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EX-32.1 - EXHIBIT 32.1 - RVUE HOLDINGS, INC.v359829_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - RVUE HOLDINGS, INC.v359829_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - RVUE HOLDINGS, INC.v359829_ex31-2.htm
EXCEL - IDEA: XBRL DOCUMENT - RVUE HOLDINGS, INC.Financial_Report.xls

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, 2013
 
¨             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
 
(I.R.S. Employer Identification No.)
or organization)
 
 
 
275 N. York Street, Suite 201
 
 
Elmhurst, IL 60126
 
(855) 261-8370
(Address of principal executive offices,
 
(Registrant’s telephone number,
including zip code)
 
including area code)
 
 
 
 
(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 ¨
 
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 ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  ¨
 
Accelerated filer ¨
Non-accelerated filer  ¨   (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  ¨ 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 12, 2013 is as follows:
 
Class
 
Number of Shares
Common Stock: $0.001 Par Value
 
117,378,620
 
 
 
RVUE HOLDINGS, INC.
TABLE OF CONTENTS
 
PART I
FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements.
 
 
Condensed Consolidated Balance Sheets – September 30, 2013 and December 31, 2012
1
 
Condensed Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2013 and 2012
2
 
Condensed Consolidated Statements of Stockholders’ Equity (Deficit) – Nine Months Ended September 30, 2013
3
 
Condensed Consolidated Statements of Cash Flows –Nine Months Ended September 30, 2013 and 2012
4
 
Notes to Condensed Consolidated Financial Statements
5
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
12
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
21
Item 4.
Controls and Procedures.
21
 
 
 
PART II
OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings.
22
Item 1A.
Risk Factors.
23
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
23
Item 3.
Defaults Upon Senior Securities.
23
Item 4.
Mine Safety Disclosures.
23
Item 5.
Other Information.
23
Item 6.
Exhibits.
24
 
 
 
rVUE HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
 
September 30,
 
December 31,
 
 
 
2013
 
2012
 
 
 
(unaudited)
 
(audited)
 
Assets
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
79,972
 
$
848,174
 
Accounts receivable
 
 
151,583
 
 
163,074
 
Prepaid expenses
 
 
20,418
 
 
56,380
 
 
 
 
 
 
 
 
 
Total current assets
 
 
251,973
 
 
1,067,628
 
 
 
 
 
 
 
 
 
Property and equipment, net
 
 
3,811
 
 
8,548
 
 
 
 
 
 
 
 
 
Software development costs
 
 
57,492
 
 
23,232
 
Deposits
 
 
2,200
 
 
13,510
 
 
 
 
 
 
 
 
 
 
 
$
315,476
 
$
1,112,918
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity (Deficit)
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
101,901
 
$
154,600
 
Accrued expenses
 
 
202,846
 
 
389,848
 
Subscription investment payable
 
 
-
 
 
270,000
 
Deferred revenue
 
 
11,975
 
 
11,975
 
 
 
 
 
 
 
 
 
Total current liabilities
 
 
316,722
 
 
826,423
 
 
 
 
 
 
 
 
 
Commitments and contingencies (Note 9)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stockholders' equity (deficit):
 
 
 
 
 
 
 
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, 2013 and December 31, 2012; 117,378,620 issued and outstanding
    at September 30, 2013 and 100,691,954 issued and outstanding at
    December 31, 2012
 
 
117,379
 
 
100,692
 
Additional paid-in capital
 
 
11,360,072
 
 
9,802,786
 
Accumulated deficit
 
 
(11,478,697)
 
 
(9,616,983)
 
 
 
 
 
 
 
 
 
Total stockholders' equity (deficit)
 
 
(1,246)
 
 
286,495
 
 
 
 
 
 
 
 
 
 
 
$
315,476
 
$
1,112,918
 
 
 
1

 
rVUE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
 
 
For the Three Months Ended
September 30,
 
For the Nine Months Ended
September 30,
 
 
 
2013
 
2012
 
2013
 
2012
 
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
rVue advertising revenue
 
$
111,268
 
$
18,313
 
$
357,597
 
$
46,142
 
Network
 
 
35,925
 
 
95,925
 
 
130,075
 
 
307,019
 
 
 
 
147,193
 
 
114,238
 
 
487,672
 
 
353,161
 
Costs and expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue
 
 
77,266
 
 
22,300
 
 
262,792
 
 
93,560
 
Selling, general and administrative expenses
 
 
332,337
 
 
509,510
 
 
2,057,050
 
 
1,965,648
 
Depreciation and amortization
 
 
6,332
 
 
126,979
 
 
29,879
 
 
422,668
 
Interest income
 
 
(21)
 
