-----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, K38smkNYfevlBRZvVTzHH60ZUXJhXV98igRQHq/G33p+5AWGiZeqdJpPDzsA70lb L7Ant80WyLxkSfC7q37zlQ== 0001161697-10-000772.txt : 20100816 0001161697-10-000772.hdr.sgml : 20100816 20100816145118 ACCESSION NUMBER: 0001161697-10-000772 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20100630 FILED AS OF DATE: 20100816 DATE AS OF CHANGE: 20100816 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: 101019051 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 06-30-2010 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 June 30, 2010 [_] 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 August 10, 2010: 48,574,144 shares. TELVUE CORPORATION INDEX PAGE NO. ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets as of June 30, 2010 (unaudited) and December 31, 2009 ............................................. 3 Statements of Operations for the three months ended June 30, 2010 (unaudited) and June 30, 2009 (unaudited) ........... 4 Statements of Operations for the six months ended June 30, 2010 (unaudited) and June 30, 2009 (unaudited) ........... 5 Statements of Cash Flows for the six months ended June 30, 2010 (unaudited) and June 30, 2009 (unaudited) ........... 6 Notes to 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 4. Controls and Procedures .................................. 27 PART II. OTHER INFORMATION Item 6. Exhibits ................................................. 27 SIGNATURES ................................................................. 31 EXHIBIT INDEX .............................................................. 31 2 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS TELVUE CORPORATION BALANCE SHEETS June 30, December 31, 2010 2009 ------------ ------------ ASSETS (Unaudited) (Audited) CURRENT ASSETS Cash and cash equivalents ................... $ 156,669 $ 112,213 Accounts receivable - trade, net of Allowances of $13,012 at June 30, 2010 and $19,080 at December 31, 2009 ...... 637,886 934,933 Inventory ................................... 362,228 258,952 Prepaid expenses ............................ 43,309 18,206 ------------ ------------ TOTAL CURRENT ASSETS ..................... 1,200,092 1,324,304 PROPERTY AND EQUIPMENT ........................ 7,399,461 7,367,653 Less accumulated depreciation ............... 6,743,848 6,495,749 ------------ ------------ 655,613 871,904 DEFINITE-LIVED INTANGIBLE ASSETS, Net of accumulated amortization of $2,016,093 at June 30, 2010 and $1,723,520 at December 31, 2009 ............ 2,532,627 2,825,200 INDEFINITE-LIVED INTANGIBLE ASSETS-OTHER ...... 397,260 397,260 OTHER ASSETS .................................. 19,665 19,665 ------------ ------------ $ 4,805,257 $ 5,438,333 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Accounts payable - trade .................... $ 268,690 $ 331,993 Accrued expenses ............................ 124,107 81,225 Deferred service revenue .................... 541,923 538,472 Other liabilities ........................... 128 704 ------------ ------------ TOTAL CURRENT LIABILITIES ................ 934,848 952,394 LINES OF CREDIT - MAJORITY STOCKHOLDER ........ 18,000,000 17,400,000 NOTE PAYABLE - MAJORITY STOCKHOLDER ........... 541,000 541,000 ACCRUED INTEREST - MAJORITY STOCKHOLDER ....... 3,202,590 2,769,311 STOCKHOLDERS' EQUITY (DEFICIT) Common stock, $.01 par value, 100,000,000 shares authorized, 48,561,644 and 48,561,644 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively ... 485,617 485,617 Additional paid-in capital .................. 4,879,853 4,879,853 Accumulated deficit ......................... (23,238,651) (21,589,842) ------------ ------------ (17,873,181) (16,224,372) ------------ ------------ $ 4,805,257 $ 5,438,333 ============ ============ See the accompanying unaudited notes which are an integral part of these statements. 3 TELVUE CORPORATION STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended June 30, ------------------------------ 2010 2009 ------------ ------------ REVENUES TPS services ............................. $ 731,143 $ 786,837 ANI services ............................. 240,546 308,231 ------------ ------------ 971,689 1,095,068 COST OF REVENUES TPS services ............................. 339,384 359,440 ANI services ............................. 27,848 82,424 ------------ ------------ TOTAL COST OF REVENUES ..................... 367,232 441,864 ------------ ------------ GROSS MARGIN ............................... 604,457 653,204 OPERATING EXPENSES Selling and marketing .................... 332,195 280,950 General and administrative ............... 562,233 600,198 Depreciation and amortization ............ 263,857 277,673 ------------ ------------ 1,158,285 1,158,821 ------------ ------------ OPERATING LOSS ............................. (553,828) (505,617) OTHER INCOME (EXPENSE) Interest income .......................... - 2 Interest expense ......................... (220,653) (198,816) ------------ ------------ TOTAL OTHER INCOME (EXPENSE) ............... (220,653) (198,814) ------------ ------------ NET LOSS ................................... $ (774,481) $ (704,431) ============ ============ BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (.02) $ (.01) ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING BASIC AND DILUTED ....................... 48,561,644 48,539,666 ============ ============ See the accompanying unaudited notes which are an integral part of these statements. 4 TELVUE CORPORATION STATEMENTS OF OPERATIONS (UNAUDITED) Six Months Ended June 30, ------------------------------ 2010 2009 ------------ ------------ REVENUES TPS services ............................. $ 1,364,594 $ 1,413,152 ANI services ............................. 494,667 605,661 ------------ ------------ 1,859,261 2,018,813 COST OF REVENUES TPS services ............................. 622,701 695,268 ANI services ............................. 68,634 177,766 ------------ ------------ TOTAL COST OF REVENUES ..................... 691,335 873,034 ------------ ------------ GROSS MARGIN ............................... 1,167,926 1,145,779 OPERATING EXPENSES Selling and marketing .................... 655,646 514,552 General and administrative ............... 