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EX-10.17 - RVUE HOLDINGS, INC. | v200010_ex10-17.htm |
EX-10.18 - RVUE HOLDINGS, INC. | v200010_ex10-18.htm |
EX-10.16 - RVUE HOLDINGS, INC. | v200010_ex10-16.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
8-K/A
AMENDMENT
NO. 2
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF
THE
SECURITIES
EXCHANGE ACT OF 1934
Date of
report (Date of earliest event
reported)
May 13,
2010
RVUE
HOLDINGS, INC.
(Exact
Name of Registrant as Specified in Its Charter)
NEVADA
(State or
Other Jurisdiction of Incorporation)
333-158117
|
94-3461079
|
(Commission
File Number)
|
(IRS
Employer Identification
No.)
|
100
NE 3rd
Avenue, Suite 200, Fort Lauderdale, Florida
|
33301
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
954-525-6464
(Registrant's
Telephone Number, Including Area Code)
(Former
Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the
Form 8-K filing is intended to simultaneously satisfy the filing obligation of
the registrant under any of the following provisions (see General Instruction A.2.
below):
¨
|
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|
¨
|
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|
¨
|
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
|
¨
|
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
|
CURRENT
REPORT ON FORM 8-K
RVUE
HOLDINGS, INC.
TABLE OF
CONTENTS
Page
|
|
Item
2.01. Completion of Acquisition or Disposition of
Assets.
|
1
|
The
Transaction
|
2
|
Description
of Our Company
|
6
|
Description
of Our Business
|
7
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
12
|
Risk
Factors
|
16
|
Security
Ownership of Certain Beneficial Owners and Management
|
28
|
Item
9.01. Financial Statements and
Exhibits.
|
29
|
EXPLANATORY
NOTE
This
Amendment No. 2 on Form 8-K/A (the "Amendment") amends the Current Report for
rVue Holdings, Inc. (the "Company") on Form 8-K, filed with the Securities and
Exchange Commission (“Commission”) on May 19, 2010 (the "Original Report") as
previously amended by Amendment No. 1 on Form 8-K/A filed with the Commission on
August 17, 2010. The Company is filing this Amendment in response to comments
from the Staff of the Commission.
Item
2.01.
|
Completion
of Acquisition or Disposition of
Assets.
|
On March
29, 2010, we filed an Amended and Restated Articles of Incorporation
to:
(1)
change our name from “Rivulet International, Inc.” to “Rvue Holdings, Inc.” (the
“Company”);
(2)
designate a resident agent and registered office;
(3)
increase the number of authorized shares of capital stock from 75,000,000 shares
to 150,000,000 shares, divided into two classes: 140,000,000 shares of common
stock, par value $.001 per share (the “Common Stock”), and 10,000,000 shares of
“blank check” preferred stock, par value $.001 per share (the “Preferred
Stock”);
(4) set
the number of directors of the Company at no less than 1;
(5) state
the legal purpose of the Company;
(6)
provide for the limitation of liability of directors of the Company to the
fullest extent permitted by the Nevada Revised Statutes; and
(7)
provide for the indemnification of officers and directors of the Company to the
fullest extent permissible under the laws of the State of Nevada.
The
Company amended its Articles of Incorporation in order to permit the Board of
Directors, without further shareholder approval, to issue from time to time,
shares of preferred stock containing such rights and privileges senior to other
classes of the Company’s capital stock. Such authorization of
preferred stock is commonly referred to as “blank check” preferred stock and is
commonly authorized in order to permit a Board of Directors to issue preferred
shares quickly at a time that shareholder approval may not be possible or would
be too costly to achieve. Without such feature, which we believe is
routinely adopted by Nevada corporations, issuance of preferred stock normally
requires shareholder approval to amend its Articles of Incorporation under
Nevada law.
On March
29, 2010, we declared a stock dividend whereby each stockholder of record on
April 8, 2010 received a dividend of an additional 11.25490196078 shares of
Common Stock for every one share of Common Stock which they
owned. The purpose of the dividend declared was in order to
effectuate a recapitalization of the existing capital structure of the
Company. The Company declared a dividend in order to provide
additional shares of common stock outstanding, reflecting the increase in the
authorized shares of capital stock of the Company, to reduce the implied value
per share attributable to each share of Company common stock outstanding and to
increase the number of shares held by our shareholders and public
float. The Company desired our shares be potentially owned by a
broader number of shareholders and the increased number of shares outstanding is
believed to be a means to permit establishment of a trading market that could be
traded within a lower range of share prices increasing affordability and
accessibility to institutional and non-institutional investors. The exact ratio
of the dividend was also determined in order to permit the Company to offer to
private placement investors units of common stock that would be valued at $0.20
per share following the closing of the Argo/rVue acquisition and allocate
between Argo and all other holders a number of shares that reflected the
valuation attributable to the rVue business acquired.
1
The
Transaction
On May
13, 2010, we acquired all of the issued and outstanding capital stock and the
business of rVue, Inc., a Delaware corporation ("rVue Inc.") from Argo Digital
Solutions, Inc., a Delaware corporation ("Argo"), as well as any and all assets
related to the rVue business held by Argo, pursuant to an asset purchase
agreement, dated as of May 13, 2010 (the "Asset Purchase Agreement"), by and
between Argo, rVue, Inc. and the Company (the “Transaction”).
Pursuant
to the terms and conditions of the Asset Purchase Agreement:
|
·
|
At
the closing of the Transaction, we acquired the assets from Argo for the
consideration of 12,500,000 shares of the Company's Common
Stock.
|
|
·
|
Following
the closing of the Transaction, we issued 32 Units in a Private Placement,
each unit consisting of 125,000 shares of the Company's Common Stock for
$25,000 per unit ("Unit"), for an aggregate purchase price of
$800,000. All of the shares issued in the Private Placement are
subject to a registration rights agreement under which we are obligated to
seek registration of such shares within 180 days of the final closing date
of the Private Placement.
|
|
·
|
In March 2010 and April 2010, in
contemplation of the Transaction, rVue, Inc. entered into a series of
bridge loans in the aggregate amount of $205,000 (the “Bridge Notes”). In
conjunction with the closing of the Transaction, on May 13, 2010 all of
the Bridge Notes were converted into an aggregate of 1,348,730 shares of
our Common Stock as part of the closing of the Private Placement on May
13, 2010 at a rate equal to 130 percent of the price of the Common Stock
sold in the Private
Placement.
|
|
·
|
Upon
the closing of the Transaction: (i) Vladimir Vysochin resigned
as our sole director and an officer, (ii) Mark Tolstoi resigned as our
secretary and, (iii) a new board of directors and new officers were
appointed. The new board of directors consists of Jason M. Kates, Richard
J. Sullivan and Robert Chimbel.
|
|
·
|
Immediately
following the closing of the Transaction and the Private Placement, under
an Agreement of Conveyance, Transfer and Assignment of Assets and
Assumption of Obligations (the “Conveyance Agreement”), we also
transferred all of our pre-Transaction assets and liabilities to our
wholly-owned subsidiary, Rivulet International Holdings, Inc. (“SplitCo”).
Thereafter pursuant to a stock purchase agreement (the “Stock Purchase
Agreement”), we transferred all of the outstanding capital stock of
SplitCo to certain of our stockholders in exchange for the cancellation of
36,764,706 shares of our Common Stock (the “Split-Off”), with 6,250,000
shares of Common Stock held by persons who were stockholders of ours prior
to the Transaction remaining outstanding. Our public float consists of
12,798,390 shares of common stock, and include these 6,250,000 that are
our only shares of registered Common Stock and accordingly are our only
shares available for resale without further
registration.
|
The
foregoing description of changes to our Articles of Incorporation, the
Transaction and the Split-Off does not purport to be complete and is qualified
in its entirety by reference to the complete text of (i) the Amended and
Restated Articles of Incorporation, which was filed as Exhibit 3.1 to the
Original Report, (ii) the Asset Purchase Agreement, which was filed as Exhibit
2.1 to the Original Report, (iii) the Conveyance Agreement, which is filed as
Exhibit 10.6 to the Original Report, and (iv) the Stock Purchase Agreement,
which is filed as Exhibit 10.7 to the Original Report, each of which is
incorporated herein by reference.
The
foregoing description of the Private Placement does not purport to be complete
and is qualified in its entirety by reference to the complete text of the (i)
Form of Subscription Agreement, which is filed as Exhibit 10.1 to the Original
Report, and (ii) Form of Registration Rights Agreement, which is filed as
Exhibit 10.2 to the Original Report, each of which is incorporated herein by
reference.
2
Following
(i) the closing of the Transaction, (ii) the closing of the Private Placement
for $1,005,000, including the conversion of $205,000 of Bridge Notes, and (iii)
the cancellation of 36,764,706 shares in the Split-Off, there were 24,898,730
shares of common stock issued and outstanding. 12,500,000, or 50.2%, of such
issued and outstanding shares were held by Argo, 6,250,000, or 25.1%, of such
issued and outstanding shares were held by the Company’s existing shareholders,
5,348,730, or 21.5%, were held by the investors in the Private Placement and the
Bridge Note holders who elected to convert their loans, and 800,000 shares, or
3.2%, which were issued to certain investor relations professionals for services
to be rendered in the future. The foregoing percentages do not include 3,750,000
shares of Common Stock reserved for issuance under our 2010 Equity Incentive
Plan (the “2010 Plan”).
The
following table represents the capitalization of the Company after the
completion of the Transaction and other the transactions described
herein.
Rvue
Holdings, Inc. Capitalization:
Name
|
Shares
|
Percent
|
||||||
Argo
Digital Solutions, Inc. (1)
|
12,500,000 | 50.2 | % | |||||
Company
Shareholders
|
6,250,000 | 25.1 | % | |||||
Private
Placement Investors
|
4,000,000 | 16.1 | % | |||||
Bridge
Note Conversions ($205,000) (2)
|
1,348,730 | 5.4 | % | |||||
Investor
Relations
|
800,000 | 3.2 | % | |||||
Total
|
24,898,730 | 100.0 | % | |||||
2010
Equity Incentive Plan (3)
|
3,750,000 | |||||||
Total
Fully Diluted
|
28,648,730 |
|
(1)
|
Shares
of Common Stock issued to Argo Digital Solutions, Inc. at the closing of
the Transaction to acquire the rVue business. Such shares may
be distributed to the shareholders of Argo in accordance with a plan of
liquidation of Argo after satisfaction of debts and liabilities of
Argo. Jason Kates, our CEO, Richard Sullivan, our Chairman, and
David Loppert, our CFO have the right to acquire approximately 36%, 28%
and 3%, respectively, of the shares distributed by Argo after satisfaction
of claims.
|
|
(2)
|
Includes
1,332,500 shares of Common Stock issued in exchange for Bridge Notes plus
16,230 shares of Common Stock issued in exchange for accrued but unpaid
interest on the Bridge Notes.
|
|
(3)
|
Represents
approximately 15% of the Company’s outstanding Common Stock that has been
reserved for issuance under the 2010 Equity Incentive Plan adopted by the
Company. On May 13, 2010, the board of directors of the Company
authorized an aggregate of 2,512,500 option grants to officers, directors
and employees of the Company at exercise prices of $.20 and
$.22.
|
Neither
we nor rVue, Inc. had any outstanding options or warrants to purchase shares of
capital stock immediately prior to the closing of the Transaction. Prior to the
closing of the Transaction, our sole director and majority stockholder adopted
the 2010 Equity Incentive Plan and reserved 3,750,000 shares of Common Stock for
issuance as awards to officers, directors, employees, consultants and others.
Upon the closing of the Transaction, the Company granted options under the 2010
Equity Incentive Plan to purchase an aggregate of 2,512,500 shares of our Common
Stock to a total of 16 individuals. Each of the options expires 10 years from
the award and has an exercise price of either $0.20 or $.22 per share. The
recipients of the options received awards in recognition of services and to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to employees and directors, and
to promote the long-term success of our business and to link participants’
directly to stockholder interest through increased stock ownership and include:
(i) Jason Kates, who received options to purchase 1,000,000 shares of Common
Stock, and (ii) David Loppert, who received options to purchase 500,000 shares
of Common Stock, each of whom was an executive officer of Argo and rVue, Inc.
prior to the Transaction and of the Company following the
Transaction.
