05
was $458,102.
Number of shares of Issuer's common stock outstanding as of
February 28, 1997: 23,794,500 shares.
Transitional Small Business Disclosure Format: Yes No X
_____ _____
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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 in 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 can 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 "PPV+ Service"). 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 believes
it receives a favorable trunk usage rate from MCI. The National POP can
service, without installing a new Regional POP, cable television systems
which are located in any state or any telephone LATA.
The Company has moved substantially all regional cable television
systems onto the National POP. As of December 31, 1996, the Company had two
POPS, one of which was the Company's National POP. During 1996, the
Company retired seven 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 542 cable television systems,
serving approximately 8.4 million full-time subscribers and 500,000 part-
time subscribers, as of December 31, 1996. Part-time subscribers are
subscribers who only use the Company's ANI service for major special
events, such as boxing, wrestling and concerts. The Company is marketing
and providing service to subscribers on a part-time basis because it wants
customers who are using alternate pay-per-view ordering services to become
familiar and comfortable with the Company's ANI service in anticipation
that these customers may choose to use the Company's ANI service on a full-
time basis.
The Company's contracts with cable television system operators cover
the provision of ANI order entry services at a specified rate per
subscriber order. 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 feature fees and PPV+ promotion fees.
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. During 1996, the Company has purchased its
required ANI equipment for the National POP from Atlas Telecom and
Syntellect Network Systems, Inc. ("Syntellect"). During 1996, Syntellect
sold the division of its company that manufactures the Company's required
ANI equipment to Atlas Telecom.
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 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 was required to 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 was required to pay to Voice FX 10% of gross revenues received by
the Company for the period January 1, 1996, through December 31, 1996, for
premium channel upgrade promotions under contracts that Voice FX had
originally sold. The Company paid nothing to Voice FX during 1996 because
no revenue was generated from premium upgrade promotions from contracts
that Voice FX sold.
On September 27, 1994, the Company entered into a service agreement
with Box Worldwide, Inc., formerly known as 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. 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%. In July 1996, VJN
informed the Company that VJN had developed its own voice recognition
system and intended to process its 900 number calls internally. In return
for terminating the service agreement, VJN agreed to reimburse the Company
$284,619, which amount covers costs incurred by the Company for software
development to provide service to VJN, 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, and accrued interest expense as of July 31, 1996, that the
Company incurred on the VJN Loan. On January 10, 1997, VJN paid the
Company $284,619. 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. LNI substantially reduced operations on March 31,
1996, and as a result, the Company stopped performing its management duties
effective February 29, 1996. 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.
The Company has been supplying certain cable systems with direct
response commercials from various sources over the past two years. These
cable operators receive a percentage of sales generated from the
commercials which are inserted in the cable systems local advertising
slots. Inbound call traffic is tracked via the Company's ANI system for
more accurate reporting. Although the Company has proved its ability to
acquire and track Direct Response TV (DRTV) spots, the revenue generated is
not strong enough to convince other cable operators to participate. The
Company may continue to supply DRTV spots to some participating cable
systems at little or no cost to the Company but at this time it is believed
that significant revenue contributions will not be forthcoming from this
line of business.
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 and Management's Discussion and Analysis or Plan of
Operation.
LICENSES
The Company has purchased Switched-access Audio Response Units
("SARUs") and one communication subsystem ("HP") from Atlas Telecom
(formerly Syntellect, see above). 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
Atlas Telecom.
The Company believes it received a perpetual no charge license for
the pay-per-view application software residing on the SARUs and HP because
the Company committed to and did purchase ten (10) SARUs during 1994. The
Company purchased one (1) SARU and peripheral hardware and software
modifications from Atlas Telecom during 1996. There is no affiliation
between the Company and Atlas Telecom 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,
1996, there are four (4) Multi System Operators ("MSOs") who individually
comprise greater than 10% of the Company's annual service revenue. 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.
COMPETITION
The cable industry has improved marketing efforts in the pay per view
category during the past two years resulting in increased buy rates. The
Company uses state-of-the-art, feature laden equipment for its automated
pay-per-view order processing service. The Company has a strong reputation
for offering customer friendly features and excellent customer service. In
addition, the Company offers 24 hour customer service and reliability with
near zero down time, particularly under heavy load during major special
events. Although competition is strong from the Company's major
competitors the Company is attracting significant numbers of new customers.