1,187,138 1,272,950 Depreciation and amortization ............ 540,672 562,624 ------------ ------------ 2,383,456 2,350,126 ------------ ------------ OPERATING LOSS ............................. (1,215,530) (1,204,347) OTHER INCOME (EXPENSE) Interest income .......................... - 4 Interest expense ......................... (433,279) (389,030) ------------ ------------ TOTAL OTHER INCOME (EXPENSE) ............... (433,279) (389,026) ------------ ------------ NET LOSS ................................... $ (1,648,809) $ (1,593,373) ============ ============ BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (.03) $ (.03) ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING BASIC AND DILUTED ....................... 48,561,644 48,500,871 ============ ============ See the accompanying unaudited notes which are an integral part of these statements. 5 TELVUE CORPORATION STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended June 30, ----------------------------- 2010 2009 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net loss ................................... $ (1,648,809) $ (1,593,373) Adjustments to reconcile net loss to net cash (used in) operating activities: Depreciation and amortization ............ 540,672 562,624 Changes in assets and liabilities: Accounts receivable - trade .............. 297,047 (183,405) Inventory ................................ (103,276) (65,587) Prepaid expenses ......................... (25,103) (24,227) Other Assets ............................. - (1,630) Accounts payable - trade ................. (63,303) 150,545 Accrued expenses ......................... 42,306 (117,447) Deferred service revenue ................. 3,451 109,551 Accrued interest - majority stockholder .. 433,279 389,030 ------------ ------------ NET CASH (USED IN) OPERATING ACTIVITIES .. (523,736) (773,919) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment ........ (31,808) (170,475) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from line of credit - majority stockholder ............................... 600,000 750,000 Issuance of common stock ................... - 3,500 ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 600,000 753,500 ------------ ------------ NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS .................................. 44,456 (190,894) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 112,213 250,698 ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD ..... $ 156,669 $ 59,804 ============ ============ See the accompanying unaudited notes which are an integral part of these statements. 6 TELVUE CORPORATION NOTES TO 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 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 June 30, 2010 and December 31, 2009 and the results of operations for the three and six months ended June 30, 2010 and 2009 and cash flows for the six months ended June 30, 2010 and 2009. 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, 2009, as filed with the Securities and Exchange Commission. Prior period financial statements have been reclassified to conform with current quarter presentation. Business Combination - -------------------- Under the provisions of generally accepted accounting principles, the Company accounts for all business combinations by the acquisition 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. 7 TELVUE CORPORATION NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 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. 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. 2. ACQUISITION ----------- On March 12, 2007, the Company acquired all of the issued and outstanding shares of capital stock of Princeton Server Group, Inc. ("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 acquisition 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. At December 31, 2008, management determined that the goodwill acquired with the acquisition of PSG in 2007 was impaired and an impairment charge of $1,921,405 was recognized, eliminating the goodwill balance. The trademarks have been assigned an indefinite life. 3. SUPPLEMENTAL CASH FLOW INFORMATION ---------------------------------- No income taxes or interest were paid during the six months ended June 30, 2010 or 2009. 8 TELVUE CORPORATION NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 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 six months ended June 30, 2010 and 2009, 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 June 30, 2010 and 2009 consisted of the following components: 2010 2009 ----------- ----------- Current Federal .......................... $ - $ - State ............................ - - ----------- ----------- - - Deferred Federal .......................... 200,000 222,000 State ............................ 55,000 60,000 ----------- ----------- 255,000 282,000 Valuation allowance increase ...... (255,000) (282,000) ----------- ----------- - - ----------- ----------- Total ............................. $ - $ - =========== =========== 9 TELVUE CORPORATION NOTES TO FINANCIAL STATEMENTS (UNAUDITED) TelVue recorded an increase in valuation allowance of $255,000 at June 30, 2010 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 carry forward. TelVue's federal net operating loss carry forward was approximately $14,000,000 on a tax-reporting basis as of June 30, 2010. The carry forward will begin to expire on December 31, 2010, if not utilized. In June 2006, the Financial Accounting Standards Board 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 is 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 carry forward 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 WEBUS(R) service. 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 10 TELVUE CORPORATION NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 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 June 30, 2010, accrued interest due on the 2005 Note was $1,012,564. 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 June 30, 2010, TelVue had borrowed $10,000,000 under the 2006 Note, fully exhausting the 2006 Note. As of June 30, 2010, accrued interest due on the 2006 Note was $1,934,319. 