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EX-31.2 - EXHIBIT 31.2 - RVUE HOLDINGS, INC.v238546_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - RVUE HOLDINGS, INC.v238546_ex31-1.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2011
 
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                    to
 
Commission File Number: 000-54348
 
RVUE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
 
NEVADA
 
94-3461079
(State or other jurisdiction of incorporation
or organization)
 
(I.R.S. Employer Identification No.)
 
100 N.E. 3rd Avenue, Suite 200
Fort Lauderdale, Florida 33301
 
(954) 525-6464
(Address of principal executive offices,
including zip code)
 
(Registrant’s telephone number,
including area code)
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
 
The number of shares outstanding of each of the issuer’s classes of common stock as of the close of business on November 7, 2011 is as follows:
 
Class
 
Number of Shares
Common Stock: $0.001 Par Value
 
37,343,725
 
 
 

 
 
RVUE HOLDINGS, INC.
TABLE OF CONTENTS

PART I
FINANCIAL INFORMATION
 
     
Item 1.
Financial Statements.
 
 
Condensed Consolidated Balance Sheets – September 30, 2011 and December 31, 2010
1
 
Condensed Consolidated Statements of Operations – Three and nine-month period ended September 30, 2011 and 2010
2
 
Condensed Consolidated Statement of Stockholders’ Equity – Nine months ended September 30, 2011
3
 
Condensed Consolidated Statement of Cash Flows – Nine months ended September 30, 2011 and 2010
4
 
Notes to Condensed Consolidated Financial Statements
5
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
11
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
20
Item 4.
Controls and Procedures.
20
     
PART II
OTHER INFORMATION
 
     
Item 1.
Legal Proceedings.
21
Item 1A.
Risk Factors.
21
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
21
Item 3.
Defaults Upon Senior Securities.
21
Item 4.
(Removed and Reserved).
21
Item 5.
Other Information.
21
Item 6.
Exhibits.
21
 
Signature
22
 
 
 

 

rVUE HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
 
   
September 30,
   
December 31,
 
   
2011
   
2010
 
Assets
           
Current assets:
           
Cash and cash equivalents
  $ 350,692     $ 2,334,121  
Accounts receivable, net of allowance for doubtful accounts of $37,651 as of December 31, 2010
    30,318       24,867  
Prepaid expenses
    215,468       38,461  
Due from Argo Digital Solutions, Inc.
    -       172,012  
Total current assets
    596,478       2,569,461  
Property and equipment, net
    54,971       25,972  
Software development costs
    247,164       380,054  
Deposits
    17,488       13,510  
    $ 916,101     $ 2,988,997  
                 
Liabilities and Stockholders' Equity
               
Current liabilities:
               
Accounts payable
  $ 108,640     $ 70,493  
Accrued expenses
    389,808       227,600  
Deferred revenue
    31,975       31,975  
Total current liabilities
    530,423       330,068  
                 
Commitments and contingencies (Note 7)
               
                 
Stockholders' equity:
               
Preferred stock, $0.001 par value per share; 10,000,000 shares authorized; none issued or outstanding
    -       -  
Common stock, $0.001 par value per share; 140,000,000 shares authorized at September 30, 2011 and December 31, 2010; 37,343,725 and 37,273,725 issued and outstanding at September 30, 2011 and December 31, 2010
    37,344       37,274  
Additional paid-in capital
    5,337,702       4,782,267  
Accumulated deficit
    (4,989,368 )     (2,160,612 )
Total stockholders' equity
    385,678       2,658,929  
    $ 916,101     $ 2,988,997  
 
See the accompanying notes to condensed consolidated financial statements.
 
 
1

 
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
   
For the Three Months
Ended September 30,
   
For the Nine Months
Ended September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Revenue
                       
rVue advertising revenue
  $ 2,152     $ 3,257     $ 126,595     $ 3,257  
Network
    115,247       129,504       335,746       399,692  
License
    -       24,175       -       58,312  
      117,399       156,936       462,341       461,261  
Costs and expenses
                               
Cost of revenue
    46,396       44,422       195,882       120,143  
Selling, general and administrative expenses
    767,613       934,167       2,579,642       1,544,395  
Depreciation and amortization
    209,781       35,784       519,174       85,996  
Interest income
    (339 )     (5,824 )     (3,601 )     (5,884 )
Interest expense
    -       789       -       65,815  
      1,023,451       1,009,338       3,291,097       1,810,465  
Loss before provision for income taxes
    (906,052 )     (852,402 )     (2,828,756 )     (1,349,204 )
Provision for income taxes
    -       -       -       -  
Net loss
  $ (906,052 )   $ (852,402 )   $ (2,828,756 )   $ (1,349,204 )
Net loss per common share - basic and diluted
  $ (0.02 )   $ (0.03 )   $ (0.08 )   $ (0.08 )
Shares used in computing net loss per share:
                               
Basic and diluted
    37,297,312       24,485,687       37,281,587       17,781,452  
 
See the accompanying notes to condensed consolidated financial statements.
 
 
2

 
 
rVUE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011
(unaudited)
 
                            
Additional
             
   
Preferred Stock
   
Common Stock
   
Paid-In
   
Accumulated
       
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
   
Total
 
                                           
Balance, December 31, 2010
    -     $ -       37,273,725     $ 37,274     $ 4,782,267     $ (2,160,612 )   $ 2,658,929  
Common stock issued for services
    -     $ -       70,000       70       13,930     $ -       14,000  
Warrants issued for services
    -       -       -       -       241,960       -       241,960  
Stock-based compensation expense
    -       -       -       -       299,545       -       299,545  
Net loss
    -       -       -       -       -       (2,828,756 )     (2,828,756 )
Balance, September 30, 2011
    -     $ -       37,343,725     $ 37,344     $ 5,337,702     $ (4,989,368 )   $ 385,678  
 
See the accompanying notes to condensed consolidated financial statements.
 
