-----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, LayBdlEwmji++MSqExMgvIdqW+jvvQ/qvMSOLAyiOJUFpiCRAbczVQi1Kxe94onG YEIfCSV1Fx0oTUjW7/3Tog== 0001161697-09-001130.txt : 20091116 0001161697-09-001130.hdr.sgml : 20091116 20091116142758 ACCESSION NUMBER: 0001161697-09-001130 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20090930 FILED AS OF DATE: 20091116 DATE AS OF CHANGE: 20091116 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: 091185696 BUSINESS ADDRESS: STREET 1: 16000 HORIZON WAY STE 500 CITY: MT LAUREL STATE: NJ ZIP: 08054 BUSINESS PHONE: 8562738888 MAIL ADDRESS: STREET 1: 16000 HORIZON WAY STREET 2: SUITE 500 CITY: MT LAUREL STATE: NJ ZIP: 08054 10-Q 1 form10q.txt FORM 10-Q FOR 09-30-2009 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2009 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from________to________ Commission File Number: 0-17170 TELVUE CORPORATION (Exact name of registrant 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) Registrant's telephone number, including area code: (856) 273-8888 Indicate by check mark whether the registrant (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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [_] No [_] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer [_] Accelerated filer [_] Non-accelerated filer [_] Smaller reporting company [X] (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes [_] No [X] Number of shares of registrant's common stock outstanding as of October 30, 2009: 48,561,644 shares. TELVUE CORPORATION INDEX PAGE NO. ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 2009 (unaudited) and as of December 31, 2008 ....................................... 3 Consolidated Statements of Operations for the three months ended September 30, 2009 (unaudited) and September 30, 2008 (unaudited) . 4 Consolidated Statements of Operations for the nine months ended September 30, 2009 (unaudited) and September 30, 2008 (unaudited) . 5 Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 (unaudited) and September 30, 2008 (unaudited) . 6 Notes to Consolidated Financial Statements (unaudited) ............ 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............ 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk .............................................. 27 Item 4T. Controls and Procedures .................................. 27 PART II. OTHER INFORMATION Item 6. Exhibits ................................................. 28 SIGNATURES ................................................................. 31 EXHIBIT INDEX .............................................................. 31 2 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS TELVUE CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS September 30, December 31, 2009 2008 ------------ ------------ ASSETS (Unaudited) * CURRENT ASSETS Cash and cash equivalents .................... $ 166,968 $ 250,698 Accounts receivable - trade, net of Allowances of $68,620 at September 30, 2009 and $5,700 at December 31, 2008 ........ 740,548 560,579 Inventory .................................... 387,703 266,032 Prepaid expenses ............................. 45,294 54,636 ------------ ------------ TOTAL CURRENT ASSETS ...................... 1,340,513 1,131,945 PROPERTY AND EQUIPMENT ......................... 7,343,802 7,235,689 Less accumulated depreciation ................ 6,360,793 6,051,809 ------------ ------------ 983,009 1,183,880 DEFINITE-LIVED INTANGIBLE ASSETS, Net of accumulated amortization of $1,575,882 at September 30, 2009 and $1,132,969 at December 31, 2008 ............. 2,972,838 3,415,751 INDEFINITE-LIVED INTANGIBLE ASSETS-OTHER ....... 397,260 397,260 OTHER ASSETS ................................... 10,430 8,800 ------------ ------------ $ 5,704,050 $ 6,137,636 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Accounts payable - trade ..................... $ 374,130 $ 315,236 Accrued expenses ............................. 334,240 444,659 Deferred service revenue ..................... 523,649 359,764 Other liabilities ............................ 485 1,784 ------------ ------------ TOTAL CURRENT LIABILITIES ................. 1,232,504 1,121,443 LINES OF CREDIT - MAJORITY STOCKHOLDER ......... 17,000,000 15,950,000 NOTE PAYABLE - MAJORITY STOCKHOLDER ............ 541,000 541,000 ACCRUED INTEREST - MAJORITY STOCKHOLDER ........ 2,556,684 1,960,708 STOCKHOLDERS' EQUITY (DEFICIT) Common stock, $.01 par value, 100,000,000 shares authorized, 48,561,644 and 48,461,644 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively ..... 485,616 484,617 Additional paid-in capital ................... 4,879,853 4,877,353 Accumulated deficit .......................... (20,991,607) (18,797,485) ------------ ------------ (15,626,138) (13,435,515) ------------ ------------ $ 5,704,050 $ 6,137,636 ============ ============ * Derived from audited financial statements. The accompanying unaudited notes are an integral part of these statements. 3 TELVUE CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended September 30, ---------------------------- 2009 2008 ------------ ------------ REVENUES TPS services ................................. $ 743,392 $ 636,010 ANI services ................................. 288,952 313,389 ------------ ------------ 1,032,344 949,399 COST OF REVENUES TPS services ................................. 303,723 296,411 ANI services ................................. 69,953 74,248 ------------ ------------ TOTAL COST OF REVENUES ......................... 373,676 370,659 ------------ ------------ GROSS MARGIN ................................... 658,668 578,740 OPERATING EXPENSES Selling and marketing ........................ 256,270 346,940 General and administrative ................... 511,159 690,393 Depreciation and amortization ................ 285,042 308,135 ------------ ------------ 1,052,471 1,345,468 ------------ ------------ OPERATING LOSS ................................. (393,803) (766,728) OTHER INCOME (EXPENSE) Interest income .............................. - (232) Interest expense ............................. (206,946) (249,408) ------------ ------------ TOTAL OTHER INCOME (EXPENSE) ................... (206,946) (249,640) ------------ ------------ NET LOSS ....................................... $ (600,749) $ (1,016,368) ============ ============ BASIC AND DILUTED NET LOSS PER COMMON SHARE .... $ (.01) $ (.02) ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING BASIC AND DILUTED ............................ 48,561,644 48,461,644 ============ ============ The accompanying unaudited notes are an integral part of these statements. 4 TELVUE CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Nine Months Ended September 30, ---------------------------- 2009 2008 ------------ ------------ REVENUES TPS services ................................. $ 2,156,544 $ 1,591,485 ANI services ................................. 894,613 954,509 ------------ ------------ 3,051,157 2,545,994 COST OF REVENUES TPS services ................................. 998,991 1,024,742 ANI services ................................. 247,719 285,514 ------------ ------------ TOTAL COST OF REVENUES ......................... 1,246,710 1,310,256 ------------ ------------ GROSS MARGIN ................................... 1,804,447 1,235,738 OPERATING EXPENSES Selling and marketing ........................ 770,822 1,275,824 General and administrative ................... 1,784,109 2,334,808 Depreciation and amortization ................ 847,666 911,025 ------------ ------------ 3,402,597 4,521,657 ------------ ------------ OPERATING LOSS ................................. (1,598,150) (3,285,919) OTHER INCOME (EXPENSE) Interest income .............................. 4 135 Interest expense ............................. (595,976) (735,674) ------------ ------------ TOTAL OTHER INCOME (EXPENSE) ................... (595,972) (735,539) ------------ ------------ NET LOSS ....................................... $ (2,194,122) $ (4,021,458) ============ ============ BASIC AND DILUTED NET LOSS PER COMMON SHARE .... $ (.05) $ (.08) ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING BASIC AND DILUTED ............................ 48,521,351 48,444,231 ============ ============ The accompanying unaudited notes are an integral part of these statements. 5 TELVUE CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, ---------------------------- 2009 2008 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net loss ...................................... $ (2,194,122) $ (4,021,458) Adjustments to reconcile net loss to net cash (used in) operating activities: Depreciation and amortization ............... 847,666 911,025 Changes in assets and liabilities: Accounts receivable - trade ................. (179,969) 64,850 Inventory ................................... (121,671) (210,759) Prepaid expenses ............................ 9,342 30,478 Other Assets ................................ (1,630) - Accounts payable - trade .................... 58,894 (440,736) Accrued expenses ............................ (111,719) 63,665 Deferred service revenue .................... 163,885 102,746 Accrued interest - majority stockholder ..... 595,976 735,674 ------------ ------------ NET CASH (USED IN) OPERATING ACTIVITIES .... (933,348) (2,764,515) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment .......... (203,882) (323,174) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from lines of credit - majority stockholder ................................. 1,050,000 3,000,000 Issuance of common stock ..................... 3,500 999 ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES .. 1,053,500 3,000,999 ------------ ------------ NET DECREASE IN CASH AND CASH EQUIVALENTS ...... (83,730) (86,690) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . 250,698 225,660 ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD ....... $ 166,968 $ 138,970 ============ ============ The accompanying unaudited notes are an integral part of these statements. 