-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R2BVLuqIZDiZmBS2ZouverYHizVgbHOiPLGvV3y9d095YboWNvkhzn+bnS7yYHqF O+u6rAic3Y8oJxX06QvEXQ== 0000839443-96-000004.txt : 19960515 0000839443-96-000004.hdr.sgml : 19960515 ACCESSION NUMBER: 0000839443-96-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELVUE CORP CENTRAL INDEX KEY: 0000839443 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 510299879 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17170 FILM NUMBER: 96562499 BUSINESS ADDRESS: STREET 1: 16000 HORIZON WAY STE 500 CITY: MT LAUREL STATE: NJ ZIP: 08054 BUSINESS PHONE: 6092738888 MAIL ADDRESS: STREET 1: 16000 HORIZON WAY STREET 2: SUITE 500 CITY: MT LAUREL STATE: NJ ZIP: 08054 10-Q 1 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 March 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 Mt. Laurel, New Jersey 08054 (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code:(609) 273-8888 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ Number of shares of registrant's common stock outstanding as of May 6, 1996: 23,794,500 shares. Transitional Small Business Disclosure Form: Yes No X ------ ------ This report includes a total of 16 pages. TELVUE CORPORATION AND FORMER SUBSIDIARY INDEX PAGE NO. ----- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets as of March 31, 1996 (unaudited) and as of December 31, 1995 Statements of Operations for the three months ended March 31, 1996 (unaudited) and March 31, 1995 (unaudited) Statements of Cash Flows for the three months ended March 31, 1996 (unaudited) and March 31, 1995 (unaudited) Notes to Financial Statements (unaudited) PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K PART I. Financial Information ITEM I. Financial Statements TELVUE CORPORATION BALANCE SHEETS March 31, December 31, 1996 1995 ------------- - ----------- ASSETS (Unaudited) * CURRENT ASSETS Cash and cash equivalents $ 286,603 $ 216,409 Accounts receivable - trade 795,163 783,588 Other receivables 29,996 15,525 Other current assets 23,072 4,219 ----------- - ----------- TOTAL CURRENT ASSETS 1,134,834 1,019,741 PROPERTY AND EQUIPMENT Machinery and equipment 5,039,641 5,007,768 Less accumulated depreciation 2,181,897 2,198,719 ----------- - ----------- 2,857,744 2,809,049 SECURITY DEPOSITS 8,800 8,800 ----------- - ----------- $ 4,001,378 $ 3,837,590 =========== =========== LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Accounts payable - trade $ 386,674 $ 342,947 Accounts payable - equipment 44,702 28,114 Accrued expenses 188,510 247,469 Accrued dividends 75,897 - ----------- - ----------- TOTAL CURRENT LIABILITIES 695,783 618,530 NOTES PAYABLE - MAJORITY STOCKHOLDER 6,669,712 6,526,712 ACCRUED INTEREST - MAJORITY STOCKHOLDER 1,610,579 1,462,576 REDEEMABLE CONVERTIBLE PREFERRED STOCK, $1 par value, 6,900,000 shares authorized, 2,532,895 shares issued and outstanding 2,532,895 2,532,895 STOCKHOLDERS' DEFICIT Common stock, $.01 par value, 100,000,000 shares authorized, 23,794,500 shares issued and outstanding 237,945 237,945 Additional paid-in capital 1,515,535 1,515,535 Accumulated deficit (9,261,071) (9,056,603) ----------- - ----------- (7,507,591) (7,303,123) ----------- - ----------- $ 4,001,378 $ 3,837,590 =========== =========== * Derived from audited financial statements. The accompanying unaudited notes are an integral part of these statements. TELVUE CORPORATION AND FORMER SUBSIDIARY STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended March 31, - -------------------------------- 1996 1995 ---- ---- REVENUES $ 1,304,382 $ 1,005,156 OPERATING EXPENSES Service 730,171 443,905 Selling and marketing 178,029 152,000 General and administration 142,220 140,566 Depreciation 226,918 205,817 ----------- - ----------- 1,277,338 942,288 ----------- - ----------- OPERATING INCOME 27,044 62,868 OTHER INCOME (EXPENSE) Interest expense (148,003) (142,919) Loss on disposal of property and equipment (7,612) (7,724) Minority interest in net loss of former subsidiary - 3,955 ----------- - ----------- (155,615) (146,688) ----------- - ----------- NET LOSS (128,571) (83,820) DIVIDENDS ON REDEEMABLE CONVERTIBLE PREFERRED STOCK (75,897) (60,956) ----------- - ----------- NET LOSS AVAILABLE TO COMMON STOCKHOLDERS $ (204,468) $ (144,776) =========== =========== NET LOSS PER COMMON SHARE $(.01) $(.01) =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 23,794,500 23,794,500 =========== =========== The accompanying unaudited notes are an integral part of these statements. TELVUE CORPORATION AND FORMER SUBSIDIARY STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended March 31, - ------------------------------- 1996 1995 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES $ (128,571) $ (83,820) Net Loss Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation 226,918 205,817 Loss on