The Company's aggressive marketing strategies and reputation allowed it to
grow its full-time customer base by 17% to approximately 8.4 million full-
time addressable homes and an additional 500,000 part-time addressable
homes in 1996, representing an increase of 1.7 million addressable homes.
The Company plans to continue its marketing approach during 1997 and
believes that strategy will provide continued growth in numbers of
subscribers.
EMPLOYEES
At December 31, 1996, the Company had 17 full-time employees.
Additional personnel may 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).
The Company had no research and development expenses during 1996. Because
the Company is principally a sales and marketing company the Company does
not anticipate that it will perform any significant or material research
and development.
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 April 1996, a former employee filed suit against the Company and
its majority stockholder, James T. Shelley vs. TelVue Corporation and H.F.
Lenfest, with the Superior Court of Burlington County, New Jersey, Civil
Action Number 01368-96. The complaint alleges breach of contract, breach
of implied covenant of good faith and fair dealing detrimental reliance and
unjust enrichment. The suit seeks damages for an unspecified amount for
compensation, compensatory and punitive damages. Based upon correspondence
from Mr. Shelley's attorneys prior to filing the suit, the Company's legal
council believes that Mr. Shelley is seeking actual damages of
approximately $400,000 for commissions, unpaid salary, stock options and
other benefits. The Company believes the employee's claims are without
merit and intends to vigorously defend the suit 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 has engaged special patent counsel to advise the Company of the
Company's obligations to TCI. 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 (see Licenses above) and the Company
believes that its pay per view ordering services do not infringe any
patents held by such person and that it has no indemnification obligation
to TCI.
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 The
Nasdaq Stock Market, Inc. for 1996, and by Herzog, Heine & Geduld Inc. for
1995, the principal market-maker with respect to the Company's Common
Stock, is as follows:
QUARTER 1996 HIGH LOW
First $.03 $.03
Second $.03 $.03
Third $.03 $.02
Fourth $.03 $.03
QUARTER 1995
First $.06 $.03
Second $.06 $.03
Third $.07 $.05
Fourth $.05 $.05
As of February 28, 1997, there were 421 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, 1996, 16,968,972 shares of the Company's
Common Stock were entitled to 10 votes per share. The remaining 6,825,528
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 $184,129 for the fiscal year ended
December 31, 1996, compared to $1,045,716 for the fiscal year ended
December 31, 1995. Service revenues for the 1996 fiscal year increased
$1,032,389 over 1995. The growth in service revenues is partially
attributable to the Company serving approximately 1,200,000 more full-time
cable subscribers for the fiscal year ended December 31, 1996 versus
December 31, 1995. In November 1996, the Company began serving 500,000
part-time cable subscribers. Since the part-time subscribers were only
using the Company's service for two months of 1996 they did not
significantly contribute to the revenue increase. The increase is also
attributable to an increase in the average monthly buy rate from 23.3% for
the year ended December 31, 1995 to 24.8% for the year ended December 31,
1996. The Company has been experiencing a continuing upward trend in annual
buy rates. The average monthly buy rate during 1994 and 1993 was 19.6% and
18.4%, respectively. The service revenue increase is also a result of an
increase in installation and data circuit income of $156,992, an increase
in National POP feature revenue of $244,760 and an increase in PPV+ revenue
of $202,888. The installation and data link revenue as well as the feature
revenue are a result of customer additions to the National POP. The PPV+
revenue increased over 1995 as a result of customer additions and as a
result of more previously existing customers using the PPV+ Service.
Service expenses for the year ended December 31, 1996, increased
$303,919 from the comparable 1995 period. The increase in service expenses
for the year is attributable to an increase in trunk usage expense of
$210,595 as a result of an increase in the average monthly buy rate along
with an increase in full-time subscribers (see above). There was an
increase in data link expense of $138,507 as a result of customer
additions.
The Company migrated approximately 293,000 subscribers from the
Regional POPs to the National POP during the twelve months ended December
31, 1996. As of December 31, 1996, the Company was serving approximately
8,400,000 full-time cable subscribers and 500,000 part-time cable
subscribers on the National POP compared to approximately 6,900,000 full-
time cable subscribers and no part-time cable subscribers served as of
December 31, 1995. The Company has one customer with approximately 7,000
cable subscribers remaining on a Regional POP. The Company plans to have
this customer using the National POP by the second quarter of 1997.
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 the years ended December 31, 1996 and 1995.
