EXHIBIT INDEX APPEARS ON PAGE
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1999
Commission File Number: 0-17170
TELVUE CORPORATION
(Exact name of small business issuer as specified in its charter)
DELAWARE 51-0299879
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16000 Horizon Way, Suite 500
Mt. Laurel, New Jersey 08054
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code:(856) 273-8888
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or
for such shorter period that the issuer was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
------ ------
Number of shares of registrant's common stock outstanding as of October 21,
1999: 24,194,500 shares.
Transitional Small Business Disclosure Form: Yes No X
------ ------
This report includes a total of 15 pages.
TELVUE CORPORATION
INDEX
PAGE
NO.
-----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of September 30, 1999
(unaudited) and as of December 31, 1998
Statements of Operations for the three
months ended September 30, 1999 (unaudited)
and September 30, 1998 (unaudited)
Statements of Operations for the nine
months ended September 30, 1999 (unaudited)
and September 30, 1998 (unaudited)
Statements of Cash Flows for the nine
months ended September 30, 1999 (unaudited)
and September 30, 1998 (unaudited)
Notes to Financial Statements (unaudited)
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
<TABLE>
PART I. Financial Information
ITEM I. Financial Statements
TELVUE CORPORATION
BALANCE SHEETS
September 30, December 31,
1999 1998
------------- -----------
<S> <C> <C>
ASSETS (Unaudited) *
CURRENT ASSETS
Cash and cash equivalents $ 375,269 $ 453,569
Accounts receivable - trade 802,980 786,083
Other receivables 4,599 4,910
Deferred tax asset 430,935 285,935
Other current assets 27,445 11,626
----------- ----------
TOTAL CURRENT ASSETS 1,641,228 1,542,123
PROPERTY AND EQUIPMENT
Machinery and equipment 5,006,071 4,791,240
Less accumulated depreciation 4,007,087 3,462,823
----------- ----------
998,984 1,328,417
DEFERRED TAXES, net 1,467,506 1,932,778
SECURITY DEPOSITS 9,300 9,300
----------- ----------
$4,117,018 $4,812,618
=========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Notes payable-majority stockholder-current $ 1,452,000 $ 1,380,000
Accounts payable 234,593 512,047
Accrued expenses 250,227 172,839
Accrued dividends 738,927 422,244
Income taxes payable - 8,661
----------- ----------
TOTAL CURRENT LIABILITIES 2,675,747 2,495,791
NOTES PAYABLE - MAJORITY STOCKHOLDER 174,534 1,039,712
ACCRUED INTEREST - MAJORITY STOCKHOLDER 2,420,174 2,694,837
REDEEMABLE CONVERTIBLE PREFERRED STOCK, $1 par
value, 6,900,000 shares authorized,
3,518,694 shares issued and outstanding 3,518,694 3,518,694
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Common stock, $.01 par value, 100,000,000
shares authorized and 24,194,500
shares issued and outstanding 241,945 241,945
Additional paid-in capital 1,550,535 1,550,535
Accumulated deficit (6,464,611) (6,728,896)
----------- -----------
(4,672,131) (4,936,416)
----------- -----------
$4,117,018 $4,812,618
=========== ===========
* Derived from audited financial statements.
The accompanying unaudited notes are an integral part of these statements.
<PAGE>
TELVUE CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
September 30,
----------------------------
1999 1998
---- ----
REVENUES $ 1,411,637 $ 1,515,761
OPERATING EXPENSES
Service 638,450 743,320
Selling and marketing 130,582 129,932
General and administrative 155,386 148,395
Depreciation 147,049 223,383
------------ -----------
1,071,467 1,245,030
------------ -----------
OPERATING INCOME 340,170 270,731
OTHER INCOME (EXPENSE)
Interest income 6,653 5,961
Interest expense (89,053) (125,726)
Litigation settlement - 7,033
----------- -----------
(82,400) (112,732)
----------- -----------
INCOME BEFORE INCOME TAXES 257,770 157,999
INCOME TAX (87,663) (53,000)
----------- ----------
NET INCOME 170,107 104,999
DIVIDENDS ON REDEEMABLE
CONVERTIBLE PREFERRED STOCK (105,561) (105,561)
----------- -----------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS $ 64,546 $ (562)
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE
BASIC $.00 ($.00)
=========== ==========
DILUTED $.00 ($.00)
=========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
BASIC 24,194,500 24,194,500
========== ==========
DILUTED 83,450,920 24,194,500
========== ==========
The accompanying unaudited notes are an integral part of these statements.