 
(93)
 
 
(335)
 
 
(263)
 
Interest expense
 
 
-
 
 
385,889
 
 
-
 
 
1,033,716
 
Change in fair value of derivative
 
 
-
 
 
223,826
 
 
-
 
 
(229,182)
 
Loss on early extinguishment of debt
 
 
-
 
 
635,172
 
 
-
 
 
652,628
 
 
 
 
415,914
 
 
1,903,583
 
 
2,349,386
 
 
3,938,775
 
Loss before provision for income taxes
 
 
(268,721)
 
 
(1,789,345)
 
 
(1,861,714)
 
 
(3,585,614)
 
Provision for income taxes
 
 
-
 
 
-
 
 
-
 
 
-
 
Net loss
 
$
(268,721)
 
$
(1,789,345)
 
$
(1,861,714)
 
$
(3,585,614)
 
Net loss per common share - basic and diluted
 
$
(0.00)
 
$
(0.03)
 
$
(0.02)
 
$
(0.08)
 
Shares used in computing net loss per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted
 
 
116,675,425
 
 
51,961,478
 
 
113,715,678
 
 
42,602,124
 
 
 
2

 
rVUE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013
(unaudited)
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
 
 
 
 
Preferred Stock
 
Common Stock
 
Paid-In
 
Accumulated
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Deficit
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2012
 
 
-
 
 
-
 
 
100,691,954
 
$
100,692
 
$
9,802,786
 
$
(9,616,983)
 
$
286,495
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock issued for compensation and services
 
 
-
 
 
-
 
 
6,686,666
 
$
6,687
 
$
1,049,786
 
 
-
 
$
1,056,473
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock issued
 
 
-
 
 
-
 
 
10,000,000
 
$
10,000
 
$
507,500
 
 
-
 
$
517,500
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
(1,861,714)
 
$
(1,861,714)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2013
 
 
-
 
$
-
 
 
117,378,620
 
$
117,379
 
$
11,360,072
 
$
(11,478,697)
 
$
(1,246)
 
 
 
3

 
rVUE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
 
 
For the Nine Months Ended
September 30,
 
 
 
2013
 
2012
 
Operating activities
 
 
 
 
 
 
 
Net loss
 
$
(1,861,714)
 
$
(3,585,614)
 
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
 
 
29,879
 
 
422,668
 
Stock-based compensation expense
 
 
754,723
 
 
23,602
 
Common stock issued for services
 
 
118,333
 
 
50,947
 
Convertible loan interest
 
 
-
 
 
1,033,716
 
Change in fair value of derivative instruments
 
 
-
 
 
(229,182)
 
Loss on early extinguishment of debt
 
 
-
 
 
652,628
 
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable
 
 
11,491
 
 
52,800
 
Prepaid expenses
 
 
35,962
 
 
118,462
 
Accounts payable
 
 
(52,699)
 
 
(81,538)
 
Accrued expenses
 
 
(72,585)
 
 
15,333
 
 
 
 
 
 
 
 
 
Cash used in operating activities
 
 
(1,036,610)
 
 
(1,526,177)
 
Investing activities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Payments for property, equipment and software development
 
 
(59,402)
 
 
(157,572)
 
Change in deposits
 
 
11,310
 
 
-
 
Cash used in investing activities
 
 
(48,092)
 
 
(157,572)
 
Financing activities
 
 
 
 
 
 
 
Proceeds from convertible notes
 
 
-
 
 
1,435,000
 
Proceeds from the issuance of common stock
 
 
316,500
 
 
1,200,000
 
 
 
 
 
 
 
 
 
Cash provided by financing activities
 
 
316,500
 
 
2,635,000
 
Increase (decrease) in cash and cash equivalents
 
 
(768,202)
 
 
951,251
 
Cash and cash equivalents, beginning of period
 
 
848,174
 
 
19,917
 
Cash and cash equivalents, end of period
 
$
79,972
 
$
971,168
 
 
See supplemental non-cash information in Note 11.
 
 
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. (“We”, “rVue” or the “Company”), was incorporated in the State of Nevada on November 12, 2008. We are an advertising technology company that has developed and operates an integrated advertising exchange and digital distribution platform – rVue – for the Digital Out-of-Home (“DOOH”) industry.
 
