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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2010
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from________to________
Commission File Number: 0-17170
TELVUE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 51-0299879
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16000 Horizon Way, Suite 500
Mt. Laurel, New Jersey 08054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (856) 273-8888
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Common, $0.01 per share par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [_] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [_] No [X]
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 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
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 Act). Yes [_] No [X]
The aggregate market value of voting and non-voting common equity held by
non-affiliates of the registrant as of June 30, 2010, based on a per share
average bid and asked price of $.12 was $1,218,993.
Number of shares of registrant's common stock outstanding as of March 19, 2011:
48,674,144 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for its 2011
Annual Meeting of Stockholders, which definitive Proxy Statement will be filed
with the Securities and Exchange Commission not later than 120 days after the
registrant's year end at December 31, 2010, are incorporated by reference into
Part III of this Form 10-K.
PART I
This Annual Report on Form 10-K 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 Corporation ("TelVue" or the "Company") 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 under
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." These forward-looking statements may include
declarations regarding TelVue's belief or current expectations of management,
such as statements including the words "budgeted," "anticipate," "project,"
"estimate," "expect," "may," "believe," "potential" and similar statements which
are intended to be among the statements that are forward-looking statements. As
such statements reflect the reality of risk and uncertainty that is inherent in
TelVue'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 TelVue 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 Annual Report
on Form 10-K for the year ended December 31, 2010 discusses financial
projections, information or expectations about TelVue'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 expectations
reflected in these forward-looking statements are based on reasonable
assumptions, there are a number of risks and uncertainties that could cause
actual results to differ materially from such forward-looking statements. These
risks and uncertainties are described, among other places in this Annual Report,
in "Business" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Although TelVue 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 Annual Report will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included in this Annual 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.
ITEM 1. BUSINESS
GENERAL
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 30 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.
1
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 T7400E
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
2
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
TelVue continued to invest in research and development throughout 2010
and introduced a number of new products and feature enhancements.
In the second quarter of 2010, at the National Association of
Broadcasters show, TelVue introduced a new all-digital TelVue Princeton(R)
broadcast server model, the HyperCaster(TM). The TelVue Princeton(R)
HyperCaster(TM) builds on previous TelVue IPTV server models for cable, Telco
and professional markets by adding new support for streaming advanced video
codecs (AVC/H.264) used increasingly in the industry for bandwidth savings for
both standard and high-definition channels as well as new technologies such as
3D-TV. Additionally, the HyperCaster(TM) supports integration with a widely
deployed traffic and campaign management system. The traffic system integration
allows the HyperCaster(TM) to be easily deployed for new, revenue generating
local origination applications such as targeted long-form advertisements and
infomercials. The HyperCaster(TM) delivers up to 20 all-digital channels in one
box, eliminating the cost of encoders, improving quality, and allowing for
higher density solutions for hyperlocal channel origination. The HyperCaster(TM)
can be centrally managed, making it easier for operators to maintain regulatory
compliance for leased access and PEG channels, and launch new local channels as
consumer demand rises for hyperlocal content such as sports and news.
Also, in the second quarter of 2010, TelVue introduced CampusOneHD(TM),
the first affordable, high-definition campus television broadcast platform for
the education market. 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, TelVue
introduced a new digital media archive and retrieval product compatible with the
Public Broadcasting Metadata standard, PBCore, used by a growing number of PBS
stations. TelVue deployed its PBCore digital media archive solution at a leading
PBS affiliate. TelVue's PBCore storage and archiving solution makes content more
accessible for reuse, collaboration, Internet distribution, or as niche content
for specific community, service, and institutional needs.
During the third quarter of 2010, TelVue added the ability for its
TelVue Princeton(R) HyperCaster(TM) line to integrate with modern interactive
television ("iTV") applications and infrastructures being deployed at cable,
Telco, and professional broadcast networks. These iTV applications have been
shown to help increase advertising revenue and direct response, as well as
improve viewer experience.
3
In the fourth quarter of 2010, TelVue introduced a new software module,
the Content Management Platform ("CMP"), for its TelVue Princeton(R) broadcast
servers. The CMP fully automates scheduling and content management workflow when
deployed in operations that use traffic and billing systems and is designed
around several major industry standards for traffic and billing and
advertisement insertion. The CMP module combined with the TelVue Princeton(R)
Digital Video Archive Server allows for centralized management of schedules and
digital media destined for channels across multiple TelVue Princeton(R) servers.
TelVue Princeton(R) servers automatically retrieve their schedules and required
media across the network and alert the operator if there is any missing media.
The CMP module allows cable and Telco operators to save time and cost managing a
large number of local origination and leased access channels in their networks.
Also in the fourth quarter of 2010, TelVue introduced a new feature of
its TelVue Princeton(R) HyperCaster(TM), StreamThru(TM), which allows the
HyperCaster(TM) to perform the same functions of a baseband video routing
switcher but in the digital, compressed domain. StreamThru(TM) allows the
HyperCaster(TM) to seamlessly switch between playing digital media files stored
on its hard drives, and live digital feeds on the local network. For example,
StreamThru(TM) allows a broadcast channel to default to an existing live network
feed when no programming is scheduled, and then switch to scheduled programming
without requiring a digital video switcher or additional encoders.
StreamThru(TM) helps save cost and reduces equipment space and complexity.
Additionally, in the fourth quarter of 2010, TelVue introduced a new
workflow product, TelVue Turbo(TM) Workflow Accelerator, that streamlines
publishing of videos to TelVue's PEG.TV(TM) service and viewing videos directly
from a television station's website program guide. TelVue Turbo(TM) allows
single click video publishing to the web, and automatically handles video format
conversion, file transfer, and populating metadata. TelVue Turbo(TM) eliminates
the need for third party transcoding applications and greatly reduces the amount
of time it takes broadcasters to maintain their website Video-on-Demand portals.
TelVue Turbo(TM) is a highly scalable workflow appliance server that allows
combining multiple units for increased speed and throughput of web video
publishing.
In the fourth quarter of 2010, TelVue introduced numerous feature
enhancements to its TelVue Princeton(R) software including email notifications
to help system administrators better maintain and support their installations,
enhanced website program guides, a new console application to simplify
configuration of a system out of the box, and the ability to load content and
schedules via portable devices for deployments that do not provide network
connectivity.
PATENTS
TelVue has developed and has in service a system that allows
subscribers to order pay-per-view movies and events from their provider using
the Internet. TelVue holds United States Patent No. 6,286,139, issued September
4, 2001 related to this system.
As a result of TelVue's acquisition of Princeton Server Group, Inc.
("PSG") in 2007, the Company acquired four pending patents filed prior to March
12, 2007 for various improvements related to digital video servers and a system
for self-service digital media broadcast. Two of these pending patents have
since been abandoned and management determined that the remaining two patents
should be written-off as of December 31, 2010.
TelVue has developed and has in service systems that allow for
multimedia data stream splicing and re-streaming. TelVue filed two provisional
patents related to these systems in 2010.
4
TRADEMARKS
On June 15, 2010, TelVue was awarded the trademark for the "TelVue
Princeton" name.
SALES OF PRODUCTS AND SERVICES
To expand its sales reach, TelVue complements its internal sales staff
with a third-party reseller network. This method broadens TelVue's sales reach
by employing both local and national resellers to create sales opportunities,
supported by TelVue's internal sales staff, which increases sales while reducing
and delaying some sales expenses until a sale is consummated. To date, 16
resellers have been contracted. To help expedite the impact of the Company's
reseller relationships, TelVue launched a Partner Resource Center in March 2009
on the Company's website that includes training materials, videos, and sales
tools to assist TelVue's resellers.
Additionally, in November 2008, TelVue reached an agreement with a
leading U.S. designer, manufacturer, and supplier of a comprehensive line of
broadband systems equipment to co-develop digital video storage products to be
sold under the partner's brand. In June 2010, TelVue reached an agreement with a
leading provider of patient television services for hospitals to co-develop
digital video broadcast products to be sold under the partner's brand with the
partner's content library and program schedule. This original equipment
manufacturer ("OEM") sales strategy complements TelVue's reseller network and
provides additional growth opportunities leveraging the Company's OEM partners'
strong distribution channel and brand.
MARKETING OF PRODUCTS AND SERVICES
TelVue markets its products and services to hyperlocal broadcasters
using:
o direct mail;
o e-mail;
o Internet banner ads;
o Search Engine Optimization;
o the Company's website;
o online videos and webinars; and
o telemarketing.
Additionally, TelVue attends key industry conferences where the Company
demonstrates its products and services. TelVue's partner program includes co-op
marketing opportunities with the Company's Resellers.
Sales of TelVue's ANI service to date have been made to operating cable
and satellite television companies with a broad geographical distribution.
TelVue believes that relations with all of its customers are generally good.
Unfortunately, many cable operators are moving their subscribers onto digital
two-way ordering and, as a result, the number of subscribers TelVue serves is
declining and it is unable to attract many new cable customers to its ANI
service. As of December 31, 2010, there were no MSOs that individually comprised
more than 10% of TelVue's revenues. Percentages of service revenue may vary as
cable operators continue to consolidate their systems with other cable
operators, as cable operators leave the ANI service and as the TPS segment
grows.
5
COMPETITION
TPS currently has competition from software and hardware suppliers to
broadcasters including municipalities that operate PEG cable access channels. As
broadcasters upgrade to all-digital equipment and workflows, many have a
significant learning curve and face new integration challenges so they
appreciate a company that can offer comprehensive solutions that integrate
seamlessly. While there are other competitors in TelVue's core markets, few
offer the comprehensive solution that the Company provides or can match the
price per channel and capabilities of the TelVue Princeton(R) Hypercaster(TM).
Additionally, TelVue's IT and web-centric approach to broadcast automation and
workflow and the simplicity of its applications make TelVue technology easy to
adopt and highly accessible.
