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 March 31, 2011
[_] 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 May 11, 2011:
48,774,144 shares.
TELVUE CORPORATION
INDEX
PAGE
NO.
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets (unaudited) as of March 31, 2011
and December 31, 2010 ........................................... 3
Condensed Statements of Operations (unaudited) for the
three months ended March 31, 2011 and March 31, 2010 ............ 4
Condensed Statements of Cash Flows (unaudited) for the
three months ended March 31, 2011 and March 31, 2010 ............ 5
Notes to Condensed Financial Statements (unaudited) .............. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .......... 12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk ............................................ 22
Item 4. Controls and Procedures ................................. 22
PART II. OTHER INFORMATION
Item 6. Exhibits ................................................ 22
SIGNATURES ................................................................. 23
EXHIBIT INDEX .............................................................. 23
2
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
TELVUE CORPORATION
CONDENSED BALANCE SHEETS
March 31, December 31,
2011 2010
------------ ------------
ASSETS (Unaudited)
CURRENT ASSETS
Cash and cash equivalents .................. $ 133,241 $ 185,954
Accounts receivable - trade, net of
allowance for doubtful accounts of
$12,319 at March 31, 2011 and $11,587
at December 31, 2010 ...................... 603,820 567,763
Inventory .................................. 354,475 388,059
Prepaid expenses ........................... 48,492 16,298
------------ ------------
TOTAL CURRENT ASSETS .................... 1,140,028 1,158,074
------------ ------------
PROPERTY AND EQUIPMENT ....................... 7,091,674 7,054,384
Less accumulated depreciation .............. 6,740,845 6,671,853
------------ ------------
TOTAL PROPERTY AND EQUIPMENT, NET ....... 350,829 382,531
------------ ------------
OTHER ASSETS ................................. 19,665 19,665
------------ ------------
TOTAL ASSETS ................................. $ 1,510,522 $ 1,560,270
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable - trade ................... $ 330,822 $ 309,056
Accrued expenses ........................... 154,433 107,786
Deferred service revenue ................... 579,338 534,707
Other liabilities .......................... 936 1,995
------------ ------------
TOTAL CURRENT LIABILITIES ............... 1,065,529 953,544
LINES OF CREDIT - MAJORITY STOCKHOLDER ....... 18,900,000 18,500,000
NOTE PAYABLE - MAJORITY STOCKHOLDER .......... 541,000 541,000
ACCRUED INTEREST - MAJORITY STOCKHOLDER ...... 3,903,666 3,667,793
REDEEMABLE CONVERTIBLE PREFERRED STOCK,
$1 par value, 6,900,000 shares authorized,
no shares outstanding ...................... -- --
------------ ------------
TOTAL LIABILITIES ....................... 24,410,195 23,662,337
------------ ------------
COMMITMENTS AND CONTINGENCIES ................ -- --
STOCKHOLDERS' DEFICIT
Common stock, $.01 par value,
100,000,000 shares authorized,
48,674,144 shares issued and outstanding
at March 31, 2011 and December 31, 2010 ... 486,742 486,742
Additional paid-in capital ................. 4,883,228 4,883,228
Accumulated deficit ........................ (28,269,643) (27,472,037)
------------ ------------
(22,899,673) (22,102,067)
------------ ------------
$ 1,510,522 $ 1,560,270
============ ============
See the accompanying unaudited notes which are an integral part of these
statements.
3
TELVUE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
-----------------------------
2011 2010
------------ ------------
REVENUES
TelVue products and services ............... $ 892,717 $ 633,451
ANI services ............................... 181,653 254,121
------------ ------------
1,074,370 887,572
COST OF REVENUES
TelVue products and services ............... 567,946 283,317
ANI services ............................... 31,564 40,786
------------ ------------
TOTAL COST OF REVENUES ....................... 599,510 324,103
------------ ------------
GROSS MARGIN ................................. 474,860 563,469
OPERATING EXPENSES
Selling and marketing ...................... 281,463 323,451
General and administrative ................. 686,225 624,905
Depreciation and amortization .............. 68,992 276,815
------------ ------------
1,036,680 1,225,171
------------ ------------
OPERATING LOSS ............................... (561,820) (661,702)
OTHER INCOME (EXPENSE)
Interest income ............................ 87 --
Interest expense-related party ............. (235,873) (212,626)
------------ ------------
TOTAL OTHER INCOME (EXPENSE) ................. (235,786) (212,626)
------------ ------------
LOSS BEFORE INCOME TAXES ..................... (797,606) (874,328)
INCOME TAX EXPENSE ........................... -- --
------------ ------------
NET LOSS ..................................... $ (797,606) $ (874,328)
============ ============
BASIC AND DILUTED NET LOSS PER COMMON SHARE .. $ (.02) $ (.02)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
BASIC AND DILUTED ......................... 48,674,144 48,561,644
============ ============
See the accompanying unaudited notes which are an integral part of these
statements.
4
TELVUE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
-----------------------------
2011 2010
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ................................... $ (797,606) $ (874,328)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization ............ 68,992 276,815
Changes in assets and liabilities:
Accounts receivable - trade .............. (36,057) 286,191
Inventory ................................ 33,584 (88,139)
Prepaid expenses ......................... (32,194) (45,608)
Accounts payable - trade ................. 21,766 (105,351)
Accrued expenses ......................... 45,588 161,280
Deferred service revenue ................. 44,631 24,772
Accrued interest - majority stockholder 235,873 212,626
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES .... (415,423) (151,742)
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of property and equipment ........ (37,290) (10,474)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Proceeds from line of credit - majority
stockholder .............................. 400,000 300,000
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS ...... (52,713) 137,784
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD ........................ 185,954 112,213
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ..... $ 133,241 $ 249,997
============ ============
See the accompanying unaudited notes which are an integral part of these
statements.