<PAGE>
TELVUE CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended
September 30,
----------------------------
1999 1998
---- ----
REVENUES $ 4,423,531 $ 4,706,869
OPERATING EXPENSES
Service 1,825,704 2,239,638
Selling and marketing 427,857 446,926
General and administrative 479,330 495,027
Depreciation 544,264 659,831
----------- -----------
3,277,155 3,841,422
----------- -----------
OPERATING INCOME 1,146,376 865,447
OTHER INCOME (EXPENSE)
Interest income 16,941 18,066
Interest expense (283,059) (397,986)
Litigation settlement, net - (33,430)
----------- -----------
(266,118) (413,350)
----------- -----------
INCOME BEFORE INCOME TAXES 880,258 452,097
INCOME TAX (299,287) (190,000)
------------ ----------
NET INCOME 580,971 262,097
DIVIDENDS ON REDEEMABLE
CONVERTIBLE PREFERRED STOCK (316,683) (316,683)
----------- -----------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS $ 264,288 $ (54,586)
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE
BASIC $.01 ($.00)
=========== ===========
DILUTED $.01 ($.00)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
BASIC 24,194,500 23,981,533
=========== ===========
DILUTED 83,450,920 23,981,533
=========== ===========
The accompanying unaudited notes are an integral part of these statements.
<PAGE>
TELVUE CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months Ended
September 30,
---------------------
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 580,971 $ 262,097
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 544,264 659,831
Deferred taxes 320,272 178,000
Issuance of common stock - 38,000
Changes in assets and liabilities:
Decrease (increase) in -
Accounts receivable - trade (16,897) 137,361
Other receivables 311 498
Prepaid income taxes - (1,000)
Other current assets (15,819) (31,906)
Increase (decrease) in -
Accounts payable (277,457) (123,267)
Accrued expenses 77,388 72,385
Income taxes payable (8,661) (12,000)
Deferred trunk credit - 5,050
Accrued interest - majority stockholder (274,663) 397,986
----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 929,709 1,583,035
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (214,831) (198,101)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt reduction:
Notes payable - majority stockholder (793,178) (1,450,000)
----------- -----------
NET (DECREASE) IN CASH AND
CASH EQUIVALENTS (78,300) (65,066)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 453,569 445,368
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 375,269 $ 380,302
=========== ===========
The accompanying unaudited notes are an integral part of these statements.
<PAGE>
TELVUE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
----------------------
Summary Financial Information and Results of Operations
- --------------------------------------------------------
In the opinion of management, the accompanying unaudited financial
statements have been prepared in conformance with generally accepted
accounting principles and with the regulations of the Securities and
Exchange Commission and contain all adjustments (consisting of only normal
recurring adjustments) necessary to make the financial statements not
misleading and to present fairly the financial condition as of September
30, 1999, the results of operations for the three and nine months ended
September 30, 1999 and 1998 and cash flows for the nine months ended
September 30, 1999 and 1998.
Interim Financial Information
- -----------------------------
While management believes that the disclosures presented are adequate to
prevent misleading information, these unaudited financial statements must be
read in conjunction with the audited financial statements and notes included
in the Company's Form 10-KSB report for the fiscal year ended December 31,
1998, as filed with the Securities and Exchange Commission.
Prior period financial statements have been reclassified to conform with
current quarter presentation.
2. SUPPLEMENTAL CASH FLOW INFORMATION:
-----------------------------------
Supplemental disclosures of net cash paid (received) during the period-
1999 1998
---- ----
Income taxes ($ 12,324) $25,000
Interest $557,722 $ 0
Non-cash Investing and Financing Transactions
- ---------------------------------------------
The Company accrued dividends on its redeemable convertible preferred stock
of 316,683 for each of the nine months ended September 30, 1999 and 1998.
During the nine months ended September 30, 1999 and 1998, no shares of
preferred stock were issued in payment of preferred stock dividends.
3. EARNINGS (LOSS) PER COMMON SHARE:
--------------------------------
Earnings (loss) per common share amounts are based upon the weighted average
number of common and common equivalent shares outstanding during the year.