Basis of Presentation and Preparation
 
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries. 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 us to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate our estimates, including those related to accounts receivable, fair values of financial instruments, useful lives of capitalized software development costs and property and equipment, fair values of stock-based awards, income taxes, and contingent liabilities, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. 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, 2012, included in our Annual Report on Form 10-K (the “2012 Form 10-K”).
 
The unaudited condensed consolidated statement of operations for the three and nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the entire year.

Note 2 – Going Concern
 
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have sustained losses and experienced negative cash flows from operations since inception, and have an accumulated deficit of $11,478,697 at September 30, 2013. These factors raise substantial doubt about our ability to continue to operate in the normal course of business. We have funded our activities to date almost exclusively from equity and debt financings.
 
We will continue to require substantial funds to continue development of our core business. Management’s plans in order to help meet our operating cash flow requirements include (i) financing activities such as private placements of common stock, and issuances of debt and convertible debt instruments, (ii) staff reductions, (iii) a hiring and expansion freeze, and (iv) the establishment of strategic relationships which we believe will lead to the generation of additional revenue opportunities.
 
While we believe that we should be successful in obtaining the necessary financing to fund our operations, there are no assurances that such additional funding will be achieved or that we will succeed in our future operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Note 3 - 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 months ended September 30, 2013 and 2012, 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 months ended September 30, 2013 and 2012 since this would have an anti-dilutive effect.  Dilutive common shares include 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 options and warrants.
 
 
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,
 
 
 
2013
 
2012
 
2013
 
2012
 
Numerator:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(268,721)
 
$
(1,789,345)
 
$
(1,861,714)
 
$
(3,585,614)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average shares outstanding
 
 
116,675,425
 
 
51,961,478
 
 
113,715,678
 
 
42,602,124
 
Effect of dilutive securities
 
 
-
 
 
-
 
 
-
 
 
-
 
Weighted-average diluted shares
 
 
116,675,425
 
 
51,961,478
 
 
113,715,678
 
 
42,602,124
 
Basic and diluted loss per share
 
$
(0.00)
 
$
(0.03)
 
$
(0.02)
 
$
(0.08)
 

Note 4 – 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, 2013 and December 31, 2012:
 
 
 
September 30,
 
December 31,
 
 
 
2013
 
2012
 
Cash
 
$
33,885
 
$
17,193
 
Cash equivalents - money market funds
 
 
46,087
 
 
830,981
 
 
 
 
 
 
 
 
 
Total cash and cash equivalents
 
$
79,972
 
$
848,174
 
 
Accounts Receivable
 
We sell our services directly to our customers. We generally do not require collateral from our customers; however, we will require collateral in certain instances to limit credit risk. Accounts receivable from one of our customers accounted for 94.3% of total accounts receivable at September 30, 2013, and accounts receivable from one of our customers accounted for 85.5% of total accounts receivable at December 31, 2012. We had no allowance for doubtful accounts at either September 30, 2013 or at December 31, 2012.
 
 
6

 
RVUE HOLDINGS, INC.  
Notes to Condensed Consolidated Financial Statements  
(unaudited) 
 
Note 5 – Fair Value Measurements
 
Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable:
 
Level 1 - Quoted prices for identical instruments in active markets.
 
Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable directly or indirectly.
 
Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are unobservable.
 
We are responsible for the valuation process and as part of this process we used data from an outside source to establish fair value. We performed due diligence to understand the inputs used or how the data was calculated or derived, and we corroborated the reasonableness of external inputs in the valuation process.
 
Assets and liabilities measured at fair value on a recurring basis at September 30, 2013 and December 31, 2012 were as follows:
 
 
 
Quoted
Prices in
Active
Markets for
Identical
Instruments
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
 
September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents - money market funds
 
$
46,087
 
$
-
 
$
-
 
$
46,087
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents - money market funds
 
$
830,981
 
$
-
 
$
-
 
$
830,981
 
 
The fair value of the money market funds, classified as Level 1, utilized quoted prices in active markets. The Company had no Level 2 and Level 3 assets or liabilities at September 30, 2013 and December 31, 2012.
 
The Company had level 3 derivative liabilities at September 30, 2012 as a result of a conversion feature contained in a Promissory Note Agreement, as well as related stock warrants. These transactions are more fully described in Note 9 of the Company’s annual report on Form 10-K for the year ended December 31, 2012.
 