5
TELVUE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
---------------------
Summary Financial Information and Results of Operations
-------------------------------------------------------
The accompanying unaudited condensed financial statements of TelVue Corporation
("TelVue" or the "Company")have been prepared pursuant to the rules and
regulations of the U.S. Securities and Exchange Commission ("SEC") for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements. In the opinion of the Company's
management, all adjustments (consisting of only normal recurring accruals)
considered necessary for a fair presentation of the Company's financial position
as of March 31, 2011 and December 31, 2010 and the results of operations and
cash flows for the three months ended March 31, 2011 and 2010 have been
included. Operating results for the three month period ended March 31, 2011 are
not necessarily indicative of results that may be expected for any other interim
period or the full fiscal year ending December 31, 2011. The accompanying
unaudited financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 2010 ("2010 Form 10-K").
Information included in the Condensed Balance Sheet as of December 31, 2010 has
been derived from the Company's audited financial statements for the year ended
December 31, 2010 included in the 2010 Form 10-K.
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 assumes 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.
As shown in the accompanying condensed financial statements, the Company
incurred a net loss of $797,606 during the three months ended March 31, 2011,
and as of that date, the Company's total liabilities exceeded its total assets
by $22,899,673. Those factors, as well as the Company's reliance on financing
from its majority stockholder (as discussed in Note 5), raise substantial doubt
about the Company's ability to continue as a going concern. Management of the
Company secured an additional line of credit of $1,500,000 on December 13, 2010
and has modified its business plan to focus on equipment sales to the cable,
telephone company ("Telco") and professional broadcast markets. 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 provide 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 assurance that
management will be successful. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.
6
TELVUE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Use of Estimates
----------------
The preparation of these financial statements requires the Company to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosures of contingent assets and
liabilities. On an ongoing basis, TelVue evaluates estimates, including those
related to impairment of long-lived assets and allowance for doubtful accounts.
TelVue bases its estimates on historical experience and on various other
assumptions that the Company believes to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
value of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions; however, TelVue believes that its estimates,
including those for the above described items, are reasonable.
Areas that require estimates and assumptions include valuation of accounts
receivable and inventory, determination of useful lives of property and
equipment, estimation of certain liabilities and sales returns, and valuation
allowances on deferred tax assets.
Intangible Assets
-----------------
Intangible assets are reviewed for impairment annually, or more frequently if
impairment indicators arise. As of December 31, 2010, management determined that
all intangible assets were impaired, and the Company recorded a non-cash
impairment charge of $2,639,246.
2. SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
No income taxes or interest were paid during the three months ended March 31,
2011 or 2010.
3. LOSS PER COMMON SHARE
---------------------
Basic loss per common share is computed by dividing net loss, after deduction of
preferred stock dividends, when applicable, by the weighted average number of
shares of outstanding common stock. Diluted loss per common share is computed by
dividing net loss, 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 three
months ended March 31, 2011 and 2010, 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.
7
TELVUE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
4. 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 March 31, 2011 and 2010 consisted of the following components:
2011 2010
----------- ----------
Current
Federal ........................... $ -- $ --
State ............................. -- --
----------- ----------
-- --
Deferred
Federal ........................... 174,000 246,000
State ............................. 46,000 67,000
----------- ----------
220,000 313,000
Valuation allowance increase ....... (220,000) (313,000)
----------- ----------
-- --
----------- ----------
Total .............................. $ -- $ --
=========== ==========
No provision for federal and state income taxes was required for the three
months ended March 31, 2011 and 2010 due to the Company's operating losses and
increased deferred tax asset valuation allowance. The valuation allowance was
recorded due to the uncertainty as to whether future net income would be
generated that would utilize TelVue's net operating loss carry-forward. TelVue's
federal net operating loss carry-forward was approximately $14,700,000 on a
tax-reporting basis as of March 31, 2011. The carry-forward begins to expire on
December 31, 2024.
The Company is subject to U.S. federal income tax as well as income tax in
multiple state jurisdictions. The Company is no longer subject to U.S. federal
income tax examinations for years before 2007 and state income tax examinations
before 2006. However, to the extent allowed by law, the tax authorities may have
the right to examine prior periods where net operating losses were generated and
carried forward, and make adjustments up to the amount of the net operating loss
carry forward amount. The Company is not currently under Internal Revenue
Service tax examination. The Company is not currently under examination by any
state jurisdictions.
8
TELVUE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
5. NOTES PAYABLE AND LINES OF CREDIT - MAJORITY STOCKHOLDER
--------------------------------------------------------
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 Class A
Redeemable Convertible Preferred Stock to Mr. Lenfest, TelVue's majority
stockholder, and from loans from Mr. Lenfest.
As of March 31, 2011, TelVue had entered into eight Line of Credit Notes (the
"Notes") with Mr. Lenfest. The purpose of these Notes is to fund expansion and
operating deficits. Under the terms of these Notes, TelVue may borrow, from time
to time, up to the maximum principal amount of the Notes. The minimum advance
under these Notes is $100,000 and the interest rate on the Notes is equal to the
prime rate plus one percent (1%). As of March 31, 2011 and December 31, 2010,
the effective interest rate was 4.25%. These Notes contain customary events of
default, including, among others, non-payment of principal and interest,
dissolution or liquidation, 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 Notes may be declared immediately due and payable. These Notes
are unsecured and will expire six years from the date of the first advance,
unless extended or renewed.
