UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2009
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from________to________
Commission File Number: 0-17170
TELVUE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 51-0299879
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16000 Horizon Way, Suite 500
Mt. Laurel, New Jersey 08054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (856) 273-8888
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [_] No [_]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [_] Accelerated filer [_]
Non-accelerated filer [_] Smaller reporting company [X]
(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes [_] No [X]
Number of shares of registrant's common stock outstanding as of October 30,
2009: 48,561,644 shares.
TELVUE CORPORATION
INDEX
PAGE
NO.
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2009 (unaudited)
and as of December 31, 2008 ....................................... 3
Consolidated Statements of Operations for the three months ended
September 30, 2009 (unaudited) and September 30, 2008 (unaudited) . 4
Consolidated Statements of Operations for the nine months ended
September 30, 2009 (unaudited) and September 30, 2008 (unaudited) . 5
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2009 (unaudited) and September 30, 2008 (unaudited) . 6
Notes to Consolidated Financial Statements (unaudited) ............ 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............ 15
Item 3. Quantitative and Qualitative Disclosures About
Market Risk .............................................. 27
Item 4T. Controls and Procedures .................................. 27
PART II. OTHER INFORMATION
Item 6. Exhibits ................................................. 28
SIGNATURES ................................................................. 31
EXHIBIT INDEX .............................................................. 31
2
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
TELVUE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2009 2008
------------ ------------
ASSETS (Unaudited) *
CURRENT ASSETS
Cash and cash equivalents .................... $ 166,968 $ 250,698
Accounts receivable - trade, net of
Allowances of $68,620 at September 30,
2009 and $5,700 at December 31, 2008 ........ 740,548 560,579
Inventory .................................... 387,703 266,032
Prepaid expenses ............................. 45,294 54,636
------------ ------------
TOTAL CURRENT ASSETS ...................... 1,340,513 1,131,945
PROPERTY AND EQUIPMENT ......................... 7,343,802 7,235,689
Less accumulated depreciation ................ 6,360,793 6,051,809
------------ ------------
983,009 1,183,880
DEFINITE-LIVED INTANGIBLE ASSETS,
Net of accumulated amortization of
$1,575,882 at September 30, 2009 and
$1,132,969 at December 31, 2008 ............. 2,972,838 3,415,751
INDEFINITE-LIVED INTANGIBLE ASSETS-OTHER ....... 397,260 397,260
OTHER ASSETS ................................... 10,430 8,800
------------ ------------
$ 5,704,050 $ 6,137,636
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable - trade ..................... $ 374,130 $ 315,236
Accrued expenses ............................. 334,240 444,659
Deferred service revenue ..................... 523,649 359,764
Other liabilities ............................ 485 1,784
------------ ------------
TOTAL CURRENT LIABILITIES ................. 1,232,504 1,121,443
LINES OF CREDIT - MAJORITY STOCKHOLDER ......... 17,000,000 15,950,000
NOTE PAYABLE - MAJORITY STOCKHOLDER ............ 541,000 541,000
ACCRUED INTEREST - MAJORITY STOCKHOLDER ........ 2,556,684 1,960,708
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value, 100,000,000
shares authorized, 48,561,644 and 48,461,644
shares issued and outstanding at September 30,
2009 and December 31, 2008, respectively ..... 485,616 484,617
Additional paid-in capital ................... 4,879,853 4,877,353
Accumulated deficit .......................... (20,991,607) (18,797,485)
------------ ------------
(15,626,138) (13,435,515)
------------ ------------
$ 5,704,050 $ 6,137,636
============ ============
* Derived from audited financial statements.
The accompanying unaudited notes are an integral part of these statements.
3
TELVUE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
September 30,
----------------------------
2009 2008
------------ ------------
REVENUES
TPS services ................................. $ 743,392 $ 636,010
ANI services ................................. 288,952 313,389
------------ ------------
1,032,344 949,399
COST OF REVENUES
TPS services ................................. 303,723 296,411
ANI services ................................. 69,953 74,248
------------ ------------
TOTAL COST OF REVENUES ......................... 373,676 370,659
------------ ------------
GROSS MARGIN ................................... 658,668 578,740
OPERATING EXPENSES
Selling and marketing ........................ 256,270 346,940
General and administrative ................... 511,159 690,393
Depreciation and amortization ................ 285,042 308,135
------------ ------------
1,052,471 1,345,468
------------ ------------
OPERATING LOSS ................................. (393,803) (766,728)
OTHER INCOME (EXPENSE)
Interest income .............................. - (232)
Interest expense ............................. (206,946) (249,408)
------------ ------------
TOTAL OTHER INCOME (EXPENSE) ................... (206,946) (249,640)
------------ ------------
NET LOSS ....................................... $ (600,749) $ (1,016,368)
============ ============
BASIC AND DILUTED NET LOSS PER COMMON SHARE .... $ (.01) $ (.02)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
BASIC AND DILUTED ............................ 48,561,644 48,461,644
============ ============
The accompanying unaudited notes are an integral part of these statements.
4
TELVUE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended
September 30,
----------------------------
2009 2008
------------ ------------
REVENUES
TPS services ................................. $ 2,156,544 $ 1,591,485
ANI services ................................. 894,613 954,509
------------ ------------
3,051,157 2,545,994
COST OF REVENUES
TPS services ................................. 998,991 1,024,742
ANI services ................................. 247,719 285,514
------------ ------------
TOTAL COST OF REVENUES ......................... 1,246,710 1,310,256
------------ ------------
GROSS MARGIN ................................... 1,804,447 1,235,738
OPERATING EXPENSES
Selling and marketing ........................ 770,822 1,275,824
General and administrative ................... 1,784,109 2,334,808
Depreciation and amortization ................ 847,666 911,025
------------ ------------
3,402,597 4,521,657
------------ ------------
OPERATING LOSS ................................. (1,598,150) (3,285,919)
OTHER INCOME (EXPENSE)
Interest income .............................. 4 135
Interest expense ............................. (595,976) (735,674)
------------ ------------
TOTAL OTHER INCOME (EXPENSE) ................... (595,972) (735,539)
------------ ------------
NET LOSS ....................................... $ (2,194,122) $ (4,021,458)
============ ============
BASIC AND DILUTED NET LOSS PER COMMON SHARE .... $ (.05) $ (.08)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
BASIC AND DILUTED ............................ 48,521,351 48,444,231
============ ============
The accompanying unaudited notes are an integral part of these statements.
5
TELVUE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
----------------------------
2009 2008
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ...................................... $ (2,194,122) $ (4,021,458)
Adjustments to reconcile net loss to
net cash (used in) operating activities:
Depreciation and amortization ............... 847,666 911,025
Changes in assets and liabilities:
Accounts receivable - trade ................. (179,969) 64,850
Inventory ................................... (121,671) (210,759)
Prepaid expenses ............................ 9,342 30,478
Other Assets ................................ (1,630) -
Accounts payable - trade .................... 58,894 (440,736)
Accrued expenses ............................ (111,719) 63,665
Deferred service revenue .................... 163,885 102,746
Accrued interest - majority stockholder ..... 595,976 735,674
------------ ------------
NET CASH (USED IN) OPERATING ACTIVITIES .... (933,348) (2,764,515)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment .......... (203,882) (323,174)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from lines of credit - majority
stockholder ................................. 1,050,000 3,000,000
Issuance of common stock ..................... 3,500 999
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES .. 1,053,500 3,000,999
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS ...... (83,730) (86,690)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . 250,698 225,660
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ....... $ 166,968 $ 138,970
============ ============
The accompanying unaudited notes are an integral part of these statements.
6
TELVUE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
---------------------
Summary Financial Information and Results of Operations
- -------------------------------------------------------
In the opinion of management of TelVue Corporation ("TelVue" or the "Company"),
the accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
and with the regulations of the Securities and Exchange Commission ("SEC") and
contain all adjustments (consisting of only normal recurring adjustments)
necessary to make the financial statements not misleading and to present fairly
the financial condition as of September 30, 2009 and the results of operations
for the three and nine months ended September 30, 2009 and 2008 and cash flows
for the nine months ended September 30, 2009 and 2008.
Going Concern and Management's Plan
- -----------------------------------
The accompanying financial statements of TelVue have been prepared on the basis
of generally accepted accounting principles applicable to a "going concern,"
which assume that the Company will continue in operation for at least one year
and will be able to realize its assets and discharge its liabilities in the
normal course of operations.
Conditions exist, however, that cast doubt about the Company's ability to
continue as a "going concern." In order to fund operations, the Company relies
on funds drawn on lines of credit held by the Company with its majority
stockholder who is also a director, H.F. (Gerry) Lenfest. Based on the Company's
current draw-down rate, the funds remaining in the current lines of credit are
not sufficient to sustain the Company's operations for the next 12 month period.
Funding the Company's future capital requirements will depend on numerous
factors including, but not limited to, the Company receiving continued financial
support from Mr. Lenfest, which he has not committed to at this time, or seeking
other alternatives. While management is working towards mitigating the adverse
conditions and events which raise doubt about the validity of the "going
concern" assumption used in preparing these financial statements, there can be
no assurance that management will be successful.
These financial statements do not reflect adjustments that would be necessary if
the Company were unable to continue as a "going concern." If the Company were
unable to continue as a "going concern," then substantial adjustments would be
necessary to the carrying values of assets, the reported amounts of its
liabilities, the reported expenses, and the balance sheet classifications used.
Interim Financial Information
- -----------------------------
While management believes that the disclosures presented are adequate to prevent
misleading information, these unaudited financial statements must be read in
conjunction with the audited financial statements and notes included in TelVue's
Annual Report on Form 10-K for the year ended December 31, 2008, as filed with
the SEC.
