PINX:TEVE Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549


FORM 10-Q


[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended June 30, 2012


[   ]   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 incorporation or organization)

(I.R.S. Employer Identification No.)


16000 Horizon Way, Suite 500

 

       Mt. Laurel, New Jersey       

08054

(Address of principal executive offices)

(Zip Code)


(856) 273-8888

(Registrant’s telephone number, including area code)


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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [X]    No [  ]


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


 

Large accelerated filer [  ]

Accelerated filer [  ]

 

Non-accelerated filer [  ]

Smaller reporting company [X]

 

(Do not check if a smaller reporting company)

 


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ]    No [X]


Number of shares of registrant’s common stock outstanding as of August 7, 2012: 615,420 shares.




TELVUE CORPORATION


INDEX


 

 

PAGE

 

 

NO.

 

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

 

Item 1.  Financial Statements

 

 

 

 

 

Condensed Balance Sheets as of June 30, 2012 (unaudited) and December 31, 2011

3

 

 

 

 

Condensed Statements of Operations (unaudited) for the three months ended June 30, 2012 and June 30, 2011

4

 

 

 

 

Condensed Statements of Operations (unaudited) for the six months ended June 30, 2012 and June 30, 2011

5

 

 

 

 

Condensed Statements of Cash Flows (unaudited) for the six months ended June 30, 2012 and June 30, 2011

6

 

 

 

 

Notes to Condensed Financial Statements (unaudited)

7

 

 

 

 

Item 2.  Management’s Discussion and Analysis of  Financial Condition and Results of Operations

11

 

 

 

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

20

 

 

 

 

Item 4.  Controls and Procedures

20

 

 

 

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

 

Item 6.  Exhibits

20

 

 

 

SIGNATURES

21

 

 

 

EXHIBIT INDEX

21


- 2 -



PART I — FINANCIAL INFORMATION


Item 1. Financial Statements.


TELVUE CORPORATION

CONDENSED BALANCE SHEETS


 

 

June 30, 2012

 

December 31, 2011

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,329,163

 

$

151,134

 

Accounts receivable – trade, net of allowance for doubtful accounts of
$41,332 at June 30, 2012 and $29,194 at December 31, 2011

 

 

732,583

 

 

666,074

 

Inventory

 

 

458,048

 

 

399,637

 

Prepaid expenses

 

 

68,553

 

 

14,930

 

TOTAL CURRENT ASSETS

 

 

3,588,347

 

 

1,231,775

 

 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT

 

 

7,041,772

 

 

6,806,652

 

Less accumulated depreciation

 

 

6,521,632

 

 

6,398,247

 

PROPERTY AND EQUIPMENT, NET

 

 

520,140

 

 

408,406

 

 

 

 

 

 

 

 

 

OTHER ASSETS

 

 

10,916

 

 

10,916

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

4,119,403

 

$

1,651,097

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

Accounts payable – trade

 

$

354,365

 

$

595,310

 

Accrued expenses

 

 

219,969

 

 

264,589

 

Deferred service revenue

 

 

712,236

 

 

648,202

 

Other liabilities

 

 

1,221

 

 

1,150

 

TOTAL CURRENT LIABILITIES

 

 

1,287,791

 

 

1,509,251

 

 

 

 

 

 

 

 

 

LINES OF CREDIT – MAJORITY STOCKHOLDER

 

 

 

 

20,400,000

 

 

 

 

 

 

 

 

 

NOTE PAYABLE – MAJORITY STOCKHOLDER

 

 

 

 

541,000

 

 

 

 

 

 

 

 

 

ACCRUED INTEREST – MAJORITY STOCKHOLDER

 

 

 

 

4,669,223

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

1,287,791

 

 

27,119,474

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REDEEMABLE CONVERTIBLE SERIES A PREFERRED STOCK,
$0.001 par value, 22,500 shares authorized, 14,285.714 shares issued and outstanding, including accrued dividends at June 30, 2012 of $58,416

 

 

5,058,416

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

Common stock, $.01 par value, 3,000,000 shares authorized,
615,420 and 245,415 shares issued and outstanding at
June 30, 2012 and December 31, 2011, respectively

 

 

6,206

 

 

2,454

 

Additional paid-in capital

 

 

31,375,886

 

 

5,494,938

 

Accumulated deficit

 

 

(33,608,896

)

 

(30,965,769

)

 

 

 

(2,226,804

)

 

(25,468,377

)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

$

4,119,403

 

$

1,651,097

 


See the accompanying unaudited notes which are an integral part of these condensed financial statements.


- 3 -



TELVUE CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)


 

 

Three Months Ended
June 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

 

 

REVENUES

 

 

 

 

 

 

 

TelVue products and services

 

$

990,587

 

$

1,018,985

 

ANI services

 

 

117,564

 

 

172,770

 

 

 

 

1,108,151

 

 

1,191,755

 

 

 

 

 

 

 

 

 

COST OF REVENUES

 

 

 

 

 

 

 

TelVue products and services

 

 

503,080

 

 

549,141

 

ANI services

 

 

25,480

 

 

29,658

 

TOTAL COST OF REVENUES

 

 

528,560

 

 

578,799

 

GROSS MARGIN

 

 

579,591

 

 

612,956

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

Selling and marketing

 

 

424,334

 

 

270,950

 

General and administrative

 

 

1,045,234

 

 

854,865

 

Depreciation

 

 

62,426

 

 

67,102

 

 

 

 

1,531,994

 

 

1,192,917

 

OPERATING LOSS

 

 

(952,403

)

 

(579,961

)

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

Interest income

 

 

1,445

 

 

12

 

Interest expense-related party

 

 

 

 

(244,823

)

TOTAL OTHER INCOME (EXPENSE)

 

 

1,445

 

 

(244,811

)

LOSS BEFORE INCOME TAXES

 

 

(950,958

)

 

(824,772

)

 

 

 

 

 

 

 

 

INCOME TAX EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

 

(950,958

)

 

(824,772

)

 

 

 

 

 

 

 

 

DIVIDENDS ON REDEEMABLE CONVERTIBLE PREFERRED STOCK

 

 

(50,191

)

 

 

 

 

 

 

 

 

 

 

NET LOSS AVAILABLE TO COMMON STOCKHOLDERS

 

$

(1,001,149

)

$

(824,772

)

 

 

 

 

 

 

 

 

NET LOSS PER COMMON SHARE

 

 

 

 

 

 

 

BASIC AND DILUTED

 

$

(1.63

)

$

(3.38

)

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

 

 

 

 

 

 

 

BASIC AND DILUTED

 

 

615,380

 

 

243,743

 


See the accompanying unaudited notes which are an integral part of these condensed financial statements.