6 TELVUE CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION --------------------- Summary Financial Information and Results of Operations - ------------------------------------------------------- In the opinion of management of TelVue Corporation ("TelVue" or the "Company"), the accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and with the regulations of the Securities and Exchange Commission ("SEC") 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, 2009 and the results of operations for the three and nine months ended September 30, 2009 and 2008 and cash flows for the nine months ended September 30, 2009 and 2008. Going Concern and Management's Plan - ----------------------------------- The accompanying financial statements of TelVue have been prepared on the basis of generally accepted accounting principles applicable to a "going concern," which assume that the Company will continue in operation for at least one year and will be able to realize its assets and discharge its liabilities in the normal course of operations. Conditions exist, however, that cast doubt about the Company's ability to continue as a "going concern." In order to fund operations, the Company relies on funds drawn on lines of credit held by the Company with its majority stockholder who is also a director, H.F. (Gerry) Lenfest. Based on the Company's current draw-down rate, the funds remaining in the current lines of credit are not sufficient to sustain the Company's operations for the next 12 month period. Funding the Company's future capital requirements will depend on numerous factors including, but not limited to, the Company receiving continued financial support from Mr. Lenfest, which he has not committed to at this time, or seeking other alternatives. While management is working towards mitigating the adverse conditions and events which raise doubt about the validity of the "going concern" assumption used in preparing these financial statements, there can be no assurance that management will be successful. These financial statements do not reflect adjustments that would be necessary if the Company were unable to continue as a "going concern." If the Company were unable to continue as a "going concern," then substantial adjustments would be necessary to the carrying values of assets, the reported amounts of its liabilities, the reported expenses, and the balance sheet classifications used. 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 TelVue's Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the SEC. Prior period financial statements have been reclassified to conform with current quarter presentation. 7 Basis of Consolidation - ---------------------- The consolidated financial statements include the accounts of TelVue and Princeton Server Group, Inc. ("PSG"), which was acquired on March 12, 2007 and was maintained as a wholly-owned subsidiary until February 28, 2008, on which date PSG was merged into TelVue. From the date of the acquisition of PSG until the merger date, intercompany accounts and transactions were eliminated in consolidation. Since the merger date, the accounts of PSG have been included directly within TelVue's accounts. Business Combination - -------------------- The Company accounts for all business combinations by the purchase method. Furthermore, the Company recognizes intangible assets apart from goodwill if they arise from contractual or legal rights or if they are separable from goodwill. Goodwill, Trademarks and Other Intangible Assets - ------------------------------------------------ The Company classifies intangible assets into three categories: (1) intangible assets with definite lives subject to amortization, (2) intangible assets with indefinite lives not subject to amortization, and (3) goodwill. The Company tests intangible assets with definite lives for impairment if conditions exist that indicate the carrying value may not be recoverable. Such conditions may include an economic downturn in a geographic market or a change in the assessment of future operations. The Company records an impairment charge when the carrying value of the definite lived intangible asset is not recoverable by the cash flows generated from the use of the asset. Intangible assets with indefinite lives and goodwill are not amortized. The Company tests these intangible assets and goodwill for impairment at least annually or more frequently if events or circumstances indicate that such intangible assets or goodwill might be impaired. All goodwill is assigned to reporting units, which are one level below TelVue's operating segments. Goodwill is assigned to the reporting unit that benefits from the synergies arising from each business combination. The Company performs impairment tests of goodwill at each reporting unit level. Such impairment tests for goodwill include comparing the fair value of the respective reporting unit with its carrying value, including goodwill. When the fair value is less than the carrying value of the intangible assets or the reporting unit, the Company records an impairment charge to reduce the carrying value of the assets to fair value. At December 31, 2008, management determined that the goodwill acquired with the PSG acquisition was impaired and an impairment charge of $1,921,405 was recognized. The Company determines the useful lives of its identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Factors the Company considers when determining useful lives include the contractual term of any agreement, the history of the asset, the Company's long-term strategy for the use of the asset, any laws or other local regulations which could impact the useful life of the asset, and other economic factors, including competition and specific market conditions. Intangible assets that are deemed to have definite lives are amortized, generally on a straight-line basis, over their useful lives, ranging from 1 to 15 years. 8 Recent Accounting Pronouncements - -------------------------------- In June 2009, the Financial Accounting Standards Board ("FASB") issued new guidance concerning the organization of authoritative guidance under U.S. Generally Accepted Accounting Principles ("GAAP"). This new guidance created the FASB Accounting Standards Codification ("Codification"). The Codification has become the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. The Codification became effective for the Company in its quarter ended September 30, 2009. As the Codification is not intended to change or alter existing U.S. GAAP, it did not have any impact on the Company's consolidated financial statements. All references to pre-codified U.S. GAAP have been removed from this Form 10-Q. In May 2009, the FASB issued guidance to establish general standards of accounting for, and disclosures of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, this standard sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The guidance is effective for interim or annual financial periods ending after June 15, 2009. The Company evaluated all events or transactions that occurred after the balance sheet date of September 30, 2009 through November 16, 2009, the date it issued these financial statements. The adoption of this guidance did not have an impact on TelVue's financial position, results of operations or cash flows, other than the disclosures required by this guidance. 2. ACQUISITION ----------- On March 12, 2007, the Company acquired all of the issued and outstanding shares of capital stock of PSG for a purchase price of $6,100,000 in cash plus the forgiveness of a $400,000 loan owed by PSG, in addition to the cancellation of a warrant that was issued in conjunction with the loan. The acquisition was funded with funds drawn under a $10,000,000 line of credit held by the Company with its majority stockholder, Mr. Lenfest. The Company accounts for this acquisition as a business combination under the purchase method of accounting. The results of PSG are included in the Company's TelVue Products and Services ("TPS") operating segment. Upon closing of the acquisition, the Company made preliminary estimates of the fair values of the assets and liabilities for consolidation. The Company has since obtained a third-party valuation for many of the assets and liabilities acquired. There were no material differences between the preliminary estimates and the final valuations. The amount of purchase price allocated to software is $3,600,000, patent applications is $788,000, other finite-lived intangible assets is $160,000, trademarks is $397,000 and goodwill is $1,921,405. As was mentioned above, an impairment charge was recognized related to the goodwill, eliminating this balance as of December 31, 2008. The trademarks have been assigned an indefinite life. The accompanying financial statements include the operations of PSG since the date of acquisition. 9 3. SUPPLEMENTAL CASH FLOW INFORMATION ---------------------------------- No income taxes or interest were paid during the nine months ended September 30, 2009 or 2008. 4. EARNINGS PER COMMON SHARE ------------------------- Basic earnings per common share is computed by dividing net income, after deduction of preferred stock dividends, when applicable, by the weighted average number of shares of outstanding common stock. Diluted earnings per common share is computed by dividing net income, after the deduction of preferred stock dividends, when applicable, by the weighted average number of shares of outstanding common stock adjusted to include incremental common shares that would have been outstanding if potentially dilutive common shares had been issued. Common equivalent shares are excluded from the computation in periods in which they have an antidilutive effect. Because of the net loss available to common stockholders for the nine months ended September 30, 2009 and 2008, no potential common shares were included in the computation of a diluted per share amount since such potential common shares would not have a dilutive effect. 5. CORPORATE INCOME TAXES ---------------------- The Company uses the asset and liability method of accounting for income taxes. This method 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 from continuing operations for the three months ended September 30, 2009 and 2008 consisted of the following components: 2009 2008 --------- --------- Current Federal ................... $ - $ - State ..................... - - --------- --------- - - Deferred Federal ................... 197,000 327,000 State ..................... 54,000 92,000 --------- --------- 251,000 419,000 Valuation allowance increase (251,000) (419,000) --------- --------- - - --------- --------- Total ...................... $ - $ - ========= ========= 10 TelVue recorded an increase in valuation allowance of $251,000 at September 30, 2009 which reduced its deferred tax asset to zero. The valuation allowance was recorded due to the uncertainty as to whether future net income would be generated that would utilize TelVue's net operating loss carryforward. TelVue's federal net operating loss carryforward was approximately $13,000,000 on a tax-reporting basis as of September 30, 2009. The carryforward will begin to expire in 2010, if not utilized. In June 2006, the FASB issued guidance establishing a single model to address accounting for uncertain tax positions. This guidance clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. This guidance also provides direction on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted the provisions of this guidance on January 1, 2007. Upon adoption, the Company recognized no adjustment in the amount of unrecognized tax benefits. As of the date of adoption, the Company had no unrecognized tax benefits. The Company's policy is to recognize interest and penalties that would be assessed in relation to the settlement value of unrecognized tax benefits as a component of income tax expense. The Company and its subsidiary are subject to U.S. federal income tax as well as income tax in multiple state jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for years before 2003 and state income tax examinations before 2002. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the net operating loss carryforward amount. The Company is not currently under Internal Revenue Service tax examination. The Company is not currently under examination by any state jurisdictions. 6. NOTES PAYABLE AND LINES OF CREDIT - MAJORITY STOCKHOLDER ------------------------------------------------------- Note Payable - Majority Stockholder - ----------------------------------- On June 16, 2005, the members of the Board of Directors of the Company and Mr. Lenfest, a director and the majority stockholder of the Company, extended the maturity date of a promissory note in the principal amount of $541,000 issued by the Company and currently held by Mr. Lenfest (the "Science Note") to January 1, 2011. The Science Note was originally issued by the Company to Science Dynamics Corporation ("Science") and was payable December 31, 1996. In January 1995, Mr. Lenfest purchased the Science Note from Science. The Science Note is non-interest bearing. Line of Credit (2005 Note) - Majority Stockholder - ------------------------------------------------- On April 27, 2005, TelVue entered into a Line of Credit Note with Mr. Lenfest (the "2005 Note"). The 2005 Note was secured to provide funding to grow the TelVue Virtual Television Network ("TVTN"). Under the terms of the 2005 Note, the Company may borrow, from time to time, up to the maximum principal amount of the 2005 Note, which is $3,800,000. The minimum advance under the 2005 Note is $100,000 and the interest rate is equal to the prime rate plus one percent (1%). The 2005 Note contains customary events of default, including, among others, non-payment of principal and interest and in the event the Company is involved 11 in certain insolvency proceedings. In the event of a default, all of the obligations of the Company under the 2005 Note may be declared immediately due and payable. The 2005 Note is unsecured and will expire six years from the date of the first advance, which is November 23, 2011, unless extended or renewed. Principal and interest on the 2005 Note are also due and payable on November 23, 2011. The 2005 Note was exhausted by the end of 2007. As of September 30, 2009, accrued interest due on the 2005 Note was $862,250. Line of Credit (2006 Note) - Majority Stockholder - ------------------------------------------------- On November 3, 2006, the Company entered into an additional Line of Credit Note with Mr. Lenfest, in the principal amount of $10,000,000 (the "2006 Note"). Under the 2006 Note, the Company could request up to $5,000,000 for general working capital and an additional $5,000,000 for purposes other than general working capital upon mutual agreement by the Company and Mr. Lenfest. The minimum advance under the 2006 Note is $100,000 and the interest rate is equal to the prime rate plus one percent (1%). The 2006 Note contains customary events of default, including, among others, non-payment of principal and interest and in the event TelVue is involved in certain insolvency proceedings. In the event of a default, all of the obligations of the Company under the 2006 Note may be declared immediately due and payable. The 2006 Note is unsecured and will expire six years from the date of the first advance under the 2006 Note unless extended or renewed. Principal and interest are also due and payable six years from the date of the first advance under the 2006 Note. As of September 30, 2009, the Company had borrowed $10,000,000 under the 2006 Note, fully exhausting the 2006 Note. As of September 30, 2009, accrued interest due on the 2006 Note was $1,561,569. On December 26, 2006, TelVue borrowed $400,000 from Mr. Lenfest under the 2006 Note to loan to PSG to fund their operating expenses (the "PSG Note"). The PSG Note was a convertible note that bore interest at a rate of six percent (6%) per annum. No payments of principal or interest were due until July 1, 2007. Under the PSG Note, interest accrued through July 1, 2007 was to be added to the principal. Interest was payable monthly from July 1, 2007 through January 1, 2008. The remaining balance was payable in forty eight (48) monthly installments of principal and interest commencing February 1, 2008. The PSG Note was scheduled to mature in January 2012. The Company had the option to convert the unpaid principal balance of the PSG Note and all accrued interest into common stock of PSG. In connection with the PSG Note, TelVue received a warrant, which entitled TelVue to purchase 129,629 shares of common stock of PSG for $1.08 per share. The warrant was to commence on July 1, 2007 and expire on December 31, 2016. The PSG Note was forgiven and the warrant was canceled on March 12, 2007, in connection with TelVue's acquisition of all of the outstanding stock of PSG. On March 12, 2007, PSG was acquired by TelVue for $6,100,000, the forgiveness of the PSG Note and cancellation of the warrant (described above). TelVue borrowed the $6,100,000 from Mr. Lenfest under the 2006 Note to fund the acquisition. PSG develops high performance digital video systems, appliances and software that support capture, storage, manipulation and play-out of digital media in multiple popular formats. PSG markets its product to local Cable TV Public, Education and Government Local Access Channels ("PEG Channels") and Local Origination broadcast stations, professional broadcast stations and schools and universities. TelVue acquired PSG as a complement to TVTN with the objective being to offer towns, municipalities and schools a packaged turnkey product of hardware and software. 12 Line of Credit (2007 Note) - Majority Stockholder - ------------------------------------------------- As a result of the anticipated exhaustion of the line of credit under the 2006 Note, TelVue entered into an additional Line of Credit Note with Mr. Lenfest on December 21, 2007 in the principal amount of $2,300,000 (the "2007 Note"). The minimum advance under the 2007 Note is $100,000 and the interest rate is equal to the prime rate plus one percent (1%). The 2007 Note contains customary events of default, including, among others, non-payment of principal and interest and in the event TelVue is involved in certain insolvency proceedings. In the event of a default, all of the obligations of TelVue under the 2007 Note may be declared immediately due and payable. The 2007 Note is unsecured and will expire six years from the date of the first advance under the 2007 Note unless extended or renewed. Principal and interest on the 2007 Note are also due and payable six years from the date of the first advance under the 2007 Note. As of September 30, 2009, TelVue had borrowed $2,300,000 under the 2007 Note, fully exhausting the 2007 Note. As of September 30, 2009, accrued interest due on the 2007 Note was $118,634. Line of Credit (2009 Q1 Note) - Majority Stockholder - ---------------------------------------------------- As a result of the anticipated exhaustion of the line of credit under the 2007 Note, TelVue entered into an additional Line of Credit Note with Mr. Lenfest on March 2, 2009 in the principal amount of $400,000 (the "2009 Q1 Note"). The minimum advance under the 2009 Q1 Note is $100,000 and the interest rate is equal to the prime rate plus one percent (1%). The 2009 Q1 Note contains customary events of default, including, among others, non-payment of principal and interest and in the event TelVue is involved in certain insolvency proceedings. In the event of a default, all of the obligations of TelVue under the 2009 Q1 Note may be declared immediately due and payable. The 2009 Q1 Note is unsecured and will expire six years from the date of the first advance under the 2009 Q1 Note unless extended or renewed. Principal and interest on the 2009 Q1 Note are also due and payable six years from the date of the first advance under the 2009 Q1 Note. As of September 30, 2009, TelVue had borrowed $400,000 under the 2009 Q1 Note, fully exhausting the 2009 Q1 Note. As of September 30, 2009, accrued interest due on the 2009 Q1 Note was $9,414. Line of Credit (2009 Q2 Note) - Majority Stockholder - ---------------------------------------------------- As a result of the anticipated exhaustion of the line of credit under the 2009 Q1 Note, TelVue entered into an additional Line of Credit Note with Mr. Lenfest on June 8, 2009 in the principal amount of $500,000 (the "2009 Q2 Note"). The minimum advance under the 2009 Q2 Note is $100,000 and the interest rate is equal to the prime rate plus one percent (1%). The 2009 Q2 Note contains customary events of default, including, among others, non-payment of principal and interest and in the event TelVue is involved in certain insolvency proceedings. In the event of a default, all of the obligations of TelVue under the 2009 Q2 Note may be declared immediately due and payable. The 2009 Q2 Note is unsecured and will expire six years from the date of the first advance under the 2009 Q2 Note unless extended or renewed. Principal and interest on the 2009 Q2 Note are also due and payable six years from the date of the first advance under the 2009 Q2 Note. As of September 30, 2009, TelVue had borrowed $500,000 under the 2009 Q2 Note, fully exhausting the 2009 Q2 Note. As of September 30, 2009, accrued interest due on the 2009 Q2 Note was $4,816. 13 Line of Credit (2009 Q3 Note) - Majority Stockholder - ---------------------------------------------------- In order to meet operating needs, TelVue entered into an additional Line of Credit Note with Mr. Lenfest on October 5, 2009 in the principal amount of $400,000 (the "2009 Q3 Note"). The minimum advance under the 2009 Q3 Note is $100,000 and the interest rate is equal to the prime rate plus one percent (1%). The 2009 Q3 Note contains customary events of default, including, among others, non-payment of principal and interest and in the event TelVue is involved in certain insolvency proceedings. In the event of a default, all of the obligations of TelVue under the 2009 Q3 Note may be declared immediately due and payable. The 2009 Q3 Note is unsecured and will expire six years from the date of the first advance under the 2009 Q3 Note unless extended or renewed. Principal and interest on the 2009 Q3 Note are also due and payable six years from the date of the first advance under the 2009 Q3 Note. TelVue began drawing on the 2009 Q3 Note on October 14, 2009. 7. RELATED PARTY TRANSACTIONS -------------------------- See Note 6, included herein, for information of related party transactions between TelVue and its majority stockholder. 8. FINANCIAL DATA BUSINESS SEGMENTS -------------------------------- The Company operates two business segments. The first segment, TPS, includes equipment such as the TelVue Princeton(TM) Server Product Line and services such as WEBUS(R) and PEG.TV(TM). The TelVue Princeton(TM) Server Product Line includes high performance digital video systems, servers, and software that support capture, storage, manipulation and play-out of digital media in multiple popular formats. WEBUS(R) is a broadcast digital signage system for displaying a fully automated TV station-like display on a cable system access channel using computer-based digital technology. PEG.TV(TM) is a live streaming and Video-on-Demand service for integrating video on the Internet. The second segment is a marketing and service division, which sells automatic number identification ("ANI") telecommunications services to the cable television industry. Summarized financial information by reporting segment as of and for each of the nine months ended September 30, 2009 and 2008, is as follows: Nine months ended September 30, 2009 TPS ANI Total - ------------------------------------ ----------- ----------- ----------- Revenues ........................... $ 2,156,544 $ 894,613 $ 3,051,157 Depreciation and amortization ...... 