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 liabilities for the three month period ended September 30, 2012:
 
Balance, July 1, 2012
 
$
483,700
 
Issuances
 
 
53,900
 
Settlements
 
 
(761,426)
 
Realized and unrealized (gains) losses included in earnings
 
 
223,826
 
Balance at September 30, 2012
 
 
-
 
 
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 liabilities for the nine month period ended September 30, 2012:
 
Balance, January 1, 2012
 
$
100,900
 
Issuances
 
 
1,336,127
 
Settlements
 
 
(1,207,845)
 
Realized and unrealized (gains) losses included in earnings
 
 
(229,182)
 
Balance at September 30, 2012
 
 
-
 
 
 
7

 
RVUE HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 
Note 6 – Condensed Consolidated Financial Statement Details
 
The following tables show the Company’s condensed consolidated financial statement details as of September 30, 2013 and December 31, 2012:
 
Prepaid expenses
 
September 30,
2013
 
December 31,
2012
 
Insurance
 
$
8,347
 
$
16,978
 
Licenses and subscriptions
 
 
4,375
 
 
13,332
 
Prepaid rent
 
 
2,405
 
 
12,964
 
Services
 
 
-
 
 
12,500
 
Other
 
 
5,291
 
 
606
 
 
 
$
20,418
 
$
56,380
 
 
 
 
Estimated
Useful Lives
 
September 30,
 
December 31,
 
Property and Equipment
 
(Years)
 
2013
 
2012
 
Computers and software
 
 
2 - 5
 
$
91,083
 
$
86,977
 
Furniture and equipment
 
 
3
 
 
22,977
 
 
22,573
 
Gross property and equipment
 
 
 
 
 
114,060
 
 
109,550
 
Less accumulated depreciation
 
 
 
 
 
(110,249)
 
 
(101,002)
 
Net property and equipment
 
 
 
 
$
3,811
 
$
8,548
 
 
Depreciation expense was $9,247 and $28,598 for the nine months ended September 30, 2013 and 2012, respectively.
 
 
 
Estimated
Useful Lives
 
September 30,
 
December 31,
 
Software Development Costs
 
(Months)
 
2013
 
2012
 
Software development costs
 
 
18
 
$
1,116,415
 
$
1,061,522
 
Less accumulated amortization
 
 
 
 
 
(1,058,923)
 
 
(1,038,290)
 
Net software development costs
 
 
 
 
$
57,492
 
$
23,232
 
 
Amortization expense was $20,633 and $ 339,696 for the nine months ended September 30, 2013 and 2012, respectively. Additionally the Company recognized nil and $54,374 of loan cost amortization in the nine-months ended September 30, 2013 and 2012, respectively.
  
Accrued Expenses
 
September 30,
2013
 
December 31,
2012
 
Investor relations fees
 
$
-
 
$
5,600
 
Personnel costs
 
 
16,523
 
 
52,191
 
Directors fees
 
 
22,725
 
 
144,667
 
Professional fees
 
 
114,225
 
 
69,724
 
Deferred rent
 
 
-
 
 
8,682
 
Network costs
 
 
22,852
 
 
44,209
 
Other
 
 
26,521
 
 
37,275
 
Consulting fees
 
 
-
 
 
27,500
 
 
 
 
 
 
 
 
 
 
 
$
202,846
 
$
389,848
 
 
 
8

 
RVUE HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 
Note 7 - Income Taxes
 
There is no income tax benefit for the losses for the three and nine-month period ended September 30, 2013 and 2012, 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.
 
Our policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the statement of operations. At December 31, 2012, we had no unrecognized tax benefits, or any tax related interest or penalties. There were no changes in unrecognized tax benefits during the period ended September 30, 2013. We did not recognize any interest or penalties during 2012 related to unrecognized tax benefits, or through the period ended September 30, 2013.

Note 8 - Stockholders’ Equity and Stock Based Compensation
 
Equity Awards
 
Stock Option Activity
 
A summary of the Company’s stock option activity for the nine month period ended September 30, 2013 is as follows:
 
 
 
Number of
Options
 
Weighted
Average
Exercise
Price Per
Share
 
Weighted
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value
 
Balance at December 31, 2012
 
 
2,326,667
 
$
0.24
 
 
7.80
 
 
-
 
Options granted
 
 
1,056,000
 
 
0.14
 
 
 
 
 
 
 
Options exercised
 
 
-
 
 
-
 
 
 
 
 
 
 
Options forfeited
 
 
(1,056,667)
 
$
0.23
 
 
 
 
 
 
 
Balance at September 30, 2013
 
 
2,326,000
 
$
0.20
 
 
8.35
 
$
-
 
Exercisable at September 30, 2013
 
 
1,270,000
 
$
0.25
 
 
7.34
 
$
-
 
Expected to vest after September 30, 2013
 
 
1,056,000
 
$
0.14
 
 
10.00
 
$
-
 
   
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.
 
