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, 2009





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





For the
transition period from________to________





Commission
File Number: 0-17170








TELVUE
CORPORATION


(Exact
name of registrant issuer as specified in its charter)




DELAWARE
              51-0299879(State
      or other jurisdiction of
              (I.R.S.
      Employerincorporation
      or organization)
              Identification
      No.)
  16000
      Horizon Way, Suite 500Mt.
      Laurel, New Jersey
                08054(Address
      of principal executive offices)
                (Zip
      Code)




Registrant's
telephone number, including area code: (856) 273-8888








Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes xNo o





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 oNo o





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 oNo x





Number of
shares of registrant's common stock outstanding as of August 11, 2009:
48,561,644 shares.










TELVUE
CORPORATION




INDEX




PAGE
      NO.PART I.
            FINANCIAL
      INFORMATIONItem
      1.  Financial StatementsConsolidated
      Balance Sheets as of June 30, 2009 (unaudited)
      and as of December 31, 2008
            
            3Consolidated
      Statements of Operations for the three months ended June 30, 2009
      (unaudited) and June 30, 2008
      (unaudited)
            
            4Consolidated
      Statements of Operations for the six months
      ended June 30, 2009 (unaudited) and June 30, 2008
      (unaudited)
            
            5Consolidated
      Statements of Cash Flows for the six months
      ended June 30, 2009 (unaudited) and June 30, 2008
      (unaudited)
            
            6Notes
      to Consolidated Financial Statements (unaudited)
            
            7Item
      2.  Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
            
            14Item
      3.  Quantitative and Qualitative Disclosures About Market
      Risk
            
            28Item
      4T.  Controls and Procedures
            
            28PART
      II.  OTHER INFORMATIONItem
      4.  Submission of Matters to a Vote of Security
      Holders
            
            28Item
      6.  Exhibits
            
            29SIGNATURES
            
            32EXHIBIT
      INDEX
            
            32




2


PART
I.  FINANCIAL INFORMATION
 
 ITEM
I.  FINANCIAL STATEMENTS
  TELVUE
CORPORATION AND SUBSIDIARY
 CONSOLIDATED
BALANCE SHEETS





June
      30,
            
            
            December
      31,2009
            
            
            2008ASSETS
            
            (Unaudited)
            
            
            *CURRENT
      ASSETSCash
      and cash equivalents
            
            $
            59,804
            
            
            $
            250,698Accounts
      receivable – trade, net ofAllowances
      of $69,752 at June 30,2009
      and $5,700 at December 31, 2008
            
            
            743,984
            
            
            
            560,579Inventory
            
            
            331,619
            
            
            
            266,032Prepaid
      expenses
            
            
            78,863
            
            
            
            54,636TOTAL
      CURRENT ASSETS
            
            
            1,214,270
            
            
            
            1,131,945PROPERTY
      AND EQUIPMENT
            
            
            7,356,484
            
            
            
            7,235,689Less
      accumulated depreciation
            
            
            6,269,477
            
            
            
            6,051,8091,087,007
            
            
            
            1,183,880DEFINITE-LIVED
      INTANGIBLE ASSETS,Net
      of accumulated amortization of$1,428,245
      at June 30, 2009 and$1,132,969
      at December 31, 2008
            
            
            3,120,475
            
            
            
            3,415,751INDEFINITE-LIVED
      INTANGIBLE ASSETS-OTHER
            
            
            397,260
            
            
            
            397,260OTHER
      ASSETS
            
            
            10,430
            
            
            
            8,800$
            5,829,442
            
            
            $
            6,137,636LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)CURRENT
      LIABILITIESAccounts
      payable - trade
            
            $
            465,781
            
            
            $
            315,236Accrued
      expenses
            
            
            328,396
            
            
            
            444,659Deferred
      service revenue
            
            
            469,315
            
            
            
            359,764Other
      liabilities
            
            
            599
            
            
            
            1,784TOTAL
      CURRENT LIABILITIES
            
            
            1,264,091
            
            
            
            1,121,443LINES
      OF CREDIT – MAJORITY STOCKHOLDER
            
            
            16,700,000
            
            
            
            15,950,000NOTE
      PAYABLE – MAJORITY STOCKHOLDER
            
            
            541,000
            
            
            
            541,000ACCRUED
      INTEREST – MAJORITY STOCKHOLDER
            
            
            2,349,738
            
            
            
            1,960,708STOCKHOLDERS'
      EQUITY (DEFICIT)Common
      stock, $.01 par value, 100,000,000shares
      authorized, 48,561,644 and 48,461,644shares
      issued and outstanding at June 30,2009
      and December 31, 2008, respectively
            
            
            485,616
            
            
            
            484,617Additional
      paid-in capital
            
            
            4,879,853
            
            
            
            4,877,353Accumulated
      deficit
            
            
            (20,390,856
            )
            
            
            (18,797,485
            )(15,025,387
            )
            
            
            (13,435,515
            )$
            5,829,442
            
            
            $
            6,137,636




*  Derived
from audited financial statements.





The
accompanying unaudited notes are an integral part of these
statements.





3


TELVUE
CORPORATION AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF OPERATIONS


(UNAUDITED)





Three
      Months EndedJune
      30,2009
              
              
              2008REVENUESTPS
      services
              
              $
              786,837
              
              
              $
              505,975ANI
      services
              
              
              308,231
              
              
              
              334,7631,095,068
              
              
              
              840,738COST
      OF REVENUESTPS
      services
              
              
              359,440
              
              
              
              334,262ANI
      services
              
              
              82,424
              
              
              
              125,713TOTAL
      COST OF REVENUES
              
              
              441,864
              
              
              
              459,975GROSS
      MARGIN
              
              
              653,204
              
              
              
              380,763OPERATING
      EXPENSESSelling
      and marketing
              
              
              280,950
              
              
              
              479,543General
      and administrative
              
              
              600,198
              
              
              
              791,259Depreciation
      and amortization
              
              
              277,673
              
              
              
              304,7441,158,821
              
              
              
              1,575,546OPERATING
      LOSS
              
              
              (505,617
              )
              
              
              (1,194,783
              )OTHER
      INCOME (EXPENSE)Interest
      income
              
              
              2
              
              
              
              64Interest
      expense
              
              
              (198,816
              )
              
              
              (230,750
              )TOTAL
      OTHER INCOME (EXPENSE)
              
              
              (198,814
              )
              
              
              (230,686
              )NET
      LOSS
              
              $
              (704,431
              )
              
              $
              (1,425,469
              )BASIC
      AND DILUTED NET LOSS PER COMMON SHARE
              
              $
              (.01
              )
              
              $
              (.03
              )WEIGHTED
      AVERAGE NUMBER OF COMMONSHARES
      OUTSTANDINGBASIC
      AND DILUTED
              
              
              48,539,666
              
              
              
              48,437,783


The
accompanying unaudited notes are an integral part of these
statements.




4





TELVUE
CORPORATION AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF OPERATIONS


(UNAUDITED)








Six
      Months Ended June 30,2009
                
                
                2008REVENUESTPS
      services
                
                $
                1,413,152
                
                
                $
                955,475ANI
      services
                
                
                605,661
                
                
                
                641,1202,018,813
                
                
                
                1,596,595COST
      OF REVENUESTPS
      services
                
                
                695,268
                
                
                
                728,331ANI
      services
                
                
                177,766
                
                
                
                211,266TOTAL
      COST OF REVENUES
                
                
                873,034
                
                
                
                939,597GROSS
      MARGIN
                
                
                1,145,779
                
                
                
                656,998OPERATING
      EXPENSESSelling
      and marketing
                
                
                514,552
                
                
                
                928,884General
      and administrative
                
                
                1,272,950
                
                
                
                1,644,415Depreciation
      and amortization
                
                
                562,624
                
                
                
                602,8902,350,126
                
                
                
                3,176,189OPERATING
      LOSS
                
                
                (1,204,347
                )
                
                
                (2,519,191
                )OTHER
      INCOME (EXPENSE)Interest
      income
                
                
                4
                
                
                
                367Interest
      expense
                
                
                (389,030
                )
                
                
                (486,266
                )TOTAL
      OTHER INCOME (EXPENSE)
                
                
                (389,026
                )
                
                
                (485,899
                )NET
      LOSS
                
                $
                (1,593,373
                )
                
                $
                (3,005,090
                )BASIC
      AND DILUTED NET LOSS PER COMMON SHARE
                
                $
                (.03
                )
                
                $
                (.06
                )WEIGHTED
      AVERAGE NUMBER OF COMMONSHARES
      OUTSTANDINGBASIC
      AND DILUTED
                
                
                48,500,871
                
                
                
                48,435,429





The
accompanying unaudited notes are an integral part of these
statements




5





TELVUE
CORPORATION AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(UNAUDITED)




Six
      Months Ended June
      30,2009
              
              
              2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
              
              $
              (1,593,373
              )
              
              $
              (3,005,090
              )Adjustments
      to reconcile net loss tonet
      cash (used in) operating activities:Depreciation
      and amortization
              
              
              562,624
              
              
              
              602,890Changes
      in assets and liabilities:Accounts
      receivable - trade
              
              
              (183,405
              )
              
              
              133,192Inventory
              
              
              (65,587
              )
              
              
              (124,882
              )Prepaid
      expenses
              
              
              (24,227
              )
              
              
              (26,502
              )Other
      Assets
              
              
              (1,630
              )
              
              
              -Accounts
      payable - trade
              
              
              150,545
              
              
              
              (433,870
              )Accrued
      expenses
              
              
              (117,447
              )
              
              
              80,849Deferred
      service revenue
              
              
              109,551
              
              
              
              51,807Accrued
      interest – majority stockholder
              
              
              389,030
              
              
              
              486,266NET
      CASH (USED IN) OPERATING ACTIVITIES
              
              
              (773,919
              )
              
              
              (2,235,340
              )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of property and equipment
              
              
              (170,475
              )
              
              
              (207,777
              )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from lines of credit – majoritystockholder
              
              
              750,000
              
              
              
              2,425,000Issuance
      of common stock
              
              
              3,500
              
              
              
              999NET
      CASH PROVIDED BY FINANCING ACTIVITIES
              
              
              753,500
              
              
              
              2,425,999NET
      DECREASE IN CASH AND CASH  EQUIVALENTS
              
              
              (190,894
              )
              
              
              (17,118
              )CASH
      AND CASH EQUIVALENTS,BEGINNING
      OF PERIOD
              
              
              250,698
              
              
              
              225,660CASH
      AND CASH EQUIVALENTS, END OF PERIOD
              
              $
              59,804
              
              
              $
              208,542





The
accompanying unaudited notes are an integral part of these
statements.




6


TELVUE
CORPORATION AND SUBSIDIARY


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





1.  BASIS
OF PRESENTATION





Summary
Financial Information and Results of Operations





In the
opinion of management of TelVue Corporation (“TelVue” or the “Company”), the
accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
and with the regulations of the Securities and Exchange Commission and contain
all adjustments (consisting of only normal recurring adjustments) necessary to
make the financial statements not misleading and to present fairly the financial
condition as of June 30, 2009 and the results of operations for the three and
six months ended June 30, 2009 and 2008 and cash flows for the six months ended
June 30, 2009 and 2008.