Common equivalent shares are excluded from the computation in periods in
which they have an antidilutive effect.
In February 1997, the Financial Accounting Standards Board issued SFAS 128
Earnings per Share ("SFAS 128"), which specifies the computation,
presentation, and disclosure requirements for earnings per share ("EPS"). It
replaces the presentation of primary and fully diluted EPS with basic and
diluted EPS. Basic EPS excludes all dilution. It is based upon the
weighted average number of common shares outstanding during the period.
Diluted EPS reflects the potential dilution that would occur if securities
or other contracts to issue common stock were exercised or converted into
common stock. The Company has adopted SFAS 128 as of the fourth quarter of
1997 and has restated all previously reported per share amounts to conform
to the new presentation.
The following is a reconciliation from basic earnings per share to diluted
earnings per share for the nine months ended September 30, 1999. Because of
the net loss available to common stockholders for the nine months ended
September 30, 1998, no potential common shares are included in the
computation of a diluted per share amount since such potential common shares
would not have a dilutive effect.
Net Income
(Loss)
Available Average
to Common Shares Earnings
Stockholders Outstanding Per Share
------------ ----------- --------
1999 $ 264,288 24,194,500 $ .01
Effect of dilution
Warrants 29,915,160
Convertible preferred stock 316,683 28,385,559
Convertible accrued interest - 955,701
----------- ---------- ------
Diluted $ 580,971 83,450,920 $ .01
=========== ========== ======
1998 $ (54,586) 23,981,533 ($ .00)
=========== ========== ======
4. DIVIDENDS ON REDEEMABLE CONVERTIBLE PREFERRED STOCK:
----------------------------------------------------
As of September 30, 1999, undeclared dividends on outstanding preferred
stock amounted to $738,927.
5. 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:
1999 1998
----------- ----------
Current
Federal $ 20,985 $ (18,000)
State - -
----------- ----------
20,985 (18,000)
Deferred
Federal (320,272) (149,000)
State - (23,000)
---------- ----------
(320,272) (172,000)
---------- ----------
$(299,287) $(190,000)
========== ==========
The Company has a net operating loss carryforward ("NOL") of approximately
$2,700,000 on a tax reporting basis. The carryforward will begin to expire
in 2004, if not utilized. The Company believes it is more likely than not
that it will utilize the NOL prior to the expiration dates.
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.
6. NOTES PAYABLE AND ACCRUED INTEREST - MAJORITY STOCKHOLDER:
----------------------------------------------------------
As of September 30, 1999, the Company had various outstanding notes due to
the majority stockholder in the aggregate principal amount of 1,626,534 and
accrued interest due on these notes in the aggregate amount of $2,420,174.
Effective as of March 31, 1999, the Company obtained from the majority
stockholder an extension to January 1, 2001, of his prior agreement not to
demand repayment of his loans or the accrued interest on the loans. The
Company has decided to voluntarily make, and the majority stockholder has
agreed to accept, monthly payments in the amount of $150,000 through
December 31, 1999. Effective January 1, 1999, the Company began to make
current interest payments from the $150,000 monthly payment. The balance of
the payment is applied to loan principal. The Company may make monthly
payments in excess of $150,000 when, in the opinion of management, the
Company has excess cash that is not needed to fund operations. The Company
made payments of $1,350,000, including interest, during the nine months
ended September 30, 1999. The Company has classified twelve estimated
principal payments of $121,000 each as a current liability on the balance
sheet.
7. COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company has received notice from a cable operating company customer
asserting 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
terms and the alleged infringement. The Company is unable at this time to
determine the amount or extent of liability, if any, to the cable operator.
8. STOCK OPTION PLAN
- -----------------
The Company's 1999 Stock Option Plan (the "Plan"), that was approved by the
Company's stockholders at its annual meeting in June 1999, was filed with
the Securities and Exchange Commission in September 1999. The purpose of
the Plan is to promote the overall financial objectives of the Company and
its stockholders by motivating those persons selected to participate in the
Plan to achieve long-term growth of the Company and by retaining the
association of those individuals who are instrumental in achieving this
growth. The aggregate maximum number of shares of the Common Stock for
which options may be granted under the Plan is 10,000,000 shares. As of
September 30, 1999, no shares have been granted under the Plan.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
TelVue Corporation (the "Company") is a marketing and service company
primarily selling automatic number identification ("ANI") telecommunications
services to the cable television industry for the automated ordering of
pay-per-view features and events (the "Service"). The Company provides the
Service through equipment it purchases. The Company's equipment for
providing the Service nationwide is located at the Company's home office in
Mt. Laurel, New Jersey. The equipment provides enhanced service features.