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 WEBUS(R) with the objective being to offer towns, municipalities and schools a packaged turnkey product of hardware and software. 11 TELVUE CORPORATION NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 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, which was May 5, 2008. As of June 30, 2010, TelVue had borrowed $2,300,000 under the 2007 Note, fully exhausting the 2007 Note. As of June 30, 2010, accrued interest due on the 2007 Note was $196,611. 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, which was March 3, 2009. As of June 30, 2010, TelVue had borrowed $400,000 under the 2009 Q1 Note, fully exhausting the 2009 Q1 Note. As of June 30, 2010, accrued interest due on the 2009 Q1 Note was $22,614. 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, which was June 9, 2009. As of June 30, 2010, TelVue had borrowed $500,000 under the 2009 Q2 Note, fully exhausting the 2009 Q2 Note. As of June 30, 2010, accrued interest due on the 2009 Q2 Note was $21,093. 12 TELVUE CORPORATION NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Line of Credit (2009 Q3 Note) - Majority Stockholder - ---------------------------------------------------- As a result of the anticipated exhaustion of the line of credit under the 2009 Q2 Note, 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, which was October 14, 2009. As of June 30, 2010, TelVue had borrowed $400,000 under the 2009 Q3 Note, fully exhausting the 2009 Q3 Note. As of June 30, 2010, accrued interest due on the 2009 Q3 Note was $10,935. Line of Credit (2010 Note) - Majority Stockholder - ------------------------------------------------- As a result of the anticipated exhaustion of the line of credit under the 2009 Q3 Note, TelVue entered into an additional Line of Credit Note with Mr. Lenfest on December 8, 2009 in the principal amount of $1,500,000 (the "2010 Note"). The minimum advance under the 2010 Note is $100,000 and the interest rate is equal to the prime rate plus one percent (1%). The 2010 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 2010 Note may be declared immediately due and payable. The 2010 Note is unsecured and will expire six years from the date of the first advance under the 2010 Note unless extended or renewed. Principal and interest on the 2010 Note are also due and payable six years from the date of the first advance under the 2010 Note, which was March 16, 2010. As of June 30, 2010, TelVue had borrowed $600,000 under the 2010 Note, with accrued interest in the amount of $4,454. 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(R) broadcast and storage servers, and encoding and transcoding workstations and services such as WEBUS(R) and PEG.TV(TM). TelVue Princeton(R) are 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. TelVue's second business segment is the marketing and service division which sells automatic number identification ("ANI") telecommunication services to the cable television industry. 13 TELVUE CORPORATION NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Summarized financial information by reporting segment as of and for each of the six months ended June 30, 2010 and 2009, is as follows: Six months ended June 30, 2010 TPS ANI Total - ------------------------------ ----------- ----------- ----------- Revenues $ 1,364,594 $ 494,667 $ 1,859,261 Depreciation and amortization 471,192 69,480 540,672 Operating income/(loss) (1,485,919) 270,389 (1,215,530) Interest expense 361,051 72,228 433,279 Net income/(loss) (1,846,970) 198,161 (1,648,809) Capital expenditures 31,808 - 31,808 Six months ended June 30, 2009 TPS ANI Total - ------------------------------ ----------- ----------- ----------- Revenues $ 1,413,152 $ 605,661 $ 2,018,813 Depreciation and amortization 474,536 88,088 562,624 Operating income/(loss) (1,424,735) 220,388 (1,204,347) Interest expense 303,443 85,583 389,026 Net income/(loss) (1,728,178) 134,805 (1,593,373) Capital expenditures 170,475 - 170,475 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, 2009 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. 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 June 30, 2010 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 is a broadcast technology company that specializes in playback, automation and workflow solutions for public, education and government ("PEG") television stations, cable, telephone company ("Telco") and satellite television providers, K-12 and higher education institutions and professional broadcasters. TelVue now delivers local programming to over 15 million homes nationwide, powers over 1,000 PEG television channels, provides Leased Access and Local Origination solutions to 7 of the top 10 Multi System Operators ("MSOs") and the nation's largest telephone company, and delivers on-campus local channels to over 850,000 students on college campuses nationally. TelVue operates two business segments. The first segment, TPS, includes equipment such as the TelVue Princeton(R) broadcast and storage servers, and encoding and transcoding workstations and services such as WEBUS(R) and PEG.TV(TM). TelVue Princeton(R) are 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 15 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. TelVue is currently marketing TelVue Princeton(R), WEBUS(R), and PEG.TV(TM) to municipal governments, K-12 school districts, higher education institutions, cable and Telco MSOs, and other broadcasters as a means of lowering the cost, simplifying operations, and improving the quality of their local channels. TPS products include: TelVue Princeton(R) Digital Broadcaster B100 TelVue Princeton(R) Digital Broadcaster B1000 TelVue Princeton(R) Digital Broadcaster B3000 TelVue Princeton(R) Digital Video Archive Server S3000F TelVue Princeton(R) Encoding Workstation C500W TelVue Princeton(R) Encoding and Transcoding Workstation T7400E TPS services include: WEBUS(R) Automated broadcast digital signage display on TV Channel WEBUS Inside(TM) WEBUS(R) integrated within TelVue Princeton(R) Servers WEBLINX(TM) Automated WEBUS(R) message display on websites VideoActives(TM) Real time, dynamic video content for channels PEG.TV(TM) Internet Streaming and Video-on-Demand Service TelVue's second and legacy business segment is the marketing and service company which sells ANI telecommunication services to the cable television industry. 