Going
Concern and Management’s Plan





The
accompanying financial statements of TelVue have been prepared on the basis of
generally accepted accounting principles applicable to a "going concern," which
assume that the Company will continue in operation for at least one year and
will be able to realize its assets and discharge its liabilities in the normal
course of operations.





Conditions
exist, however, that cast doubt about the Company's ability to continue as a
"going concern."  In order to fund operations, the Company relies on
funds drawn on lines of credit held by the Company with its majority stockholder
who is also a director, H.F. (Gerry) Lenfest.  Based on the Company's
current draw-down rate, the funds remaining in the current lines of credit are
not sufficient to sustain the Company's operations for the next 12 month
period.  Funding the Company's future capital requirements will depend
on numerous factors including, but not limited to, the Company receiving
continued financial support from Mr. Lenfest, which he has not committed to at
this time, or seeking other alternatives.  While management is working
towards mitigating the adverse conditions and events which raise doubt about the
validity of the "going concern" assumption used in preparing these financial
statements, there can be no assurance that management will be
successful.





These
financial statements do not reflect adjustments that would be necessary if the
Company were unable to continue as a "going concern." If the Company were unable
to continue as a "going concern," then substantial adjustments would be
necessary to the carrying values of assets, the reported amounts of its
liabilities, the reported expenses, and the balance sheet classifications
used.





Interim
Financial Information





While
management believes that the disclosures presented are adequate to prevent
misleading information, these unaudited financial statements must be read in
conjunction with the audited financial statements and notes included in TelVue’s
Annual Report on Form 10-K for the year ended December 31, 2008, as filed with
the Securities and Exchange Commission.




7





Prior
period financial statements have been reclassified to conform with current
quarter presentation.





Basis
of Consolidation





The
consolidated financial statements include the accounts of TelVue and Princeton
Server Group, Inc. (“PSG”), which was acquired on March 12, 2007 and was
maintained as a wholly-owned subsidiary until February 28, 2008, on which date
PSG was merged into TelVue.  From the date of the acquisition of PSG
until the merger date, intercompany accounts and transactions were eliminated in
consolidation.  Since the merger date, the accounts of PSG have been
included directly within TelVue’s accounts.





Business
Combination





In
accordance with Statement of Financial Accounting Standards (“SFAS”)
No. 141, "Business Combinations," the Company accounts for all business
combinations by the purchase method.  Furthermore, the Company
recognizes intangible assets apart from goodwill if they arise from contractual
or legal rights or if they are separable from goodwill.





Goodwill,
Trademarks and Other Intangible Assets





In
accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," the
Company classifies intangible assets into three categories: (1) intangible
assets with definite lives subject to amortization, (2) intangible assets
with indefinite lives not subject to amortization, and
(3) goodwill.  The Company tests intangible assets with definite
lives for impairment if conditions exist that indicate the carrying value may
not be recoverable.  Such conditions may include an economic downturn
in a geographic market or a change in the assessment of future
operations.  The Company records an impairment charge when the
carrying value of the definite lived intangible asset is not recoverable by the
cash flows generated from the use of the asset.





Intangible
assets with indefinite lives and goodwill are not amortized.  The
Company tests these intangible assets and goodwill for impairment at least
annually or more frequently if events or circumstances indicate that such
intangible assets or goodwill might be impaired.  All goodwill is
assigned to reporting units, which are one level below TelVue’s operating
segments.  Goodwill is assigned to the reporting unit that benefits
from the synergies arising from each business combination.  The
Company performs impairment tests of goodwill at each reporting unit
level.  Such impairment tests for goodwill include comparing the fair
value of the respective reporting unit with its carrying value, including
goodwill.  When the fair value is less than the carrying value of the
intangible assets or the reporting unit, the Company records an impairment
charge to reduce the carrying value of the assets to fair value.





At
December 31, 2008, management determined that the goodwill acquired with the PSG
acquisition was impaired and an impairment charge of $1,921,405 was
recognized.





The
Company determines the useful lives of its identifiable intangible assets after
considering the specific facts and circumstances related to each intangible
asset.  Factors the Company considers when determining useful lives
include the contractual term of any agreement, the history of the asset, the
Company's long-term strategy for the use of the asset, any laws or other local
regulations which could impact the useful life of the asset, and other economic
factors, including competition and specific market conditions. Intangible assets
that are deemed to have definite lives are amortized, generally on a
straight-line basis, over their useful lives, ranging from 1 to
15 years.




8





Recent
Accounting Pronouncements





In May
2009, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 165,
which provides guidance to establish general standards of accounting for, and
disclosures of, events that occur after the balance sheet date but before
financial statements are issued or are available to be
issued.  Specifically, this standard sets forth the period after the
balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements, and the disclosures that an entity should make about
events or transactions that occurred after the balance sheet
date.  SFAS 165 is effective for interim or annual financial periods
ending after June 15, 2009.  The Company evaluated all events or
transactions that occurred after the balance sheet date of June 30, 2009 through
August 14, 2009, the date it issued these financial statements.  The
adoption of SFAS 165 did not have an impact on our financial position, results
of operations or cash flows, other than the disclosures required by SFAS
165.





2.ACQUISITION





On March
12, 2007, the Company acquired all of the issued and outstanding shares of
capital stock of PSG for a purchase price of $6,100,000 in cash plus the
forgiveness of a $400,000 loan owed by PSG, in addition to the cancellation of a
warrant that was issued in conjunction with the loan.  The acquisition
was funded with funds drawn under a $10,000,000 line of credit held by the
Company with its majority stockholder, Mr. Lenfest.  The Company
accounts for this acquisition as a business combination under the purchase
method of accounting. The results of PSG are included in the Company's TelVue
Products and Services (“TPS”) operating segment.





Upon
closing of the acquisition, the Company made preliminary estimates of the fair
values of the assets and liabilities for consolidation.  The Company
has since obtained a third-party valuation for many of the assets and
liabilities acquired.  There were no material differences between the
preliminary estimates and the final valuations.  The amount of
purchase price allocated to software is $3,600,000, patent applications is
$788,000, other finite-lived intangible assets is $160,000, trademarks is
$397,000 and goodwill is $1,921,405. As was mentioned above, an impairment
charge was recognized related to the goodwill, eliminating this balance as of
December 31, 2008. The trademarks have been assigned an indefinite
life.





The
accompanying financial statements include the operations of PSG since the date
of acquisition.





3.  SUPPLEMENTAL
CASH FLOW INFORMATION





No income
taxes or interest were paid during the six months ended June 30, 2009 or
2008.





4.  EARNINGS
PER COMMON SHARE





Basic
earnings per common share is computed by dividing net income, after deduction of
preferred stock dividends, when applicable, by the weighted average number of
shares of outstanding common stock.  Diluted earnings per common share
is computed by dividing net income, after the deduction of preferred stock
dividends, when applicable, by the weighted average number of shares of
outstanding common stock adjusted to include incremental common shares that
would have been outstanding if potentially dilutive common shares had been
issued. Common equivalent shares are excluded from the computation in periods in
which they have an antidilutive effect.  Because of the net loss
available to common stockholders for the six months ended June 30, 2009 and
2008, no potential common shares were included in the computation of a diluted
per share amount since such potential common shares would not have a dilutive
effect.




9





5.  CORPORATE
INCOME TAXES





The
Company uses the asset and liability method of accounting for income taxes in
accordance with SFAS No. 109, "Accounting for Income Taxes."  SFAS No.
109 requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the financial
statements or tax returns.  Under this method, deferred tax
liabilities and assets are determined based on the differences between the
financial statement carrying amounts and tax bases of assets and liabilities
using enacted tax rates in effect in the years in which the differences are
expected to reverse. Differences between financial reporting and tax bases arise
most frequently from differences in timing of income and expense
recognition.  Deferred income tax expense is measured by the change in
the net deferred income tax asset or liability during the year.





The
provisions for income tax benefit for the six months ended June 30, 2009 and
2008 consisted of the following components:




2009
              
              
              2008CurrentFederal
              
              $
              -
              
              
              $
              -State
              
              
              -
              
              
              
              --
              
              
              
              -DeferredFederal
              
              
              397,000
              
              
              
              974,000State
              
              
              141,000
              
              
              
              263,000538,000
              
              
              
              1,237,000Valuation
      allowance increase
              
              
              (538,000
              )
              
              
              (1,237,000
              )-
              
              
              
              -Total
              
              $
              -
              
              
              $
              -





TelVue
recorded an increase in valuation allowance of $538,000 and $1,237,000 for the
six months ending June 30, 2009 and 2008, respectively, to reduce its deferred
tax asset to zero.  The valuation allowances were recorded due to the
uncertainty as to whether future net income would be generated that would
utilize TelVue’s net operating loss carryforward.  TelVue's federal
net operating loss carryforward was approximately $13,000,000 on a tax-reporting
basis as of June 30, 2009.  The carryforward will begin to expire in
2010, if not utilized.





In June
2006, the FASB issued FASB Interpretation No. 48 “Accounting for Uncertainty in
Income Taxes - An Interpretation of FASB Statement 109” (“FIN
48”).  FIN 48 establishes a single model to address accounting for
uncertain tax positions.  FIN 48 clarifies the accounting for income
taxes by prescribing a minimum recognition threshold a tax position is required
to meet before being recognized in the financial statements. FIN 48 also
provides guidance on derecognition, measurement, classification, interest and
penalties, accounting in interim periods, disclosure and transition. The Company
adopted the provisions of FIN 48 on January 1, 2007.  Upon adoption,
the Company recognized no adjustment in the amount of unrecognized tax benefits.
As of the date of adoption, the Company had no unrecognized tax
benefits.  The Company’s policy is to recognize interest and penalties
that would be assessed in relation to the settlement value of unrecognized tax
benefits as a component of income tax expense.




10





The
Company and its subsidiary are subject to U.S. federal income tax as well as
income tax in multiple state jurisdictions.  The Company is no longer
subject to U.S. federal income tax examinations for years before 2003 and state
income tax examinations before 2002.  However, to the extent allowed
by law, the tax authorities may have the right to examine prior periods where
net operating losses were generated and carried forward, and make adjustments up
to the amount of the net operating loss carryforward amount.  The
Company is not currently under Internal Revenue Service tax
examination.  The Company is not currently under examination by any
state jurisdictions.





6.  NOTES
PAYABLE AND LINES OF CREDIT – MAJORITY STOCKHOLDER





Note
Payable – Majority Stockholder





On June
16, 2005, the members of the Board of Directors of the Company and Mr. Lenfest,
a director and the majority stockholder of the Company, extended the maturity
date of a promissory note in the principal amount of $541,000 issued by the
Company and currently held by Mr. Lenfest (the "Science Note") to January 1,
2011.  The Science Note was originally issued by the Company to
Science Dynamics Corporation ("Science") and was payable December 31,
1996.  In January 1995, Mr. Lenfest purchased the Science Note from
Science.  The Science Note is non-interest bearing.