3
The
shares of our Common Stock issued to Argo in connection with the Transaction,
and the shares of our Common Stock issued in the Private Placement, were not
registered under the Securities Act of 1933, as amended (the “Securities Act”),
in reliance upon an exemption from registration provided by Section 4(2) under
the Securities Act and Regulation D promulgated thereunder. These securities may
not be transferred or sold absent registration under the Securities Act or an
applicable exemption therefrom.
Use of Proceeds from Private
Placement. After deducting estimated Private Placement
expenses, including the exchange of $205,000 of Bridge Notes into Units sold at
a rate of 1.3 shares of our common stock, we received net proceeds of $985,430
from the sale of units in the Private Placement, which we intend to use for
general working capital. Our management will have discretion and flexibility in
applying the net proceeds of the Private Placement. Pending any uses, we intend
to invest the net proceeds from the Private Placement in short-term, interest
bearing, investment grade securities or in federally insured bank or money
market instruments and deposits.
Placement
Agent. RAMPartners SA (based in Geneva, Switzerland), a
European investment bank, assisted the Company as Placement Agent for the sale
of 8 units in the Private Placement to foreign investors. All other
units were sold directly by the Company.
Bridge Loans. From March 2, 2010
through April 29, 2010, rVue, Inc., a privately held Delaware corporation, sold
an aggregate of $205,000 principal amount of 10% secured promissory notes
("Bridge Notes") in a private placement transaction exempt from
registration. The purchasers of Bridge Notes paid an aggregate gross
purchase price of $205,000 for such Bridge Notes. The Bridge Notes
became due upon the earlier of September 2, 2010 or the date of the acquisition
of rVue. The Bridge Notes provided for the exchange of the Bridge
Notes into rVue’s next financing at par, plus bonus shares equal to 30% of the
note principal plus accrued but unpaid interest (“Bonus Shares”). For
accounting purposes these Bonus Shares are considered additional interest. On
May 13, 2010, the Bridge Note Holders converted all of the Bridge Notes into an
aggregate of 1,348,730 shares of our Common Stock as part of the closing of the
merger on May 13, 2010.
The
foregoing description of the Bridge Loans does not purport to be complete and is
qualified in its entirety by reference to the complete text of the Form of
Bridge Loan Note Purchase Agreement filed as Exhibit 10.16, the Form of Bridge
Loan Secured Promissory Note filed as Exhibit 10.17 and the Form of Bridge Loan
Security Agreement filed as Exhibit 10.18, each of which is incorporated herein
by reference.
Changes to the Business. We
intend to carry on the business of Rvue as our sole line of business. Upon
closing of the Transaction, we relocated our executive offices to 900 S.E. Third
Avenue, 3rd Floor,
Fort Lauderdale, FL 33216. Our telephone number is (954) 525-6464. In
July 2010, we moved our offices to 100 NE 3rd Avenue,
Suite 200, Ft. Lauderdale, FL 33301.
The
Transaction was approved by the holders of a majority of the outstanding shares
of Argo’s common stock by a majority of shareholders acting by written consent
dated March 21, 2010. Jason Kates, one of our directors and our President and
Chief Executive Officer, and Richard Sullivan, our Chairman, together controlled
a majority of the outstanding shares of common stock of Argo and acted by
written consent to approve the Transaction.
Changes to the Board of Directors and
Executive Officers. Upon the closing of the Transaction, each of the
directors of the Company resigned and Jason Kates, Richard Sullivan and Robert
Chimbel were appointed as directors of the Company. In addition, upon the
closing of the Transaction, each of the officers of the Company resigned and
Jason Kates, David Loppert, Dawn Rahicki and Jay Wilson were appointed as the
officers of the Company.
Our board
of directors consists of three people. The number may be fixed from
time to time by the board or our stockholders. A vacancy on our board of
directors may be filled by the vote of a majority of the directors holding
office. All directors hold office for one-year terms until the election and
qualification of their successors. Officers are appointed by the board of
directors and serve at the discretion of the board.
4
Accounting
Treatment
The
Transaction is being accounted for as a reverse recapitalization of rVue, Inc.
For accounting and financial reporting purposes rVue, Inc. is the acquiror and
the Company is the acquired company. The Company succeeded to the
business of rVue, Inc. and following the completion of the Transaction and
Private Placement, disposed of its pre-merger assets. Consequently, the assets
and liabilities and the operations that will be reflected in the historical
financial statements of the Company prior to the closing of the Transaction will
be those of rVue, Inc., and the consolidated financial statements after
completion of the purchase and closing will include the assets and liabilities
of the Company and rVue, Inc., historical operations of rVue, Inc. and
operations of the Company from the closing date of the Transaction.
Tax
Treatment; Small Business Issuer.
The
Transaction is intended to constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), or
such other tax free reorganization exemptions that may be available under the
Code. The Split-Off will result in taxable income to the Company in an amount
equal to the difference between the fair market value of the assets transferred
and the Company’s tax basis in the assets. Any gain recognized, to the extent
not offset by the Company’s net operating losses carry-forwards, if any, will be
subject to federal and state income tax at regular corporate income tax
rates.
Following
the Transaction, the Company will continue to be a “smaller reporting company,”
as defined in Item 10(f)(1) of Regulation S-K, as promulgated by the
SEC.
Lock-Up
Agreements.
All
shares of Common Stock of the Company received in the Transaction by Argo, and
any shares received by Jason Kates, Richard Sullivan or David Loppert after the
closing of the Transaction, will be subject to lock-up agreements with the
Company. The lock-up agreements provide that the holder may not sell or transfer
any of their shares for the earlier of (1) a period of 12 months following the
Transaction, and (2) until such time as Paradox Capital Partners LLC has
consented. The foregoing description of the lock-up agreements does not purport
to be complete and is qualified in its entirety by reference to the complete
text of the Form of Lock-Up Agreement, which is filed as Exhibit 10.3 to the
Original Report and which is incorporated herein by reference.
Pursuant
to the terms proposed by Paradox for Bridge Loans to be made to rVue, rVue
agreed that following a subsequent transaction Paradox would have the
opportunity to consent to release of lock up agreements and upon closing of the
recapitalization such obligations were assumed by the Company. During
the time that rVue was a privately held subsidiary of Argo, an existing
shareholder of Argo introduced rVue to an individual who through
Paradox, agreed to advance certain bridge loans to rVue while the
companies sought to negotiate an asset purchase agreement with Argo, in order to
undertake a recapitalization of rVue’s business and
operations. Argo’s officers and directors negotiated directly with
the individual and with other prospective bridge lenders and the acquiring
company and through RAMPartners SA obtained indications of interest for longer
term financing resulting in the transaction in which rVue was purchased from
Argo on May 13, 2010 and for issuance of the private placement securities sold
by the Company and converted by the rVue bridge lenders.
Registration
Rights.
We have
agreed to file a "resale" registration statement with the Securities and
Exchange Commission ("SEC") covering all shares of Common Stock included within
the Units sold in the Private Placement as well as the shares underlying the
placement agent warrants, if any, on or before the date which is 90 days after
the final closing date of the Private Placement or the termination date of the
Private Placement, whichever occurs later (the "Filing Deadline"). We will
maintain the effectiveness of the "resale" registration statement from the
effective date through and until twelve (12) months after the closing date,
unless all securities registered under the registration statement have been sold
or are otherwise able to be sold pursuant to Rule 144. We have agreed
to use commercially reasonable efforts to have such "resale" registration
statement declared effective by the SEC as soon as possible and, in any event,
within 180 days after the final closing date of the Private Placement or the
Termination Date, whichever occurs later (the "Effectiveness
Deadline"). The Termination Date of the Private Placement is defined
as the earlier of: (i) June 30, 2010, or such later date, which shall be no
later than up to thirty (30) days thereafter, to which the Company, in its sole
discretion, may extend the Private Placement; and (ii) such earlier date as of
which the Company terminates the Private Placement in its sole
discretion.
5
The
Company is obligated to pay to investors in the Private Placement a fee of 1%
per month of the investors' investment, payable in cash, up to a maximum of 10%,
for each month, pro rata in the event of periods less than thirty (30) days: (i)
in excess of the Filing Deadline that the registration statement has not been
filed; and (ii) in excess of the Effectiveness Deadline that the registration
statement has not been declared effective; provided, however, that the Company
shall not be obligated to pay any such liquidated damages if the Company is
unable to fulfill its registration obligations as a result of rules,
regulations, positions or releases issued or actions taken by the SEC pursuant
to its authority with respect to "Rule 415", provided the Company registers at
such time the maximum number of shares of Common Stock permissible upon
consultation with the staff of the SEC.
The
foregoing description of the Registration Rights does not purport to be complete
and is qualified in its entirety by reference to the complete text of the Form
of Registration Rights Agreement, which was filed as Exhibit 10.2 to the
Original Report and which is incorporated herein by reference.
Shares Received by Argo in
the Transaction
In the
event that Argo or Argo Digital Solutions Liquidating Trust, or any subsequent
individuals or entities to whom such shares are distributed, desire to sell or
dispose of such shares for a period of 1 year after the closing of the
Transaction, such person must provide the Company with at least 10 days prior
written notice of such intention, during which time the Company or its designees
will have the right to direct such sales be made in one of more transactions
through brokers or dealers who will endeavor to sell such shares in block
transactions or other orderly fashion, such as in an underwritten or other
offering.
Description
of Our Company
The
Company was incorporated in the State of Nevada on November 12, 2008 for the
purpose of exporting new and used cars from North America to the Far East and
Siberian regions of Russia. On March 29, 2010 we (1) declared a stock dividend
of 11.25490196078 shares of Common Stock, and (2) amended and restated our
certificate of incorporation in order to: change our name to Rvue Holdings,
Inc., designate a resident agent and registered office, increase the number of
authorized shares of capital stock from 75,000,000 shares to 150,000,000 shares,
divided into two classes: 140,000,000 shares of common stock, par value $.001
per share (the “Common Stock”), and 10,000,000 shares of “blank check” preferred
stock, par value $.001 per share (the “Preferred Stock”), set the number of
directors of the Company at no less than 1, state the legal purpose of the
Company, provide for the limitation of liability of directors of the Company to
the fullest extent permitted by the Nevada Revised Statutes; and provide for the
indemnification of officers and directors of the Company to the fullest extent
permissible under the laws of the State of Nevada.
As a
result of the Transaction, rVue, Inc. became a wholly-owned subsidiary of the
Company and the Company succeeded to the business of rVue as its sole line of
business.
Immediately
following the Transaction and the Private Placement, our pre-Transaction assets
and liabilities were disposed of pursuant to the Split-Off.
Effective
as of September 15, 2009, Argo contributed certain assets and liabilities to a
newly formed Delaware corporation, rVue, Inc., and launched the rVue business in
order enable rVue's management team to focus on developing the rVue business
operations and attract capital investment in the rVue, Inc.
business.
6
Description
of Our Business
As
used in this Current Report on Form 8-K/A, unless the context otherwise
requires, all references to "we", “our” and "us" for the periods prior to the
closing of the Transaction refer to rVue, Inc., as a privately owned company,
and for periods subsequent to the closing of the Transaction refer to the
Company and its subsidiaries (including rVue, Inc.).
Overview
rVue is
an advertising exchange that connects advertisers and advertising agencies with
digital signage. We provide an online, internet based advertising
exchange that connects advertisers and advertising agencies with third party
Digital Out-Of-Home ("DOOH") media or networks, that allows the advertiser to
create a targeted advertising campaign and media plan, and negotiate that media
plan simultaneously with all the third-party networks selected. As of
October 25, 2010, 97 networks comprising approximately 348,000 screens
representing the top 50 Designated Market Area's ("DMA's") were accessible
through the rVue exchange, and rVue had relationships with over 90 advertising
agencies. For this service rVue receives a transaction fee of up to
4% of the gross advertising placed through rVue. As of the September
30, 2010, rVue had not generated significant revenues from advertisers utilizing
its DOOH platform or technologies.