Prior period financial statements have been reclassified to conform with current
quarter presentation.
7
Basis of Consolidation
- ----------------------
The consolidated financial statements include the accounts of TelVue and
Princeton Server Group, Inc. ("PSG"), which was acquired on March 12, 2007 and
was maintained as a wholly-owned subsidiary until February 28, 2008, on which
date PSG was merged into TelVue. From the date of the acquisition of PSG until
the merger date, intercompany accounts and transactions were eliminated in
consolidation. Since the merger date, the accounts of PSG have been included
directly within TelVue's accounts.
Business Combination
- --------------------
The Company accounts for all business combinations by the purchase method.
Furthermore, the Company recognizes intangible assets apart from goodwill if
they arise from contractual or legal rights or if they are separable from
goodwill.
Goodwill, Trademarks and Other Intangible Assets
- ------------------------------------------------
The Company classifies intangible assets into three categories: (1) intangible
assets with definite lives subject to amortization, (2) intangible assets with
indefinite lives not subject to amortization, and (3) goodwill. The Company
tests intangible assets with definite lives for impairment if conditions exist
that indicate the carrying value may not be recoverable. Such conditions may
include an economic downturn in a geographic market or a change in the
assessment of future operations. The Company records an impairment charge when
the carrying value of the definite lived intangible asset is not recoverable by
the cash flows generated from the use of the asset.
Intangible assets with indefinite lives and goodwill are not amortized. The
Company tests these intangible assets and goodwill for impairment at least
annually or more frequently if events or circumstances indicate that such
intangible assets or goodwill might be impaired. All goodwill is assigned to
reporting units, which are one level below TelVue's operating segments. Goodwill
is assigned to the reporting unit that benefits from the synergies arising from
each business combination. The Company performs impairment tests of goodwill at
each reporting unit level. Such impairment tests for goodwill include comparing
the fair value of the respective reporting unit with its carrying value,
including goodwill. When the fair value is less than the carrying value of the
intangible assets or the reporting unit, the Company records an impairment
charge to reduce the carrying value of the assets to fair value.
At December 31, 2008, management determined that the goodwill acquired with the
PSG acquisition was impaired and an impairment charge of $1,921,405 was
recognized.
The Company determines the useful lives of its identifiable intangible assets
after considering the specific facts and circumstances related to each
intangible asset. Factors the Company considers when determining useful lives
include the contractual term of any agreement, the history of the asset, the
Company's long-term strategy for the use of the asset, any laws or other local
regulations which could impact the useful life of the asset, and other economic
factors, including competition and specific market conditions. Intangible assets
that are deemed to have definite lives are amortized, generally on a
straight-line basis, over their useful lives, ranging from 1 to 15 years.
8
Recent Accounting Pronouncements
- --------------------------------
In June 2009, the Financial Accounting Standards Board ("FASB") issued new
guidance concerning the organization of authoritative guidance under U.S.
Generally Accepted Accounting Principles ("GAAP"). This new guidance created the
FASB Accounting Standards Codification ("Codification"). The Codification has
become the source of authoritative U.S. GAAP recognized by the FASB to be
applied by nongovernmental entities. Rules and interpretive releases of the SEC
under authority of federal securities laws are also sources of authoritative
U.S. GAAP for SEC registrants. The Codification became effective for the Company
in its quarter ended September 30, 2009. As the Codification is not intended to
change or alter existing U.S. GAAP, it did not have any impact on the Company's
consolidated financial statements. All references to pre-codified U.S. GAAP have
been removed from this Form 10-Q.
In May 2009, the FASB issued guidance to establish general standards of
accounting for, and disclosures of, events that occur after the balance sheet
date but before financial statements are issued or are available to be issued.
Specifically, this standard sets forth the period after the balance sheet date
during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements, the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet date in its financial
statements, and the disclosures that an entity should make about events or
transactions that occurred after the balance sheet date. The guidance is
effective for interim or annual financial periods ending after June 15, 2009.
The Company evaluated all events or transactions that occurred after the balance
sheet date of September 30, 2009 through November 16, 2009, the date it issued
these financial statements. The adoption of this guidance did not have an impact
on TelVue's financial position, results of operations or cash flows, other than
the disclosures required by this guidance.
2. ACQUISITION
-----------
On March 12, 2007, the Company acquired all of the issued and outstanding shares
of capital stock of PSG for a purchase price of $6,100,000 in cash plus the
forgiveness of a $400,000 loan owed by PSG, in addition to the cancellation of a
warrant that was issued in conjunction with the loan. The acquisition was funded
with funds drawn under a $10,000,000 line of credit held by the Company with its
majority stockholder, Mr. Lenfest. The Company accounts for this acquisition as
a business combination under the purchase method of accounting. The results of
PSG are included in the Company's TelVue Products and Services ("TPS") operating
segment.
Upon closing of the acquisition, the Company made preliminary estimates of the
fair values of the assets and liabilities for consolidation. The Company has
since obtained a third-party valuation for many of the assets and liabilities
acquired. There were no material differences between the preliminary estimates
and the final valuations. The amount of purchase price allocated to software is
$3,600,000, patent applications is $788,000, other finite-lived intangible
assets is $160,000, trademarks is $397,000 and goodwill is $1,921,405. As was
mentioned above, an impairment charge was recognized related to the goodwill,
eliminating this balance as of December 31, 2008. The trademarks have been
assigned an indefinite life.
The accompanying financial statements include the operations of PSG since the
date of acquisition.
9
3. SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
No income taxes or interest were paid during the nine months ended September 30,
2009 or 2008.
4. EARNINGS PER COMMON SHARE
-------------------------
Basic earnings per common share is computed by dividing net income, after
deduction of preferred stock dividends, when applicable, by the weighted average
number of shares of outstanding common stock. Diluted earnings per common share
is computed by dividing net income, after the deduction of preferred stock
dividends, when applicable, by the weighted average number of shares of
outstanding common stock adjusted to include incremental common shares that
would have been outstanding if potentially dilutive common shares had been
issued. Common equivalent shares are excluded from the computation in periods in
which they have an antidilutive effect. Because of the net loss available to
common stockholders for the nine months ended September 30, 2009 and 2008, no
potential common shares were included in the computation of a diluted per share
amount since such potential common shares would not have a dilutive effect.
5. CORPORATE INCOME TAXES
----------------------
The Company uses the asset and liability method of accounting for income taxes.
This method requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the differences between the financial
statement carrying amounts and tax bases of assets and liabilities using enacted
tax rates in effect in the years in which the differences are expected to
reverse. Differences between financial reporting and tax bases arise most
frequently from differences in timing of income and expense recognition.
Deferred income tax expense is measured by the change in the net deferred income
tax asset or liability during the year.
The provisions for income tax benefit from continuing operations for the three
months ended September 30, 2009 and 2008 consisted of the following components:
2009 2008
--------- ---------
Current
Federal ................... $ - $ -
State ..................... - -
--------- ---------
- -
Deferred
Federal ................... 197,000 327,000
State ..................... 54,000 92,000
--------- ---------
251,000 419,000
Valuation allowance increase (251,000) (419,000)
--------- ---------
- -
--------- ---------
Total ...................... $ - $ -
========= =========
10
TelVue recorded an increase in valuation allowance of $251,000 at September 30,
2009 which reduced its deferred tax asset to zero. The valuation allowance was
recorded due to the uncertainty as to whether future net income would be
generated that would utilize TelVue's net operating loss carryforward. TelVue's
federal net operating loss carryforward was approximately $13,000,000 on a
tax-reporting basis as of September 30, 2009. The carryforward will begin to
expire in 2010, if not utilized.
In June 2006, the FASB issued guidance establishing a single model to address
accounting for uncertain tax positions. This guidance clarifies the accounting
for income taxes by prescribing a minimum recognition threshold a tax position
is required to meet before being recognized in the financial statements. This
guidance also provides direction on derecognition, measurement, classification,
interest and penalties, accounting in interim periods, disclosure and
transition. The Company adopted the provisions of this guidance on January 1,
2007. Upon adoption, the Company recognized no adjustment in the amount of
unrecognized tax benefits. As of the date of adoption, the Company had no
unrecognized tax benefits. The Company's policy is to recognize interest and
penalties that would be assessed in relation to the settlement value of
unrecognized tax benefits as a component of income tax expense.
The Company and its subsidiary are subject to U.S. federal income tax as well as
income tax in multiple state jurisdictions. The Company is no longer subject to
U.S. federal income tax examinations for years before 2003 and state income tax
examinations before 2002. However, to the extent allowed by law, the tax
authorities may have the right to examine prior periods where net operating
losses were generated and carried forward, and make adjustments up to the amount
of the net operating loss carryforward amount. The Company is not currently
under Internal Revenue Service tax examination. The Company is not currently
under examination by any state jurisdictions.
6. NOTES PAYABLE AND LINES OF CREDIT - MAJORITY STOCKHOLDER
-------------------------------------------------------
Note Payable - Majority Stockholder
- -----------------------------------
On June 16, 2005, the members of the Board of Directors of the Company and Mr.
Lenfest, a director and the majority stockholder of the Company, extended the
maturity date of a promissory note in the principal amount of $541,000 issued by
the Company and currently held by Mr. Lenfest (the "Science Note") to January 1,
2011. The Science Note was originally issued by the Company to Science Dynamics
Corporation ("Science") and was payable December 31, 1996. In January 1995, Mr.