Line
of Credit (2005 Note) – Majority Stockholder





On April
27, 2005, TelVue entered into a Line of Credit Note with Mr. Lenfest (the ”2005
Note”).  The 2005 Note was secured to provide funding to grow the
TelVue Virtual Television Network (“TVTN”).  Under the terms of the
2005 Note, the Company may borrow, from time to time, up to the maximum
principal amount of the 2005 Note, which is $3,800,000. The minimum advance
under the 2005 Note is $100,000 and the interest rate is equal to the prime rate
plus one percent (1%).  The 2005 Note contains customary events of
default, including, among others, non-payment of principal and interest and in
the event the Company is involved in certain insolvency
proceedings.  In the event of a default, all of the obligations of the
Company under the 2005 Note may be declared immediately due and
payable.  The 2005 Note is unsecured and will expire six years from
the date of the first advance, which is November 23, 2011, unless extended or
renewed.Principal
and interest on the 2005 Note are also due and payable on November 23,
2011.  The 2005 Note was exhausted by the end of 2007.  As
of June 30, 2009, accrued interest due on the 2005 Note was
$812,661.





Line
of Credit (2006 Note) – Majority Stockholder




On
November 3, 2006, the Company entered into an additional Line of Credit Note
with Mr. Lenfest, in the principal amount of $10,000,000 (the “2006
Note”).  Under the 2006 Note, the Company could request up to
$5,000,000 for general working capital and an additional $5,000,000 for purposes
other than general working capital upon mutual agreement by the Company and Mr.
Lenfest. The minimum advance under the 2006 Note is $100,000 and the interest
rate is equal to the prime rate plus one percent (1%).  The 2006 Note
contains customary events of default, including, among others, non-payment of
principal and interest and in the event TelVue is involved in certain insolvency
proceedings.  In the event of a default, all of the obligations of the
Company under the 2006 Note may be declared immediately due and
payable.  The 2006 Note is unsecured and will expire six years from
the date of the first advance under the 2006 Note unless extended or
renewed.  Principal and interest are also due and payable six years
from the date of the first advance under the 2006 Note. As of June 30, 2009, the
Company had borrowed $10,000,000 under the 2006 Note, fully exhausting the 2006
Note.  As of June 30, 2009, accrued interest due on the 2006 Note was
$1,438,596.




11





On
December 26, 2006, TelVue borrowed $400,000 from Mr. Lenfest under the 2006 Note
to loan to PSG to fund their operating expenses (the “PSG Note”).  The
PSG Note was a convertible note that bore interest at a rate of six percent (6%)
per annum.  No payments of principal or interest were due until July
1, 2007.  Under the PSG Note, interest accrued through July 1, 2007
was to be added to the principal.  Interest was payable monthly from
July 1, 2007 through January 1, 2008.  The remaining balance was
payable in forty eight (48) monthly installments of principal and interest
commencing February 1, 2008. The PSG Note was scheduled to mature in January
2012.  The Company had the option to convert the unpaid principal
balance of the PSG Note and all accrued interest into common stock of
PSG.  In connection with the PSG Note, TelVue received a warrant,
which entitled TelVue to purchase 129,629 shares of common stock of PSG for
$1.08 per share. The warrant was to commence on July 1, 2007 and expire on
December 31, 2016.  The PSG Note was forgiven and the warrant was
canceled on March 12, 2007, in connection with TelVue’s acquisition of all of
the outstanding stock of PSG.





On March
12, 2007, PSG was acquired by TelVue for $6,100,000, the forgiveness of the PSG
Note and cancellation of the warrant (described above).  TelVue
borrowed the $6,100,000 from Mr. Lenfest under the 2006 Note to fund the
acquisition.  PSG develops high performance digital video systems,
appliances and software that support capture, storage, manipulation and play-out
of digital media in multiple popular formats.  PSG markets its product
to local Cable TV Public, Education and Government Local Access Channels (“PEG
Channels”) and Local Origination broadcast stations, professional broadcast
stations and schools and universities.  TelVue acquired PSG as a
complement to TVTN with the objective being to offer towns, municipalities and
schools a packaged turnkey product of hardware and software.





Line
of Credit (2007 Note) – Majority Stockholder





As a
result of the anticipated exhaustion of the line of credit under the 2006 Note,
TelVue entered into an additional Line of Credit Note with Mr. Lenfest on
December 21, 2007 in the principal amount of $2,300,000 (the “2007 Note”). The
minimum advance under the 2007 Note is $100,000 and the interest rate is equal
to the prime rate plus one percent (1%).  The 2007 Note contains
customary events of default, including, among others, non-payment of principal
and interest and in the event TelVue is involved in certain insolvency
proceedings.  In the event of a default, all of the obligations of
TelVue under the 2007 Note may be declared immediately due and payable. The 2007
Note is unsecured and will expire six years from the date of the first advance
under the 2007 Note unless extended or renewed.  Principal and
interest on the 2007 Note are also due and payable six years from the date of
the first advance under the 2007 Note.  As of June 30, 2009, TelVue
had borrowed $2,300,000 under the 2007 Note, fully exhausting the 2007
Note.  As of June 30, 2009, accrued interest due on the 2007 Note was
$92,909.





Line
of Credit (2009 Q1 Note) – Majority Stockholder





As a
result of the anticipated exhaustion of the line of credit under the 2007 Note,
TelVue entered into an additional Line of Credit Note with Mr. Lenfest on March
2, 2009 in the principal amount of $400,000 (the “2009 Q1 Note”). The minimum
advance under the 2009 Q1 Note is $100,000 and the interest rate is equal to the
prime rate plus one percent (1%).  The 2009 Q1 Note contains customary
events of default, including, among others, non-payment of principal and
interest and in the event TelVue is involved in certain insolvency
proceedings.  In the event of a default, all of the obligations of
TelVue under the 2009 Q1 Note may be declared immediately due and payable. The
2009 Q1 Note is unsecured and will expire six years from the date of the first
advance under the 2009 Q1 Note unless extended or renewed.  Principal
and interest on the 2009 Q1 Note are also due and payable six years from the
date of the first advance under the 2009 Q1 Note.    As of
June 30, 2009, TelVue had borrowed $400,000 under the 2009 Q1 Note, fully
exhausting the 2009 Q1 Note.  As of June 30, 2009, accrued interest
due on the 2009 Q1 Note was $5,060.




12





Line
of Credit (2009 Q2 Note) – Majority Stockholder





As a
result of the anticipated exhaustion of the line of credit under the 2009 Q1
Note, TelVue entered into an additional Line of Credit Note with Mr. Lenfest on
June 8, 2009 in the principal amount of $500,000 (the “2009 Q2 Note”). The
minimum advance under the 2009 Q2 Note is $100,000 and the interest rate is
equal to the prime rate plus one percent (1%).  The 2009 Q2 Note
contains customary events of default, including, among others, non-payment of
principal and interest and in the event TelVue is involved in certain insolvency
proceedings.  In the event of a default, all of the obligations of
TelVue under the 2009 Q2 Note may be declared immediately due and payable. The
2009 Q2 Note is unsecured and will expire six years from the date of the first
advance under the 2009 Q2 Note unless extended or renewed.  Principal
and interest on the 2009 Q2 Note are also due and payable six years from the
date of the first advance under the 2009 Q2 Note.  As a result of the
exhaustion of the 2009 Q1 Note, TelVue began drawing on the 2009 Q2 Note on June
9, 2009.  As of June 30, 2009, TelVue had borrowed $200,000 under the
2009 Q2 Note, with accrued interest due on the 2009 Q2 Note of
$512.





7.  RELATED
PARTY TRANSACTIONS





See Note
6, included herein, for information of related party transactions between TelVue
and its majority stockholder.





8.
FINANCIAL DATA BUSINESS SEGMENT




Based on
the criteria set forth in SFAS No. 131 “Disclosures about Segments of an
Enterprise and Related Information,” the Company operates two
business segments. The first segment, TPS, includes equipment such as the TelVue
PrincetonTM Server Product Line and services such as WEBUS® and
PEG.TVTM.  The TelVue PrincetonTM Server Product Line includes high
performance digital video systems, servers, and software that support capture,
storage, manipulation and play-out of digital media in multiple popular
formats.  WEBUS® 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.TVTM is a live streaming and
Video-on-Demand service for integrating video on the Internet. The second
segment is a marketing and service division, which sells automatic number
identification (“ANI”) telecommunications services to the cable television
industry.




13





Summarized
financial information by reporting segment as of and for each of the six months
ended June 30, 2009 and 2008, is as follows:




Six
      months ended June 30, 2009
            
            TPS
            
            
            ANI
            
            
            TotalRevenues
            
            $
            1,413,152
            
            
            $
            605,661
            
            
            $
            2,018,813Depreciation
      and amortization
            
            
            474,536
            
            
            
            88,088
            
            
            
            562,624Operating
      income/(loss)
            
            
            (1,424,735
            )
            
            
            220,388
            
            
            
            (1,204,347
            )Interest
      expense-net
            
            
            303,443
            
            
            
            85,583
            
            
            
            389,026Net
      income/(loss)
            
            
            (1,728,178
            )
            
            
            134,805
            
            
            
            (1,593,373
            )Capital
      expenditures
            
            
            170,475
            
            
            
            -
            
            
            
            170,475




Six
      months ended June 30, 2008
              
              TPS
              
              
              ANI
              
              
              TotalRevenues
              
              $
              955,475
              
              
              $
              641,120
              
              
              $
              1,596,595Depreciation
      and amortization
              
              
              525,485
              
              
              
              77,405
              
              
              
              602,890Operating
      income/(loss)
              
              
              (2,739,282
              )
              
              
              220,091
              
              
              
              (2,519,191
              )Interest
      expense-net
              
              
              406,077
              
              
              
              79,822
              
              
              
              485,899Net
      income/(loss)
              
              
              (3,145,359
              )
              
              
              140,269
              
              
              
              (3,005,090
              )Capital
      expenditures
              
              
              207,777
              
              
              
              -
              
              
              
              207,777





ITEM
      2.
            MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS
      OF OPERATIONS





This
Quarterly Report on Form 10-Q contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created thereby.  All
forward-looking statements involve risks and uncertainty, including, without
limitation, the ability of TelVue to obtain sufficient cash to continue its
operations, the ability of TelVue to continue its growth strategy, increases in
costs of labor and employee benefits, general market conditions, competition and
similar matters discussed in TelVue’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2008 and in this Quarterly Report on Form
10-Q.  These forward-looking statements may include declarations
regarding the Company’s belief or current expectations of management, such as
statements including the words “budgeted,” “anticipate,” “project,” “estimate,”
“expect,” “may,” “believe,” “potential” and similar statements are intended to
be among the statements that are forward-looking statements. Because such
statements reflect the reality of risk and uncertainty that is inherent in the
Company’s business, actual results may differ materially from those expressed or
implied by such forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which are made as of the
date this report was filed with the Securities and Exchange
Commission.