disposal of property and equipment 7,612 7,724 Minority interest in net loss of former subsidiary - (3,955) Changes in assets and liabilities: Decrease (increase) in - Accounts receivable - trade (11,575) (98,717) Other receivable (14,471) 24,229 Other current assets (18,853) (20,312) Security deposits - - Increase (decrease) in - Accounts payable - trade 43,727 (5,257) Accounts payable - equipment 16,588 (221,220) Accrued expenses (58,959) 57,908 Accrued interest - majority stockholder 148,003 142,919 ----------- - ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 210,419 5,316 ----------- - ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (283,225) (331,640) Proceeds from sale of property and equipment - 200 ----------- - ----------- NET CASH USED BY INVESTING ACTIVITIES (283,225) (331,440) ----------- - ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from notes payable - majority stockholder 143,000 283,801 ----------- - ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 70,194 (42,323) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 216,409 164,588 ----------- - ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 286,603 $ 122,265 =========== =========== The accompanying unaudited notes are an integral part of these statements. TELVUE CORPORATION AND FORMER SUBSIDIARY NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION: ---------------------- Summary Financial Information and Results of Operations - -------------------------------------------------------- In the opinion of the management, the accompanying unaudited financial statements have been prepared in conformance with generally accepted accounting principles and with the regulations of the Securities and Exchange Commission and contain all adjustments (consisting of only normal recurring adjustments) necessary to make the financial statements not misleading and to present fairly the financial condition as of March 31, 1996, the results of operations for the three months ended March 31, 1996 and 1995 and cash flows for the three months ended March 31, 1996 and 1995. Interim Financial Information - ----------------------------- While management believes that the disclosures presented are adequate to prevent misleading information, it is suggested that these unaudited financial statements be read in conjunction with the audited financial statements and notes included in the Company's Form 10-KSB report for the fiscal year ended December 31, 1995 as filed with the Securities and Exchange Commission. Prior period financial statements have been reclassified to conform with current quarter presentation. 2. SUPPLEMENTAL CASH FLOW INFORMATION: ----------------------------------- For purposes of Statements of Cash Flows, the Company considers investment instruments with an original maturity of three months or less to be cash equivalents. Supplemental disclosures of cash paid during the period- 1996 1995 ---- - ---- Income taxes $ 0 $ 0 Interest $ 0 $ 0 3. NET LOSS PER COMMON SHARE: -------------------------- The net loss per Common Share is based on the weighted average number of shares of Common Stock outstanding during each period. 4. DIVIDENDS ON REDEEMABLE CONVERTIBLE PREFERRED STOCK: ---------------------------------------------------- As of March 31, 1996, preferred undeclared dividends amounted to $75,897. 5. INCOME TAXES: ------------- Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes". At January 1, 1996, the cumulative temporary differences between the Company's financial statement losses and the losses reported on the Company's tax returns consisted of accelerated tax depreciation of $529,000 and nondeductible interest expense of $1,462,576. In addition, the Company has a net operating loss carry forward of approximately $6,400,000 on a tax reporting basis. The carryforward will begin to expire in 2004, if not utilized. The Company has not recorded a deferred tax asset at March 31, 1996, because the Company believes there is at least a 50% chance that the carryforward will expire unused. Accordingly, any tax benefit of the loss carryforward and of the other cumulative temporary differences has been offset by a valuation allowance of the same amount. 6. NOTES PAYABLE AND ACCRUED INTEREST - MAJORITY STOCKHOLDER: ---------------------------------------------------------- As of March 31, 1996, the Company had various outstanding notes due to the majority stockholder in the aggregate amount of $6,669,712 and accrued interest due on these notes of $1,610,579. Effective as of March 31, 1996, the Company obtained from the majority stockholder an extension to January 1, 1998, of his prior agreement not to demand repayment of his loans or the accrued interest on the loans. The Company has, therefore, classified the notes and accrued interest as long-term liabilities. 