The
Company acquired from rVue additional software, contracts and technology in
connection with the May 2010 acquisition. rVue had licensed certain
network operating system technology to Levoip Corporation for installation under
a contract between Levoip and Postecom, an affiliate of the Italian Post
Office. Under the terms of the contract, Levoip is required to pay:
(1) a one-time initial site commissioning fee for first-time sites; (2) a
recurring monthly license fee at a fixed dollar per site for each month a site
utilizes the software; and (3) a 25% share of the gross third-party advertising
displayed on the sites. We do not expect to generate significant
additional revenues from the Levoip contract inasmuch as we have recently been
informed that Levoip has suspended its installation of additional
sites.
We also
provide content production and technical services to Accenture and Mattress Firm
under contractual arrangements.
Our
Products
We offer
an advertising exchange for DOOH locations. We provide an Internet
accessible system for DOOH networks to receive display advertising to be shown
on their installed base of digital media displays and for advertisers and
advertising agencies to manage and control the display of programming and
advertising. Our products allow programming and advertising to be
customized for display in specific venues, at specific times, and for
demographic targeting. We provide the tools for advertisers and
advertising agencies to customize campaigns for details as specific as location,
customer preference, product availability, current events and other retailer
needs. Broadband technology, integrated with our proprietary
software, enables us to add, delete or rotate programming segments in real-time
via broadband and to verify network statistics necessary to monitor advertising
on the networks and assist in evaluating the performance or refinements required
for an advertising campaign in real time.
We
launched rVue in September 2009. As of October 25, 2010, 97 networks
comprising approximately 348,000 screens representing the top 50 DMA's were
accessible through rVue.
We
believe that consumers who are mobile are increasingly difficult to reach via
traditional analog media platforms such as television, print and
radio. Interaction with these consumers via multiple DOOH platforms
has advantages. Advertisers desire, for example, to send
pre-programmed, customized messages to specific geographic or demographic
targets throughout the life of an advertising campaign. This can be
achieved via the Internet, and we believe will increasingly be achieved through
digital displays located along roadsides, on trains and buses and train
platforms and bus stations, in elevators, in government offices, schools,
restaurants and bars. All of these DOOH platforms are aggregated for
advertiser and advertising agencies via rVue.
7
Similar
models have been successfully deployed in the Internet ad exchange platforms,
through Internet ad networks and exchanges that utilize similar services to sell
banner and other advertising by websites and Internet publishers with excess
inventory to monetize their assets. For example, Yahoo's Right Media
Exchange leverages Yahoo's advertisers to assist publishers in monetizing
available Internet advertising inventory. Our services provide a
digital advertising solution that streamlines the process of planning, buying
and optimizing display advertising on DOOH digital out of home display
networks. rVue is designed to simplify the process of buying and
selling digital display ads while connecting all the market players — networks,
advertisers, agencies, partners and developers — from a unified platform to do
business more efficiently and effectively.
Under
contractual arrangements with Accenture and Mattress Firm, we also provide
content production and technical services on a monthly basis for a fixed monthly
payment resulting in total monthly revenue of approximately
$33,000. Under these contracts, content production we provide
includes the custom creation of informational spots, typically thirty seconds in
length, for display on the clients network. Technical services include
network monitoring, troubleshooting and maintenance, among other
services.
Targeting
Specific Consumer Demographics
rVue
allows the advertiser to specify geography and/or demography – for example,
females and males aged 21-34, college educated with annual income greater than
$50,000. Unlike network TV or cable, the advertiser can transmit the
message to individually addressable screens, digital image displays in
elevators, digital billboards, and, in the future, mobile
phones. Outlets can be selected by detailed criteria.
The
advertising clips that are deployed through rVue differ from the 30-60 second
spots familiar to the broadcast TV audience. Much shorter in length,
they utilize the look and feel of Internet flash media that is current,
immediate and compelling. Brand cues in these short form
advertisements cause the customer to immediately identify the product (e.g.
Jerry Seinfeld and American Express, Clydesdales and Anheuser Bush) and quickly
orient toward the ad's message. The new spots are different from
traditional television and radio commercials as fewer and fewer buyers are
actually sitting still for paid advertising in these days of subscriber radio,
premium cable channels and the use of digital video
recorders. Digital media has color, motion and vibrancy that grabs
attention and demands notice.
Our
Transaction Approach
rVue
allows advertisers to select as many or as few of the DOOH screens that are
available through rVue when creating media plans and advertising
campaigns. The advertiser may then, through rVue, submit offers to
each of those networks and negotiate the final price the advertiser will pay the
network for the advertising. Networks may accept, reject or counter
offer. Once the campaign is agreed to rVue earns a transaction fee of
up to 4% of the gross amount of the advertising. As such, rVue
primarily expects that it will generate transaction fees and not fees for
services relating to auctions of available displays provided by the
networks.
Creative
Services
We
utilize state-of-the-art high-definition facilities with fully-provisioned
digital edit suites, a live recording studio and thousands of hours of
professionally produced video and animation from our archive. We
offer our customers solutions that span from concept to
completion. We work with our customers to develop a strategic plan
for their DOOH environment, including creating custom-produced content,
procurement and installation of equipment, automated broadcasting and
analytics.
Customers
and Market
A DOOH
network is an accumulation of out of home displays. rVue does not own
any DOOH networks, but provides a digital exchange service that connects
advertisers with networks, for a fee. rVue’s customers are the
advertisers who advertise on out of home displays. As an advertising
exchange, rVue is a platform that intelligently connects the advertiser to these
third-party networks providing an opportunity for displays and messages to be
delivered to these screens and billboards. Since each display device
possesses a unique addressable IP (Internet Protocol) address, information can
be directed from advertisers, across our platform, to a single screen or a group
of screens that are owned by one, or many, networks, and information regarding
the frequency, location and timing of displayed advertisements can be fed back
across our platform to advertisers.
8
Total
U.S. Advertising expenditures are expected to grow at an average annual rate of
over five percent to reach $263 billion by 2012, up from $218 billion in 2008,
as estimated by Veronis Suhler Stevenson ("VSS"). Growth will be
fueled by spending in alternative advertising channels, including DOOH,
Internet, and mobile, as the effectiveness of traditional methods such as
television, radio, newspapers and magazines continues to wane, particularly as a
result of consumers' increasing reliance on new digital media for information
and entertainment.
The DOOH
media sector is one of the fastest growing advertising segments in the
U.S. This sector enables advertisers to engage target consumers in
captive locations during their daily routines through video advertising
networks, digital billboards and ambient ad platforms. The media platforms are
further categorized by various venues and locations, including theaters, retail,
offices, entertainment, transit, universities, roadside, and on various
objects. We do not own any networks or displays. Instead,
we rely on network companies connected to our platform who install and manage
the physical digital signage.
PQ Media,
in their Global Digital Out-of-Home Media Forecast 2009-2014, estimates that the
DOOH media industry is expected to grow 2% to $2.47 billion in 2009, from a
compound annual growth rate ("CAGR") of 16.4% annually from 2004 to 2009.
Spending on DOOH in the U.S. market is expected to increase by 6.2% in 2010 to
reach $2.62 billion, and is expected to post annual double digit gains beginning
in 2012, with a CAGR of 9.4% from 2009 to 2014. U.S. spending on
video advertising networks, the largest segment, is on track to reach $1.40
billion in 2009, and increase by 5.7% in 2010. Digital billboards remain the
fastest-growing segment, with spending climbing to $502 million in 2009, an
increase of 9.1% in 2009 with an expected growth of 13.2% in 2010. Ambient ad
platforms held constant in 2009 reaching $563 million in 2009.
Despite
decelerating growth in 2009, the DOOH market outperformed almost all other
advertising media, particularly traditional media such as newspapers, television
and radio, which fell at double-digit rates. The strong growth in
DOOH spending from 2004 to 2009 can be attributed to such positive trends as
consumers spending more time outside the home, the migration of ad dollars from
traditional advertising to alternative media and declining technology
costs. In addition, improvements in metrics led by the Out-of-Home
Video Advertising Bureau (OVAB) has led to increased advertiser acceptance of
the medium.
Traditional
media still accounts for over 90 percent of advertising budgets in the U.S.
Specifically, DOOH media is forecasted to represent only four percent of total
U.S. advertising expenditures by 2011, compared to only three percent in 2006
according to VSS. With declining interest in traditional media, DOOH
media presents a significant opportunity.
Advertisers
and Agencies
rVue
provides one central conduit for advertiser and agency DOOH needs. Once an
advertiser or agency has determined the specific market they wish to target,
rVue simplifies the complexities of a media buy. Using rVue's web-based
interface, advertisers and agencies pick the audience that they would like to
reach, submit a bid and upload their video content to rVue's servers via the
Internet. We review the uploaded content to ensure quality
control. Once an outlet accepts the offer, they add the advertisement
to their systems using a simple playlist-like interface. Content is then
streamed via the Internet directly to the outlets' servers and screens. Once the
advertisement is running, advertisers and agencies have access to reporting
tools through the rVue website. rVue's automated progress reports provide
fully-featured analytics and proof of playback, so every broadcast is accounted
for.
Networks
rVue is
an IP-based addressable advertising exchange that connects to any network's
digital signage to promote its business and sell advertising to outside
companies. Affiliated networks provide specific information, usually
audited by one of the leading media and market research firms such as Nielson
Media Research or Arbitron, covering locations, number of screens, type of
technology, demographics (i.e., age and sex of the audience) and the nature of
the venue (i.e. retail, sports event, movie theater, etc.) and as advertisers
enter campaigns and submit bids each selected network will be offered the
opportunity to accept some or all of the bid.
rVue
makes loading content onto an existing system as easy as copying music onto an
MP3 player. Networks can click, drag and drop the content to create a playlist
combining in-house commercials with outside advertising, they can change the
order just like a mix, or choose a playlist of preselected video segments
ready-made for their industry. rVue enables network aggregators to manage
multiple locations with separate playlists for each. Networks may schedule ads
for different days and times and preview their playlist in their browser,
exactly as it will appear on their digital signage.
9
Revenue
We earn
revenue in three broad categories:
Transaction
Fees. We earn a transaction fee from advertisers and agencies
for placing advertising with networks through rVue. The transaction
fee is a percentage of the advertising dollars spent on campaigns, which varies
based upon the level of targeting, reporting and other assistance we
provide.
Programming and production
revenue. We earn revenue for producing programming in our
studios or with outside services. In addition, we earn revenue under contracts
pursuant to which we provide content production and technical services to our
clients.
License fees and
royalties. We license our technology to third parties,
including DOOH networks. We have granted an exclusive license for the
use of our technology in Italy to LEVOIP Corporation.
Competition
We face
competition from traditional media and advertising, as well as other aggregators
of DOOH networks. Aggregators, such as SeeSaw and Adcentricity, and
network operators, such as Arena Media Networks, and other brokers and agencies
who contract directly with individual DOOH networks, also compete with
us. In addition, networks maintain internal sales forces and
advertisers may seek out networks and purchase or place ad content
directly.
Our
service differs, however, in that we offer an on-line marketplace where
advertisers and agencies can place content on multiple networks. Our auction
based system efficiently guides advertisers and networks to the best price at
which an advertiser is willing to pay for a campaign and at which a network is
willing to air such campaign.
We
distinguish our product line from our competitors' offerings by being a
"one-stop shopping" source for our customers. Many competitors in our
markets offer a far narrower choice of services than we offer. For
example, some content providers deliver their own content, while we offer the
content of multiple providers. We provide Application Programming
Interfaces ("API's") to connect our technology to other platforms and the
proprietary operating systems that a client network may need to utilize
rVue. We strive to meet every customer's needs at every level and
partner with them across product lines and extensions.