For the year ended December 31, 1996, selling and marketing expenses
increased 10% and general and administrative expenses decreased 9% over the
comparable 1995 period. The increase in selling and marketing expenses is
partially attributable to an increase in commission expense of $47,940 as a
result of customer additions, contract renewals and PPV+ Service
commissions. Payroll increased $46,105 as a result of salary increases and
the addition of one employee to the PPV+ department. General and
administrative expenses decreased as a result of a decrease in expenses
related to the management of Intronet (see Item 1. Business).
For the year ended December 31, 1996, the Company recorded a loss on
the disposal of property and equipment of $62,952. This loss was a result
of being unable to use or sell excess equipment inventory made available by
the retirement of seven Regional POPs. The retirement of the seven
Regional POPs resulted from the migration of customers from the Regional
POPs to the National POP.
Total liabilities increased $792,249 and total assets increased
$293,725 for the year ended December 31, 1996. The increase in total
liabilities was primarily a result of an increase in accrued interest of
$440,388 on outstanding loans from Mr. Lenfest and an increase in preferred
stock of 452,741 for stock issued to Mr. Lenfest for payment of the June
30, 1996 and December 31, 1996, preferred stock dividends and payment of
interest on the National Equipment Loan through September 30, 1996, with
shares of preferred stock . In addition, there was an increase in
deferred trunk credit of $190,800. 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. In addition, there was an increase in
other receivables as a result of recording a receivable from VJN of
$284,619, which was paid in January 1997 (see Item 1. Business). The
increases in cash and accounts receivable are partially offset by decreases
in equipment as a result of writing off obsolete equipment (see above).
The Company's days for sales in accounts receivable is 57 days for the year
ended December 31, 1996, compared to 52 days for the year ended December
31, 1995. The Company believes the increase of 5 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, 1996, the Company purchased
$609,608 of equipment compared with $579,878 purchased during year ended
December 31, 1995. Included in the 1996 equipment purchases are software
enhancements and peripheral equipment for the National POP. During the
first quarter of 1996 the Company had insufficient funds available to
purchase one SARU required to service the National POP. Mr. Lenfest
therefore, agreed to loan the Company $143,000 at the floating prime
interest rate of PNC Bank plus 1% (the "SARU Loan"). As of December 31,
1996, the Company has repaid the principal on the SARU Loan.
The DRTV service (see Description of Business) generated revenue of
$25,803 and expenses of $93,132 for the year ended December 31, 1996.
During 1995, the Company incurred research and development expenses of
$63,429, related to software development for the DRTV service. No research
and development expenses were incurred during 1996.
The Company had positive cash flow from operations of $985,718 during
the year ended December 31, 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 $762,944 for the year ended December 31, 1996, compared to
negative cash flow from operating activities of $97,730 for the year ended
December 31, 1995. The increase in cash flow for the year ended December
31, 1996, is primarily a result of increased revenue (see above) and
decreased telephone connection charges as a result of the terms of the
contract with MCI.
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"). 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 rate on
the Other Loans is set at the floating prime interest rate of PNC Bank plus
1%. From October 1993 to May 1995, the Company had borrowed $411,173 from
Mr. Lenfest for expenses related to the Partnership (the "Partnership
Loan") (see Item 1. Business for a description of the Partnership).
Interest on the Partnership Loan is set at the floating prime interest rate
of PNC Bank plus 2%. 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. Interest
due on the National Equipment Loan through September 30, 1996, in the
amount of $300,566 has been paid with 300,566 shares of Preferred Stock.
During January 1995, Mr. Lenfest purchased from Science the Company's non-
interest bearing note in the amount of $541,000 (the "Prior Science Note").
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"). 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 Advertising Loan and the SARU Loan would
be set at the floating prime interest rate of PNC Bank plus 1%.
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. The deferring of the interest payments along with the increase in
revenue has enabled the Company to accumulate cash. Interest payments
would have amounted to $578,734 for the year ended December 31, 1996,
compared to $591,324 for the year ended December 31, 1995. During the
third quarter of 1996 the Board of Directors of the Company (with Mr.
Lenfest not participating) authorized that the Company may make monthly
principal payments of $50,000 to Mr. Lenfest. Mr. Lenfest has agreed to
accept payments of principal through December 31, 1997. During 1996, the
Company made principal payments of $300,000 to Mr. Lenfest. The
outstanding loan balances due to Mr. Lenfest as of December 31, 1996, are
$398,000 under the Original Line of Credit, $411,173 under the Partnership
Loan, $358,267 under the VJN loan, $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 $6,369,712.