 
3

 
 
rVUE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
   
For the Nine Months
 
   
Ended September 30,
 
   
2011
   
2010
 
Operating activities
           
Net loss
  $ (2,828,756 )   $ (1,349,204 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
    519,174       85,996  
Stock-based compensation expense
    299,545       131,067  
Common stock issued for services
    14,000       180,000  
Warrants issued for services
    241,960       -  
Bridge loan interest
    -       64,746  
Changes in operating assets and liabilities:
               
Accounts receivable
    (5,451 )     (34,187 )
Prepaid expenses
    (177,007 )     (44,500 )
Accounts payable
    42,016       102,611  
Accrued expenses
    158,339       202,045  
Deferred revenue
    -       3,004  
Cash used in operating activities
    (1,736,180 )     (658,422 )
Investing activities
               
Payments for property, equipment and capitalized software development
    (415,283 )     (158,224 )
Repayments by (advances to) Argo Digital Solutions, Inc.
    172,012       (167,048 )
Change in deposits
    (3,978 )     (13,510 )
Cash used in investing activities
    (247,249 )     (338,782 )
Financing activities
               
Proceeds from the issuance of common stock
    -       1,478,533  
Investment subscription received
    -       150,000  
Repayment of capital lease obligations
    -       (5,784 )
Cash provided by financing activities
    -       1,622,749  
Increase (decrease) in cash and cash equivalents
    (1,983,429 )     625,545  
Cash and cash equivalents, beginning of period
    2,334,121       117  
Cash and cash equivalents, end of period
  $ 350,692     $ 625,662  
 
See the accompanying notes to condensed consolidated financial statements.
 
 
4

 
 
RVUE HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 
Note 1 – Summary of Significant Accounting Policies
 
rVue Holdings, Inc., formerly known as Rivulet International, Inc. (“rVue” or the “Company”), was incorporated in the State of Nevada on November 12, 2008.  rVue is an advertising technology company that operates an internet based demand-side platform (“DSP”) for planning, buying and managing Digital Out-of-Home (“DOOH”) and digital placed based media or advertising.  The Company’s DSP connects advertisers and/or advertising agencies with third party 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.  Prior to May 13, 2010, the Company was a shell company in the development stage, had no revenue, and its efforts were devoted to entering the automobile export business.
 
On March 29, 2010, the Company filed an Amended and Restated Articles of Incorporation to, among other things: (1) change its name from “Rivulet International, Inc.” to “Rvue Holdings, Inc.”; and (2) 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, and 10,000,000 shares of preferred stock, par value $.001 per share.
 
On May 13, 2010, the Company 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 Company disposed of its pre-transaction assets and liabilities and succeeded to the business of rVue as its sole line of business.  rVue, Inc., which began operations on September 15, 2009, became the accounting acquirer of the Company for financial statement purposes.
 
Basis of Presentation and Preparation
 
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiary.  Intercompany accounts and transactions have been eliminated. The preparation of these condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. Significant estimates include bad debt reserves, assumptions used in the Black-Scholes-Merton options and warrant pricing models, valuation and depreciation and amortization periods of property, equipment and software development costs, among others. In the opinion of the Company’s management, all adjustments (including normal recurring adjustments) considered necessary to present fairly the unaudited condensed consolidated financial statements have been made.
 
The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and the notes thereto for the year ended December 31, 2010, included in its Annual Report on Form 10-K (the “2010 Form 10-K”).
 
The unaudited condensed consolidated statements of operations for the nine-month period ended September 30, 2011 are not necessarily indicative of the results that may be expected for the entire year.
 
Loss Per Common Share
 
Basic and diluted loss per common share is computed by dividing the loss by the weighted average number of common shares outstanding for the period.  Since the Company incurred losses attributable to common stockholders during the three and nine-month periods ended September 30, 2011 and 2010, diluted loss per common share has not been computed by giving effect to all potentially dilutive common shares that were outstanding during the three- and nine-month periods ended September 30, 2011 and 2010.  Dilutive common shares consist of incremental shares issuable upon the exercise of stock options and warrants to the extent that the average fair value of the Company’s common stock for each period is greater than the exercise price of the derivative securities.
 
 
5

 

RVUE HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 
The following table sets forth the computation of basic and diluted loss per common share:
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Numerator:
                       
Net loss
  $ (906,052 )   $ (852,402 )   $ (2,828,756 )   $ (1,349,204 )
                                 
Denominator:
                               
Weighted-average shares outstanding
    37,297,312       25,485,687       37,281,587       17,781,452  
Effect of dilutive securities (1)
    -       -       -       -  
Weighted-average diluted shares
    37,297,312       25,485,687       37,281,587       17,781,452  
Basic and diluted loss per share
  $ (0.02 )   $ (0.03 )   $ (0.08 )   $ (0.08 )
 
 
(1)
The following stock options and warrants outstanding as of September 30, 2011 and 2010 were not included in the computation of dilutive loss per share because the net effect would have been anti-dilutive:
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Stock Options
    534,874       1,431,618       1,330,803       716,798  
Warrants
    -       -       78,860       -  
      534,874       1,431,618       1,409,663       716,798  
 
Note 2 – Financial Instruments
 
Cash and cash equivalents
 
The following table summarizes the fair value of the Company’s cash and cash equivalents as of September 30, 2011 and December 31, 2010:
   
September 30,
   
December 31,
 
   
2011
   
2010
 
Cash
  $ 65,377     $ 17,210  
Cash equivalents - money market funds
    285,315       2,316,911  
Total cash and cash equivalents
  $ 350,692     $ 2,334,121  
 
Accounts Receivable
 
The Company sells its services directly to its customers.  The Company generally does not require collateral from its customers; however, the Company will require collateral in certain instances to limit credit risk. Accounts receivable from two of the Company’s customers accounted for approximately 74% and 15% of accounts receivable as of September 30, 2011. Accounts receivable from two of the Company’s customers accounted for approximately 56% and 35% of accounts receivable as of December 31, 2010.
 
Note 3 – Fair Value Measurements
 
The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.
 
 
6

 
 
RVUE HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 
The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
 
Level 1 – Quoted prices in active markets for identical assets or liabilities.
 
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
 
Level 3 – Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.
 
The Company’s valuation techniques used to measure the fair value of money market funds were derived from quoted prices in active markets for identical assets or liabilities. The Company has no Level 2 or Level 3 assets or liabilities.
 
Assets/Liabilities Measured at Fair Value on a Recurring Basis
 
The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis as presented in the Company’s Condensed Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010:
 
   
Quoted Prices
                   
   
in Active
   
Significant
             
   
Markets for
   
Other
   
Significant
       
   
Identical
   
Observable
   
Unobservable
       
   
Instruments
   
Inputs
   
Inputs
       
   
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total (a)
 
Assets:
                       
September 30, 2011
                       
Cash equivalents - money market funds
  $ 285,315     $ -     $ -     $ 285,315  
                                 
December 31, 2010
                               
Cash equivalents - money market funds
  $ 2,316,911     $ -     $ -     $ 2,316,911  

(a)  The total fair value amounts for assets and liabilities also represent the related carrying amounts.
 