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 National Data Center in Philadelphia, Pennsylvania. TelVue serves cable television systems across the United States via trunk lines and data circuits that it currently leases from Qwest. TelVue believes it receives a favorable trunk usage rate from Qwest. 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. NEW PRODUCTS AND SERVICES TelVue continued to invest in research and development throughout the second quarter of 2010 and introduced a number of new products and feature enhancements. In the second quarter of 2010, at the National Association of Broadcasters show, TelVue introduced a new all-digital TelVue Princeton(R) broadcast server model, the HyperCaster. The TelVue Princeton(R) HyperCaster builds on previous TelVue IPTV server models for cable, Telco, and professional markets by adding new support for streaming advanced video codecs (AVC/H.264) used increasingly in the industry for bandwidth savings for both standard and high-definition channels as well as new technologies such as 3D-TV. Additionally, the HyperCaster supports integration with a widely deployed traffic and campaign management system. The traffic system integration allows the HyperCaster to be easily deployed for new, revenue generating local origination applications such as targeted longform advertisements and infomercials. The HyperCaster delivers up to 20 all-digital channels in one box, eliminating the cost of encoders, improving quality, and allowing for higher density solutions for hyperlocal channel origination. The HyperCaster can be centrally managed, making it easier for operators to maintain regulatory compliance for Leased Access and PEG channels, and launch new local channels as consumer demand rises for hyperlocal content such as sports and news. 16 In the second quarter of 2010, TelVue also introduced CampusOneTV, the first affordable, high-definition campus television broadcast platform for the education market. CampusOneTV provides an all-in-one video solution for campuses including local, high-definition television channels, digital signage and life safety, and streaming and Video-on-Demand. In addition, TelVue introduced a new digital media archive and retrieval product compatible with the Public Broadcasting Metadata standard, PBCore, used by a growing number of Public Broadcasting Service ("PBS") stations. TelVue deployed its PBCore digital media archive solution at a leading PBS affiliate. TelVue's PBCore storage and archiving solution makes content more accessible for reuse, collaboration, Internet distribution, or as niche content for specific community, service, and institutional needs. TRADEMARKS On June 15, 2010, TelVue was awarded the trademark for the "TelVue Princeton" name. CRITICAL ACCOUNTING POLICIES In presenting its 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 the Company 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 result in a material adverse impact to TelVue's results of operations, financial position and liquidity. TelVue believes that the estimates and assumptions 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 TelVue's discussion and analysis of its financial condition and results of operations are based upon its financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company 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, TelVue evaluates estimates, including those related to impairment of long-lived assets and allowance for doubtful accounts. TelVue bases its estimates on historical experience and on various other assumptions that the Company believes 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, TelVue 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. 17 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. Revenue Recognition In accordance with accounting principles generally accepted in the United States, TelVue recognizes revenues related to TelVue Princeton(R) upon shipment of the equipment to its customers. Revenues related to its 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. 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 of TelVue'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 the year ended December 31, 2009, which contains accounting policies and other disclosures required by accounting principles generally accepted in the United States. RESULTS OF OPERATIONS: The following discussion deals with the decrease in operating income for the three months and six months ended June 30, 2010, compared to the three and six months ended June 30, 2009, and the reasons for the decrease. TelVue further discusses the continued loss of its subscriber base for the ANI service, when comparing the three and six months ended June 30, 2010 to the three and six months ended June 30, 2009. TelVue also discusses the changes in TPS revenue and expenses. 18
Three Months Ended June 30, June 30, $ Change % Change 2010 2009 Fav/(Unfav) Fav/(Unfav) ------------ ------------ ----------- ----------- Revenues TPS ...................... $ 731,143 $ 786,837 $ (55,694) (7.1) ANI Services ............. 240,546 308,231 (67,685) (22.0) Cost of Revenues TPS ...................... 339,384 359,440 20,056 5.6 ANI Services ............. 27,848 82,424 54,576 66.2 Operating Expenses Selling and marketing .... 332,195 280,950 (51,245) (18.2) General and administrative 562,233 600,198 37,965 6.3 Depreciation and amortization ............ 263,857 277,673 13,816 5.0 ------------ ------------ ----------- ----------- Operating Loss .............. (553,828) (505,617) (48,211) (9.5) Other Income (Expense) ...... (220,653) (198,814) (21,839) (11.0) ------------ ------------ ----------- ----------- Net Loss .................... $ (774,481) $ (704,431) $ (70,050) (9.9) ============ ============ =========== =========== Six Months Ended June 30, June 30, $ Change % Change 2010 2009 Fav/(Unfav) Fav/(Unfav) ------------ ------------ ----------- ----------- Revenues TPS ...................... $ 1,364,594 $ 1,413,152 $ (48,558) (3.4) ANI Services ............. 494,667 605,661 (110,994) (18.3) Cost of Revenues TPS ...................... 622,701 695,268 72,567 10.4 ANI Services ............. 68,634 177,766 109,132 61.4 Operating Expenses Selling and marketing .... 655,646 514,552 (141,094) (27.4) General and administrative 1,187,138 1,272,950 85,812 6.7 Depreciation and amortization ............ 540,672 562,624 21,952 3.9 ------------ ------------ ----------- ----------- Operating Loss .............. (1,215,530) (1,204,347) (11,183) (0.9) Other Income (Expense) ...... (433,279) (389,026) (44,253) (11.4) ------------ ------------ ----------- ----------- Net Loss .................... $ (1,648,809) $ (1,593,373) $ (55,436) (3.5) ============ ============ =========== ===========