TelVue uses telephone company grade, feature-laden equipment for its
automated pay-per-view order processing service. TelVue has a reputation for
offering customer friendly features and excellent customer service. TelVue is
unaware of any direct competitors to its ANI service. TelVue is aware, however,
that some TelVue customers have elected to process their own orders by
constructing their own ANI ordering processing platform.
EMPLOYEES
At December 31, 2010, TelVue had 23 full-time employees, compared to 24
full-time employees and one part-time employee as of December 31, 2009.
BACKLOG
TelVue service revenues are computed and assessed a fixed monthly
support and initial installation fee. As a result, no form of backlog exists,
other than that which is represented by accumulated service charge income, which
has yet to be paid to TelVue. Currently, TelVue is in the process of fulfilling
TPS orders for ten customers valued at approximately $73,000. TelVue's ANI
service revenues are computed and assessed on the basis of a fixed charge for
every order placed with a subscribing customer for specialized cable programming
services or for other services transmitted through its equipment.
RESEARCH AND DEVELOPMENT
With the acquisition of PSG, TelVue gained a strong and highly
technical research and development capability. Material research and development
is performed to introduce features on the Company's products and services.
ITEM 1A. RISK FACTORS
TelVue, a smaller reporting company, is not required to provide
information required by this Item.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
6
ITEM 2. PROPERTIES
TelVue leases approximately 8,700 square feet of office space in the
Mt. Laurel, New Jersey, Horizon Way Corporate Center. The lease was to expire on
May 31, 2012. However, TelVue had the right to terminate the lease after the
first year of the lease term upon providing written notice at least 120 days
before the end of the first year of the lease term and payment of a termination
fee of $13,098. On January 29, 2010, TelVue exercised its right of early
termination and paid the termination fee of $13,098. On March 1, 2010 TelVue
executed a new 5 year lease to remain at this location. Additionally, on March
15, 2010, TelVue executed the First Amendment to this lease, which established
the operating expense allocation. The space houses the equipment used to provide
the ANI service and TelVue Product and Services, and provides office space for
the executive, sales, secretarial and technical support personnel.
TelVue leases rack space and Internet bandwidth at a co-location
facility at 401 N. Broad St., Philadelphia PA. TelVue hosts its PEG.TV(TM)
Internet streaming and Video-on-Demand service at the co-location facility. In
2009, the Company moved its WEBUS(R) and ANI infrastructure to the facility for
further operational cost savings and increased service capacity and performance.
ITEM 3. LEGAL PROCEEDINGS
From time to time, TelVue may become involved in various lawsuits and
legal proceedings that arise in the ordinary course of business. However,
litigation is subject to inherent uncertainties and an adverse result in these
or other matters may arise from time to time that may harm TelVue's business.
TelVue is currently not aware of any such legal proceedings or claims that the
Company believes will have, individually or in the aggregate, a material adverse
affect on TelVue's business, financial condition or operating results.
ITEM 4. (REMOVED AND RESERVED)
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
TelVue's common stock is eligible for quotation on the OTC Markets
Group's quotation service under the symbol TEVE.PK. The range of high and low
bid prices for TelVue's common stock for the two most recent fiscal years, as
reported by The NASDAQ Stock Market, Inc. is as follows:
QUARTER 2010 HIGH LOW
------------ ---- ----
First $.19 $.10
Second $.15 $.03
Third $.09 $.07
Fourth $.18 $.07
QUARTER 2009
------------
First $.15 $.01
Second $.20 $.035
Third $.22 $.045
Fourth $.175 $.051
The above market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commissions and may not represent actual transactions.
7
HOLDERS
As of March 21, 2011, there were 255 holders of record of the common
stock of TelVue.
DIVIDEND POLICY
TelVue has paid no cash dividends since its incorporation. TelVue
intends to retain any future earnings for use in its business and has no present
intention to pay cash dividends on its common stock in the foreseeable future.
Holders of the common stock are entitled to share ratably in dividends when and
as declared by the Board of Directors out of funds legally available therefore.
Shares of common stock which have had the same beneficial owner for a
continuous period in excess of two years prior to the record date of any meeting
of stockholders, are entitled to 10 votes per share in any matters submitted for
vote, at a meeting of stockholders. All other stockholders have one vote per
share unless this limitation is waived by the Board of Directors. On August 21,
2006, the Board of Directors, with Mr. H.F. (Gerry) Lenfest, TelVue's majority
stockholder, abstaining from the action, waived the two year holding period
required to receive the full voting power of ten votes per share for the
23,459,133 shares of common stock Mr. Lenfest received for the conversion of his
preferred stock in August 2005. As of March 19, 2011, 40,870,706 shares of
TelVue's common stock were entitled to 10 votes per share. The remaining
7,803,438 shares of common stock were entitled to one vote per share. Mr.
Lenfest owns 38,016,586 shares of common stock, all of which are entitled to ten
votes per share.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
NUMBER OF NUMBER OF
SECURITIES TO BE SECURITIES
ISSUED UPON WEIGHTED-AVERAGE REMAINING
EXERCISE OF EXERCISE PRICE AVAILABLE FOR
OUTSTANDING OF OUTSTANDING FUTURE ISSUANCE
OPTIONS, WARRANTS OPTIONS, WARRANTS UNDER EQUITY
PLAN CATEGORY AND RIGHTS AND RIGHTS COMPENSATION PLANS
------------------- ----------------- ----------------- ------------------
Equity compensation
plans approved by
security holders:
1999 stock option
plan ............ 3,550,000 $0.071 -
2009 stock option
plan ............ 5,680,000 $0.087 4,320,000
Equity compensation
plans not approved
by security holders (a) (a) (a)
--------- ------ ---------
Total ............. 9,230,000 $0.081 4,320,000
========= ====== =========
(a) In December 1997, TelVue adopted a director compensation plan. Under this
plan, each non-employee director, other than the majority stockholder, is
compensated $500 for each meeting attended by receiving shares of common stock
issued at the higher of per share fair market value of the common stock as of
the board of directors meeting date or $.05 per share. In June 2010, the two
non-employee directors were issued 6,250 shares each. No shares were awarded in
2009 at the request of the directors.
8
ITEM 6. SELECTED FINANCIAL DATA
TelVue, a smaller reporting company, is not required to provide
information required by this Item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of TelVue's financial condition
and results of operations should be read in conjunction with the Company's
financial statements and related notes appearing elsewhere in this Annual
Report. This discussion and analysis contains forward-looking statements that
involve risks, uncertainties, and assumptions. The actual results may differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including but not limited to, the ability of TelVue
to obtain sufficient cash to continue its operations, the ability of TelVue to
implement its growth strategy, increases in costs of labor and employee
benefits, general market conditions, competition and similar matters.
OVERVIEW
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 30 million homes
nationwide; powers over 1,000 PEG television channels; provides leased access
and local origination solutions to seven of the top ten MSOs and the nation's
largest telephone company; and delivers on-campus local channels to over one
million students on college campuses nationwide. TelVue systems are deployed in
over 650 broadcast television outlets. TelVue combines its proprietary digital
media software and today's open technologies to simplify professional broadcast
equipment and workflow. As a result, TelVue's customers benefit from improved
programming and reduced costs and they are better positioned to meet the new
challenges of a rapidly changing industry including a stronger Internet
presence.
The accompanying financial statements 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. Conditions exist, however, that raise substantial doubt
about TelVue's ability to continue as a "going concern." The "going concern" and
managements plan is discussed in more length in the Liquidity and Capital
Resources section of this Form 10-K.
As of December 31, 2010, based on forecasts of undiscounted future cash
flows related to the TPS segment, TelVue's management determined that the
carrying values of the definite-lived intangible assets related to the PSG
acquisition were impaired, and the Company recorded a $2,241,986 non-cash charge
to write-off these intangibles. Negative cash flows from operations and a
history of recurring losses are conditions that indicate the carrying value may
not be recoverable. Other factors considered in the determination to write-off
the remaining intangible asset values include, but are not limited to: 1)
general economic and market conditions; 2) a re-evaluation of the estimated
lives assigned to the definite-lived intangibles; 3) significant enhancements
and new features added since the acquisition which render the original product
obsolete; and 4) shorter technology product life cycles in the digital media
industry. Management also determined there was a lack of economic value for the
indefinite-lived intangible asset, trademarks, and recorded a non-cash
impairment charge of $397,260 as of December 31, 2010. The write-offs are
reflected in impairment charges in the accompanying 2010 statement of
operations.
9
Overall, the Company results show a decrease in revenue for the year
ended December 2010 when compared to the year ended December 31, 2009. Despite a
51% decline in PEG market revenue that TelVue believes was due to the slow
economy and reduced municipal budgets, TPS's 60% growth in the cable, Telco and
professional markets made up most of the shortfall and demonstrated positive
momentum in these high value markets. In the fourth quarter of 2010, the TelVue
Princeton(R) HyperCaster(TM) was selected by the largest cable operator in the
United States for consolidation of local origination and leased access services
in a region within this operator's largest division. This deployment expands
TelVue's footprint for this cable operator. Also in the fourth quarter of 2010,
another large cable operator deployed TelVue Princeton(R) HyperCasters(TM) in
two major market areas, leveraging the HyperCaster(TM)'s industry standard
traffic and billing interface for interoperability with the cable industry's
most popular traffic and billing system, deployed in over 55% of the network
footprint of the top six cable operators. TelVue has continued to expand its
deployment with this operator in 2011. TelVue believes it is well positioned for
continued growth in its cable, Telco and professional markets, and for a rebound
in its PEG markets as municipal budgets improve with the improving economy.
CASH FLOW
TelVue's operational cash flow requirements were significantly less in
2010 when compared to 2009. TelVue was required to draw $1,100,000 from its
lines of credit in 2010 compared to $1,450,000 in 2009. This represented a 24%
decrease.