- 4 -



TELVUE CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)


 

 

Six Months Ended
June 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

 

 

REVENUES

 

 

 

 

 

 

 

TelVue products and services

 

$

1,811,789

 

$

1,878,325

 

ANI services

 

 

242,150

 

 

354,423

 

 

 

 

2,053,939

 

 

2,232,748

 

 

 

 

 

 

 

 

 

COST OF REVENUES

 

 

 

 

 

 

 

TelVue products and services

 

 

938,317

 

 

1,083,710

 

ANI services

 

 

51,348

 

 

61,222

 

TOTAL COST OF REVENUES

 

 

989,665

 

 

1,144,932

 

GROSS MARGIN

 

 

1,064,274

 

 

1,087,816

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

Selling and marketing

 

 

878,679

 

 

552,413

 

General and administrative

 

 

2,397,901

 

 

1,541,090

 

Depreciation

 

 

123,386

 

 

136,094

 

 

 

 

3,399,966

 

 

2,229,597

 

OPERATING LOSS

 

 

(2,335,692

)

 

(1,141,781

)

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

Interest income

 

 

2,840

 

 

99

 

Interest expense-related party

 

 

(251,859

)

 

(480,696

)

TOTAL OTHER INCOME (EXPENSE)

 

 

(249,019

)

 

(480,597

)

LOSS BEFORE INCOME TAXES

 

 

(2,584,711

)

 

(1,622,378

)

 

 

 

 

 

 

 

 

INCOME TAX EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

 

(2,584,711

)

 

(1,622,378

)

 

 

 

 

 

 

 

 

DIVIDENDS ON REDEEMABLE CONVERTIBLE PREFERRED STOCK

 

 

(58,416

)

 

 

 

 

 

 

 

 

 

 

NET LOSS AVAILABLE TO COMMON STOCKHOLDERS

 

$

(2,643,127

)

$

(1,622,378

)

 

 

 

 

 

 

 

 

NET LOSS PER COMMON SHARE

 

 

 

 

 

 

 

BASIC AND DILUTED

 

$

(5.81

)

$

(6.66

)

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

 

 

 

 

 

 

 

BASIC AND DILUTED

 

 

454,810

 

 

243,558

 


See the accompanying unaudited notes which are an integral part of these condensed financial statements.


- 5 -



TELVUE CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)


 

 

Six Months Ended
June 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

Net loss

 

$

(2,584,711

)

$

(1,622,378

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation

 

 

123,386

 

 

136,094

 

Accrued interest – majority stockholder

 

 

251,859

 

 

480,696

 

Stock-based compensation

 

 

8,291

 

 

 

Provision for losses on accounts receivable

 

 

12,138

 

 

2,987

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable – trade

 

 

(78,647

)

 

(149,337

)

Inventory

 

 

(58,411

)

 

(7,543

)

Prepaid expenses

 

 

(53,623

)

 

(20,775

)

Accounts payable – trade

 

 

(240,945

)

 

78,733

 

Accrued expenses

 

 

(44,620

)

 

62,362

 

Deferred service revenue

 

 

64,034

 

 

72,863

 

Other liabilities

 

 

71

 

 

(985

)

NET CASH USED IN OPERATING ACTIVITIES

 

 

(2,601,178

)

 

(967,283

)

 

 

 

 

 

 

 

 

CASH FLOWS USED IN INVESTING ACTIVITIES

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(235,120

)

 

(81,970

)

 

 

 

 

 

 

 

 

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES

 

 

 

 

 

 

 

Proceeds from line of credit – majority stockholder

 

 

5,000,000

 

 

1,100,000

 

Issuance of common stock

 

 

14,327

 

 

4,500

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

 

5,014,327

 

 

1,104,500

 

 

 

 

 

 

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

 

2,178,029

 

 

55,247

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

 

151,134

 

 

185,954

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

2,329,163

 

$

241,201

 


See the accompanying unaudited notes which are an integral part of these condensed financial statements.


- 6 -



TELVUE CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)


1.  BASIS OF PRESENTATION


Summary Financial Information and Results of Operations


The accompanying unaudited condensed financial statements of TelVue Corporation (“TelVue” or the “Company”) have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information.  Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete financial statements.  In the opinion of the Company’s management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the Company’s financial position as of June 30, 2012 and December 31, 2011 and the results of operations and cash flows for the three and six months ended June  30, 2012 and 2011 have been included.  Operating results for the three and six month periods ended June 30, 2012 are not necessarily indicative of results that may be expected for any other interim period or the full fiscal year ending December 31, 2012. The accompanying unaudited financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 Form 10-K”). Information included in the Condensed Balance Sheet as of December 31, 2011 has been derived from the Company’s audited financial statements for the year ended December 31, 2011 included in the 2011 Form 10-K.


The condensed financial statements have been prepared on a “going concern” basis, which assumes that TelVue will continue in operation for at least one year and will be able to realize its assets and discharge its liabilities in the normal course of operations.  As shown in the accompanying condensed financial statements, the Company incurred a net loss of $2,584,711 during the six months ended June 30, 2012, and as of that date, the Company’s total stockholders’ deficit was $2,226,804.  The Company borrowed an additional $5,000,000 against its line of credit in January and February 2012, which was converted to convertible preferred stock in March 2012, when all other borrowings and accrued interest due to the majority stockholder were also converted to common stock (as disclosed in Note 5), leaving the Company with no debt and $2,329,163 of cash and cash equivalents at June 30, 2012.  TelVue continues to execute its modified business plan to focus on equipment and services sales to the cable, telephone company (“Telco”), professional and Internet broadcast markets, and believes it has sufficient cash to fund operating and capital requirements for at least one year.


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.  Significant estimates and assumptions are used in determining the valuation allowance on deferred tax assets.


Reclassification


Certain prior period amounts are reclassified to conform with the current year’s presentation.  The Company has reclassified certain product discounts previously reported in cost of revenues as a reduction in revenues.  The reclassification had no effect in the Company’s balance sheet, net loss or cash flows from operations.


2.  SUPPLEMENTAL CASH FLOW INFORMATION


No income taxes or interest were paid during the three or six months ended June 30, 2012 or 2011.


During the six months ended June 30, 2012, $25,941,000 of related party debt and $4,921,082 of accrued interest thereon was converted to preferred and common stock, which is a non-cash financing activity.  See further disclosure in Notes 5 and 6.


Undeclared dividends on preferred stock of $58,416 were accrued for the six months ended June 30, 2012 and are considered a non-cash financing activity.


- 7 -



3.  LOSS PER COMMON SHARE


Basic loss per common share is computed by dividing net loss, after deduction of preferred stock dividends, when applicable, by the weighted average number of shares of outstanding common stock.  Diluted loss per common share is computed by dividing net loss, by the weighted average number of shares of outstanding common stock adjusted to include converted preferred stock and other incremental common shares that would have been outstanding if potentially dilutive common shares had been issued. Common equivalent shares are excluded from the computation in periods in which they have an antidilutive effect. Because of the net loss available to common stockholders for the three and six months ended June 30, 2012 and 2011, no potential common shares were included in the computation of a diluted per share amount since such potential common shares would not have a dilutive effect.  The computations of diluted net income per share as of June 30, 2012 and June 30, 2011 exclude the shares underlying approximately 30,000 and 26,000 vested unexercised stock options, respectively, and the as-converted preferred stock, because their inclusion would have been antidilutive for the periods presented.


4.  CORPORATE INCOME TAXES


The Company uses the asset and liability method of accounting for income taxes. This method requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or tax returns.  Under this method, deferred tax liabilities and assets are determined based on the differences between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Differences between financial reporting and tax bases arise most frequently from differences in timing of income and expense recognition. Deferred income tax expense is measured by the change in the net deferred income tax asset or liability during the year.