715,945 131,721 847,666 Operating income/(loss) ............ (1,951,125) 352,975 (1,598,150) Interest expense-net ............... 464,861 131,111 595,972 Net income/(loss) .................. (2,415,986) 221,864 (2,194,122) Capital expenditures ............... 203,882 - 203,882 Nine months ended September 30, 2008 TPS ANI Total - ------------------------------------ ----------- ----------- ----------- Revenues ........................... $ 1,591,485 $ 954,509 $ 2,545,994 Depreciation and amortization ...... 796,735 114,290 911,025 Operating income/(loss) ............ (3,662,612) 376,693 (3,285,919) Interest expense-net ............... 615,580 120,094 735,674 Net income/(loss) .................. (4,278,474) 257,016 (4,021,458) Capital expenditures ............... 323,174 - 323,174 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. All forward-looking statements involve risks and uncertainty, including, without limitation, the ability of TelVue to obtain sufficient cash to continue its operations, the ability of TelVue to continue its growth strategy, increases in costs of labor and employee benefits, general market conditions, competition and similar matters discussed in TelVue's Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and in this Quarterly Report on Form 10-Q. These forward-looking statements may include declarations regarding the Company's belief or current expectations of management, such as statements including the words "budgeted," "anticipate," "project," "estimate," "expect," "may," "believe," "potential" and similar statements are intended to be among the statements that are forward-looking statements. Because such statements reflect the reality of risk and uncertainty that is inherent in the Company's business, actual results may differ materially from those expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which are made as of the date this report was filed with the Securities and Exchange Commission ("SEC"). Readers are advised that the Company undertakes no obligation to release publicly any revisions to the forward-looking statements to reflect events or circumstances after the date hereof or to reflect unanticipated events or development. To the extent that the information presented in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 discusses financial projections, information or expectations about the Company's products or markets, or otherwise makes statements about future events, such statements are forward-looking. The Company is making these forward-looking statements in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included in this Quarterly Report, the inclusion of such information should not be regarded as a representation by TelVue or any other person that the Company's objectives and plans will be achieved. OVERVIEW OF COMPANY: TelVue Corporation ("TelVue" or the "Company") is a broadcast technology company that specializes in playback, automation and workflow solutions for public, education and government ("PEG") television stations, digital signage providers, and cable and satellite television providers. TelVue operates two business segments. The first segment, TelVue Products and Services ("TPS"), includes equipment such as the TelVue Princeton(TM) Server Product Line and services such as WEBUS(R) and PEG.TV(TM). The TelVue Princeton(TM) Server Product Line includes high performance digital video systems, servers, and software that support capture, storage, manipulation and play-out of digital media in multiple popular formats. WEBUS(R) is a broadcast digital signage system for displaying a fully automated TV station-like display on a cable system access channel using computer-based digital technology. 15 PEG.TV(TM) is a live streaming and Video-on-Demand service for integrating video on the Internet. The second segment is a marketing and service division, which sells automatic number identification ("ANI") telecommunications services to the cable television industry. The TelVue Princeton(TM) Server Product Line includes, but is not limited to: TelVue Princeton(TM) B100 TelVue Princeton(TM) B1000 TelVue Princeton(TM) B3000 TelVue Princeton(TM) S3000F TelVue Princeton(TM) C500W TelVue Princeton(TM) T7400E The TPS services include: WEBUS(R) Automated broadcast digital signage display on TV Channel WEBUS Inside(TM) WEBUS(R) integrated within TelVue Princeton(TM) Servers PEG.TV(TM) Internet Streaming and Video-on-Demand Service WEBLINX(TM) Automated WEBUS(R) message display on websites VideoActives(TM) Real time, dynamic video content for channels WEB-EM(R) Automated WEBUS(R) message display on cell phones and email The WEB-EM(R) technology enables local management officials to send messages to residents over cell phones and email. This four-in-one technology provides simultaneous phone, email, website and television notification. While TelVue still maintains the WEB-EM(R) technology, the Company is not actively marketing it to customers due to soft initial sales, in addition to increased competition from companies focusing solely on the text messaging market. As a complement to the WEBUS(R) service, TelVue introduced VideoActives(TM) in the first quarter of 2009, which are real-time, data-driven, on-air graphics such as local weather, local traffic, headline news, financial market indices, sports, quotes of the day and trivia questions. VideoActives(TM) are designed to enhance the presentation of the channels with dynamic and local content driven automatically by live data feeds. In the second quarter of 2009, TelVue introduced a new TelVue Princeton(TM) broadcast server model (B100-IP) with all digital outputs for professional Cable and Telephone Company ("TelCo") broadcast markets. The easy to operate TelVue Princeton(TM) B100-IP model is ideal for these broadcasters, as it allows for multiple unit deployments across their networks at an affordable price without the added costs of an encoder. In the second quarter of 2009, TelVue relocated the WEBUS(R) information technology infrastructure from its Mt. Laurel, New Jersey office location to TelVue's National Data Center at its facility in Philadelphia, Pennsylvania. This facility provides significantly increased bandwidth to the Internet to accommodate WEBUS(R) service growth, improving the quality of service to end users. In addition, the facility provides a more robust operating environment with additional redundancies and security for increased service availability. The relocation of service eliminates Internet bandwidth usage related to the WEBUS(R) service at the Company's Mt. Laurel office, allowing increased bandwidth availability for normal office productivity. There were no additional Internet or space costs associated with the relocation because adequate space and bandwidth were already in place for TelVue's PEG.TV(TM) service infrastructure which has been run out of this facility. 16 In the second quarter of 2009, TelVue expanded its PEG.TV(TM) Internet live streaming and Video-on-Demand service to support additional popular media formats. Live streaming now supports the Flash(R) video format, and Video-on-Demand now supports the MPEG-4 Advanced Video Codec format. These enhancements increase PEG.TV(TM) compatibility with industry standard tools for creating web video and existing web video libraries that organizations may have already created. Live Flash(R) video support leverages the wide deployment base of the Flash(R) player, allowing most end users to avoid installing additional software plug-ins, whether on a Mac or PC, to view PEG.TV(TM) content. To support ongoing corporate sales initiatives, TelVue has instituted several new marketing programs in the second and third quarters of 2009. Targeted email campaigns have been launched to a variety of relevant vertical market segments, including PEG Channels, K-20 media centers, TelCos, Pro Broadcast, Cable/Multiple System Operator ("MSO") and Houses of Worship. A higher frequency and regularity of press releases has stimulated additional customer, industry and investor awareness. New corporate and product marketing videos have been introduced on the TelVue website. In the third quarter of 2009, TelVue released version 3.6 of its TelVue Princeton(TM) digital broadcast server software. The version 3.6 software contains significant improvements and several new integrated workflow features including Audio Level Normalization and MPEG File Repair. MPEG file repair and normalization tools can be costly if purchased separately. Integrating these tools natively adds even more value to the TelVue Princeton(TM) product line and further streamlines workflow. Also, in the third quarter of 2009, TelVue launched a beta test of the Alliance for Community Media (ACM) compliant Shared Content Server (SCS) platform designed for PEG stations to easily share broadcast quality video programming with other stations using the Internet. In addition to supporting station-to-station sharing, the system also acts as a distribution network for content producers who want to effectively reach the thousands of PEG stations across the country. TelVue's second and legacy business segment is the marketing and service company which sells automatic number identification ("ANI") telecommunications services to the cable and satellite television industry for the automated ordering of pay-per-view features and events (the "ANI service"). The ANI service permits cable and satellite television companies to process special ordering services without the attendant, high manpower requirements, or extensive physical plant and facilities that are otherwise required. TelVue provides the ANI service through the equipment it purchases. TelVue's equipment for providing the ANI service nationwide is located at TelVue's home office in Mount Laurel, New Jersey. TelVue serves cable television systems across the United States via trunk lines and data circuits that it currently leases from Verizon. TelVue believes it receives a favorable trunk usage rate from Verizon. As noted below, TelVue expects continued loss of its subscriber base for the ANI service as digital, interactive two-way services are offered by cable, satellite, and broadband service providers for Video-on-Demand. CRITICAL ACCOUNTING POLICIES In presenting TelVue's financial statements in conformity with accounting principles generally accepted in the United States, TelVue is required to make certain estimates and assumptions that affect the amounts reported therein. Several of the estimates and assumptions TelVue