Lenfest purchased the Science Note from Science. The Science Note is
non-interest bearing.
Line of Credit (2005 Note) - Majority Stockholder
- -------------------------------------------------
On April 27, 2005, TelVue entered into a Line of Credit Note with Mr. Lenfest
(the "2005 Note"). The 2005 Note was secured to provide funding to grow the
TelVue Virtual Television Network ("TVTN"). Under the terms of the 2005 Note,
the Company may borrow, from time to time, up to the maximum principal amount of
the 2005 Note, which is $3,800,000. The minimum advance under the 2005 Note is
$100,000 and the interest rate is equal to the prime rate plus one percent (1%).
The 2005 Note contains customary events of default, including, among others,
non-payment of principal and interest and in the event the Company is involved
11
in certain insolvency proceedings. In the event of a default, all of the
obligations of the Company under the 2005 Note may be declared immediately due
and payable. The 2005 Note is unsecured and will expire six years from the date
of the first advance, which is November 23, 2011, unless extended or renewed.
Principal and interest on the 2005 Note are also due and payable on November 23,
2011. The 2005 Note was exhausted by the end of 2007. As of September 30, 2009,
accrued interest due on the 2005 Note was $862,250.
Line of Credit (2006 Note) - Majority Stockholder
- -------------------------------------------------
On November 3, 2006, the Company entered into an additional Line of Credit Note
with Mr. Lenfest, in the principal amount of $10,000,000 (the "2006 Note").
Under the 2006 Note, the Company could request up to $5,000,000 for general
working capital and an additional $5,000,000 for purposes other than general
working capital upon mutual agreement by the Company and Mr. Lenfest. The
minimum advance under the 2006 Note is $100,000 and the interest rate is equal
to the prime rate plus one percent (1%). The 2006 Note contains customary events
of default, including, among others, non-payment of principal and interest and
in the event TelVue is involved in certain insolvency proceedings. In the event
of a default, all of the obligations of the Company under the 2006 Note may be
declared immediately due and payable. The 2006 Note is unsecured and will expire
six years from the date of the first advance under the 2006 Note unless extended
or renewed. Principal and interest are also due and payable six years from the
date of the first advance under the 2006 Note. As of September 30, 2009, the
Company had borrowed $10,000,000 under the 2006 Note, fully exhausting the 2006
Note. As of September 30, 2009, accrued interest due on the 2006 Note was
$1,561,569.
On December 26, 2006, TelVue borrowed $400,000 from Mr. Lenfest under the 2006
Note to loan to PSG to fund their operating expenses (the "PSG Note"). The PSG
Note was a convertible note that bore interest at a rate of six percent (6%) per
annum. No payments of principal or interest were due until July 1, 2007. Under
the PSG Note, interest accrued through July 1, 2007 was to be added to the
principal. Interest was payable monthly from July 1, 2007 through January 1,
2008. The remaining balance was payable in forty eight (48) monthly installments
of principal and interest commencing February 1, 2008. The PSG Note was
scheduled to mature in January 2012. The Company had the option to convert the
unpaid principal balance of the PSG Note and all accrued interest into common
stock of PSG. In connection with the PSG Note, TelVue received a warrant, which
entitled TelVue to purchase 129,629 shares of common stock of PSG for $1.08 per
share. The warrant was to commence on July 1, 2007 and expire on December 31,
2016. The PSG Note was forgiven and the warrant was canceled on March 12, 2007,
in connection with TelVue's acquisition of all of the outstanding stock of PSG.
On March 12, 2007, PSG was acquired by TelVue for $6,100,000, the forgiveness of
the PSG Note and cancellation of the warrant (described above). TelVue borrowed
the $6,100,000 from Mr. Lenfest under the 2006 Note to fund the acquisition. PSG
develops high performance digital video systems, appliances and software that
support capture, storage, manipulation and play-out of digital media in multiple
popular formats. PSG markets its product to local Cable TV Public, Education and
Government Local Access Channels ("PEG Channels") and Local Origination
broadcast stations, professional broadcast stations and schools and
universities. TelVue acquired PSG as a complement to TVTN with the objective
being to offer towns, municipalities and schools a packaged turnkey product of
hardware and software.
12
Line of Credit (2007 Note) - Majority Stockholder
- -------------------------------------------------
As a result of the anticipated exhaustion of the line of credit under the 2006
Note, TelVue entered into an additional Line of Credit Note with Mr. Lenfest on
December 21, 2007 in the principal amount of $2,300,000 (the "2007 Note"). The
minimum advance under the 2007 Note is $100,000 and the interest rate is equal
to the prime rate plus one percent (1%). The 2007 Note contains customary events
of default, including, among others, non-payment of principal and interest and
in the event TelVue is involved in certain insolvency proceedings. In the event
of a default, all of the obligations of TelVue under the 2007 Note may be
declared immediately due and payable. The 2007 Note is unsecured and will expire
six years from the date of the first advance under the 2007 Note unless extended
or renewed. Principal and interest on the 2007 Note are also due and payable six
years from the date of the first advance under the 2007 Note. As of September
30, 2009, TelVue had borrowed $2,300,000 under the 2007 Note, fully exhausting
the 2007 Note. As of September 30, 2009, accrued interest due on the 2007 Note
was $118,634.
Line of Credit (2009 Q1 Note) - Majority Stockholder
- ----------------------------------------------------
As a result of the anticipated exhaustion of the line of credit under the 2007
Note, TelVue entered into an additional Line of Credit Note with Mr. Lenfest on
March 2, 2009 in the principal amount of $400,000 (the "2009 Q1 Note"). The
minimum advance under the 2009 Q1 Note is $100,000 and the interest rate is
equal to the prime rate plus one percent (1%). The 2009 Q1 Note contains
customary events of default, including, among others, non-payment of principal
and interest and in the event TelVue is involved in certain insolvency
proceedings. In the event of a default, all of the obligations of TelVue under
the 2009 Q1 Note may be declared immediately due and payable. The 2009 Q1 Note
is unsecured and will expire six years from the date of the first advance under
the 2009 Q1 Note unless extended or renewed. Principal and interest on the 2009
Q1 Note are also due and payable six years from the date of the first advance
under the 2009 Q1 Note. As of September 30, 2009, TelVue had borrowed $400,000
under the 2009 Q1 Note, fully exhausting the 2009 Q1 Note. As of September 30,
2009, accrued interest due on the 2009 Q1 Note was $9,414.
Line of Credit (2009 Q2 Note) - Majority Stockholder
- ----------------------------------------------------
As a result of the anticipated exhaustion of the line of credit under the 2009
Q1 Note, TelVue entered into an additional Line of Credit Note with Mr. Lenfest
on June 8, 2009 in the principal amount of $500,000 (the "2009 Q2 Note"). The
minimum advance under the 2009 Q2 Note is $100,000 and the interest rate is
equal to the prime rate plus one percent (1%). The 2009 Q2 Note contains
customary events of default, including, among others, non-payment of principal
and interest and in the event TelVue is involved in certain insolvency
proceedings. In the event of a default, all of the obligations of TelVue under
the 2009 Q2 Note may be declared immediately due and payable. The 2009 Q2 Note
is unsecured and will expire six years from the date of the first advance under
the 2009 Q2 Note unless extended or renewed. Principal and interest on the 2009
Q2 Note are also due and payable six years from the date of the first advance
under the 2009 Q2 Note. As of September 30, 2009, TelVue had borrowed $500,000
under the 2009 Q2 Note, fully exhausting the 2009 Q2 Note. As of September 30,
2009, accrued interest due on the 2009 Q2 Note was $4,816.
13
Line of Credit (2009 Q3 Note) - Majority Stockholder
- ----------------------------------------------------
In order to meet operating needs, TelVue entered into an additional Line of
Credit Note with Mr. Lenfest on October 5, 2009 in the principal amount of
$400,000 (the "2009 Q3 Note"). The minimum advance under the 2009 Q3 Note is
$100,000 and the interest rate is equal to the prime rate plus one percent (1%).
The 2009 Q3 Note contains customary events of default, including, among others,
non-payment of principal and interest and in the event TelVue is involved in
certain insolvency proceedings. In the event of a default, all of the
obligations of TelVue under the 2009 Q3 Note may be declared immediately due and
payable. The 2009 Q3 Note is unsecured and will expire six years from the date
of the first advance under the 2009 Q3 Note unless extended or renewed.
Principal and interest on the 2009 Q3 Note are also due and payable six years
from the date of the first advance under the 2009 Q3 Note. TelVue began drawing
on the 2009 Q3 Note on October 14, 2009.
7. RELATED PARTY TRANSACTIONS
--------------------------
See Note 6, included herein, for information of related party transactions
between TelVue and its majority stockholder.
8. FINANCIAL DATA BUSINESS SEGMENTS
--------------------------------
The Company operates two business segments. The first segment, TPS, includes
equipment such as the TelVue Princeton(TM) Server Product Line and services such
as WEBUS(R) and PEG.TV(TM). The TelVue Princeton(TM) Server Product Line
includes high performance digital video systems, servers, and software that
support capture, storage, manipulation and play-out of digital media in multiple
popular formats. WEBUS(R) is a broadcast digital signage system for displaying a
fully automated TV station-like display on a cable system access channel using
computer-based digital technology. PEG.TV(TM) is a live streaming and
Video-on-Demand service for integrating video on the Internet. The second
segment is a marketing and service division, which sells automatic number
identification ("ANI") telecommunications services to the cable television
industry.
