<PAGE>
FORM 10-KSB/A
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, 1998
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: None
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, 1998 was
$6,122,249.
The Market Value of voting stock held by non-affiliates of the Issuer
March 1, 1999, based on a per share average bid and asked price of
$.1138 was $1,040,729.
Number of shares of Issuer's common stock outstanding as of
March 1, 1999: 24,194,500 shares.
Transitional Small Business Disclosure Format: Yes No X
-----
This Form 10-KSB/A is being filed to amend Part II Item 7 of the
annual report on Form 10-KSB of TelVue Corporation for the
fiscal year ended December 31, 1998, which was filed with the
Securities and Exchange Commission on March 31, 1999 ("Form 10-KSB"),
to include Note 11 and portions of Notes 2 and 6 which were incorrectly
omitted from the Form 10-KSB, and re-numbering Note 12 of the Financial
Statements.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
TELVUE CORPORATION
FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1997
TABLE OF CONTENTS
PAGE NO.
--------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
FINANCIAL STATEMENTS
Balance Sheets
Statements of Operations
Statements of Stockholders' Deficit
Statements of Cash Flows
Notes to Financial Statements
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, 1998 and 1997, and the related
statements of operations, stockholders' deficit and cash flows for the
years then ended. 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, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity
with generally accepted accounting principles.
February 2, 1999
<PAGE>
TELVUE CORPORATION
BALANCE SHEETS
December 31, 1998 and 1997
1998 1997
------------- ---------
[S] [C] [C]
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 453,569 $ 445,368
Accounts receivable - trade 786,083 922,737
Other receivables 4,910 5,281
Deferred tax asset 285,935 477,987
Other current assets 11,626 10,898
----------- ----------
TOTAL CURRENT ASSETS 1,542,123 1,862,271
PROPERTY AND EQUIPMENT 4,791,240 4,534,168
Less accumulated depreciation 3,462,823 2,639,651
----------- ----------
1,328,417 1,894,517
OTHER ASSETS
Deferred tax asset 1,932,778 2,027,450
Deposits 9,300 9,300
----------- -----------
1,942,078 2,036,750
----------- -----------
$4,812,618 $5,793,538
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Notes payable-majority stockholder-current $ 1,380,000 $1,800,000
Accounts payable 512,047 423,851
Accrued expenses 172,839 192,305
Accrued dividends payable 422,244 -
Income taxes payable 8,661 12,000
Deferred trunk credit - 164,200
------------ ---------
TOTAL CURRENT LIABILITIES 2,495,791 2,592,356
NOTES PAYABLE - MAJORITY STOCKHOLDER, net
of current portion 1,039,712 2,519,712
ACCRUED INTEREST - MAJORITY STOCKHOLDER 2,694,837 2,187,721
REDEEMABLE CONVERTIBLE PREFERRED STOCK,
$1 par value, 6,900,000 shares authorized,
3,518,694 shares issued and outstanding at
December 31, 1998 and 1997, (liquidation value
$3,940,938 and $3,518,694, respectively) 3,518,694 3,518,694
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Common stock, $.01 par value, 100,000,000
shares authorized, 24,194,500 and 23,814,500
shares issued and outstanding at December
31, 1998 and 1997, respectively 241,945 238,145
Additional paid-in capital 1,550,535 1,516,335
Accumulated deficit (6,728,896) (6,779,425)
----------- -----------
(4,936,416) (5,024,945)
----------- ----------
$4,812,618 $5,793,538
=========== ===========
See accompanying notes
<PAGE>
TELVUE CORPORATION
STATEMENTS OF OPERATIONS
Years Ended December 31, 1998 and 1997
1998 1997
---- ----
REVENUES $ 6,122,249 $ 6,330,675
OPERATING EXPENSES
Service 2,711,860 3,186,546
Selling and marketing 593,862 585,544
General and administrative 648,893 642,767
Depreciation 870,095 831,609
----------- -----------
4,824,710 5,246,466
----------- -----------
OPERATING INCOME 1,297,539 1,084,209
OTHER INCOME (EXPENSE)
Interest income, net of reimbursement (507,116) (459,352)
Interest income 24,165 42,221
Other income (expense) (33,430) (24,881)
----------- -----------
(516,381) (442,012)
----------- ----------
INCOME BEFORE INCOME TAXES 781,158 642,197
INCOME TAX BENEFIT (EXPENSE) (308,385) 2,493,437
----------- ----------
NET INCOME 472,773 3,135,634
DIVIDENDS ON REDEEMABLE
CONVERTIBLE PREFERRED STOCK (422,244) (359,932)
----------- -----------
NET INCOME AVAILABLE TO
COMMON STOCKHOLDERS $ 50,529 $ 2,775,702
=========== ===========
EARNINGS (LOSS) PER COMMON SHARE
BASIC $ - $ .12
=========== ===========
DILUTED $ .01 $ .04
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 24,036,167 23,795,102
=========== ===========
See accompanying notes.