7. DISPOSITION OF SUBSIDIARY ------------------------- On July 28, 1995 the Company terminated its partnership with Voice FX Corporation. The March 31, 1995, Statements of Operations and Statements of Cash Flows include the accounts of the Company and the accounts of the TelVue-Voice FX Joint Venture, a partnership owned seventy percent (70%) by the Company, up until July 28, 1995. The Company is continuing to independently provide the services that were previously offered under the partnership. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION TelVue Corporation (the "Company") is a marketing and service company primarily selling automatic number identification ("ANI") telecommunications services to the cable television industry for the automated ordering of pay-per-view features and events (the "Service"). The Company provides the Service through equipment it purchases. The Company also leases trunk telephone lines from local and long distance telephone companies to connect present cable television subscribers to the Company's Points of Presence ("POPs") for ordering the Service from their local cable television systems. The Company also leases data circuits from local and long distance telephone companies to link the POPS to the cable systems' billing vendors. The acquisition of the Company's equipment and the installation of the leased local and long distance telephone company's trunks require a substantial expenditure of capital before meaningful revenues can be realized. In addition, revenues are affected by the "buy rates" of subscribers connected to the Service. The Company considers the buy rates of its subscribers to be low compared to long term buy rates projected by industry pay-per-view analysts. Since May 1992, the Company has had a POP which is located at the Company's home office in Mt. Laurel, New Jersey (the "National POP"). The National POP was established to provide enhanced service features which are not available with the equipment located at the regional POPs. The Company believes these enhanced service features, which identify the cable operator by name ("Custom Greeting") and, on accepted orders, speaks the movie or event title, start-time and channel appearance ("Title Speak"), are necessary for it to remain competitive within the pay-per-view ANI industry. The National POP can also speak promotional messages for products and services at the time a cable subscriber is placing an order for a pay-per-view movie or event (the "Pay-per-view Plus service"). The National POP is able to serve cable television systems across the United States via trunk lines and data circuits which it currently leases from MCI Telecommunications Corporation ("MCI"). The Company's lease agreement with MCI expires June 1, 2000. The National POP can service, without installing a new regional POP, cable television systems which are located in a state or telephone Local Access Transport Area ("LATA") where a regional POP does not exist. The Company can also move all regional cable television systems onto the National POP. As these systems are moved to the National POP, the regional POPs will be eliminated. Cable television systems using the National POP are charged, in addition to their per order fee, installation and setup fees, monthly data circuit fees, enhanced service feature fees, and Pay-per-view Plus service fees. On September 27, 1994, the Company entered into a service agreement with Video Jukebox Network, Inc. ("VJN"). The agreement provides that the Company will act as a 900 call service bureau to facilitate the ordering, by VJN customers, of music videos on the cable or home dish of the VJN customer. Mr. H.F. Lenfest, the majority stockholder of the Company and an affiliate of VJN ("Mr. Lenfest"), has guaranteed the obligation of the Company to remit the funds received by the Company on behalf of VJN under the terms of the service agreement. Mr. Lenfest is the Chairman of the Board of Directors of VJN. He also controls a corporation that is a partner in a partnership that is the principal stockholder of VJN. The Company believes that the terms of the service agreement with VJN are at market rates. As of May 6, 1996, Mr. Lenfest had loaned the Company $358,267 to purchase equipment and software needed to provide service to VJN (the "VJN Loan"), Interest on the VJN Loan is set at the prime rate of PNC Bank plus 1%. The Company had originally planned to begin providing service to VJN cable subscribers during May 1995. This has been rescheduled to August 1996, as a result of software development problems. 