The provision for income tax expense (benefit) for the three months ended June 30, 2012 and 2011 consisted of the following components:


 

 

2012

 

2011

 

Current

 

 

 

 

 

 

 

Federal

 

$

 

$

 

State

 

 

 

 

 

 

 

 

 

 

 

Deferred

 

 

 

 

 

 

 

Federal

 

 

(321,000

 

(271,000

State

 

 

(85,000

)

 

(74,000

 

 

 

(406,000

 

(345,000

Valuation allowance increase

 

 

406,000

 

 

345,000

 

Total

 

$

 

$

 


The provision for income tax expense (benefit) for the six months ended June 30, 2012 and 2011 consisted of the following components:


 

 

2012

 

2011

 

Current

 

 

 

 

 

 

 

Federal

 

$

 

$

 

State

 

 

 

 

 

 

 

 

 

 

 

Deferred

 

 

 

 

 

 

 

Federal

 

 

(1,132,000

 

(445,000

State

 

 

(266,000

)

 

(120,000

 

 

 

(1,398,000

 

(565,000

Valuation allowance increase

 

 

1,398,000

 

 

565,000

 

Total

 

$

 

$

 


No provision for federal and state income taxes was required for the three and six months ended June 30, 2012 and 2011 due to the Company’s operating losses and increased deferred tax asset valuation allowance.  The valuation allowance was recorded due to the uncertainty as to whether future net income would be generated to utilize TelVue’s net deferred tax asset, including a net operating loss carry-forward. TelVue’s federal net operating loss carry-forward was approximately $23,800,000 on a tax-reporting basis as of June 30, 2012. The carry-forward, if not utilized, will begin to expire in 2024 through 2032.


- 8 -



The Company is subject to U.S. federal income tax as well as income tax in multiple state jurisdictions.  The Company is no longer subject to U.S. federal income tax examinations for years before 2007 and state income tax examinations before 2006.  However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the net operating loss carry forward amount.  The Company is not currently under Internal Revenue Service tax examination or under examination by any state jurisdictions.


5.  NOTES PAYABLE AND LINES OF CREDIT – MAJORITY STOCKHOLDER


Since November 1989, TelVue has funded its expansion and operating deficit from the proceeds of the sale of shares of TelVue’s common stock to Mr. H.F (Gerry) Lenfest, TelVue’s majority stockholder, and from loans from Mr. Lenfest.  As of December 31, 2011, TelVue had entered into nine Lines of Credit Notes (the “Notes”) with Mr. Lenfest in the aggregate principal amount of $25,400,000. In addition to these borrowings, during January 1995, Mr. Lenfest purchased from Science Dynamics Corporation, TelVue’s non-interest bearing note in the amount of $541,000 (the “Science Note”).


The most recent of the Notes was entered into on December 22, 2011 (the “2012 Note”). In January and February 2012, the Company borrowed the maximum $5,000,000 under the 2012 Note.


On January 11, 2012, TelVue executed a Debt Conversion Agreement with Mr. Lenfest. At a Special Meeting of Stockholders on March 12, 2012, the stockholders of the Company authorized and approved the Debt Conversion Agreement and the transactions contemplated thereby (“the Conversion Transactions”). The Company consummated the Conversion Transactions on March 16, 2012. $20,941,000 of the principal amount of the Notes and Science Note, plus $4,921,082 of accrued but unpaid interest thereon through March 16, 2012, was converted into 369,458 shares of the Company’s Common Stock (as adjusted for the reverse stock split disclosed in Note 6), at an adjusted conversion price of $70.00 per share. The remaining $5,000,000 of the principal amount of the Notes was converted into 14,285.714 shares of the Company’s Series A Convertible Preferred Stock.


6.  REDEEMABLE CONVERTIBLE PREFERRED STOCK AND COMMON STOCK


The Conversion Transactions disclosed in Note 5 included the authorization of 22,500 shares of a new series of preferred stock of TelVue designated as Series A Convertible Preferred Stock (“Preferred Stock”).  The Preferred Stock has a par value of $0.001 and is convertible into shares of common stock at a price of $70.00 per share at the option of the holder or upon certain contingent triggering events.  The Preferred Stock is redeemable at the option of the Company or upon certain deemed liquidation events.  Because the issued and outstanding Preferred Stock is held by the majority stockholder who has control over redemption through representation on the Company’s Board of Directors, it is classified as temporary equity in the condensed balance sheet.  From the date of issuance, dividends at the rate per annum of $14.00 per share shall accrue on the Preferred Stock, whether or not declared, and shall be cumulative. Accruing dividends shall be payable only when, as and if declared by the Board of Directors, and the Company shall be under no obligation to pay such accruing dividends, except upon liquidation, dissolution, winding up or other deemed liquidation event to the extent there are assets available for distribution, or redemption of the Preferred Stock by the Company.  The accruing dividends shall be payable in either cash or shares of Preferred Stock as determined by the Company, and in preference to any cash dividends to common stockholders.  As of June 30, 2012, aggregate cumulative dividends in arrears on the outstanding Preferred Stock amounted to $58,416, or $4.09 per outstanding share, and are included with the Preferred Stock in the condensed balance sheet.  The liquidation preference of the Preferred Stock at June 30, 2012 is $5,058,416.


The authorized but unissued class of redeemable convertible preferred stock that existed prior to the Conversion Transactions was retired as part of the Conversion Transactions.


In order to complete the Conversion Transactions, the Company increased the authorized number of shares of common stock to 600,000,000.  Subsequent to the consummation of the Conversion Transactions, the Company completed a 1-for-200 reverse stock split which became effective on March 22, 2012.  As a result of the reverse stock split, all common stock share amounts have been retrospectively adjusted in these financial statements.


7.  RELATED PARTY TRANSACTIONS


See Notes 5 and 6 for information of related party transactions between TelVue and its majority stockholder.


- 9 -



8.  FINANCIAL DATA BUSINESS SEGMENTS


The Company operates two business segments. The first segment, TelVue Products and Services (“TPS”), includes equipment such as the TelVue Princeton® broadcast and storage servers, and encoding and transcoding workstations, the TelVue HyperCaster™ Internet Protocol (IP) broadcast server, and services such as WEBUS®, TelVue CloudCast™ (formerly PEG.TV™), and TelVue Connect™.  TelVue Princeton® 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 HyperCaster™ server models for cable, Telco and professional supports streaming cable standard (MPEG-2 Transport) and 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. TelVue Turbo™ Workflow Accelerator is a scalable workflow application that streamlines publishing videos to TelVue CloudCast™ from any TelVue broadcast server. CampusOneHD™ 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.


WEBUS® 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.  TelVue CloudCast™ is a live streaming and Video-on-Demand service for integrating video on the Internet.  Additionally, TelVue CloudCast™ allows broadcasters to deliver 24x7 linear channels including live programming via both multi-screen Internet streaming and traditional broadcast delivery without the need to own or operate a facility with traditional broadcast equipment.  TelVue Connect™ is a cloud-based, multi-user contribution, transcoding, scheduling and distribution application that simplifies broadcast channel management.  TelVue Connect™ allows operators to avoid the cost and time investment in dedicated facilities and equipment for on-premise media drop-off and encoding and outsources the entire process to the cloud.