Note 4 – Condensed Consolidated Financial Statement Details
 
The following tables show the Company’s condensed consolidated financial statement details as of September 30, 2011 and December 31, 2010:

Property and Equipment
 
Estimated
Useful Lives
   
September 30,
   
December 31,
 
   
(Years)
   
2011
   
2010
 
Computers and software
  2 - 5     $ 86,167     $ 22,959  
Furniture and equipment
  3       22,223       21,575  
Gross property and equipment
          108,390       44,534  
Less accumulated depreciation and amortization
          (53,419 )     (18,562 )
Net property and equipment
        $ 54,971     $ 25,972  
 
 
7

 
 
RVUE HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 
Software Development Costs
 
Estimated
Useful Lives
   
September 
30,
   
December 31,
 
   
(Months)
   
2011
   
2010
 
Software development costs
  18 - 36     $ 844,045     $ 492,618  
Less accumulated amortization
          (596,881 )     (112,564 )
Net software development costs
        $ 247,164     $ 380,054  

Accrued Expenses
 
September 30,
   
December 31,
 
   
2011
   
2010
 
Investor relations fees
  $ 202,029     $ 108,752  
Professional fees
    30,244       45,500  
Personnel costs
    79,471       38,252  
Deferred rent
    28,366       16,016  
Directors fees
    38,000       -  
Consulting fees
    -       10,000  
Other
    11,698       9,080  
    $ 389,808     $ 227,600  
 
Note 5 - Income Taxes
 
There is no income tax benefit for the losses for the nine-month periods ended September 30, 2011 and 2010, since management has determined that the realization of the net deferred tax asset is not more likely than not to be realized and has created a valuation allowance for the entire amount of such benefit.
 
The Company's policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the statement of operations.  As of December 31, 2010, the Company had no unrecognized tax benefits, or any tax related interest or penalties.  There were no changes in the Company's unrecognized tax benefits during the period ended September 30, 2011.  The Company did not recognize any interest or penalties during 2010 related to unrecognized tax benefits, or through the period ended September 30, 2011.
 
Note 6 - Stockholders’ Equity and Stock Based Compensation
 
Preferred Stock
 
The Company has ten million shares of authorized preferred stock, $0.001 par value, none of which are issued or outstanding. Under the terms of the Company’s Restated Articles of Incorporation, the Board of Directors is authorized to determine or alter the rights, preferences, privileges and restrictions of the Company’s authorized but unissued shares of preferred stock.
 
Common Stock
 
The Company has one hundred forty million shares of authorized common stock, $0.001 par value, of which 37,343,725 and 37,273,725 shares were issued and outstanding as of September 30, 2011 and December 31, 2010, respectively.  All shares have equal voting rights, are non-assessable and have one vote per share. Voting rights are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all of the directors of the Company.
 
Common Stock Warrants
 
The Company has issued warrants, all of which are fully vested and available for exercise, as follows:
 
Warrant Number
 
Number
   
Exercise
Price
 
Date Issued
 
Term
Series A
    8,624,995     $ 1.00  
December 21, 2010
 
Twelve Years
B-1
    50,000     $ 0.37  
May 24, 2011
 
Five Years
B-2
    1,000,000     $ 0.35  
June 30, 2011
 
Five Years

 
8

 
 
RVUE HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 
Equity Awards
 
Stock Option Activity
 
A summary of the Company’s stock option activity for the nine-month period ended September 30, 2011 is as follows:
 
   
Number of
Options
   
Weighted
Average
Exercise
Price Per
Share
   
Weighted
Average
Remaining
Contractual
Term
   
Aggregate
Intrinsic Value
 
Balance at December 31, 2010
    3,502,500     $ 0.22              
Options granted
    225,000     $ 0.32              
Options exercised
                       
Options forfeited
    (5,000 )   $ 0.22              
Balance at September 30, 2011
    3,722,500     $ 0.22       8.88     $ 184,300  
Exercisable at September 30, 2011
    3,390,005     $ 0.23       8.82     $ 185,200  
Expected to vest after September 30, 2011
    332,495     $ 0.28       9.44     $ 0  
 
Aggregate intrinsic value represents the value of the Company’s closing stock price on the last trading day of the fiscal period in excess of the weighted-average exercise price multiplied by the number of options outstanding or exercisable. The aggregate intrinsic value excludes the effect of stock options that have a zero or negative intrinsic value.
 
Stock-Based Compensation
 
Stock-based compensation cost for stock options is estimated at the grant date based on the fair-value as calculated by the Black-Scholes Merton (“BSM”) option-pricing model. The BSM option-pricing model incorporates various assumptions including expected volatility, expected life and interest rates. The Company’s computation of expected life is determined based on the simplified method as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term due to the limited period of time its equity shares have been publicly traded. The interest rate is based on the U.S. Treasury Yield curve in effect at the time of grant. The Company’s computation of expected volatility is based on comparable companies’ average historical volatility. The Company does not expect to pay dividends. While the Company believes these estimates are reasonable, the estimated compensation expense would increase if the expected life was increased or a higher expected volatility was used.  The Company recognizes stock-based compensation cost as expense on a straight-line basis over the requisite service period.
 
During the three- and nine-month periods ended September 30, 2011, the Company granted 225,000 stock options, which had a weighted-average grant date fair value of $.25.  During the three- and nine-month periods ended September 30, 2010, the Company granted 865,000 and 3,377,500 stock options, which had a weighted-average grant date fair value of $.12 and $.15, respectively.
 
The following table provides a summary of the stock-based compensation expense included in the Consolidated Statements of Operations for the three- and nine-month periods ended September 30, 2011 and 2010:
 
   
Three Months Ended September
30,
   
Nine Months Ended September
30,
 
   
2011
   
2010
   
2011
   
2010
 
Cost of revenue
  $ 671     $ 731     $ 1,882     $ 1,076  
Selling, general and administrative expenses
    35,752       86,435       297,663       129,991  
Total stock-based compensation expense
  $ 36,423     $ 87,166     $ 299,545     $ 131,067  
 
 
9

 
 
RVUE HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 
Note 7 – Commitments and Contingencies
 
Other Off-Balance Sheet Commitments
 
The Company leases its Ft. Lauderdale office space under a non-cancelable operating lease arrangement. The lease is for a period of three years beginning July 1, 2010, and provides for one renewal option of three years. Effective October 1, 2011, the Company entered into a one year lease agreement for an office in an executive office complex in New York City. As of September 30, 2011, the Company’s total future minimum lease payments under these non-cancelable operating leases were $154,344. The Company does not currently utilize any other off-balance sheet financing arrangements.
 
Contingencies
 
The Company is subject to a legal proceeding that has not been adjudicated, which is discussed in Part II, Item 1 of this Form 10-Q under the heading “Legal Proceedings”. In the opinion of management, the Company does not have a probable liability related to this legal proceeding that would materially adversely affect its financial condition or operating results. However, the results of legal proceedings cannot be predicted with certainty. If the Company failed to prevail in this legal matter, the operating results of a particular reporting period could be materially adversely affected.
 