Summarized financial information by reporting segment as of and for each of the
nine months ended September 30, 2009 and 2008, is as follows:
Nine months ended September 30, 2009 TPS ANI Total
- ------------------------------------ ----------- ----------- -----------
Revenues ........................... $ 2,156,544 $ 894,613 $ 3,051,157
Depreciation and amortization ...... 715,945 131,721 847,666
Operating income/(loss) ............ (1,951,125) 352,975 (1,598,150)
Interest expense-net ............... 464,861 131,111 595,972
Net income/(loss) .................. (2,415,986) 221,864 (2,194,122)
Capital expenditures ............... 203,882 - 203,882
Nine months ended September 30, 2008 TPS ANI Total
- ------------------------------------ ----------- ----------- -----------
Revenues ........................... $ 1,591,485 $ 954,509 $ 2,545,994
Depreciation and amortization ...... 796,735 114,290 911,025
Operating income/(loss) ............ (3,662,612) 376,693 (3,285,919)
Interest expense-net ............... 615,580 120,094 735,674
Net income/(loss) .................. (4,278,474) 257,016 (4,021,458)
Capital expenditures ............... 323,174 - 323,174
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created thereby. All forward-looking
statements involve risks and uncertainty, including, without limitation, the
ability of TelVue to obtain sufficient cash to continue its operations, the
ability of TelVue to continue its growth strategy, increases in costs of labor
and employee benefits, general market conditions, competition and similar
matters discussed in TelVue's Annual Report on Form 10-K for the fiscal year
ended December 31, 2008 and in this Quarterly Report on Form 10-Q. These
forward-looking statements may include declarations regarding the Company's
belief or current expectations of management, such as statements including the
words "budgeted," "anticipate," "project," "estimate," "expect," "may,"
"believe," "potential" and similar statements are intended to be among the
statements that are forward-looking statements. Because such statements reflect
the reality of risk and uncertainty that is inherent in the Company's business,
actual results may differ materially from those expressed or implied by such
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which are made as of the date this report was
filed with the Securities and Exchange Commission ("SEC").
Readers are advised that the Company undertakes no obligation to release
publicly any revisions to the forward-looking statements to reflect events or
circumstances after the date hereof or to reflect unanticipated events or
development. To the extent that the information presented in this Quarterly
Report on Form 10-Q for the quarter ended September 30, 2009 discusses financial
projections, information or expectations about the Company's products or
markets, or otherwise makes statements about future events, such statements are
forward-looking. The Company is making these forward-looking statements in
reliance on the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995.
Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included in this Quarterly Report will prove to
be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included in this Quarterly Report, the inclusion of
such information should not be regarded as a representation by TelVue or any
other person that the Company's objectives and plans will be achieved.
OVERVIEW OF COMPANY:
TelVue Corporation ("TelVue" or the "Company") is a broadcast technology company
that specializes in playback, automation and workflow solutions for public,
education and government ("PEG") television stations, digital signage providers,
and cable and satellite television providers.
TelVue operates two business segments. The first segment, TelVue Products and
Services ("TPS"), includes equipment such as the TelVue Princeton(TM) Server
Product Line and services such as WEBUS(R) and PEG.TV(TM). The TelVue
Princeton(TM) Server Product Line includes high performance digital video
systems, servers, and software that support capture, storage, manipulation and
play-out of digital media in multiple popular formats. WEBUS(R) is a broadcast
digital signage system for displaying a fully automated TV station-like display
on a cable system access channel using computer-based digital technology.
15
PEG.TV(TM) is a live streaming and Video-on-Demand service for integrating video
on the Internet. The second segment is a marketing and service division, which
sells automatic number identification ("ANI") telecommunications services to the
cable television industry.
The TelVue Princeton(TM) Server Product Line includes, but is not limited to:
TelVue Princeton(TM) B100
TelVue Princeton(TM) B1000
TelVue Princeton(TM) B3000
TelVue Princeton(TM) S3000F
TelVue Princeton(TM) C500W
TelVue Princeton(TM) T7400E
The TPS services include:
WEBUS(R) Automated broadcast digital signage display on TV Channel
WEBUS Inside(TM) WEBUS(R) integrated within TelVue Princeton(TM) Servers
PEG.TV(TM) Internet Streaming and Video-on-Demand Service
WEBLINX(TM) Automated WEBUS(R) message display on websites
VideoActives(TM) Real time, dynamic video content for channels
WEB-EM(R) Automated WEBUS(R) message display on cell phones and email
The WEB-EM(R) technology enables local management officials to send messages to
residents over cell phones and email. This four-in-one technology provides
simultaneous phone, email, website and television notification. While TelVue
still maintains the WEB-EM(R) technology, the Company is not actively marketing
it to customers due to soft initial sales, in addition to increased competition
from companies focusing solely on the text messaging market.
As a complement to the WEBUS(R) service, TelVue introduced VideoActives(TM) in
the first quarter of 2009, which are real-time, data-driven, on-air graphics
such as local weather, local traffic, headline news, financial market indices,
sports, quotes of the day and trivia questions. VideoActives(TM) are designed to
enhance the presentation of the channels with dynamic and local content driven
automatically by live data feeds.
In the second quarter of 2009, TelVue introduced a new TelVue Princeton(TM)
broadcast server model (B100-IP) with all digital outputs for professional Cable
and Telephone Company ("TelCo") broadcast markets. The easy to operate TelVue
Princeton(TM) B100-IP model is ideal for these broadcasters, as it allows for
multiple unit deployments across their networks at an affordable price without
the added costs of an encoder.
In the second quarter of 2009, TelVue relocated the WEBUS(R) information
technology infrastructure from its Mt. Laurel, New Jersey office location to
TelVue's National Data Center at its facility in Philadelphia, Pennsylvania.
This facility provides significantly increased bandwidth to the Internet to
accommodate WEBUS(R) service growth, improving the quality of service to end
users. In addition, the facility provides a more robust operating environment
with additional redundancies and security for increased service availability.
The relocation of service eliminates Internet bandwidth usage related to the
WEBUS(R) service at the Company's Mt. Laurel office, allowing increased
bandwidth availability for normal office productivity. There were no additional
Internet or space costs associated with the relocation because adequate space
and bandwidth were already in place for TelVue's PEG.TV(TM) service
infrastructure which has been run out of this facility.
16
In the second quarter of 2009, TelVue expanded its PEG.TV(TM) Internet live
streaming and Video-on-Demand service to support additional popular media
formats. Live streaming now supports the Flash(R) video format, and
Video-on-Demand now supports the MPEG-4 Advanced Video Codec format. These
enhancements increase PEG.TV(TM) compatibility with industry standard tools for
creating web video and existing web video libraries that organizations may have
already created. Live Flash(R) video support leverages the wide deployment base
of the Flash(R) player, allowing most end users to avoid installing additional
software plug-ins, whether on a Mac or PC, to view PEG.TV(TM) content.
To support ongoing corporate sales initiatives, TelVue has instituted several
new marketing programs in the second and third quarters of 2009. Targeted email
campaigns have been launched to a variety of relevant vertical market segments,
including PEG Channels, K-20 media centers, TelCos, Pro Broadcast,
Cable/Multiple System Operator ("MSO") and Houses of Worship. A higher frequency
and regularity of press releases has stimulated additional customer, industry
and investor awareness. New corporate and product marketing videos have been
introduced on the TelVue website.
In the third quarter of 2009, TelVue released version 3.6 of its TelVue
Princeton(TM) digital broadcast server software. The version 3.6 software
contains significant improvements and several new integrated workflow features
including Audio Level Normalization and MPEG File Repair. MPEG file repair and
normalization tools can be costly if purchased separately. Integrating these
tools natively adds even more value to the TelVue Princeton(TM) product line and
further streamlines workflow.
Also, in the third quarter of 2009, TelVue launched a beta test of the Alliance
for Community Media (ACM) compliant Shared Content Server (SCS) platform
designed for PEG stations to easily share broadcast quality video programming
with other stations using the Internet. In addition to supporting
station-to-station sharing, the system also acts as a distribution network for
content producers who want to effectively reach the thousands of PEG stations
across the country.
TelVue's second and legacy business segment is the marketing and service company
which sells automatic number identification ("ANI") telecommunications services
to the cable and satellite television industry for the automated ordering of
pay-per-view features and events (the "ANI service"). The ANI service permits
cable and satellite television companies to process special ordering services
without the attendant, high manpower requirements, or extensive physical plant
and facilities that are otherwise required. TelVue provides the ANI service
through the equipment it purchases. TelVue's equipment for providing the ANI
service nationwide is located at TelVue's home office in Mount Laurel, New
Jersey. TelVue serves cable television systems across the United States via
trunk lines and data circuits that it currently leases from Verizon. TelVue
believes it receives a favorable trunk usage rate from Verizon. As noted below,
TelVue expects continued loss of its subscriber base for the ANI service as
digital, interactive two-way services are offered by cable, satellite, and
broadband service providers for Video-on-Demand.
CRITICAL ACCOUNTING POLICIES
In presenting TelVue's financial statements in conformity with accounting
principles generally accepted in the United States, TelVue is required to make
certain estimates and assumptions that affect the amounts reported therein.
Several of the estimates and assumptions TelVue is required to make relate to
matters that are inherently uncertain as they pertain to future events. However,
events that are outside of TelVue's control cannot be predicted and, as such,
they cannot be contemplated in evaluating such estimates and assumptions. If
there is a significant unfavorable change to current conditions, it will likely
17
result in a material adverse impact to TelVue's consolidated results of
operations, financial position and liquidity. TelVue believes that the estimates
and assumptions it used when preparing its financial statements were the most
appropriate at that time. Presented below are those accounting policies that
TelVue believes require subjective and complex judgments that could potentially
affect reported results.