19 The TPS segment had operating losses of $694,489 and $1,485,919 for the three and six months ended June 30, 2010, respectively, compared to operating losses of $626,020 and $1,424,735 for the three and six months ended June 30, 2009 primarily due to higher sales and marketing expenses for the Company's growth in the cable, Telco and professional broadcast markets and decreased ANI revenues, offset by savings in direct and general and administrative expenses. The ANI segment had operating income of $140,661 and $270,389 for the three and six months ended June 30, 2010, respectively, compared to $120,403 and $220,388 for the three and six months ended June 30, 2009. The increase in operating income for the ANI segment was mainly a result of a change in the allocation of expenses whereby a lower percentage of expenses were allocated to the ANI segment, in addition to savings in telecommunications expenses related to the ANI service, which offset the anticipated decrease in ANI revenues. Revenues TPS revenues decreased $55,694 and $48,558 for the three and six months ended June 30, 2010, respectively, compared to the same periods of 2009. The majority of the revenue decreases were attributed to anticipated declines in sponsorship revenue related to the WEBUS(R) service, in addition to lower consulting revenue when comparing the three and six months ended June 30, 2010 to the three and six months ended June 30, 2009. These decreases were offset by an increase in PEG.TV(TM) revenue, in addition to an increase in TelVue Princeton(R) support revenue. TelVue Princeton(R) sales growth was slowed largely due to reduced municipal budgets impacting PEG and K-12 educational market new systems sales. TelVue believes that government and K-12 educational markets have seen a delayed reaction to the economic downturn that began in 2008 due to the nature of their budget approval cycles. Additionally, growth in reseller and Original Equipment Manufacturer sales to these markets was similarly impacted. The Company expects to see a modest increase in government and K-12 educational sales as new budgets are approved for fiscal year 2010-2011. TelVue has been able to partially offset the decline in new system sales in the PEG and education markets by focusing sales resources on add-on sales to existing customers including its TelVue Care maintenance and support service. Sales of TelVue Care service increased 21% in the second quarter of 2010 compared to the same period of 2009. Slower PEG and K-12 educational new system sales were offset by increased sales to cable, Telco and professional broadcasters. The Company has been shifting product, sales, and marketing resources to the cable, Telco, and professional broadcast markets that have not been as adversely affected by the economy. This strategy has been effective in counter-balancing the slow-down in the PEG and education markets and has created new opportunities for TelVue. To support the initial success of this shift in sales resources, whereas the PEG/education vs. cable/Telco/pro sales mix was 70% PEG/education vs. 30% cable/Telco/pro in the second quarter of 2009, the mix in the second quarter of 2010 was 75% cable/Telco/pro and 25% PEG/education. In the first and second quarters of 2010, TelVue sold multiple TelVue Princeton(R) servers to a number of top 10 MSOs. In the second quarter of 2010, TelVue closed on a blanket $250,000 purchase order for 100 servers with a content provider that delivers specialized broadcast channels to patients in hospitals. Revenue has not yet been recognized for this blanket order, as servers will be delivered over an 18 month period. The 100 unit blanket order and the top 10 MSO cable system sales demonstrate that TelVue's growth in professional markets is leading to larger, multi-unit and repeat orders. TelVue expects to continue to expand in the cable, Telco, and professional broadcast markets and also believes the Company will resume growth in the PEG and education markets as the economy recovers into 2011. 20 ANI services revenue decreased $67,685 and $110,994 for the three and six months ended June 30, 2010, when compared to the same periods of 2009. As expected, pay-per-view buy revenue decreased $5,714 and $7,452 for the three and six months ended June 30, 2010, and pay-per-view plus revenue decreased $11,974 and $17,787 for the three and six months ended June 30, 2010 when compared to the same periods of 2009. These decreases were mainly due to a reduction in the number of subscribers served during these periods when compared to 2009 (as discussed below). Additionally, there were decreases in feature revenue of $35,426 and $62,195 for the three and six months ended June 30, 2010, respectively, and decreases in data link revenue of $13,519 and $23,636, respectively, when comparing the three and six months ended June 30, 2010 to the three and six months ended June 30, 2009. 