We granted 1,056,000 options during the nine-month period ended September 30, 2013 resulting in stock compensation expense of $6,723 for the nine months ended September 30, 2013. As of September 30, 2013, there was approximately $114,000 of total unrecognized compensation cost related to these stock options. This cost is expected to be recognized over a period of 3 years.
 
 
9

 
RVUE HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 
On March 29, 2013, the Board approved payment of 4.4 million shares to Michael Mullarkey, a director at the time, as compensation for serving as CEO and CFO after the prior CEO and CFO both left the Company in 2012. Mr. Mullarkey held those temporary positions until April 11, 2013, when a CEO was appointed. Mr. Mullarkey resigned from the Company’s board of directors effective May 31, 2013. The share award was contingent upon the accomplishment of certain objectives set by the board of directors. The objectives were deemed to be accomplished and the resulting expense of $748,000 was recorded during the three months ended March 31, 2013.
 
The Company issued an aggregate of 1,066,667 shares to officers and directors in lieu of cash compensation resulting in additional director fee expense of $78,333 during the nine months ended September 30, 2013. In addition, the Company issued an aggregate of 1,220,000 shares to consultants for services performed resulting in additional consulting fees of $73,000 during the nine months ended September 30, 2013.
 
The Company entered into an employment agreement with Mark Pacchini, our CEO, on July 1, 2013. The agreement term is three years and includes mandatory bonuses payable in the Company’s common stock if specific revenue goals are achieved in a twelve month period. As of September 30, 2013 it did not appear probable that any of the required goals in the agreement will be achieved. As a result, there was no stock based compensation expense recognized related to this agreement. The Company will reassess the probability of the Company achieving the revenue goals included in the agreement on a quarterly basis.

Note 9 – Commitments and Contingencies
 
Other Off-Balance Sheet Commitments
 
We leased our Ft. Lauderdale office space for our corporate headquarters and technology group under a non-cancelable operating lease which expired June 30, 2013.  On July 1, 2013 we moved to a smaller space in Fort Lauderdale - approximately 600 square feet – under a 12 month lease at a rate of approximately $2,200 a month.
 
On October 4, 2013 we moved our corporate headquarters to Elmhurst, IL, where we occupy approximately 2,353 square feet of office space. The Company entered into a two year lease for this location at approximately $3,100 a month that expires in September 2015. This facility accommodates our principal sales, marketing, operations, finance and administrative activities.
 
Contingencies
 
We are subject to certain legal proceedings that have not been adjudicated, which are 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 probable liability related to these legal proceedings that would materially adversely affect our financial condition or operating results. However, the results of legal proceedings cannot be predicted with certainty. If we fail to prevail in any of these legal matters, the operating results of a particular reporting period could be materially adversely affected.

Note 10 - Related Party Transactions and Certain Other Transactions
 
In March 2011, we entered into a Consulting/Services Agreement to facilitate the marketing and promotion of direct TV advertised products with Acorn, an entity that is wholly owned by Robert Roche, a stockholder and director of ours who beneficially owns approximately 35% of our outstanding shares of common stock as of September 30, 2013. We did not record any significant revenue under this contract in either of the nine-month periods ended September 30, 2013 or 2012.
 
We paid consulting fees of $48,000 during the year ended December 31, 2012 to a consultant who was appointed by our board of directors.
 
 
10

 
RVUE HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 
In January 2012, in connection with the sale of the promissory notes , we agreed to reimburse an investor (the “Lead Investor”) $65,000 for costs and expenses incurred by it (including, without limitation, legal and administrative fees) payable in cash or shares of our Common Stock at our election. On February 8, 2012, we issued 325,000 shares of our common stock to the Lead Investor as payment. Robert Roche, who is the sole stockholder of Acorn, is the grantor of the trust that controls the majority member of the Lead Investor. His sister is the manager of both the Lead Investor and the majority member of the Lead Investor. Mr. Roche disclaims any beneficial ownership of securities held by the Lead Investor as he does not have voting or dispositive powers over such securities. In addition another one of our directors is a minority member of the Lead Investor.