TelVue had negative cash flow from operating activities of $978,313 and
$1,364,253 for the years ended December 31, 2010 and 2009, respectively. The
increase in cash flow in 2010 compared to 2009 was primarily due to increased
cash collections in 2010 related to the accounts receivable balance as of
December 31, 2009.
MARKETS
TelVue has primarily focused its TPS marketing and sales efforts to
date on municipalities operating community television stations and cable and
Telcos operating local origination and leased access channels. TelVue expects
the cable, Telco, and PEG markets to continue to be growth areas for the
Company. TelVue sees additional growth opportunity for the Company by expanding
its marketing and sales efforts into markets including K-12, University,
Professional Broadcast and more.
INDUSTRY TRENDS
A number of industry trends that TelVue believes play to its strengths
include:
o The continued transition from analog/tape-based video systems to
digital and digital file-based systems.
o Stations using first generation digital video systems are
beginning to upgrade to second generation systems.
o The continued transition from standard definition to
high-definition.
o The adoption of 3D-TV technology.
10
o Increased competition between cable and Telco television
providers and satellite broadcast providers is proving that
hyper-local content can be an important differentiator. As such
cable and Telco television providers will likely put more focus
and be more supportive of PEG, local origination, and leased
access channels.
o The Digital TV transition and new "dot" channel capacity.
Professional Broadcasters will be looking to inexpensively
utilize these additional channels with new programming.
o The intersection and cross promotion of traditional broadcast
television programming, delivery, and advertising with video and
advertising on the Internet.
o New IT-centric workflows and web-hosted application to help
broadcasters streamline operations, securely access systems
remotely, and save cost.
o Edge-casting-networks of edge video servers under central
management with Internet file delivery. Edge-casting allows
highly targeted programming at the edge and saves cost versus
traditional linear satellite video delivery.
o The explosion of Digital Signage and out-of-home networks in
which each display is essentially a hyperlocal broadcast channel.
o The continued efficiency of IP networks giving rise to more IP
Video and IPTV applications.
Conversely, industry trends that could present risks to TelVue's growth
or create increased competition are:
o FCC regulation of MSOs could change and negatively affect the
number of PEG channels or how they are funded. Such changes could
negatively affect TelVue's PEG market sales.
o Internet video and social networking sites such as YouTube and
Facebook that may offer customers a free alternative to
PEG.TV(TM). However, TelVue believes content control and
broadcast workflow for its core markets will still be strengths
for TelVue.
o As Internet video delivery continues to become more robust and
competes with traditional broadcast television delivery, future
services offered by major Internet video companies could present
competitive solutions for local broadcasters.
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.
11
Use of Estimates
TelVue's discussion and analysis of its financial condition and results
of operations are based upon its financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires the Company to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosures of contingent assets
and liabilities. On an ongoing basis, TelVue evaluates estimates, including
those related to impairment of long-lived assets and allowance for doubtful
accounts. TelVue bases its estimates on historical experience and on various
other assumptions that the Company believes to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions; however, TelVue believes that its estimates,
including those for the above-described items, are reasonable.
Areas that require estimates and assumptions include valuation of
accounts receivable and inventory, determination of useful lives of property and
equipment, estimation of certain liabilities and sales returns, and valuation
allowances on deferred tax assets.
Intangible Assets
Intangible Assets are reviewed for impairment annually, or more
frequently if impairment indicators arise. As previously discussed, 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.
12
The above listing is not intended to be a comprehensive list of all
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 this Annual
Report on Form 10-K 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 increase in operating loss for
the year ended December 31, 2010, compared to the year ended December 31, 2009,
and the reasons for the increase. TelVue also discusses the marketing of its TPS
segment and the changes in TPS revenue and expenses. TelVue further discusses
the continued loss of its subscriber base for the ANI service when comparing the
year ended December 31, 2010 to the year ended December 31, 2009. The subscriber
decline is the result of cable operators moving to digital services which limit
the number of analog pay-per-view channels available for content and allows the
cable operator's customers to order digital pay-per-view or video on demand via
the set top box.
$ Change % Change
----------- ----------- ----------- -----------
2010 2009 Fav/(Unfav) Fav/(Unfav)
----------- ----------- ----------- -----------
Revenues
TPS .................. $ 3,064,360 $ 3,220,728 $ (156,368) (4.9)
ANI Services ......... 908,955 1,160,258 (251,303) (21.7)
Cost of Revenues
TPS .................. 1,647,172 1,707,764 60,592 3.5
ANI Services ......... 132,250 207,107 74,857 36.1
Operating Expenses
Selling and marketing 1,209,478 1,014,577 (194,901) (19.2)
General and
administrative ...... 2,203,868 2,305,037 101,169 4.4
Depreciation and
Amortization ........ 1,034,238 1,130,259 96,021 8.5
Impairment charges ... 2,639,246 - (2,639,246) (100.0)
----------- ----------- ----------- -----------
Operating Loss ....... (4,892,937) (1,983,758) (2,909,179) (146.6)
Other Income (Expense) (989,258) (808,599) (180,659) (22.3)
----------- ----------- ----------- -----------
Net Loss ............. $(5,882,195) $(2,792,357) $(3,089,838) (110.6)
=========== =========== =========== ===========
The TPS segment had an operating loss of $5,392,817 for the year ended
December 31, 2010, compared to an operating loss of $2,562,381 for the year
ended December 31, 2009, primarily due to the intangible impairment charge,
higher sales and marketing expenses attributed to the Company's growth in the
cable, Telco and professional broadcast markets and decreased sponsorship and
consulting revenues, offset by higher PEG.TV(TM) revenue and lower legal, bad
debt and depreciation expenses. The ANI segment had operating income of $499,880
for the year ended December 31, 2010, compared to $578,623 for the year ended
December 31, 2009. The decrease in operating income for the ANI segment during
2010 was mainly a result of the anticipated decrease in ANI revenue, offset by a
change in the allocation of expenses whereby, based on the segment's percentage
to total forecasted revenues for the year, 17% of certain expenses were
allocated to the ANI segment in 2010 compared to an allocation percentage of 22%
in 2009. The decline in revenue was offset by savings in telecommunications
expenses related to the ANI service as well.
13
Revenues
TPS revenue decreased $156,368 for the year ended December 31, 2010,
compared to the year ended December 31, 2009. The majority of the revenue
decreases were attributed to declines in WEBUS(R) service revenue and
sponsorship revenue related to the WEBUS(R) service, in addition to lower
consulting revenue when compared to 2009. These decreases were offset in part by
an increase in PEG.TV(TM) revenue, in addition to an increase in TelVue
Princeton(R) support revenue.
TelVue Princeton(R) sales growth was slowed largely due to reduced
municipal budgets impacting the PEG and K-12 educational market new system
sales. TelVue believes that government and K-12 educational markets have seen a
delayed reaction to the economic downturn that began in 2008 due to the nature
of their budget approval cycles. Additionally, growth in reseller and OEM sales
to these markets was similarly impacted. 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 36% for the twelve months ended
December 31, 2010 when compared to the same period of 2009.
Slower PEG and K-12 educational new system sales were also offset by
increased sales to cable, Telco and professional broadcasters. 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. This shift in resources is supported by a shift in the sales mix across
markets. For the twelve months ended December 31, 2009, PEG/education accounted
for 62% of TelVue Princeton(R) sales and cable, Telco and professional accounted
for 38% of TelVue Princeton(R) sales. For the twelve months ended December 31,
2010, cable, Telco and professional accounted for 67% of TelVue Princeton(R)
sales and PEG/education accounted for 33% of TelVue Princeton(R) sales. In 2010,
TelVue sold multiple TelVue Princeton(R) servers to a number of top ten MSOs.
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 declined $251,303 for the year ended December 31,
2010, when compared to the same period of 2009. As expected, feature revenue
decreased $168,511, pay-per-view plus revenue decreased $12,698, and
pay-per-view buy revenue decreased $19,761, for the year ended December 31, 2010
when compared to the same periods of 2009. These decreases were mainly due to a
continued reduction in the number of subscribers served during this period when
compared to 2009, as discussed below.
As of December 31, 2010, TelVue ANI was serving approximately 1.0
million full-time cable subscribers compared to approximately 3.8 million
full-time cable subscribers served as of December 31, 2009. During the year
ended December 31, 2010, approximately 2.8 million full-time and part-time cable
subscribers cancelled the ANI service. During the same period, there were no new
cable subscribers added to the ANI service. The largest of these cancellations
was Cablevision, which accounted for approximately 2.0 million ANI subscribers.
The subscriber decline is the result of cable operators moving to two-way
digital services, which limit the number of analog pay-per-view channels
available for content and allow the cable operator's customers to order digital
pay-per-view or video on demand via the set top box, eliminating the need for
the TelVue ANI service. Management believes the long-term effects of deployment
of digital two-way service will continue to negatively impact the TelVue ANI
service. As a result of the cable and satellite subscriber cancellations noted
above, TelVue expects to continue to decrease its revenue and operating income
indefinitely for its ANI segment.
14
Cost of Revenues
Total cost of revenues decreased by $135,449 for the year ended
December 31, 2010 when compared to the year ended December 31, 2009. Cost of
revenues for TPS decreased $60,592 for the year ended December 31, 2010, when
compared to the year ended December 31, 2009, mainly as a result of lower
consulting cost of sales related to the decreased consulting revenue, in
addition to lower product cost of sales. These reductions were partially offset
by higher compensation expenses along with higher product discounts when
comparing the year ended December 31, 2010 to the year ended December 31, 2009.
ANI cost of revenues decreased for the year ended December 31, 2010 by
$74,857 when compared to the year ended December 31, 2009. This decrease was
primarily due to a favorable variance in compensation expense, in addition to
savings in telecommunication expenses related to the ANI segment. The favorable
communications variance was the result of the Company changing to more
cost-effective carriers for the ANI data service lines.