TelVue’s second business segment is the marketing and service company which sells automatic number identification (“ANI”) telecommunication services to the cable television industry. The ANI services permit cable and Telco companies to process special ordering services without the attendant, high manpower requirements, or extensive physical plant and facilities that are otherwise required.


Summarized financial information by reporting segment for each of the six months ended June 30, 2012 and 2011, is as follows:


Six months ended June 30, 2012

 

TPS

 

ANI

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

1,811,789

 

$

242,150

 

$

2,053,939

 

Depreciation

 

 

114,313

 

 

9,073

 

 

123,386

 

Operating income/(loss)

 

 

(2,465,854

)

 

130,162

 

 

(2,335,692

)

Other income/(expense)

 

 

(229,097

)

 

(19,922

)

 

(249,019

)

Net income/(loss)

 

 

(2,694,951

)

 

110,240

 

 

(2,584,711

)

Capital expenditures

 

 

235,120

 

 

 

 

235,120

 



Six months ended June 30, 2011

 

TPS

 

ANI

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

1,878,325

 

$

354,423

 

$

2,232,748

 

Depreciation

 

 

128,811

 

 

7,283

 

 

136,094

 

Operating income/(loss)

 

 

(1,356,187

)

 

214,406

 

 

(1,141,781

)

Other income/(expense)

 

 

(417,148

)

 

(63,449

)

 

(480,597

)

Net income/(loss)

 

 

(1,773,335

)

 

150,957

 

 

(1,622,378

)

Capital expenditures

 

 

81,970

 

 

 

 

81,970

 


- 10 -



Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.


This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby.  All forward-looking statements involve risks and uncertainty, including, without limitation, TelVue’s ability to obtain sufficient cash to continue its operations, TelVue’s ability to continue its growth strategy, increases in costs of labor and employee benefits, general market conditions, competition and similar matters discussed in TelVue’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and in this Quarterly Report on Form 10-Q.  These forward-looking statements may include declarations regarding the Company’s belief or current expectations of management, such as statements including the words “budgeted,” “anticipate,” “project,” “estimate,” “expect,” “may,” “believe,” “potential,” “approximately” and similar statements are intended to be among the statements that are forward-looking statements. Because such statements reflect the reality of risk and uncertainty that is inherent in the Company’s business, actual results may differ materially from those expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which are made as of the date this report was filed with the Securities and Exchange Commission.


Readers are advised that the Company undertakes no obligation to release publicly any revisions to the forward-looking statements to reflect events or circumstances after the date hereof or to reflect unanticipated events or developments. To the extent that the information presented in this Quarterly Report on Form 10-Q discusses financial projections, information or expectations about the Company’s products or markets, or otherwise makes statements about future events, such statements are forward-looking. The Company is making these forward-looking statements in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.


Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this Quarterly Report will prove to be accurate.  In light of the significant uncertainties inherent in the forward-looking statements included in this Quarterly Report, the inclusion of such information should not be regarded as a representation by TelVue or any other person that the Company’s objectives and plans will be achieved.


OVERVIEW OF COMPANY


TelVue is a broadcast technology company that specializes in playback, automation, workflow and multi-screen delivery solutions for public, education and government (“PEG”) television stations; cable, telephone company (“Telco”) and satellite television providers; K-12 and higher education institutions; professional broadcasters and media companies. TelVue delivers local programming to over thirty million homes nationwide; powers over 1,500 PEG and campus television channels; provides leased access and local origination solutions to over seventy five Multi System Operators (“MSOs”) including eight of the top ten, and the nation’s largest telephone company; and delivers on-campus local channels to over one million students on college campuses nationwide.


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® broadcast and storage servers, and encoding and transcoding workstations, the TelVue HyperCaster™ Internet Protocol (IP) broadcast server, and services such as WEBUS®, TelVue CloudCast™ and TelVue Connect™.  TelVue Princeton® 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 HyperCaster™ server models for cable, Telco and professional broadcasters supports streaming cable standard (MPEG-2 Transport) and 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. TelVue Turbo™ Workflow Accelerator is a scalable workflow application that streamlines publishing videos to TelVue CloudCast™ from any TelVue broadcast server. CampusOneHD™ 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.


- 11 -



WEBUS® 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.  TelVue CloudCast™ is a live streaming and Video-on-Demand service for integrating video on the Internet.  Additionally, TelVue CloudCast™ allows broadcasters to deliver 24x7 linear channels including live programming via both multi-screen Internet streaming and traditional broadcast delivery without the need to own or operate a facility with traditional broadcast equipment.  TelVue Connect™ is a cloud-based, multi-user contribution, transcoding, scheduling and distribution application that simplifies broadcast channel management.  TelVue Connect™ allows operators to avoid the cost and time investment in dedicated facilities and equipment for on-premise media drop-off and encoding and outsources the entire process to the cloud.


TelVue is currently marketing its products and services to cable and Telco MSOs, municipal governments, K-12 school districts, higher education institutions, and other broadcasters as a means of lowering cost, simplifying operations, and improving the quality of their video channels.


TPS products include:


TelVue Princeton® Digital Broadcaster B100

TelVue Princeton® Digital Broadcaster B3000

TelVue Princeton® Digital Video Archive Server S3000F

TelVue Princeton® Encoding Workstation C500W

TelVue Princeton® Encoding and Transcoding Workstation T7500E

TelVue HyperCaster™

TelVue Turbo™ Workflow Accelerator

CampusOneHD™ High-Definition Broadcast Platform

TelVue ProVue™ Professional HD IP Broadcast Decoder


TPS services include:


WEBUS®

Automated broadcast digital signage display on TV Channel

WEBUS Inside™

WEBUS® integrated within TelVue Princeton® Servers

WEBLINX®

Automated WEBUS® message display on websites

VideoActives™

Real time, dynamic video content for channels

TelVue CloudCast™

Live, linear and on-demand Internet streaming and hosted broadcasting

TelVue Connect™

Cloud video service for multi-user content contribution and scheduling


TelVue’s second and legacy business segment is the marketing and service company, which sells automatic number identification (“ANI”) telecommunication services to the cable television industry.  The ANI service permits cable and satellite television companies to process special ordering services without the attendant, high manpower requirements, or extensive physical plant and facilities that are otherwise required.  TelVue provides the ANI service through the equipment it purchases.  TelVue’s equipment for providing the ANI service nationwide is located at TelVue’s National Data Center in Philadelphia, Pennsylvania.  TelVue serves cable television systems across the United States via trunk lines and data circuits that it currently leases from Qwest.  TelVue believes it receives a favorable trunk usage rate from Qwest. TelVue expects continued loss of its subscriber base for the ANI service as digital, interactive two-way services are offered by cable, satellite, and broadband service providers for Video-on-Demand and as other video streaming options become more prevalent in the industry.