Use of Estimates
The Company's discussion and analysis of its financial condition and results of
operations are based upon TelVue's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these consolidated financial statements
requires TelVue to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. On an ongoing basis, the Company evaluates
estimates, including those related to impairment of long-lived assets and
allowance for doubtful accounts. The Company bases estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions; however, the Company
believes that its estimates, including those for the above-described items, are
reasonable.
Areas that require estimates and assumptions include valuation of accounts
receivable and inventory, determination of useful lives of property and
equipment, estimation of certain liabilities and sales returns. Goodwill and
Other Intangibles
Goodwill and other intangibles are reviewed for impairment annually, or more
frequently if impairment indicators arise. Goodwill is required to be tested for
impairment between the annual tests if an event occurs or circumstances change
that more-likely-than-not reduce the fair value of a reporting unit below its
carrying value. As of December 31, 2008, based on concerns over TelVue's net
loss and negative cash flow, uncertainty regarding future cash flows and
uncertainty whether the current carrying value of the goodwill related to the
PSG acquisition will be recovered by future cash flows, management determined
that the carrying value of this goodwill was impaired, and the Company recorded
a $1,921,405 charge to write off this goodwill. As a result, the net loss for
2008 was increased by this amount to $7,545,259. Had management not made this
subjective determination, the Company would not have recorded this charge.
Revenue Recognition
In accordance with accounting principles generally accepted in the United
States, TelVue recognizes revenues related to its TelVue Princeton(TM) Server
Product Line upon shipment of the equipment to customers. Revenues related to
TelVue's WEBUS(R) and PEG.TV(TM) services are recognized on a monthly basis,
being amortized over the term of the agreement. TelVue also sells annual product
maintenance plans covering equipment support and application upgrades. The
revenue related to these plans is recognized on a straight-line basis over the
term being covered by the plan. If the Company chose to recognize these revenues
when payments were received under these agreements, then the Company would
recognize more revenue in earlier periods and would not record any deferred
revenues. TelVue believes that its practice allows the Company to better match
revenues with the expenses related to providing these services over the term of
the agreements and, accordingly, is a better reflection of generally accepted
accounting principles. Revenue related to TelVue's ANI service is recognized in
the month the service is provided.
18
Stock-Based Compensation
TelVue accounts for stock-based compensation in accordance with the fair value
recognition method. The Company uses a Black-Scholes option-pricing valuation
model which requires the input of highly subjective assumptions. These
assumptions include estimating the length of time employees will retain their
vested stock options before exercising them ("expected term"), the estimated
volatility of TelVue's common stock price over the expected term and the number
of options that will ultimately not complete their vesting requirements. Changes
in the subjective assumptions can materially affect the estimate of fair value
of stock-based compensation.
The above listing is not intended to be a comprehensive list of all the
Company's accounting policies. In many cases, the accounting treatment of a
particular transaction is specifically dictated by generally accepted accounting
principles, with no need for management's judgment in their application. See
TelVue's audited financial statements and related notes included in its Annual
Report on Form 10-K for December 31, 2008, which contains accounting policies
and other disclosures required by accounting principles generally accepted in
the United States.
RESULTS OF OPERATIONS:
Beginning in January 2008, TelVue began a weighted allocation of all
compensation, general and administrative, interest and amortization expenses
between its ANI segment and TPS segment. Previously, only a minimal amount of
expenses were allocated between business segments.
During 2008, TelVue conducted two separate reductions in workforce. Combined,
they involved the elimination of 14 full-time positions and resulted in net
expense savings of approximately $550,000 for the calendar year 2008, which was
recognized across all departments and business segments.
In the second half of 2008, the Company reacted to market feedback and
re-focused the business from the TelVue Virtual Television Network ("TVTN")
sponsorship model to the Company's technology, products, and services strengths.
TelVue was re-branded by merging the TVTN WEBUS(R) technology and PSG technology
under one consistent brand, image, and sales model. TelVue now sells its
products and services without sponsorship to empower hyperlocal channels to
improve quality, streamline operations, and future-proof with modern
technologies. Although the business model changes naturally impacted 2008
performance, the Company is optimistic that the refocusing back to its core
strengths as a broadcast technology company has been successful. The marketplace
has already reacted favorably, and coupled with the Company's new reseller
strategy, TelVue has experienced returned growth in 2009. Additionally, with a
restructuring in 2008 largely to eliminate positions that no longer were a fit
with the Company's new focus, the Company has significantly improved its cost
structure. TelVue's year-to-date 2009 results corroborate these positive changes
and include a 20% overall increase in revenues, a 36% increase in TPS segment
revenues, a 61% increase in new sales orders, and a 25% decrease in operational
expenses, all compared to the same period 2008. These positive trends also
significantly reduced the amount of funds the Company was required to draw from
its lines of credit as noted in the statement of cash flows. Also in the second
quarter of 2009, TelVue surpassed 500 local broadcast station TPS customers
world-wide, with a majority in the United States.
In March 2009, TelVue conducted an additional reduction in workforce, involving
the elimination of 5 full-time positions, with a combined salary of $359,000.
19
The following discussion deals with the decrease in operating losses for the
three and nine months ended September 30, 2009, compared to the three and nine
months ended September 30, 2008, and the reasons for the decreases. TelVue
further discusses the continued loss of its subscriber base for the ANI service,
when comparing the nine months ended September 30, 2009 to the nine months ended
September 30, 2008. TelVue also discusses the marketing of its TPS segment and
the changes in TPS revenues and expenses.
Three Months Ended
------------------------------
September 30, September 30, $ Change % Change
2009 2008 Fav/(Unfav) Fav/(Unfav)
------------- ------------- ------------- -----------
Revenues
TPS services ................ $ 743,392 $ 636,010 $ 107,382 16.9%
ANI services ................ 288,952 313,389 (24,437) -7.8%
Cost of Revenues
TPS services ................ 303,723 296,411 (7,312) -2.5%
ANI services ................ 69,953 74,248 4,295 5.8%
Operating Expenses
Selling and marketing ....... 256,270 346,940 90,670 26.1%
General and administrative .. 511,159 690,393 179,234 26.0%
Depreciation and amortization 285,042 308,135 23,093 7.5%
------------- ------------- ------------- -------
Operating Loss ................. $ (393,803) $ (766,728) $ 372,925 48.6%
Other Income (Expense) ......... $ (206,946) $ (249,640) $ 42,694 17.1%
------------- ------------- ------------- -------
Net Loss ....................... $ (600,749) $ (1,016,368) $ 415,619 40.9%
============= ============= ============= =======
Nine Months Ended
------------------------------
September 30, September 30, $ Change % Change
2009 2008 Fav/(Unfav) Fav/(Unfav)
------------- ------------- ------------- -----------
Revenues
TPS services ................ $ 2,156,544 $ 1,591,485 $ 565,059 35.5%
ANI services ................ 894,613 954,509 (59,896) -6.3%
Cost of Revenues
TPS services ................ 998,991 1,024,742 25,751 2.5%
ANI services ................ 247,719 285,514 37,795 13.2%
Operating Expenses
Selling and marketing ....... 770,822 1,275,824 505,002 39.6%
General and administrative .. 1,784,109 2,334,808 550,699 23.6%
Depreciation and amortization 847,666 911,025 63,359 7.0%
------------- ------------- ------------- -------
Operating Loss ................. $ (1,598,150) $ (3,285,919) $ 1,687,769 51.4%
Other Income (Expense) ......... $ (595,972) $ (735,539) $ 139,567 19.0%
------------- ------------- ------------- -------
Net Loss ....................... $ (2,194,122) $ (4,021,458) $ 1,827,336 45.4%
============= ============= ============= =======
20
The TPS segment had an operating loss of $526,384 and $1,951,125 for the three
and nine months ended September 30, 2009, respectively, compared to operating
losses of $923,331 and $3,662,616 for the three and nine months ended September
30, 2008 primarily due to 17% and 36% increases in TPS segment revenues for the
three and nine month periods, respectively, in addition to savings related to
the aforementioned reduction in workforce. The ANI segment had operating income
of $132,581 and $352,975 for the three and nine months ended September 30, 2009,
respectively, compared to $156,603 and $376,697 for the three and nine months
ended September 30, 2008. The decreases in operating income for the ANI segment
were primarily a result of a change in the allocation of expenses whereby a
slightly higher percentage of expenses were allocated to the ANI segment than in
2008. Additionally, declines in revenue related to the continued loss of
subscribers also offset some of the increases in operating income, offset by
savings related to the reduction in workforce.
Revenues
TPS revenues increased $107,382 and $565,059 for the three and nine months ended
September 30, 2009, compared to the same period of 2008. The majority of the
revenue increases were attributed to an increase in TelVue Princeton(TM) Server
Product Line sales, in addition to an increase in consulting revenue related to
technical consulting services TelVue provides to specific customers. These
increases were offset by declines in sponsorship revenue due to the previously
mentioned change in direction of TelVue moving away from a sponsorship driven
sales model.
TPS segment sales orders increased by 61% for the nine months ended September
30, 2009 compared to the same nine months in 2008. The increased sales orders
included complete system sales to a number of larger cities as well as
significant multi-server orders received in two new vertical markets, Cable
Leased Access, and Professional Broadcasting. The Company's TelVue Princeton(TM)
products provide MSOs that must run Leased Access channels, a way to unify
equipment and reduce operation costs through centralization. TelVue's
cost-effective TelVue Princeton(TM) B100 model is the heart of the Company's
Edgecasting for Professional Broadcasters that allows content providers who
traditionally broadcast to multiple head-ends over 24x7 satellite feeds to
instead deliver content over the Internet to edge video servers. Edgecasting
allows distribution cost savings and the ability to further localize content
regionally, especially important for ad networks.