Selling and Marketing Expenses
Total selling and marketing expenses increased by $194,901 for the year
ended December 31, 2010 when compared to the year ended December 31, 2009.
Selling expenses related to TPS increased $195,462 for the year ended December
31, 2010, when compared to the year ended December 31, 2009. This increase was
attributed to higher consulting expenses related to the use of outside sales
representatives and an outside marketing consultant focusing on cable and Telco
marketing, in addition to higher marketing expenses related to promoting the
TelVue Princeton(R) product line and higher compensation expense due to being
fully staffed for the year ended December 31, 2010, while there were positions
open for portions of the year ended December 31, 2009.
Selling expenses related to the ANI service decreased by $561 for the
year ended December 31, 2010, when compared to 2009. This decrease was a result
of savings in commissions due to the Company's decision to no longer pay
commissions on ANI sales transactions.
General and Administrative Expenses
Total general and administrative expenses decreased by $101,169 for the
year ended December 31, 2010 when compared to the year ended December 31, 2009.
TPS general and administrative expenses decreased $52,092 for the year December
31, 2010 when compared to the year ended December 31, 2009, as a result of
savings in compensation, supply purchases, insurance, legal and bad debt
expenses, offset by higher rent, consulting expenses and an increased allocation
percentage of joint costs. ANI general and administrative expenses decreased
$49,077 for the year ended December 31, 2010 when compared to the year ended
December 31, 2009, primarily as a result of a change in allocation percentages,
where a lower percentage of expenses were allocated to the ANI segment.
Depreciation and Amortization Expenses
During the year ended December 31, 2010, TelVue purchased $52,446 of
equipment compared to $227,732 purchased during the year ended December 31,
2009. The majority of the equipment purchased during the years ended December
31, 2010 and 2009 was for equipment related to the TPS segment. Depreciation and
amortization expenses decreased $88,684 and $7,337, respectively, for the year
ended December 31, 2010, as a result of the fewer capital purchases and older
assets becoming fully depreciated, in addition to lower amortization expense
related to the PSG intangible assets, caused by expiring useful lives.
Depreciation and amortization accounted for 15% and 25% of total operating
expenses for the years ended December 31, 2010 and 2009, respectively.
15
Other Income (Expense)
Total other expense increased by $180,659 for the year ended December
31, 2010 when compared to the year ended December 31, 2009. This increase was
attributed to accruing interest expense related to the balance on the
outstanding lines of credit notes, which are discussed more extensively in
Liquidity and Capital Resources.
Net Loss
TelVue had a net loss of $5,882,195 for the year ended December 31,
2010, compared to a net loss of $2,792,357 for the year ended December 31, 2009.
This increase in net loss was primarily due to the intangible impairment charge,
lower revenues, higher sales and marketing expenses, and higher interest expense
for the year ended December 31, 2010, when compared to the same period of 2009.
These unfavorable variances were offset by general expense savings when
comparing the year ended December 31, 2010 to the same period of 2009.
Income Taxes
At December 31, 2010 and 2009, TelVue recorded valuation allowance
increases of $812,395 and $652,992, respectively, to reduce its deferred tax
asset to zero. The valuation allowances were recorded due to the uncertainty as
to whether future net income would be generated that would utilize TelVue's net
operating loss carry forward. The valuation allowances had no impact on net
income as they were a direct offset to recorded income tax benefit. TelVue's
federal net operating loss carry forward was approximately $14,200,000 on a
tax-reporting basis as of December 31, 2010 (see Note 12 of TelVue's
accompanying financial statements).
Accounts Receivable and Allowance for Doubtful Accounts
As of December 31, 2010, TelVue maintained a bad debt reserve in the
amount of $11,587 as compared to $19,080 as of December 31, 2009. Based on
current economic conditions and TelVue's knowledge of its customer base, the
reserve was calculated based on the estimate that 2% of outstanding receivables
at December 31, 2010 and 2009 would not be collected.
TelVue's days for sales in average accounts receivable was 70 days at
December 31, 2010, compared to 63 days at December 31, 2009. TelVue will from
time to time offer sales incentives and/or discounts to its TelVue Princeton(R)
customers. The Company has not changed its credit terms with its customers for
its WEBUS(R) or ANI services. A 2% cash, 1% net 15 days discount is offered for
payments related to TelVue Princeton(R) equipment purchases.
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.
Conditions exist, however, that raise substantial 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 may not be
sufficient to sustain TelVue's operations beyond the next twelve month period.
Funding TelVue's future capital requirements will depend on numerous factors
16
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 assurances that management will be successful.
The accompanying financial statements do not reflect adjustments that
would be necessary if TelVue was unable to continue as a "going concern." If
TelVue was 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 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 December 31, 2010, TelVue had entered into eight Lines 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 December 31, 2010 and
2009, the effective interest rate was 4.25%. These Notes contain 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 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 December 31, 2010 and 2009:
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
=========== =========== ==========
17
As of December 31, 2009
-----------------------
Maximum Amount Accrued
Note Principal Maturity Borrowed @ Interest @
Description Date Amount Date 12/31/2009 12/31/2009
------------ ---------- ----------- ---------- ----------- ----------
2005 Note 4/27/2005 $ 3,800,000 11/23/2011 * $ 3,800,000 $ 912,373
2006 Note 11/3/2006 10,000,000 12/26/2012 10,000,000 1,685,863
2007 Note 12/21/2007 2,300,000 5/5/2014 2,300,000 144,635
2009 Q1 Note 3/2/2009 400,000 3/3/2015 400,000 13,815
2009 Q2 Note 6/8/2009 500,000 6/9/2015 500,000 10,244
2009 Q3 Note 10/5/2009 400,000 10/14/2015 400,000 2,381
2010 Note 12/8/2009 1,500,000 - - -
----------- ----------- ----------
$18,900,000 $17,400,000 $2,769,311
=========== =========== ==========
* As disclosed on TelVue's current report on Form 8-K filed on March 24, 2011,
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, 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. 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. Management believes that over time, continued erosion
will occur in the subscriber base. As discussed above, during the year ended
December 31, 2010, TelVue had approximately 2.8 million full-time and part-time
subscribers cancel service and no new subscribers were added to the ANI service.
The cable operators cancelled the ANI service primarily as a result of moving
their subscribers onto two-way digital service.
TelVue has been, and continues to be, dependent upon Mr. Lenfest for
funds to pay the majority of operating and capital expenditures. As discussed
above, the financings from Mr. Lenfest under the 2005 Note, 2006 Note, 2007
Note, 2009 Q1 Note, 2009 Q2 Note and 2009 Q3 Note have been exhausted. As a
result of this, TelVue secured the 2010 Note and 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 and 2009 Q3 Note have helped, and the 2010 Note and
2011 Note will help, to fund the growth of TelVue Products and Services. 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 into 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.
18
OFF-BALANCE SHEET ARRANGEMENTS
There were no off-balance sheet arrangements at December 31, 2010 that
had or are reasonably likely to have, a current or future effect on TelVue's
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
is material to TelVue's interests.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
TelVue, a smaller reporting company, is not required to provide
information required by this Item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements are set forth in this report beginning at page
F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements of any nature at any time with
TelVue's auditors with regard to any aspect of TelVue's financial statements,
its financial disclosures or its accounting practices.
ITEM 9A. 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 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. Because of the material
weakness in the Company's internal controls over financial reporting as
discussed below, TelVue's Chief Executive Officer and its Treasurer (Controller)
have concluded that TelVue's disclosure controls and procedures were not
effective as of December 31, 2010.
(b) Changes in Internal Controls. Other than the change noted below,
during the annual 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.
(c) Management's Report on Internal Control Over Financial Reporting.
TelVue's management is responsible for the preparation and integrity of
the Financial Statements appearing in TelVue's annual report on Form 10-K. The
financial statements were prepared in conformity with generally accepted
accounting principles appropriate in the circumstances and, accordingly, include
certain amounts based on the Company's best judgments and estimates. Financial
information in this annual report on Form 10-K is consistent with that in the
financial statements.
Management is also responsible for establishing and maintaining
effective internal control over financial reporting as such term is defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. TelVue's
internal control over financial reporting includes those policies and procedures
that pertain to TelVue's ability to record, process, summarize and report
reliable financial data. Management recognizes that there are inherent
19
limitations in the effectiveness of any internal control over financial
reporting, including the possibility of human error and the circumvention or
overriding of internal control. Accordingly, even effective internal control
over financial reporting can provide only reasonable assurance with respect to
financial statement preparation. Further, because of changes in conditions, the
effectiveness of internal control over financial reporting may vary over time.
In order to ensure TelVue's internal control over financial reporting
is effective, management regularly assesses such controls and did so most
recently for its financial reporting as of December 31, 2010. This assessment
was based on criteria for effective internal control over financial reporting
described in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this assessment,
management believes the Company did not maintain effective internal control over
financial reporting as of December 31, 2010. In management's assessment of the
Company's internal control over financial reporting as of December 31, 2010,
management identified the following material weakness in the Company's internal
control over financial reporting:
o Management determined that it did not conduct a timely or sufficient
impairment test of the Company's definite-lived and indefinite-lived
intangible assets.
To remediate this material weakness, increased focus will be placed on
timely review and testing of any intangible assets recorded on the Company's
balance sheet.
TelVue's Board of Directors, acting through its Audit Committee, is
responsible for the oversight of accounting policies, financial reporting and
internal control. The Audit Committee of the Board of Directors is comprised
entirely of outside directors who are independent of management. The Audit
Committee is responsible for performing an oversight role by reviewing and
monitoring the financial, accounting and auditing procedures of TelVue in
addition to reviewing TelVue's financial statements. TelVue's independent
auditors have full and unlimited access to the Audit Committee, with or without
management, to discuss the adequacy of internal control over financial
reporting, and any other matters which they believe should be brought to the
attention of the Audit Committee.