In addition, during the forth quarter of 1996 the Board of Directors of the
Company (with Mr. Lenfest not participating) authorized that at
management's discretion, the Company may make monthly principal payments in
excess of $50,000 when the Company has excess cash not needed to fund
operations. During January and February of 1997 the Company made total
principal payments of $500,000 to Mr. Lenfest. The $500,000 was applied as
follows: $398,000 was applied to the Original Line of Credit, which
represents full payment of the principal balance of the Original Line of
Credit; $102,000 was applied to the Partnership Loan, decreasing the
outstanding principal on the Partnership Loan to $309,173 as of February
28, 1997.
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 total
debt repayment. 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 of the Company's equipment and software providers are net 30
days.
The Company's ability to fund its operating expenses primarily
depends on three factors: the continued expansion of the Company's
subscriber base, the cable industry's buy rates, and the continued deferral
by Mr. Lenfest of the cash repayment of his loans to the Company. In
addition to the increased number of customers for the year ended December
31, 1996, the Company has added an additional 100,000 full-time subscribers
and 1.1 million part-time subscribers through February 28, 1997.
Management believes its present marketing strategies will further increase
the customer base, although there can be no assurances that the Company
will be able to attract customers at the same rate as in 1996 or that it
will be able to attract any further customers. Although cable industry buy
rates have increased each year for the last four years, from an annual
average buy rate of 18.4% in 1993 to 24.8% in 1996, there can be no
assurances that such levels of buys rates will continue to increase or will
remain at their current level.
The Company remains dependent upon the deferral of principal and
interest payments due to Mr. Lenfest to fund operations and capital
expenditures from operating cash flow. Mr. Lenfest has agreed not to
demand the cash repayment of principal or accrued interest on the
outstanding loans through January 1, 1998. Nevertheless, management
intends to continue to repay the outstanding principal amount of loans made
by Mr. Lenfest from cash not needed for operations. Management believes
that the Company will have sufficient funds to continue such repayments and
will be able to fund its core business from operating cash flow through
December 31, 1997.
Although no equipment purchases are anticipated for fiscal year 1997
that can not be funded from cash flow generated by operations, should the
Company require additional funding it will seek additional financing from
Mr. Lenfest and from other sources. 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.
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,
1996 with respect to each of the Company's directors and officers.
POSITION(S) WITH DIRECTOR
NAME AGE THE COMPANY SINCE
H.F. (Gerry) Lenfest 66 Chairman of the 1989
Board and Director
Frank J. Carcione 56 President, 1990
Chief Executive
Officer, and Director
Carl J. Cangelosi 54 Director 1990
Donald L. Heller 51 Director 1993
Thomas J. Fennell 35 Director 1995
Irene A. DeZwaan 33 Secretary & Treasurer
Joseph M. Murphy 43 Executive Vice
President of Sales
& Operations
The Directors of the Company receive no compensation.
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 and an affiliate of The Lenfest Group of companies.
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.
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 in
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
ANNUAL COMPENSATION
NAME AND ALL OTHER
PRINCIPAL POSITION YEAR SALARY COMMISSIONS COMPENSATION
Frank J. Carcione 1996 119,000 - 2,761 (1)
CEO 1995 108,000 - 997 (1)
1994 104,102 - -
Joseph Murphy 1996 85,362 53,710 2,305 (1)
Executive Vice President 1995 81,623 30,461 1,869 (1)
of Sales & Operations 1994 71,523 6,495 -
(1) Company funded contributions to the Company's Simplified Pension Plan
(SEP).
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 $765 (1)
(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 February 28, 1997, 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 64,377,848 (2) 87.5% (2)
202 Shoemaker Road
Pottstown, PA 19464
Chairman of the Board and Director
(1) As of February 28, 1997, 23,794,500 shares of Common Stock were
outstanding.
(2) Includes 19,905,235 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 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, 1996, 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 February 28, 1997, 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 64,377,848 (2) 87.5% (2)
Chairman of the Board
and Director
Joseph M. Murphy 90,000 (3) .4%
Executive Vice President
of Sales and Operations
All Directors and 64,466,648(2) (3) 87.6%
Officers as a Group
(7 Persons)
(1) As of February 28, 1997, 23,794,500 shares of Common Stock were
outstanding.