<PAGE>
TELVUE CORPORATION
STATEMENTS OF STOCKHOLDERS' DEFICIT
Years Ended December 31, 1998 and 1997
Additional Total
Common Paid-In Accumulated Stockholders'
Stock Capital Deficit Deficit
------- ---------- ----------- -----------
BALANCE,DECEMBER 31, 1996 $237,945 $1,515,535 $(9,555,127) $(7,801,647)
Accrued dividends on
redeemable convertible
preferred stock - - (359,932) (359,932)
Issuance of 20,000 shares
of common stock under
director compensation plan 200 800 - 1,000
Net income - - 3,135,634 3,135,634
------- ---------- ----------- ----------
BALANCE,
DECEMBER 31, 1997 238,145 1,516,335 (6,779,425) (5,024,945)
Accrued dividends on
redeemable convertible
preferred stock - - (422,244) (422,244)
Issuance of 380,000 shares
of common stock 3,800 34,200 - 38,000
Net income - - 472,773 472,773
-------- ---------- ----------- ----------
BALANCE,DECEMBER 31, 1998 $241,945 $1,550,535 $(6,728,896) $(4,936,416)
======== ========== =========== ===========
See accompanying notes.
<PAGE>
TELVUE CORPORATION
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998 and 1997
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $ 472,773 $ 3,135,634
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation 870,095 831,609
Loss on sales or disposal of property and
equipment - 24,881
Deferred tax (benefit) expense 286,725 (2,505,437)
Issuance of common stock 38,000 1,000
Changes in assets and liabilities:
Accounts receivable - trade and other 137,025 274,430
Other current assets (728) 2,066
Deposits - (500)
Accounts payable - trade and other 88,196 104,877
Accrued expenses (19,466) 27,429
Income taxes payable (3,339) 12,000
Deferred trunk credit (164,200) (26,600)
Accrued interest - majority stockholder 507,116 457,883
----------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,212,197 2,339,272
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (303,996) (513,676)
Proceeds from sales or disposal of
property and equipment - 1,405
----------- ---------
NET CASH (USED IN)INVESTING ACTIVITIES (303,996) (512,271)
CASH FLOWS FROM FINANCING ACTIVITIES
Debt reduction:
Notes payable - majority stockholder (1,900,000) (2,050,000)
----------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 8,201 (222,999)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 445,368 668,367
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 453,569 $ 445,368
=========== ==========
See accompanying notes.
<PAGE>
TELVUE CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of TelVue Corporation
("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.
BUSINESS ACTIVITY AND CONCENTRATION OF CREDIT RISK
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 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 1998 and 1997, four customers accounted for 50% and 51% of
sales, respectively, and 37% and 48% of receivables at December 31,
1998 and 1997, 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.
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.
CASH AND CASH EQUIVALENTS
For purposes of the statements 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, 1998 and 1997. Historically, the Company has
experienced virtually no bad debt.
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.
VALUATION OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets to be Disposed
of", the Company assesses, on an on-going basis, the recoverability of
long-lived assets based on estimates of future undiscounted cash flows
for the applicable business acquired compared to net book value. Long-
lived assets include property and equipment. If the future
undiscounted cash flow estimate is less than net book value, net book
value is then reduced to the fair value of the assets. The Company
also evaluates the depreciation periods of assets, to determine whether
events or circumstances warrant revised estimates of useful lives. As
of December 31, 1998, management believes that no revisions to the
remaining useful lives or writedowns of long-lived assets are required.