NEW PRODUCTS AND SERVICES


In the second quarter of 2012, TelVue launched the TelVue ProVue™, the first professional native Internet Protocol (“IP”) video decoder that is designed to seamlessly switch between changing video formats, including SD and HD, MPEG-2 and H.264 at resolutions up to 1080p.  TelVue ProVue™ is suited for a variety of applications including IP broadcast video decoding, HD/SD and digital/analog simulcast, multicast, point-to-point and full integration with the TelVue HyperCaster™ broadcast server.  The Company expects the TelVue ProVue™ to help capture a greater portion of the HD broadcast market share as hyperlocal and community broadcasters begin to upgrade their infrastructures to HD broadcast.


- 12 -



Also in the second quarter of 2012, TelVue launched a new tool to allow cable and Telco operators to broaden the range of their content by aggregating programming via the Internet for video-on-demand (“VOD”) services.  The TelVue Connect™ has been extended to support descriptive information about programming, known as metadata, in the industry-specific CableLabs® Asset Distribution Interface standard.  This metadata can be captured and passed to the operator’s VOD system to populate the on-demand program guide.  The new metadata feature allows cable and Telco operators to easily aggregate content from multiple contributors for their on-demand offerings.  It also gives contributors a browser-based “drag-and-drop” solution for program submission from anywhere.  TelVue Connect™ automatically converts the submitted programming to the format required by cable and Telco VOD services, supporting both traditional and IP-based systems.  This new extension of TelVue Connect™ allows TelVue to expand sales to cable and Telco operators beyond solutions for broadcast channel origination to include VOD workflow.  Hyperlocal content such as sports continues to gain in popularity and can be an important differentiator for operator’s VOD offerings.


TelVue also launched full support of automated Electronic Program Guide (“EPG”) data publishing and transfers between the TelVue Princeton® and TelVue HyperCaster™ lines of digital broadcast servers and the Minerva iTVFusion 5.3 TVoIP platform, which is the leading software solutions for the delivery of television services to IP connected devices.  The automation of EPG data publishing and transfer gives local origination and leased access channel timely and updated entries in the program guide, making it easier to promote local programming making it more accessible to DVR recording.  The TelVue automated EPG data publishing and transfer feature eliminates the need to enter program guide data manually.  Operators can also import the EPG data directly to the Minerva platform without incurring any additional fees, such as custom data charges, from their primary EPG data provider.


CRITICAL ACCOUNTING POLICIES


In presenting its financial statements in conformity with accounting principles generally accepted in the United States, TelVue is required to make certain estimates and assumptions that affect the amounts reported therein.  Several of the estimates and assumptions the Company is required to make relate to matters that are inherently uncertain as they pertain to future events.  However, events that are outside of TelVue’s control cannot be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions.  If there is a significant unfavorable change to current conditions, it will likely result in a material adverse impact to TelVue’s results of operations, financial position and liquidity. TelVue believes that the estimates and assumptions used when preparing its financial statements were the most appropriate at that time.  Presented below are those accounting policies that TelVue believes require subjective and complex judgments that could potentially affect reported results.


Use of Estimates


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.


An area that requires estimates and assumptions is the valuation allowances on deferred tax assets.


Revenue Recognition


In accordance with accounting principles generally accepted in the United States, TelVue recognizes revenues related to TelVue Princeton®, TelVue HyperCaster™, TelVue ProVue™ and other equipment upon shipment of the equipment to its customers.  Revenues related to its WEBUS®, TelVue CloudCast™ and TelVue Connect™ 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.  Revenues for the product maintenance plans are deferred and are recognized on a straight-line basis in subsequent periods.  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.


- 13 -



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 its 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 three and six months ended June 30, 2012, when compared to the same period of 2011, and the reasons for the changes. TelVue further discusses the continued loss of its subscriber base for the ANI service, when comparing the three and six months ended June 30, 2012 to the three and six months ended June 30, 2011.  TelVue also discusses the changes in TPS revenue and expenses.


Detailed financial information for the three months ended June 30, 2012 and 2011 is as follows:


 

 

Three Months Ended

 

 

 

 

 

 

 

June 30,

 

June 30,

 

$ Change

 

% Change

 

 

 

2012

 

2011

 

Fav/(Unfav)

 

Fav/(Unfav)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

TelVue products and services

 

$

990,587

 

$

1,018,985

 

$

(28,398

)

(2.8

)

ANI services

 

 

117,564

 

 

172,770

 

 

(55,206

)

(32.0

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of Revenues

 

 

 

 

 

 

 

 

 

 

 

 

TelVue products and services

 

 

503,080

 

 

549,141

 

 

46,061

 

8.4

 

ANI services

 

 

25,480

 

 

29,658

 

 

4,178

 

14.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

 

 

 

 

 

 

 

 

 

 

 

TelVue products and services

 

 

424,334

 

 

270,950

 

 

(153,384

)

(56.6

)

ANI services

 

 

 

 

 

 

 

 

General and administrative

 

 

 

 

 

 

 

 

 

 

 

 

TelVue products and services

 

 

1,022,979

 

 

820,318

 

 

(202,661

)

(24.7

)

ANI services

 

 

22,255

 

 

34,547

 

 

12,292

 

35.6

 

Depreciation

 

 

 

 

 

 

 

 

 

 

 

 

TelVue products and services

 

 

58,000

 

 

63,505

 

 

5,505

 

8.7

 

ANI services

 

 

4,426

 

 

3,597

 

 

(829

)

(23.0

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Loss

 

 

(952,403

)

 

(579,961

)

 

(372,442

)

(64.2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense)

 

 

1,445

 

 

(244,811

)

 

246,256

 

100.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$

(950,958

)

$

(824,772

)

$

(126,186

)

(15.3

)


- 14 -



Detailed financial information for the six months ended June 30, 2012 and 2011 is as follows:


 

 

Six Months Ended

 

 

 

 

 

 

 

June 30,

 

June 30,

 

$ Change

 

% Change

 

 

 

2012

 

2011

 

Fav/(Unfav)

 

Fav/(Unfav)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

TelVue products and services

 

$

1,811,789

 

$

1,878,325

 

$

(66,536

)

(3.5

)

ANI services

 

 

242,150

 

 

354,423

 

 

(112,273

)

(31.7

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of Revenues

 

 

 

 

 

 

 

 

 

 

 

 

TelVue products and services

 

 

938,317

 

 

1,083,710

 

 

145,393

 

13.4

 

ANI services

 

 

51,348

 

 

61,222

 

 

9,874

 

16.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

 

 

 

 

 

 

 

 

 

 

 

TelVue products and services

 

 

878,679

 

 

552,413

 

 

(326,266

)

(59.1

)

ANI services

 

 

 

 

 

 

 

 

General and administrative

 

 

 

 

 

 

 

 

 

 

 

 

TelVue products and services

 

 

2,346,334

 

 

1,469,578

 

 

(876,756

)

(59.7

)

ANI services

 

 

51,567

 

 

71,512

 

 

19,945

 

27.9

 

Depreciation

 

 

 

 

 

 

 

 

 

 

 

 

TelVue products and services

 

 

114,313

 

 

128,811

 

 

14,498

 

11.3

 

ANI services

 

 

9,073

 

 

7,283

 

 

(1,790

)

(24.6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Loss

 

 

(2,335,692

)