(2) Includes 19,905,235 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
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, 1996, 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.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At December 31, 1996, the Company was indebted to Mr. Lenfest in the
principal amount of $6,369,712. Mr. Lenfest has agreed to accept payments
of principal at the rate of $50,000 per month. (See Management's Discussion
and Analysis or Plan of Operation and Note 6 of the 1996 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 $325,000 from
LCI subsidiaries during 1996. (See Note 11 of the 1996 financial
statements of the Company).
Other related transactions are described in Notes 6, 8 and 11 of
the 1996 financial statements of the Company.
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES & REPORTS ON
FORM 8-K
FINANCIAL STATEMENTS
Independent Auditor's Report dated March 18, 1997.
Balance Sheets as of December 31, 1996 and 1995.
Consolidated Statements of Operations for the years ended December
31, 1996 and 1995.
Consolidated Statements of Stockholders' Deficit for the years ended
December 31, 1996 and 1995.
Consolidated Statements of Cash Flows for the years ended December
31, 1996 and 1995.
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
(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 10Q-SB).
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)).
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
1996 Financial Statement included herein).
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: 3/24/97 By: /s/Frank J. Carcione
----------------------------------
Frank J. Carcione
President (Chief Executive Officer)
DATED: 3/24/97 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 3/24/97
- --------------------------------
Frank J. Carcione
/s/Carl J. Cangelosi Director 3/17/97
- --------------------------------
Carl J. Cangelosi
/s/Donald Heller Director 3/17/97
- --------------------------------
Donald Heller
/s/Thomas J. Fennell Director 3/13/97
- --------------------------------
Thomas J. Fennell
<PAGE>
TABLE OF CONTENTS
Page No.
--------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
FINANCIAL STATEMENTS
Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Deficit
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
TelVue Corporation
We have audited the balance sheets of TelVue Corporation (a Delaware
corporation) as of December 31, 1996 and 1995, and the related statements
of operations, stockholders' deficit and cash flows for the year ended
December 31, 1996, and the consolidated statements of operations,
stockholders' deficit and cash flows of TelVue Corporation and former
subsidiary for the year ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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, 1996 and 1995, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
As discussed in Note 3, the Company dissolved its subsidiary during 1995.
PRESSMAN, CIOCCA & SMITH
Hatboro, Pennsylvania
March 18, 1997
<PAGE>
TELVUE CORPORATION
BALANCE SHEETS
December 31, 1996 and 1995
1996 1995
ASSETS ---- ----
CURRENT ASSETS
Cash and cash equivalents $ 668,367 $ 216,409
Accounts receivable - trade 913,106 783,588
Other receivables 289,342 15,525
Other current assets 12,964 4,219
----------- ------------
TOTAL CURRENT ASSETS 1,883,779 1,019,741
PROPERTY AND EQUIPMENT 4,111,240 5,007,768
Less accumulated depreciation and amortization 1,872,504 2,198,719
----------- ------------
2,238,736 2,809,049
DEPOSITS 8,800 8,800
------------ ------------
$ 4,131,315 $ 3,837,590
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Notes payable - majority stockholder-current $ 1,000,000 -
Accounts payable - trade 220,415 342,947
Accounts payable - equipment 98,559 28,114
Accrued expenses 164,876 247,469
Deferred trunk credit 190,800 -
------------ ------------
TOTAL CURRENT LIABILITIES 1,674,650 618,530
NOTES PAYABLE - MAJORITY STOCKHOLDER, net
of current portion 5,369,712 6,526,712
ACCRUED INTEREST - MAJORITY STOCKHOLDER 1,902,964 1,462,576
REDEEMABLE CONVERTIBLE PREFERRED STOCK,
$1 par value, 6,900,000 shares authorized,
2,985,636 and 2,532,895 shares issued and
outstanding, respectively (liquidation
value $2,985,636 and $2,532,895,
respectively) 2,985,636 2,532,895
COMMITMENTS AND CONTINGENCIES
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 (9,555,127) (9,056,603)
------------ ------------
(7,801,647) (7,303,123)
------------ ------------
$ 4,131,315 $ 3,837,590
============ ============
See accompanying notes.