The following table summarizes the activity related to the outstanding Notes as
of March 31, 2011 and December 31, 2010:
As of March 31, 2011
--------------------
Maximum Amount Accrued
Note Principal Maturity Borrowed @ Interest @
Description Date Amount Date 3/31/2011 3/31/2011
------------ ---------- ----------- ---------- --- ----------- ----------
2005 Note 4/27/2005 $ 3,800,000 1/1/2016 * $ 3,800,000 $1,168,299
2006 Note 11/3/2006 10,000,000 12/26/2012 10,000,000 2,320,516
2007 Note 12/21/2007 2,300,000 5/5/2014 2,300,000 277,403
2009 Q1 Note 3/2/2009 400,000 3/3/2015 400,000 36,290
2009 Q2 Note 6/8/2009 500,000 6/9/2015 500,000 37,956
2009 Q3 Note 10/5/2009 400,000 10/14/2015 400,000 24,233
2010 Note 12/8/2009 1,500,000 3/16/2016 1,500,000 38,969
2011 Note 12/13/2010 1,500,000 - - -
----------- ----------- ----------
$20,400,000 $18,900,000 $3,903,666
=========== =========== ==========
9
TELVUE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
As of December 31, 2010
-----------------------
Maximum Amount Accrued
Note Principal Maturity Borrowed @ Interest @
Description Date Amount Date 12/31/2010 12/31/2010
------------ ---------- ----------- ---------- --- ----------- ----------
2005 Note 4/27/2005 $ 3,800,000 11/23/2011 * $ 3,800,000 $1,116,596
2006 Note 11/3/2006 10,000,000 12/26/2012 10,000,000 2,192,301
2007 Note 12/21/2007 2,300,000 5/5/2014 2,300,000 250,580
2009 Q1 Note 3/2/2009 400,000 3/3/2015 400,000 31,750
2009 Q2 Note 6/8/2009 500,000 6/9/2015 500,000 32,357
2009 Q3 Note 10/5/2009 400,000 10/14/2015 400,000 19,818
2010 Note 12/8/2009 1,500,000 3/16/2016 1,100,000 24,391
2011 Note 12/13/2010 1,500,000 - - -
----------- ----------- ----------
$20,400,000 $18,500,000 $3,667,793
=========== =========== ==========
* On March 23, 2011, the Company and Mr. Lenfest agreed to extend the maturity
date of the 2005 Note to January 1, 2016. No other terms of the 2005 Note
were amended.
In addition to the borrowings noted above, during January 1995, Mr. Lenfest
purchased from Science Dynamics Corporation, TelVue's unsecured 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. On March 23, 2011, the members of the Board of
Directors of TelVue and Mr. Lenfest further extended the maturity date of the
Science Note to January 1, 2016.
On May 2, 2011, the Company borrowed $300,000 on the 2011 Note.
6. RELATED PARTY TRANSACTIONS
--------------------------
See Note 5, included herein, for information of related party transactions
between TelVue and its majority stockholder.
10
TELVUE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
7. FINANCIAL DATA BUSINESS SEGMENTS
--------------------------------
The Company operates two business segments. The first segment, TelVue Products
and Services ("TPS"), includes equipment such as the TelVue Princeton(R)
broadcast and storage servers, and encoding and transcoding workstations and
services such as WEBUS(R) and PEG.TV(TM). TelVue Princeton(R) consists of high
performance digital video systems, servers, and software that support capture,
storage, manipulation and play-out of digital media in multiple popular formats.
The TelVue Princeton(R) HyperCaster(TM) builds on previous TelVue Internet
Protocol television ("IPTV") server models for cable, Telco and professional
markets by adding new support for streaming advanced video codecs (AVC/H.264)
used increasingly in the industry for bandwidth savings for both standard and
high-definition channels as well as new technologies such as 3D-TV. WEBUS(R) is
a broadcast digital signage system for displaying a fully automated TV
station-like display on a cable system access channel using computer-based
digital technology. PEG.TV(TM) is a live streaming and Video-on-Demand service
for integrating video on the Internet. TelVue's second business segment is the
marketing and service company which sells automatic number identification
("ANI") telecommunication services to the cable television industry.
Summarized financial information by reporting segment as of and for each of the
three months ended March 31, 2011 and 2010, is as follows:
Three months ended March 31, 2011 TPS ANI Total
--------------------------------- --------- --------- ----------
Revenues $ 892,717 $ 181,653 $1,074,370
Depreciation and amortization 65,306 3,686 68,992
Operating income/(loss) (671,258) 109,438 (561,820)
Interest expense 204,691 31,095 235,786
Net income/(loss) (875,949) 78,343 (797,606)
Capital expenditures 37,290 - 37,290
Three months ended March 31, 2010 TPS ANI Total
--------------------------------- --------- --------- ----------
Revenues $ 633,451 $ 254,121 $ 887,572
Depreciation and amortization 241,797 35,018 276,815
Operating income/(loss) (791,430) 129,728 (661,702)
Interest expense 177,181 35,445 212,626
Net income/(loss) (968,611) 94,283 (874,328)
Capital expenditures 10,474 - 10,474
11
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, 2010 and in this Quarterly Report on Form 10-Q. These
forward-looking statements may include declarations regarding the Company's
belief or current expectations of management, such as statements including the
words "budgeted," "anticipate," "project," "estimate," "expect," "may,"
"believe," "potential" and similar statements are intended to be among the
statements that are forward-looking statements. Because such statements reflect
the reality of risk and uncertainty that is inherent in the Company's business,
actual results may differ materially from those expressed or implied by such
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which are made as of the date this report was
filed with the Securities and Exchange Commission.
Readers are advised that the Company undertakes no obligation to release
publicly any revisions to the forward-looking statements to reflect events or
circumstances after the date hereof or to reflect unanticipated events or
developments. To the extent that the information presented in this Quarterly
Report on Form 10-Q for the quarter ended March 31, 2011 discusses financial
projections, information or expectations about the Company's products or
markets, or otherwise makes statements about future events, such statements are
forward-looking. The Company is making these forward-looking statements in
reliance on the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995.
Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included in this Quarterly Report will prove to
be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included in this Quarterly Report, the inclusion of
such information should not be regarded as a representation by TelVue or any
other person that the Company's objectives and plans will be achieved.
OVERVIEW OF COMPANY
TelVue is a broadcast technology company that specializes in playback,
automation and workflow solutions for public, education and government ("PEG")
television stations; cable, telephone company ("Telco") and satellite television
providers; K-12 and higher education institutions; and professional
broadcasters. TelVue delivers local programming to over thirty million homes
nationwide; powers over 1,000 PEG television channels; provides leased access
and local origination solutions to seven of the top ten Multi System Operators
("MSOs") and the nation's largest telephone company; and delivers on-campus
local channels to over one million students on college campuses nationwide.
12
TelVue was incorporated as a Delaware corporation on November 26, 1986. Until
December 30, 1988, TelVue was a wholly owned subsidiary of Science Dynamics
Corporation ("Science"). On that date, TelVue's shares of common stock were
distributed to Science's shareholders of record as of December 30, 1988, on the
basis of three shares of TelVue's common stock for each share of Science's
common stock then outstanding.
TelVue operates two business segments. The first segment, TelVue Products and
Services ("TPS"), includes equipment such as the TelVue Princeton(R) broadcast
and storage servers, and encoding and transcoding workstations and services such
as WEBUS(R) and PEG.TV(TM). TelVue Princeton(R) consists of high performance
digital video systems, servers, and software that support capture, storage,
manipulation and play-out of digital media in multiple popular formats. The
TelVue Princeton(R) HyperCaster(TM) builds on previous TelVue Internet Protocol
television ("IPTV") server models for cable, Telco and professional markets by
adding new support for streaming advanced video codecs (AVC/H.264) used
increasingly in the industry for bandwidth savings for both standard and
high-definition channels as well as new technologies such as 3D-TV.
WEBUS(R) is a broadcast digital signage system for displaying a fully automated
TV station-like display on a cable system access channel using computer-based
digital technology. PEG.TV(TM) is a live streaming and Video-on-Demand service
for integrating video on the Internet. TelVue Turbo(TM) Workflow Accelerator is
a scalable workflow application that streamlines publishing videos to PEG.TV(TM)
from any TelVue Princeton(R) server. CampusOneHD(TM) provides an all-in-one
video solution for campuses including local, high-definition television
channels, digital signage and life safety, and streaming and Video-on-Demand. In
addition, in the second quarter of 2010, TelVue introduced a new digital media
archive and retrieval product compatible with the Public Broadcasting Metadata
standard, PBCore, used by a growing number of Public Broadcasting Service
("PBS") stations.
TelVue is currently marketing its products and services to municipal
governments, K-12 school districts, higher education institutions, cable and
Telco MSOs, and other broadcasters as a means of lowering cost, simplifying
operations, and improving the quality of their local channels.
TPS products include:
TelVue Princeton(R) Digital Broadcaster B100
TelVue Princeton(R) Digital Broadcaster B1000
TelVue Princeton(R) Digital Broadcaster B3000
TelVue Princeton(R) Digital Video Archive Server S3000F
TelVue Princeton(R) Encoding Workstation C500W
TelVue Princeton(R) Encoding and Transcoding Workstation T7500E
TelVue Princeton(R) HyperCaster(TM)
TelVue Turbo(TM) Workflow Accelerator
TPS services include:
WEBUS(R) Automated broadcast digital signage display on TV Channel
WEBUS Inside(TM) WEBUS(R) integrated within TelVue Princeton(R) Servers
WEBLINX(TM) Automated WEBUS(R) message display on websites
VideoActives(TM) Real time, dynamic video content for channels
PEG.TV(TM) Internet Streaming and Video-on-Demand Service
CampusOneHD(TM) High-Definition Broadcast platform for the educational market
13
TelVue's second and legacy business segment is the marketing and service
company, which sells automatic number identification ("ANI") telecommunication
services to the cable television industry. The ANI service permits cable and
satellite television companies to process special ordering services without the
attendant, high manpower requirements, or extensive physical plant and
facilities that are otherwise required. TelVue provides the ANI service through
the equipment it purchases. TelVue's equipment for providing the ANI service
nationwide is located at TelVue's National Data Center in Philadelphia,
Pennsylvania. TelVue serves cable television systems across the United States
via trunk lines and data circuits that it currently leases from Qwest. TelVue
believes it receives a favorable trunk usage rate from Qwest. TelVue expects
continued loss of its subscriber base for the ANI service as digital,
interactive two-way services are offered by cable, satellite, and broadband
service providers for Video-on-Demand and as other video streaming options
become more prevalent in the industry.
NEW PRODUCTS AND SERVICES
In the first quarter of 2011, TelVue added capacity to its National Data Center
to support its new Hosted Broadcasting services. Hosted Broadcasting allows
broadcasters to deliver 24x7 linear channels including live programming via both
Internet streaming and traditional broadcast delivery without the need to own or
operate a facility with traditional broadcast equipment. TelVue's Hosted
Broadcasting can deliver channels natively as well as turn-around existing
satellite channels. TelVue Hosted Broadcasting is in use today by the largest
Telco for local origination programming. Hosted Broadcasting is a way for
broadcasters launching new channels to build an audience on the Internet before
expanding to traditional delivery, and is a cost-efficient way for communities
and operators to launch and maintain local origination and leased access
channels.