 

(1,141,781

)

 

(1,193,911

)

(104.6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense)

 

 

(249,019

)

 

(480,597

)

 

231,578

 

48.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$

(2,584,711

)

$

(1,622,378

)

$

(962,333

)

59.3

 


Additional financial information by reporting segment for the three and six months ended June 30, 2012 and 2011 is as follows:


 

 

TelVue products and services

 

ANI services

Three months ended June 30,

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income/(loss)

 

$

(1,017,806

)

$

(684,929

)

$

65,403

 

$

104,968

 

Other income/(expense)

 

$

1,445

 

$

(212,457

)

$

 

$

(32,354

)

Net income/(loss)

 

$

(1,016,361

)

$

(897,386

)

$

65,403

 

$

72,614

 

Capital expenditures

 

$

106,975

 

$

44,680

 

$

 

$

 



 

 

TelVue products and services

 

ANI services

Six months ended June 30,

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income/(loss)

 

$

(2,465,854

)

$

(1,356,187

)

$

130,162

 

$

214,406

 

Other income/(expense)

 

$

(229,097

)

$

(417,148

)

$

(19,922

)

$

(63,449

)

Net income/(loss)

 

$

(2,694,951

)

$

(1,773,335

)

$

110,240

 

$

150,957

 

Capital expenditures

 

$

235,120

 

$

81,970

 

$

 

$

 


The TPS segment had operating losses of $1,017,806 and $2,465,854 for the three and six months ended June 30, 2012, compared to operating losses of $684,929 and $1,356,187 for the three and six months ended June 30, 2011, respectively, primarily due to an increase in sales and marketing and general and administrative expenses and a decrease in TPS segment revenue, offset by a decrease in cost of sales expenses.  The ANI segment had operating income of $65,403 and $130,162 for the three and six months ended June 30, 2012, compared to $104,968 and $214,406 for the three and six months ended June 30, 2011. The decrease in operating income for the ANI segment was mainly a result of an anticipated decrease in ANI revenue, offset by a change in the allocation of expenses whereby, based on the segment’s percentage of total forecasted revenues for the year, 8% of certain expenses were allocated to the ANI segment for the three and six months ended June 30, 2012, compared to an allocation percentage of 13% for the same periods of 2011.


- 15 -



Revenues


Total revenues decreased by $83,604 and $178,809 for the three and six months ended June 30, 2012, respectively, when compared to the three and six months ended June 30, 2011.  TPS revenues decreased $28,398 and $66,536 for the three and six months ended June 30, 2012, respectively, compared to the same period of 2011.  This was primarily due to 3.2% and 9.9% decreases in TPS equipment revenue for the three and six months ended June 30, 2012, respectively, compared to the three and six months ended June 30, 2011.  This decrease was partially offset by 80.0% and 89.2% increases in TelVue CloudCast™ revenue for the three and six month periods ended June 30, 2012, as Internet video and broadband TV continue to gain in popularity and 8.2% and 16.3% increase in maintenance service revenue, as TelVue’s equipment footprint continues to grow, when comparing the three and six months ended June 30, 2012 to the same periods of 2011.


While recognized consolidated revenues in the first half of 2012 fell, sales orders for the six months ended June 30, 2012 for the Company’s focal products (TPS broadcast servers and hosted services) rose by 23.5 % over the comparable period in 2011.   In addition to a 33% increase in TelVue Care maintenance contracts, sales orders during the six months ended June 30, 2012 included a $120,000 multi-server purchase order for which $3,600 was recognized in the second quarter of 2012, with the balance to be recognized as contracted equipment is shipped over the next 12 months. Sales orders during the six months ended June 30, 2012 also included a $278,000 two-year contract for TelVue CloudCast™ hosted broadcasting, for which revenue will be recognized in equal monthly amounts over the contract term as service is provided by the Company.  It is anticipated that approximately $53,000 of this TelVue CloudCast™ contract will be recognized during the remainder of 2012, with approximately $139,000 recognized in 2013 and approximately $86,000 in 2014.


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.  Additionally, the Company expects to begin to develop direct sales to Media companies as the Company continues to invest in development and marketing of its new cloud video services.


ANI revenues decreased $55,206 and $112,273 for the three and six months ended June 30, 2012, respectively, when compared to the three and six months ended June 30, 2011.  There were expected decreases of $1,045 and $2,568 in pay-per-view revenue for the three and six months ended June 30, 2012, respectively, when compared to the same period of 2011, and decreases of $7,040 and $8,514 in pay-per-view plus revenue for the three and six months ended June 30, 2012, respectively, when compared to the three and six months ended June 30, 2011.  These decreases were mainly due to a reduction in the number of subscribers served during these periods when compared to 2011 (as discussed below). Additionally, there were decreases in feature revenue of $23,137 and $49,742, decreases of $16,920 and $33,205 in data link revenue and decreases of $4,889 and $13,749 in program number revenue for the three and six months ended June 30, 2012, respectively, when compared to the three and six months ended June 30, 2011, primarily due to a decline in the number of ANI subscribers (as discussed below).


As of June 30, 2012, the ANI service was serving approximately 700,000 full-time cable subscribers compared to approximately one million full-time cable subscribers served as of June 30, 2011.  During the six months ended June 30, 2012, there were 108,000 ANI subscriber cancellations and no new additions.  The subscriber decline is the result of cable operators moving to two-way digital services which limit the number of analog pay-per-view channels available for content and allow the cable operator’s customers to order digital pay-per-view or video on demand via the set top box, eliminating the need for the TelVue ANI service. Management believes the long-term effects of deployment of digital two-way service will continue to negatively impact the TelVue ANI service. As a result of the cable and satellite subscriber cancellations noted above, TelVue expects to continue to experience a decrease in its revenue and operating income indefinitely for its ANI segment.


Cost of Revenues


Total cost of revenues decreased by $50,239 and $155,267 for the three and six months ended June 30, 2012, respectively, when compared to the three and six months ended June 30, 2011.  Cost of revenues for the TPS segment decreased $46,061 and $145,393 for the three and six months ended June 30, 2012, respectively, when compared to the three and six months ended June 30, 2011, primarily as a result of lower sales of TPS equipment and lower consulting expenses.  These decreases were partially offset by higher expenses related to Internet bandwidth purchased for use with TelVue’s cloud-based services.


ANI cost of revenues decreased $4,178 and $9,874 for the three and six months ended June 30, 2012, respectively, when compared to the same period of 2011, primarily due to a favorable variance in compensation expense, in addition to savings in telecommunications expenses when comparing these periods.  This decrease is not proportionate with the decrease in ANI revenue, as there are fixed expenses, whereas certain revenue components are based on usage.


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Selling and Marketing Expenses


Total selling and marketing expenses, which are entirely attributed to the TPS segment, increased $153,384 and $326,266 for the three and six months ended June 30, 2012, respectively, when compared to the three and six months ended June 30, 2011.  This increase was primarily the result of higher compensation expenses related to an increase in the sales and marketing staffing by four employees, when comparing the three and six months ended June 30, 2012 to the three and six months ended June 30, 2011.  Additionally, the Company incurred expenses of approximately $35,000 related to an outside public relations company contracted during the three and six months ended June 30, 2012 to assist in the development of the cable and Telco markets, while none was used during the same period in 2011.