Readers
are advised that the Company undertakes no obligation to release publicly any
revisions to the forward-looking statements to reflect events or circumstances
after the date hereof or to reflect unanticipated events or development. To the
extent that the information presented in this Quarterly Report on Form 10-Q for
the quarter ended June 30, 2009 discusses financial projections, information or
expectations about the Company’s products or markets, or otherwise makes
statements about future events, such statements are forward-looking. The Company
is making these forward-looking statements in reliance on the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.





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




14





OVERVIEW
OF COMPANY:





TelVue
Corporation, a Delaware corporation ("TelVue" or the “Company”), was
incorporated 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 PrincetonTM Server Product Line
and services such as WEBUS® and PEG.TVTM.  The TelVue PrincetonTM Server
Product Line includes high performance digital video systems, servers, and
software that support capture, storage, manipulation and play-out of digital
media in multiple popular formats.  WEBUS® 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.TVTM is a live streaming and Video-on-Demand service
for integrating video on the Internet.  The second segment is a
marketing and service division, which sells automatic number identification
(“ANI”) telecommunications services to the cable television
industry.





During
the second quarter of 2008, the Company embarked upon a new branding and sales
re-organization plan.  The new branding consolidated certain of the
Company’s products and services under one name – TPS. The services formerly
referred to as TelVue Virtual Television Network (“TVTN”) collectively are now
referred to as follows:





WEBUS®
            
            Automated
      broadcast digital signage display on TV ChannelWEBUS
      InsideTM
            
            WEBUS®
      integrated within TelVue PrincetonTM ServersPEG.TVTM
            
            Internet
      Streaming and Video-on-Demand ServiceWEBLINXTM
            
            Automated
      WEBUS® message display on websitesVideoActivesTM
            
            Real
      time, dynamic video content for channelsWEB-EM®
            
            Automated
      WEBUS® message display on cell phones and
email





The
products formerly referred to as Princeton Server Group are now known as the
TelVue PrincetonTM Server Product Line.  These products offer 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 PrincetonTM Server Product Line includes, but is
not limited to:





TelVue
      PrincetonTM B100TelVue
      PrincetonTM B1000TelVue
      PrincetonTM B3000TelVue
      PrincetonTM S3000FTelVue
      PrincetonTM C500WTelVue
      PrincetonTM T7400E





This
branding and re-organization effort, backed with a new Company logo, marketing
materials and exhibit materials, was released on July 9, 2008 at a major
industry conference.  Additionally, TelVue’s website was redesigned
and updated to reflect the new branding.  The new website was
completed on November 5, 2008.  This effort provides focus on TelVue’s
primary business as a leading technology provider for hyperlocal broadcasters,
energizes its staff, and better educates the market regarding the many products
and services provided by TelVue.





In the
second quarter of 2009, TelVue introduced a new TelVue PrincetonTM broadcast
server model (B100-IP) with all digital outputs for professional Cable and
Telephone Company (“TelCo”) broadcast markets.  The easy to operate
TelVue PrincetonTM B100-IP model is ideal for these broadcasters, as it allows
for multiple unit deployments across their networks at an affordable price
without the added costs of an encoder.




15





In 2003,
TelVue developed the WEBUS® service.  WEBUS® is a digital signage
system for displaying a fully-automated, TV station-like display on a cable
system access channel using computer-based digital technology.  WEBUS®
displays the programming as graphics, text, imbedded music and pictures with
voice narration and can run full-motion video clips. TelVue is currently
marketing WEBUS® and its other products and services to municipal governments,
K-12 school districts, higher education institutions, cable Multi-System
Operators (“MSOs”), and other broadcasters as a means of providing richer and
more robust TV programming for their local Cable TV Public, Education and
Government Local Access Channels (“PEG Channels”) or Local Origination
channels.  Currently, most municipalities use a simple TV display made
up of only text messages with background music.  TelVue directly
charges the municipalities a start-up and yearly support fee. For some clients,
a sponsorship program helps locate regional and national businesses as sponsors
or underwriters for TelVue clients to help defray TelVue charges.  In
return, the TelVue client places an acknowledgement of the sponsor’s support on
its town or school’s access channel.





TelVue
optionally offers video and graphics production services to its WEBUS® customers
who do not have the capability to produce their own local videos or who desire a
custom look and feel for their channel.  WEBUS® customers also receive
TelVue’s WEBLINXTM plug-in application that transmits a town’s WEBUS® messages
and graphics directly to the town’s website.  If residents do not have
cable TV access, they can easily view messages via the Internet.





In the
second quarter of 2009, TelVue relocated the WEBUS® information technology
infrastructure from its Mt. Laurel, New Jersey office location to TelVue’s
National Data Center at its facility in Philadelphia,
Pennsylvania.  This facility provides significantly increased
bandwidth to the Internet to accommodate WEBUS® service growth, improving the
quality of service to end users.  In addition, the facility provides a
more robust operating environment with additional redundancies and security for
increased service availability.  The relocation of service eliminates
Internet bandwidth usage related to the WEBUS® service at our Mt. Laurel office,
allowing increased bandwidth availability for normal office
productivity.  There were no additional Internet or space costs
associated with the relocation because adequate space and bandwidth was already
in place for TelVue’s PEG.TVTM service infrastructure which has been run out of
this facility.





While
WEBUS® is well suited for broadcast digital signage and bulletin board, the
TelVue PrincetonTM Server Product Line provides digital server and broadcast
automation technology to store, schedule, and playback long-form video during
the local programming time allocated on the channels. TelVue acquired Princeton
Server Group, Inc. (“PSG”) because it believed, and continues to believe, the
TelVue PrincetonTM Server Product Line and WEBUS® together provides a complete
technology and support solution to owners and operators of PEG Channels and
other Local Origination channels.  The PSG acquisition included four
pending patents filed with the U.S. Patent Office.  As a further
integration of the two companies, TelVue introduced WEBUS InsideTM in the first
quarter of 2009, which integrates the WEBUS® bulletin board technology into the
TelVue PrincetonTM broadcast servers on a single hardware platform. A
multi-channel TelVue PrincetonTM video server can run multiple independent WEBUS®
feeds, automatically filling program gaps with community bulletin board and
digital signage. This combination of broadcast digital signage and playback in a
single server offers TelVue a competitive and cost advantage.





As a
complement to the WEBUS® service, TelVue has introduced VideoActivesTM, which are
real-time, data-driven, on-air graphics such as local weather, local traffic,
headline news, financial market indices, sports, quotes of the day and trivia
questions.  VideoActivesTM are designed to enhance the presentation of
the channels with dynamic and local content driven automatically by live data
feeds.




16





During
the second quarter of 2008, TelVue introduced another new service,
PEG.TVTM.  This Internet streaming and video-on-demand service provides
operators of PEG Channels the opportunity to stream their channel live on the
Internet and/or to place selected video content on an Internet-based “player” on
their website.  PEG.TVTM gives a town, school, or other organization
complete control and branding of their web video content. TelVue introduced a
new PEG.TVTM feature in the first quarter of 2009 that allows customers to index
their videos. For example, customers can add Agenda Chapter points and related
information to long town council meetings. This service, along with other
products and services, demonstrates TelVue’s initiative to provide comprehensive
and industry-leading solutions to its marketplace for both traditional
television broadcast over cable, Digital TV, and satellite as well as modern
Internet video delivery.





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.  This original equipment manufacturer (“OEM”) sales
strategy is expected to complement the Company’s reseller network and provide
additional growth opportunities leveraging the Company’s OEM partner’s strong
distribution channel and brand.





In the
second quarter of 2009, TelVue expanded its PEG.TVTM Internet live streaming and
Video-on-Demand service to support additional popular media
formats.  Live streaming now supports the Flash® video format, and
Video-on-Demand now supports the MPEG-4 Advanced Video Codec
format.  These enhancements increase PEG.TVTM compatibility with
industry standard tools for creating web video and existing web video libraries
that organizations may have already created.  Live Flash®video support leverages
the wide deployment base of the Flash®player, allowing most
end users to avoid installing additional software plug-ins, whether on a Mac or
PC, to view PEG.TVTM content.





The
WEB-EM® technology enables local management officials to send messages to
residents over cell phones and email.  This four-in-one technology
provides simultaneous phone, email, website and television
notification.  While TelVue still maintains the WEB-EM® technology,
the Company is not actively marketing it to customers due to soft initial sales,
in addition to increased competition from companies focusing solely on the text
messaging market.





To expand
its sales reach, TelVue commenced a change in sales strategy to incorporate a
third-party reseller network distribution method.  This method
broadens TelVue’s sales reach by employing both locally-based and
nationally-based resellers to create sales opportunities, supported by TelVue’s
internal sales staff, which should increase sales while reducing and delaying
some sales expenses until a sale is consummated.  This change in
strategy resulted in a restructuring of TelVue’s sales department, significantly
reducing direct sales staff and management.  To date, 13 resellers
have been contracted.  Many are still in the training and orientation
process. 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 the
Company’s new resellers.





To
support ongoing corporate sales initiatives, TelVue has instituted several new
marketing programs in the second quarter of 2009.  Targeted email
campaigns have been launched to a variety of relevant vertical market segments,
including PEG Channels, K-20 media centers, TelCos, Pro Broadcast, Cable/MSO and
House of Worship.  A higher frequency and regularity of press releases
has stimulated additional customer, industry and investor
awareness.  New corporate and product marketing videos have been
introduced on the TelVue website.




17





2008
Revenue and Business Model Refocus





There was
a decrease in 2008 TelVue PrincetonTM Server Product Line sales and revenues as
well as a decrease in new WEBUS® subscriptions compared to 2007 that were
largely attributed to the sponsorship business model approach that dominated the
second half of 2007 and first half of 2008. TelVue’s original TVTN business
model relied on providing bulletin board and playback equipment to municipal
access channels for no or low cost in exchange for the ability to broker
PBS-like underwriting and deliver sponsored content on the
channels.  With thousands of PEG Channels across the United States,
this sponsorship and content driven model had the potential to aggregate
municipal access channels into the largest television network in the
world.  One of TelVue’s primary reasons for acquiring PSG was to gain
access to a long form programming storage and playback platform that could help
realize the sponsorship business model while also providing owner economics and
consolidation of the core broadcast technologies required. Despite early success
selling the sponsorship model, this model did not scale for the Company
primarily due to the challenges of increasing sponsor sales to offset the costs
of providing the technology. Regional and national sponsor sales were not
successful due to the fact that contiguous Designated Market Area (“DMA”)
coverage often expected in traditional television markets could not be
guaranteed and precise PEG Channel viewership statistics are not available as
they are on commercial television channels. Hyperlocal sponsor sales required a
strong local presence and without consistent market coverage in a given region,
the costs for a local presence simply did not scale. Additionally, many access
stations resisted the idea of allowing a third party company to participate in
programming and sponsor decisions on the channel, despite the many mutually
positive benefits. The Company believes the focus on the sponsor model caused a
negative market reaction to the Company’s products in 2008, including the TelVue
PrincetonTM Server Product Line that had conversely seen growth from 2006 to
2007.