TelVue, a small reporting company, is not required to provide an
attestation report from its independent auditors regarding internal control over
financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information called for by this Item is incorporated herein by
reference to TelVue's Proxy Statement for its 2011 Annual Meeting of
Stockholders that will be filed not later than May 2, 2011.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this Item is incorporated herein by
reference to TelVue's Proxy Statement for its 2011 Annual Meeting of
Stockholders that will be filed not later than May 2, 2011.
20
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information called for by this Item is incorporated herein by
reference to TelVue's Proxy Statement for its 2011 Annual Meeting of
Stockholders that will be filed not later than May 2, 2011.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
At December 31, 2010, TelVue was indebted to Mr. Lenfest in the
principal amount of $18,500,000 and accrued interest of $3,667,793.
Other related transactions are described in Notes 6, 7, 9, 13 and 16 of
the 2010 Financial Statements of TelVue.
Certain other information called for by this Item is incorporated
herein by reference to TelVue's Proxy Statement for its 2011 Annual Meeting of
Stockholders that will be filed not later than May 2, 2011.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information called for by this Item is incorporated herein by
reference to TelVue's Proxy Statement for its 2011 Annual Meeting of
Stockholders that will be filed not later than May 2, 2011.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm dated April 14, 2011.
Report of Independent Registered Public Accounting Firm dated March 30, 2010.
Balance Sheets dated as of December 31, 2010 and 2009.
Statements of Operations for the years ended December 31, 2010 and 2009.
Statements of Stockholders' Deficit for the years ended December 31, 2010 and
2009.
Statements of Cash Flows for the years ended December 31, 2010 and 2009.
Notes to Financial Statements.
21
TelVue Corporation
Financial Statements
December 31, 2010 and 2009
Table of Contents Page No.
Report of Independent Registered Public Accounting Firm ................ F-2
Report of Independent Registered Public Accounting Firm ................ F-3
Financial Statements
Balance Sheet ...................................................... F-4
Statement of Operations ............................................ F-5
Statement of Stockholders' Deficit ................................. F-6
Statement of Cash Flows ............................................ F-7
Notes to Financial Statements ...................................... F-8
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors and Stockholders
TelVue Corporation
We have audited the accompanying balance sheet of TelVue Corporation (a Delaware
corporation) as of December 31, 2010, and the related statements of operations,
stockholders' deficit and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TelVue Corporation as of
December 31, 2010, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a net accumulated deficit. These factors raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans
regarding those matters also are described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ ParenteBeard LLC
Huntingdon Valley, Pennsylvania
April 14, 2011
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors and Stockholders
TelVue Corporation
We have audited the accompanying balance sheet of TelVue Corporation (a Delaware
corporation) as of December 31, 2009, and the related statements of operations,
stockholders' deficit and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TelVue Corporation as of
December 31, 2009, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
/s/ Pressman Ciocca Smith LLP
Huntingdon Valley, Pennsylvania
March 30, 2010
F-3
TelVue Corporation
Balance Sheet
December 31, 2010 and 2009
2010 2009
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents ...................... $ 185,954 $ 112,213
Accounts receivable - trade, net of allowance
for doubtful accounts of $11,587 in 2010 and
$19,080 in 2009 .............................. 567,763 934,933
Inventory ...................................... 388,059 258,952
Prepaid expenses ............................... 16,298 18,206
------------ ------------
TOTAL CURRENT ASSETS ............................. 1,158,074 1,324,304
PROPERTY AND EQUIPMENT, NET ...................... 382,531 871,904
DEFINITE-LIVED INTANGIBLE ASSETS ................. -- 2,825,200
INDEFINITE-LIVED INTANGIBLE ASSETS ............... -- 397,260
OTHER ASSETS ..................................... 19,665 19,665
------------ ------------
$ 1,560,270 $ 5,438,333
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable ............................... $ 309,056 $ 331,993
Accrued expenses ............................... 107,786 81,225
Deferred service revenue ....................... 534,707 538,472
Other liabilities .............................. 1,995 704
------------ ------------
TOTAL CURRENT LIABILITIES ........................ 953,544 952,394
------------ ------------
LINES OF CREDIT - MAJORITY STOCKHOLDER ........... 18,500,000 17,400,000
NOTE PAYABLE - MAJORITY STOCKHOLDER .............. 541,000 541,000
ACCRUED INTEREST - MAJORITY STOCKHOLDER .......... 3,667,793 2,769,311
COMMITMENTS AND CONTINGENCIES .................... -- --
STOCKHOLDERS' DEFICIT
Redeemable convertible preferred stock,
$1 par value, 6,900,000 shares authorized,
no shares outstanding ........................ -- --
Common stock, $.01 par value,
100,000,000 shares authorized, 48,674,144 and
48,561,644 shares issued and outstanding at
December 31, 2010 and 2009, respectively ..... 486,742 485,617
Additional paid-in capital ..................... 4,883,228 4,879,853
Accumulated deficit ............................ (27,472,037) (21,589,842)
------------ ------------
(22,102,067) (16,224,372)
------------ ------------
$ 1,560,270 $ 5,438,333
============ ============
See notes to financial statements
F-4
TelVue Corporation
Statement of Operations
Years Ended December 31, 2010 and 2009
2010 2009
------------ ------------
REVENUES
TelVue products and services ................ $ 3,064,360 $ 3,220,728
ANI Services ................................ 908,955 1,160,258
------------ ------------
3,973,315 4,380,986
------------ ------------
COST OF REVENUES
TelVue products and services ................ 1,647,172 1,707,764
ANI Services ................................ 132,250 207,107
------------ ------------
1,779,422 1,914,871
------------ ------------
GROSS PROFIT .................................. 2,193,893 2,466,115
------------ ------------
OPERATING EXPENSES
Selling and marketing ....................... 1,209,478 1,014,577
General and administrative .................. 2,203,868 2,305,037
Depreciation and amortization ............... 1,034,238 1,130,259
Impairment charges .......................... 2,639,246 --
------------ ------------
7,086,830 4,449,873
------------ ------------
OPERATING LOSS ................................ (4,892,937) (1,983,758)
OTHER INCOME (EXPENSE)
Interest expense - related party ............ (898,481) (808,603)
Interest income ............................. 18 4
Loss on disposal of equipment ............... (90,795) --
------------ ------------
(989,258) (808,599)
------------ ------------
LOSS BEFORE INCOME TAXES ...................... (5,882,195) (2,792,357)
INCOME TAX EXPENSE .......................... -- --
------------ ------------
NET LOSS ...................................... $ (5,882,195) $ (2,792,357)
============ ============
BASIC AND DILUTED NET LOSS PER COMMON SHARE . $ (0.12) $ (0.06)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING (BASIC AND DILUTED) 48,567,740 48,531,507
============ ============
See notes to financial statements
F-5
TelVue Corporation
Statement of Stockholders' Deficit
Years Ended December 31, 2010 and 2009
Common Stock
---------------------- Additional Total
Number of Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Deficit
---------- ---------- ---------- ------------ -------------
Balance, January 1, 2009 . 48,461,644 $ 484,617 $4,877,353 $(18,797,485) $(13,435,515)
Issuance of common stock . 100,000 1,000 2,500 -- 3,500
Net loss ................. -- -- -- (2,792,357) (2,792,357)
---------- ---------- ---------- ------------ ------------
Balance, December 31, 2009 48,561,644 485,617 4,879,853 (21,589,842) (16,224,372)
Issuance of common stock . 12,500 125 875 -- 1,000
Issuance of common stock . 100,000 1,000 2,500 -- 3,500
Net loss ................. -- -- -- (5,882,195) (5,882,195)
---------- ---------- ---------- ------------ ------------
Balance, December 31, 2010 48,674,144 $ 486,742 $4,883,228 $(27,472,037) $(22,102,067)
========== ========== ========== ============ ============
See notes to financial statements
F-6
TelVue Corporation
Statement of Cash Flows
Years Ended December 31, 2010 and 2009
2010 2009
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ......................................... $(5,882,195) $(2,792,357)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization .................. 1,034,238 1,130,259
Loss on disposal of equipment .................. 90,795 --
Impairment charges ............................. 2,639,246 --
Provision for losses on accounts receivable .... 14,006 68,673
Changes in operating assets and liabilities:
Accounts receivable - trade .................... 353,164 (443,027)
Inventory ...................................... (129,107) 7,080
Prepaid expenses ............................... 1,908 36,430
Other assets ................................... -- (10,865)
Accounts payable ............................... (22,937) 16,757
Accrued expenses ............................... 26,561 (363,434)
Deferred service revenue ....................... (3,765) 178,708
Other liabilities .............................. 1,291 (1,080)
Accrued interest - majority stockholder ........ 898,482 808,603
----------- -----------
NET CASH (USED IN) OPERATING ACTIVITIES ............ (978,313) (1,364,253)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment .............. (52,446) (227,732)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from lines of credit-majority stockholder 1,100,000 1,450,000
Issuance of common stock ......................... 4,500 3,500
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES .......... 1,104,500 1,453,500
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 73,741 (138,485)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ..... 112,213 250,698
----------- -----------
CASH AND EQUIVALENTS AT END OF YEAR ................ $ 185,954 $ 112,213
=========== ===========
See notes to financial statements
F-7
TelVue Corporation
Notes to Financial Statements
December 31, 2010 and 2009
1. Summary of Significant Accounting Policies
This summary of significant accounting policies of TelVue Corporation
("TelVue" or "the Company") is presented to assist in understanding its
financial statements. These accounting policies conform to accounting
principles generally accepted in the United States of America.
Business Activity and Concentration of Credit Risk
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 ("TelVue Princeton(R)") and services such as WEBUS(R) and
PEG.TV(TM). TelVue Princeton(R) are high performance digital video
systems, servers, and software that support capture, storage,
manipulation and play-out of digital media in multiple popular formats.