<PAGE>
TELVUE CORPORATION AND FORMER SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1996 and 1995
1996 1995
---- ----
REVENUES $ 5,458,610 $ 4,426,221
OPERATING EXPENSES
Service 2,951,404 2,647,485
Research and development - 63,429
Selling and marketing 680,213 618,263
General and administrative 547,439 603,667
Depreciation 884,121 835,474
----------- ------------
5,063,177 4,768,318
----------- ------------
OPERATING INCOME (LOSS) 395,433 (342,097)
OTHER INCOME (EXPENSE)
Interest expense, net of reimbursement (526,779) (591,324)
Interest income 10,169 217
Loss on sales or disposal of property
and equipment (62,952) (73,525)
Loss on termination of partnership - (45,572)
Minority interest in net loss
of former subsidiary - 6,585
------------ ------------
(579,562) (703,619)
------------ ------------
NET LOSS (184,129) (1,045,716)
DIVIDENDS ON REDEEMABLE CONVERTIBLE
PREFERRED STOCK (314,395) (247,135)
------------ ------------
NET LOSS AVAILABLE TO
COMMON STOCKHOLDERS $ (498,524) $(1,292,851)
============ ============
NET LOSS PER
COMMON SHARE $ (.02) $ (.05)
============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARE OUTSTANDING $23,794,500 $23,794,500
============ ============
See accompanying notes.
<PAGE>
TELVUE CORPORATION AND FORMER SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Years Ended December 31, 1996 and 1995
Additional Total
Common Paid-In Accumulated Stockholders'
Stock Capital Deficit Deficit
--------- --------- ----------- ------------
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)
Accrued dividends on
redeemable convertible
preferred stock - - (314,395) (314,395)
Net loss - - (184,129) (184,129)
---------- ---------- ------------ ------------
BALANCE, DECEMBER 31, 1996 $ 237,945 $1,515,535 $(9,555,127) $(7,801,647)
========== ========== ============ ============
See accompanying notes.
<PAGE>
TELVUE CORPORATION AND FORMER SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 and 1995
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (184,129) $(1,045,716)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation 884,121 835,474
Loss on sales or disposal of property
and equipment 62,952 73,525
Loss on termination of partnership - 45,572
Minority interest in net loss of former
subsidiary - (6,585)
Changes in operating assets and liabilities:
Accounts receivable - trade and other (403,335) (258,843)
Other current assets (8,745) 2,111
Deposits - 1,250
Accounts payable - trade (122,532) 206,850
Accounts payable - equipment 70,445 (553,149)
Accrued expenses (82,593) 155,318
Deferred trunk credit 190,800 -
Accrued interest - majority stockholder 578,734 591,324
----------- ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 985,718 47,131
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (609,608) (579,878)
Proceeds from sales or disposal
of property and equipment 232,848 5,835
------------ ------------
NET CASH (USED BY)
INVESTING ACTIVITIES (376,760) (574,043)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable
- majority stockholder 143,000 578,733
Debt reduction:
Notes payable - majority stockholder (300,000) -
------------ ------------
NET CASH PROVIDED BY (USED BY)
BY FINANCING ACTIVITIES (157,000) 578,733
------------ ------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 451,958 51,821
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 216,409 164,588
------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 668,367 $ 216,409
============ ============
See accompanying notes.
<PAGE>
TELVUE CORPORATION AND FORMER SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
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 Note 6,
the Company has obtained from the majority stockholder an extension of a
prior agreement 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 1996 and 1995, four customers accounted for 56% and 42% of sales,
respectively, and 50% and 33% of receivables at December 31, 1996 and 1995,
respectively.
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 - Former Subsidiary
- ------------------------------------------
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 - Trade
- ---------------------------
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, 1996 and 1995. 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
are 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.
Advertising
- -----------
The Company follows the policy of charging the costs of advertising to
expense as incurred. Advertising expense was $12,650 and $58,502 for the
years ended December 31, 1996 and 1995, respectively. Advertising expense
is included in selling and marketing expense in the accompanying
consolidated statements of operations.
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 - DISSOLUTION OF SUBSIDIARY
On July 28, 1995, the Company and Voice FX Corporation ("Voice FX") agreed
to terminate a joint venture named "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. Under the terms of the
Partnership dissolution, the Company paid 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 was required to pay 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. However, no expense was incurred since there was
no revenue received under these contracts in 1996. The Company incurred a
loss of $45,572 from the write-off of the loan and interest 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:
1996 1995
------- -------
Interest $ - $ -
======= =======
Income taxes $ - $ -
======= =======
Noncash Investing and Financing Transactions
- --------------------------------------------
The Company accrued dividends on its redeemable convertible preferred stock
of $314,395 and $247,135 in 1996 and 1995, respectively. In 1996, the
Company issued 314,395 shares of redeemable convertible preferred stock in
payment of both semi-annual 1996 dividends. 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 1996 and
1995, the Company issued 138,346 and 138,833 shares, respectively, of
redeemable convertible preferred stock in payment of interest on a line of
credit.