In the
second half of 2008, the Company reacted to the market feedback and re-focused
the business on the Company’s technology, products, and services strengths.
TelVue was re-branded by merging the TVTN WEBUS® technology and PSG technology
under one consistent brand, image, and sales model.  TelVue now sells
its products and services without sponsorship to empower hyperlocal channels to
improve quality, streamline operations, and future-proof with modern
technologies. Although the business model changes naturally impacted 2008
performance, the Company is optimistic that the refocusing back to its core
strengths as a broadcast technology company has been successful. The marketplace
has already reacted favorably, and coupled with the Company’s new reseller
strategy, TelVue has experienced returned growth in 2009. Additionally, with a
restructuring in 2008 largely to eliminate positions that no longer were a fit
with the Company’s new focus, the Company has significantly improved its cost
structure.TelVue’s
first and second quarter 2009 results corroborate these positive changes and
include a 26% overall increase in revenues, a 48% increase in TPS segment
revenues, a 91% increase in new sales orders, and a 26% decrease in operational
expenses, all compared to the same period 2008.  These positive trends
also significantly reduced the amount of funds the Company was required to draw
from its lines of credit as noted in the statement of cash
flows.  Also in the second quarter of 2009, TelVue surpassed 500 local
broadcast station TPS customers world-wide, with a majority in the United
States.





TelVue’s
second and legacy business segment is the marketing and service company which
sells automatic number identification (“ANI”) telecommunications services to the
cable and satellite television industry for the automated ordering of
pay-per-view features and events (the “ANI service”).  The ANI service
permits cable and satellite television companies to process special ordering
services without the attendant, high manpower requirements, or extensive
physical plant and facilities that are otherwise required.  TelVue
provides the ANI service through the equipment it purchases.  TelVue’s
equipment for providing the ANI service nationwide is located at TelVue’s home
office in Mount Laurel, New Jersey.  TelVue serves cable television
systems across the United States via trunk lines and data circuits that it
currently leases from Verizon.  TelVue believes it receives a
favorable trunk usage rate from Verizon. As noted below, TelVue expects
continued loss of its subscriber base for the ANI service as digital,
interactive two-way services are offered by cable, satellite, and broadband
service providers for Video-on-Demand.




18





CRITICAL
ACCOUNTING POLICIES




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




Use of
Estimates





The
Company’s discussion and analysis of its financial condition and results of
operations are based upon TelVue’s consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States.  The preparation of these consolidated financial
statements requires TelVue to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosures of contingent assets and liabilities.  On an ongoing
basis, the Company evaluates estimates, including those related to impairment of
long-lived assets and allowance for doubtful accounts.  The Company
bases estimates on historical experience and on various other assumptions that
are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources.  Actual
results may differ from these estimates under different assumptions or
conditions; however, the Company believes that its estimates, including those
for the above-described items, are reasonable.




Areas
that require estimates and assumptions include valuation of accounts receivable
and inventory, determination of useful lives of property and equipment,
estimation of certain liabilities and sales returns.





Goodwill
and Other Intangibles





Goodwill
and other intangibles are reviewed for impairment annually, or more frequently
if impairment indicators arise.  Goodwill is required to be tested for
impairment between the annual tests if an event occurs or circumstances change
that more-likely-than-not reduce the fair value of a reporting unit below its
carrying value.  As of December 31, 2008, based on concerns over
TelVue’s net loss and negative cash flow, uncertainty regarding future cash
flows and uncertainty whether the current carrying value of the Goodwill related
to the PSG acquisition will be recovered by future cash flows, management
determined that the carrying value of this Goodwill was impaired, and the
Company recorded a $1,921,405 charge to write off this Goodwill.  As a
result, the net loss for 2008 was increased by this amount to
$7,545,259.  Had management not made this subjective determination,
the Company would not have recorded this charge.




19





Revenue
Recognition





In
accordance with accounting principles generally accepted in the United States,
TelVue recognizes revenues related to its TelVue PrincetonTM Server Product Line
upon shipment of the equipment to customers.  Revenues related to
TelVue’s WEBUS® and PEG.TVTM 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 provisions of Statement of Financial Accounting Standards No. 123R,
“Share-Based Payment.”  The Company uses a Black-Scholes
option-pricing valuation model which requires the input of highly subjective
assumptions.  These assumptions include estimating the length of time
employees will retain their vested stock options before exercising them
(“expected term”), the estimated volatility of TelVue’s common stock price over
the expected term and the number of options that will ultimately not complete
their vesting requirements.  Changes in the subjective assumptions can
materially affect the estimate of fair value of stock-based
compensation.





The above
listing is not intended to be a comprehensive list of all the Company’s
accounting policies.  In many cases, the accounting treatment of a
particular transaction is specifically dictated by generally accepted accounting
principles, with no need for management’s judgment in their
application.  See TelVue’s audited financial statements and related
notes included in its Annual Report on Form 10-K for December 31, 2008, which
contains accounting policies and other disclosures required by accounting
principles generally accepted in the United States.





RESULTS
OF OPERATIONS:





Beginning
in January 2008, TelVue began a weighted allocation of all compensation, general
and administrative, interest and amortization expenses between its ANI segment
and TPS segment.  Previously, only a minimal amount of expenses were
allocated between business segments.





During
2008, TelVue conducted two separate reductions in
workforce.  Combined, they involved the elimination of 14 full-time
positions and resulted in net expense savings of approximately $550,000 for the
calendar year 2008, which was recognized across all departments and business
segments.





In March
2009, TelVue conducted an additional reduction in workforce, involving the
elimination of 5 full-time positions, with a combined salary of
$359,000.





The
following discussion deals with the increase in operating income for the three
and six months ended June 30, 2009, compared to the three and six months ended
June 30, 2008, and the reasons for the increases. TelVue further discusses the
continued loss of its subscriber base for the ANI service, when comparing the
six months ended June 30, 2009 to the six months ended June 30,
2008.  TelVue also discusses the marketing of its TPS segment and the
changes in TPS revenues and expenses.




20





Three
      Months EndedJune
      30,
            
            
            June
      30,
            
            
            $
      Change
            
            
            %
      Change2009
            
            
            2008
            
            
            Fav/(Unfav)
            
            
            Fav/(Unfav)RevenuesTPS
      services
            
            $
            786,837
            
            
            $
            505,975
            
            
            $
            280,862
            
            
            
            55.5
            %ANI
      services
            
            
            308,231
            
            
            
            334,763
            
            
            
            (26,532
            )
            
            
            -7.9
            %Cost
      of RevenuesTPS
      services
            
            
            359,440
            
            
            
            334,262
            
            
            
            (25,178
            )
            
            
            -7.5
            %ANI
      services
            
            
            82,424
            
            
            
            125,713
            
            
            
            43,289
            
            
            
            34.4
            %Operating
      ExpensesSelling
      and marketing
            
            
            280,950
            
            
            
            479,543
            
            
            
            198,593
            
            
            
            41.4
            %General
      and administrative
            
            
            600,198
            
            
            
            791,259
            
            
            
            191,061
            
            
            
            24.1
            %Depreciation
      and amortization
            
            
            277,673
            
            
            
            304,744
            
            
            
            27,071
            
            
            
            8.9
            %Operating
      Loss
            
            $
            (505,617
            )
            
            $
            (1,194,783
            )
            
            $
            689,166
            
            
            
            57.7
            %Other
      Income (Expense)
            
            $
            (198,814
            )
            
            $
            (230,686
            )
            
            $
            31,872
            
            
            
            13.8
            %Net
      Loss
            
            $
            (704,431
            )
            
            $
            (1,425,469
            )
            
            $
            721,038
            
            
            
            50.6
            %




Six
      Months EndedJune
      30,
            
            
            June
      30,
            
            
            $
      Change
            
            
            %
      Change2009
            
            
            2008
            
            
            Fav/(Unfav)
            
            
            Fav/(Unfav)RevenuesTPS
      services
            
            $
            1,413,152
            
            
            $
            955,475
            
            
            $
            457,677
            
            
            
            47.9
            %ANI
      services
            
            
            605,661
            
            
            
            641,120
            
            
            
            (35,459
            )
            
            
            -5.5
            %Cost
      of RevenuesTPS
      services
            
            
            695,268
            
            
            
            728,331
            
            
            
            33,063
            
            
            
            4.5
            %ANI
      services
            
            
            177,766
            
            
            
            211,266
            
            
            
            33,500
            
            
            
            15.9
            %Operating
      ExpensesSelling
      and marketing
            
            
            514,552
            
            
            
            928,884
            
            
            
            414,332
            
            
            
            44.6
            %General
      and administrative
            
            
            1,272,950
            
            
            
            1,644,415
            
            
            
            371,465
            
            
            
            22.6
            %Depreciation
      and amortization
            
            
            562,624
            
            
            
            602,890
            
            
            
            40,266
            
            
            
            6.7
            %Operating
      Loss
            
            $
            (1,204,347
            )
            
            $
            (2,519,191
            )
            
            $
            1,314,844
            
            
            
            52.2
            %Other
      Income (Expense)
            
            $
            (389,026
            )
            
            $
            (485,899
            )
            
            $
            96,873
            
            
            
            19.9
            %Net
      Loss
            
            $
            (1,593,373
            )
            
            $
            (3,005,090
            )
            
            $
            1,411,717
            
            
            
            47.0
            %








The TPS
segment had an operating loss of $626,020 and $1,424,735 for the three and six
months ended June 30, 2009, respectively, compared to operating losses of
$1,300,955 and $2,739,282 for the three and six months ended June 30, 2008
primarily due to 56% and 48% increases in TPS segment revenues for the three and
six month periods, respectively, in addition to savings related to the
aforementioned reduction in workforce.  The ANI segment had operating
income of $120,403 and $220,388 for the three and six months ended June 30,
2009, respectively, compared to $106,172 and $220,091 for the three and six
months ended June 30, 2008. The increases in operating income for the ANI
segment were primarily a result of savings related to the reduction in
workforce, offset by a change in the allocation of expenses whereby a slightly
higher percentage of expenses were allocated to the ANI segment than in 2008.
Declines in revenue related to the continued loss of subscribers also offset
some of the increases in operating income.




21





Revenues





TPS
revenues increased $280,862 and $457,677 for the three and six months ended June
30, 2009, compared to the same period of 2008. The majority of the revenue
increases were attributed to an increase in TelVue PrincetonTM Server Product
Line sales, in addition to an increase in consulting revenue related to
technical consulting services TelVue provides to specific
customers.  These increases were offset by declines in sponsorship
revenue due to the previously mentioned change in direction of TelVue moving
away from a sponsorship driven sales model.