CRITICAL ACCOUNTING POLICIES
In presenting its financial statements in conformity with accounting principles
generally accepted in the United States, TelVue is required to make certain
estimates and assumptions that affect the amounts reported therein. Several of
the estimates and assumptions the Company is required to make relate to matters
that are inherently uncertain as they pertain to future events. However, events
that are outside of TelVue's control cannot be predicted and, as such, they
cannot be contemplated in evaluating such estimates and assumptions. If there is
a significant unfavorable change to current conditions, it will likely result in
a material adverse impact to TelVue's results of operations, financial position
and liquidity. TelVue believes that the estimates and assumptions used when
preparing its financial statements were the most appropriate at that time.
Presented below are those accounting policies that TelVue believes require
subjective and complex judgments that could potentially affect reported results.
Use of Estimates
TelVue's discussion and analysis of its financial condition and results of
operations are based upon its financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires the Company to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosures of contingent assets and
liabilities. On an ongoing basis, TelVue evaluates estimates, including those
related to impairment of long-lived assets and allowance for doubtful accounts.
TelVue bases its estimates on historical experience and on various other
assumptions that the Company believes to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
value of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions; however, TelVue believes that its estimates,
including those for the above described items, are reasonable.
14
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, and valuation
allowances on deferred tax assets.
Intangible Assets
Intangible assets are reviewed for impairment annually, or more frequently if
impairment indicators arise. As of December 31, 2010, management determined that
the intangible assets were impaired, and the Company recorded a non-cash
impairment charge of $2,639,246.
Revenue Recognition
In accordance with accounting principles generally accepted in the United
States, TelVue recognizes revenues related to TelVue Princeton(R) and other
equipment upon shipment of the equipment to its customers. Revenues related to
its WEBUS(R) and PEG.TV(TM) services are recognized on a monthly basis, being
amortized over the term of the agreement. TelVue also sells annual product
maintenance plans covering equipment support and application upgrades. The
revenue related to these plans is recognized on a straight-line basis over the
term being covered by the plan. If the Company chose to recognize these revenues
when payments were received under these agreements, then the Company would
recognize more revenue in earlier periods and would not record any deferred
revenues. TelVue believes that its practice allows the Company to better match
revenues with the expenses related to providing these services over the term of
the agreements and, accordingly, is a better reflection of generally accepted
accounting principles. Revenue related to TelVue's ANI service is recognized in
the month the service is provided.
Stock-Based Compensation
TelVue accounts for stock-based compensation in accordance with the fair value
recognition method. The Company uses a Black-Scholes option-pricing valuation
model which requires the input of highly subjective assumptions. These
assumptions include estimating the length of time employees will retain their
vested stock options before exercising them ("expected term"), the estimated
volatility of TelVue's common stock price over the expected term and the number
of options that will ultimately not complete their vesting requirements. Changes
in the subjective assumptions can materially affect the estimate of fair value
of stock-based compensation.
The above listing is not intended to be a comprehensive list of all of TelVue's
accounting policies. In many cases, the accounting treatment of a particular
transaction is specifically dictated by generally accepted accounting
principles, with no need for management's judgment in their application. See
TelVue's audited financial statements and notes thereto included in its Annual
Report on Form 10-K for the year ended December 31, 2010, which contains
accounting policies and other disclosures required by accounting principles
generally accepted in the United States.
RESULTS OF OPERATIONS:
The following discussion deals with the reduction in operating losses for the
three months ended March 31, 2011, compared to the three months ended March 31,
2010, and the reasons for the variance. TelVue further discusses the continued
loss of its subscriber base for the ANI service, when comparing the three months
ended March 31, 2011 to the three months ended March 31, 2010. TelVue also
discusses the changes in TPS revenue and expenses.
15
March 31, March 31, $ Change % Change
2011 2010 Fav/(Unfav) Fav/(Unfav)
--------- --------- ----------- -----------
Revenues
TelVue products and services $ 892,717 $ 633,451 $ 259,266 40.9
ANI services ............... 181,653 254,121 (72,468) (28.5)
Cost of Revenues
TelVue products and services 567,946 283,317 (284,629) (100.5)
ANI services ............... 31,564 40,786 9,222 22.6
Operating Expenses
Selling and marketing ...... 281,463 323,451 41,988 13.0
General and administrative . 686,225 624,905 (61,320) (9.8)
Depreciation and
amortization .............. 68,992 276,815 207,823 75.1
--------- --------- ---------- ----------
Operating Loss ............... (561,820) (661,702) 99,882 15.1
Other Income (Expense) ....... (235,786) (212,626) (23,160) (10.9)
--------- --------- ---------- ----------
Net Loss ..................... $(797,606) $(874,328) $ 76,722 8.8
========= ========= ========== ==========
The TPS segment had an operating loss of $671,258 for the three months ended
March 31, 2011, compared to an operating loss of $791,430 for the three months
ended March 31, 2010 primarily due to an increase in TPS segment revenue and
savings in depreciation and amortization, offset by an increase in general and
administrative expenses. The ANI segment had operating income of $109,438 for
the three months ended March 31, 2011, compared to $129,728 for the three months
ended March 31, 2010. The decrease in operating income for the ANI segment was
mainly a result of an anticipated decrease in ANI revenue, offset by a change in
the allocation of expenses whereby, based on the segment's percentage of total
forecasted revenues for the year, 13% of certain expenses were allocated to the
ANI segment for the three months ended March 31, 2011, compared to an allocation
percentage of 17% for the same period in 2010.
Revenues
TPS revenues increased $259,266 for the three months ended March 31, 2011,
compared to the same period of 2010. The majority of the revenue increases were
attributed to an 80% increase in TelVue Princeton(R) equipment sales, which grew
from $330,302 for the three months ended March 31, 2010 to $595,236 for the
three months ended March 31, 2011. Additionally, there were increases in
PEG.TV(TM) revenue, and TelVue Princeton(R) support revenue. These increases
were offset by declines in sponsorship revenue related to the WEBUS(R) service,
in addition to lower consulting revenue when comparing the three months ended
March 31, 2011 to the three months ended March 31, 2010.
