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

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

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

OVERVIEW OF COMPANY

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

TelVue was incorporated as a Delaware corporation on November 26, 1986. Until December 30, 1988, TelVue was a wholly owned subsidiary of Science Dynamics Corporation ("Science"). On that date, TelVue's shares of common stock were distributed to Science's shareholders of record as of December 30, 1988, on the basis of three shares of TelVue's common stock for each share of Science's common stock then outstanding.

TelVue operates two business segments. The first segment, TelVue Products and Services ("TPS"), includes equipment such as the TelVue Princeton® broadcast and storage servers, and encoding and transcoding workstations, the TelVue HyperCaster™ Internet Protocol (IP) broadcast server, and services such as WEBUS®, PEG.TV™, TelVue Connect™ and TelVue CloudCast™. TelVue Princeton® consists of high performance digital video systems, servers, and software that support capture, storage, manipulation and play-out of digital media in multiple popular formats. The TelVue HyperCaster™ server models for cable, Telco and professional broadcasters supports streaming cable standard (MPEG-2 Transport) and advanced video codecs (AVC/H.264) used increasingly in the industry for bandwidth savings for both standard and high-definition channels as well as new technologies such as 3D-TV. TelVue Turbo™ Workflow Accelerator is a scalable workflow application that streamlines publishing videos to PEG.TV™ from any TelVue broadcast server. CampusOneHD™ provides an all-in-one video solution for campuses including local, high-definition television channels, digital signage and life safety, and streaming and Video-on-Demand.

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

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

TPS products include:

TelVue Princeton® Digital Broadcaster B100 TelVue Princeton® Digital Broadcaster B3000 TelVue Princeton® Digital Video Archive Server S3000F TelVue Princeton® Encoding Workstation C500W TelVue Princeton® Encoding and Transcoding Workstation T7500E TelVue HyperCaster™
TelVue Turbo™ Workflow Accelerator
CampusOneHD™ High-Definition Broadcast Platform

TPS services include:

WEBUS®             Automated broadcast digital signage display on TV
                   Channel
WEBUS Inside™      WEBUS® integrated within TelVue Princeton® Servers
WEBLINX®           Automated WEBUS® message display on websites
VideoActives™      Real time, dynamic video content for channels
PEG.TV™            Internet Streaming and Video-on-Demand Service
TelVue Connect™    Cloud video service for multi-user content
                   contribution and scheduling
TelVue CloudCast™  Hosting of 24x7 linear and streaming channels

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

CRITICAL ACCOUNTING POLICIES

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

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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

Revenue Recognition

In accordance with accounting principles generally accepted in the United States, TelVue recognizes revenues related to TelVue Princeton®, TelVue HyperCaster™ and other equipment upon shipment of the equipment to its customers. Revenues related to its WEBUS®, PEG.TV™, TelVue Connect™ and TelVue CloudCast™ services are recognized on a monthly basis, being amortized over the term of the agreement. TelVue also sells annual product maintenance plans covering equipment support and application upgrades. Revenues for the product maintenance plans are deferred and are recognized on a straight-line basis in subsequent periods. Revenue related to TelVue's ANI service is recognized in the month the service is provided.

Stock-Based Compensation

TelVue accounts for stock-based compensation in accordance with the fair value recognition method. The Company uses a Black-Scholes option-pricing valuation model which requires the input of highly subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them ("expected term"), the estimated volatility of TelVue's common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements.
Changes in the subjective assumptions can materially affect the estimate of fair value of stock-based compensation.

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

RESULTS OF OPERATIONS:

The following discussion deals with the increase in operating loss for the three months ended March 31, 2012, when compared to the same period of 2011, and the reasons for the changes. TelVue further discusses the continued loss of its subscriber base for the ANI service, when comparing the three months ended March 31, 2012 to the three months ended March 31, 2011. TelVue also discusses the changes in TPS revenue and expenses.

Detailed financial information for the three months ended March 31, 2012 and 2011 is as follows:

                                   Three Months Ended
                                 March 31,      March 31,      $ Change       % Change
                                   2012          2011         Fav/(Unfav)    Fav/(Unfav)
Revenues
TelVue products and services   $    821,202   $   859,340   $     (38,138 )         (4.4 )
ANI services                        124,586       181,653         (57,067 )        (31.4 )

Cost of Revenues
TelVue products and services        435,237       534,569          99,332           18.6
ANI services                         25,868        31,564           5,696           18.0

Operating Expenses
Selling and marketing
TelVue products and services        454,345       281,463        (172,882 )        (61.4 )
ANI services                              -             -               -              -
General and administrative
TelVue products and services      1,323,355       649,260        (674,095 )       (103.8 )
ANI services                         29,312        36,965           7,653           20.7
Depreciation
TelVue products and services         56,313        65,306           8,993           13.8
ANI services                          4,647         3,686            (961 )        (26.1 )

Operating Loss                   (1,383,289 )    (561,820 )      (821,469 )       (146.2 )

Other Income (Expense)             (250,464 )    (235,786 )       (14,678 )         (6.2 )