NOTE 5 - PROPERTY AND EQUIPMENT
The schedule of property and equipment at December 31, 1996 and 1995, is as
follows:
Estimated
Useful Lives
1996 1995 in Years
----- ----- ------------
Operating equipment $3,890,116 $4,816,969 5
Office furniture and equipment 181,440 151,115 5
Leasehold improvements 39,684 39,684 5
---------- ----------
$4,111,240 $5,007,768
========== ==========
NOTE 6 - NOTES PAYABLE - MAJORITY STOCKHOLDER
Notes payable to the majority stockholder consisted of the following at
December 31, 1996 and 1995:
1996 1995
--------- ---------
Original line of credit (a) $ 398,000 $ 500,000
Line of credit (TelVue-Voice FX) (b) $ 411,173 $ 411,173
National equipment loan (c) $1,471,272 $1,471,272
Additional lines of credit (d) $3,548,267 $3,603,267
Notes payable (SDC) (e) $ 541,000 $ 541,000
---------- ----------
$6,369,712 $6,526,712
========== ==========
(a) These borrowings are pursuant to a $500,000 line of credit. The line
bears interest at 12% and accrued interest on outstanding borrowings was
$354,320 and $294,907 as of December 31, 1996 and 1995, respectively.
Principal and accrued interest under this note are convertible into
Redeemable Convertible Preferred Stock (see Note 8) 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 rates at December 31, 1996 and 1995 were 10.25% and
10.5%, respectively.
(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 interest 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
8) at $1 per share. In 1996 and 1995, the Company issued 138,346 and
134,833 shares of redeemable convertible preferred stock in payment of
interest, respectively. The effective interest rates at december 31, 1996
and 1995, were 9.25% and 9.5%, 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 rates at
December 31, 1996 and 1995, were 9.25% and 9.5%, respectively. 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. The note is noninterest-
bearing and repayment is restricted to cash not needed for operations as
determined by the Company.
The Company has obtained from the majority stockholder an extension of a
prior agreement whereby the majority stockholder has agreed not to demand
repayment of principal or interest during 1997. However, the Company has
decided to voluntarily make, and the majority stockholder has agreed to
accept, monthly payments against the loan principal in the amount of
$50,000. The Company, at its discretion, may make monthly principal
payments in excess of $50,000 when the Company has excess cash not needed
to fund operations. The Company made an additional $400,000 principal
repayment in January 1997. The Company has, therefore, classified
$1,000,000 of the notes payable to the majority stockholder as a short term
liability and has classified the balance of the notes payable and the
accrued interest as long-term liabilities.
NOTE 7 - 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
---------------- ---------
1997 $1,005,694
1998 1,015,153
1999 949,118
2000 375,000
----------
$3,344,965
==========
Rental expense under the operating lease for office facilities amounted to
$97,798 and $97,798 for the years ended December 31, 1996 and 1995,
respectively.
In connection with the lease of its trunk lines, the Company received
credits of which $190,800 was not yet earned by the Company as of December
31, 1996. These unearned credits are classified as a current liability in
the accompanying balance sheet.
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 1997.
NOTE 8 - CAPITAL STOCK
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. In 1996, the 1996 semiannual dividends were declared and paid
with 314,395 shares of Preferred Stock. In December 1995, the balance of
1994 dividends and the 1995 semiannual dividends were declared and paid
with 366,185 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, 1996, 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 1995,
25,000 options were canceled. At December 31, 1996, 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, 1996,
options to purchase 11,100 shares of Common Stock are outstanding. These
options are exercisable at $.05 per share. At December 31, 1996, all
11,100 of these options are vested and exercisable.