General and Administrative Expenses


Total general and administrative expenses increased by $190,369 and $856,811 for the three and six months ended June 30, 2012, respectively, when compared to the three and six months ended June 30, 2011.  TPS general and administrative expenses increased $202,661 and $876,756 for the three and six months ended June 30, 2012, respectively, when compared to the three and six months ended June 30, 2011.  This increase was related to additional spending on research and development activities for TelVue’s emerging cloud-based video services including contracting the services of software development consultants to accelerate feature development.  Additionally, there were executive search fees of approximately $79,000 paid related to the hiring of seven new engineering employees during the six months ended June 30, 2012.  There was also an increase in legal and accounting fees of approximately $50,000 during the six months ended June 30 2012, related to the debt conversion transaction.


ANI general and administrative expenses decreased $12,292 and $19,945 for the three and six months ended June 30, 2012, respectively, when compared to the three and six months ended June 30, 2011, primarily as a result of a change in allocation percentages, where a lower percentage of expenses are being allocated to the ANI segment.


Depreciation Expense


TelVue purchased $235,120 of equipment during the six months ended June 30, 2012 compared to $81,970 purchased during the six months ended June 30, 2011.  All of the equipment purchased during the six months ended June 30, 2012 and 2011 was for equipment related to the TPS segment and primarily for infrastructure for TelVue Connect™ and TelVue CloudCast™ cloud video services. Depreciation expense decreased $4,676 and $12,708 for the three and six months ended June 30, 2012, respectively, when compared to the three and six months ended June 30, 2011, as a result of prior capital purchases reaching the end of their depreciable lives.


Other Income (Expense)


Total other expense decreased by $246,256 and $231,578 for the three and six months ended June 30, 2012, when compared to the three and six months ended June 30, 2011.  This decrease was attributed to no longer accruing interest expense related to the balance on the outstanding lines of credit notes, which are discussed more extensively in Liquidity and Capital Resources, in addition to increased interest income related to a higher cash balance as of June 30, 2012, when compared to the balance as of June 30, 2011.


Income Taxes


No provision for federal and state income taxes was required for the three and six months ended June 30, 2012 and 2011 due to the Company’s operating losses and increased deferred tax asset valuation allowance. The valuation allowances were recorded due to the uncertainty as to whether future net income would be generated that would utilize TelVue’s net operating loss carry-forward. TelVue’s federal net operating loss carry-forward was approximately $23,800,000 on a tax-reporting basis as of June 30, 2012 (see Note 4 of TelVue’s accompanying condensed financial statements).


Net Loss


TelVue had net losses of $950,958 and $2,584,711 for the three and six months ended June 30, 2012, respectively, compared to net losses of $824,772 and $1,622,378 for the three and six months ended June 30, 2011. The increase in net loss was primarily due to higher development expenses and revenue decreases, partially offset by lower interest expense, during the three and six months ended June 30, 2012 when compared to the three and six months ended June 30, 2011.


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LIQUIDITY AND CAPITAL RESOURCES:


Going Concern


The condensed financial statements presented in this Quarterly Report on Form 10-Q have been prepared on a “going concern” basis, which assumes that TelVue will continue in operation for at least one year and will be able to realize its assets and discharge its liabilities in the normal course of operations.  As shown in the accompanying condensed financial statements, the Company incurred a net loss of $2,584,711 during the six months ended June 30, 2012, and as of that date, the Company’s total stockholders’ deficit was $2,226,804.  The Company borrowed an additional $5,000,000 against its line of credit in January and February 2012, which was converted to convertible preferred stock in March 2012, when all other borrowings and accrued interest due to the majority stockholder were also converted to common stock (as disclosed in Note 5), leaving the Company with no debt and $2,329,163 of cash and cash equivalents at June 30, 2012.  TelVue continues to execute its modified business plan to focus on equipment and services sales to the cable, telephone company (“Telco”), professional, community and Internet broadcast markets, and believes it has sufficient cash to fund operating and capital requirements for at least one year.  The Company has made significant product development investment from the fourth quarter of 2011 through the second quarter of 2012 in new cloud video services including TelVue Connect™ and TelVue CloudCast™.  While initial releases of these new services were previously available and sold to clients on a limited basis, full commercial availability launched during the second quarter of 2012.  As such, the Company has only begun to recognize revenue from these new services, and expects cloud video service revenue to become an important growth area for the Company in the coming year and beyond.  Additionally, the launch of the TelVue ProVue™ Professional HD IP Broadcast Decoder in the second quarter of 2012 combined with the TelVue HyperCaster™ IP broadcast server provides broadcasters a solution for High-Definition workflows that can also leverage modern IP networks.  The Company believes there is an increasing number of both High-Definition and IP-centric broadcast opportunities in our core markets, and expects to see further growth from these opportunities.


Funding of Operations


Since November 1989, TelVue has funded its expansion and operating deficit from the proceeds of the sale of shares of TelVue’s common stock and preferred stock to Mr. Lenfest, TelVue’s majority stockholder, and from loans from Mr. Lenfest.  As of December 31, 2011, TelVue had entered into nine Lines of Credit Notes (the “Notes”) with Mr. Lenfest in the aggregate principal amount of $25,400,000. In addition to these borrowings, during January 1995, Mr. Lenfest purchased from Science Dynamics Corporation, TelVue’s non-interest bearing note in the amount of $541,000 (the “Science Note”).


The most recent of the Notes was entered into on December 22, 2011 (the “2012 Note”). In January and February 2012, the Company borrowed the maximum $5,000,000 under the 2012 Note.


On January 11, 2012, TelVue executed a Debt Conversion Agreement with Mr. Lenfest. At a Special Meeting of Stockholders on March 12, 2012, the stockholders of the Company authorized and approved the Debt Conversion Agreement and the transactions contemplated thereby (“the Conversion Transactions”). The Company consummated the Conversion Transactions on March 16, 2012. $20,941,000 of the principal amount of the Notes and Science Note, plus $4,921,082 of accrued but unpaid interest thereon through March 16, 2012, was converted into 369,458 shares of the Company’s Common Stock (as adjusted for the reverse stock split disclosed in Note 6), at a conversion price of $70.00 per share. The remaining $5,000,000 of the principal amount of the Notes was converted into 14,285.714 shares of the Company’s Series A Convertible Preferred Stock.


The Conversion Transactions, as discussed above, included the authorization of 22,500 shares of a new series of preferred stock of TelVue designated as Series A Convertible Preferred Stock, which is convertible into common stock at a fixed price at the option of the holder or upon certain contingent triggering events.  From the date of issuance, dividends at the rate per annum of $14.00 per share shall accrue on the Series A Convertible Preferred Stock, and shall be cumulative. Accruing dividends shall be payable only when, as and if declared by the Board of Directors, and the Company shall be under no obligation to pay such accruing dividends, except upon liquidation, dissolution, winding up or other deemed liquidation event to the extent there are assets available for distribution, or redemption by the Company.  The accruing dividends shall be payable in either cash or shares of Series A Preferred Stock as determined by the Company, and in preference to any cash dividends to common stockholders.  Because the issued and outstanding Series A Convertible Preferred Stock is held by the majority stockholder who has control over redemption through representation on the Company’s Board of Directors, it is considered redeemable and classified as temporary equity in the condensed balance sheet.  As of June 30, 2012, undeclared dividends on outstanding preferred stock amounted to $58,416.