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 of dispose of assets, to incur debt other than in the ordinary course of business or to encumber the assets of the business. During 1996, the Company was compensated in the amount of $12,000 per month. The Company believes the terms of the management agreement with LNI were at market rates. LNI ceased doing business on March 31, 1996, and as a result, the Company stopped performing its management duties effective February 29, 1996. The Company's net loss was $128,571 for the quarter ended March 31, 1996, compared to $83,820 for the quarter ended March 31, 1995. Service revenues for the first quarter increased $299,226 over 1995. The growth in service revenues is partially attributable to the Company serving approximately 667,000 more cable subscribers during the quarter ended March 31, 1996 than were served during the quarter ended March 31, 1995. The increase is also attributable to an increase in the average monthly buy rate from 20.9% for the quarter ended March 31, 1995, to 26.1% for the quarter ended March 31, 1996. The Company has been experiencing a continuing upward trend in buy rates when comparing the monthly buy rates during the current year to that of the same month in the prior year. The service revenue increase is also a result of installation and data circuit income of $122,375 for 1996, compared to $94,967 for 1995. In addition, the Company had National POP feature revenue of $110,445 and $87,540 for the quarters ended March 31, 1996 and 1995, respectively. The Company had Pay-per-view Plus revenue of $80,925 and $27,085 for the quarters ended March 31, 1996 and 1995, respectively. The installation and data circuit revenue as well as the feature revenue are a result of the migration of additional customers from the regional POPs to the National POP as well as the addition of new customers to the National POP. The Pay-per-view Plus revenue increased over 1995 because the Pay-per-view Plus service had just become active during January 1995, and there were not as many promotions being offered or customers using the Pay-per-view Plus service. Service expenses for the three months ended March 31, 1996, increased $286,266 from the comparable 1995 period. The increase in service expenses for the year is attributable to an increase in trunk usage expense of $256,455. A portion of the trunk expense increase is a result of an increase in the average monthly buy rate (see above) along with the Company serving more subscribers on the National POP as of March 31, 1996 when compared to March 31, 1995 (see below). In addition, the first quarter of 1995 service expenses were reduced by $173,709 for one-time credits earned from Sprint Communications, Inc. ("Sprint"), the Company's former telecommunications provider, against trunk usage expense in accordance with the Company's contract agreement with Sprint. The Company migrated approximately 275,000 subscribers from the regional POPs to the National POP during the first quarter of 1996. As of March 31, 1996, the Company was serving approximately 7,400,000 cable subscribers on the National POP compared to approximately 5,660,000 cable subscribers served as of March 31, 1995. The Company's remaining 25,000 regional subscribers will be migrated to the National POP by the end of the second quarter of 1996. The National POP currently requires, and the regional POPs had required, a substantial purchase of equipment by the Company. Depreciation accounted for 18% of the total operating expenses for the quarter ended March 31, 1996, compared to 22% for the quarter ended March 31, 1995. For the quarter ended March 31, 1996, selling and marketing expenses increased 17% and general and administrative expenses increased 1% over the comparable 1995 period. The increase in selling and marketing expenses is primarily attributable to an increase in commission expense of $20,263 as a result of contract renewals and customer additions. For the quarter ended March 31, 1996, the Company recorded a loss on the disposal of property and equipment of $7,612. This loss was a result of being unable to use or sell excess equipment inventory made available by the retirement of four regional POPs. The retirement of the four regional POPs resulted from the migration of customers from the regional POPs to the National POP. As the remaining four regional POPs are retired, the Company will have a surplus of equipment inventory. The Company will need to dispose of this excess equipment if it is unable to obtain a purchaser and will record a further loss. Total liabilities increased $368,256 and total assets increased $163,788 for the quarter ended March 31, 1996. The increase in total liabilities was primarily a result of the Company's draws of a total of $143,000 under funding arrangements with Mr. Lenfest, plus an increase in accrued interest of $148,003 on outstanding loans from Mr. Lenfest and an increase in accrued dividends on preferred stock in the amount of $75,897. The increase in assets is