Note 8 - Related Party Transactions and Certain Other Transactions
 
Pursuant to a September 2009 Transition Services Agreement (the “Agreement”), as amended, Argo provided certain general and administrative services, including labor, technology, facilities and other services to the Company on an as needed basis in exchange for cash consideration.   The Agreement terminated on May 13, 2010.  As of December 31, 2010, the Company had advanced a net of $172,012 to Argo to cover its expenses, including accrued interest of $9,753.  On January 17, 2011, Argo repaid the balance then outstanding in full.
 
The Company paid a consulting fee of $10,000 to one of its directors during the nine-month period ended September 30, 2011, and reimbursed the director $9,920 for out-of pocket expenses incurred in connection with Company business.
 
On March 14, 2011, the Company entered into a Consulting/Services Agreement to facilitate the marketing and promotion of direct TV advertised products with an entity that is wholly owned by a stockholder who beneficially owns more than 5% of the Company’s common stock. As of September 30, 2011, the Company had not recorded any transactions under this agreement.
 
 
10

 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
This section and other parts of this Form 10-Q contain forward-looking statements that involve risks and uncertainties. Forward-looking statements can be identified by words such as “anticipates,” “expects,” “believes,” “plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those Risk Factors discussed in Part II, Item 7, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 (the “2010 Form 10-K”) filed with the U.S. Securities and Exchange Commission (“SEC”). The following discussion should be read in conjunction with the 2010 Form 10-K and the Condensed Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-Q. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.
 
Available Information
 
The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”) are filed with the SEC. Such reports and other information filed by the Company with the SEC are available on the Company’s website at www.rvue.com when such reports are available on the SEC website. The public may read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy, and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. The contents of these websites are not incorporated into this filing. Further, the Company’s references to the URLs for these websites are intended to be inactive textual references only.
 
Executive Overview
 
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, for 12,500,000 shares of our common stock, 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”).
 
Prior to May 13, 2010, the Company was a shell company in the development stage, had no revenue, and its efforts were devoted to entering the automobile export business.  During late March 2010, we were approached by representatives of Argo and rVue to consider a transaction and on May 13, 2010 we agreed to acquire the assets of rVue, as described below.  Thereafter, we determined to continue the business of rVue as our sole business and terminated our efforts to enter the automobile export business by selling such business to our then controlling stockholder.
 
The Transaction was completed on May 13, 2010, and rVue, Inc. became a wholly-owned subsidiary of the Company. The Transaction was 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 a private placement, transferred all of its pre-merger assets to certain of its pre-Transaction stockholders in exchange for the cancellation of 36,764,706 shares of our common stock.  Consequently, the assets and liabilities and the operations that are reflected in the historical financial statements of the Company prior to the closing of the Transaction are those of rVue, Inc., and the consolidated financial statements after completion of the Transaction 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.
 
rVue, Inc.’s historical operations began on September 15, 2009, when Argo contributed certain assets and liabilities to rVue in order to enable rVue's management team to focus on developing the rVue business operations and attract capital investment in the rVue business.
 
We are an advertising technology company and operate rVue, a demand-side platform (“DSP”) for planning, buying and managing Digital Place-Based Networks and Digital Billboards and Signage (collectively “Digital Out-of-Home” or “DOOH”) advertising.  We provide an online DSP that connects advertisers and/or advertising agencies with third party 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 November 7, 2011, 166 networks comprising approximately 109,000 locations and 751,000 screens representing the top 50 DMA's were accessible through rVue, delivering approximately 239 million daily impressions.  Through our Strategic Media Services group, we execute complete campaigns on behalf of advertising clients or their agencies.
 
 
11

 
 
In connection with the Transaction, we acquired from Argo all of its assets related to the rVue business, which included all of the common stock of rVue, Inc. as well as software, contracts and technology.  Such software and technology included the rVue DSP technology and software as well as the rVue client and server software which allows an end user to manage and operate a DOOH network. The client software is used to manage each screen or site and the server software is used to manage the client software.  In 2009 rVue licensed the client and server software to Levoip Corporation for installation in Italy.  Under the terms of the contract, Levoip was required to pay rVue: (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 utilized the software; and (3) a 25% share of the gross third-party advertising displayed on the sites.  The contract was terminated effective October 6, 2010. Presently, we do not have any plans to license our client or server software.
 
We provide network services and receive fees, either under contract or on a monthly basis, from Accenture, Mattress Firm and AutoNation.  We provide monitoring and troubleshooting services on a 24/7 basis to Accenture for a private display network that they own under a contract for which we receive $11,975 per month.  Mattress Firm operates an in-store display network to promote their products.  We image computers to run the in-store network in each store location, we create, produce and edit custom content, such as in store sales promotions, to display on such network, and we remotely install the newly created content on the computers, presently on a month-to-month basis, for which we receive $20,000 per month plus imaging fees and out-of-pocket expenses.  Through May 2010, we provided AutoNation with oversight and management services and content production for their in-house network under a contract which was terminated.  We monitored the network to ensure it was running at all times and created custom content for display on its networks.  Since June 2010, we provide content creation services on an as needed basis for AutoNation.  We expect to continue to receive revenue from these services to Accenture, Mattress Firm and AutoNation during the next twelve months, but we do not intend to pursue additional network related service opportunities as the focus of our business is to earn advertising revenue and transaction fees from rVue as discussed above.
 
Critical Accounting Policies and Estimates
 
The preparation of financial statements and related disclosures in conformity with GAAP and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions, and estimates that affect the amounts reported in its condensed consolidated financial statements and accompanying notes. Note 1, “Summary of Significant Accounting Policies” of this Form 10-Q and in the Notes to Consolidated Financial Statements in the Company’s 2010 Form 10-K describes the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates and such differences may be material.
 
Management believes the Company’s critical accounting policies and estimates are those related to software development costs, revenue recognition, stock-based compensation and income taxes. Management considers these policies critical because they are both important to the portrayal of the Company’s financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters. The Company’s senior management has reviewed these critical accounting policies and related disclosures with the Audit Committee of the Company’s Board of Directors.
 
Software Development Costs
 
We capitalize costs incurred for the production of computer software that generates the functionality of our DSP. Capitalized software development costs typically include direct labor and related overhead for software produced by the Company, as well as the cost of software purchased from third parties.  Costs incurred for a product prior to the determination that the product is technologically feasible (i.e., research and development costs), as well as maintenance costs for established products, are expensed as incurred.  Once technological feasibility has been established, development costs are capitalized until the software has completed testing and is released for use by the public.  We also capitalize eligible costs to acquire or develop internal-use software (such as billing and accounting) that are incurred subsequent to the preliminary project stage.
 