Note 11 – Supplemental Non-Cash Information
 
During the nine months ended September 30, 2013, the Company issued 700,000 shares of common stock and 450,000 warrants to purchase common stock for fees associated with the equity raised in 2013. Also, the Company issued 500,000 shares of common stock to the former CEO of the Company for consulting services he performed subsequent to leaving the Company. Additionally, in 2013, the Company reversed the accrued director fees balance of $81,667 upon the issuance of shares to officers and directors in lieu of cash compensation.
 
During the nine months ended September 30, 2012, the Company modified the warrants resulting in a reclassification of the derivative warrant liability to equity totaling $446,419. Additionally during the nine months ended September 30, 2012, the Company paid debt issuance costs of $95,000 by issuing 475,000 shares of its common stock.

Note 12 – Subsequent Events
 
In preparing these consolidated financial statements, we have evaluated events and transactions for potential recognition or disclosure through the date of filing. On October 31, 2013, the Company amended and restated its articles of incorporation to increase the number of its authorized shares of common stock from 140,000,000 shares to 240,000,000 shares.
 
 
11

 
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, 2012 (the “2012 Form 10-K”) filed with the U.S. Securities and Exchange Commission (“SEC”). The following discussion should be read in conjunction with the 2012 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
 
We operate rVue, a demand-side platform (“DSP”) for planning, buying and managing DOOH and place-based media advertising. We provide an online, internet based 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. Through our strategic media services group, we execute complete campaigns on behalf of advertising clients or their agencies.
 
The rVue DSP is accessible via the Internet. Through rVue, once an advertising campaign has been agreed to between the advertiser and the DOOH network owner, the DOOH networks receive the display advertising to be shown on their installed base of digital media displays. rVue allows 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 needs. We provide Proof- of-Play analytics and the network statistics necessary to monitor advertising on the networks and assist in evaluating the performance or refinements required for an advertising campaign, in some cases real time. Furthermore, rVue’s integrated analytics provide insight and opportunities for advertisers and agencies to extend the reach, impact and engagement of future campaigns.
 
As of September 30, 2013, over 200 networks comprising approximately 900,000 screens and delivering over 250 million daily impressions representing the top 50 market areas were accessible through rVue. Through our strategic media services group, we execute complete campaigns on behalf of advertising clients or their agencies.
 
 
12

 
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 the rVue DSP.
 
Similar models have been successfully deployed for Internet DSP’s, 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 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.
 
We provide network services and receive fees under contract or on a monthly basis, from Accenture. 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. We expect to continue to receive revenue from these services to Accenture through 2013, but consider this non-core revenue. The primary forward strategy of our business is to earn transaction fees and margin from rVue technology and strategic media services, as discussed elsewhere herein.
 
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 2012 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, derivative instruments, 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.
 
 
13

 
Results of Operations
 
Three Months Ended September 30, 2013 and 2012:
 
Our unaudited results of operations for the three-month periods ended September 30, 2013 and 2012 were as follows:
 
 
 
For the Three Months Ended
 
 
 
September 30,
 
 
 
2013
 
2012
 
Revenue
 
 
 
 
 
 
 
rVue advertising revenue
 
$
111,268
 
$
18,313
 
Network
 
 
35,925
 
 
95,925
 
 
 
 
147,193
 
 
114,238
 
Costs and expenses
 
 
 
 
 
 
 
Cost of revenue
 
 
77,266
 
 
22,300
 
Selling, general and administrative expenses
 
 
332,337
 
 
509,510
 
Depreciation and amortization
 
 
6,332
 
 
126,979
 
Interest income
 
 
(21)
 
 
(93)
 
Interest expense
 
 
-
 
 
385,889
 
Change in fair value of derivative
 
 
-
 
 
223,826
 
Loss on early extinguishment of debt
 
 
 
 
 
635,172
 
 
 
 
415,914
 
 
1,903,583
 
Loss before provision for income taxes
 
 
(268,721)
 
 
(1,789,345)
 
Provision for income taxes
 
 
-
 
 
-
 
Net loss
 
$
(268,721)
 
$
(1,789,345)
 
Net loss per common share - basic and diluted
 
$
(0.00)
 
$
(0.03)
 
Shares used in computing net loss per share:
 
 
 
 
 
 
 
Basic and diluted
 
 
116,675,425
 
 
51,961,478
 
 
Revenue
 
Revenue was $147,193 for the three-month period ended September 30, 2013 compared to $114,238 for the three-month period ended September 30, 2012, a $32,955 increase, or 28.8%. We earned revenue as follows:
 
 
 
Three Months ended
 
 
 
 
 
 
 
 
 
 
September 30,
 
 
 
 
 
 
 