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. As of June 30, 2010, the TelVue ANI service was serving approximately 1.7 million full-time cable subscribers compared to approximately 4.0 million full-time cable subscribers served as of June 30, 2009. During the second quarter of 2010, Cablevision cancelled its ANI service, accounting for the loss of approximately 2.0 million subscribers. The subscriber decline is the result of cable operators moving to two-way digital services which limit the number of analog pay-per-view channels available for content and allow the cable operator's customers to order digital pay-per-view or video on demand via the set top box, eliminating the need for the TelVue 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 revenue and operating income indefinitely for its ANI segment. Cost of Revenues Cost of revenues for the TPS segment decreased $20,056 and $72,567 for the three and six months ended June 30, 2010, respectively, when compared to the same periods of 2009, primarily as a result of lower cost of sales related to consulting revenue and lower product cost of sales, offset by an increase in product discounts and higher compensation expense. ANI cost of revenues decreased $54,576 and $109,132 for the three and six months ended June 30, 2010, respectively, when compared to the same periods of 2009. This decrease was primarily due to savings in compensation expense, in addition to savings in telecommunication expenses related to ANI services. Selling and Marketing Expenses Selling expenses related to the TPS segment increased $51,246 and $141,655 for the three and six months ended June 30, 2010, respectively, when compared to the same periods of 2009. This increase was attributed to higher consulting expenses related to the use of outside sales representatives and an outside marketing consultant focusing on cable and Telco marketing, in addition to higher compensation expense due to being fully staffed for the six months ended June 30, 2010, while having positions open for portions of the six months ended June 30, 2009. Selling expenses related to the ANI segment decreased by $1 and $561 for the three and six months ended June 30, 2010, respectively, when compared to the same periods of 2009. This decrease was the result of the Company's decision to no longer pay employees commissions on ANI transactions. 21 General and Administrative Expenses TPS general and administrative expenses decreased $14,131 and $53,118 for the three and six months ended June 30, 2010 when compared to the same periods of 2009. This decrease was related to savings in legal fees and bad debt expenses, in addition to lower expenses related to computer supply purchases, offset by higher accounting and outside consulting fees, when comparing the three and six months ended June 30, 2010 to the same periods of 2009. ANI general and administrative expenses decreased $23,834 and $32,694 for the three and six months ended June 30, 2010, respectively, when compared to the same periods of 2009, primarily a result of a change in allocation percentages, where a lower percentage of expenses are being allocated to the ANI segment. Net Loss TelVue had net losses of $774,481 and $1,648,809 for the three and six months ended June 30, 2010, respectively, compared to net losses of $704,431 and $1,593,373 for the three and six months ended June 30, 2009, primarily due to lower revenues, higher sales and marketing expenses, and higher interest expense for the three and six months ended June 30, 2010 when compared to the three and six months ended June 30, 2009. These decreases were offset by expense savings realized when comparing the three and six months ended June 30, 2010 to the same periods of 2009. Income Taxes At June 30, 2010 and 2009, TelVue recorded valuation allowance increases of $255,000 and $282,000, 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 carry forward. TelVue's federal net operating loss carry forward was approximately $14,000,000 on a tax-reporting basis as of June 30, 2010 (see Note 5 of TelVue's accompanying financial statements). Depreciation and Amortization TelVue purchased $31,808 of equipment during the six months ended June 30, 2010 compared to $170,475 purchased during the six months ended June 30, 2009. The majority of the equipment purchased during the six months ended June 30, 2010 and 2009 was for software development and equipment related to the TPS segment. Depreciation and amortization expense decreased $13,816 and $20,952 for the three and six months ended June 30, 2010, respectively, when compared to the three and six months ended June 30, 2009, as a result of fewer capital purchases, in addition to declining amortization expense related to the PSG intangible assets. Depreciation and amortization accounted for 23% of total operating expenses for both the three and six months ended June 30, 2010. Accounts Receivable and Allowance for Doubtful Accounts As of June 30, 2010, TelVue had a net accounts receivable balance of $637,886, compared to $934,933 as of December 31, 2009. This decrease was primarily due to cash collections exceeding new invoicing for the six months ended June 30, 2010. As of June 30, 2010, TelVue maintained a bad debt reserve in the amount of $13,012, compared to a reserve of $19,080 as of December 31, 2009. The reserve was calculated based on the estimate that 2.0% of outstanding receivables would not be collected. 22 TelVue's days for sales in average accounts receivable was 77 days at June 30, 2010, compared to 62 days at June 30, 2009. TelVue will from time to time offer sales incentives and/or discounts to its TelVue Princeton(R) customers. The Company has not changed its credit terms with its customers for its WEBUS(R) or ANI services. A 2% cash, 1% net 15 days discount is offered for payments related to TelVue Princeton(R) equipment purchases. Prepaid Expenses As of June 30, 2010, TelVue had a prepaid expense balance of $43,309, compared to a balance of $18,206 as of December 31, 2009. This increase was primarily the result of paying in-full for the Company's business insurance policies during the six months ended June 30, 2010. The expense related to these policies is spread out evenly over the policy period. Accrued Expenses As of June 30, 2010, TelVue had an accrued expense balance of $124,107, compared to a balance of $81,225 as of December 31, 2009. This increase was primarily due to a higher general expenses accrual than at December 31, 2009, in addition to a high accrual for employee PTO (paid time off), as it is accrued each pay period and most employee vacations are taken in the second six months of the year. Cash and Cash Flows TelVue had negative cash flow from operating activities of $523,736 for the six months ended June 30, 2010, compared to $773,919 for the six months ended June 30, 2009. The increase in cash flow compared to 2009 was primarily due to expense savings exceeding the decreases in revenue, in addition to cash collections for the six months ended June 30, 2010, greatly exceeding cash collections for the six months ended June 30, 2009. Additionally, there was an increase in accrued expenses, offset by more cash expended for accounts payable which contributed to the increase in cash flow when comparing the six months ended June 30, 2010 to the same period of 2009. TelVue had a cash balance of $156,669 as of June 30, 2010, compared to a balance of $59,804 as of June 30, 2009, primarily due to the factors listed above. LIQUIDITY AND CAPITAL RESOURCES: 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, TelVue's majority stockholder, and from loans from Mr. Lenfest. During January 1995, Mr. Lenfest purchased from Science, TelVue's non-interest bearing note in the amount of $541,000. 