Patents,
Trademarks, and Licenses
Our
policy is to be globally compliant with intellectual property
rights. Advertisers and agencies are contractually obligated to
advise us when they upload content for airing on rVue for which they do not hold
distribution rights. We rely on our advertisers to ensure that the
content that they upload to rVue does not infringe on the intellectual property
rights of others. It is our intention to use proceeds from the
Transaction to pursue additional patents and trademarks.
Regulation
Governments
and regulatory authorities in some jurisdictions in which our affiliated
networks or in which advertiser or agency content originates may impose rules
and regulations requiring licensing for distribution of content over the
Internet.
Regulatory
schemes can vary significantly from country to country. We may be
subject to broadcasting or other regulations in countries from which we have
affiliated networks or from which our advertisers or agencies upload their
content to rVue and may not be aware of those regulations or their application
to rVue. Further, governments and regulatory authorities in many
jurisdictions regularly review their broadcasting rules and policies, including
the application of those rules and policies to new and emerging
media.
10
Traditional
over-the-air and cable television broadcasting businesses are generally subject
to extensive government regulation and significant regulatory oversight in most
jurisdictions in which we operate. Regulations typically govern the
issuance, amendment, renewal, transfer and ownership of over-the-air broadcast
licenses, cable franchise licenses, competition and cross ownership and
sometimes also govern the timing and content of programming, the timing, content
and amount of commercial advertising and the amount of foreign versus
domestically produced programming. In many jurisdictions, including
Canada and the United States, there are also significant restrictions on the
ability of foreign entities to own or control traditional over-the-air
television broadcasting businesses. We are not aware of any
regulations in any of the jurisdictions in which our affiliated networks operate
that would require us to be licensed to distribute content over the public
Internet.
Governments
and regulatory authorities in some jurisdictions in which our subscribers reside
may impose rules and regulations affecting the content distributed over the
Internet.
While we
are not aware of any proposed regulatory initiatives regulating the transfer of
content over the Internet in any of the jurisdictions in which we operate, we
cannot assure you that regulations or orders will not be amended in the future
in a manner that requires us to modify or block content in particular
jurisdictions in order to continue distributing our clients' content to our
affiliated networks in those jurisdictions or that otherwise affects our
operations in a materially adverse manner.
Our
business may be adversely affected by foreign import, export and currency
regulations and global economic conditions. Our future development opportunities
partly relate to geographical areas outside of the United
States. There are a number of risks inherent in international
business activities, including government policies concerning the import and
export of goods and services, costs of localizing products and subcontractors in
foreign countries, costs associated with the use of foreign agents, potentially
adverse tax consequences, limits on repatriation of earnings, the burdens of
complying with a wide variety of foreign laws, nationalization and possible
social, labor, political and economic instability. There can be no assurance
that such risks will not adversely affect our business, financial condition and
results of operations.
Properties
We do not
lease any property; however we occupy approximately 5,500 square feet of space
leased by Argo for which, since January 1, 2010, we pay Argo $13,489 per
month. Argo leases approximately 21,425 square feet of office space,
at 900 SE 3rd Avenue, Fort Lauderdale, Florida 33316 pursuant to a ten (10) year
lease terminating on July 31, 2010.
Employees
As of May
13, 2010, we employed nine full-time employees and three part-time
employees. We have no collective bargaining agreements and believe
our relations with our employees are good.
Legal
Proceedings
We are
not involved in any pending legal proceeding or litigations and, as far as we
are aware, no governmental authority is contemplating any proceeding to which we
are a party or to which any of our properties is subject, which would reasonably
be likely to have a material adverse effect on the Company.
Forward
Looking Statements
This
Current Report on Form 8-K/A and other written and oral statements made from
time to time by us may contain so-called “forward looking statements” within the
meaning of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995,” all of which are subject to risks and uncertainties.
Forward looking statements can be identified by the use of words such as
“expects,” “plans,” “will,” “forecasts,” “projects,” “intends,” “estimates,” and
other words of similar meaning. One can identify them by the fact that they do
not relate strictly to historical or current facts. The statements contained in
this Current Report on Form 8-K/A that are not purely historical are forward
looking statements. Forward looking statements give the Company’s current
expectations or forecasts of future events. Such statements are subject to risks
and uncertainties that are often difficult to predict and beyond the Company’s
control, and could cause the Company’s results to differ materially from those
described. The Company is providing this information as of the date
of this Current Report on Form 8-K/A and does not undertake any obligation to
update any forward looking statements contained in this Current Report on Form
8-K/A as a result of new information, future events or otherwise. We
have based these forward looking statements largely on our current expectations
and projections about future events and financial trends affecting the
financial condition of our business. Forward looking statements
should not be read as a guarantee of future performance or results, and will not
necessarily be accurate indications of the times at, or by, which such
performance or results will be achieved. No forward looking statement
can be guaranteed and actual future results may vary
materially.
11
Information
regarding market and industry statistics contained in this Report is included
based on information available to us that we believe is accurate. It is
generally based on industry and other publications that are not produced for
purposes of securities offerings or economic analysis. We have not reviewed or
included data from all sources, and cannot assure investors of the accuracy or
completeness of the data included in this Report. Forecasts and other forward
looking information obtained from these sources are subject to the same
qualifications and the additional uncertainties accompanying any estimates of
future market size, revenue and market acceptance of products and services. We
do not assume any obligation to update any forward looking statement. As a
result, investors should not place undue reliance on these forward looking
statements.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
This
discussion should be read in conjunction with the other sections of this Current
Report on Form 8-K, including “Risk Factors,” “Description of Our Business” and
the financial statements and related notes filed as Exhibit 99.1 and
Exhibit 99.2 to Amendment No.1 to this Form 8-K, filed on Form 8-K/A
with the Commission on August 17, 2010, and in those sections of our Current
Report on Form 8-K filed with the Commission on May 19, 2010 that have not been
superseded by the disclosures contained herein.
The various sections of this
discussion contain a number of forward-looking statements, all of which are
based on our current expectations and could be affected by the uncertainties and
risk factors described throughout this Report as well as other matters over
which we have no control. See “Forward-Looking Statements.” Our actual results
may differ materially.
Overview
rVue is
an advertising exchange that connects advertisers and advertising agencies with
digital signage. We provide an online, internet based advertising
exchange that connects advertisers and advertising agencies with third party
Digital Out-Of-Home ("DOOH") media or networks, that allows the advertiser to
create a targeted advertising campaign and media plan, and negotiate that media
plan simultaneously with all the third-party networks selected. As of
October 25, 2010, 97 networks comprising approximately 348,000 screens
representing the top 50 Designated Market Area's ("DMA's") were accessible
through the rVue exchange, and rVue had relationships with over 90 advertising
agencies. For this service rVue receives a transaction fee of up to
4% of the gross advertising placed through rVue. As of September 30,
2010, rVue had not generated significant revenues from advertisers utilizing its
DOOH platform or technologies.
The
Company acquired from rVue additional software, contracts and technology in
connection with the May 2010 acquisition. rVue had licensed certain
network operating system technology to Levoip Corporation for installation under
a contract between Levoip and Postecom, an affiliate of the Italian Post
Office. Under the terms of the contract, Levoip is required to pay:
(1) a one-time initial site commissioning fee for first-time sites; (2) a
recurring monthly license fee at a fixed dollar per site for each month a site
utilizes the software; and (3) a 25% share of the gross third-party advertising
displayed on the sites. We do not expect to generate significant
additional revenues from the Levoip contract inasmuch as we have recently been
informed that Levoip has suspended its installation of additional
sites.
We also
provide content production and technical services to Accenture and Mattress Firm
under contractual arrangements.
12
Results
of Operations
The
following table sets forth, for the period from September 15, 2009 (inception)
to December 31, 2009, and for the three month period ended March 31, 2010, the
percentage relationship to total revenue of line items in our statement of
operations.
December 31,
2009
|
March 31,
2010
|
|||||||
%
|
%
|
|||||||
Revenue
|
100.0
|
100.0
|
||||||
Cost of Revenue
|
204.7
|
25.2
|
||||||
Gross
Profit
|
(104.7
|
)
|
74.8
|
|||||
Selling,
general and administrative expenses
|
686.2
|
104.9
|
||||||
Depreciation and
amortization
|
(56.9
|
)
|
13.3
|
|||||
Loss
from Operations
|
(847.8
|
)
|
(43.4
|
)
|
||||
Interest expense
|
3.5
|
0.4
|
||||||
Loss
before Income Tax Expense
|
(851.3
|
)
|
(43.8
|
)
|
||||
Income Tax Expense
|
0.0
|
0.0
|
||||||
Net Loss
|
(851.3
|
)
|
(43.8
|
)
|
For
accounting purposes the acquisition of rVue, Inc. by rVue Holdings, Inc.
was treated as a recapitalization of rVue Inc. as the acquirer (reverse
recapitalization). The historical financial statements of rVue,
Inc. became those of the Registrant. rVue, Inc. (the Accounting
Acquirer) commenced business operations on September 15, 2009 and has no
comparative operating history for the similar period in 2008 or for the quarter
ended March 31, 2009. Accordingly no comparable discussion is
presented.
Period from
September 15, 2009 (inception) through December 31,
2009
Revenue
for the period was $7,079, of which $2,533 was from license fees and $4,546 was
from network and administrative services. Cost of revenue was $14,491
and gross profit (loss) was ($7,412). Selling general and
administrative expenses were $48,575, and major components included $27,424 of
payroll and benefits, $8,750 of facility expenses and $11,183 of office support
and supply expenses. Depreciation and amortization was $4,029, interest expense
was $249, and net loss was $60,265.
The
Company’s results of operations for the period ended December 31, 2009 did not
contain any unusual gains or losses from transactions not in the Company’s
ordinary course of business.
Three Months
Ended March 31, 2010
Revenue
for the period was $149,968, of which $13,657 was from license fees and $136,311
was from network and administrative services. Cost of revenue for was
$37,777 and gross profit was $112,191. Selling general and
administrative expenses were $157,261, and major components included $111,854 of
payroll and benefits, $19,666 of facility expenses, $5,913 of communication
expenses, $11,068 of accounting and auditing fees and $5,136 of office support
and supply expenses. Depreciation and amortization was $19,933,
interest expense was $602 and net loss was $65,605.
The
Company’s results of operations for the quarter ended March 31, 2010 did not
contain any unusual gains or losses from transactions not in the Company’s
ordinary course of business.
Liquidity
and Capital Resources
December 31,
2009
At
December 31, 2009 we had a working capital deficit of $111,717. Net cash
provided by operating activities for the period from September 15, 2009
(inception) to December 31, 2009 was $59,325. The cash provided by
operating activities during this period was as a result of the net income,
increases in accounts payable, accrued liabilities and deferred revenue,
contributed facilities usage and depreciation. Net cash used in
investing activities was $57,173 and were disbursements for software
development. Net cash used in financing activities was $2,035 and was
for payment of capital lease obligations.
13
March 31,
2010
At March
31, 2010 our working capital deficit was $191,808. Net cash used in operating
activities for the three months ended March 31, 2010 was $47,290. The
cash used in operating activities during this period was as a result of the net
loss, increases in accounts receivable, accounts payable and accrued
liabilities, decreases in deferred revenue, and depreciation. Net
cash used in investing activities was $34,419 and were disbursements for
software development. Net cash provided by financing activities was
$102,894, of which $105,000 was from proceeds from borrowings reduced by the
payment of capital lease obligations.
We will
need to raise additional funds to finance operations and the continued
development of rVue, and we may need to raise additional funds to finance
unanticipated working capital requirements or to acquire complementary
businesses. Between April 1, 2010 and April 30, 2010, we received
additional bridge loans totaling $100,000. On May 13, 2010 we
completed a reverse merger with rVue Holdings, Inc. and received net proceeds
from the sale of common stock in the first closing of our private placement of
$877,101. We believe that, with the total proceeds from the private
placement, when closed, we will have sufficient funds to fund our operations for
the next 12 months.