ANI service revenues decreased $24,437 and $59,896 for the three and nine months
ended September 30, 2009, respectively, when compared to the same periods of
2008. As expected, pay-per-view buy revenue decreased $1,375 and $13,711 for the
three and nine months ended September 30, 2009, and pay-per-view plus revenue
decreased $7,662 and $30,107 for the three and nine months ended September 30,
2009 when compared to the same periods of 2008. These decreases were mainly due
to a reduction in the number of subscribers served during this period when
compared to 2008 (as discussed below). These declines were offset by increases
of $2,941 and $14,153 in program number revenue for the three and nine months
ended September 30, 2009, when compared to the same periods in 2008. TelVue
believes there is a loss of focus by cable operators on the pay-per-view product
line, primarily because of the amount of time cable operators are spending on
promoting new product lines such as digital service and high-speed Internet
access.
21
As of September 30, 2009, TelVue was serving approximately 3.8 million full-time
cable subscribers compared to approximately 4.2 million full-time cable
subscribers served as of September 30, 2008. Cable operators cancelled the ANI
service primarily as a result of moving their subscribers onto two-way digital
service, which allows the cable operator to process ordering of pay-per-view
movies and events directly from its customers without using TelVue's ANI
service. Management believes the long-term effects of deployment of digital
two-way service will continue to negatively impact the TelVue ANI service. As a
result of the cable and satellite subscriber cancellations noted above, TelVue
expects to continue to experience a decrease in its revenues and operating
income indefinitely for its ANI segment.
Cost of Revenues
Cost of revenues for the TPS segment increased $7,312 for the three months ended
September 30, 2009, when compared to the same period of 2008, primarily as a
result of the cost of sales related to consulting revenue, offset by savings in
compensation related to the reductions in workforce. For the nine months ended
September 30, 2009, cost of revenues for the TPS segment decreased $25,751, when
compared to the same period of 2008, primarily due to savings in compensation
related to the reductions in workforce, offset by an increase in the cost of
sales related to the consulting revenue.
ANI cost of revenues decreased $4,295 and $37,795 for the three and nine months
ended September 30, 2009, when compared to the same period of 2008. These
decreases were primarily due to a decrease in expenses related to telephone
trunk lines used for the ANI service.
Selling and Marketing Expenses
Selling expenses related to the TPS segment decreased $89,896 and $488,544 for
the three and nine months ended September 30, 2009, when compared to the same
period of 2008. These decreases were attributed to the previously discussed
reduction in workforce, in addition to savings in consulting expenses related to
the elimination of outside sales and marketing consultants.
Selling expenses related to the ANI service decreased $774 and $16,458 for the
three and nine months ended September 30, 2009 when compared to the same period
of 2008. These decreases were primarily the result of savings in compensation
related to the reduction in workforce.
General and Administrative Expenses
TPS general and administrative expenses decreased $177,136 and $551,345 for the
three and nine months ended September 30, 2009 when compared to the same period
of 2008. These decreases were related to the reduction in workforce, combined
with savings in outside consulting expenses and lower recruitment expense in
2009 compared to 2008. These savings were offset by higher bad debt expense
related to an increase in the bad debt reserve discussed below.
ANI segment general and administrative expenses decreased $2,098 for the three
months ended September 30, 2009, when compared to the same period of 2008,
primarily due to savings related to the reduction in workforce. For the nine
months ended September 30, 2009, ANI segment general and administrative expenses
increased $646 when compared to the same period of 2008, primarily a result of
the previously mentioned change in allocation percentages, where a higher
percentage of expenses are being allocated to the ANI segment, in addition to an
increase in bad debt expense related to an increase in the bad debt reserve as
discussed below. These increases were offset by savings related to the reduction
in workforce.
22
Depreciation and Amortization
TelVue purchased $33,407 and $203,882 of equipment during the three and nine
months ended September 30, 2009 compared to $115,397 and $323,174 purchased
during the three and nine months ended September 30, 2008. The majority of the
equipment purchased during the three and nine months ended September 30, 2009
and 2008 was for software development and equipment related to the TPS segment.
Depreciation and amortization expense decreased $23,093 and $63,359 for the
three and nine months ended September 30, 2009 when compared to the three and
nine months ended September 30, 2008, as a result of fewer capital purchases, in
addition to declining amortization expense related to the PSG intangible assets.
Depreciation and amortization accounted for 27% of total operating expenses for
the three months ended September 30, 2009 and 25% of total operating expenses
for the nine months ended September 30, 2009.
Other Income/(Expense)
Interest expenses related to TelVue's Lines of Credit decreased $42,462 and
$139,698 for the three and nine months ended September 30, 2009, when compared
to the same period of 2008. This was the result of a favorable reduction in the
prime lending rate. The prime rate was 3.25% for 2009, whereas it ranged from
5.00% to 7.25% during the first nine months of 2008. The interest expense is
calculated at the prime lending rate plus one percent (1%).
Net Loss
TelVue had net losses of $600,749 and $2,194,122 for the three and nine months
ended September 30, 2009, compared to net losses of $1,016,368 and $4,021,458
for the three and nine months ended September 30, 2008, primarily due to an
increase in products and service revenues when compared to 2008, in addition to
savings in compensation related to the previously mentioned reductions in
workforce.
Income Taxes
At September 30, 2009 and 2008, TelVue recorded valuation allowance increases of
$251,000 and $419,000, respectively, to reduce its deferred tax asset to zero.
The valuation allowances were recorded due to the uncertainty as to whether
future net income would be generated that would utilize TelVue's net operating
loss carryforward. TelVue's federal net operating loss carryforward was
approximately $13,000,000 on a tax-reporting basis as of September 30, 2009 (see
Note 5 of the accompanying financial statements).
Accounts Receivable
As of September 30, 2009, TelVue maintained a bad debt reserve in the amount of
$68,620, compared to a reserve of $5,837 as of September 30, 2008. The reserve
was calculated based on the estimate that 1.0% of outstanding receivables would
not be collected, as well as the addition of two specific reserves as described
below. First, one of TelVue's resellers went out of business and is currently in
the process of liquidating its assets. While TelVue ultimately expects to be
paid, a bad debt reserve of $53,704 was established, which is 100% of the
outstanding balance due from the reseller. Second, one of the cable operators
using TelVue's ANI service declared bankruptcy and is currently restructuring.
Since a bankruptcy settlement valuation has not yet been finalized, TelVue
conservatively reserved 100% of the outstanding balance due on invoices prior to
the bankruptcy date, which amounts to $7,436.
23
TelVue's days for sales in average accounts receivable was 62 days at September
30, 2009, compared to 53 days at September 30, 2008. TelVue does not offer
incentives or discounts to its customers, nor has it changed its credit terms
with its customers for its ANI services. A 2% cash, 1% net 15 days discount is
offered by TelVue for payments related to equipment purchases.
Cash Flows
TelVue had negative cash flow from operating activities of $933,348 for the nine
months ended September 30, 2009, compared to negative cash flow from operating
activities of $2,764,515 for the nine months ended September 30, 2008. The
increase in cash flow compared to 2008 was primarily due to increases in TPS
revenue and a decrease in operating expenses across both business segments (as
described above).
LIQUIDITY AND CAPITAL RESOURCES:
Going Concern and Management's Plan
The accompanying financial statements of TelVue have been prepared on the basis
of generally accepted accounting principles applicable to a "going concern,"
which assume that TelVue will continue in operation for at least one year and
will be able to realize its assets and discharge its liabilities in the normal
course of operations.
Conditions exist, however, that cast doubt about TelVue's ability to continue as
a "going concern." In order to fund operations, TelVue relies on funds drawn on
lines of credit provided by its majority stockholder and director of the
Company, H.F. (Gerry) Lenfest. Based on TelVue's current draw-down rate, the
funds remaining in the current lines of credit are not sufficient to sustain
TelVue's operations for the next 12 month period. Funding TelVue's future
capital requirements will depend on numerous factors including, but not limited
to, TelVue receiving continued financial support from Mr. Lenfest, which he has
not committed to at this time, or seeking other alternatives. While management
is working toward mitigating the adverse conditions and events which raise doubt
about the validity of the "going concern" assumption used in preparing the
accompanying financial statements, there can be no assurances that management
will be successful.
The accompanying financial statements do not reflect adjustments that would be
necessary if TelVue were unable to continue as a "going concern." If TelVue were
unable to continue as a "going concern," then substantial adjustments would be
necessary to the carrying value of assets, the reported amounts of its
liabilities, the reported expenses, and the balance sheet classifications used.
Funding
Since November 2, 1989, TelVue has funded its expansion and operating deficit
from the proceeds of the sale of shares of TelVue's common stock and Preferred
Stock (as defined below) to Mr. Lenfest and from loans from Mr. Lenfest.
During January 1995, Mr. Lenfest purchased from Science Dynamics Corporation
("Science"), TelVue's non-interest bearing note in the amount of $541,000 (the
"Science Note"). The Science Note was originally issued by TelVue to Science and
was payable December 31, 1996. The maturity date of the Science Note had been
extended by TelVue and Mr. Lenfest on a yearly basis. On June 16, 2005, the
members of the Board of Directors of TelVue and Mr. Lenfest extended the
maturity date of the Science Note to January 1, 2011.