These enhanced service features, which identify the cable operator by name
("Custom Greeting") and, on accepted orders, speaks the movie or event
title, start-time and channel appearance ("Title Speak"), are necessary,
the Company believes, for it to remain competitive within the pay-per-view
ANI industry. The equipment also speaks 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 Company serves cable
television systems across the United States via trunk lines and data
circuits that it currently leases from MCIWorldcom. The Company believes it
receives a favorable trunk usage rate from MCIWorldcom.
Income before income taxes was $257,770 and $157,999 for the three
months ended September 30, 1999 and 1998, respectively. The Company had
income before income taxes of $880,258 and $452,097 for the nine months
ended September 30, 1999 and 1998, respectively. The Company experienced a
decrease in the average monthly buy rate from 17.0% and 18.2% for the three
and nine months ended September 30, 1998, respectively, to 13.0% and 13.7%
for the three and nine months ended September 30, 1999, respectively. The
decline in the buy rates caused the pay-per-view buy revenue to decrease
approximately $160,223 and $408,005 for the three and nine months ended
September 30, 1999, respectively. Although the pay-per-view buy revenue
decreased, the Company had an increase in feature revenue of $18,456 and
$132,191 for the three and nine months ended September 30, 1999,
respectively, as a result of the Company serving approximately 1,000,000
more full-time subscribers at September 30, 1999 when compared to September
30, 1998. PPV+ service revenue decreased $35,878 and $75,658 for the three
and nine months ended September 30, 1999, respectively, primarily as a
result of the buy rate decrease.
The Company had net income of $580,971 for the nine months ended
September 30, 1999, compared to $262,097 for the nine months ended September
30, 1998. Included in the net income is income tax of $299,287 for the nine
months ended September 30, 1999, compared to $190,000 for the nine months
ended September 30, 1998. As of September 30, 1999, the Company's net
operating loss carryforward is approximately $2,700,000 on a tax reporting
basis (see Note 5 to the Company's financial statements).
Service expenses decreased $104,870 and $413,934 for the three and
nine months ended September 30, 1999, respectively. This is a result of a
decrease in trunk expense due to the buy rate decrease (see above) and a
reduction in the telephone rates charged by MCIWorldcom effective January 1,
1999.
As of September 30, 1999, the Company was serving approximately
12,200,000 full-time cable subscribers and 4,100,000 part-time subscribers,
compared to approximately 11,200,000 full-time cable subscribers and
1,300,000 part-time subscribers served as of September 30, 1998. The part-
time subscribers did not significantly contribute to the revenue or service
expenses for the nine months ended September 30, 1999 or 1998. However,
during the nine months ended September 30, 1999, 58,000 part-time
subscribers converted to using the Company's service on a full-time basis.
During the nine months ended September 30, 1999, the Company purchased
$214,831 of equipment compared to $198,101 purchased during the nine months
ended September 30, 1998. Depreciation accounted for 17% of total operating
expenses for each of the nine months ended September 30, 1999 and 1998.
Selling and marketing expenses stayed approximately the same for the three
months ended September 30, 1999 and decreased 4% for the nine months ended
September 30, 1999. The decrease for the nine months ended September 30,
1999, is partially a result of a decrease in commission expense as a result
of fewer cable subscribers being added to the Company's Service during the
nine months ended September 30, 1999 when compared to same period of 1998.
General and administrative expenses increased 5% for the three months ended
September 30, 1999 and decreased 3% for the nine months ended September 30,
1999, respectively. The increase for the three months ended September 30,
1999, is due partially to an increase in payroll as a result of salary
increase and increases in various other expense categories. The decrease
for the nine months ended September 30, 1999 is due largely to a decrease in
legal expense of $25,443. During the nine months ended September 30, 1998,
additional legal expenses were incurred as a result of a pending lawsuit
filed by a former employee of the Company. This lawsuit was settled during
June 1998.