 
12

 
 
Revenue Recognition
 
Our revenues are derived from advertising campaigns placed through rVue, the maintenance of certain private networks, the production and distribution of network programming, and the licensing of proprietary software.  Revenue is recognized as follows:
 
 
·
Advertising revenue and transaction fee revenue is recognized in the period in which the advertising impressions occur, and when the following criteria have been met: (i) persuasive evidence of an arrangement exists, (ii) the fees are fixed or determinable, (iii) no significant Company obligations remain, and (iv) collection of the related receivable is reasonably assured.
 
 
·
Revenue from the maintenance of private networks, and the production and distribution of network programming content, either under contract or on a piece by piece or monthly basis, is recognized ratably over the term of the related service period if the fees are fixed and determinable, delivery has occurred and collection is probable.
 
 
·
Software license revenue is recognized when: (i) there is pervasive evidence of an arrangement, (ii) the fees are fixed and determinable, (iii) the software product has been delivered, and (iv) 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.
 
We record deferred revenue when we receive payment in advance of the performance of services.
 
Stock Based Compensation
 
We account for stock-based payment transactions in which we receive employee services in exchange for equity instruments of the Company.  Stock-based compensation cost for stock options is estimated at the grant date based on each option’s fair-value as calculated by the Black-Scholes-Merton option-pricing model. We recognize stock-based compensation cost as expense ratably on a straight-line basis over the requisite service period. We will recognize a benefit from stock-based compensation in equity if an incremental tax benefit is realized by following the ordering provisions of the tax law.
 
Income Taxes
 
The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.  We recognize the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured to determine the actual amount of benefit to recognize in our financial statements.
 
 
13

 
 
Results of Operations
 
Our unaudited results of operations for the three and nine-month periods ended September 30, 2011 and 2010 were as follows:
 
   
For the Three Months Ended
September 30,
   
For the Nine Months Ended
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Revenue
                       
rVue advertising revenue
  $ 2,152     $ 3,257     $ 126,595     $ 3,257  
Network
    115,247       129,504       335,746       399,692  
License
    -       24,175       -       58,312  
      117,399       156,936       462,341       461,261  
Costs and expenses
                               
Cost of revenue
    46,396       44,422       195,882       120,143  
Selling, general and administrative expenses
    767,313       934,167       2,579,642       1,544,395  
Depreciation and amortization
    209,781       35,784       519,174       85,996  
Interest income
    (339 )     (5,824 )     (3,601 )     (5,884 )
Interest expense
    -       789       -       65,815  
      1,023,451       1,009,338       3,291,097       1,810,465  
Loss before provision for income taxes
    (906,052 )     (852,402 )     (2,828,756 )     (1,349,204 )
Provision for income taxes
    -       -       -       -  
Net loss
  $ (906,052 )   $ (852,402 )   $ (2,828,756 )   $ (1,349,204 )
Net loss per common share - basic and diluted
  $ (0.02 )   $ (0.03 )   $ (0.08 )   $ (0.08 )
Shares used in computing net loss per share:
                               
Basic and diluted
    37,297,312       24,485,687       37,281,587       17,781,452  
 
Three Months Ended September 30, 2011 and 2010:
 
Revenue
 
Revenue was $117,399 for the three-month period ended September 30, 2011 compared to $156,936 for the three-month period ended September 30, 2010, a $39,537 decline, or 25.2%. We earned revenue as follows:
 
   
Three Months Ended
             
   
September 30,
             
   
2011
   
2010
   
$ Change
   
% Change
 
Revenue Category
                       
rVue advertising revenue
  $ 2,152     $ 3,257     $ (1,105 )     -33.9 %
Network
    115,247       129,504       (14,257 )     -11.0 %
License
    -       24,175       (24,175 )     -100.0 %
Total Revenue
  $ 117,399     $ 156,936     $ (39,537 )     -25.2 %
 
rVue Advertising Revenue
 
rVue advertising revenue was $2,152 for the three-month period ended September 30, 2011 compared to $3,257 for the three-month period ended September 30, 2010, a $1,105 decline, or 33.9%. While the majority of our revenue in the past has been from network services and license fees, the development of the rVue platform and generating of advertising revenues and fees is the focus of our business.  As the rVue platform gains traction with advertisers and agencies, we expect to generate additional revenue in 2011 from advertisers and agencies for placing advertising for DOOH networks by or through rVue. Effective July 1, 2011, we discontinued managed services in favor of developing strategic relationships which we have started to consummate and which we will service through our Strategic Media Services group.  We expect that such initiatives will start to yield results by the end of 2011 or into 2012.
 
Network
 
Effective December 1, 2009, we entered into an agreement to license certain software to an entity in Canada that was to build and operate a DOOH network.  In consideration for entering into the agreement we received a $50,000 fee, which we recognized over the 11-month period of the contract.  Commencing January 1, 2010, we assumed certain contract and month-to-month work from Argo for work performed for Accenture, AutoNation and Mattress Firm, which we consider to be network related services.
 
 
14

 
 
Network revenue was $115,247 for the three-month period ended September 30, 2011 compared to $129,504 for the three-month period ended September 30, 2010, a $14,257 decrease, or 11.0%. The decrease in network revenue was primarily attributable to the expiration of the Canadian license in 2010.
 
License Fees
 
We had no license fee revenue in the three-month period ended September 30, 2011. License fee revenue for the three-month period ended September 30, 2010 was $24,175. We earned revenue from the licensing of our client and server software under an exclusive license in Italy to Levoip Corporation. The agreement was terminated effective as of October 6, 2010. We do not expect to generate any license fee revenue in 2011, as we presently have no plans to license our client or server software.
 
Cost of Revenue
 
Cost of revenue was $46,396 for the three-month period ended September 30, 2011 compared to $44,422 for the three-month period ended September 30, 2010, a $1,974 increase, or 4.4%.
 
Cost of revenue consists primarily of expenses for the purchase of advertising impressions from third-party networks, the cost to deliver network services and the cost of producing content for our network clients.  Cost of revenue was comprised of:
 
   
Three Months Ended
             
   
September 30,
             
   
2011
   
2010
   
$ Change
   
% Change
 
Compensation and benefits
  $ 33,267     $ 30,573     $ 2,694       8.8 %
Stock-based compensation expense
    671       731       (60 )     -8.2 %
Network services
    3,506       4,253       (747 )     -17.6 %
rVue operations
    8,952       8,865       87       1.0 %
Total
  $ 46,396     $ 44,422     $ 1,974       4.4 %
 
The increase was primarily attributable to increases in health insurance costs in the quarter ended September 30, 2011.
 