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 and legacy business segment is the marketing and service
company which sells automatic number identification ("ANI")
telecommunications 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. The Company grants credit to cable television
operators throughout the nation. Consequently, the Company's ability to
collect the amounts due from customers is affected by economic
fluctuations in the cable television industry.
The Company maintains cash balances at a financial institution located
in the Philadelphia area. Accounts at this institution are insured by
the FDIC up to $250,000. At times the Company maintains cash balances in
excess of the insured amount.
Currently, the Company's primary source of financing is the majority
stockholder. The Company has not sought to obtain significant funding
from third parties on terms that are acceptable to the Company.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
F-8
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
short-term debt securities purchased with an original maturity of three
months or less to be cash equivalents.
Accounts Receivable - Trade
Trade accounts receivable are stated at the amount management expects to
collect from outstanding balances. Management provides for probable
uncollectible amounts through a charge to earnings and a credit to a
valuation allowance based on its assessment of the current status of
individual accounts. Balances that are still outstanding after
management has used reasonable collection efforts are written off
through a charge to the valuation allowance and a credit to trade
accounts receivable.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined
by the specific-identification method, and market represents the lower
of replacement cost or estimated net realizable value.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are provided over the estimated useful lives using the straight-line
method. Amortization of leasehold improvements is included with
depreciation expense and is provided over the shorter of the remaining
lease term or estimated useful life. Property and equipment consists
primarily of operating equipment. For income tax purposes, recovery of
capital costs for property and equipment is made using accelerated
methods over statutory recovery periods.
Customer installation costs incurred to provide the WEBUS(R) service
were capitalized and depreciated over the term of the contract, which is
typically three or five years. In 2009, the Company began expensing
these costs as incurred.
Expenditures for renewals and betterments that extend the useful lives
of property and equipment are capitalized. Expenditures for maintenance
and repairs are charged to expense as incurred.
Trademarks and Other Intangible Assets
The Company classifies intangible assets into two categories: (1)
intangible assets with definite lives subject to amortization and (2)
intangible assets with indefinite lives not subject to amortization. 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.
F-9
Intangible assets with indefinite lives are not amortized. The Company
tests these intangible assets for impairment at least annually or more
frequently if events or circumstances indicate that such intangible
assets might be impaired. When the fair value is less than the carrying
value of the intangible assets or the reporting unit, the Company
records an impairment charge to reduce the carrying value of the assets
to fair value.
The Company determines the useful lives of its identifiable intangible
assets after considering the specific facts and circumstances related to
each intangible asset. Factors the Company considers when determining
useful lives include the contractual term of any agreement, the history
of the asset, the Company's long-term strategy for the use of the asset,
any laws or other local regulations which could impact the useful life
of the asset, and other economic factors, including competition and
specific market conditions. Intangible assets that are deemed to have
definite lives are amortized, generally on a straight-line basis, over
their useful lives, ranging from 1 to 15 years.
At December 31, 2010, management determined that the definite-lived and
indefinite-lived intangible assets acquired with the purchase of
Princeton Server Group ("PSG") were impaired, and recognized a non-cash
impairment charge of $2,639,246, as described in Note 5.
Valuation of Long-Lived Assets
The Company periodically evaluates whether events or circumstances have
occurred that indicate that the remaining useful lives of its long-lived
assets, including property and equipment should be revised or that the
remaining balance of such assets may not be recoverable using objective
methodologies. Such methodologies include evaluations based on cash
flows generated by the underlying assets or other determinants of fair
value. As of December 31, 2010, management believes that no revisions to
the remaining lives or write-downs of carrying values are required.
Revenue Recognition
TelVue recognizes revenues related to TelVue Princeton(R) upon shipment
of the equipment to its customers. Revenues related to its WEBUS(R) and
PEG.TV(TM) services are recognized on a monthly basis 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
covered by the plan. Revenue related to TelVue's ANI service is
recognized in the month the service is provided.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized 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. The measurement of deferred tax
assets is reduced, if necessary, by a valuation allowance for any tax
benefits which are not expected to be realized. Differences between
financial reporting and tax bases arise most frequently from differences
in timing of income and expense recognition.
F-10
Deferred income tax expense is measured by the change in the net
deferred income tax asset or liability during the year.
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 carryforward
amount. The Company is not currently under Internal Revenue Service
("IRS") tax examination. The Company is not currently under examination
by any state jurisdictions.
The Company has no unrecognized tax benefits arising from uncertain tax
positions at December 31, 2010 and 2009. 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.
Share-Based Compensation
The Company calculates share-based compensation using the modified
prospective method, which requires that compensation expense be
recognized in the financial statements for share-based awards based on
the grant date fair value of those awards.
Advertising
The Company follows the policy of charging the costs of advertising to
expense as incurred. Advertising expense is included in selling and
marketing expense in the accompanying statements of operations.
2. Going Concern
As shown in the accompanying financial statements, the Company incurred a
net loss of $5,882,195 during the year ended December 31, 2010, and as of
that date, the Company's total liabilities exceeded its total assets by
$22,102,067. Those factors, as well as the Company's reliance on financing
from its majority stockholder (as discussed in Note 6), raise substantial
doubt about the Company's ability to continue as a going concern. Management
of the Company has secured an additional line of credit of $1.5 million as
of December 31, 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.
3. Supplemental Disclosures of Cash Flow Information
During 2010 and 2009, there was no cash paid for interest or income taxes.
F-11
4. Property and Equipment
A schedule of property and equipment at December 31, 2010 and 2009, is as
follows:
Estimated
Useful Lives
2010 2009 In Years
----------- ----------- ------------
Operating equipment .......... $ 6,584,498 $ 6,559,915 3-5
Office furniture and equipment 469,886 468,011 3-5
Software ..................... -- 339,727 3
----------- -----------
7,054,384 7,367,653
Less accumulated depreciation .. 6,671,853 6,495,749
----------- -----------
$ 382,531 $ 871,904
=========== ===========
For the years ended December 31, 2010 and 2009, depreciation expense was
$451,024 and $539,708, respectively.
5. Intangible Assets
As of December 31, 2010, based on forecasts of undiscounted future cash
flows related to the TPS segment, TelVue's management determined that the
carrying values of the definite-lived intangible assets related to the PSG
acquisition were impaired, and the Company recorded a $2,241,986 non-cash
charge to write-off these intangibles. Negative cash flows from operations
and a history of recurring losses are conditions that indicate the carrying
value may not be recoverable. Other factors considered in the determination
to write-off the remaining intangible asset values include, but are not
limited to: 1) general economic and market conditions; 2) a re-evaluation of
the estimated lives assigned to the definite-lived intangibles; 3)
significant enhancements and new features added since the acquisition which
render the original product obsolete; and 4) shorter technology product life
cycles in the digital media industry. Management also determined there was a
lack of economic value for the indefinite-lived intangible asset,
trademarks, and recorded a non-cash impairment charge of $397,260 as of
December 31, 2010. The write-offs are reflected in impairment charges in the
accompanying 2010 statement of operations.
A schedule of definite-lived intangible assets and accumulated amortization
as of December 31, 2009 is as follows:
Weighted
Average
Accumulated Amortization
December 31, 2009 Amount Amortization Net Period
--------------------- ----------- ------------ ----------- ------------
Software ............ $ 3,600,000 $ 1,435,714 $ 2,164,286 7 years
Patents ............. 788,220 146,697 641,523 15 years
Customer list ....... 74,900 74,900 - 18 months
Customer contract ... 57,800 40,340 17,460 4 years
Maintenance contracts 27,800 25,869 1,931 3 years
----------- ------------ -----------
$ 4,548,720 $ 1,723,520 $ 2,825,200
=========== ============ ===========
F-12
Amortization expense from definite-lived assets for the years ended December
31, 2010 and 2009 was $583,214 and $590,551, respectively.
A schedule of indefinite-lived intangible assets as of December 31, 2010 and
2009 is as follows:
2010 2009
--------- ---------
Trademarks $ -- $ 397,260
========= =========
6. Lines of Credit - Majority Stockholder
As of December 31, 2010, 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 December
31, 2010 and 2009, the effective interest rate was 4.25%. These Notes
contain 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 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 December 31, 2010 and 2009.
As of December 31, 2010
--------------------------------------------------------------------------------
Maximum Amount Accrued
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
============ ============ ===========
F-13
As of December 31, 2009
--------------------------------------------------------------------------------
Maximum Amount Accrued
Principal Maturity Borrowed @ Interest @
Description Date Amount Date 12/31/2009 12/31/2009
------------ ---------- ------------ ----------- ------------ -----------
2005 Note 4/27/2005 $ 3,800,000 11/23/2011 * $ 3,800,000 $ 912,373
2006 Note 11/3/2006 10,000,000 12/26/2012 10,000,000 1,685,863
2007 Note 12/21/2007 2,300,000 5/5/2014 2,300,000 144,635
2009 Q1 Note 3/2/2009 400,000 3/3/2015 400,000 13,815
2009 Q2 Note 6/8/2009 500,000 6/9/2015 500,000 10,244
2009 Q3 Note 10/5/2009 400,000 10/14/2015 400,000 2,381
2010 Note 12/8/2009 1,500,000 - - -
------------ ------------ -----------
$ 18,900,000 $ 17,400,000 $ 2,769,311
============ ============ ===========
* As disclosed on TelVue's current report on Form 8-K filed on March 24, 2011,
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.
Scheduled maturities of the various lines of credit - majority stockholder,
are as follows:
Year Ending December 31,
2011 ............. $ -
2012 ............. 10,000,000
2013 ............. -
2014 ............. 2,300,000
2015 ............. 1,300,000
Thereafter ....... 4,900,000
------------
$ 18,500,000
============
Interest expense for the years ended December 31, 2010 and 2009 were
$898,481 and $808,603, respectively. The majority stockholder has agreed not
to pursue payment at this time and therefore, these amounts have been
accrued, but not paid.