 
Revenue Category
 
2013
 
2012
 
$ Change
 
% Change
 
 
rVue advertising revenue – Core fees
 
$
111,268
 
$
18,313
 
$
92,955
 
 
507.5
%
 
Network revenue – Non-core fees
 
 
35,925
 
 
95,925
 
 
(60,000)
 
 
(62.5)
%
 
Total revenue
 
$
147,193
 
$
114,238
 
$
32,955
 
 
28.8
%
 
 
rVue advertising revenue – Core fees
 
rVue advertising revenue were $111,268 for the three-month period ended September 30, 2013, a $92,955 improvement over the $18,313 rVue advertising revenue for the three-month period ended September 30, 2012. While the majority of our revenue historically has been from network services and license fees, the development of the rVue platform and generating revenue and fees is the focus of our business. As the rVue platform gains traction with advertisers and agencies, we expect to generate additional revenue and fees in 2013 from advertisers and agencies for placing advertising with DOOH networks through rVue. This is the focus of our business and the area in which we expect to generate the majority of our revenue in 2013 and beyond. We cannot assure you that advertisers or agencies will accept the rVue platform as their platform of choice for placing advertising with DOOH networks.
 
Network – Non-core fees
 
Network revenue was $35,925 for the three-month period ended September 30, 2013, a $60,000, or 62.5%, decrease compared to the $95,925 for the three-month period ended September 30, 2012. We earned fixed monthly fees of $11,975 from one client. We expect to continue to receive revenue from these services to this client through November 2013 and are negotiating a new monthly contract amount for December and the 2014 calendar year, but we do not intend to pursue additional network-related service opportunities as the focus of our business is the rVue platform.
 
 
14

 
Cost of Revenue
 
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 $77,266 for the three-month period ended September 30, 2013 compared to $22,300 for the three-month period ended September 30, 2012, a $54,966 increase, or 246.4%, and was comprised of:
 
 
 
Three Months Ended
 
 
 
 
 
 
 
 
 
 
September 30,
 
 
 
 
 
 
 
 
 
 
2013
 
2012
 
$ Change
 
% Change
 
 
Compensation and temporary labor
 
$
1,206
 
$
2,804
 
$
(1,598)
 
 
(56.9)
%
 
Stock-based compensation expense
 
 
-
 
 
598
 
 
(598)
 
 
(100.0)
%
 
Network services
 
 
120
 
 
1,299
 
 
(1,179)
 
 
(90.7)
%
 
rVue operations
 
 
75,940
 
 
17,599
 
 
58,341
 
 
331.5
%
 
Total
 
$
77,266
 
$
22,300
 
$
54,966
 
 
246.4
%
 
 
Selling, general and administrative expenses
 
Selling, general and administrative expenses (“SG&A”) were $332,337 for the three-month period ended September 30, 2013, compared to $509,510 for the three-month period ended September 30, 2012, a $177,173 decrease, or 34.8%. Changes by major component of SG&A are:
 
 
 
Three Months Ended
 
 
 
 
 
 
 
 
 
 
September 30,
 
 
 
 
 
 
 
 
 
 
2013
 
2012
 
$ Change
 
% Change
 
 
Compensation and benefits
 
$
114,599
 
$
232,965
 
$
(118,366)
 
 
(50.8)
%
 
Stock-based compensation expense
 
 
6,723
 
 
1,003
 
 
5,720
 
 
570.3
%
 
Facility expense
 
 
10,300
 
 
42,056
 
 
(31,756)
 
 
(75.5)
%
 
Communications expense
 
 
22,357
 
 
22,332
 
 
25
 
 
.1
%
 
Travel expense
 
 
4,260
 
 
830
 
 
3,430
 
 
413.3
%
 
Advertising and marketing expense
 
 
3,260
 
 
4,053
 
 
(793)
 
 
(19.6)
%
 
Investor relations and investment banking fees
 
 
576
 
 
3,380
 
 
(2,804)
 
 
(83.0)
%
 
Professional and consulting fees
 
 
145,235
 
 
173,031
 
 
(27,796)
 
 
(16.1)
%
 
Office support and supply expense
 
 
25,027
 
 
29,960
 
 
(4,933)
 
 
(16.4)
%
 
Total
 
$
332,337
 
$
509,510
 
$
(177,173)
 
 
(34.8)
%
 
 
Compensation and benefits decreased $118,366, or 50.8% for the three months ended September 30, 2013 when compared to the three months ended September 30, 2012. This change was due to a $26,248 reduction in the amount of payroll costs being capitalized for software development, a reduction in payroll of $134,337 and a reduction in payroll taxes of $12,496, a reduction in benefits of $7,902, a reduction of payroll administrative expenses of $1,561 due to staff reductions that were implemented in the three months ended September 30, 2013, and a net $11,682 increase in the vacation accrual for recent staff additions.
 