Selling, general and administrative expenses
 
Selling, general and administrative expenses (“SG&A”) were $767,613 for the three-month period ended September 30, 2011 compared to $934,167 for the three-month period ended September 30, 2010, a $166,554 decrease, or 17.8%.
 
Changes by major component of SG&A between the three-month period ended September 30, 2011 and the three-month period ended September 30, 2010 are:
 
   
Three Months Ended
             
   
September 30,
             
   
2011
   
2010
   
$ Change
   
% Change
 
Compensation and benefits
  $ 366,680     $ 286,793     $ 79,887       27.9 %
Stock-based compensation expense
    35,752       86,435       (50,683 )     -58.6 %
Facility expense
    42,979       80,336       (37,357 )     -46.5 %
Communications expense
    14,066       18,994       (4,928 )     -25.9 %
Travel expense
    22,232       6,574       15,658       238.2 %
Advertising and marketing
    24,346       6,342       18,004       283.9 %
Investor relations, investment banking and placement agent fees
    125,660       256,711       (131,051 )     -51.1 %
Professional and consulting fees
    94,420       119,556       (25,136 )     -21.0 %
Office support and supply expense
    41,478       34,775       6,703       19.3 %
Bad debt expense
    -       37,651       (37,651 )     -100.0 %
Total
  $ 767,613     $ 934,167     $ (166,554 )     -17.8 %
 
We employed twenty-two full-time employees at September 30, 2011 compared to sixteen full-time employees at September 30, 2010, an additional six full-time employees, resulting in the increase in compensation and benefit expenses.
 
 
15

 
 
Stock option expense varies depending on the term over which the options vest.  Options that were granted in 2010 have now vested and are fully expensed resulting in a lower expense in the quarter ended September 30, 2011 compared to the expense for the quarter ended September 30, 2010.
 
Facility expense decrease is a result of one-time moving expenses of approximately $37,000 incurred in July 2010 in moving to new premises.
 
Travel expense includes airfare, lodging, car rental and meals on trips to visit clients and potential clients.  Our travel activity has increased since we completed the reverse merger and launched the rVue platform.
 
Advertising and marketing expense for the three-month period ended September 30, 2011 included increased spending for digital promotions, public relations services, press release distribution and website design services.   Advertising and marketing expenses are expensed as incurred.
 
Investor relations and investment banking expenses for the three-month period ended September 30, 2011 included $38,534 for consulting services, and $87,126 for investment banking expenses. For the three-month period ended September 30, 2010 the expenses included $156,711 for consulting services, and $100,000 for placement agent fees.
 
Professional fees for the three-month period ended September 30, 2011 included $61,496 for legal, accounting and recruiting fees, $13,924 for SEC and related proxy solicitation and filing fees, and $19,000 for directors fees, compared to $69,392 for legal, accounting and recruiting fees, $47,736 for consulting fees and $2,428 for SEC and related filing fees in the three-month period ended September 30, 2010.
 
Office support and supply expenses for the three-month periods ended September 30, 2011 and 2010 included insurance, payroll services, domain and hosting fees and general office expense. Domain and hosting fees increased by $3,318 and payroll services increased by $3,650, offset by other minor changes. Our domain and hosting fees have increased as we added extra capacity.  In July 2010 we engaged a professional services organization to manage our human resources for which we pay an administrative fee of approximately 2% of gross wages.
 
Depreciation and amortization
 
Depreciation and amortization was $209,781 for the three-month period ended September 30, 2011, compared to $35,784 for the three-month period ended September 30, 2010, a $173,997 increase, or 486.2%.  Depreciation and amortization expense is mainly for software development costs that were placed in service at the end of February 2010 and thereafter.  During the three-month period ended March 31, 2011, we made a periodic reassessment of the estimated useful life over which the costs incurred for software development costs are amortized and reduced the estimated useful lives of software developments costs, resulting in an increase in amortization expense in the current quarter when compared to the quarter ended September 30, 2010.
 
Interest income
 
Interest income was $339 for the three-month period ended September 30, 2011 compared to $5,824 for the three-month period ended September 30, 2010. In the 2010 period, interest income included $5,671 of interest due from Argo.
 
Interest expense
 
We had no interest expense in the three-month period ended September 30, 2011.  Interest expense was $788 for the three-month period ended September 30, 2010 representing interest on a capital lease that has expired.
 
The Company’s results of operations for the three-month periods ended September 30, 2011 and 2010 did not contain any unusual gains or losses from transactions not in the Company’s ordinary course of business.
 
Nine months ended September 30, 2011 and 2010:
 
Revenue
 
Revenue was $462,341 for the nine-month period ended September 30, 2011 compared to $461,261 for the nine-month period ended September 30, 2010, a $1,080 increase, or 0.2%. We earned revenue in three categories as follows:
 
   
Nine Months Ended
             
   
September 30,
             
 
 
2011
   
2010
   
$ Change
   
% Change
 
Revenue Category
                               
rVue advertising revenue
  $ 126,595     $ 3,257     $ 123,338       3,786.9 %
Network
    335,746       399,692       (63,946 )     -16.0 %
License
    -       58,312       (58,312 )     -100.0 %
Total Revenue
  $ 462,341     $ 461,261     $ 1,080       0.2 %
 
 
16

 
 
rVue Advertising Revenue
 
rVue advertising revenue was $126,595 in the nine-month period ended September 30, 2011, compared to $3,257 for the nine-month period ended September 30, 2010, a $123,338 increase 3,786.9%. We executed a managed services campaign in the first quarter of 2011. Subsequently, we discontinued managed services in favor of developing strategic relationships which we have started to consummate in the current quarter and which we will service through our Strategic Media Services group.  We expect that such initiatives will start to yield results by the end of 2011 or into 2012.
 
While the majority of our revenue in the past has been from network services and license fees, the development of the rVue platform and generating of advertising revenues and fees is the focus of our business.  As the rVue platform gains traction with advertisers and agencies, we expect to generate additional revenue in 2011 from advertisers and agencies for placing advertising for DOOH networks by or through rVue.
 
Network
 
Effective December 1, 2009, we entered into an agreement to license certain software to an entity in Canada that was to build and operate a DOOH network.  In consideration for entering into the agreement we received a $50,000 fee, which we recognized over the 11-month period of the contract.  Commencing January 1, 2010, we assumed certain contract and month-to-month work from Argo for work performed for Accenture, AutoNation and Mattress Firm, which we consider to be network related services.
 