attributable to an increase in cash and property and equipment. The Company's days for sales in accounts receivable is 55 days for the quarter ended March 31, 1996, compared to 47 days for the quarter ended March 31, 1995. The Company believes the increase of 8 days is not material. The Company does not offer incentives/discounts to its customers, nor has it changed its credit terms with its customers. Shares of Common Stock that have had the same beneficial owner since April 21, 1988, or that have had the same beneficial owner for a continuous period in excess of two years prior to the record date of any meeting of stockholders, are entitled to ten votes per share in any matters submitted for vote, at a meeting of stockholders. All other stockholders have one vote per share unless this limitation is waived by the Board of Directors. As of March 31, 1996, 16,706,681 shares of the Company's Common Stock were entitled to one vote per share. The remaining 7,087,819 shares of Common Stock were entitled to one vote per share. Mr. Lenfest owns 12,896,968 shares of Common Stock that are entitled to ten votes per share and 1,660,485 shares of Common Stock that are entitled to one vote per share. During the quarter ended March 31, 1996, the Company purchased $283,225 of equipment compared with $331,640 purchased during the quarter ended March 31, 1995. Included in the 1996 equipment purchases is one switched access audio response unit ("SARU") and software enhancements and peripheral equipment for the National POP totaling $206,770, and $75,790 in software to be used to provide service to VJN. The Company purchases the SARUs from Syntellect Network Systems, Inc. ("Syntellect"). Syntellect has purchased a competitor of the Company and, as a result, the Company is evaluating alternative sources for future equipment purchases. The Company is developing a new line of business to provide cable systems with direct response commercials from a number of sources ("DRTV"). Cable operators would receive a percentage of the proceeds from sales, generated from the commercials. The Company is currently providing the service to cable networks, some of which are owned by an affiliate, and plans eventually to have cable systems directly using the service. During the initial test phase in November 1995 and December 1995, the Company proved its ability to obtain and distribute direct response commercials in addition to tracking sales by commercial and location. It remains to be seen, however, whether enough cable operators will participate to generate the revenue necessary to make this line of business profitable. The DRTV service generated revenue of $10,973 and expenses of $27,385 for the quarter ended March 31, 1996. The expenses included $7,690 for cable operator commissions and production costs and $19,214 for payroll and payroll taxes and benefits. The Company had positive cash flow from operations of $210,419 during the quarter ended March 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 $105,959 for the quarter ended March 31, 1996, compared to positive cash flow from operating activities of $125,766 for the for the quarter ended March 31, 1995. The decrease in cash flow is due to the credits that reduced trunk usage expenses from Sprint during the first quarter of 1995 (see above). The Company has been able to continue operations as a result of Mr. Lenfest agreeing to defer cash interest payments of $148,003 during the quarter ended March 31, 1996. Mr. Lenfest has agreed to defer cash interest payments on outstanding borrowings through January 1, 1998, thereby increasing cash available for operations. The Company's 1996 budget indicates that the Company will have sufficient cash flow to meet operating expenses for its pay-per-view core business through 1996 as long as Mr. Lenfest continues to allow the deferment of principal and interest. The 1996 budget also anticipates insufficient availability of cash during the first half of 1996 to purchase two additional SARUs that are required to meet the Company's growing cable subscriber base. Mr. Lenfest has therefore agreed to fund the purchase of two additional SARUs during 1996 (the "SARU Loan"). It has been orally agreed that interest on the SARU Loan is to be set at the floating prime interest rate of PNC Bank plus 1%. During February 1996, the Company borrowed from Mr. Lenfest $143,000 to purchase one SARU under the terms of the SARU Loan. The Company believes that increases in accrued interest under the loans from Mr. Lenfest do not have a direct material effect on operations or continued availability of credit. Cash flow from operations is sufficient to fund current operations but is insufficient to fund debt repayment or necessary capital expenditures. At present, the only source of financing available to the Company