Total liabilities decreased $959,885 and total assets decreased
$695,600 for the nine months ended September 30, 1999. The decrease in
total liabilities was partially a result of a decrease in accounts payable
of $277,454. The accounts payable at December 31, 1998, was higher than
usual as a result of an $84,000 equipment purchase and DS3 trunk invoices of
approximately $100,000 that were on hold due to incorrect billing. These
invoices were paid during January 1999. There was also a decrease in notes
payable - majority stockholder of $793,178 and a decrease in accrued
interest - majority stockholder of $274,663 due to debt repayment.
Partially offsetting the above decreases is an increase in accrued dividends
on preferred stock of $316,683. The decrease in assets is partially
attributable to a decrease in deferred tax asset of $320,272, and an
increase in accumulated depreciation of $544,264. The Company's days for
sales in accounts receivable is 49 days for the nine months ended September
30, 1999 compared to 50 days for the nine months ended September 30, 1998.
The Company does not offer incentives/discounts to its customers, nor has it
changed its credit terms with its customers.
The Company had positive cash flow from operating activities of
$929,709 during the nine months ended September 30, 1999 compared to
$1,583,035 for the nine months ended September 30, 1998. Net cash provided
by operating activities decreased as a result of the payment of equipment
purchases and DS3 trunk invoices that were outstanding as of December 31,
1998 (see above) and a decrease in accrued interest majority stockholder as
a result of paying interest during the nine months ended September 30, 1999.
During 1998, no interest was paid to the majority stockholder. All payments
were applied to loan principal and are in the cash flows from financing
activities section of the statement of cash flows. Ignoring changes in
operating assets and liabilities that result from timing issues, and
considering only adjustments to reconcile net income to net cash provided by
operating activities, the Company would have positive cash flow from
operating activities of $1,445,507 for the nine months ended September 30,
1999, compared to positive cash flow from operating activities of $1,137,928
for the nine months ended September 30, 1998.
Since November 2, 1989, the Company has funded its expansion and
operating deficit from the $2,500,000 of proceeds from the sale of shares of
the Company's Common Stock and Preferred Stock to Mr. Lenfest and from
borrowings from Mr. Lenfest. From November 1989 to February 1996, the
Company borrowed an aggregate of $6,128,712 from Mr. Lenfest. The interest
rates on the loans range from a floating rate based on the prime rate of PNC
Bank to a fixed rate of 12%. Interest on one of the loans in the principal
amount of $1,471,272 as of December 31, 1998, is payable quarterly and, at
the option of the Company 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 this loan prior to
1998, in the amount of $473,682 has been paid with 473,682 shares of
Preferred Stock. No Preferred Stock has been issued for 1998 or 1999
accrued interest. In addition, during January 1995, Mr. Lenfest purchased
from Science Dynamics Corporation the Company's non-interest bearing note in
the amount of $541,000.
The Company remains dependent upon the deferral of a lump sum repayment
of principal and interest due to Mr. Lenfest to fund operations and capital
expenditures from operating cash flow. Effective as of March 31, 1999, 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, 2001. Nevertheless, the Company intends to
continue to voluntarily make monthly payments of $150,000 to Mr. Lenfest. On
January 1, 1999, the Company began to pay current monthly interest payments
to Mr. Lenfest from the $150,000 monthly payment. The balance of the
payment is applied to loan principal. During the nine months ended
September 30, 1999, the Company made total payments of $1,350,000 to Mr.
Lenfest (see Note 6 to the Company's financial statements). 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, 1999. The aggregate outstanding loan balance due
to Mr. Lenfest as of September 30, 1999, is $1,626,534 in loan principal and
$2,420,174 in accrued interest.
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
a lump sum cash repayment of his loans to the Company. 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
any further customers or that it will retain its current customers. In
addition, revenues are affected by the "buy rates" of subscribers connected
to the Service. The Company has no control over the buy rates. As noted
above, the Company experienced a decrease in the average monthly buy rate
from 17.0% and 18.2% for the three and nine months ended September 30, 1998,
to 13.0% and 13.7% for the three and nine months ended September 30, 1999,
respectively. Hence, there can be no assurance that buys rates will increase
or will remain at their current level.