Cash
Flows
Our
business is still in the early stages, having commenced operations on September
15, 2009. As of December 31, 2009 and March 31, 2010, we had cash and
cash equivalent balances of $117 and $21,302, respectively. Since our
inception through December 31, 2009 we incurred a net loss of $60,265, and for
the three months ended March 31, 2010 we incurred a net loss of $65,605
resulting in an accumulated deficit of $125,870 at March 31, 2010. We
expect to incur losses for the next nine months as we roll out
rVue. There is no guarantee that we will ultimately be able to
generate sufficient revenue or reduce our costs in the anticipated time frame to
maintain profitability and have sustainable cash flows.
We do not
have a line of credit facility and have relied on short term borrowings and the
sale of common stock to provide cash to finance our operations. We
believe that we will need to raise additional capital in 2010 to sustain our
operations. We plan to seek additional equity financing to provide
funding for operations.
We do not
have any material commitments for capital expenditures during the next twelve
months. Any required expenditure will be completed through internally
generated funding or from proceeds from the sale of common or preferred stock,
or borrowings.
We did
not have any significant elements of income or loss not arising from continuing
operations in either of the periods ended December 31, 2009 or March 31, 2010
and do not expect any in the remainder of fiscal 2010. While our
business is marginally seasonal, we do not expect this seasonality to have a
material adverse affect on our results of operations or cash flows.
Off-Balance
Sheet Arrangements
Since our
inception, except for standard operating leases, we have not engaged in any
off-balance sheet arrangements, including the use of structured finance, special
purpose entities or variable interest entities.
Tabular
Disclosure of Contractual Obligations
As a
small reporting company, we are not required to provide this information and
have elected not to provide it.
Critical
Accounting Policies
Management
is responsible for the integrity of the financial information presented
herein. Our financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of
America. Where necessary, they reflect estimates based on
management's judgment. When selecting or evaluating accounting
alternatives, management focuses on those that produce from among the available
alternatives information most useful for decision-making. We believe
that the critical accounting policies discussed below involve additional
management judgment due to the sensitivity of the methods, assumptions and
estimates necessary in determining the related asset, liability, revenue and
expense amounts.
14
Software
Development Costs
Our
software development costs are being capitalized or expensed as required by The
Financial Accounting Standards Board, Accounting Standards Codification (“ASC”)
340-40-05, Internal Use Software". Costs incurred in the planning
stage have been expensed. Costs incurred in the website application
and infrastructure development stage are being capitalized or expensed in
accordance with ASC 340-40-50. Costs incurred in the operating stage
will be expensed as incurred; however costs incurred for upgrades or
enhancements that provide added functionality or features will be expensed or
capitalized as required by ASC 340-40-50.
Revenue
Recognition
Our
revenues are derived from the production and distribution of network
programming, advertising sales and the licensing of proprietary
software.
·
|
Revenue
from the production and distribution of network programming content is
recognized ratably over the term of the related service
period.
|
·
|
Advertising
revenue is recognized once the advertisements have aired and the
advertising campaign is completed in accordance with its contractual
terms.
|
·
|
Software
license revenue is accounted for in accordance with ASC 985-605, "Software
Revenue Recognition". Software license revenue is recognized
when there is pervasive evidence of an arrangement, the fees are fixed and
determinable, the software product has been delivered, there are no
uncertainties surrounding product acceptance and collection is considered
probable. Initial site fees are recognized over the estimated period the
sites will be in use.
|
Deferred
revenue consists of payments received in advance of revenue
recognition.
15
Risk
Factors
There
are numerous and varied risks, known and unknown, that may prevent us from
achieving our goals. If any of these risks actually occur, our
business, financial condition or results of operation may be materially
adversely affected. In such case, the trading price of our Common
Stock could decline and investors could lose all or part of their
investment.
Risks
Relating to Our Business
We
have a limited operating history, incurred losses and past performance is no
guarantee of future performance.
We
incurred net losses of $60,625 for the period from September 15, 2009
(inception) to December 31, 2009, and $65,605 for the three month period ended
March 31, 2010. At March 31, 2010 our working capital deficit was
$191,808, which is insufficient to sustain our operations. There can
be no assurance that our business will be profitable in the future and that
losses and negative cash flows from operations will not be
incurred. If these situations occur in the future, it could have a
material adverse affect on our financial condition.
We
depend upon our senior management and our business may be adversely affected if
we cannot retain them.
Our
success depends upon the retention of our experienced senior management with
specialized industry and technical knowledge and/or industry
relationships. We might not be able to find qualified replacements
for our senior management if their services were no longer available to us;
accordingly, the loss of critical members of our senior management team could
have a material adverse effect on our ability to effectively pursue our business
strategy and our relationships with advertisers and content
partners. We have entered into employment agreements with (i) Jason
Kates, our CEO, which is for initial term of three years, and (ii) David
Loppert, our CFO, which is for an initial term of two years. We do
not have key-man life insurance covering any of our employees.
Our
Chief Executive Officer has no experience running a public company.
While our
Chief Executive Officer has significant experience in the industry in which we
operate, he does not have experience as a CEO of a public company. Our CFO,
however, has substantial experience in running public companies.
If
we fail to increase the number of our advertising clients or participating DOOH
networks and if we fail to retain those clients, our revenues and our business
will be harmed.
Our
business plan is to derive a substantial portion of our revenue from advertisers
participating in rVue and willing to offer to display their commercials on our
participating DOOH networks. We launched rVue in September 2009 and
through March 2010 we did not have significant advertising
revenue. Our growth depends in large part on increasing the number of
our advertising clients and participating DOOH networks. Either
category of customer may decide not to continue to use our solutions in favor of
other means of placing advertising or because of budgetary constraints or other
reasons.
To grow
our base of advertising clients, we must convince prospective advertisers of the
benefits of using rVue over the traditional methods of placing advertising to
which they are likely accustomed to. We need to convince prospective
advertisers of the advantages of using rVue, including the ease of creating a
campaign in rVue and the ability to deploy that campaign over multiple networks
at one time rather than having to negotiate with each individual
network. Due to the fragmented nature of the advertising industry,
many prospective advertising clients may not be familiar with our solutions and
will generally favor using more traditional methods of placing
advertising.
To grow
the base of DOOH networks that participate and make their screens available in
rVue, we must convince them of the value of our solutions by demonstrating that
we can deliver incremental advertising revenue to them. Our ability
to do so is driven in large part by increasing the number of advertisers who
participate in rVue.
16
We cannot
assure you that we will be successful in attracting and expanding our
advertising client base or participating DOOH networks. Our future
sales and marketing efforts may be ineffective. If customers choose
not to use our solutions or decrease their use of our solutions or we are unable
to attract new advertisers or participating DOOH networks, the usefulness of
rVue could be diminished and we could experience declining
revenues.
The
market for advertising is highly competitive and we may be unable to compete
successfully.
The
market for advertising is very competitive. DOOH advertising is a
small component of the overall United States advertising market and thus we must
compete with established, larger and better known national and local media
platforms and other emerging media platforms such as the Internet. We compete
for advertising directly with all media platforms, including radio and
television broadcasting, cable and satellite television services, various local
print media, billboards and Internet portals and search engines.
We also
compete directly with other DOOH advertising companies. We expect
these competitors to devote significant effort to maintaining and growing their
respective positions in the DOOH advertising segment. We also expect
existing competitors and new entrants to the DOOH advertising business to
constantly revise and improve their business models in light of challenges from
us or competing media platforms. If we cannot respond effectively to
advances by our competitors, our business may be adversely
affected.
The
effects of the recent and ongoing global economic crisis may adversely impact
our business, operating results or financial condition.
As widely
reported, financial markets in the United States, Europe and Asia have been
experiencing extreme disruption in recent months. Unfavorable changes
in economic conditions, including declining consumer confidence, concerns about
inflation or deflation, the threat of a continuing recession, increases in the
rates of default and bankruptcy and extreme volatility in the credit and equity
markets, may lead our customers to cease doing business with us or to reduce or
delay that business or their payments to us, and our results of operations and
financial condition could be adversely affected by these
actions. These challenging economic conditions also may result
in:
·
|
increased
competition for less
advertising;
|
·
|
pricing
pressure that may adversely affect
revenue;
|
·
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difficulty
forecasting, budgeting and planning due to limited visibility into the
spending plans of current or prospective customers;
or
|
·
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customer
financial difficulty and increased risk of doubtful accounts
receivable.
|
We are
unable to predict the duration and severity of the current disruption in
financial markets and adverse economic conditions in the United States and other
countries.
Our
limited operating history makes it difficult for us to accurately forecast
revenues and appropriately plan our expenses.
We were
formed in September 2009 and have a limited operating history. As a
result it is difficult to accurately forecast our revenues and plan our
operating expenses. We base our current and future expense levels on
our operating forecasts and estimates of future revenues on the level of
advertising we expect to attract and on the number of participating networks
that such advertising may be deployed over, all via rVue. Revenues
and operating results are difficult to forecast due to the uncertainty of the
volume and timing of obtaining new advertising clients and of the number of
screens available through participating DOOH networks. Some of our
expenses are fixed and, as a result, we may be unable to adjust our spending in
a timely manner to compensate for any unexpected shortfall in revenues. This
inability could cause our net income (or loss) in a given quarter to be lower
(or higher) than expected.
17
We
expect a number of factors to cause our operating results to fluctuate on a
quarterly and annual basis, which may make it difficult to predict our future
performance.
Our
revenues and operating results could vary significantly from quarter to quarter
and year to year because of a variety of factors, many of which are outside of
our control. As a result, comparing our operating results on a
period-to-period basis may not be meaningful. In addition to other
risk factors discussed in this section, factors that may contribute to the
variability of our quarterly and annual results include:
|
·
|
our
ability to accurately forecast revenues and appropriately plan our
expenses;
|
|
·
|
the
impact of worldwide economic conditions, including the resulting effect on
consumer spending;
|
|
·
|
our
ability to maintain an adequate rate of
growth;
|
|
·
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our
ability to effectively manage our
growth;
|
|
·
|
our
ability to attract new advertising clients and to retain existing
advertising clients and encourage repeat usage of
rVue;
|
|
·
|
our
ability to attract and retain new participating DOOH
networks;
|
|
·
|
our
ability to provide a high-quality customer experience through our website
and rVue;
|
|
·
|
our
ability to successfully enter new markets and manage our international
expansion;
|
|
·
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the
effects of increased competition in our
business;
|
|
·
|
our
ability to keep pace with changes in technology and our
competitors;
|
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·
|
our
ability to successfully manage any future acquisitions of businesses,
solutions or technologies;
|
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·
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the
success of our marketing efforts;
|
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·
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changes
in consumer behavior and any related impact on the advertising
industry;
|
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·
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interruptions
in service and any related impact on our
reputation;
|
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·
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the
attraction and retention of qualified employees and key
personnel;
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·
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our
ability to protect our intellectual property, including our proprietary
rVue technology;
|
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·
|
costs
associated with defending intellectual property infringement and other
claims;
|
|
·
|
the
effects of natural or man-made catastrophic
events;
|
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·
|
the
effectiveness of our internal controls;
and
|
|
·
|
changes
in government regulation affecting our
business.
|
As a
result of these and other factors, the results of any prior quarterly or annual
periods should not be relied upon as indications of our future operating
performance.
Growth
may place significant demands on our management and our
infrastructure.
We have
forecasted substantial growth in our business. This growth will place
significant demands on our management and our operational and financial
infrastructure. As our operations grow in size, scope and complexity,
we will need to improve and upgrade our systems and infrastructure to offer an
increasing number of clients and participating DOOH networks enhanced solutions,
features and functionality. The expansion of our systems and
infrastructure will require us to commit substantial financial, operational and
technical resources in advance of an increase in the volume of business, with no
assurance that the volume of business will increase. Continued growth
could also strain our ability to maintain reliable service levels for our
clients and participating DOOH networks, develop and improve our operational,
financial and management controls, enhance our reporting systems and procedures
and recruit, train and retain highly skilled personnel.