is from Mr. Lenfest, who has agreed to fund specified additional necessary capital expenditures. The Company believes its suppliers look primarily to the Company's timely payment of outstanding invoices. Historically, the Company has paid all the suppliers it deals with on a timely basis and, therefore, the cash flow from operations has no effect on the Company's availability of credit from key suppliers of goods and services. The payment terms with Syntellect, the Company's major equipment supplier, vary based upon the terms the Company negotiates with Syntellect. The negotiated terms are affected by the equipment purchased, the date by which the equipment is needed and the Company's ability to pay. The negotiated payment terms range from net 30 days to net 90 days or to installment payments over a period of months. The payment terms for the Company's equipment supplier of peripheral equipment, Dacon Corporation, is net 30 days. Since November 2, 1989, the Company has funded its expansion and operating deficit from the $2,500,000 of proceeds from the sale of shares of the Company's Common Stock and Preferred Stock to Mr. Lenfest and from borrowings from Mr. Lenfest. From November 2, 1989, through December 31, 1993, the Company had borrowed $3,690,000 from Mr. Lenfest under various loan agreements. On March 8, 1994, Mr. Lenfest agreed to loan to the Company up to $1,500,000 for the purchase of additional equipment needed to expand the National POP. Interest on the National Equipment Loan is set at the floating prime interest rate of PNC Bank plus 1%. Interest on the National Equipment Loan is to be paid quarterly. At the option of the Company, the interest may be paid by the delivery of shares of the Company's Preferred Stock at the rate of one share of Preferred Stock for each one dollar of accrued interest. As of May 1, 1996 the Company has borrowed $1,471,272 under the terms of the National Equipment Loan. Interest due on the National Equipment Loan through September 30, 1995, in the amount of $162,210 has been paid with 162,210 shares of Preferred Stock. On December 22, 1995, the Company borrowed $55,000 from Mr. Lenfest to meet advertising expenses and programming expenses that were not budgeted for 1995 (the "Advertising Loan"). It has been orally agreed that interest on the Advertising Loan is set at the floating prime interest rate of PNC Bank plus 1%. During January 1995, Mr. Lenfest purchased from Science Dynamics Corporation ("Science") the Company's non-interest bearing note in the amount of $541,000 held by Science. As of May 6, 1996, Mr. Lenfest had loaned $411,173 under the TelVue Partnership Loan, $358,267 under the VJN loan and $143,000 under the SARU loan, bringing aggregate loans from Mr. Lenfest to $6,669,712 including the $541,000 note purchased from Science (see the Company's December 31, 1995 Form 10-KSB for a description of the TelVue Partnership Loan). Interest on $5,217,539 of the borrowings is set at the floating prime interest rate of PNC Bank plus 1%. Interest on $500,000 of the loan is set at 12%. Interest on $411,173 is set at the floating prime interest rate of PNC Bank plus 2%. In addition, effective as of 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 Company's ability to fund its operating expenses is directly related to the cable industry's buy rates and, therefore, is volatile. The Company is also dependent upon the deferral of principal and interest payments due to Mr. Lenfest in order to fund its operations. Since the Company's cash flow is subject to factors over which the Company has no control, there can be no assurance that the Company will continue to fund its operations without seeking outside financing. Should the Company require funding in the future for operations, it will seek additional financing from Mr. Lenfest and other sources. In the event Mr. Lenfest should decide to terminate funding, for either equipment purchases or future operations, the Company will seek additional funds from third parties, although there can be no assurance that such funds will be available or will be available on terms that are acceptable to the Company. The Company has been unable to obtain such funding in the past. In the event that the Company is unable to secure additional needed funds, the Company will take actions necessary to continue operations with the funds available, including, without limitation, reducing capital expenditures for the National POP and downsizing the work force. If additional needed funds do not become available, unless the Company is able to continue to achieve positive cash flow on a consistent basis, it will not be able to continue its business operations. 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). 4.1 Incentive Stock Option Plan (incorporated by reference to the Company's Registration Statement). 