TPS
segment sales orders increased by 91% for the six months ended June 30, 2009
compared to the same six months in 2008. The increased sales orders included
complete system sales to a number of larger cities as well as significant
multi-server orders received in two new vertical markets, Cable Leased Access,
and Professional Broadcasting.  The Company’s TelVue PrincetonTM
products provide MSOs, that must run Leased Access channels, a way to unify
equipment and reduce operation costs through centralization.  TelVue’s
cost-effective TelVue PrincetonTM B100 model is the heart of the Company’s
Edgecasting for Professional Broadcasters that allows content providers who
traditionally broadcast to multiple head-ends over 24x7 satellite feeds to
instead deliver content over the Internet to edge video
servers.  Edgecasting allows distribution cost savings and the ability
to further localize content regionally, especially important for ad
networks.





ANI
service revenues decreased $26,532 and $35,459 for the three and six months
ended June 30, 2009, respectively, when compared to the same periods of
2008.  As expected, pay-per-view buy revenue decreased $4,891 and
$12,336 for the three and six months ended June 30, 2009, and pay-per-view plus
revenue decreased $9,662 and $22,445 for the three and six months ended June 30,
2009 when compared to the same periods of 2008.  These decreases were
mainly due to a reduction in the number of subscribers served during this period
when compared to 2008 (as discussed below).  These declines were
offset by increases of $3,594 and $11,212 in program number revenue for the
three and six months ended June 30, 2009, when compared to the same periods in
2008.  TelVue believes there is a loss of focus by cable operators on
the pay-per-view product line, primarily because of the amount of time cable
operators are spending on promoting new product lines such as digital service
and high-speed Internet access.





As of
June 30, 2009, TelVue was serving approximately 4.0 million full-time cable
subscribers compared to approximately 4.5 million full-time cable subscribers
served as of June 30, 2008.  Cable operators cancelled the ANI service
primarily as a result of moving their subscribers onto two-way digital service,
which allows the cable operator to process ordering of pay-per-view movies and
events directly from its customers without using TelVue's ANI service.
Management believes the long-term effects of deployment of digital two-way
service will continue to negatively impact the TelVue ANI service.  As
a result of the cable and satellite subscriber cancellations noted above, TelVue
expects to continue to experience a decrease in its revenues and operating
income indefinitely for its ANI segment.





Cost of
Revenues





Cost of
revenues for the TPS segment increased $25,178 for the three months ended June
30, 2009, when compared to the same period of 2008, primarily as a result
of the cost of sales related to consulting revenue, offset by savings in
compensation related to the reductions in workforce. For the six months ended
June 30, 2009, cost of revenues for the TPS segment decreased $33,063, when
compared to the same period of 2008, primarily due to savings in compensation
related to the reductions in workforce, offset by an increase in the cost of
sales related to the consulting revenue.




22





ANI cost
of revenues decreased $43,289 and $33,500 for the three and six months ended
June 30, 2009, when compared to the same period of 2008. These decreases
were primarily due to a decrease in expenses related to telephone trunk lines
used for the ANI service.





Selling
and Marketing Expenses





Selling
expenses related to the TPS segment decreased $190,433 and $398,649 for the
three and six months ended June 30, 2009, when compared to the same period of
2008. These decreases were attributed to the previously discussed reduction
in workforce, in addition to savings in consulting expenses related to the
elimination of outside sales and marketing consultants.





Selling
expenses related to the ANI service decreased $8,160 and $15,683 for the three
and six months ended June 30, 2009 when compared to the same period of
2008.  These decreases were primarily the result of savings in
compensation related to the reduction in workforce.





General
and Administrative Expenses





TPS
general and administrative expenses decreased $195,610 and $374,209 for the
three and six months ended June 30, 2009 when compared to the same period of
2008. These decreases were related to the reduction in workforce, combined
with savings in outside consulting expenses and lower recruitment expense in
2009 compared to 2008. These savings were offset by higher bad debt expense
related to an increase in the bad debt reserve discussed below.





ANI
segment general and administrative expenses increased $4,549 and $2,744 for the
three and six months ended June 30, 2009, when compared to the same period of
2008, primarily a result of the previously mentioned change in allocation
percentages, where a higher percentage of expenses are being allocated to the
ANI segment, in addition to an increase in bad debt expense related to an
increase in the bad debt reserve discussed below.  These increases
were offset by savings related to the reduction in workforce.





Depreciation
and Amortization





TelVue
purchased $83,154 and $170,475 of equipment during the three and six months
ended June 30, 2009 compared to $81,108 and $207,777 purchased during the three
and six months ended June 30, 2008. The majority of the equipment purchased
during the three and six months ended June 30, 2009 and 2008 was for software
development and equipment related to the TPS segment. Depreciation and
amortization expense decreased $27,071 and $40,266 for the three and six months
ended June 30, 2009 when compared to the three and six months ended June 30,
2008, as a result of fewer capital purchases, in addition to declining
amortization expense related to the PSG intangible assets. Depreciation and
amortization accounted for 24% of total operating expenses for both the three
and six months ended June 30, 2009.





Other
Income/(Expense)





Interest
expenses related to TelVue’s Lines of Credit decreased $31,934 and $97,236 for
the three and six months ended June 30, 2009, when compared to the same period
of 2008. This was the result of a favorable reduction in the prime lending
rate.  The prime rate was 3.25% for 2009, whereas it ranged from 5.00%
to 7.25% during the first six months of 2008.  The interest expense is
calculated at the prime lending rate plus one percent (1%).




23




Net
Loss





TelVue
had net losses of $704,431 and $1,593,373 for the three and six months ended
June 30, 2009, compared to net losses of $1,425,469 and $3,005,090 for the three
and six months ended June 30, 2008, primarily due to an increase in products and
service revenues when compared to 2008, in addition to savings in compensation
related to the previously mentioned reductions in workforce.





Income
Taxes





For the
six months ended June 30, 2009 and 2008, TelVue recorded valuation allowance
increases of $538,000 and $1,237,000, respectively, to reduce its deferred tax
asset to zero. The valuation allowances were recorded due to the uncertainty as
to whether future net income would be generated that would utilize TelVue's net
operating loss carryforward.  TelVue's federal net operating loss
carryforward was approximately $13,000,000 on a tax-reporting basis as of June
30, 2009 (see Note 5 of the accompanying financial statements).





As of
June 30, 2009, TelVue maintained a bad debt reserve in the amount of $69,752,
compared to a reserve of $5,035 as of June 30, 2008.  The reserve was
calculated based on the estimate that 1.0% of outstanding receivables would not
be collected, as well as the addition of two specific reserves as described
below.  First, one of TelVue’s resellers went out of business and is
currently in the process of liquidating its assets.  While TelVue
ultimately expects to be paid, a bad debt reserve of $53,704 was established,
which is 100% of the outstanding balance due from the
reseller.  Second, one of the cable operators using TelVue’s ANI
service declared bankruptcy and is currently restructuring.  Since a
bankruptcy settlement valuation has not yet been finalized, TelVue
conservatively reserved 100% of the outstanding balance due on invoices prior to
the bankruptcy date, which amounts to $8,534.





TelVue's
days for sales in average accounts receivable was 62 days at June 30, 2009,
compared to 53 days at June 30, 2008. TelVue does not offer incentives or
discounts to its customers, nor has it changed its credit terms with its
customers for its ANI services.  A 2% cash, 1% net 15 days discount is
offered by TelVue for payments related to equipment purchases.  TelVue
had negative cash flow from operating activities of $773,919 for the six months
ended June 30, 2009, compared to negative cash flow from operating activities of
$2,235,340 for the six months ended June 30, 2008.  The increase in
cash flow compared to 2008 was primarily due to increases in TPS revenue and a
decrease in operating expenses across both business segments (as described
above).





LIQUIDITY
AND CAPITAL RESOURCES:





Going
Concern and Management’s Plan





The
accompanying financial statements of TelVue have been prepared on the basis of
generally accepted accounting principles applicable to a “going concern,” which
assume that TelVue will continue in operation for at least one year and will be
able to realize its assets and discharge its liabilities in the normal course of
operations.





Conditions
exist, however, that cast doubt about TelVue’s ability to continue as a “going
concern.”  In order to fund operations, TelVue relies on funds drawn
on lines of credit provided by its majority stockholder and director of the
Company, H.F. (Gerry) Lenfest.  Based on TelVue’s current draw-down
rate, the funds remaining in the current lines of credit are not sufficient to
sustain TelVue’s operations for the next 12 month period.  Funding
TelVue’s future capital requirements will depend on numerous factors including,
but not limited to, TelVue receiving continued financial support from Mr.
Lenfest, which he has not committed to at this time, or seeking other
alternatives.  While management is working toward mitigating the
adverse conditions and events which raise doubt about the validity of the “going
concern” assumption used in preparing the accompanying financial statements,
there can be no assurances that management will be successful.




24





The
accompanying financial statements do not reflect adjustments that would be
necessary if TelVue were unable to continue as a “going concern.”  If
TelVue were unable to continue as a “going concern,” then substantial
adjustments would be necessary to the carrying value of assets, the reported
amounts of its liabilities, the reported expenses, and the balance sheet
classifications used.





Funding





Since
November 2, 1989, TelVue has funded its expansion and operating deficit from the
proceeds of the sale of shares of TelVue's common stock and Preferred Stock (as
defined below) to Mr. Lenfest and from loans from Mr. Lenfest.





During
January 1995, Mr. Lenfest purchased from Science Dynamics Corporation
("Science"), TelVue's non-interest bearing note in the amount of $541,000 (the
"Science Note"). The Science Note was originally issued by TelVue to Science and
was payable December 31, 1996.  The maturity date of the Science Note
had been extended by TelVue and Mr. Lenfest on a yearly basis.  On
June 16, 2005, the members of the Board of Directors of TelVue and Mr. Lenfest
extended the maturity date of the Science Note to January 1, 2011.





On April
27, 2005, TelVue entered into a Line of Credit Note with Mr. Lenfest (the ”2005
Note”).  The 2005 Note was secured to provide funding to grow
TVTN.  Under the terms of the 2005 Note, the Company may borrow, from
time to time, up to the maximum principal amount of the 2005 Note, which is
$3,800,000. The minimum advance under the 2005 Note is $100,000 and the interest
rate is equal to the prime rate plus one percent (1%).  The 2005 Note
contains customary events of default, including, among others, non-payment of
principal and interest and in the event the Company is involved in certain
insolvency proceedings.  In the event of a default, all of the
obligations of the Company under the 2005 Note may be declared immediately due
and payable.  The 2005 Note is unsecured and will expire six years
from the date of the first advance, which is November 23, 2011, unless extended
or renewed.Principal and interest
on the 2005 Note are also due and payable on November 23, 2011.  The
2005 Note was exhausted by the end of 2007.  As of June 30, 2009,
accrued interest due on the 2005 Note was $812,661.