18
Managing
our growth will require significant expenditures and allocation of valuable
management resources. If we fail to achieve the necessary level of efficiency in
our organization as it grows, our business, operating results and financial
condition would be harmed.
We
may be unable to successfully execute our business strategy if we fail to
continue to provide our customers with a high-quality customer
experience.
A
critical component of our strategy will be to provide a high-quality customer
experience for both advertisers and networks. Accordingly, the
effective performance, reliability and availability of rVue, the rVue website
and network infrastructure are critical to our reputation and our ability to
attract and retain customers. In order to provide a high-quality
customer experience, we have and will continue to have to invest substantial
resources in rVue Inc., our rVue website development and functionality and
customer service operations. If we do not continue to make such
investments and as a result, or due to other reasons, fail to provide a
high-quality customer experience, we may lose advertisers and networks from
rVue, which could significantly decrease the value of our solutions to both
groups. Moreover, failure to provide our customers with high-quality
customer experiences for any reason could substantially harm our reputation and
adversely affect our efforts to develop as a trusted website.
Future
acquisitions could disrupt our business and harm our financial condition and
operating results.
Our
success will depend, in part, on our ability to expand our offerings and markets
and grow our business in response to changing technologies, customer demands and
competitive pressures. In some circumstances, we may determine to do
so through the acquisition of complementary businesses, solutions or
technologies rather than through internal development. The
identification of suitable acquisition candidates can be difficult,
time-consuming and costly, and we may not be able to successfully complete
identified acquisitions. Furthermore, even if we successfully
complete an acquisition, we may not be able to successfully assimilate and
integrate the business, technologies, solutions, personnel or operations of the
company that we acquired, particularly if key personnel of an acquired company
decide not to work for us. In addition, we may issue equity
securities to complete an acquisition, which would dilute our stockholders'
ownership and could adversely affect the price of our Common
Stock. Acquisitions may also involve the entry into geographic or
business markets in which we have little or no prior
experience. Consequently, we may not achieve anticipated benefits of
the acquisitions which could harm our operating results.
We
rely on our marketing efforts to attract new customers and must do so in a
cost-effective manner; otherwise our operations will be harmed.
A
significant component of our business strategy is the promotion of
rVue. We believe that the attractiveness of our solutions to our
current and potential customers, both advertisers and networks, will increase as
additional participating networks join rVue and advertisers increasingly use
rVue to place advertising. If we do not continue to grow the use of
rVue, we may fail to build the critical mass of both networks and advertisers
required to substantially increase our revenues.
While our
marketing efforts do not currently involve significant expenditures, in the
future we may find it necessary to invest more heavily in direct marketing or
online or traditional advertising. If we are unable to effectively
market our solutions to new customers or are unable to do so in a cost-effective
manner, our operating results could be adversely affected.
Misappropriation
of our proprietary software and technology could materially affect our
competitive position.
We
believe our proprietary software and technology is critical to our success and
competitive position. We are currently seeking patent protection for
some of our proprietary software and technology. If we are unable to
protect our proprietary software and technology against unauthorized use by
others, or are unable to obtain requisite patents, our competitive position
would be materially adversely affected.
19
Despite
any precautions that we may take, a third party may copy or otherwise obtain and
use our products, services, software or technology without authorization, or
develop similar technology independently. In addition, effective
patent, copyright, trademark and trade secret protection may be unavailable or
limited. The law in this area is not fully developed. We
may also not be able to enforce confidentiality agreements with our employees or
third parties. We can give you no assurance that the steps we take
will prevent misappropriation or infringement of our software and
technology. Litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others. This
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on our company.
In
addition, our proprietary software may decline in value or our rights in our
software may not be enforceable. Policing unauthorized use of our
proprietary technology and other intellectual property rights could entail
significant expense and could be difficult or futile, particularly given the
fact that the laws of other countries may afford us little or no effective
protection of our intellectual property.
We could
also lose the advantages of our proprietary technology as a result of the advent
of new technologies that replace our technology. Without these
proprietary technologies, our competitive advantage would be
weakened. If we do not maintain our technological advantage, our
business could fail to grow and revenue and operating margins could
decline.
Failure
to successfully or cost-effectively implement upgrades to rVue and our other
software systems to maintain our technological competitiveness could limit our
ability to increase our revenue and more effectively leverage
rVue. Any failure by us to upgrade our technology to remain current
with technological changes that may be adopted by other providers of advertising
or other advertising platforms could hurt our ability to compete with those
companies.
Our
business relies heavily on our technology systems, and any failures or
disruptions may materially and adversely affect our operations.
The
temporary or permanent loss of our computer equipment and software systems,
through sabotage, operating malfunction, software virus, human error, natural
disaster, power loss, terrorist attacks, or other catastrophic events, could
disrupt our operations and cause a material adverse impact. These
problems may arise in both internally developed systems and the systems of
third-party service providers. If our technology systems were to fail
and we were unable to recover in a timely way, we would be unable to fulfill
critical business functions, which could lead to a loss of customers and could
harm our reputation. Technological breakdowns could also interfere
with our ability to comply with financial reporting and other regulatory
requirements.
Our
technology may infringe on rights owned by others, which may interfere with our
ability to provide services, and our rVue web site may expose us to increased
liability or expense under intellectual property, privacy or other
law.
We may
discover that the technology we use infringes patent, copyright, or other
intellectual property rights owned by others. In addition, we cannot
assure you that our competitors will not claim rights in patents, copyrights, or
other intellectual property that will prevent, limit or interfere with our
ability to provide our services either in the United States or as we expand into
international markets. Further, the laws of certain foreign countries
may not protect our intellectual property rights to the same extent as do the
laws of the United States
We will
host and deploy third-party content that could expose us to claims of
infringement on the intellectual property rights of others, and the failure, or
perceived failure, to comply with federal, state or international privacy or
consumer protection-related laws or regulations or our posted privacy policies
could result in actions against us by governmental entities or
others. Any such claim or action could result in significant adverse
effects on our business and financial results because of, for example, increased
costs (such as legal defense, damages owing to third parties, and increased
licensing fees to acquire third-party content) and reduction or elimination of
content or features from our rVue web site. In addition, a number of
other United States federal laws, including those referenced below, may impact
our business as a result of our rVue web site. The Digital Millennium
Copyright Act has provisions that limit, but do not necessarily eliminate,
liability for posting, or linking to third-party web sites that include,
materials that infringe copyrights or other rights. Portions of the
Communications Decency Act are intended to provide statutory protections to
online service providers who distribute third-party content. The
Child Online Protection Act and the Children's Online Privacy Protection Act
restrict the distribution of materials considered harmful to children and impose
additional restrictions on the ability of online services to collect information
from minors. The costs of compliance with these and other regulations
may be significant and may increase in the future as a result of changes in the
regulations or the interpretation of them. Any failure on our part to
comply with these laws and regulations may subject us to additional
liabilities.
20
We
may be unsuccessful in expanding our operations internationally, which could
harm our business, operating results and financial condition.
Our
ability to expand internationally involves various risks, including the need to
invest significant resources in such expansion, the possibility that returns on
such investments will not be achieved in the near future and competitive
environments with which we are unfamiliar. Any future international
expansion plans we choose to undertake will require management attention and
resources and may be unsuccessful. We do not have any experience in
selling our solutions in international markets or in conforming to the local
cultures, standards or policies necessary to successfully compete in those
markets, and if we do expand internationally we must invest significant
resources in order to build the operational infrastructure necessary to operate
in such markets. Furthermore, in many international markets we may
not be the first entrant and there may exist greater competition with stronger
brand names than we expect to compete with in North American
markets. Our ability to expand internationally will also be limited
by the demand for our solutions and the adoption of the Internet in these
markets. Different privacy, censorship and liability standards and
regulations and different intellectual property laws in foreign countries may
cause our business and operating results to suffer.
Any
future international operations may also fail to succeed due to other risks
inherent in foreign operations, including:
|
·
|
difficulties
or delays in acquiring participating DOOH network customers in one or more
international markets;
|
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·
|
different
advertising preferences and patterns than those in North
America;
|
|
·
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varied,
unfamiliar and unclear legal and regulatory
restrictions;
|
|
·
|
unexpected
changes in international regulatory requirements and
tariffs;
|
|
·
|
legal,
political or systemic restrictions on the ability of United States
companies to market services or otherwise do business in foreign
countries;
|
|
·
|
less
extensive adoption of the Internet as a commerce medium or information
source and increased restriction on the content of
websites;
|
|
·
|
difficulties
in staffing and managing foreign
operations;
|
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·
|
greater
difficulty in accounts receivable
collection;
|
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·
|
currency
fluctuations;
|
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·
|
potential
adverse tax consequences;
|
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·
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lack
of infrastructure to adequately conduct electronic commerce transactions;
and
|
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·
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price
controls or other restrictions on foreign
currency.
|
As a
result of these obstacles, we may find it impossible or prohibitively expensive
to expand internationally or we may be unsuccessful in our attempt to do so,
which could harm our business, operating results and financial
condition.
21
Confidentiality
agreements with employees and others may not adequately prevent disclosure of
trade secrets and other proprietary information.
We have
devoted substantial resources to the development of our proprietary technology,
including the proprietary software component of rVue, and related
processes. In order to protect our proprietary technology and
processes, we rely in part on confidentiality agreements with our employees,
licensees, independent contractors and other advisors. These
agreements may not effectively prevent disclosure of confidential information
and may not provide an adequate remedy in the event of unauthorized disclosure
of confidential information. In addition, others may independently
discover trade secrets and proprietary information, and in such cases we could
not assert any trade secret rights against such parties. Costly and
time-consuming litigation could be necessary to enforce and determine the scope
of our proprietary rights, and failure to obtain or maintain trade secret
protection could adversely affect our competitive business
position.
Our
business is subject to the risks of hurricanes, fires, floods and other natural
catastrophic events and to interruption by man-made problems such as computer
viruses or terrorism.
Our
systems and operations are vulnerable to damage or interruption from hurricanes,
fires, floods, power losses, telecommunications failures, terrorist attacks,
acts of war, human errors, break-ins and similar events. For example,
a significant natural disaster, such as a hurricane, fire or flood, could have a
material adverse impact on our business, operating results and financial
condition, and our insurance coverage may be insufficient to compensate us for
losses that may occur. Our corporate offices are located in Fort
Lauderdale, Florida in South East Florida, a region that has experienced
significant hurricane activity in the last decade. In addition, acts
of terrorism, which may be targeted at metropolitan areas which have higher
population density than rural areas, could cause disruptions in our or our
customers' businesses or the economy as a whole. Our servers may also
be vulnerable to computer viruses, break-ins and similar disruptions from
unauthorized tampering with our computer systems, which could lead to
interruptions, delays, loss of critical data or the unauthorized disclosure of
confidential customer data. We may not have sufficient protection or
recovery plans in certain circumstances, such as natural disasters affecting
South East Florida, and our business interruption insurance may be insufficient
to compensate us for losses that may occur. As we rely heavily on our
servers, computer and communications systems and the Internet to conduct our
business and provide high quality customer service, such disruptions could
negatively impact our ability to run our business and either directly or
indirectly disrupt our customers' businesses, which could have an adverse affect
on our business, operating results and financial condition.
As
a public company, we incur significant increased costs which may adversely
affect our operating results and financial condition.
As a
public company, we have an obligation to continue to comply with the applicable
reporting requirements of the Exchange Act, which includes the filing with the
Commission of periodic reports and other documents relating to our business,
financial condition and other matters, even though compliance with such
reporting requirements is economically burdensome. Historically,
neither rVue nor Argo was required to satisfy these reporting requirements and
as a result our historical expenses, as reported in this Current Report, will
increase in future periods in order to comply with the requirements of being
publicly held. We expect to incur, and continue to incur, significant
accounting, legal and other expenses, including the expenses related to
management’s annual evaluation report of its internal control over financial
reporting to be included in our annual report on Form 10-K, associated with our
public company reporting requirements. In addition, we will incur substantial
expenses in connection with the preparation of the registration statement and
related documents required under the terms of the Private Placement that require
us to register the shares of Common Stock included in the Units.