7. Note Payable - Majority Stockholder
In January 1995, the Company's majority stockholder acquired from Science
Dynamics Corporation ("Science") an unsecured note in the amount of
$541,000. The note is noninterest bearing and repayment is restricted to
cash not needed for operations as determined by the Company. The maturity
date of the note was January 1, 2011, but was extended subsequent to year
end (See Note 16).
F-14
8. Lease Commitments
The Company leases approximately 8,700 square feet of office space in the
Horizon Way Corporate Center in Mount Laurel, New Jersey. The fifth
amendment to the lease dated March 16, 2009, extended the lease term three
years commencing June 1, 2009 and terminating May 31, 2012. Monthly payments
total $12,182 with a rental rate of $9,460 per month and operating expenses
of $2,722 per month. Pursuant to the provisions of the lease the Company
informed the lessor of its intent to terminate the lease in January 2010.
Negotiations of revised terms commenced and a new five year agreement was
signed in March 2010 extending the lease term through May 31, 2015. The
monthly rental rate is $7,277, plus operating expenses of $2,795 as of
December 31, 2010.
The Company also leased approximately 850 square feet of lab space in
Princeton, New Jersey. The lease expired on June 30, 2008, and was extended
on a month-to-month basis at a rate of $643 per month. The lease was
terminated on August 31, 2009 and all the equipment from that facility was
relocated to the Mount Laurel, New Jersey office space.
Additionally, TelVue leases rack space and Internet bandwidth at a
co-location facility at 401 N. Broad St., Philadelphia PA on a
month-to-month basis at a rate of $8,860 per month. TelVue hosts its
PEG.TV(TM) Internet streaming and Video-on-Demand service at the co-location
facility. The Company moved its WEBUS(R) and ANI infrastructure to the
facility for further operational cost savings and increased service capacity
and performance.
Rental expense under the operating leases for office facilities amounted to
$254,478 and $164,313 for the years ended December 31, 2010 and 2009,
respectively.
Future payments under operating lease agreements follow:
Year Ending December 31,
2011 ............. $ 122,138
2012 ............. 124,322
2013 ............. 126,506
2014 ............. 128,690
2015 ............. 54,000
---------
$ 555,656
=========
9. Capital Stock
Common Stock Voting Rights and Concentration of Control
Shares of common stock which have had the same beneficial owner for a
continuous period in excess of two years prior to the record date of any
meeting of stockholders, will be entitled to 10 votes per share in any
matters submitted for vote at a meeting of stockholders. All other
stockholders have one vote per share unless this limitation is waived by
the Board of Directors.
F-15
In November 1989, the Company issued 12,896,968 shares of common stock
for $1,250,000 to an individual who effectively acquired control of the
Company. In January 1995, this individual acquired an additional
1,660,485 shares of common stock of the Company from Science. In August
2005, this individual converted all of his 3,518,694 shares of Class A
Redeemable Convertible Preferred Stock into 23,459,133 shares of common
stock.
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 outstanding. Diluted 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 outstanding adjusted to include incremental common
shares that would have been outstanding if potentially dilutive common
shares had been issued. Approximately nine million and five million
stock option awards were excluded from the computations of diluted net
income per share in 2010 and 2009, respectively, because the awards
would have been antidilutive for the periods presented.
10. Stock Compensation Plans
The Company calculates share-based compensation using the modified
prospective method. Under the "modified prospective" method, compensation
costs are recognized for all newly granted or modified stock-based awards
and for the unvested portion of all awards granted to the effective date.
The Company is using the straight-line method over the vesting term to
recognize share-based compensation expense. The amount of share-based
compensation recognized during a period is based on the value of the awards
that vest in that period. For the years ended December 31, 2010 and 2009,
stock-based compensation cost was $26,716 and $16,445, respectively.
Director Compensation Plan
In December 1997, the Company adopted a director compensation plan.
Under this plan, each non-employee director, other than the majority
stockholder is compensated $500 for each meeting attended by receiving
shares of common stock issued at the higher of the per share fair market
value of the common stock as of the board of directors meeting date or
$.05 per share. In June 2010, the two non-employee directors were issued
6,250 shares each. No shares were awarded in 2009 at the request of the
directors.
F-16
Stock Option Plan
In May 1999, the Company established the TelVue Corporation 1999 Stock
Option Plan (the "Plan"). Under the Plan, the Company may grant options
to acquire up to 10 million shares of common stock. Options granted
under the Plan are intended to be incentive stock options ("ISO"). The
exercise price of each ISO will not be less than the market price of the
Company's stock on the date of the grant. The exercise price for an
option, which is not an ISO, will not be less than 50% of the market
price of the Company's stock on the date of the grant. The options
expire ten years after the date of the grant. Options vest ratably over
three years, beginning one year after the date of grant. Employees hired
prior to January 1, 1995, are entitled to immediate vesting of 25% of
their options. In addition, the Company has granted stock options to
non-employees. Upon expiration of the 1999 Stock Option Plan in June
2009, the Company established the 2009 Stock Option Plan (the "2009
Plan"). The 2009 Plan expires May 3, 2019 and has terms consistent with
the previous plan.
The following table summarizes activity for all stock options for the
years ended December 31, 2010 and 2009:
2010 2009
------ ------
Weighted-average fair value of options granted $ .087 $ -
At December 31, 2010, the value of the unvested portion of all
outstanding stock options was $50,066 which the Company expects to
amortize and recognize as compensation expense over the weighted-average
service period of approximately 3.0 years.
No stock options were granted in 2009. The fair value of the options
granted during the year ended December 31, 2010 was determined using the
Black-Scholes option pricing model, which incorporates various
assumptions. The risk-free rate of return of interest for the average
contractual life of the option is based on U.S. Government Securities
Treasury Constant Maturities. Expected volatility is based on the
historical daily volatility of the Company's common stock. The expected
life is determined using the short-cut method permitted under Staff
Accounting Bulletin no. 107, Share-Based Payment. The expected dividend
yield is zero because the Company currently does not pay or expect to
pay dividends to stockholders. The following are the weighted average
assumptions used during the year ended December 31, 2010:
2010
------
Expected life in years ... 10.00
Risk-free interest rate .. .99%
Volatility ............... .65%
Expected dividend yield .. -
F-17
A summary of all option activity follows:
Options Outstanding
-----------------------------
Weighted Average
Options Exercise Price
---------- ----------------
Balance, December 31, 2008 6,495,000 $ .062
Exercised ................ (100,000) .035
Forfeited ................ (1,800,000) .054
----------
Balance, December 31, 2009 4,595,000 $ .066
Granted and assumed ...... 5,680,000 .087
Exercised ................ (100,000) .035
Forfeited ................ (945,000) .045
----------
Balance, December 31, 2010 9,230,000 $ .081
==========
The following table summarizes the status of stock options outstanding
and exercisable at December 31, 2010:
Weighted
Average
Remaining
Exercise Options Contractual Options
Price Outstanding Life (Years) Exercisable
-------- ----------- ------------ -----------
$ .025 250,000 3.6 250,000
$ .030 80,000 4.7 80,000
$ .035 1,600,000 7.3 1,600,000
$ .040 70,000 5.5 70,000
$ .050 200,000 7.1 137,500
$ .080 5,150,000 9.4 -
$ .090 50,000 6.7 37,500
$ .130 1,300,000 6.2 975,000
$ .150 380,000 9.2 -
$ .180 150,000 9.7 -
----------- -----------
Total ............ 9,230,000 3,150,000
=========== ===========
Weighted average
exercise price .. $ .081 $ .065
=========== ===========
F-18
11. Retirement Plan
The Company has a 401(k) plan available to all employees who have completed
90 days of service and are at least 21 years old. Employees may contribute
to the plan, subject to IRS limitations. The Company matches fifty percent
(50%) of contributions by participating eligible employees up to five
percent (5%) of their salary, for a maximum matching contribution of 2.5% of
salary. The Company's contributions for 2010 and 2009 amounted to $36,332
and $33,694, respectively.
12. Corporate Income Taxes
The provisions for income tax expense (benefit) consist of the following
components:
2010 2009
----------- -----------
Current
Federal ................ $ - $ -
State .................. - -
----------- -----------
- -
Deferred
Federal .................... (595,663) (664,059)
State ...................... (216,732) 11,067
----------- -----------
(812,395) (652,992)
Valuation allowance increase ... 812,395 652,992
----------- -----------
- -
----------- -----------
$ - $ -
=========== ===========
F-19
The categories of temporary differences that give rise to deferred tax
assets and liabilities are as follows:
Federal State
------------------------- -------------------------
2010 2009 2010 2009
----------- ----------- ----------- -----------
Deferred Tax Assets:
Net operating loss carryforward $ 4,832,409 $ 4,482,679 $ 1,079,726 $ 934,533
Accrued interest - stockholder 1,134,815 856,825 330,101 249,238
Deferred revenue .............. 165,438 166,603 48,124 48,462
Allowance for bad debts ....... 3,585 5,903 1,043 1,717
----------- ----------- ----------- -----------
Gross deferred tax asset .... 6,136,247 5,512,010 1,458,994 1,233,950
Deferred Tax Liabilities:
Property and equipment,
principally due to
differences in depreciation .. (58,824) (30,250) (17,111) (8,799)
----------- ----------- ----------- -----------
Net Deferred Tax Asset Before
Valuation Allowance ........... 6,077,423 5,481,760 1,441,883 1,225,151
Valuation allowance ........... (6,077,423) (5,481,760) (1,441,883) (1,225,151)
----------- ----------- ----------- -----------
Net deferred tax asset ...... $ - $ - $ - $ -
=========== =========== =========== ===========
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which temporary differences are deductible and carryforwards are
available. Due to the uncertainty of the Company's ability to realize the
benefit of the deferred tax assets, the net deferred tax assets are fully
offset by a valuation allowance at December 31, 2010 and 2009. Inherent
uncertainty regarding the development of a market for the Company's products
and services has prevented the Company from reaching the "more likely than
not" conclusion required under the applicable literature to recognize
deferred tax assets on its balance sheet at December 31, 2010 and 2009.