As a
result of the anticipated exhaustion of the credit under the 2005 Note, TelVue
entered into an additional Line of Credit Note with Mr. Lenfest on November 3,
2006, in the principal amount of $10,000,000 (the “2006 Note”).  Under
the 2006 Note, TelVue may request up to $5,000,000 for general working capital.
TelVue may request up to an additional $5,000,000 available under the 2006 Note
for purposes other than general working capital upon mutual agreement by TelVue
and Mr. Lenfest. The minimum advance under the 2006 Note is $100,000 and the
interest rate on the 2006 Note is equal to the prime rate plus one percent (1%).
The 2006 Note contains customary events of default, including, among others,
non-payment of principal and interest and in the event TelVue is involved in
certain insolvency proceedings.  In the event of a default, all of the
obligations of TelVue under the 2006 Note may be declared immediately due and
payable. The 2006 Note is unsecured and will expire six years from the date of
the first advance under the 2006 Note unless extended or renewed. Principal and
interest on the 2006 Note are also due and payable six years from the date of
the first advance under the 2006 Note.  As of June 30, 2009, the
Company had borrowed $10,000,000 under the 2006 Note, fully exhausting the 2006
Note.  As of June 30, 2009, accrued interest due on the 2006 Note was
$1,438,596.





As a
result of the anticipated exhaustion of the line of credit under the 2006 Note,
TelVue entered into an additional Line of Credit Note with Mr. Lenfest on
December 21, 2007, in the principal amount of $2,300,000 (the “2007 Note”). The
minimum advance under the 2007 Note is $100,000 and the interest rate is equal
to the prime rate plus one percent (1%).  The 2007 Note contains
customary events of default, including, among others, non-payment of principal
and interest and in the event TelVue is involved in certain insolvency
proceedings.  In the event of a default, all of the obligations of
TelVue under the 2007 Note may be declared immediately due and payable. The 2007
Note is unsecured and will expire six years from the date of the first advance
under the 2007 Note unless extended or renewed.  Principal and
interest on the 2007 Note are also due and payable six years from the date of
the first advance under the 2007 Note. As of June 30, 2009, TelVue had borrowed
$2,300,000 under the 2007 Note, fully exhausting the 2007 Note.  As of
June 30, 2009, accrued interest due on the 2007 Note was $92,909.




25





As a
result of the anticipated exhaustion of the line of credit under the 2007 Note,
TelVue entered into an additional Line of Credit Note with Mr. Lenfest on March
2, 2009, in the principal amount of $400,000 (the “2009 Q1 Note”). The minimum
advance under the 2009 Q1 Note is $100,000 and the interest rate is equal to the
prime rate plus one percent (1%).  The 2009 Q1 Note contains customary
events of default, including, among others, non-payment of principal and
interest and in the event TelVue is involved in certain insolvency
proceedings.  In the event of a default, all of the obligations of
TelVue under the 2009 Q1 Note may be declared immediately due and payable. The
2009 Q1 Note is unsecured and will expire six years from the date of the first
advance under the 2009 Q1 Note unless extended or renewed.  Principal
and interest on the 2009 Q1 Note are also due and payable six years from the
date of the first advance under the 2009 Q1 Note.  As of June 30,
2009, TelVue had borrowed $400,000 under the 2009 Q1 Note, fully exhausting the
2009 Q1 Note.  As of June 30, 2009, accrued interest due on the 2009
Q1 Note was $5,060.





As a
result of the anticipated exhaustion of the line of credit under the 2009 Q1
Note, TelVue entered into an additional Line of Credit Note with Mr. Lenfest on
June 8, 2009 in the principal amount of $500,000 (the “2009 Q2 Note”). The
minimum advance under the 2009 Q2 Note is $100,000 and the interest rate is
equal to the prime rate plus one percent (1%).  The 2009 Q2 Note
contains customary events of default, including, among others, non-payment of
principal and interest and in the event TelVue is involved in certain insolvency
proceedings.  In the event of a default, all of the obligations of
TelVue under the 2009 Q2 Note may be declared immediately due and payable. The
2009 Q2 Note is unsecured and will expire six years from the date of the first
advance under the 2009 Q2 Note unless extended or renewed.  Principal
and interest on the 2009 Q2 Note are also due and payable six years from the
date of the first advance under the 2009 Q2 Note.  As a result of the
exhaustion of the 2009 Q1 Note, TelVue began drawing on the 2009 Q2 Note on June
9, 2009.  As of June 30, 2009, TelVue had borrowed $200,000 under the
2009 Q2 Note, with accrued interest due on the 2009 Q2 Note of
$512.





On
December 26, 2006, TelVue borrowed $400,000 from Mr. Lenfest under the 2006 Note
to loan to PSG to fund their operating expenses (the “PSG Note”).  The
PSG Note was a convertible note that bore interest at a rate of six percent (6%)
per annum.  No payments of principal or interest were due until July
1, 2007. Under the PSG Note, interest accrued through July 1, 2007 was to be
added to the principal. Interest was payable monthly from July 1, 2007 through
January 1, 2008. The remaining balance was payable in forty eight (48) monthly
installments of principal and interest commencing February 1, 2008. The PSG Note
was scheduled to mature in January 2012. TelVue had the option to convert the
unpaid principal balance of the note and all accrued interest into common stock
of PSG.  In connection with the PSG Note, TelVue received a warrant,
which entitled TelVue to purchase 129,629 shares of common stock of PSG for
$1.08 per share.  The warrant was to commence on July 1, 2007 and
expire on December 31, 2016.  The PSG Note was forgiven and the
warrant was canceled on March 12, 2007, in connection with TelVue’s acquisition
of all of the outstanding stock of PSG.





On March
12, 2007, PSG was acquired by TelVue for $6.1 million and the forgiveness of the
PSG Note (described above).  TelVue borrowed $6.1 million from Mr.
Lenfest under the 2006 Note.  PSG develops high performance digital
video systems, appliances and software that support capture, storage,
manipulation and play-out of digital media in multiple popular
formats.  PSG markets their product to PEG TV and local origination
broadcast stations, professional broadcast stations and schools and
universities.  TelVue acquired PSG as a complement to its TVTN Network
with the objective being to offer towns, municipalities and schools a packaged
turnkey product of hardware and software.




26





On June
16, 2005, Mr. Lenfest, the holder of all of TelVue's outstanding Class A
Redeemable Convertible Preferred Stock (the "Preferred Stock"), informed TelVue
of his intent to convert all of his 3,518,694 shares of Preferred Stock into
TelVue's common stock. Each share of Preferred Stock was convertible into 6.667
shares of common stock.  The conversion of the Preferred Stock to
common stock occurred on August 2, 2005, upon Mr. Lenfest's delivery of the
Preferred Stock in the form of a lost certificate affidavit. As a result of the
conversion, TelVue issued 23,459,133 shares of common stock to Mr.
Lenfest.  Mr. Lenfest's beneficial ownership interest in the common
stock of TelVue, after the cancellation of the warrants to purchase common stock
described below, was approximately 78.5 percent as of December 31,
2007.  The Preferred Stock was eliminated and is included as
23,459,133 shares of common stock in the stockholders' equity section of the
balance sheet.  On August 21, 2006, the Board of Directors, with Mr.
Lenfest abstaining from the action, waived the two year holding period required
to receive the full voting power of ten votes per share for the 23,459,133
shares of common stock Mr. Lenfest received for the conversion of his Preferred
Stock.





The
Preferred Stock had a par value of $1 per share and provided for a cumulative
six percent (6%) semiannual dividend.  The dividend was payable in
cash or additional shares of Preferred Stock at $1 per share, at TelVue's
option. TelVue had accrued dividends on the Preferred Stock since the beginning
of 1998, but no dividends had been paid.  On June 16, 2005, Mr.
Lenfest agreed to relinquish his right to all accrued but unpaid dividends
attributable to the Preferred Stock. Therefore, $3,061,269 of accrued dividends
was reversed and is included in stockholders' equity as a decrease to TelVue's
accumulated deficit.





On June
16, 2005, the members of the Board of Directors of TelVue and Mr. Lenfest agreed
to terminate a Warrant Agreement between Mr. Lenfest and TelVue. Pursuant to the
Warrant Agreement, Mr. Lenfest had the right to purchase up to 29,915,160 shares
of TelVue's common stock for $.01 per share, the fair market value of the common
stock on the grant date.   The Warrant Agreement was entered into
on March 15, 1991, in connection with a prior line of credit to TelVue provided
by Mr. Lenfest.





TelVue's
ability to fully fund its operating expenses has suffered by the loss of a large
number of its subscriber base for the ANI service.  As discussed
above, TelVue anticipates a continued decrease in revenue and an increase in net
loss for the ANI service.  In order to continue to fund a majority of
its ANI operating expenses, TelVue needs to retain its current subscriber base
level. Management believes that over time, continued erosion will occur in the
subscriber base.  During the six months ended June 30, 2009, TelVue
had 161,000 full and part-time subscribers cancel service and no new subscribers
were added to the ANI service. Cable operators have cancelled the ANI service
primarily as a result of moving their subscribers onto two-way digital
service.





TelVue
has been, and continues to be, dependent upon Mr. Lenfest for funds to pay the
majority of operating and capital expenditures.  As of June 30, 2009,
TelVue’s cash and cash equivalents balance was $59,804, compared to a balance of
$250,698 as of December 31, 2008.  This decrease was the result of the
use of cash versus funds drawn on lines of credit held by the Company with Mr.
Lenfest.  As discussed above, the financing from Mr. Lenfest under the
2005 Note, 2006 Note, 2007 Note and 2009 Q1 Note have been
exhausted.  As a result of this, TelVue secured the 2009 Q2 Note from
Mr. Lenfest to help TelVue grow to a profitable level.  The 2005 Note,
2006 Note, 2007 Note and 2009 Q1 Note have helped, and the 2009 Q2 Note will
help, to fund the growth of TPS.  While maintaining the ANI
pay-per-view ordering business, TelVue intends to continue to aggressively
market and sell TPS. However, there can be no assurance that its marketing
efforts will be successful.




27




The
Company does expect to see some adverse effects on sales in 2009 due to the
current economic conditions, primarily in the public, education and government
markets.  The Company does anticipate some of this being offset by
federal stimulus dollars being allocated to these
markets.  Additionally, the Company feels that expansion into markets
outside of these will broaden the Company’s sources of revenue which will help
to offset any revenue declines related to the economy.





ITEM
3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





TelVue, a
smaller reporting company, is not required to provide information required by
this Item.





ITEM
4T.  CONTROLS AND PROCEDURES





(a)
Evaluation of Disclosure Controls and Procedures.  TelVue's Chief
Executive Officer and its Treasurer (Controller), have evaluated the
effectiveness of TelVue's disclosure controls and procedures (as defined in the
Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934, as amended) as of the end of the period covered by this
report.  Based upon that evaluation, TelVue's Chief Executive Officer
and its Treasurer (Controller) have concluded that TelVue's disclosure controls
and procedures were adequate and effective to ensure that material information
relating to TelVue would be made known to them by others within TelVue,
particularly during the period in which this quarterly report on Form 10-Q was
being prepared.