Common Stock Warrants
- ---------------------
In connection with one of the lines of credit discussed in Note 6, 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 9 - 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:
1996 1995
---- ----
CURRENT
Federal $ - $ -
State - -
----------- -----------
- -
DEFERRED
Federal $ 87,191 $ 374,517
State 27,771 105,388
----------- -----------
114,962 479,905
Valuation allowance increase (114,962) (479,905)
----------- -----------
- -
----------- -----------
$ - $ -
=========== ===========
The categories of temporary differences that give rise to deferred tax
assets and liabilities are as follows:
FEDERAL STATE
---------------- ----------------
1996 1995 1996 1995
---- ---- ---- ----
DEFERRED TAX ASSETS:
Accrued interest -
stockholder $ 586,351 $ 450,532 $ 178,403 $ 137,079
Net operating loss
carryforward 2,124,780 2,168,336 585,877 597,887
----------- ----------- --------- ----------
GROSS DEFERRED TAX ASSET 2,711,131 2,618,868 764,280 734,966
DEFERRED TAX LIABILITIES:
Property and equipment,
principally due to
differences in
depreciation (185,019) (179,947) (56,294) (54,751)
----------- ----------- --------- ----------
Net deferred tax asset
before valuation
allowance 2,526,112 2,438,921 707,986 680,215
Valuation allowance (2,526,112) (2,438,921) (707,986) (680,215)
----------- ----------- ---------- ----------
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
$6,250,000 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,
1996 and 1995.
NOTE 10 - 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 15% 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
1996 and 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 1996 and 1995 amounted to $19,157 and
$16,363, respectively.
NOTE 11 - 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 $24,000 and $97,000 from this
company in 1996 and 1995, respectively, and had a receivable of $10,000 due
at December 31, 1996.
The Company has several notes payable to the majority stockholder. (See
Note 6).
The Company provided its automated number identification services to
subsidiaries of Lenfest Communications, Inc. ("LCI"). The Company
recognized revenues of approximately $325,000 and $190,000 from LCI
subsidiaries in 1996 and 1995, respectively and had a receivable of $53,136
and $13,311 due from LCI at December 31, 1996 and 1995. These services
were provided at normal billing rates. The Company and LCI are under the
control of the majority stockholder of the Company.
In September 1994, the Company entered into a service agreement with Box
Worldwide ("Box") formerly known as Video Jukebox Network, Inc. The
agreement provided that the Company would act as a 900 call service bureau
to facilitate the ordering by Box customers, of music videos on the cable
or home dish of the Box customer. The majority stockholder is the chairman
of the Board of Directors of Box and also controls a corporation that is a
partner in a partnership that controls a majority of the voting stock of
Box. The Company believes that the terms of the service agreement were at
market rates. The majority stockholder had loaned the Company $358,267 to
purchase equipment and software needed to provide service to Box. Box
informed the Company that Box had developed its own voice recognition
system and intended to process its 900 number calls internally. Box agreed
to reimburse the Company $284,619 to cover costs incurred by the Company
for software development to provide service to Box, costs incurred to
convert hardware originally purchased to service Box to a configuration the
Company can use, and accrued interest expense up to July 31, 1996, that the
Company incurred on a loan from the majority stockholder to fund these
costs. The Company received the reimbursement of $284,619 in January 1997.
NOTE 12 - 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 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 13 - COMMITMENTS AND CONTINGENCIES
A former employee ("the Plaintiff") of the Company has filed suit against
the Company and its majority stockholder. The Plaintiff alleges breach of
contract, breach of implied covenant of good faith and fair dealing,
detrimental reliance and unjust enrichment. The suit seeks damages for an
unspecified amount for compensation and compensatory and punitive damages.
Based upon correspondence from plaintiff's counsel prior to filing the
suit, the Company's counsel believes that the plaintiff is seeking actual
damages of approximately $400,000 for commissions, unpaid salary, stock
options and other benefits. The Company believes that the Plaintiff's
claims are without merit and intends to vigorously defend the suit brought
against it. The Company believes that the likelihood of an unfavorable
outcome is low.
NOTE 14 - SUBSEQUENT EVENT
During January 1997, the Company paid the majority stockholder $450,000 in
connection with the outstanding notes (see Note 6). The payment was made
from cash that was available due in part to the Box reimbursement (see Note
11). In February 1997, an additional $50,000 was paid to the majority
stockholder. All payments were applied to principal.
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 668,367
<SECURITIES> 0
<RECEIVABLES> 913,106
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,883,779
<PP&E> 4,111,240
<DEPRECIATION> 1,872,504
<TOTAL-ASSETS> 4,131,315
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<COMMON> 237,945
0
2,985,636
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<TOTAL-LIABILITY-AND-EQUITY> 4,131,315
<SALES> 5,458,610
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<INCOME-PRETAX> (184,129)
<INCOME-TAX> 0
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