F-20
The Company has a net operating loss carryforward for Federal income tax
purposes of approximately $14,200,000 on a tax-reporting basis. The
carryforward, if not utilized, will begin to expire as follows:
Year Ending December 31,
2024 ............. $ 1,000,000
2025 ............. 1,100,000
2026 ............. 2,600,000
2027 ............. 2,700,000
2028 ............. 4,100,000
2029 ............. 1,100,000
2030 ............. 1,600,000
------------
$ 14,200,000
============
The reconciliation of reported income tax expense to the amount of income
tax expense that would result from applying the U.S. Federal income tax rate
of 34% to pretax income is as follows:
2010 2009
------ ------
Federal income tax at statutory rates .. (34)% (34)%
State income tax, net of federal benefit (2) (2)
Valuation allowance .................... 16 28
Nondeductible expenses ................. 17 -
Other .................................. 3 8
------ ------
- % - %
====== ======
13. Related Party Transactions
The Company has eight unsecured lines of credit, accrued interest and a note
payable to the majority stockholder. (See Notes 6 and 7).
F-21
14. Segment Information
The Company operates two business segments. The first segment, TPS, includes
equipment such as the TelVue Princeton(R) broadcast and storage servers, and
encoding and transcoding workstations and services such as WEBUS(R) and
PEG.TV(TM). TelVue Princeton(R) are high performance digital video systems,
servers, and software that support capture, storage, manipulation and
play-out of digital media in multiple popular formats. The TelVue
Princeton(R) HyperCaster(TM) builds on previous TelVue IPTV server models
for cable, Telco and professional markets by adding new support for
streaming advanced video codecs (AVC/H.264) used increasingly in the
industry for bandwidth savings for both standard and high-definition
channels as well as new technologies such as 3D-TV. 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 ANI telecommunication services to
the cable television industry. The segments' accounting policies are the
same as those described in the summary of significant accounting policies.
Summarized financial information by reporting segment as of and for each of
the years ended December 31, 2010 and 2009, is as follows:
ANI
Year Ended December 31, 2010 TPS Services Total
----------- ----------- ------------
Revenues .................... $ 3,064,360 $ 908,955 $ 3,973,315
Depreciation and amortization 907,462 126,776 1,034,238
Operating income (loss) ..... (5,392,817) 499,880 (4,892,937)
Assets ...................... 1,438,824 121,446 1,560,270
Capital expenditures ........ 52,446 -- 52,446
ANI
TPS Services Total
Year Ended December 31, 2009 ----------- ----------- ------------
Revenues .................... $ 3,220,728 $ 1,160,258 $ 4,380,986
Depreciation and amortization 955,418 174,841 1,130,259
Operating income (loss) ..... (2,562,381) 578,623 (1,983,758)
Assets ...................... 5,188,056 250,277 5,438,333
Capital expenditures ........ 227,732 -- 227,732
F-22
15. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Cash Equivalents, Receivables, Accounts Payable, Accrued Expenses
and Notes Payable.
The carrying amount approximates fair market value because of the short
maturity of those instruments.
16. Subsequent Events
On January 31, 2011 the Company borrowed $400,000 on the line of credit with
the majority stockholder dated December 2009.
On March 23, 2011 the Company and majority stockholder agreed to extend the
maturity dates of the Science Note, dated June 16, 2005 and a Line of Credit
Note, dated April 27, 2005 to January 1, 2016. No other terms of these
agreements were revised.
F-23
EXHIBITS
The following is a list of exhibits filed with, or incorporated by
reference into, this report (those exhibits marked with an asterisk are filed
herewith and those exhibits marked "(CP)" are management contracts or
compensatory arrangements in which a director or executive officer
participates):
3.1 Certificate of Incorporation of TelVue (incorporated by reference to
TelVue's Registration Statement on Form S-8, filed with the Securities
and Exchange Commission on April 20, 1989 (the "Registration
Statement"), File No. 333-28263).
3.2 Bylaws of TelVue (incorporated by reference to TelVue's Registration
Statement, File No. 333-288263).
3.3 Certificate of Amendment of Certificate of Incorporation of TelVue,
dated April 11, 1990 (incorporated by reference to TelVue's Annual
Report on Form 10-K for the year ended December 31, 1991, (the "1991
Form 10-K"), File No. 000-17170).
3.4 Certificate of Amendment of Certificate of Incorporation of TelVue,
dated March 15, 1991 (incorporated by reference to the 1991 Form 10-K,
File No. 000-17170).
3.5 Form of copy of Amendment of Certificate of Incorporation of TelVue,
filed September 25, 1995 (incorporated by reference to the TelVue's
Form 10-QSB for the period ended September 30, 1995, (the September 30,
1995 Form 10-QSB), File No. 000-17170).
4.1 The TelVue Corporation 1999 Stock Option Plan (incorporated by
reference to Exhibit 99 of TelVue's Registration Statement on Form S-8,
dated September 23, 1999, (the "1999 Stock Option Plan") File No.
000-17170). (CP)
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). (CP)
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). (CP)
4.4 Certificate of Designation of Class A Preferred Stock (incorporated by
reference to the September 30, 1990 Form 10-Q, File No. 000-17170).
4.5 Warrant Termination Agreement, dated June 16, 2005, by and between
TelVue and H.F. (Gerry) Lenfest (incorporated by reference to the June
30, 2005 Form 10-QSB, File No. 000-17170).
4.6 Waiver by H.F.(Gerry) Lenfest, waiving the right to receive past,
present or future dividends with respect to the TelVue's Class A
Redeemable Convertible Preferred Stock (incorporated by reference to
the June 30, 2005 Form 10-QSB, File No.000-17170).
10.1 Distributorship Agreement, dated November 2, 1989, between the Company
and Science (incorporated by reference to the 1989 Form 10-K, File No.
000-17170).
22
10.2 Stock Purchase Agreement, dated November 2, 1989, between the Company
and H.F. Lenfest (incorporated by reference to the Company's Report on
Form 8-K, dated November 15, 1989, (the "1989 Form 8-K"), 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 Summary of Director Compensation (incorporated by reference to the 2004
Form 10-KSB, File No. 000-17170). (CP)
10.10 Summary of Executive Compensation. (CP) *
10.11 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).
10.12 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).
10.13 Line of Credit Note, dated November 3, 2006, between H.F. (Gerry)
Lenfest and TelVue (incorporated by reference to the Form 8-K filed on
November 3, 2006, File No. 000-17170).
10.14 Stock Purchase Agreement by and among TelVue and Princeton Server
Group, dated March 12, 2007 (incorporated by reference to the March 13,
2007 Form 8-K, File No. 000-17170).
10.15 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).
10.16 Amendment of Form 8-K filed by TelVue on March 13, 2007 (the "Original
8-K") to include the information required by Item 9.01 of the Form 8-K
in connection with TelVue's acquisition of PSG incorporated by
reference to the May 12, 2007 Form 8-K/A, File No. 000-17170).
23
10.17 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).
10.18 Separation Agreement by and between TelVue and Joseph Murphy, dated
December 31, 2008 (incorporated by reference to the Form 8-K filed on
January 6, 2009, File No. 000-17170). (CP)
10.19 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).
10.20 Fifth Amendment to Office Lease Agreement dated March 16, 2009, between
TelVue and The Bloom Organization of South Jersey, LLC (incorporated by
reference to the 2008 Form 10-K, File No. 000-17170).
10.21 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).
10.22 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). (CP)
10.23 Line of Credit Note, dated October 5, 2009, between H.F. (Gerry)
Lenfest and TelVue (incorporated by reference to the Form 8-K filed on
October 6, 2009, File No. 000-17170).
10.24 Line of Credit Note, dated December 8, 2009, between H.F. (Gerry)
Lenfest and TelVue (incorporated by reference to the Form 8-K filed on
December 9, 2009, File No. 000-17170).
10.25 Lease Agreement dated March 1, 2010 for office space and the First
Amendment to Lease dated March 15, 2010 ("Office Lease Agreement"),
between TelVue and The Bloom Organization of South Jersey, LLC
(incorporated by reference to the Form 8-K filed on March 19, 2010,
File No. 000-17170).
10.26 Line of Credit Note, dated December 13, 2010, between H.F. (Gerry)
Lenfest and TelVue (incorporated by reference to the Form 8-K filed on
December 15, 2010, File No. 000-17170).
10.27 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).
10.28 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).
11. Statement re: Computation of Per Share Earnings (see Note 9 to TelVue's
December 31, 2010 Financial Statements included herein).
23.1 Consent of ParenteBeard LLC, Independent Registered Public Accounting
Firm. *
23.2 Consent of Pressman Ciocca Smith LLP, Independent Registered Public
Accounting Firm. *
24
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 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. *
* Filed herewith.
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: April 15, 2011 By: /s/ Jesse Lerman
--------------------
Jesse Lerman
President and Chief Executive Officer
DATED: April 15, 2011 By: /s/ John Fell
-----------------
John Fell
Treasurer-Controller
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
/s/ H.F. Lenfest Chairman of the April 15, 2011
---------------- Board and Director
H.F. Lenfest
/s/ Joy Tartar Director April 15, 2011
--------------
Joy Tartar
/s/ Robert Lawrence Director April 15, 2011
-------------------
Robert Lawrence
/s/ Jesse Lerman Director April 15, 2011
----------------
Jesse Lerman
26
EXHIBIT INDEX
10.10 Summary of Executive Compensation. *
23.1 Consent of ParenteBeard LLC, Independent Registered Public Accounting
Firm. *
23.2 Consent of Pressman Ciocca Smith LLP, Independent Registered Public
Accounting Firm. *
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. *
* Filed herewith.
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