24
On April 27, 2005, TelVue entered into a Line of Credit Note with Mr. Lenfest
(the "2005 Note"). The 2005 Note was secured to provide funding to grow TVTN.
Under the terms of the 2005 Note, the Company may borrow, from time to time, up
to the maximum principal amount of the 2005 Note, which is $3,800,000. The
minimum advance under the 2005 Note is $100,000 and the interest rate is equal
to the prime rate plus one percent (1%). The 2005 Note contains customary events
of default, including, among others, non-payment of principal and interest and
in the event the Company is involved in certain insolvency proceedings. In the
event of a default, all of the obligations of the Company under the 2005 Note
may be declared immediately due and payable. The 2005 Note is unsecured and will
expire six years from the date of the first advance, which is November 23, 2011,
unless extended or renewed. Principal and interest on the 2005 Note are also due
and payable on November 23, 2011. The 2005 Note was exhausted by the end of
2007. As of September 30, 2009, accrued interest due on the 2005 Note was
$862,250.
As a result of the anticipated exhaustion of the credit under the 2005 Note,
TelVue entered into an additional Line of Credit Note with Mr. Lenfest on
November 3, 2006, in the principal amount of $10,000,000 (the "2006 Note").
Under the 2006 Note, TelVue may request up to $5,000,000 for general working
capital. TelVue may request up to an additional $5,000,000 available under the
2006 Note for purposes other than general working capital upon mutual agreement
by TelVue and Mr. Lenfest. The minimum advance under the 2006 Note is $100,000
and the interest rate is equal to the prime rate plus one percent (1%). The 2006
Note contains customary events of default, including, among others, non-payment
of principal and interest and in the event TelVue is involved in certain
insolvency proceedings. In the event of a default, all of the obligations of
TelVue under the 2006 Note may be declared immediately due and payable. The 2006
Note is unsecured and will expire six years from the date of the first advance
under the 2006 Note unless extended or renewed. Principal and interest on the
2006 Note are also due and payable six years from the date of the first advance
under the 2006 Note. As of September 30, 2009, the Company had borrowed
$10,000,000 under the 2006 Note, fully exhausting the 2006 Note. As of September
30, 2009, accrued interest due on the 2006 Note was $1,561,569.
On March 12, 2007, PSG was acquired by TelVue for $6.1 million and the
forgiveness of the PSG Note (described above). TelVue borrowed $6.1 million from
Mr. Lenfest under the 2006 Note. PSG develops high performance digital video
systems, appliances and software that support capture, storage, manipulation and
play-out of digital media in multiple popular formats. PSG markets their product
to PEG Channels and Local Origination broadcast stations, professional broadcast
stations and schools and universities. TelVue acquired PSG as a complement to
its TVTN Network with the objective being to offer towns, municipalities and
schools a packaged turnkey product of hardware and software.
As a result of the anticipated exhaustion of the line of credit under the 2006
Note, TelVue entered into an additional Line of Credit Note with Mr. Lenfest on
December 21, 2007, in the principal amount of $2,300,000 (the "2007 Note"). The
minimum advance under the 2007 Note is $100,000 and the interest rate is equal
to the prime rate plus one percent (1%). The 2007 Note contains customary events
of default, including, among others, non-payment of principal and interest and
in the event TelVue is involved in certain insolvency proceedings. In the event
of a default, all of the obligations of TelVue under the 2007 Note may be
declared immediately due and payable. The 2007 Note is unsecured and will expire
six years from the date of the first advance under the 2007 Note unless extended
or renewed. Principal and interest on the 2007 Note are also due and payable six
years from the date of the first advance under the 2007 Note. As of September
30, 2009, TelVue had borrowed $2,300,000 under the 2007 Note, fully exhausting
the 2007 Note. As of September 30, 2009, accrued interest due on the 2007 Note
was $118,634.
25
As a result of the anticipated exhaustion of the line of credit under the 2007
Note, TelVue entered into an additional Line of Credit Note with Mr. Lenfest on
March 2, 2009, in the principal amount of $400,000 (the "2009 Q1 Note"). The
minimum advance under the 2009 Q1 Note is $100,000 and the interest rate is
equal to the prime rate plus one percent (1%). The 2009 Q1 Note contains
customary events of default, including, among others, non-payment of principal
and interest and in the event TelVue is involved in certain insolvency
proceedings. In the event of a default, all of the obligations of TelVue under
the 2009 Q1 Note may be declared immediately due and payable. The 2009 Q1 Note
is unsecured and will expire six years from the date of the first advance under
the 2009 Q1 Note unless extended or renewed. Principal and interest on the 2009
Q1 Note are also due and payable six years from the date of the first advance
under the 2009 Q1 Note. As of September 30, 2009, TelVue had borrowed $400,000
under the 2009 Q1 Note, fully exhausting the 2009 Q1 Note. As of September 30,
2009, accrued interest due on the 2009 Q1 Note was $9,414.
As a result of the anticipated exhaustion of the line of credit under the 2009
Q1 Note, TelVue entered into an additional Line of Credit Note with Mr. Lenfest
on June 8, 2009 in the principal amount of $500,000 (the "2009 Q2 Note"). The
minimum advance under the 2009 Q2 Note is $100,000 and the interest rate is
equal to the prime rate plus one percent (1%). The 2009 Q2 Note contains
customary events of default, including, among others, non-payment of principal
and interest and in the event TelVue is involved in certain insolvency
proceedings. In the event of a default, all of the obligations of TelVue under
the 2009 Q2 Note may be declared immediately due and payable. The 2009 Q2 Note
is unsecured and will expire six years from the date of the first advance under
the 2009 Q2 Note unless extended or renewed. Principal and interest on the 2009
Q2 Note are also due and payable six years from the date of the first advance
under the 2009 Q2 Note. As of September 30, 2009, TelVue had borrowed $500,000
under the 2009 Q2 Note, fully exhausting the 2009 Q2 Note. As of September 30,
2009, accrued interest due on the 2009 Q2 Note was $4,816.
In order to meet operating needs, TelVue entered into an additional Line of
Credit Note with Mr. Lenfest on October 5, 2009 in the principal amount of
$400,000 (the "2009 Q3 Note"). The minimum advance under the 2009 Q3 Note is
$100,000 and the interest rate is equal to the prime rate plus one percent (1%).
The 2009 Q3 Note contains customary events of default, including, among others,
non-payment of principal and interest and in the event TelVue is involved in
certain insolvency proceedings. In the event of a default, all of the
obligations of TelVue under the 2009 Q3 Note may be declared immediately due and
payable. The 2009 Q3 Note is unsecured and will expire six years from the date
of the first advance under the 2009 Q3 Note unless extended or renewed.
Principal and interest on the 2003 Q2 Note are also due and payable six years
from the date of the first advance under the 2009 Q3 Note. TelVue began drawing
on the 2009 Q3 Note on October 14, 2009.
TelVue's ability to fully fund its operating expenses has suffered by the loss
of a large number of its subscriber base for the ANI service. However, TelVue's
TPS segment has demonstrated bigger growth potential and rate than decreases in
its ANI segment. As discussed above, TelVue anticipates a continued decrease in
revenue and an increase in net loss for the ANI service. In order to continue to
fund a majority of its ANI operating expenses, TelVue needs to retain its
current subscriber base level. Management believes that over time, continued
erosion will occur in the subscriber base. During the nine months ended
September 30, 2009, TelVue had 363,000 full and part-time subscribers cancel
service and no new subscribers were added to the ANI service. Cable operators
have cancelled the ANI service primarily as a result of moving their subscribers
onto two-way digital service.
26
TelVue has been, and continues to be, dependent upon Mr. Lenfest for funds to
pay the majority of operating and capital expenditures. As of September 30,
2009, TelVue's cash and cash equivalents balance was $166,968, compared to a
balance of $250,698 as of December 31, 2008. This decrease was the result of the
use of cash versus funds drawn on lines of credit held by the Company with Mr.
Lenfest. TelVue had a net accounts receivable balance of $740,548 as of
September 30, 2009 compared to a balance of $560,579 as of December 31, 2008 due
to an increase in sales volume. This additional accounts receivable, when
collected, will also assist in the funding of TelVue's operations. As discussed
above, the financing from Mr. Lenfest under the 2005 Note, 2006 Note, 2007 Note,
2009 Q1 Note and 2009 Q2 Note have been exhausted. As a result of this, TelVue
secured the 2009 Q3 Note from Mr. Lenfest to help TelVue grow to a profitable
level. The 2005 Note, 2006 Note, 2007 Note, 2009 Q1 Note and 2009 Q2 Note have
helped, and the 2009 Q3 Note will help, to fund the growth of TPS. While
maintaining the ANI pay-per-view ordering business, TelVue intends to continue
to aggressively market and sell TPS. However, there can be no assurance that its
marketing efforts will be successful.
The Company does expect to see some adverse effects on sales in 2009 due to the
current economic conditions, primarily in the public, education and government
markets. The Company does anticipate some of this being offset by federal
stimulus dollars being allocated to these markets, although we believe
purchasing from stimulus dollars may have a bigger impact in 2010 than 2009.
Additionally, the Company feels that expansion into markets outside of these
will broaden the Company's sources of revenue which will help to offset any
revenue declines related to the economy.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
TelVue, a smaller reporting company, is not required to provide information
required by this Item.
ITEM 4T. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. TelVue's Chief Executive
Officer and its Treasurer (Controller), have evaluated the effectiveness of
TelVue's disclosure controls and procedures (as defined in the Securities
Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e) of the Securities Exchange
Act of 1934, as amended) as of the end of the period covered by this report.