is required to make relate to matters that are inherently uncertain as they pertain to future events. However, events that are outside of TelVue's control cannot be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions. If there is a significant unfavorable change to current conditions, it will likely 17 result in a material adverse impact to TelVue's consolidated results of operations, financial position and liquidity. TelVue believes that the estimates and assumptions it used when preparing its financial statements were the most appropriate at that time. Presented below are those accounting policies that TelVue believes require subjective and complex judgments that could potentially affect reported results. Use of Estimates The Company's discussion and analysis of its financial condition and results of operations are based upon TelVue's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires TelVue to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, the Company evaluates estimates, including those related to impairment of long-lived assets and allowance for doubtful accounts. The Company bases estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions; however, the Company believes that its estimates, including those for the above-described items, are reasonable. Areas that require estimates and assumptions include valuation of accounts receivable and inventory, determination of useful lives of property and equipment, estimation of certain liabilities and sales returns. Goodwill and Other Intangibles Goodwill and other intangibles are reviewed for impairment annually, or more frequently if impairment indicators arise. Goodwill is required to be tested for impairment between the annual tests if an event occurs or circumstances change that more-likely-than-not reduce the fair value of a reporting unit below its carrying value. As of December 31, 2008, based on concerns over TelVue's net loss and negative cash flow, uncertainty regarding future cash flows and uncertainty whether the current carrying value of the goodwill related to the PSG acquisition will be recovered by future cash flows, management determined that the carrying value of this goodwill was impaired, and the Company recorded a $1,921,405 charge to write off this goodwill. As a result, the net loss for 2008 was increased by this amount to $7,545,259. Had management not made this subjective determination, the Company would not have recorded this charge. Revenue Recognition In accordance with accounting principles generally accepted in the United States, TelVue recognizes revenues related to its TelVue Princeton(TM) Server Product Line upon shipment of the equipment to customers. Revenues related to TelVue's WEBUS(R) and PEG.TV(TM) services are recognized on a monthly basis, being amortized over the term of the agreement. TelVue also sells annual product maintenance plans covering equipment support and application upgrades. The revenue related to these plans is recognized on a straight-line basis over the term being covered by the plan. If the Company chose to recognize these revenues when payments were received under these agreements, then the Company would recognize more revenue in earlier periods and would not record any deferred revenues. TelVue believes that its practice allows the Company to better match revenues with the expenses related to providing these services over the term of the agreements and, accordingly, is a better reflection of generally accepted accounting principles. Revenue related to TelVue's ANI service is recognized in the month the service is provided. 18 Stock-Based Compensation TelVue accounts for stock-based compensation in accordance with the fair value recognition method. The Company uses a Black-Scholes option-pricing valuation model which requires the input of highly subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them ("expected term"), the estimated volatility of TelVue's common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements. Changes in the subjective assumptions can materially affect the estimate of fair value of stock-based compensation. The above listing is not intended to be a comprehensive list of all the Company's accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management's judgment in their application. See TelVue's audited financial statements and related notes included in its Annual Report on Form 10-K for December 31, 2008, which contains accounting policies and other disclosures required by accounting principles generally accepted in the United States. RESULTS OF OPERATIONS: Beginning in January 2008, TelVue began a weighted allocation of all compensation, general and administrative, interest and amortization expenses between its ANI segment and TPS segment. Previously, only a minimal amount of expenses were allocated between business segments. During 2008, TelVue conducted two separate reductions in workforce. Combined, they involved the elimination of 14 full-time positions and resulted in net expense savings of approximately $550,000 for the calendar year 2008, which was recognized across all departments and business segments. In the second half of 2008, the Company reacted to market feedback and re-focused the business from the TelVue Virtual Television Network ("TVTN") sponsorship model to the Company's technology, products, and services strengths. TelVue was re-branded by merging the TVTN WEBUS(R) technology and PSG technology under one consistent brand, image, and sales model. TelVue now sells its products and services without sponsorship to empower hyperlocal channels to improve quality, streamline operations, and future-proof with modern technologies. Although the business model changes naturally impacted 2008 performance, the Company is optimistic that the refocusing back to its core strengths as a broadcast technology company has been successful. The marketplace has already reacted favorably, and coupled with the Company's new reseller strategy, TelVue has experienced returned growth in 2009. Additionally, with a restructuring in 2008 largely to eliminate positions that no longer were a fit with the Company's new focus, the Company has significantly improved its cost structure. TelVue's year-to-date 2009 results corroborate these positive changes and include a 20% overall increase in revenues, a 36% increase in TPS segment revenues, a 61% increase in new sales orders, and a 25% decrease in operational expenses, all compared to the same period 2008. These positive trends also significantly reduced the amount of funds the Company was required to draw from its lines of credit as noted in the statement of cash flows. Also in the second quarter of 2009, TelVue surpassed 500 local broadcast station TPS customers world-wide, with a majority in the United States. In March 2009, TelVue conducted an additional reduction in workforce, involving the elimination of 5 full-time positions, with a combined salary of $359,000. 19 The following discussion deals with the decrease in operating losses for the three and nine months ended September 30, 2009, compared to the three and nine months ended September 30, 2008, and the reasons for the decreases. TelVue further discusses the continued loss of its subscriber base for the ANI service, when comparing the nine months ended September 30, 2009 to the nine months ended September 30, 2008. TelVue also discusses the marketing of its TPS segment and the changes in TPS revenues and expenses.
Three Months Ended ------------------------------ September 30, September 30, $ Change % Change 2009 2008 Fav/(Unfav) Fav/(Unfav) ------------- ------------- ------------- ----------- Revenues TPS services ................ $ 743,392 $ 636,010 $ 107,382 16.9% ANI services ................ 288,952 313,389 (24,437) -7.8% Cost of Revenues TPS services ................ 303,723 296,411 (7,312) -2.5% ANI services ................ 69,953 74,248 4,295 5.8% Operating Expenses Selling and marketing ....... 256,270 346,940 90,670 26.1% General and administrative .. 511,159 690,393 179,234 26.0% Depreciation and amortization 285,042 308,135 23,093 7.5% ------------- ------------- ------------- ------- Operating Loss ................. $ (393,803) $ (766,728) $ 372,925 48.6% Other Income (Expense) ......... $ (206,946) $ (249,640) $ 42,694 17.1% ------------- ------------- ------------- ------- Net Loss ....................... $ (600,749) $ (1,016,368) $ 415,619 40.9% ============= ============= ============= ======= Nine Months Ended ------------------------------ September 30, September 30, $ Change % Change 2009 2008 Fav/(Unfav) Fav/(Unfav) ------------- ------------- ------------- ----------- Revenues TPS services ................ $ 2,156,544 $ 1,591,485 $ 565,059 35.5% ANI services ................ 894,613 954,509 (59,896) -6.3% Cost of Revenues TPS services ................ 998,991 1,024,742 25,751 2.5% ANI services ................ 247,719 285,514 37,795 13.2% Operating Expenses Selling and marketing ....... 770,822 1,275,824 505,002 39.6% General and administrative .. 1,784,109 2,334,808 550,699 23.6% Depreciation and amortization 847,666 911,025 63,359 7.0% ------------- ------------- ------------- ------- Operating Loss ................. $ (1,598,150) $ (3,285,919) $ 1,687,769 51.4% Other Income (Expense) ......... $ (595,972) $ (735,539) $ 139,567 19.0% ------------- ------------- ------------- ------- Net Loss ....................... $ (2,194,122) $ (4,021,458) $ 1,827,336 45.4% ============= ============= ============= =======