16
TelVue has been shifting product, sales, and marketing resources to the cable,
Telco, and professional broadcast markets that have not been as adversely
affected by the economic downturn. This strategy has been effective in
counter-balancing the slow-down in the PEG and education markets and has created
new opportunities for TelVue. For the three months ended March 31, 2011, cable,
Telco and professional accounted for 58% of TelVue Princeton(R) sales, while PEG
and education accounted for 42% of TelVue Princeton(R) sales. While TelVue
Princeton(R) equipment sales increased for the three months ended March 31,
2011, when compared to the same period of 2010, further growth in sales was
slowed by reduced municipal budgets impacting the PEG and K-12 educational
market new system sales. The Company expects to see a modest increase in
government and K-12 educational sales as new fiscal budgets are approved. TelVue
has been able to partially offset the decline in new system sales in the PEG and
education markets by focusing sales resources on add-on sales to existing
customers including its TelVue Care maintenance and support service. Sales of
TelVue Care service increased 23% for the three months ended March 31, 2011 when
compared to the same period of 2010.
TelVue expects to continue to expand in the cable, Telco, and professional
broadcast markets and also believes the Company will resume growth in the PEG
and education markets as the economy continues to recover during 2011.
ANI services revenue decreased $72,468 for the three month period ended March
31, 2011, when compared to the same period of 2010. As expected, pay-per-view
buy revenue decreased $1,871 for the three months ended March 31, 2011, and
pay-per-view plus revenue decreased $3,374 for the three months ended March 31,
2011 when compared to the same period of 2010. These decreases were mainly due
to a reduction in the number of subscribers served during this period when
compared to 2010, as discussed below. Additionally, there were decreases in
feature revenue, data link revenue, and program number revenue of $53,378,
$11,465 and $1,685, respectively, when comparing the three months ended March
31, 2011 to the three months ended March 31, 2010.
As of March 31, 2011, the TelVue ANI service was serving approximately 1.0
million full-time cable subscribers compared to approximately 3.7 million
full-time cable subscribers served as of March 31, 2010. The subscriber decline
is the result of cable operators moving to two-way digital services which limit
the number of analog pay-per-view channels available for content and allow the
cable operator's customers to order digital pay-per-view or video on demand via
the set top box, eliminating the need for the TelVue ANI service. Management
believes the long-term effects of deployment of digital two-way service will
continue to negatively impact the TelVue ANI service. As a result of the cable
and satellite subscriber cancellations noted above, TelVue expects to continue
to experience a decrease in its revenue and operating income indefinitely for
its ANI segment.
Cost of Revenues
Cost of revenues for the TPS segment increased $284,629 for the three months
ended March 31, 2011, when compared to the same period of 2010, primarily as a
result of higher cost of sales related to increased TelVue Princeton(R) sales,
higher product discounts, higher consulting expenses and an increase in
compensation related to the filling of a position that was open during the three
months ended March 31, 2010. Additionally, there was an increase in the purchase
of ancillary computer supplies (i.e., cables, connectors, etc.) during the three
months ended March 31, 2011, when compared to the same period of 2010. These
non-inventory items are expensed when purchased.
ANI cost of revenues decreased $9,222 for the three months ended March 31, 2011,
when compared to the same period of 2010. This decrease was primarily due to
savings in compensation expense, in addition to savings in telecommunication
expenses related to ANI services.
17
Selling and Marketing Expenses
Selling expenses related to the TPS segment decreased $41,988 for the three
months ended March 31, 2011, when compared to the same period of 2010. This
decrease was primarily the result of the elimination of consulting expenses.
During the three months ended March 31, 2010, TelVue contracted outside sales
representatives and an outside marketing consultant. There were no consultants
providing sales related services during the three months ended March 31, 2011.
There were no selling expenses related to the ANI segment for the three months
ended March 31, 2011 or the three months ended March 31, 2010.
General and Administrative Expenses
TPS general and administrative expenses increased $72,944 for the three months
ended March 31, 2011 when compared to the same period of 2010. This increase was
related to additional spending on research and development activities. During
the three months ended March 31, 2011, TelVue contracted the services of
additional development consultants to assist in current product enhancements and
new product development. Additionally, there was an increase in computer supply
purchases related to these research and development activities.
ANI general and administrative expenses decreased $11,624 for the three months
ended March 31, 2011, when compared to the same period of 2010, primarily as a
result of a change in allocation percentages, where a lower percentage of
expenses are being allocated to the ANI segment.
Depreciation and Amortization
Depreciation expense decreased $60,186 for the three months ended March 31, 2011
when compared to the three months ended March 31, 2010, as a result of fewer
capital purchases, in addition to prior capital purchases reaching the end of
their depreciable lives. Depreciation accounted for 7% of total operating
expenses for the three months ended March 31, 2011. TelVue purchased $37,290 of
equipment during the three months ended March 31, 2011 compared to $10,474
purchased during the three months ended March 31, 2010. The majority of the
equipment purchased during the three months ended March 31, 2011 and 2010 was
for equipment related to the TPS segment. Amortization expense decreased
$147,637 for the three months ended March 31, 2011 when compared to the three
months ended March 31, 2010, as a result of the December 31, 2010 intangible
asset impairment determination and corresponding write-off.
Income Taxes
No provision for federal and state income taxes was required for the three
months ended March 31, 2011 and 2010 due to the Company's operating losses and
increased deferred tax asset valuation allowance. The valuation allowances were
recorded due to the uncertainty as to whether future net income would be
generated that would utilize TelVue's net operating loss carry forward. TelVue's
federal net operating loss carry-forward was approximately $14,700,000 on a
tax-reporting basis as of March 31, 2011 (see Note 4 of TelVue's accompanying
condensed financial statements).