We
will need additional capital to fund ongoing operations and to respond to
business opportunities, challenges, acquisitions or unforeseen
circumstances. If such capital is not available to us, our business,
operating results and financial condition may be harmed.
At March
31, 2010 we had $21,302 of cash on hand and a working capital deficit of
$191,808. Our limited operating history makes it difficult to
accurately forecast revenues and expenses. On May 13, 2010 we had an
initial closing of our Private Placement and received net proceeds of $877,101
after placement agent fees. We will continue to seek equity financing
to provide funding for operations but the current market for equity financing is
very weak. If we are not successful in raising additional equity
capital to generate sufficient cash flows to meet our obligations as they come
due, we will have to reduce our overhead expenses by the reduction of headcount
and other available measures.
22
We may
require additional capital to expand our business or acquire complementary
businesses although we have not identified any specific acquisition
candidates. However, additional funds may not be available when we
need them, on terms that are acceptable to us, or at all. For
example, any debt financing secured by us in the future could involve
restrictive covenants relating to our capital raising activities and other
financial and operational matters, which may make it more difficult for us to
obtain additional capital and to pursue business opportunities, including
potential acquisitions. If we do not have funds available to enhance
our solutions, maintain the competitiveness of our technology or pursue business
opportunities, we may not be able to service our existing customers or acquire
new customers. In addition, if we do not have funds available to make
strategic acquisitions, we may not be able to expand our
business. The inability to raise additional capital could have an
adverse effect on our business, operating results and financial
condition.
A
further tightening of the credit markets may have an adverse effect on our
ability to obtain short-term debt financing.
The
recent deterioration of the global economy threatens to cause further tightening
of the credit markets, more stringent lending standards and terms and higher
volatility in interest rates. Persistence of these conditions could have a
material adverse effect on our access to short-term debt and the terms and cost
of that debt. As a result, we may not be able to secure additional
financing in a timely manner, or at all, to meet our future capital needs which
may have an adverse effect on our business, operating results and financial
condition.
If
we fail to establish and maintain an effective system of internal control, we
may not be able to report our financial results accurately or to prevent
fraud. Any inability to report and file our financial results
accurately and timely could harm our reputation and adversely impact the trading
price of our Common Stock.
Effective
internal control is necessary for us to provide reliable financial reports and
prevent fraud. If we cannot provide reliable financial reports or
prevent fraud, we may not be able to manage our business as effectively as we
would if an effective control environment existed, and our business and
reputation with investors may be harmed. As a result, our small size
and any current internal control deficiencies may adversely affect our financial
condition, results of operation and access to capital.
Risks
Related to Our Industry
If
use of the Internet, particularly with respect to the placement of online
advertising, does not increase as rapidly as we anticipate, our business will be
harmed.
Our
future net profits are substantially dependent upon the continued use of the
Internet as an effective medium of business and communication by our target
customers. Internet use may not continue to develop at historical
rates, and our customers may not continue to use the Internet and other online
services as a medium for commerce. In addition, the Internet may not
be accepted as a viable long-term marketplace or resource for a number of
reasons, including:
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·
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actual
or perceived lack of security of information or privacy
protection;
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·
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possible
disruptions, computer viruses or other damage to Internet servers or to
users' computers; and
|
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·
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excessive
governmental regulation.
|
Our
success will depend, in large part, upon third parties maintaining the Internet
infrastructure to provide a reliable network backbone with the speed, data
capacity, security and hardware necessary for reliable Internet access and
services. Our business, which relies on a contextually rich website
that requires the transmission of substantial data, is also significantly
dependent upon the availability and adoption of broadband Internet access and
other high-speed Internet connectivity technologies.
23
Government
regulation of the Internet is evolving, and unfavorable changes could
substantially harm our business and operating results.
We are
subject to general business regulations and laws as well as regulations and laws
specifically governing the Internet. Existing and future laws and
regulations may impede the growth of the Internet or other online
services. These regulations and laws may cover taxation, tariffs,
user privacy, data protection, pricing, content, copyrights, distribution,
electronic contracts and other communications, consumer protection, broadband
residential Internet access and the characteristics and quality of services. It
is not clear how existing laws governing issues such as property ownership,
sales and other taxes, libel and personal privacy apply to the Internet.
Unfavorable resolution of these issues may substantially harm our business and
operating results.
Seasonality
may cause fluctuations in our financial results.
We
believe that our revenue will be subject to seasonal fluctuations because
advertisers generally place fewer advertisements during the first and third
calendar quarters of each year. Expenditures by advertisers also tend
to vary in cycles that reflect overall economic conditions as well as budgeting
and buying patterns. Because some advertisers may discontinue or
reduce advertising on our networks from time to time with little or no notice,
we may experience fluctuations in operating results. In particular,
because advertisers generally reduce their spending during economic downturns,
we would be materially adversely affected by a recession.
Risks
Related to our Common and Preferred Stock
We
may be unable to register for resale all of the shares of common stock and
shares of common stock underlying the warrants included within the units sold in
the Private Placement, in which case purchasers in the Private Placement will
need to rely on an exemption from the registration requirements in order to sell
such shares.
In
connection with the Private Placement we entered into a registration rights
agreement, pursuant to which we are obligated to file a “resale” registration
statement with the SEC that covers all of the Common Stock sold in the Private
Placement and to have such “resale” registration statement declared effective by
the SEC no later than 180 days after the final closing of the Private
Placement. Nevertheless, it is possible that the SEC may not permit us to
register all of such shares of common stock for resale. In certain
circumstances, the SEC may take the view that the Private Placement requires us
to register the resale of the securities as a primary offering. It is possible
that if registration is barred by current or future rules and regulations,
rescission of the Private Placement could be sought by investors or an offer of
rescission may be mandated by the SEC, which would result in a material adverse
effect to us. In addition, our shares of public float are limited and are held
by persons who acquired such shares under an effective registration filed prior
to the Merger. Investors should be aware of the existence of risks that
interpretive positions taken with respect to Rule 415, or similar rules or
regulations including those that may be adopted subsequent to the date of this
Current Report on Form 8-K/A, that could impede the manner in which the Common
Stock may be registered or our ability to register the Common Stock for resale
at all or the trading in our securities. If we are unable to register some or
all of the Common Stock, or if shares previously registered are not deemed to be
freely tradeable, such shares would only be able to be sold pursuant to an
exemption from registration under the Securities Act, such as Rule 144,
that currently permits the resale of securities by holders who are not
affiliated with the issuer following twelve months from the filing of the
Original Report.
Because
we became public by means of a reverse merger, we may not be able to attract the
attention of major brokerage firms.
There may
be risks associated with us becoming public through a “reverse merger.”
Securities analysts of major brokerage firms may not provide coverage of us
since there is no incentive to brokerage firms to recommend the purchase of our
common stock. No assurance can be given that brokerage firms will, in the
future, want to conduct any offerings on behalf of our post-Transaction
company.
Following
the Transaction, our stock price may be volatile.
The
market price of our Common Stock is likely to be highly volatile and could
fluctuate widely in price in response to various factors, many of which are
beyond our control, including the following:
|
·
|
changes
in our industry;
|
|
·
|
competitive
pricing pressures;
|
|
·
|
our
ability to obtain working capital
financing;
|
24
|
·
|
additions
or departures of key personnel;
|
|
·
|
limited
"public float" following the Transaction, in the hands of a small number
of persons whose sales or lack of sales could result in positive or
negative pricing pressure on the market price for our Common
Stock;
|
|
·
|
sales
of our Common Stock (particularly following effectiveness of the resale
registration statement required to be filed in connection with the Private
Placement);
|
|
·
|
our
ability to execute our business
plan;
|
|
·
|
operating
results that fall below
expectations;
|
|
·
|
loss
of any strategic relationship;
|
|
·
|
regulatory
developments;
|
|
·
|
economic
and other external factors;
|
|
·
|
period-to-period
fluctuations in our financial results;
and
|
|
·
|
inability
to develop or acquire new or needed
technology.
|
In
addition, the securities markets have from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of
particular companies. These market fluctuations may also materially
and adversely affect the market price of our Common Stock.
We
have not paid dividends in the past and do not expect to pay dividends in the
future. Any return on investment may be limited to the value of our
Common Stock.
We have
never paid cash dividends on our Common Stock and do not anticipate doing so in
the foreseeable future. The payment of dividends on our Common Stock
will depend on earnings, financial condition and other business and economic
factors affecting us at such time as our board of directors may consider
relevant. If we do not pay dividends, our Common Stock may be less
valuable because a return on your investment will only occur if our stock price
appreciates.
There
is currently no liquid trading market for our Common Stock and we cannot ensure
that one will ever develop or be sustained.
To date
there has been no liquid trading market for our Common Stock. We
cannot predict how liquid the market for our Common Stock might
become. Following the Transaction, we anticipate having our Common
Stock quoted for trading on the Over-the-Counter Bulletin Board (the "OTC
Bulletin Board"), however, we cannot be sure that such quotation will be
obtained promptly, if at all. As soon as is practicable, we
anticipate applying for listing of our Common Stock on either the American Stock
Exchange, The NASDAQ Capital Market or other national securities exchange,
assuming that we can satisfy the initial listing standards for such
exchange. We currently do not satisfy the initial listing standards,
and cannot ensure that we will be able to satisfy such listing standards or that
our Common Stock will be accepted for listing on any such
exchange. Should we fail to satisfy the initial listing standards of
such exchanges, or our Common Stock is otherwise rejected for listing and
remains listed on the OTC Bulletin Board or suspended from the OTC Bulletin
Board, the trading price of our Common Stock could suffer and the trading market
for our Common Stock may be less liquid and our Common Stock price may be
subject to increased volatility.
Furthermore,
for companies whose securities are traded in the OTC Bulletin Board, it is more
difficult (1) to obtain accurate quotations, (2) to obtain coverage for
significant news events because major wire services generally do not publish
press releases about such companies, and (3) to obtain needed
capital.
25
Following
the Transaction, our Common Stock may be deemed a "penny stock," which would
make it more difficult for our investors to sell their
shares.
Following
the Transaction, our Common Stock may be subject to the "penny stock" rules
adopted under Section 15(g) of the Exchange Act. The penny stock
rules generally apply to companies whose common stock is not listed on The
Nasdaq Stock Market or other national securities exchange and trades at less
than $4.00 per share, other than companies that have had average revenue of at
least $6,000,000 for the last three years or that have tangible net worth of at
least $5,000,000 ($2,000,000 if the company has been operating for three or more
years). These rules require, among other things, that brokers who
trade penny stock to persons other than "established customers" complete certain
documentation, make suitability inquiries of investors and provide investors
with certain information concerning trading in the security, including a risk
disclosure document and quote information under certain
circumstances. Many brokers have decided not to trade penny stocks
because of the requirements of the penny stock rules and, as a result, the
number of broker-dealers willing to act as market makers in such securities is
limited. If we remain subject to the penny stock rules for any
significant period, it could have an adverse effect on the market, if any, for
our securities. If our securities are subject to the penny stock
rules, investors will find it more difficult to dispose of our
securities.
Offers
or availability for sale of a substantial number of shares of our Common Stock
may cause the price of our Common Stock to decline.