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





PART
II.  OTHER INFORMATION





ITEM
4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





TelVue's
annual meeting of stockholders was held on June 10, 2009.  The
following four directors were elected:




Votes
      For
              
              
              Votes
      Withheld
              
              
              Votes
      Abstained1.
              
              H.F.
      Lenfest
              
              
              372,870,333
              
              
              
              170,759
              
              
              
              02.
              
              Jesse
      Lerman
              
              
              372,886,261
              
              
              
              154,831
              
              
              
              03.
              
              Joy
      Tartar
              
              
              372,946,311
              
              
              
              94,781
              
              
              
              04.
              
              Robert
      Lawrence
              
              
              372,946,311
              
              
              
              94,781
              
              
              
              0




Additionally,
the 2009 Stock Option Plan was approved:




Votes
      For
              
              Votes
      Against
              
              Votes
      Abstained
              
              Not
      Voted367,454,336
              
              1,364,371
              
              6,275
              
              4,216,110




28




ITEM
6.  EXHIBITS





Exhibits




3.1
              
              Certificate
      of Incorporation of TelVue (incorporated by reference
      to TelVue’s Registration Statement on Form S-8, filed with
      the Securities and Exchange Commission on April 20, 1989 (the
      "Registration Statement"), File No.
      333-28263).3.2
              
              Bylaws
      of TelVue (incorporated by reference to TelVue'sRegistration
      Statement, File No. 333-288263).3.3
              
              Certificate
      of Amendment of Certificate of Incorporation of TelVue, dated
      April 11, 1990 (incorporated by reference to TelVue's Annual Report
      on Form 10-K for the year ended December 31, 1991, (the "1991
      Form 10-K"), File No. 000-17170).3.4
              
              Certificate
      of Amendment of Certificate of Incorporation of TelVue, dated
      March 15, 1991 (incorporated by reference to the 1991 Form
      10-K, File No. 000-17170).3.5
              
              Form
      of copy of Amendment of Certificate of Incorporation of TelVue, filed
      September 25, 1995 (incorporated by reference to TelVue's
      Form 10-QSB for the period ended September 30, 1995, File No.
      000-17170).4.1
              
              The
      TelVue Corporation 1999 Stock Option Plan (incorporated by reference
      to TelVue’s Registration Statement on Form
      S-8, dated September 23, 1999 (the "1999 Stock Option Plan"),
      File No. 000-17170).4.2
              
              Form
      of ISO Option Agreement issued pursuant to the 1999 Stock Option
      Plan (incorporated by reference to TelVue's Annual Report
      on Form 10-KSB for the year ended December 31, 1999, (the "1999
      Form 10-KSB") File No. 000-17170).4.3
              
              Form
      of NQSO Option Agreement issued pursuant to the 1999 Stock Option
      Plan (incorporated by reference to the 1999 Form 10-KSB, File No.
      000-17170).4.4
              
              Certificate
      of Designation of Class A Preferred Stock (incorporated by
      reference to the September 30, 1990 Form 10-Q, File No.
      000-17170).4.5
              
              Warrant
      Termination Agreement, dated June 16, 2005, by and between TelVue and
      H.F. (Gerry) Lenfest (incorporated by reference to the September 30, 2005
      Form 10-QSB, File No. 000-17170).4.6
              
              Waiver
      by H.F.(Gerry) Lenfest, waiving the right to receive past, present
      or future dividends with respect to the TelVue’s Class A Redeemable
      Convertible Preferred Stock (incorporated by reference to the September
      30, 2005 Form 10-QSB, File
    No.000-17170).10.1
              
              Distributorship
      Agreement, dated November 2, 1989, between the Company
      and Science (incorporated by reference to the 1989 Form 10-K,
      File No. 000-17170).10.2
              
              Stock
      Purchase Agreement, dated November 2, 1989, between the Company
      and H.F. (Gerry) Lenfest (incorporated by reference to the Company's
      Report on Form 8-K, dated November 15, 1989 (the "1989 Form
      8-K"), File No.
000-17170).
  29
  10.3
              
              Shareholders'
      Agreement, dated November 2, 1989, among TelVue and
      certain of its stockholders (incorporated by reference to the Company's
      1989 Form 8-K, File No. 000-17170).10.4
              
              Option
      Agreement, dated November 2, 1989, among TelVue and certain
      of its stockholders (incorporated by reference to the 1989 Form
      8-K, File No. 000-17170).10.5
              
              Lease
      Agreement dated April 25, 1991 for office space and the First Amendment
      to Lease dated March 30, 1994 (“Office Lease Agreement”), between
      TelVue and Bloom Associates (incorporated by reference to the

                  1994
      Form 10-KSB, File No. 000-17170).10.6
              
              Second
      Amendment to Office Lease Agreement Dated May 5, 1999, between
      TelVue and Bloom Associates (incorporated by reference to
      the 1999 Form 10-KSB, File No.
000-17170).10.7
              
              Third
      Amendment to Office Lease Agreement Dated April 28, 2004, between
      TelVue and Bloom Associates (incorporated by reference to the June
      30, 2006 Form 10-QSB, File No.
000-17170).10.8
              
              Fourth
      Amendment to Office Lease Agreement Dated April 19, 2006, between
      TelVue and The Bloom Organization of South Jersey, LLC (incorporated
      by reference to the June 30, 2006 Form 10-QSB, File No. 000-17170).10.9
              
              Asset
      Purchase Agreement by and among TelVue and J.D. Kraengel and Associates,
      Inc. f/k/a Dacon Corporation d/b/a Source Communications Group
      and Jeffrey Kraengel, dated February 14, 2001 (incorporated by reference
      to the March 26, 2001 Form 8-K, File No.
      000-17170).10.10
              
              Retirement
      Agreement dated April 29, 2004 between TelVue and Frank J. Carcione
      (incorporated by reference to the December 31, 2004
      Form 10-KSB (the "2004 Form 10-KSB"), File No.
      000-17170).10.11
              
              Summary
      of Director Compensation (incorporated by reference to the 2004
      Form 10-KSB, File No. 000-17170).10.12
              
              Summary
      of Executive Compensation, as amended (incorporated by reference to the
      December 31, 2008 Form 10-K (“2008 Form 10-K”), File No.
      000-17170).10.13
              
              Line
      of Credit Note, dated April 27, 2005,  between H.F. (Gerry)
      Lenfest
      and TelVue (incorporated by reference to the Form 8-K filed
      on May 3, 2005, File No. 000-17170).10.14
              
              Amended
      and Restated Promissory Note, in the principal amount of $541,000,
      dated June 16, 2005, between H.F. (Gerry) Lenfest and TelVue
      (incorporated by reference to the September 30, 2005 Form 10-QSB, File
      No. 000-17170).10.15
              
              Line
      of Credit Note, dated November 3, 2006,  between H.F. (Gerry)
      Lenfest
      and TelVue (incorporated by reference to the Form 8-K filed
      on November 3, 2006, File No. 000-17170).10.16
              
              Stock
      Purchase Agreement by and among TelVue and Princeton Server Group,
      Inc. dated March 12, 2007 (incorporated by reference to the March 13,
      2007 Form 8-K, File No. 000-17170).10.17
              
              Convertible
      Note for $400,000 dated December 26, 2006 issued to TelVue
      by the Princeton Server Group, Inc. (incorporated by reference to the
      December 31, 2006 Form 10-KSB, File No.
  000-17170).
  30
  10.18
              
              Separation
      Agreement by and between TelVue and Stanley Greene, dated December
      29, 2006 (incorporated by reference to the December 31, 2006 Form 10-KSB,
      File No. 000-17170).10.19
              
              Separation
      Agreement by and between TelVue and Irene DeZwaan, dated February
      8, 2007 (incorporated by reference to the December 31, 2006 Form
      10-KSB, File No. 000-17170).10.20
              
              Amendment
      of Form 8-K filed by TelVue Corporation on March 13, 2007
      (the “Original 8-K”) to include the information required by
      Item  9.01 of the Form 8-K in connection with TelVue’s
      acquisition of Princeton Server Group, Inc. (incorporated by reference to
      the May 12, 2007  Form 8-K/A, File No.
      000-17170).10.21
              
              Line
      of Credit Note, dated December 21, 2007,  between H.F. (Gerry)
      Lenfest
      and TelVue (incorporated by reference to the Form 8-K filed
      on December 21, 2007, File No.
000-17170).10.22
              
              Separation
      Agreement and Release by and between TelVue and Joseph M. Murphy, dated
      December 31, 2008 (incorporated by reference to the Form 8-K filed on
      January 6, 2009, File No. 000-17170).10.23
              
              Line
      of Credit Note, dated March 2, 2009, between H.F. (Gerry) Lenfest and
      TelVue (incorporated by reference to the Form 8-K filed on March 5,
      2009,  File No. 000-17170).10.24
              
              Fifth
      Amendment to Office Lease Agreement dated March 16, 2009 (incorporated by
      reference to the 2008 Form 10-K, File No. 000-17170).10.25
              
              Line
      of Credit Note, dated June 8, 2009, between H.F. (Gerry) Lenfest and
      TelVue (incorporated by reference to the Form 8-K filed on June 11,
      2009,  File No. 000-17170).10.26
              
              The
      TelVue Corporation 2009 Stock Option Plan, dated June 10, 2009
      (incorporated by reference to the Form 8-K filed on August 7,
      2009,  File No. 000-17170).11.
              
              Statement
      re:  Computation of Per Share Earnings (see TelVue’s June
      30, 2009 Financial Statements included herein).23.
              
              Consent
      of Pressman Ciocca Smith LLP, Independent Registered Public Accounting
      Firm (incorporated by reference to the 2008 Form 10-K, File No.
      000-17170).31.1
              
              Certification
      of President and Chief Executive Officer pursuant to Rule 13a-14(a) or
      15d-14(a).31.2
              
              Certification
      of Treasurer-Controller pursuant to Rule 13a-14(a) or
      15d-14(a).32.1
              
              Certification
      of President and Chief Executive Officer pursuant to 18 U.S.C. Section
      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.32.2
              
              Certification
      of Treasurer-Controller pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.





31




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
      CORPORATIONDATED: 08/14/09
              By:
              /s/
      Jesse LermanJesse
      LermanPresident
      and Chief Executive OfficerDATED:  08/14/09
              By:
              /s/
      John FellJohn
      FellTreasurer-Controller






EXHIBIT
INDEX





31.1
            Certification
      of President and Chief Executive Officer pursuant to Rule 13a-14(a) or
      15d-14(a).





31.2
            Certification
      of Treasurer-Controller pursuant to Rule 13a-14(a) or
      15d-14(a).





32.1
            Certification
      of President and Chief Executive Officer pursuant to 18 U.S.C. Section
      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.





32.2
            Certification
      of Treasurer-Controller pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.




32