20 The TPS segment had an operating loss of $526,384 and $1,951,125 for the three and nine months ended September 30, 2009, respectively, compared to operating losses of $923,331 and $3,662,616 for the three and nine months ended September 30, 2008 primarily due to 17% and 36% increases in TPS segment revenues for the three and nine month periods, respectively, in addition to savings related to the aforementioned reduction in workforce. The ANI segment had operating income of $132,581 and $352,975 for the three and nine months ended September 30, 2009, respectively, compared to $156,603 and $376,697 for the three and nine months ended September 30, 2008. The decreases in operating income for the ANI segment were primarily a result of a change in the allocation of expenses whereby a slightly higher percentage of expenses were allocated to the ANI segment than in 2008. Additionally, declines in revenue related to the continued loss of subscribers also offset some of the increases in operating income, offset by savings related to the reduction in workforce. Revenues TPS revenues increased $107,382 and $565,059 for the three and nine months ended September 30, 2009, compared to the same period of 2008. The majority of the revenue increases were attributed to an increase in TelVue Princeton(TM) Server Product Line sales, in addition to an increase in consulting revenue related to technical consulting services TelVue provides to specific customers. These increases were offset by declines in sponsorship revenue due to the previously mentioned change in direction of TelVue moving away from a sponsorship driven sales model. TPS segment sales orders increased by 61% for the nine months ended September 30, 2009 compared to the same nine months in 2008. The increased sales orders included complete system sales to a number of larger cities as well as significant multi-server orders received in two new vertical markets, Cable Leased Access, and Professional Broadcasting. The Company's TelVue Princeton(TM) products provide MSOs that must run Leased Access channels, a way to unify equipment and reduce operation costs through centralization. TelVue's cost-effective TelVue Princeton(TM) B100 model is the heart of the Company's Edgecasting for Professional Broadcasters that allows content providers who traditionally broadcast to multiple head-ends over 24x7 satellite feeds to instead deliver content over the Internet to edge video servers. Edgecasting allows distribution cost savings and the ability to further localize content regionally, especially important for ad networks. ANI service revenues decreased $24,437 and $59,896 for the three and nine months ended September 30, 2009, respectively, when compared to the same periods of 2008. As expected, pay-per-view buy revenue decreased $1,375 and $13,711 for the three and nine months ended September 30, 2009, and pay-per-view plus revenue decreased $7,662 and $30,107 for the three and nine months ended September 30, 2009 when compared to the same periods of 2008. These decreases were mainly due to a reduction in the number of subscribers served during this period when compared to 2008 (as discussed below). These declines were offset by increases of $2,941 and $14,153 in program number revenue for the three and nine months ended September 30, 2009, when compared to the same periods in 2008. TelVue believes there is a loss of focus by cable operators on the pay-per-view product line, primarily because of the amount of time cable operators are spending on promoting new product lines such as digital service and high-speed Internet access. 21 As of September 30, 2009, TelVue was serving approximately 3.8 million full-time cable subscribers compared to approximately 4.2 million full-time cable subscribers served as of September 30, 2008. Cable operators cancelled the ANI service primarily as a result of moving their subscribers onto two-way digital service, which allows the cable operator to process ordering of pay-per-view movies and events directly from its customers without using TelVue's ANI service. Management believes the long-term effects of deployment of digital two-way service will continue to negatively impact the TelVue ANI service. As a result of the cable and satellite subscriber cancellations noted above, TelVue expects to continue to experience a decrease in its revenues and operating income indefinitely for its ANI segment. Cost of Revenues Cost of revenues for the TPS segment increased $7,312 for the three months ended September 30, 2009, when compared to the same period of 2008, primarily as a result of the cost of sales related to consulting revenue, offset by savings in compensation related to the reductions in workforce. For the nine months ended September 30, 2009, cost of revenues for the TPS segment decreased $25,751, when compared to the same period of 2008, primarily due to savings in compensation related to the reductions in workforce, offset by an increase in the cost of sales related to the consulting revenue. ANI cost of revenues decreased $4,295 and $37,795 for the three and nine months ended September 30, 2009, when compared to the same period of 2008. These decreases were primarily due to a decrease in expenses related to telephone trunk lines used for the ANI service. Selling and Marketing Expenses Selling expenses related to the TPS segment decreased $89,896 and $488,544 for the three and nine months ended September 30, 2009, when compared to the same period of 2008. These decreases were attributed to the previously discussed reduction in workforce, in addition to savings in consulting expenses related to the elimination of outside sales and marketing consultants. Selling expenses related to the ANI service decreased $774 and $16,458 for the three and nine months ended September 30, 2009 when compared to the same period of 2008. These decreases were primarily the result of savings in compensation related to the reduction in workforce. General and Administrative Expenses TPS general and administrative expenses decreased $177,136 and $551,345 for the three and nine months ended September 30, 2009 when compared to the same period of 2008. These decreases were related to the reduction in workforce, combined with savings in outside consulting expenses and lower recruitment expense in 2009 compared to 2008. These savings were offset by higher bad debt expense related to an increase in the bad debt reserve discussed below. ANI segment general and administrative expenses decreased $2,098 for the three months ended September 30, 2009, when compared to the same period of 2008, primarily due to savings related to the reduction in workforce. For the nine months ended September 30, 2009, ANI segment general and administrative expenses increased $646 when compared to the same period of 2008, primarily a result of the previously mentioned change in allocation percentages, where a higher percentage of expenses are being allocated to the ANI segment, in addition to an increase in bad debt expense related to an increase in the bad debt reserve as discussed below. These increases were offset by savings related to the reduction in workforce. 22 Depreciation and Amortization TelVue purchased $33,407 and $203,882 of equipment during the three and nine months ended September 30, 2009 compared to $115,397 and $323,174 purchased during the three and nine months ended September 30, 2008. The majority of the equipment purchased during the three and nine months ended September 30, 2009 and 2008 was for software development and equipment related to the TPS segment. Depreciation and amortization expense decreased $23,093 and $63,359 for the three and nine months ended September 30, 2009 when compared to the three and nine months ended September 30, 2008, as a result of fewer capital purchases, in addition to declining amortization expense related to the PSG intangible assets. Depreciation and amortization accounted for 27% of total operating expenses for the three months ended September 30, 2009 and 25% of total operating expenses for the nine months ended September 30, 2009. Other Income/(Expense) Interest expenses related to TelVue's Lines of Credit decreased $42,462 and $139,698 for the three and nine months ended September 30, 2009, when compared to the same period of 2008. This was the result of a favorable reduction in the prime lending rate. The prime rate was 3.25% for 2009, whereas it ranged from 5.00% to 7.25% during the first nine months of 2008. The interest expense is calculated at the prime lending rate plus one percent (1%). Net Loss TelVue had net losses of $600,749 and $2,194,122 for the three and nine months ended September 30, 2009, compared to net losses of $1,016,368 and $4,021,458 for the three and nine months ended September 30, 2008, primarily due to an increase in products and service revenues when compared to 2008, in addition to savings in compensation related to the previously mentioned reductions in workforce. Income Taxes At September 30, 2009 and 2008, TelVue recorded valuation allowance increases of $251,000 and $419,000, respectively, to reduce its deferred tax asset to zero. The valuation allowances were recorded due to the uncertainty as to whether future net income would be generated that would utilize TelVue's net operating loss carryforward. TelVue's federal net operating loss carryforward was approximately $13,000,000 on a tax-reporting basis as of September 30, 2009 (see Note 5 of the accompanying financial statements). Accounts Receivable As of September 30, 2009, TelVue maintained a bad debt reserve in the amount of $68,620, compared to a reserve of $5,837 as of September 30, 2008. The reserve was calculated based on the estimate that 1.0% of outstanding receivables would not be collected, as well as the addition of two specific reserves as described below. First, one of TelVue's resellers went out of business and is currently in the process of liquidating its assets. While TelVue ultimately expects to be paid, a bad debt reserve of $53,704 was established, which is 100% of the outstanding balance due from the reseller. Second, one of the cable operators using TelVue's ANI service declared bankruptcy and is currently restructuring. Since a bankruptcy settlement valuation has not yet been finalized, TelVue conservatively reserved 100% of the outstanding balance due on invoices prior to the bankruptcy date, which amounts to $7,436. 23 TelVue's days for sales in average accounts receivable was 62 days at September 30, 2009, compared to 53 days at September 30, 2008. TelVue does not offer incentives or discounts to its customers, nor has it changed its credit terms with its customers for its ANI services. A 2% cash, 1% net 15 days discount is offered by TelVue for payments related to equipment purchases. Cash Flows TelVue had negative cash flow from operating activities of $933,348 for the nine months ended September 30, 2009, compared to negative cash flow from operating activities of $2,764,515 for the nine months ended September 30, 2008. The increase in cash flow compared to 2008 was primarily due to increases in TPS revenue and a decrease in operating expenses across both business segments (as described above). LIQUIDITY AND CAPITAL RESOURCES: Going Concern and Management's Plan The accompanying financial statements of TelVue have been prepared on the basis of generally accepted accounting principles applicable to a "going concern," which assume that TelVue will continue in operation for at least one year and will be able to realize its assets and discharge its liabilities in the normal course of operations. Conditions exist, however, that cast doubt about TelVue's ability to continue as a "going concern." In order to fund operations, TelVue relies on funds drawn on lines of credit provided by its majority stockholder and director of the Company, H.F. (Gerry) Lenfest. Based on TelVue's current draw-down rate, the funds remaining in the current lines of credit are not sufficient to sustain TelVue's operations for the next 12 month period. Funding TelVue's future capital requirements will depend on numerous factors including, but not limited to, TelVue receiving continued financial support from Mr. Lenfest, which he has not committed to at this time, or seeking other alternatives. While management is working toward mitigating the adverse conditions and events which raise doubt about the validity of the "going concern" assumption used in preparing the accompanying financial statements, there can be no assurances that management will be successful. The accompanying financial statements do not reflect adjustments that would be necessary if TelVue were unable to continue as a "going concern." If TelVue were unable to continue as a "going concern," then substantial adjustments would be necessary to the carrying value of assets, the reported amounts of its liabilities, the reported expenses, and the balance sheet classifications used. Funding Since November 2, 1989, TelVue has funded its expansion and operating deficit from the proceeds of the sale of shares of TelVue's common stock and Preferred Stock (as defined below) to Mr. Lenfest and from loans from Mr. Lenfest. During January 1995, Mr. Lenfest purchased from Science Dynamics Corporation ("Science"), TelVue's non-interest bearing note in the amount of $541,000 (the "Science Note"). The Science Note was originally issued by TelVue to Science and was payable December 31, 1996. The maturity date of the Science Note had been extended by TelVue and Mr. Lenfest on a yearly basis. On June 16, 2005, the members of the Board of Directors of TelVue and Mr. Lenfest extended the maturity date of the Science Note to January 1, 2011. 