If our
stockholders sell substantial amounts of our Common Stock in the public market,
including shares issued in the Private Placement upon the effectiveness of the
registration statement required to be filed, or upon the expiration of any
statutory holding period, under Rule 144, or upon expiration of lock-up periods
applicable to outstanding shares, or issued upon the exercise of outstanding
options or warrants, it could create a circumstance commonly referred to as an
"overhang" and in anticipation of which the market price of our Common Stock
could fall. The existence of an overhang, whether or not sales have
occurred or are occurring, also could make more difficult our ability to raise
additional financing through the sale of equity or equity-related securities in
the future at a time and price that we deem reasonable or
appropriate. The shares of Common Stock issued in the Transaction to
the current and former officers and directors of rVue Inc. will be subject to a
lock-up agreement prohibiting sales of such shares for a period of 12 months
following the Transaction. Following such date, all of those shares
will become freely tradable, subject to securities laws and SEC regulations
regarding sales by insiders. In addition, the shares of Common Stock
sold in the Private Placement will be freely tradable upon the earlier of: (i)
effectiveness of a registration statement covering such shares and (ii) the date
on which such shares may be sold without registration pursuant to Rule 144 (or
other applicable exemption) under the Securities Act.
Investor
Relations Activities, Nominal “Float” and Supply and Demand Factors May Affect
the Price of our Stock.
We expect
to utilize various techniques such as non-deal road shows and investor relations
campaigns in order to create investor awareness for the
Company. These campaigns may include personal, video and telephone
conferences with investors and prospective investors in which our business
practices are described. We may provide compensation to investor
relations firms and pay for newsletters, websites, mailings and email campaigns
that are produced by third-parties based upon publicly-available information
concerning the Company. We will not be responsible for the content of
analyst reports and other writings and communications by investor relations
firms not authored by the Company or from publicly available
information. We do not intend to review or approve the content of
such analysts’ reports or other materials based upon analysts’ own research or
methods. Investor relations firms should generally disclose when they
are compensated for their efforts, but whether such disclosure is made or
complete is not under our control. We have issued 800,000 shares of
restricted stock, and have budgeted $7,500 per month (for 12 months) for these
activities, and such amounts may be increased in the future. In
addition, investors in the Company may be willing, from time to time, to
encourage investor awareness through similar activities. Investor
awareness activities may also be suspended or discontinued which may impact the
trading market our Common Stock.
26
The SEC
and FINRA enforce various statutes and regulations intended to prevent
manipulative or deceptive devices in connection with the purchase or sale of any
security and carefully scrutinize trading patterns and company news and other
communications for false or misleading information, particularly in cases where
the hallmarks of “pump and dump” activities may exist, such as rapid share price
increases or decreases. The Company and its shareholders may be
subjected to enhanced regulatory scrutiny due to the small number of holders who
initially will own the registered shares of the Company’s Common Stock publicly
available for resale, and the limited trading markets in which such shares may
be offered or sold which have often been associated with improper activities
concerning penny-stocks, such as the OTC Bulletin Board or the OTCQB Marketplace
(Pink OTC) or pink sheets. Until such time as the Common Stock sold
in the Private Placement is registered and until such time as the restricted
shares of the Company (including 12,500,000 shares issued to Argo) are
registered or available for resale under Rule 144, there will continue to be a
small percentage of shares held by a small number of investors, many of whom
acquired such shares in privately negotiated purchase and sale transactions,
that will constitute the entire available trading market. The Supreme
Court has stated that manipulative action is a term of art connoting intentional
or willful conduct designed to deceive or defraud investors by controlling or
artificially affecting the price of securities. Often times,
manipulation is associated by regulators with forces that upset the supply and
demand factors that would normally determine trading prices. As
described in our Current Report on Form 8-K filed with the Commission on May 19,
2010, a small percentage of the outstanding common stock of the Company will
initially be available for trading, held by a small number of individuals or
entities. Accordingly, the supply of Company Common Stock for sale
will be extremely limited for an indeterminate amount of time, which could
result in higher bids, asks or sales prices than would otherwise
exist. Securities regulators have often cited thinly-traded markets,
small numbers of holders, and awareness campaigns as components of their claims
of price manipulation and other violations of law when combined with
manipulative trading, such as wash sales, matched orders or other manipulative
trading timed to coincide with false or touting press releases. There
can be no assurance that the Company’s or third-parties’ activities, or the
small number of potential sellers or small percentage of stock in the “float,”
or determinations by purchasers or holders as to when or under what
circumstances or at what prices they may be willing to buy or sell stock will
not artificially impact (or would be claimed by regulators to have affected) the
normal supply and demand factors that determine the price of the
stock.
We
may apply the proceeds of the Private Placement to uses that ultimately do not
improve our operating results or increase the value of your
investment.
We intend
to use the net proceeds from the Private Placement for general working capital
purposes. Therefore, our management will have broad discretion in how we use
these proceeds. These proceeds could be applied in ways that do not ultimately
improve our operating results or otherwise increase the value of the investment
in units sold in the Private Placement.
Because
our directors and executive officers are among our largest stockholders, they
can exert significant control over our business and affairs and have actual or
potential interests that may depart from those of subscribers in the Private
Placement.
Our
directors and executive officers will own or control a significant percentage of
the Common Stock following the Transaction and completion of the Private
Placement. Additionally, the holdings of our directors and executive
officers may increase in the future upon vesting or other maturation of exercise
rights under any of the options or warrants they may hold or in the future be
granted or if they otherwise acquire additional shares of our Common
Stock. The interests of such persons may differ from the interests of
our other stockholders, including purchasers of Units in the Private
Placement. As a result, in addition to their board seats and offices,
such persons will have significant influence over and control all corporate
actions requiring stockholder approval, irrespective of how the Company's other
stockholders, including purchasers in the Private Placement, may vote, including
the following actions:
|
·
|
to
elect or defeat the election of our
directors;
|
|
·
|
to
amend or prevent amendment of our Certificate of Incorporation or
By-laws;
|
|
·
|
to
effect or prevent a Transaction, sale of assets or other corporate
transaction; and
|
|
·
|
to
control the outcome of any other matter submitted to our stockholders for
vote.
|
Such
persons' stock ownership may discourage a potential acquirer from making a
tender offer or otherwise attempting to obtain control of the Company, which in
turn could reduce our stock price or prevent our stockholders from realizing a
premium over our stock price.
27
Exercise
of options may have a dilutive effect on our common stock.
If the
price per share of our Common Stock at the time of exercise of any options, or
any other convertible securities is in excess of the various exercise or
conversion prices of such convertible securities, exercise or conversion of such
convertible securities would have a dilutive effect on our common stock. As of
May 13, 2010, we had (i) outstanding options to purchase 1,375,000 shares of our
Common Stock at an exercise price of $0.22 per share, and (ii) outstanding
options to purchase 1,137,500 shares of our Common Stock at an exercise price of
$0.20 per share. Further, any additional financing that we secure may require
the granting of rights, preferences or privileges senior to those of our Common
Stock and which result in additional dilution of the existing ownership
interests of our common stockholders.
Our amended
and restated articles of incorporation allows for our board to create new
series of preferred stock without further approval by our stockholders, which
could adversely affect the rights of the holders of our common
stock.
Our board
of directors has the authority to fix and determine the relative rights and
preferences of preferred stock. Our board of directors also has the authority to
issue preferred stock without further stockholder approval. As a result, our
board of directors could authorize the issuance of a series of preferred stock
that would grant to holders the preferred right to our assets upon liquidation,
the right to receive dividend payments before dividends are distributed to the
holders of common stock and the right to the redemption of the shares, together
with a premium, prior to the redemption of our common stock. In addition, our
board of directors could authorize the issuance of a series of preferred stock
that has greater voting power than our common stock or that is convertible into
our common stock, which could decrease the relative voting power of our common
stock or result in dilution to our existing stockholders.
Security
Ownership of Certain Beneficial Owners and Management
The
following tables set forth certain information as of May 13, 2010 regarding the
beneficial ownership of our common stock, taking into account the consummation
of the Transaction, the Private Placement and the Split-Off, by (i) each person
or entity who, to our knowledge, owns more than 5% of our common stock; (ii) our
executive officers named in the Summary Compensation Table below; (iii) each
director; and (iv) all of our executive officers and directors as a group.
Unless otherwise indicated in the footnotes to the following table, each person
named in the table has sole voting and investment power and that person’s
address is c/o Rvue Holdings, Inc., 900 S.E. Third Avenue, 3rd Floor,
Fort Lauderdale, FL 33316. Shares of Common Stock subject to options currently
exercisable or exercisable within 60 days of May 13, 2010, are deemed to be
beneficially owned and outstanding for computing the share ownership and
percentage of the stockholder holding such options, but are not deemed
outstanding for computing the percentage of any other stockholder.
Name and Address
of Beneficial Ownership
|
Number of Shares
Beneficially
Owned (1)
|
Percent
Of Class
Beneficially
Owned (2)
|
|||||||
5%
Owners:
|
|||||||||
Argo
Digital Solutions, Inc.
900
S.E. Third Avenue, 3rd
Floor
Fort
Lauderdale, FL 33316
|
12,500,000 |
(3)
|
50.2 | % | |||||
Edward
M. Karr
17
Rue Des Maraichers
Geneva,
1205 Switzerland
|
2,470,588 | 9.9 | % | ||||||
Ridge
Clearing & Outsourcing Solutions
1918
Marcus Ave., 1st
Fl.
Lake
Success, NY 11042
|
1,904,628 | 7.6 | % | ||||||
Paradox
Capital Partners LLC
4
S. Orange Ave., Unit 170
S.
Orange, NJ 07079
|
1,269,638 | 5.1 | % | ||||||
Executive
Officers and Directors:
|
|||||||||
Jason
Kates
|
4,500,000 |
(4)
|
18.1 | % | |||||
Richard
Sullivan
|
3,775,000 |
(5)
|
15.2 | % | |||||
David
Loppert
|
350,000 |
(6)
|
1.4 | % | |||||
Dawn
Rahicki
|
100,000 |
(7)
|
* | ||||||
Jay
Wilson
|
225,000 |
(8)
|
* | ||||||
Robert
Chimbel
|
— | — | |||||||
All
executive officers and directors as a group (six persons)
|
8,950,000 |
(1)(4)(5)(6)(7)(8)
|
35.9 | % |
28
* - Less than 1%
(1)
|
Does
not include 2,300,000 shares underlying options that are not currently
exercisable.
|
(2)
|
Based
on 24,898,730 shares of our Common Stock issued and
outstanding.
|
(3)
|
Jason
Kates, Richard Sullivan, David Loppert, Dawn Rahicki and Jay Wilson are
deemed to control 36.0%, 30.2% , 2.8%, 0.8% and 1.8% of these shares,
respectively, by virtue of their common share interest in
Argo.
|
(4)
|
Includes
4,500,000 shares issued to Argo Digital Solutions, Inc. by virtue of Mr.
Kates’36.0% ownership of Argo.
|
(5)
|
Includes
3,775,000 shares issued to Argo Digital Solutions, Inc. by virtue of Mr.
Sullivan’s 30.2% ownership of Argo.
|
(6)
|
Includes
350,000 shares issued to Argo Digital Solutions, Inc. by virtue of Mr.
Loppert’s 2.8% ownership of Argo.
|
(7)
|
Includes
100,000 shares issued to Argo Digital Solutions, Inc. by virtue of Ms.
Rahicki’s 0.8% ownership of Argo.
|
(8)
|
Includes
225,000 shares issued to Argo Digital Solutions, Inc. by virtue of Mr.
Wilson’s 1.8% ownership of Argo.
|
Item
9.01.
|
Financial
Statements and Exhibits.
|
(d) Exhibits.
Exhibit No.
|
Description
|
|
10.16
|
Form
of Bridge Loan Note Purchase Agreement
|
|
10.17
|
Form
of Bridge Loan Secured Promissory Note
|
|
10.18
|
Form
of Bridge Loan Security
Agreement
|
29
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 hereunto
duly authorized.
RVUE
HOLDINGS, INC.
|
||
Dated:
October 27, 2010
|
By:
|
/s/ David A. Loppert
|
David
A. Loppert
|
||
Chief
Financial Officer
|
30
EXHIBIT
INDEX
Exhibit No.
|
Description
|
|
10.16
|
Form
of Bridge Loan Note Purchase Agreement
|
|
10.17
|
Form
of Bridge Loan Secured Promissory Note
|
|
10.18
|
Form
of Bridge Loan Security
Agreement
|
31