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.
ADVERTISING
The Company follows the policy of charging the costs of advertising to
expense as incurred. Advertising expense is included in selling and
marketing expense in the accompanying statements of operations.
EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share is computed using the weighted
average number of shares of outstanding. Diluted earnings (loss) per
common share is computed using the weighted average number of shares
outstanding adjusted to include incremental common shares that would
have been outstanding if potentially dilutive common shares had been
issued. Incremental shares of 57,027,826 and 53,497,636 in 1998 and
1997, respectively, were used in the calculation of diluted earnings
(loss) per common share.
NOTE 2 - SUPPLEMENTARY DISCLOSURES TO STATEMENTS OF CASH FLOWS
Cash paid during the year for:
1998 1997
---- ----
Interest $ - $ 1,470
Income taxes $ 25,000 $ -
NONCASH INVESTING AND FINANCING TRANSACTIONS
The Company accrued dividends on its redeemable convertible preferred
stock of $422,244 and $359,932 in 1998 and 1997, respectively. In 1998
and 1997, the Company issued 5,000 and 20,000 shares of common stock
valued at $500 and $1,000, respectively under the Director Compensation
Plan (See Note 6). In 1998, the Company issued 375,000 shares of common
stock valued at $37,500 to four key employees. In 1997, the Company
issued 359,932 shares of redeemable convertible preferred stock in
payment of both semi-annual 1997 dividends. In 1997, the Company
issued 173,126 shares, of redeemable convertible preferred stock in
payment of interest on a line of credit.
NOTE 3 - PROPERTY AND EQUIPMENT
The schedule of property and equipment at December 31, 1998 and 1997,
is as follows:
Estimated
Useful Lives
1998 1997 in Years
---- ---- ----------
Operating equipment $4,549,957 $4,250,971 5
Office furniture and equipment 201,599 243,513 5
Leasehold improvements 39,684 39,684 5
---------- ----------
$4,791,240 $4,534,168
========== ==========
NOTE 4 - NOTES PAYABLE - MAJORITY STOCKHOLDER
Notes payable to the majority stockholder consisted of the following at
December 31, 1998 and 1997:
1998 1997
---- ----
National equipment loan (a) $1,471,272 $1,471,272
Additional lines of credit (b) 407,440 2,307,440
Notes payable (SDC) (c) 541,000 541,000
---------- ---------
$2,419,712 $4,319,712
========== ==========
(a) In March 1994, the Company's majority stockholder provided a
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
6) at $1 per share. In 1997, the Company issued 173,126 shares of
redeemable convertible preferred stock in payment of interest. The
effective interest rates, at December 31, 1998 and 1997, were 8.75% and
9.5%, respectively.
(b) 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, 1998 and 1997, were 8.75% 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.
(c) In January 1995, the Company's majority stockholder acquired from
Science Dynamics Corporation ("SDC") a 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 1999. 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 $115,000. The Company, at its discretion, may make
monthly principal payments in excess of $115,000 when the Company has
excess cash not needed to fund operations. The Company has, therefore,
classified $1,380,000 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 5 - 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
----------- ----------
1999 $ 49,117
Rental expense under the operating lease for office facilities amounted
to $97,798 for each of the years ended December 31, 1998 and 1997.
In connection with the lease of its trunk lines, the Company received
credits of which $164,200 was not yet earned by the Company as of
December 31, 1997.
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 1999.
NOTE 6 - CAPITAL STOCK
COMMON STOCK VOTING RIGHTS AND CONCENTRATION OF CONTROL
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.
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 December 1997, the
1997 semiannual dividends were declared and paid with 359,932 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 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 balance sheets.
DIRECTOR COMPENSATION PLAN
In December 1997, the Company adopted a Director Compensation Plan.
Under this plan, each non-employee director, other than the majority
stockholder, is compensated $500 for each meeting attended by receiving
shares of Common Stock issued at the higher of the per share fair
market value of the Common Stock as of the board of directors meeting
date or $.05 per share. In 1998 and 1997, the Company issued 5,000 and
20,000 shares of Common Stock under this plan, respectively, and
recognized director compensation expense of $500 and $1,000,
respectively.