Net Loss
TelVue had a net loss of $797,606 for the three months ended March 31, 2011,
compared to a net loss of $874,328 for the three months ended March 31, 2010,
primarily due to revenue growth for the three month period exceeding overall
expense increases.
18
Accounts Receivable and Allowance for Doubtful Accounts
As of March 31, 2011, TelVue had a net accounts receivable balance of $603,820,
compared to $567,763 as of December 31, 2010. This increase was primarily due to
increased sales for the three months ended March 31, 2011.
As of March 31, 2011, TelVue maintained a bad debt reserve in the amount of
$12,319, compared to a reserve of $11,587 as of December 31, 2010. The reserve
was calculated based on management's assessment of the current status of
individual accounts.
TelVue's days for sales in average accounts receivable was 49 days at March 31,
2011, compared to 54 days at March 31, 2010. TelVue will from time to time offer
sales incentives and/or discounts to its TelVue Princeton(R) customers. The
Company has not changed its credit terms with its customers for its WEBUS(R) or
ANI services. A 2% cash, 1% net 15 days discount is offered for payments related
to TelVue Princeton(R) equipment purchases.
Prepaid Expenses
As of March 31, 2011, TelVue had a prepaid expense balance of $48,492, compared
to a balance of $16,298 as of December 31, 2010. This increase was primarily the
result of paying in-full for the Company's business insurance policies during
the three months ended March 31, 2011. The expense related to these policies is
spread out evenly over the policy period.
Accrued Expenses
As of March 31, 2011, TelVue had an accrued expense balance of $154,433,
compared to a balance of $107,786 as of December 31, 2010. This increase was
primarily due to accruals recorded for legal and accounting expenses related to
TelVue's 2010 year-end audit and related financial reporting, in addition to an
increase in the accrual for employee paid time off, as it is earned and accrued
evenly throughout the year, while most employee time off is taken in the second
half of the year.
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 assumes 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.
As shown in the accompanying condensed financial statements, the Company
incurred a net loss of $797,606 during the three months ended March 31, 2011,
and as of that date, the Company's total liabilities exceeded its total assets
by $22,899,673. Those factors, as well as the Company's reliance on financing
from its majority stockholder (as discussed in Note 5), raise substantial doubt
about the Company's ability to continue as a going concern. Management of the
Company secured an additional line of credit of $1,500,000 on December 13, 2010
and has modified its business plan to focus on equipment sales to the cable,
Telco and professional broadcast markets. 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 provide 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 assurance that management
will be successful. The financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern.
19
Funding of Operations
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 Class A
Redeemable Convertible Preferred Stock to Mr. Lenfest, TelVue's majority
stockholder, and from loans from Mr. Lenfest.
As of March 31, 2011, TelVue had entered into eight Line of Credit Notes (the
"Notes") with Mr. Lenfest. The purpose of these Notes is to fund expansion and
operating deficits. Under the terms of these Notes, TelVue may borrow, from time
to time, up to the maximum principal amount of the Notes. The minimum advance
under these Notes is $100,000 and the interest rate on the Notes is equal to the
prime rate plus one percent (1%). As of March 31, 2011 and December 31, 2010,
the effective interest rate was 4.25%. These Notes contain customary events of
default, including, among others, non-payment of principal and interest,
dissolution or liquidation, 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 Notes may be declared immediately due and payable. These Notes
are unsecured and will expire six years from the date of the first advance,
unless extended or renewed.
The following table summarizes the activity related to the outstanding Notes as
of March 31, 2011 and December 31, 2010:
As of March 31, 2011
--------------------
Maximum Amount Accrued
Note Principal Maturity Borrowed @ Interest @
Description Date Amount Date 3/31/2011 3/31/2011
------------ ---------- ----------- ---------- --- ----------- ----------
2005 Note 4/27/2005 $ 3,800,000 1/1/2016 * $ 3,800,000 $1,168,299
2006 Note 11/3/2006 10,000,000 12/26/2012 10,000,000 2,320,516
2007 Note 12/21/2007 2,300,000 5/5/2014 2,300,000 277,403
2009 Q1 Note 3/2/2009 400,000 3/3/2015 400,000 36,290
2009 Q2 Note 6/8/2009 500,000 6/9/2015 500,000 37,956
2009 Q3 Note 10/5/2009 400,000 10/14/2015 400,000 24,233
2010 Note 12/8/2009 1,500,000 3/16/2016 1,500,000 38,969
2011 Note 12/13/2010 1,500,000 - - -
----------- ----------- ----------
$20,400,000 $18,900,000 $3,903,666
=========== =========== ==========
As of December 31, 2010
-----------------------
Maximum Amount Accrued
Note Principal Maturity Borrowed @ Interest @
Description Date Amount Date 12/31/2010 12/31/2010
------------ ---------- ----------- ---------- --- ----------- ----------
2005 Note 4/27/2005 $ 3,800,000 11/23/2011 * $ 3,800,000 $1,116,596
2006 Note 11/3/2006 10,000,000 12/26/2012 10,000,000 2,192,301
2007 Note 12/21/2007 2,300,000 5/5/2014 2,300,000 250,580
2009 Q1 Note 3/2/2009 400,000 3/3/2015 400,000 31,750
2009 Q2 Note 6/8/2009 500,000 6/9/2015 500,000 32,357
2009 Q3 Note 10/5/2009 400,000 10/14/2015 400,000 19,818
2010 Note 12/8/2009 1,500,000 3/16/2016 1,100,000 24,391
2011 Note 12/13/2010 1,500,000 - - -
----------- ----------- ----------
$20,400,000 $18,500,000 $3,667,793
=========== =========== ==========
20
* On March 23, 2011, the Company and Mr. Lenfest agreed to extend the maturity
date of the 2005 Note to January 1, 2016. No other terms of the 2005 Note
were amended.