Network revenue was $335,746 for the nine-month period ended September 30, 2011 compared to $399,962 for the nine-month period ended September 30, 2010, a $63,946 decrease, or 16.0%.  The decrease was attributable to the end of the Canadian network fee agreement in November 2010 and reduction in services for AutoNation commencing in June 2010.
 
License Fees
 
We had no license fee revenue in the nine-month period ended September 30, 2011. License fee revenue for the nine-month period ended September 30, 2010 was $58,312. We earned revenue from the licensing of our client and server software under an exclusive license in Italy to Levoip Corporation. The agreement was terminated effective as of October 6, 2010. We do not expect to generate any license fee revenue in 2011, as we presently have no plans to license our client or server software.
 
Cost of Revenue
 
Cost of revenue was $195,882 for the nine-month period ended September 30, 2011, compared to $120,143 for the nine-month period ended September 30, 2010, a $75,739 increase, or 63.0%.
 
Cost of revenue consists primarily of expenses for the purchase of advertising impressions from third-party networks, the cost to deliver network services and the cost of producing content for our network clients.  Cost of revenue was comprised of:
 
   
Nine Months Ended
             
   
September 30,
             
   
2011
   
2010
   
$ Change
   
% Change
 
Compensation and benefits
  $ 102,359     $ 100,781     $ 1,578       1.6 %
Stock-based compensation expense
    1,882       1,076       806       74.9 %
Network services
    8,723       9,421       (698 )     -7.4 %
rVue operations
    82,918       8,865       74,053       835.3 %
Total
  $ 195,882     $ 120,143     $ 75,739       63.0 %
 
The increase was primarily attributable to the cost of advertising impressions in the nine-month period ended September 30, 2011.  We had no such similar costs in the nine-month period ended September 30, 2010.
 
 
17

 
 
Selling, general and administrative expenses
 
SG&A were $2,579,642 for the nine-month period ended September 30, 2011 compared to $1,544,395 for the nine-month period ended September 30, 2010, a $1,035,247 increase, or 67.0%.
 
Changes by major component of SG&A between the nine-month period ended September 30, 2011 and the nine-month period ended September 30, 2010 are:
 
   
Nine Months Ended
             
   
September 30,
             
   
2011
   
2010
   
$ Change
   
% Change
 
Compensation and benefits
  $ 990,914     $ 658,765     $ 332,149       50.4 %
Stock-based compensation expense
    297,663       129,991       167,672       129.0 %
Facility expense
    125,652       140,842       (15,190 )     -10.8 %
Communications expense
    40,495       38,603       1,892       4.9 %
Travel expense
    57,378       19,017       38,361       201.7 %
Marketing
    146,720       6,942       139,778       2,013.5 %
Investor relations, investment banking and placement agent fees
    306,505       276,907       29,598       10.7 %
Professional and consulting fees
    296,716       175,255       121,461       69.3 %
Managed services
    200,356       -       200,356       100.0 %
Office support and supply expense
    117,243       60,422       56,821       94.0 %
Bad debt expense
    -       37,651       (37,651 )     -100.0 %
Total
  $ 2,579,642     $ 1,544,395     $ 1,035,247       67.0 %
 
We employed twenty-two full-time employees at September 30, 2011 compared to sixteen full-time and.  Since we completed the reverse merger on May 13, 2010, we have hired an additional 13 full-time employees resulting in the increase in compensation and benefit expenses.
 
Stock option expense varies depending on the term over which the options vest.  Options that were granted in 2010 have now vested and are fully expensed resulting in a higher expense in 2011 compared to 2010.
 
In July 2010 we relocated to new facilities where our monthly rent, common area expenses and parking are approximately $13,500 per month.  Facility costs were shared with Argo under a transition services agreement through May 13, 2010 and under that agreement we paid Argo $6,300 per month through April 30, 2010 and $13,489 per month from May through July 2010. In July 2010 we incurred one time moving costs of approximately $37,000.
 
Travel expense includes airfare, lodging, car rental and meals on trips to visit clients and potential clients, trips to trade shows and trips to investor conferences.  Our travel activity has increased since we completed the reverse merger and launched the rVue platform.
 
Advertising and marketing expense for the nine-month period ended September 30, 2011 included approximately $81,000 for our marketplace momentum program, a promotion through which we are providing free advertising to select clients on select networks, $12,000 for advertising, $19,000 for dues and subscriptions, $28,000 for public relations and press release services, and $6,000 for other expenses.  In the nine-month period ended September 30, 2010, marketing expense was for press release distribution.
 
Investor relations and investment banking expenses for the nine-month period ended September 30, 2011 included approximately $168,000 for consulting services, $116,000 for investment banking expenses, $15,000 for conferences and $8,000 for other expenses. For the nine-month period ended September 30, 2010 the expenses included approximately $139,000 for consulting services, $100,000 for placement agent fees, $35,000 for conferences and promotions and $3,000 for other expenses.
 
Professional fees for the nine-month period ended September 30, 2011 consisted of approximately $202,000 for legal, accounting and recruiting fees, $57,000 for directors fees, $10,000 for consulting fees and $27,000 in SEC Edgar filing fees and proxy solicitation costs, compared to $117,000 for legal, accounting and recruiting and other professional fees, $48,000 for consulting fees and $10,000 in SEC Edgar filing and other fees in the nine-month period ended September 30, 2010.
 
Managed services expense for the nine-month period ended September 30, 2011 represents the cost to operate our contracted managed services group. We discontinued managed services at June 30, 2011. We had no comparable expense for the nine-month period ended September 30, 2010.
 
 
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Office support and supply expenses for the nine-month periods ended September 30, 2011 and 2010 included insurance, payroll services, domain and hosting fees and general office expense. Insurance increased by approximately $22,000, payroll services increased by $17,000, domain and hosting fees increased by $5,000  and other office expense increased by $13,000. Under the transition services agreement with Argo, Argo bore all of our insurance costs through May 13, 2010.  Prior to May 13, 2010 we did not carry D&O insurance. In July 2010 we engaged a professional services organization to manage our human resources for which we pay an administrative fee of approximately 2% of gross wages.
 
Depreciation and amortization
 
Depreciation and amortization was $519,174 for the nine-month period ended September 30, 2011, compared to $85,996 for the nine-month period ended September 30, 2010, a $433,178 increase, or 503.7%.  Depreciation and amortization expense is mainly for software development costs that were placed in service at the end of February 2010 and thereafter.  During the three-month period ended March 31, 2011, we made a periodic reassessment of the estimated useful life over which the costs incurred for software development costs are amortized and reduced the estimated useful lives of software developments costs, resulting in an increase in amortization expense in the current quarter.
 
Interest income
 
Interest income was $3,601 for the nine-month period ended September 30, 2011 compared to $5,884 for the nine-month period ended September 30, 2010.
 