STOCK COMPENSATION
In June 1998, the Company issued 375,000 shares of common stock to four
executives as a discretionary bonus. The shares were issued at the
fair value on the grant date of $.10 per share. The Company recorded
compensation expense of $37,500 with the issuance of these shares.
COMMON STOCK WARRANTS
In connection with one of the lines of credit discussed in Note 4, 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 7 - 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:
1998 1997
----------- ---------
Current
Federal (alternative minimum tax) $ (21,660) $ (12,000)
State - -
---------- ---------
(21,660) (12,000)
Deferred
Federal (264,994) (208,368)
State (73,844) (60,763)
---------- ---------
(338,838) (269,131)
Valuation allowance (increase) decrease 52,113 2,774,568
---------- ---------
(286,725) 2,505,437
---------- ---------
$ (308,385) $2,493,437
=========== ==========
The categories of temporary differences that give rise to deferred tax
assets and liabilities are as follows:
Federal State
--------------- -----------
1998 1997 1998 1997
---- ---- ---- ----
Deferred Tax Assets:
Accrued interest -
stockholder $ 830,347 $ 674,092 $252,641 $205,099
Net operating loss
carryforward 1,215,281 1,716,879 190,321 329,764
Alternative minimum tax
credit 33,000 12,000 - -
---------- ---------- --------- --------
Gross Deferred Tax Asset 2,078,628 2,402,971 442,962 534,863
Deferred Tax Liabilities:
Property and equipment,
principally due to differences
in depreciation (86,299) (145,648) (26,257) (44,315)
---------- ---------- --------- --------
Net deferred tax asset before
valuation allowance 1,992,329 2,257,323 416,705 490,548
Valuation allowance - - (190,321) (242,434)
---------- ----------- -------- --------
Net Deferred Tax Asset 1,992,329 $2,257,323 $226,384 $248,114
========= ========== ======== ========
The Company has a net operating loss carryforward of approximately
$3,600,000 on a tax reporting basis. The carryforward will begin to
expire in 2004, if not utilized. The Company also has an alternative
minimum tax credit carryforward of approximately $33,000. This
carryforward has no expiration date.
Differences between the effective income tax rate and the statutory
federal income tax rate were primarily the result of the change in the
valuation allowance.
NOTE 8 - 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 1998 and 1997 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 1998
and 1997 amounted to $21,223 and $19,930, respectively.
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company has several notes payable to the majority stockholder.
(See Note 4).
The Company provided its automated number identification services to
subsidiaries of Lenfest Communications, Inc. ("LCI"). The Company
recognized revenues of approximately $400,000 and $470,000 from LCI
subsidiaries in 1998 and 1997, respectively and had a receivable of
$59,848 and $65,916 due from LCI at December 31, 1998 and 1997,
respectively. These services were provided at normal billing rates.
The Company and LCI are under the control of the majority stockholder
of the Company.
NOTE 10 - 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 11 - LITIGATION SETTLEMENT
In April 1996, a former employee filed suit against the Company and its
majority stockholder. The complaint alleged breach of contract, breach
of implied covenant of good faith and fair dealing, detrimental
reliance and unjust enrichment. The lawsuit sought compensation and
compensatory damages. Although the Company believed the former
employee's claims were without merit, the Company settled the lawsuit
in June 1998. The litigation settlement of $33,430, net of proceeds
received from the Company's insurance carrier, is included in "other
expense" in the accompanying statement of operations.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
The Company has received notice from a cable operating company customer
alerting its right to be indemnified against claims of patent
infringement made to the cable operator by a third party. The third
party has alleged to the cable operator that portions of the cable
operator's pay-per-view operations infringe one or more patents held by
such party. No notice of alleged infringement has been received by the
Company from such third party. The Company has retained independent
patent counsel to review the third party patents and the alleged
infringement. The Company is unable at this time to determine if it
has liability under the indemnity provisions of the contracts with the
cable operator or the amount of such liability if it exists.
<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: 5/20/99 By: /s/Frank J. Carcione
-------------------------------
Frank J. Carcione
President (Chief Executive Officer)