In addition to the borrowings noted above, during January 1995, Mr. Lenfest
purchased from Science Dynamics Corporation, TelVue's unsecured 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. On March 23, 2011, the members of the Board of
Directors of TelVue and Mr. Lenfest further extended the maturity date of the
Science Note to January 1, 2016.
TelVue's ability to fully fund its operating expenses has suffered due to the
loss of a large number of its subscriber base for the ANI service. As discussed
above, TelVue anticipates a continued decrease in revenue and an increase in net
loss for the ANI service. In order to continue to fund a majority of its ANI
operating expenses, TelVue needs to retain its current subscriber base level.
While there were no cancellations during the three months ended March 31, 2011,
management believes that over time, continued erosion will occur in the
subscriber base as the cable operators continue to move their subscribers onto
two-way digital service.
TelVue has been, and continues to be, dependent upon Mr. Lenfest for funds to
pay the majority of operating and capital expenditures. As discussed above, the
financings from Mr. Lenfest under the 2005 Note, 2006 Note, 2007 Note, 2009 Q1
Note, 2009 Q2 Note, 2009 Q3 Note and 2010 Note have been exhausted. As a result
of this, TelVue secured the 2011 Note from Mr. Lenfest to help TelVue grow to a
profitable level. The 2005 Note, 2006 Note, 2007 Note, 2009 Q1 Note, 2009 Q2
Note, 2009 Q3 Note and 2010 Note have helped, and the 2011 Note will help, to
fund the growth of TelVue Products and Services. On May 2, 2011, the Company
borrowed $300,000 on the 2011 Note. While maintaining the ANI pay-per-view
ordering business, TelVue intends to continue to aggressively market and sell
TelVue Products and Services. However, there can be no assurance that its
marketing efforts will be successful.
TelVue expects to see some continued adverse effects on new TPS system sales in
2011 due to the current economic conditions, primarily in the PEG and
educational markets. The Company anticipates some of this being offset by add-on
sales to existing customers as well as its continued expansion into the cable,
Telco, and professional broadcast markets.
Cash and Cash Flows
TelVue had negative cash flow from operating activities of $415,423 for the
three months ended March 31, 2011, compared to $151,742 for the three months
ended March 31, 2010. The decrease in cash flow compared to 2010 was primarily
due to less cash collections during the three months ended March 31, 2011 when
compared to the three months ended March 31, 2010. Higher cash collections
during the three months ended March 31, 2010 were primarily the result of cash
receipts related to an accounts receivable balance of $954,013 as of December
31, 2009, as opposed to a balance of $579,350 as of December 31, 2010.
Additionally, there was more inventory used than purchased during the three
months ended March 31, 2011, whereas for the three months ended March 31, 2010,
there was more inventory purchased than was used.
TelVue had a cash balance of $133,241 as of March 31, 2011, compared to a
balance of $249,997 as of March 31, 2010, primarily due to the factors listed
above.
21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
TelVue, a smaller reporting company, is not required to provide information
required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. TelVue's Chief Executive
Officer and its Treasurer (Controller), have evaluated the effectiveness of
TelVue's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of
the period covered by this report. Based upon that evaluation, TelVue's Chief
Executive Officer and its Treasurer (Controller) have concluded that TelVue's
disclosure controls and procedures were adequate and effective to ensure that
material information relating to TelVue would be made known to them by others
within TelVue, particularly during the period in which this quarterly report on
Form 10-Q was being prepared.
(b) Changes in Internal Controls. During the quarterly period covered by this
report, there were no changes in TelVue's internal control over financial
reporting that has materially affected, or is reasonably likely to materially
affect TelVue's internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
10.1 Second Amended and Restated Promissory Note, in the principal amount of
$541,000, dated March 23, 2011, between H.F. (Gerry) Lenfest and TelVue
Corporation (incorporated by reference to the Form 8-K filed on March
24, 2011, File No. 000-17170).
10.2 Amended and Restated Line of Credit Note, dated March 23, 2011, between
H.F. (Gerry) Lenfest and TelVue Corporation (incorporated by reference
to the Form 8-K filed on March 24, 2011, File No. 000-17170).
31.1 Certification of President and Chief Executive Officer pursuant to Rule
13a-14(a) or 15d-14(a) (included herein).
31.2 Certification of Treasurer-Controller pursuant to Rule 13a-14(a) or
15d-14(a) (included herein).
32.1 Certification of President Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (included herein).
32.2 Certification of Treasurer-Controller pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (included herein).
22
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: May 16, 2011 By: /s/ Jesse Lerman
----------------
Jesse Lerman
President and Chief Executive Officer
DATED: May 16, 2011 By: /s/ John Fell
-------------
John Fell
Treasurer-Controller
EXHIBIT INDEX
10.1 Second Amended and Restated Promissory Note, in the principal amount of
$541,000, dated March 23, 2011, between H.F. (Gerry) Lenfest and TelVue
Corporation (incorporated by reference to the Form 8-K filed on March
24, 2011, File No. 000-17170).
10.2 Amended and Restated Line of Credit Note, dated March 23, 2011, between
H.F. (Gerry) Lenfest and TelVue Corporation (incorporated by reference
to the Form 8-K filed on March 24, 2011, File No. 000-17170).
31.1 Certification of President and Chief Executive Officer pursuant to Rule
13a-14(a) or 15d-14(a) (included herein).
31.2 Certification of Treasurer-Controller pursuant to Rule 13a-14(a) or
15d-14(a) (included herein).
32.1 Certification of President Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (included herein).
32.2 Certification of Treasurer-Controller pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (included herein).
23