The authorized but unissued class of redeemable convertible preferred stock that existed prior to the Conversion Transactions was retired as part of the Conversion Transactions.


- 18 -



In order to complete the Conversion Transactions, the Company increased the authorized number of shares of common stock to 600,000,000.  Subsequent to the consummation of the Conversion Transactions, the Company completed a 1-for-200 reverse stock split which became effective on March 22, 2012.  As a result of the reverse stock split, all common stock share amounts have been retrospectively adjusted in these financial statements.


As a result of receiving the additional investment of $5,000,000 from Mr. Lenfest and consummating the Conversion Transactions, TelVue no longer has any outstanding indebtedness and believes that it has adequate working capital to meet its cash flow needs for at least the next twelve months.


Cash and Cash Flows


TelVue had negative cash flow from operating activities of $2,601,178 for the six months ended June 30, 2012, compared to $967,283 for the six months ended June 30, 2011.  The decrease in cash flow compared to 2011 was primarily due to a higher net loss for the six months ended June 30, 2012 when compared to the six months ended June 30, 2011.  Additionally, there were higher expenses paid related to increased development activities and higher legal fees related to the debt conversion transaction during the six months ended June 30, 2012, when compared to the same period of 2011.


TelVue had a cash balance of $2,329,163 as of June 30, 2012, compared to a balance of $241,201 as of June 30, 2011, primarily due to the $5,000,000 investment received from Mr. Lenfest in connection with the 2012 Note, which was subsequently converted to TelVue Series A Convertible Preferred Stock.  TelVue believes that this cash balance is adequate to satisfy it working capital needs for at least the next twelve months as it grows its business.


Accounts Receivable-Trade and Allowance for Doubtful Accounts


As of June 30, 2012, TelVue had a net accounts receivable-trade balance of $732,583, compared to $666,074 as of December 31, 2011. The increase was primarily due to slower cash collections, in addition to timing of the fulfillment of equipment orders for the six months ended June 30, 2012.  Management reviews and assesses the status of customer accounts on a regular basis and had established a bad debt reserve in the amount of $41,332 and $29,194 as of June 30, 2012 and December 31, 2011, respectively.  The allowance for doubtful accounts is estimated based on historical experience and a review of specific customer accounts.


TelVue’s days of sales in average accounts receivable was 60 days at June 30, 2012, compared to 53 days at December 31, 2011.  TelVue will from time to time offer sales incentives and/or discounts to its TelVue Princeton® and HyperCaster™ customers.  The Company has not changed its credit terms with its customers for its TPS services or ANI service.  A 2% cash, 1% net 15 days discount is offered for payments related to TelVue Princeton® and HyperCaster™ equipment purchases.


Prepaid Expenses


As of June 30, 2012, TelVue had a prepaid expense balance of $68,553, compared to a balance of $14,930 as of December 31, 2011. This increase was primarily the result of paying in-full for the Company’s business insurance policies during the six months ended June 30, 2012.  The expense related to these policies is recognized evenly over the policy period.


Accounts Payable-Trade


As of June 30, 2012, TelVue had an accounts payable-trade balance of $354,365, compared to a balance of $595,310 as of December 31, 2011.  The decrease was primarily a result of the paying of outside development consultants and legal fees that were in the accounts payable-trade balance as of December 31, 2011.


Accrued Expenses


As of June 30, 2012, TelVue had an accrued expense balance of $219,969, compared to a balance of $264,589 as of December 31, 2011.  The decrease was primarily due to a lower expense accrual than at December 31, 2011 related to contracted development consultants and legal and accounting fees, offset by a higher accrual for employee paid time off, as it is earned and accrued evenly throughout the year, while most employee vacations are taken in the second half of the year.


Deferred Service Revenue


As of June 30, 2012, TelVue had a deferred service revenue balance of $712,236, compared to a balance of $648,202 as of December 31, 2011.  The increase was primarily due to increased sales of TPS equipment support and other services, for which the revenue is deferred and recognized over the contract period.


- 19 -



OFF-BALANCE SHEET ARRANGEMENTS


There were no off-balance sheet arrangements at June 30, 2012 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 3.  Quantitative and Qualitative Disclosures About Market Risk.


TelVue, a smaller reporting company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and in Item 10(f)(1) of Regulation S-K, is not required to provide information required by this Item.


Item 4.  Controls and Procedures.


(a) Evaluation of Disclosure Controls and Procedures.  TelVue’s Chief Executive Officer and its Treasurer (Controller), have evaluated the effectiveness of TelVue’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report.  Based upon that evaluation, TelVue’s Chief Executive Officer and its Treasurer (Controller) have concluded that TelVue’s disclosure controls and procedures were adequate and effective to ensure that information regarding the Company is made known to its management, including its Chief Executive Officer and Treasurer (Controller), as appropriate to allow timely decisions regarding required disclosure and were effective in providing reasonable assurance that information the Company must disclose in its periodic reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods prescribed by the SEC’s rules and forms, particularly during the period in which this quarterly report on Form 10-Q was being prepared.


(b) Changes in Internal Controls. During the quarterly period covered by this report, there were no changes in TelVue’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect TelVue’s internal control over financial reporting.


PART II — OTHER INFORMATION


Item 6.  Exhibits.


31.1

Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (included herein).

31.2

Certification of Treasurer-Controller pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (included herein).

 

 

32.1

Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (included herein).

 

 

32.2

Certification of Treasurer-Controller pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (included herein).

 

 

101.INS

XBRL Instance Document.

 

 

101.SCH

XBRL Taxonomy Extension Schema Document.

 

 

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.

 

 

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.

 

 

101.LAB

XBRL Taxonomy Extension Label Linkbase Document.

 

 

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document.


- 20 -



SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



 

TELVUE CORPORATION

 

 

 

DATED:  August 14, 2012

By:

/s/ Jesse Lerman

 

 

Jesse Lerman

 

 

President and Chief Executive Officer

 

 

 

 

 

 

DATED:  August 14, 2012

By:

/s/ John Fell

 

 

John Fell

 

 

Treasurer-Controller



EXHIBIT INDEX


31.1

Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (included herein).

 

 

31.2

Certification of Treasurer-Controller pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (included herein).

 

 

32.1

Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (included herein).

 

 

32.2

Certification of Treasurer-Controller pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (included herein).

 

 

101.INS

XBRL Instance Document.

 

 

101.SCH

XBRL Taxonomy Extension Schema Document.

 

 

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.

 

 

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.

 

 

101.LAB

XBRL Taxonomy Extension Label Linkbase Document.

 

 

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document.


- 21 -


PINX:TEVE Quarterly Report 10-Q Filling

PINX:TEVE Stock - Get Quarterly Report SEC Filing of PINX:TEVE stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

PINX:TEVE Quarterly Report 10-Q Filing - 6/30/2012
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