Net Loss                       $ (1,633,753 ) $  (797,606 ) $    (836,147 )       (104.8 )

Additional financial information by reporting segment for the three months ended March 31, 2012 and 2011 is as follows:

                                 TelVue products and services            ANI services
Three months ended March 31,         2012              2011           2012         2011

Operating income/(loss)         $     (1,448,048 )   $ (671,258 )   $  64,759    $ 109,438
Other income/(expense)          $       (230,542 )   $ (204,691 )   $ (19,922 )  $ (31,095 )
Net income/(loss)               $     (1,678,590 )   $ (875,949 )   $  44,837    $  78,343
Capital expenditures            $        128,145     $   37,290     $       -    $       -

The TPS segment had operating losses of $1,448,048 for the three months ended March 31, 2012, compared to operating losses of $671,258 for the three months ended March 31, 2011 primarily due to an increase in sales and marketing and general and administrative expenses and a decrease in TPS segment revenue, offset by a decrease in cost of sales expenses. The ANI segment had operating income of $64,759 for the three months ended March 31, 2012, compared to $109,438 for the three months ended March 31, 2011. The decrease in operating income for the ANI segment was mainly a result of an anticipated decrease in ANI revenue, offset by a change in the allocation of expenses whereby, based on the segment's percentage of total forecasted revenues for the year, 8% of certain expenses were allocated to the ANI segment for the three months ended March 31, 2012, compared to an allocation percentage of 13% for the same periods of 2011.

Revenues

Total revenues decreased by $95,205 for the three months ended March 31, 2012, when compared to the three months ended March 31, 2011. TPS revenues decreased $38,138 for the three months ended March 31, 2012, compared to the same period of 2011. This was primarily due to a 17.8% decrease in TPS equipment revenue for the three months ended March 31, 2012, compared to the three months ended March 31, 2011. This decrease was partially offset by a 99.4% increase in PEG.TV™ revenue, as Internet video and broadband TV continue to gain in popularity and a 25.7% increase in maintenance service revenue, as TelVue's equipment footprint continues to grow.

Despite this revenue decrease, overall TPS sales orders grew by 58% for the three months ended March 31, 2012, when compared to the three months ended March 31, 2011. This included a 47% increase in cable, Telco and professional broadcast market sales orders, and a 42% increase in PEG market sales orders.
Sales orders received during the three months ended March 31, 2012 included a $120,000 multi-server purchase order from an existing broadcast customer that deploys TelVue servers in cable headends as part of their edge broadcast network. Revenue recognition for these orders will occur over time as the equipment is shipped, with only a portion of the revenue being recognized during the three months ended March 31, 2012.

In the cable and Telco broadcast markets, sales of TelVue Hypercaster™ broadcast servers increased by 50% for the three months ended March 31, 2012, compared to the three months ended March 31, 2011, demonstrating further market acceptance of the unique IP-centric broadcast and workflow that the TelVue Hypercaster™ provides. In addition to deployments with eight of the top ten MSOs, the Company has deployments with over 75 individual MSOs including Tier 2 and Tier 3 operators.

TelVue expects to continue to expand in the cable, Telco, and professional broadcast markets and also believes the Company will resume growth in the PEG and education markets as the economy continues to recover. Additionally, the Company expects to begin to develop direct sales to Media companies as the Company continues to invest in development and marketing of its new cloud video services.

ANI revenues decreased $57,067 for the three months ended March 31, 2012, when compared to the three months ended March 31, 2011. There was an expected decrease of $1,523 in pay-per-view revenue for the three months ended March 31, 2012 when compared to the same period of 2011, and a decrease of $1,474 in pay-per-view plus revenue for the three months ended March 31, 2012, when compared to the three months ended March 31, 2011. These decreases were mainly due to a reduction in the number of subscribers served during these periods when compared to 2011 (as discussed below). Additionally, there were decreases in feature revenue of $26,605, decreases of $16,285 in data link revenue and decreases of $8,860 in program number revenue for the three months ended March 31, 2012, when comparing the three months ended March 31, 2012 to the three months ended March 31, 2011, primarily due to a decline in the number of ANI subscribers (as discussed below).

As of March 31, 2012, the ANI service was serving approximately 700,000 full-time cable subscribers compared to approximately one million full-time cable subscribers served as of March 31, 2011. During the three months ended March 31, 2012, there were 107,000 ANI subscriber cancellations and no new additions. The subscriber decline is the result of cable operators moving to two-way digital services which limit the number of analog pay-per-view channels available for content and allow the cable operator's customers to order digital pay-per-view or video on demand via the set top box, eliminating the need for the TelVue ANI service. Management believes the long-term effects of deployment of digital two-way service will continue to negatively impact the TelVue ANI service. As a result of the cable and satellite subscriber cancellations noted above, TelVue expects to continue to experience a decrease in its revenue and operating income indefinitely for its ANI segment.

Cost of Revenues

Total cost of revenues decreased by $105,028 for the three months ended March 31, 2012 when compared to the three months ended March 31, 2011. Cost of revenues for the TPS segment decreased $99,332 for the three months ended March 31, 2012, when compared to the three months ended March 31, 2011, primarily as a result of lower sales of TPS equipment and lower consulting expenses. These decreases were partially offset by higher expenses related to Internet bandwidth purchased for use with TelVue's cloud-based services.