Based upon that evaluation, TelVue's Chief Executive Officer and its Treasurer
(Controller) have concluded that TelVue's disclosure controls and procedures
were adequate and effective to ensure that material information relating to
TelVue would be made known to them by others within TelVue, particularly during
the period in which this quarterly report on Form 10-Q was being prepared.
(b) Changes in Internal Controls. During the quarterly period covered by this
report, there were no changes in TelVue's internal control over financial
reporting that has materially affected, or is reasonably likely to materially
affect TelVue's internal control over financial reporting.
27
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
Exhibits
3.1 Certificate of Incorporation of TelVue (incorporated by reference to
TelVue's Registration Statement on Form S-8, filed with the Securities
and Exchange Commission on April 20, 1989 (the "Registration Statement"),
File No. 333-28263).
3.2 Bylaws of TelVue (incorporated by reference to TelVue's Registration
Statement, File No. 333-288263).
3.3 Certificate of Amendment of Certificate of Incorporation of TelVue, dated
April 11, 1990 (incorporated by reference to TelVue's Annual Report on
Form 10-K for the year ended December 31, 1991, (the "1991 Form 10-K"),
File No. 000-17170).
3.4 Certificate of Amendment of Certificate of Incorporation of TelVue, dated
March 15, 1991 (incorporated by reference to the 1991 Form 10-K, File No.
000-17170).
3.5 Form of copy of Amendment of Certificate of Incorporation of TelVue,
filed September 25, 1995 (incorporated by reference to TelVue's Form
10-QSB for the period ended September 30, 1995, File No. 000-17170).
4.1 The TelVue Corporation 1999 Stock Option Plan (incorporated by reference
to TelVue's Registration Statement on Form S-8, dated September 23, 1999
(the "1999 Stock Option Plan"), File No. 000-17170).
4.2 Form of ISO Option Agreement issued pursuant to the 1999 Stock Option
Plan (incorporated by reference to TelVue's Annual Report on Form 10-KSB
for the year ended December 31, 1999, (the "1999 Form 10-KSB") File No.
000-17170).
4.3 Form of NQSO Option Agreement issued pursuant to the 1999 Stock Option
Plan (incorporated by reference to the 1999 Form 10-KSB, File No.
000-17170).
4.4 Certificate of Designation of Class A Preferred Stock (incorporated by
reference to the September 30, 1990 Form 10-Q, File No. 000-17170).
4.5 Warrant Termination Agreement, dated June 16, 2005, by and between TelVue
and H.F. (Gerry) Lenfest (incorporated by reference to the September 30,
2005 Form 10-QSB, File No. 000-17170).
4.6 Waiver by H.F.(Gerry) Lenfest, waiving the right to receive past, present
or future dividends with respect to the TelVue's Class A Redeemable
Convertible Preferred Stock (incorporated by reference to the September
30, 2005 Form 10-QSB, File No.000-17170).
10.1 Distributorship Agreement, dated November 2, 1989, between the Company
and Science (incorporated by reference to the 1989 Form 10-K, File No.
000-17170).
28
10.2 Stock Purchase Agreement, dated November 2, 1989, between the Company and
H.F. (Gerry) Lenfest (incorporated by reference to the Company's Report
on Form 8-K, dated November 15, 1989 (the "1989 Form 8-K"), File No.
000-17170).
10.3 Shareholders' Agreement, dated November 2, 1989, among TelVue and certain
of its stockholders (incorporated by reference to the Company's 1989 Form
8-K, File No. 000-17170).
10.4 Option Agreement, dated November 2, 1989, among TelVue and certain of its
stockholders (incorporated by reference to the 1989 Form 8-K, File No.
000-17170).
10.5 Lease Agreement dated April 25, 1991 for office space and the First
Amendment to Lease dated March 30, 1994 ("Office Lease Agreement"),
between TelVue and Bloom Associates (incorporated by reference to the
1994 Form 10-KSB, File No. 000-17170).
10.6 Second Amendment to Office Lease Agreement Dated May 5, 1999, between
TelVue and Bloom Associates (incorporated by reference to the 1999 Form
10-KSB, File No. 000-17170).
10.7 Third Amendment to Office Lease Agreement Dated April 28, 2004, between
TelVue and Bloom Associates (incorporated by reference to the June 30,
2006 Form 10-QSB, File No. 000-17170).
10.8 Fourth Amendment to Office Lease Agreement Dated April 19, 2006, between
TelVue and The Bloom Organization of South Jersey, LLC (incorporated by
reference to the June 30, 2006 Form 10-QSB, File No. 000-17170).
10.9 Asset Purchase Agreement by and among TelVue and J.D. Kraengel and
Associates, Inc. f/k/a Dacon Corporation d/b/a Source Communications
Group and Jeffrey Kraengel, dated February 14, 2001 (incorporated by
reference to the March 26, 2001 Form 8-K, File No. 000-17170).
10.10 Retirement Agreement dated April 29, 2004 between TelVue and Frank J.
Carcione (incorporated by reference to the December 31, 2004 Form 10-KSB
(the "2004 Form 10-KSB"), File No. 000-17170).
10.11 Summary of Director Compensation (incorporated by reference to the 2004
Form 10-KSB, File No. 000-17170).
10.12 Summary of Executive Compensation, as amended (incorporated by reference
to the December 31, 2008 Form 10-K ("2008 Form 10-K"), File No. 000-
17170).
10.13 Line of Credit Note, dated April 27, 2005, between H.F. (Gerry) Lenfest
and TelVue (incorporated by reference to the Form 8-K filed on May 3,
2005, File No. 000-17170).
10.14 Amended and Restated Promissory Note, in the principal amount of
$541,000, dated June 16, 2005, between H.F. (Gerry) Lenfest and TelVue
(incorporated by reference to the September 30, 2005 Form 10-QSB, File
No. 000-17170).
10.15 Line of Credit Note, dated November 3, 2006, between H.F. (Gerry) Lenfest
and TelVue (incorporated by reference to the Form 8-K filed on November
3, 2006, File No. 000-17170).
29
10.16 Stock Purchase Agreement by and among TelVue and Princeton Server Group,
Inc. dated March 12, 2007 (incorporated by reference to the March 13,
2007 Form 8-K, File No. 000-17170).
10.17 Convertible Note for $400,000 dated December 26, 2006 issued to TelVue by
the Princeton Server Group, Inc. (incorporated by reference to the
December 31, 2006 Form 10-KSB, File No. 000-17170).
10.18 Separation Agreement by and between TelVue and Stanley Greene, dated
December 29, 2006 (incorporated by reference to the December 31, 2006
Form 10-KSB, File No. 000-17170).
10.19 Separation Agreement by and between TelVue and Irene DeZwaan, dated
February 8, 2007 (incorporated by reference to the December 31, 2006 Form
10-KSB, File No. 000-17170).
10.20 Amendment of Form 8-K filed by TelVue Corporation on March 13, 2007 (the
"Original 8-K") to include the information required by Item 9.01 of the
Form 8-K in connection with TelVue's acquisition of Princeton Server
Group, Inc. (incorporated by reference to the May 12, 2007 Form 8-K/A,
File No. 000-17170).
10.21 Line of Credit Note, dated December 21, 2007, between H.F. (Gerry)
Lenfest and TelVue (incorporated by reference to the Form 8-K filed on
December 21, 2007, File No. 000-17170).
10.22 Separation Agreement and Release by and between TelVue and Joseph M.
Murphy, dated December 31, 2008 (incorporated by reference to the Form
8-K filed on January 6, 2009, File No. 000-17170).
10.23 Line of Credit Note, dated March 2, 2009, between H.F. (Gerry) Lenfest
and TelVue (incorporated by reference to the Form 8-K filed on March 5,
2009, File No. 000-17170).
10.24 Fifth Amendment to Office Lease Agreement dated March 16, 2009
(incorporated by reference to the 2008 Form 10-K, File No. 000-17170).
10.25 Line of Credit Note, dated June 8, 2009, between H.F. (Gerry) Lenfest and
TelVue (incorporated by reference to the Form 8-K filed on June 11, 2009,
File No. 000-17170).
10.26 The TelVue Corporation 2009 Stock Option Plan, dated June 10, 2009
(incorporated by reference to the Form 8-K filed on August 7, 2009, File
No. 000-17170).
10.27 Line of Credit Note, dated October 5, 2009, between H.F. (Gerry) Lenfest
and TelVue (incorporated by reference to the Form 8-K filed on October 6,
2009, File No. 000-17170).
11. Statement re: Computation of Per Share Earnings (see TelVue's June 30,
2009 Financial Statements included herein).
23. Consent of Pressman Ciocca Smith LLP, Independent Registered Public
Accounting Firm (incorporated by reference to the 2008 Form 10-K, File
No. 000-17170).
30
31.1 Certification of President and Chief Executive Officer pursuant to Rule
13a-14(a) or 15d-14(a).
31.2 Certification of Treasurer-Controller pursuant to Rule 13a-14(a) or 15d-
14(a).
32.1 Certification of President and Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
32.2 Certification of Treasurer-Controller pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELVUE CORPORATION
DATED: 11/16/09 By: /s/ Jesse Lerman
----------------
Jesse Lerman
President and Chief Executive Officer
DATED: 11/16/09 By: /s/ John Fell
-------------
John Fell
Treasurer-Controller
EXHIBIT INDEX
31.1 Certification of President and Chief Executive Officer pursuant to Rule
13a-14(a) or 15d-14(a).
31.2 Certification of Treasurer-Controller pursuant to Rule 13a-14(a) or
15d-14(a).
32.1 Certification of President and Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Treasurer-Controller pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
31