4.2 Form of Stock Option Agreement (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1989, (the "1989 Form 10-K")). 4.3 Warrant Agreement, dated March 15, 1991, between the Company and H.F. Lenfest (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1990, (the "1990 Form 10-K")). 4.4 Certificate of Designation of Class A Preferred Stock (incorporated by reference to the June 30, 1990 Form 10-Q). 10.1 Distributorship Agreement, dated November 2, 1989, between the Company and Science (incorporated by reference to the 1989 Form 10-K). 10.2 Stock Purchase Agreement, dated November 2, 1989, between the Company and H.F. Lenfest (incorporated by reference to the Company's Report on Form 8-K, dated November 15, 1989, (the "1989 Form 8-K")). 10.3 Shareholder's Agreement, dated November 2, 1989, among the Company and certain of its stockholders (incorporated by reference to the Company's 1989 Form 8-K). 10.4 Option Agreement, dated November 2, 1989, among the Company and certain of its stockholders (incorporated by reference to the 1989 Form 8-K). 10.5 Form of Credit Agreement between the Company and H.F. Lenfest (incorporated by reference to the 1990 Form 10-K). 10.7 Form of Line of Credit Agreement between the Company and H.F. Lenfest (incorporated by reference to the 1990 Form 10-K). 10.8 Subordinated Promissory Note, dated November 15, 1994 in the principal amount of $541,000 payable to Science Dynamics Corporation (incorporated by reference to the 1994 Form 10-KSB). 10.10 Letter Agreement dated November 8, 1990 between Science Dynamics Corporation and H.F. Lenfest (incorporated by reference to the Company's Report on Form 8-K for November 16, 1990). 10.11 Loan Agreement dated December 24, 1991, between the Company and H.F. Lenfest (incorporated by reference to the 1991 Form 10-K). 10.12 General Partnership Agreement of TelVue-Voice FX Joint Venture dated October 12, 1993 (incorporated by reference to the September 30, 1993 Form 10-QSB). 10.14 Lease Agreement for office space and the First Amendment to Lease dated March 30, 1994, between the Company and Bloom Associates (incorporated by reference to the 1994 Form 10-KSB). 10.15 Maximum Value Plan Agreement dated January 27, 1994, between Sprint Communications Company L.P. and the Company (incorporated by reference to the Company's Form 10-QSB for the period ended September 30, 1994, (the September 30, 1994 Form 10-QSB)). 10.16 Addendum to Clarity Maximum Value Plan Agreement dated March 3, 1994, between Sprint Communications Company L.P. and the Company (incorporated by reference to the September 30, 1994 Form 10-QSB). 10.17 Service Agreement dated September 27, 1994, between Video Jukebox Network, Inc., and the Company (incorporated by reference to the September 30, 1994 Form 10-QSB). 10.18 Management Agreement, dated March 10, 1995, between the Company and Lenfest Networks, Inc (incorporated by reference to the Company's Form 10-QSB for the period ended June 30, 1995). 10.19 Letter effective as of December 31, 1995, from H.F. Lenfest, waiving the repayment of loans and accrued interest until January 1, 1998. 11. Statement re: Computation of Per Share Earnings (see the Company's March 31, 1996 Financial Statement included herein). SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TELVUE CORPORATION Dated: 5/13/96 By: /s/Frank J. Carcione - -------------------------------------------- Frank J. Carcione, (Chief Executive Officer) Dated: 5/13/96 By: /s/Irene A. DeZwaan - ------------------------------------------- Irene A. DeZwaan, Treasurer (Controller) EXHIBIT INDEX 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. H.F. (Gerry) Lenfest 202 Shoemaker Road Pottstown, Pennsylvania 19464 (610) 327-0965 As of December 31, 1995 Frank Carcione, President TelVue Corporation 16000 Horizon Way, Suite 500 Mt. Laurel, NJ 08054 Dear Frank, You have represented to me that TelVue Corporation will have insufficient cash to repay before January 1, 1998 the principal or interest on the loans made by me to TelVue. Based on that representation and absent any default under the terms of the loans, including, without limitation, any voluntary or involuntary bankruptcy or insolvency proceedings by or against TelVue, I agree not to demand repayment in cash of the principal portion of the loans, or payment in cash of accrued interest on the loans, prior to that date. Very truly yours, /s/Gerry -------------------- H.F. (Gerry) Lenfest HFL:slr
EX-27 2 ARTICLE 5 FIN. DATA SCHEDULE FOR 1ST QTR 10-Q
5 3-MOS DEC-31-1996 MAR-31-1996 286,603 0 795,163 0 0 1,134,834 5,039,641 2,181,897 4,001,378 695,783 0 237,945 0 2,532,895 0 4,001,378 1,304,382 1,304,382 0 730,171 547,167 7,612 148,003 (128,571) 0 (128,571) 0 0 0 (128,571) (.01) (.002)
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