Interest expense
 
We had no interest expense in the nine-month period ended September 30, 2011.  Interest expense was $65,815 for the nine-month period ended September 30, 2010, $64,746 of which was for interest on bridge notes payable, including the bonus shares issued in connection therewith and treated as interest, and $1,069 of which was for interest on a capital lease that has now expired.
 
The Company’s results of operations for the nine-month periods ended September 30, 2011 and 2010 did not contain any unusual gains or losses from transactions not in the Company’s ordinary course of business.
 
Liquidity and Capital Resources
 
Our business is still in the early stages, having commenced operations on September 15, 2009.  As of September 30, 2011, we had cash and cash equivalents totaling $350,692.  Since our inception through September 30, 2011, we have incurred net losses, and at September 30, 2011, we had an accumulated deficit of $4,989,368 and total stockholders’ equity of $385,678. There is no guarantee that we will ultimately be able to generate sufficient revenue or reduce our costs to achieve and maintain profitability and have sustainable cash flows.
 
We did not have any material commitments for capital expenditures at September 30, 2011.  We have budgeted capital expenditures of $25,000 for the remainder of 2011. 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 nine-month periods ended September 30, 2011 or 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.
 
Cash used in operating activities
 
Net cash used in operating activities totaled $1,736,180 for the nine-month period ended September 30, 2011 compared to $658,422 for the nine-month period ended September 30, 2010. In the nine-month period ended September 30, 2011, cash was used to fund a net loss of $2,828,756, reduced by non cash depreciation of $519,174, stock-based compensation expense of $299,545, non-cash common stock issued for service of $14,000, non-cash warrants issued for services of $241,960, and changes in operating assets and liabilities totaling $17,897.  In the nine-month period ended September 30, 2010, cash was used to fund a net loss of $1,349,204, reduced by non cash depreciation of $85,996, stock-based compensation expense of $131,067, common stock issued for services of $180,000, bridge loan interest of $64,746, and changes in operating assets and liabilities totaling $228,973.
 
Cash used in investing activities
 
Net cash used in investing activities totaled $247,249 for the nine-month period ended September 30, 2011, compared to $338,782 of cash used in investing activities for the nine-month period ended September 30, 2010.  In the nine-month period ended September 30, 2011, cash used in investing activities consisted of $415,283 of cash used for capitalized software development costs and equipment and $3,978 for deposits, offset by $172,012 of advances repaid by Argo. In the nine-month period ended September 30, 2010, $158,224 of cash was used for capitalized software development costs and equipment, $167,048 for advances to Argo and $13,510 for deposits.
 
 
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Cash from financing activities
 
We did not have any financing activities in the nine-month period ended September 30, 2011.  Net cash provided by financing activities totaled $1,622,749 for the nine-month period ended September 30, 2010, and was comprised of $1,478,533 of proceeds from the sale of common stock and $150,000 for an investment subscription receivable, reduced by $5,784 used to repay capital lease obligations.
 
Financial condition
As of September 30, 2011, we had cash and cash equivalents of $350,692, working capital of $66,055 and total stockholders’ equity of $358,678, compared to cash and cash equivalents of $2,334,121, working capital of $2,239,393, and total stockholders’ equity of $2,658,929 at December 31, 2010.
 
Management has had preliminary discussions with investment bankers and prospective investors about the possibility of raising additional funds through the issuance and sale of debt and/or equity securities, however we cannot give any assurances that such efforts will ultimately be successful.  If we are not successful in raising additional equity capital or debt to help us 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.  We believe that with the cash we have on hand, the cash we expect to generate from operations, and the cash we are actively seeking to raise, we will have sufficient funds available to cover our cash requirements through the next twelve months.
 
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.
 
Item 3.
Quantitative And Qualitative Disclosures About Market Risk.
 
Not applicable.
 
Item 4.    Controls and Procedures.
 
Evaluation of Disclosure Controls and Procedures
 
Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act were effective as of September 30, 2011 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
 
Changes in Internal Control Over Financial Reporting
 
There were no changes in the Company’s internal control over financial reporting during the third quarter of 2011, which were identified in connection with management’s evaluation required by paragraph (d) of Rule 13a-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
 
20

 
 
PART II – OTHER INFORMATION
 
Item 1.
Legal Proceedings.
 
On or about March 8, 2011, Viewpoint Securities, Inc. commenced an action in the Circuit Court of the 17th Judicial District in Broward County, Florida, alleging that we owe them a placement agent fee of $210,000 and warrants to purchase 175,167 shares of our common stock for purported services rendered in connection with our December 2010 private placement. On July 29, 2011, we answered their Second Amended Complaint and asserted various defenses to the claims asserted therein. Additionally, we filed a Counterclaim for rescission of the Agreement. We are now in the discovery phase of this litigation, believe the case is without merit and we intend to vigorously defend ourselves in connection therewith.
 
Item 1A.
Risk Factors.
 
No applicable.
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
 
On August 30, 2011, we issued 70,000 shares of Common Stock, $.001 par value, for services rendered valued at $14,000.  The shares of Common Stock were issued to the vendor without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.  
 
Item 3.
Defaults Upon Senior Securities.
 
None.
 
Item 4.
(Removed and Reserved).
 
Item 5.
Other Information.
 
None.
 
Item 6.
Exhibits.
 
(a)
Index to Exhibits
 
Exhibit
No.
 
Exhibit Description
31.1*
 
Rule 13a-14(a) Certification of Chief Executive Officer.
31.2*
 
Rule 13a-14(a) Certification of Chief Financial Officer.
32.1**
 
Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.
EX-101.INS
 
XBRL Instance Document
EX-101.SCH
 
XBRL Taxonomy Extension Schema
EX-101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
EX-101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
EX-101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
EX-101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document

*     Filed herewith.
**   Furnished herewith.
 
 
21

 
 
SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
rVue Holdings, Inc.
 
(Registrant)
   
Date: November 14, 2011
By: 
/s/ David A. Loppert
   
Chief Financial Officer
   
(Duly Authorized Officer and
Principal Financial Officer)
 
 
22

 
 
EXHIBIT INDEX
Exhibit
No.
 
Exhibit Description
31.1*
 
Rule 13a-14(a) Certification of Chief Executive Officer.
31.2*
 
Rule 13a-14(a) Certification of Chief Financial Officer.
32.1**
 
Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.
EX-101.INS
 
XBRL Instance Document
EX-101.SCH
 
XBRL Taxonomy Extension Schema Document
EX-101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
EX-101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
EX-101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
EX-101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document

*     Filed herewith.
**   Furnished herewith.
 
 
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