The Company's software for its pay-per-view ANI ordering is "Year
2000 Compliant". The Company's long distance telecommunications provider,
MCIWorldcom, has informed the Company that it has implemented a Strategic
Year 2000 Compliance Plan in which appropriate remedial action to non-
compliant elements is being performed. According to MCIWorldcom the network
systems that support customer voice and data traffic are remediated and
Year 2000 tested and the application components that comprise MCIWorldcom's
major revenue products and services are Year 2000 ready. MCIWorldcom has
stated that it plans to focus on continued integration and interoperability
testing, preparation and testing of contingency plans, independent
verification and validation of the work already complete, and change
management to achieve ongoing compliance. Finally, MCIWorldcom has stated
that it will complete decommissioning projects, customer-specific
migrations/upgrades, and selected internal and international systems.
MCIWorldcom has stated that they have completed their Year 2000
Business Contingency Master Plan to address any unforeseen problems that
may occur. The Year 2000 contingency plan is based on the recovery plans
MCIWorldcom already has in place for other emergencies - fiber cuts,
weather-related outages, and outages by other common carriers. MCIWorldcom
has stated that they have completed three main phases of contingency
planning: Organizational Planning, Business Impact Analysis, and Detailed
Contingency Planning. The fourth phase, Preparation and Testing, is
ongoing through the end of 1999. Certain systems have been designated as
high-level mission-critical systems. They include systems that affect
Network/Traffic Flow, Data Integrity, Customer Communications/Call
Handling, and Core Business Processes.
In the event that MCIWorldcom has an unforeseen problem that its
contingency plan can not correct, there exists the possibility that the
Company would not be able to receive telephones calls from the cable
operator subscribers, and therefore, could not process any orders. In the
event MCIWorldcom does not correct the problem within a reasonable amount
of time the Company would change service to another telecommunications
provider who is not experiencing Year 2000 problems. Such a switch could
take from two to four weeks to complete. In addition, there is no guaranty
that other telecommunication providers will not be experiencing similar
Year 2000 problems.
The Company has verified, through testing, that all but one of the
cable operator billing vendors, to whom the Company transmits the pay-per-
view ordering data, are Year 2000 compliant. The Company has received Year
2000 compliance certificates from these billing vendors. The one remaining
billing vendor has determined, through its own internal testing, that its
billing system protocol has no date and time components and, therefore,
informed the Company that it will not be testing with the Company. In the
event that the billing vendors are not fully Year 2000 compliant, the
Company would not be able to transfer information regarding pay-per-view
orders, and therefore, no pay-per-view orders could be fulfilled. The
Company's contingency plan would be determined by the cable operator's
decision with respect to selecting a different billing vendor.
The Company's software that it uses for administrative purposes and
the software that creates the customer invoices are "Year 2000
Compliant".
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Certificate of Incorporation of the Company (incorporated by
reference to the Company's Registration Statement on Form S-8, dated
March 30, 1989 (the "Registration Statement")).
3.2 Bylaws of the Company (incorporated by reference to the Company's
Registration Statement).
3.3 Certificate of Amendment of Certificate of Incorporation of the
Company, dated April 11, 1990 (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1991, (the "1991 Form 10-K")).
3.4 Certificate of Amendment of Certificate of Incorporation of the
Company, dated March 15, 1991 (incorporated by reference to the 1991
Form 10-K).
3.5 Form of copy of Amendment of Certificate of Incorporation of the
Company, filed September 25, 1995 (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 September 30, 1990 Form 10-Q).
4.5 The TelVue Corporation 1999 Stock Option Plan (incorporated by
reference to Exhibit 99 of the Company's Registration Statement on
Form S-8, dated September 23, 1999)
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 Shareholders' 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 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).
10.13 Letter effective as of March 31, 1999, from H.F. Lenfest, waiving
the repayment of loans and accrued interest until January 1, 2001
(incorporated by reference to the March 31, 1999, Form 10-QSB).
11. Statement re: Computation of Per Share Earnings (see the Company's
September 30, 1999 Financial Statements included herein).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TELVUE CORPORATION
Dated: 11/15/99 By:/s/Frank J. Carcione
------------------------------------------------------
Frank J. Carcione, President (Chief Executive Officer)
Dated: 11/15/99 By:/s/Irene A. DeZwaan
-----------------------------------------------------
Irene A. DeZwaan, Treasurer (Controller)
<PAGE>
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