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. On April 27, 2005, TelVue entered into a Line of Credit Note (the "2005 Note") with Mr. Lenfest. The purpose of the 2005 Note was to provide funding to grow the WEBUS(R) service. Under the terms of the 2005 Note, TelVue 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 of the 2005 Note is equal to the prime rate plus one percent (1%). The 2005 Note contains customary events of default, including, among others, non-payment 23 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 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 June 30, 2010, accrued interest due on the 2005 Note was $1,012,564. As a result of the anticipated exhaustion of the credit under the 2005 Note, TelVue entered into an additional Line of Credit Note (the "2006 Note") with Mr. Lenfest on November 3, 2006, in the principal amount of $10,000,000. 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 on the 2006 Note 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, which was December 26, 2006. As of June 30, 2010, TelVue had borrowed $10,000,000 under the 2006 Note with accrued interest in the amount of $1,934,319, fully exhausting this note. 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 (the "2007 Note") with Mr. Lenfest on December 21, 2007, in the principal amount of $2,300,000. The minimum advance under the 2007 Note is $100,000 and the interest rate on the 2007 Note 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, which was May 5, 2008. As of June 30, 2010, TelVue had borrowed $2,300,000 under the 2007 Note with accrued interest in the amount of $196,611, fully exhausting this note. 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 (the "2009 Q1 Note") with Mr. Lenfest on March 2, 2009, in the principal amount of $400,000. The minimum advance under the 2009 Q1 Note is $100,000 and the interest rate on the 2009 Q1 Note 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, which was March 3, 2009. As of June 30, 2010, TelVue had borrowed $400,000 under the 2009 Q1 Note with accrued interest in the amount of $22,614, fully exhausting this note. 24 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 (the "2009 Q2 Note") with Mr. Lenfest on June 8, 2009, in the principal amount of $500,000. The minimum advance under the 2009 Q2 Note is $100,000 and the interest rate on the 2009 Q2 Note 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, which was June 9, 2009. As of June 30, 2010, TelVue had borrowed $500,000 under the 2009 Q2 Note with accrued interest in the amount of $21,093, fully exhausting this note. As a result of the anticipated exhaustion of the line of credit under the 2009 Q2 Note, TelVue entered into an additional Line of Credit Note (the "2009 Q3 Note") with Mr. Lenfest on October 5, 2009, in the principal amount of $400,000. The minimum advance under the 2009 Q3 Note is $100,000 and the interest rate on the 2009 Q3 Note 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, which was October 14, 2009. As of June 30, 2010, TelVue had borrowed $400,000 under the 2009 Q3 Note with accrued interest in the amount of $10,935, fully exhausting this note. As a result of the anticipated exhaustion of the line of credit under the 2009 Q3 Note, TelVue entered into an additional Line of Credit Note (the "2010 Note") with Mr. Lenfest on December 8, 2009, in the principal amount of $1,500,000. The minimum advance under the 2010 Note is $100,000 and the interest rate on the 2010 Note is equal to the prime rate plus one percent (1%). The 2010 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 2010 Note may be declared immediately due and payable. The 2010 Note is unsecured and will expire six years from the date of the first advance under the 2010 Note unless extended or renewed. Principal and interest on the 2010 Note are also due and payable six years from the date of the first advance under the 2010 Note, which was March 16, 2010. As of June 30, 2010, TelVue had borrowed $600,000 under the 2010 Note, with accrued interest in the amount of $4,454. 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 48 monthly installments of principal and interest commencing February 1, 2008. The PSG Note was scheduled to mature in January 2012. TelVue had the option to convert the unpaid principal balance of the note and all accrued interest into common stock of PSG. In connection with the PSG Note, TelVue received a warrant to purchase 129,629 shares of common stock of PSG at an exercise price of $1.08 per share. The warrant was to commence on July 1, 2007 and expire on December 31, 2016. The PSG Note was forgiven on March 12, 2007, in connection with TelVue's acquisition of all of the outstanding stock of PSG. 25 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 TV and local origination broadcast stations, professional broadcast stations and schools and universities. TelVue acquired PSG as a complement to its WEBUS(R) service with the objective being to offer towns, municipalities and schools a packaged turnkey product of hardware and software. On June 16, 2005, Mr. Lenfest, the holder of all of TelVue's outstanding Class A Redeemable Convertible Preferred Stock (the "Preferred Stock"), informed TelVue of his intent to convert all of his 3,518,694 shares of Preferred Stock into TelVue's common stock. Each share of Preferred Stock was convertible into 6.667 