ANI cost of revenues decreased $5,696 for the three months ended March 31, 2012, when compared to the same period of 2011, primarily due to a favorable variance in compensation expense, in addition to savings in telecommunications expenses when comparing these periods. This decrease is not proportionate with the decrease in ANI revenue, as there are fixed expenses, whereas certain revenue components are based on usage.

Selling and Marketing Expenses

Total selling and marketing expenses, which are entirely attributed to the TPS segment, increased $172,882 for the three months ended March 31, 2012, when compared to the three months ended March 31, 2011. This increase was primarily the result of higher compensation expenses related to increased staffing, including a salesperson hired to develop the Latin America market, when comparing the three months ended March 31, 2012 to the three months ended March 31, 2011. Additionally, the Company incurred expenses related to an outside public relations company contracted during the three months ended March 31, 2012 to assist in the development of the cable and Telco markets, while none was used during the same period in 2011.

General and Administrative Expenses

Total general and administrative expenses increased by $666,442 for the three months ended March 31, 2012 when compared to the three months ended March 31, 2011. TPS general and administrative expenses increased $674,095 for the three months ended March 31, 2012, when compared to the three months ended March 31, 2011. This increase was related to additional spending on research and development activities for TelVue's emerging cloud-based video services including contracting the services of development consultants to accelerate feature development. Additionally, there were executive search fees paid related to the hiring of six new development employees during the three months ended March 31, 2012. There was also an increase in legal and accounting fees during the three months ended March 31 2012, related to the debt conversion transaction.

ANI general and administrative expenses decreased $7,653 for the three months ended March 31, 2012, when compared to the three months ended March 31, 2011, primarily as a result of a change in allocation percentages, where a lower percentage of expenses are being allocated to the ANI segment.

Depreciation Expense

TelVue purchased $128,145 of equipment during the three months ended March 31, 2012 compared to $37,290 purchased during the three months ended March 31, 2011.
All of the equipment purchased during the three months ended March 31, 2012 and 2011 was for equipment related to the TPS segment and primarily for infrastructure for TelVue Connect™ and TelVue CloudCast™ cloud video services. Depreciation expense decreased $8,032 for the three months ended March 31, 2012 when compared to the three months ended March 31, 2011, as a result of prior capital purchases reaching the end of their depreciable lives.

Other Income (Expense)

Total other expense increased by $14,678 for the three months ended March 31, 2012, when compared to the three months ended March 31, 2011. This increase was attributed to accruing interest expense related to the balance on the outstanding lines of credit notes, which are discussed more extensively in Liquidity and Capital Resources, offset by increased interest income related to a higher cash balance as of March 31, 2012, when compared to the March 31, 2011.

Income Taxes

No provision for federal and state income taxes was required for the three months ended March 31, 2012 and 2011 due to the Company's operating losses and increased deferred tax asset valuation allowance. The valuation allowances were recorded due to the uncertainty as to whether future net income would be generated that would utilize TelVue's net operating loss carry-forward. TelVue's federal net operating loss carry-forward was approximately $22,800,000 on a tax-reporting basis as of March 31, 2012 (see Note 4 of TelVue's accompanying condensed financial statements).

Net Loss

TelVue had a net loss of $1,633,753 for the three months ended March 31, 2012, compared to a net loss of $797,606 for the three months ended March 31, 2011. The increase in net loss was primarily due to higher development expenses and revenue decreases during the three months ended March 31, 2012 when compared to the three months ended March 31, 2011.

LIQUIDITY AND CAPITAL RESOURCES:

Going Concern

The condensed financial statements presented in this Quarterly Report on Form 10-Q have been prepared on a "going concern" basis, which assumes that TelVue will continue in operation for at least one year and will be able to realize its assets and discharge its liabilities in the normal course of operations. As shown in the accompanying condensed financial statements, the Company incurred a net loss of $1,633,753 during the three months ended March 31, 2012, and as of that date, the Company's total stockholders' deficit was $1,240,628. The Company borrowed an additional $5,000,000 against its line of credit in January and February 2012, which was converted to convertible preferred stock in March 2012, when all other borrowings and accrued interest due to the majority stockholder were also converted to common stock (as disclosed in Note 5), leaving the Company with no debt and $3,764,006 of cash and cash equivalents at March 31, 2012. TelVue continues to execute its modified business plan to focus on equipment and services sales to the cable, telephone company ("Telco"), professional and Internet broadcast markets, and believes it has sufficient cash to fund operating and capital requirements for at least one year.

Funding of Operations

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

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

On January 11, 2012, TelVue executed a Debt Conversion Agreement with Mr. Lenfest. At a Special Meeting of Stockholders on March 12, 2012, the stockholders of the Company authorized and approved the Debt Conversion Agreement and the transactions contemplated thereby ("the Conversion Transactions"). The Company consummated the Conversion Transactions on March 16, 2012. $20,941,000 of the principal amount of the Notes and Science Note, plus . . .