24 On April 27, 2005, TelVue entered into a Line of Credit Note with Mr. Lenfest (the "2005 Note"). The 2005 Note was secured to provide funding to grow TVTN. Under the terms of the 2005 Note, the Company may borrow, from time to time, up to the maximum principal amount of the 2005 Note, which is $3,800,000. The minimum advance under the 2005 Note is $100,000 and the interest rate is equal to the prime rate plus one percent (1%). The 2005 Note contains customary events of default, including, among others, non-payment of principal and interest and in the event the Company is involved in certain insolvency proceedings. In the event of a default, all of the obligations of the Company under the 2005 Note may be declared immediately due and payable. The 2005 Note is unsecured and will expire six years from the date of the first advance, which is November 23, 2011, unless extended or renewed. Principal and interest on the 2005 Note are also due and payable on November 23, 2011. The 2005 Note was exhausted by the end of 2007. As of September 30, 2009, accrued interest due on the 2005 Note was $862,250. As a result of the anticipated exhaustion of the credit under the 2005 Note, TelVue entered into an additional Line of Credit Note with Mr. Lenfest on November 3, 2006, in the principal amount of $10,000,000 (the "2006 Note"). Under the 2006 Note, TelVue may request up to $5,000,000 for general working capital. TelVue may request up to an additional $5,000,000 available under the 2006 Note for purposes other than general working capital upon mutual agreement by TelVue and Mr. Lenfest. The minimum advance under the 2006 Note is $100,000 and the interest rate is equal to the prime rate plus one percent (1%). The 2006 Note contains customary events of default, including, among others, non-payment of principal and interest and in the event TelVue is involved in certain insolvency proceedings. In the event of a default, all of the obligations of TelVue under the 2006 Note may be declared immediately due and payable. The 2006 Note is unsecured and will expire six years from the date of the first advance under the 2006 Note unless extended or renewed. Principal and interest on the 2006 Note are also due and payable six years from the date of the first advance under the 2006 Note. As of September 30, 2009, the Company had borrowed $10,000,000 under the 2006 Note, fully exhausting the 2006 Note. As of September 30, 2009, accrued interest due on the 2006 Note was $1,561,569. On March 12, 2007, PSG was acquired by TelVue for $6.1 million and the forgiveness of the PSG Note (described above). TelVue borrowed $6.1 million from Mr. Lenfest under the 2006 Note. PSG develops high performance digital video systems, appliances and software that support capture, storage, manipulation and play-out of digital media in multiple popular formats. PSG markets their product to PEG Channels and Local Origination broadcast stations, professional broadcast stations and schools and universities. TelVue acquired PSG as a complement to its TVTN Network with the objective being to offer towns, municipalities and schools a packaged turnkey product of hardware and software. As a result of the anticipated exhaustion of the line of credit under the 2006 Note, TelVue entered into an additional Line of Credit Note with Mr. Lenfest on December 21, 2007, in the principal amount of $2,300,000 (the "2007 Note"). The minimum advance under the 2007 Note is $100,000 and the interest rate is equal to the prime rate plus one percent (1%). The 2007 Note contains customary events of default, including, among others, non-payment of principal and interest and in the event TelVue is involved in certain insolvency proceedings. In the event of a default, all of the obligations of TelVue under the 2007 Note may be declared immediately due and payable. The 2007 Note is unsecured and will expire six years from the date of the first advance under the 2007 Note unless extended or renewed. Principal and interest on the 2007 Note are also due and payable six years from the date of the first advance under the 2007 Note. As of September 30, 2009, TelVue had borrowed $2,300,000 under the 2007 Note, fully exhausting the 2007 Note. As of September 30, 2009, accrued interest due on the 2007 Note was $118,634. 25 As a result of the anticipated exhaustion of the line of credit under the 2007 Note, TelVue entered into an additional Line of Credit Note with Mr. Lenfest on March 2, 2009, in the principal amount of $400,000 (the "2009 Q1 Note"). The minimum advance under the 2009 Q1 Note is $100,000 and the interest rate is equal to the prime rate plus one percent (1%). The 2009 Q1 Note contains customary events of default, including, among others, non-payment of principal and interest and in the event TelVue is involved in certain insolvency proceedings. In the event of a default, all of the obligations of TelVue under the 2009 Q1 Note may be declared immediately due and payable. The 2009 Q1 Note is unsecured and will expire six years from the date of the first advance under the 2009 Q1 Note unless extended or renewed. Principal and interest on the 2009 Q1 Note are also due and payable six years from the date of the first advance under the 2009 Q1 Note. As of September 30, 2009, TelVue had borrowed $400,000 under the 2009 Q1 Note, fully exhausting the 2009 Q1 Note. As of September 30, 2009, accrued interest due on the 2009 Q1 Note was $9,414. As a result of the anticipated exhaustion of the line of credit under the 2009 Q1 Note, TelVue entered into an additional Line of Credit Note with Mr. Lenfest on June 8, 2009 in the principal amount of $500,000 (the "2009 Q2 Note"). The minimum advance under the 2009 Q2 Note is $100,000 and the interest rate is equal to the prime rate plus one percent (1%). The 2009 Q2 Note contains customary events of default, including, among others, non-payment of principal and interest and in the event TelVue is involved in certain insolvency proceedings. In the event of a default, all of the obligations of TelVue under the 2009 Q2 Note may be declared immediately due and payable. The 2009 Q2 Note is unsecured and will expire six years from the date of the first advance under the 2009 Q2 Note unless extended or renewed. Principal and interest on the 2009 Q2 Note are also due and payable six years from the date of the first advance under the 2009 Q2 Note. As of September 30, 2009, TelVue had borrowed $500,000 under the 2009 Q2 Note, fully exhausting the 2009 Q2 Note. As of September 30, 2009, accrued interest due on the 2009 Q2 Note was $4,816. In order to meet operating needs, TelVue entered into an additional Line of Credit Note with Mr. Lenfest on October 5, 2009 in the principal amount of $400,000 (the "2009 Q3 Note"). The minimum advance under the 2009 Q3 Note is $100,000 and the interest rate is equal to the prime rate plus one percent (1%). The 2009 Q3 Note contains customary events of default, including, among others, non-payment of principal and interest and in the event TelVue is involved in certain insolvency proceedings. In the event of a default, all of the obligations of TelVue under the 2009 Q3 Note may be declared immediately due and payable. The 2009 Q3 Note is unsecured and will expire six years from the date of the first advance under the 2009 Q3 Note unless extended or renewed. Principal and interest on the 2003 Q2 Note are also due and payable six years from the date of the first advance under the 2009 Q3 Note. TelVue began drawing on the 2009 Q3 Note on October 14, 2009. TelVue's ability to fully fund its operating expenses has suffered by the loss of a large number of its subscriber base for the ANI service. However, TelVue's TPS segment has demonstrated bigger growth potential and rate than decreases in its ANI segment. As discussed above, TelVue anticipates a continued decrease in revenue and an increase in net loss for the ANI service. In order to continue to fund a majority of its ANI operating expenses, TelVue needs to retain its current subscriber base level. Management believes that over time, continued erosion will occur in the subscriber base. During the nine months ended September 30, 2009, TelVue had 363,000 full and part-time subscribers cancel service and no new subscribers were added to the ANI service. Cable operators have cancelled the ANI service primarily as a result of moving their subscribers onto two-way digital service. 26 TelVue has been, and continues to be, dependent upon Mr. Lenfest for funds to pay the majority of operating and capital expenditures. As of September 30, 2009, TelVue's cash and cash equivalents balance was $166,968, compared to a balance of $250,698 as of December 31, 2008. This decrease was the result of the use of cash versus funds drawn on lines of credit held by the Company with Mr. Lenfest. TelVue had a net accounts receivable balance of $740,548 as of September 30, 2009 compared to a balance of $560,579 as of December 31, 2008 due to an increase in sales volume. This additional accounts receivable, when collected, will also assist in the funding of TelVue's operations. As discussed above, the financing from Mr. Lenfest under the 2005 Note, 2006 Note, 2007 Note, 2009 Q1 Note and 2009 Q2 Note have been exhausted. As a result of this, TelVue secured the 2009 Q3 Note from Mr. Lenfest to help TelVue grow to a profitable level. The 2005 Note, 2006 Note, 2007 Note, 2009 Q1 Note and 2009 Q2 Note have helped, and the 2009 Q3 Note will help, to fund the growth of TPS. While maintaining the ANI pay-per-view ordering business, TelVue intends to continue to aggressively market and sell TPS. However, there can be no assurance that its marketing efforts will be successful. The Company does expect to see some adverse effects on sales in 2009 due to the current economic conditions, primarily in the public, education and government markets. The Company does anticipate some of this being offset by federal stimulus dollars being allocated to these markets, although we believe purchasing from stimulus dollars may have a bigger impact in 2010 than 2009. Additionally, the Company feels that expansion into markets outside of these will broaden the Company's sources of revenue which will help to offset any revenue declines related to the economy. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK TelVue, a smaller reporting company, is not required to provide information required by this Item. ITEM 4T. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures. TelVue's Chief Executive Officer and its Treasurer (Controller), have evaluated the effectiveness of TelVue's disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, TelVue's Chief Executive Officer and its Treasurer (Controller) have concluded that TelVue's disclosure controls and procedures were adequate and effective to ensure that material information relating to TelVue would be made known to them by others within TelVue, particularly during the period in which this quarterly report on Form 10-Q was being prepared. (b) Changes in Internal Controls. During the quarterly period covered by this report, there were no changes in TelVue's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect TelVue's internal control over financial reporting. 27 PART II. OTHER INFORMATION ITEM 6. EXHIBITS Exhibits 3.1 Certificate of Incorporation of TelVue (incorporated by reference to TelVue's Registration Statement on Form S-8, filed with the Securities and Exchange Commission on April 20, 1989 (the "Registration Statement"), File No. 333-28263). 3.2 Bylaws of TelVue (incorporated by reference to TelVue's Registration Statement, File No. 333-288263). 3.3 Certificate of Amendment of Certificate of Incorporation of TelVue, dated April 11, 1990 (incorporated by reference to TelVue's Annual Report on Form 10-K for the year ended December 31, 1991, (the "1991 Form 10-K"), File No. 000-17170). 3.4 Certificate of Amendment of Certificate of Incorporation of TelVue, dated March 15, 1991 (incorporated by reference to the 1991 Form 10-K, File No. 000-17170). 3.5 Form of copy of Amendment of Certificate of Incorporation of TelVue, filed September 25, 1995 (incorporated by reference to TelVue's Form 10-QSB for the period ended September 30, 1995, File No. 000-17170). 4.1 The TelVue Corporation 1999 Stock Option Plan (incorporated by reference to TelVue's Registration Statement on Form S-8, dated September 23, 1999 (the "1999 Stock Option Plan"), File No. 000-17170). 4.2 Form of ISO Option Agreement issued pursuant to the 1999 Stock Option Plan (incorporated by reference to TelVue's Annual Report on Form 10-KSB for the year ended December 31, 1999, (the "1999 Form 10-KSB") File No. 000-17170). 4.3 Form of NQSO Option Agreement issued pursuant to the 1999 Stock Option Plan (incorporated by reference to the 1999 Form 10-KSB, File No. 000-17170). 4.4 Certificate of Designation of Class A Preferred Stock (incorporated by reference to the September 30, 1990 Form 10-Q, File No. 000-17170). 4.5 Warrant Termination Agreement, dated June 16, 2005, by and between TelVue and H.F. (Gerry) Lenfest (incorporated by reference to the September 30, 2005 Form 10-QSB, File No. 000-17170). 4.6 Waiver by H.F.(Gerry) Lenfest, waiving the right to receive past, present or future dividends with respect to the TelVue's Class A Redeemable Convertible Preferred Stock (incorporated by reference to the September 30, 2005 Form 10-QSB, File No.000-17170). 10.1 Distributorship Agreement, dated November 2, 1989, between the Company and Science (incorporated by reference to the 1989 Form 10-K, File No. 000-17170). 28 10.2 Stock Purchase Agreement, dated November 2, 1989, between the Company and H.F. (Gerry) Lenfest (incorporated by reference to the Company's Report on Form 8-K, dated November 15, 1989 (the "1989 Form 8-K"), File No. 000-17170). 10.3 Shareholders' Agreement, dated November 2, 1989, among TelVue and certain of its stockholders (incorporated by reference to the Company's 1989 Form 8-K, File No. 000-17170). 10.4 Option Agreement, dated November 2, 1989, among TelVue and certain of its stockholders (incorporated by reference to the 1989 Form 8-K, File No. 000-17170). 10.5 Lease Agreement dated April 25, 1991 for office space and the First Amendment to Lease dated March 30, 1994 ("Office Lease Agreement"), between TelVue and Bloom Associates (incorporated by reference to the 1994 Form 10-KSB, File No. 000-17170). 10.6 Second Amendment to Office Lease Agreement Dated May 5, 1999, between TelVue and Bloom Associates (incorporated by reference to the 1999 Form 10-KSB, File No. 000-17170). 10.7 Third Amendment to Office Lease Agreement Dated April 28, 2004, between TelVue and Bloom Associates (incorporated by reference to the June 30, 2006 Form 10-QSB, File No. 000-17170). 10.8 Fourth Amendment to Office Lease Agreement Dated April 19, 2006, between TelVue and The Bloom Organization of South Jersey, LLC (incorporated by reference to the June 30, 2006 Form 10-QSB, File No. 000-17170). 10.9 Asset Purchase Agreement by and among TelVue and J.D. Kraengel and Associates, Inc. f/k/a Dacon Corporation d/b/a Source Communications Group and Jeffrey Kraengel, dated February 14, 2001 (incorporated by reference to the March 26, 2001 Form 8-K, File No. 000-17170). 10.10 Retirement Agreement dated April 29, 2004 between TelVue and Frank J. Carcione (incorporated by reference to the December 31, 2004 Form 10-KSB (the "2004 Form 10-KSB"), File No. 000-17170). 10.11 Summary of Director Compensation (incorporated by reference to the 2004 Form 10-KSB, File No. 000-17170). 10.12 Summary of Executive Compensation, as amended (incorporated by reference to the December 31, 2008 Form 10-K ("2008 Form 10-K"), File No. 000- 17170). 10.13 Line of Credit Note, dated April 27, 2005, between H.F. (Gerry) Lenfest and TelVue (incorporated by reference to the Form 8-K filed on May 3, 2005, File No. 000-17170). 10.14 Amended and Restated Promissory Note, in the principal amount of $541,000, dated June 16, 2005, between H.F. (Gerry) Lenfest and TelVue (incorporated by reference to the September 30, 2005 Form 10-QSB, File No. 000-17170). 10.15 Line of Credit Note, dated November 3, 2006, between H.F. (Gerry) Lenfest and TelVue (incorporated by reference to the Form 8-K filed on November 3, 2006, File No. 000-17170). 29 10.16 Stock Purchase Agreement by and among TelVue and Princeton Server Group, Inc. dated March 12, 2007 (incorporated by reference to the March 13, 2007 Form 8-K, File No. 000-17170). 10.17 Convertible Note for $400,000 dated December 26, 2006 issued to TelVue by the Princeton Server Group, Inc. (incorporated by reference to the December 31, 2006 Form 10-KSB, File No. 000-17170). 10.18 Separation Agreement by and between TelVue and Stanley Greene, dated December 29, 2006 (incorporated by reference to the December 31, 2006 Form 10-KSB, File No. 000-17170). 10.19 Separation Agreement by and between TelVue and Irene DeZwaan, dated February 8, 2007 (incorporated by reference to the December 31, 2006 Form 10-KSB, File No. 000-17170). 10.20 Amendment of Form 8-K filed by TelVue Corporation on March 13, 2007 (the "Original 8-K") to include the information required by Item 9.01 of the Form 8-K in connection with TelVue's acquisition of Princeton Server Group, Inc. (incorporated by reference to the May 12, 2007 Form 8-K/A, File No. 000-17170). 10.21 Line of Credit Note, dated December 21, 2007, between H.F. (Gerry) Lenfest and TelVue (incorporated by reference to the Form 8-K filed on December 21, 2007, File No. 000-17170). 10.22 Separation Agreement and Release by and between TelVue and Joseph M. Murphy, dated December 31, 2008 (incorporated by reference to the Form 8-K filed on January 6, 2009, File No. 000-17170). 10.23 Line of Credit Note, dated March 2, 2009, between H.F. (Gerry) Lenfest and TelVue (incorporated by reference to the Form 8-K filed on March 5, 2009, File No. 000-17170). 10.24 Fifth Amendment to Office Lease Agreement dated March 16, 2009 (incorporated by reference to the 2008 Form 10-K, File No. 000-17170). 10.25 Line of Credit Note, dated June 8, 2009, between H.F. (Gerry) Lenfest and TelVue (incorporated by reference to the Form 8-K filed on June 11, 2009, File No. 000-17170). 10.26 The TelVue Corporation 2009 Stock Option Plan, dated June 10, 2009 (incorporated by reference to the Form 8-K filed on August 7, 2009, File No. 000-17170). 10.27 Line of Credit Note, dated October 5, 2009, between H.F. (Gerry) Lenfest and TelVue (incorporated by reference to the Form 8-K filed on October 6, 2009, File No. 000-17170). 11. Statement re: Computation of Per Share Earnings (see TelVue's June 30, 2009 Financial Statements included herein). 23. Consent of Pressman Ciocca Smith LLP, Independent Registered Public Accounting Firm (incorporated by reference to the 2008 Form 10-K, File No. 000-17170). 30 31.1 Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a). 31.2 Certification of Treasurer-Controller pursuant to Rule 13a-14(a) or 15d- 14(a). 32.1 Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. 32.2 Certification of Treasurer-Controller pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 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: 11/16/09 By: /s/ Jesse Lerman ---------------- Jesse Lerman President and Chief Executive Officer DATED: 11/16/09 By: /s/ John Fell ------------- John Fell Treasurer-Controller EXHIBIT INDEX 31.1 Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a). 31.2 Certification of Treasurer-Controller pursuant to Rule 13a-14(a) or 15d-14(a). 32.1 Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Treasurer-Controller pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 31 EX-31 2 ex_31-1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 31.1 CERTIFICATION I, Jesse Lerman, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of TelVue Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: 11/16/09 /s/ Jesse Lerman ---------------- Jesse Lerman President and Chief Executive Officer EX-31 3 ex_31-2.txt CERTIFICATION OF TREASURER-CONTROLLER EXHIBIT 31.2 CERTIFICATION I, John Fell, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of TelVue Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: 11/16/09 /s/ John Fell ------------- John Fell Treasurer-Controller EX-32 4 ex_32-1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 32.1 TELVUE CORPORATION CERTIFICATION PURSUANT TO 18 U.S.C. sec. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of TelVue Corporation (the "Company") on Form 10-Q for the period ended September 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jesse Lerman, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: 11/16/09 /s/ Jesse Lerman ---------------- Jesse Lerman President and Chief Executive Officer EX-32 5 ex_32-2.txt CERTIFICATION OF TREASURER-CONTROLLER EXHIBIT 32.2 TELVUE CORPORATION CERTIFICATION PURSUANT TO 18 U.S.C. sec. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of TelVue Corporation (the "Company") on Form 10-Q for the period ended September 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John Fell, Controller of the Company, certify, pursuant to 18 U.S.C. sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: 11/16/09 /s/ John Fell ------------- John Fell Treasurer-Controller -----END PRIVACY-ENHANCED MESSAGE-----