shares of common stock. The conversion of the Preferred Stock to common stock occurred on August 2, 2005, upon Mr. Lenfest's delivery of the Preferred Stock in the form of a lost certificate affidavit. As a result of the conversion, TelVue issued 23,459,133 shares of common stock to Mr. Lenfest. Mr. Lenfest's beneficial ownership interest in the common stock of TelVue, after the cancellation of the warrants to purchase common stock described below, was approximately 78.3 percent as of December 31, 2006. The Preferred Stock was eliminated and is included as 23,459,133 shares of common stock in the stockholders' equity section of the balance sheet. On August 21, 2006, the Board of Directors, with Mr. Lenfest abstaining from the action, waived the two year holding period required to receive the full voting power of ten votes per share for the 23,459,133 shares of common stock Mr. Lenfest received for the conversion of his Preferred Stock. The Preferred Stock had a par value of $1 per share and provided for a cumulative six percent (6%) semiannual dividend. The dividend was payable in cash or additional shares of Preferred Stock at $1 per share, at TelVue's option. TelVue had accrued dividends on the Preferred Stock since the beginning of 1998, but no dividends had been paid. On June 16, 2005, Mr. Lenfest agreed to relinquish his right to all accrued but unpaid dividends attributable to the Preferred Stock. Therefore, $3,061,269 of accrued dividends was reversed and is included in stockholders' equity as a decrease to TelVue's accumulated deficit. On June 16, 2005, the members of the Board of Directors of TelVue and Mr. Lenfest agreed to terminate a Warrant Agreement between Mr. Lenfest and TelVue. Pursuant to the Warrant Agreement, Mr. Lenfest had the right to purchase up to 29,915,160 shares of TelVue's common stock for $.01 per share, the fair market value of the common stock on the grant date. The Warrant Agreement was entered into on March 15, 1991, in connection with a prior line of credit to TelVue provided by Mr. Lenfest. 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. 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. As discussed above, during the six months ended June 30, 2010, TelVue had 2.0 million full and part-time subscribers cancel service and no new subscribers were added to the ANI service. The cable operators cancelled the ANI service primarily as a result of moving their subscribers onto two-way digital service. TelVue has been, and continues to be, dependent upon Mr. Lenfest for funds to pay the majority of operating and capital expenditures. As discussed above, the financings from Mr. Lenfest under the 2005 Note, 2006 Note, 2007 Note, 2009 Q1 Note, 2009 Q2 Note and 2009 Q3 Note have been exhausted. As a result of this, TelVue secured the 2010 Note from Mr. Lenfest to help TelVue grow to a 26 profitable level. The 2005 Note, 2006 Note, 2007 Note, 2009 Q1 Note, 2009 Q2 Note and 2009 Q3 Note have helped, and the 2010 Note will help, to fund the growth of the TPS segment. 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. TelVue expects to see some continued adverse effects on new TPS system sales during 2010 due to the current economic conditions, primarily in the PEG and educational markets. The Company anticipates some of this being offset by add-on sales to existing customers as well as its continued expansion into the cable, Telco, and professional broadcast markets. 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 4. 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. PART II. OTHER INFORMATION ITEM 6. 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 the TelVue's Form 10-QSB for the period ended September 30, 1995, (the September 30, 1995 Form 10-QSB), File No. 000-17170). 27 4.1 The TelVue Corporation 1999 Stock Option Plan (incorporated by reference to Exhibit 99 of 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 June 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 June 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). 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). 28 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). 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 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). 29 10.24 Fifth Amendment to Office Lease Agreement dated March 16, 2009, between TelVue and The Bloom Organization of South Jersey, LLC (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). 10.28 Line of Credit Note, dated December 8, 2009, between H.F. (Gerry) Lenfest and TelVue (incorporated by reference to the Form 8-K filed on December 9, 2009, File No. 000-17170). 10.29 Lease Agreement dated March 1, 2010 for office space ("2010 Office Lease Agreement") and the First Amendment to the 2010 Office Lease Agreement dated March 15, 2010 between TelVue and The Bloom Organization of South Jersey, LLC (incorporated by reference to the Form 8-K filed on March 19, 2010, File No. 000-17170). 11. Statement re: Computation of Per Share Earnings (see TelVue's June 30, 2010 Financial Statements included herein). 23. Consent of Pressman Ciocca Smith LLP, Independent Registered Public Accounting Firm (incorporated by reference to the December 31, 2009 Form 10-K, File No. 000-17170). 31.1 Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a)(included herein). 31.2 Certification of Treasurer-Controller pursuant to Rule 13a-14(a) or 15d-14(a)(included herein). 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 (included herein). 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 (included herein). 30 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: 08/16/10 By: /s/ Jesse Lerman ---------------- Jesse Lerman President and Chief Executive Officer DATED: 08/16/10 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: 08/16/10 /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: 08/16/10 /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 June 30, 2010 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: 08/16/10 /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 June 30, 2010 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: 08/16/10 /s/ John Fell ------------- John Fell Treasurer-Controller -----END PRIVACY-ENHANCED MESSAGE-----