Stock-based compensation expense varies depending on the term over which the options vest. Options that were granted in 2010, and 2011 have now vested and were fully expensed in 2012.  Options granted in August of 2013 have only been partially expensed resulting in a lower expense in the three-month period ended September 30, 2013 compared to the expense for the three-month period ended September 30, 2012.
 
Advertising and marketing expense decreased by $793, or 19.6%, in the three-month period ended September 30, 2013, when compared to the three-month period ended September 30, 2012.
 
 
15

 
Investor relations and investment banking fees for the three-month period ended September 30, 2013 decreased $2,804, or 83.0%, when compared to the three-month period ended September 30, 2012. The Company ended its agreement with its investor relations representative to reduce its operating costs.
 
Professional and consulting fees for the three-month period ended September 30, 2013 were down $27,796, or 16.1%, compared to the three-month period ended September 30, 2012. Consulting fees were down $84,600 due to a consulting agreement with the former CEO of the Company expiring on June 30, 2013, legal fees were up $22,631, fees related to SEC filings were up $14,605, and accounting and other fees were up by $19,568.
 
Depreciation and amortization
 
Depreciation and amortization was $6,332 for the three-month period ended September 30, 2013 compared to $126,979 for the three-month period ended September 30, 2012, a $120,647 decline, or 95%. For the three-month period ended September 30, 2013, the large decrease in depreciation and amortization expense for software development costs is due to the costs being amortized over an 18 month period with minimal additions since December 31, 2011.
 
Interest income
 
Interest income was $21 for the three-month period ended September 30, 2013 compared to $93 for the three-month period ended September 30, 2012, a $72 decrease, or 77.4%. Interest income is a function of cash on hand.
 
Interest expense
 
 
 
Three Months Ended
 
 
 
September 30,
 
 
 
2013
 
2012
 
Interest on convertible notes
 
$
-
 
$
19,833
 
Original issue discount
 
 
-
 
 
366,056
 
 
 
$
-
 
$
385,889
 
 
We issued promissory notes in November 2011 and additional promissory notes in January and May 2012. The interest on these notes accrued at 6% per annum and totaled $19,833 for the three-month period ended September 30, 2012. The original issue discount represented the amortization of the initial value of the embedded derivative components of the notes.  These notes were converted into shares of our common stock on September 10, 2012.
 
Change in fair value of derivative instruments
 
The decrease in the fair value of the derivative liability and the Series C Warrants at September 30, 2012 resulted in us recognizing an unrealized loss during the three-month period ended September 30, 2012 of $223,826.
 
Nine Months Ended September 30, 2013 and 2012:
 
Our unaudited results of operations for the nine-month periods ended September 30, 2013 and 2012 were as follows:
 
 
 
For the Nine Months Ended
 
 
 
September 30
 
 
 
2013
 
2012
 
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
rVue advertising revenue
 
$
357,597
 
$
46,142
 
Network
 
 
130,075
 
 
307,019
 
 
 
 
487,672
 
 
353,161
 
Costs and expenses
 
 
 
 
 
 
 
Cost of revenue
 
 
262,792
 
 
93,560
 
Selling, general and administrative expenses
 
 
2,057,050
 
 
1,965,648
 
Depreciation and amortization
 
 
29,879
 
 
422,668
 
Interest income
 
 
(335)
 
 
(263)
 
Interest expense
 
 
-
 
 
1,033,716
 
Change in fair value of derivative
 
 
-
 
 
(229,182)
 
Loss on early extinguishment of debt
 
 
-
 
 
652,628
 
 
 
 
 
 
 
 
 
 
 
 
2,349,386
 
 
3,938,775
 
 
 
 
 
 
 
 
 
Loss before provision for income taxes
 
 
(1,861,714)
 
 
(3,585,614)
 
Provision for income taxes
 
 
-
 
 
-
 
 
 
 
 
 
 
 
 
Net loss
 
$
(1,861,714)
 
$
(3,585,614)
 
 
 
 
 
 
 
 
 
Net loss per common share - basic and diluted
 
$
(0.02)
 
$
(0.08)
 
Shares used in computing net loss per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted
 
 
113,715,678
 
 
42,602,124
 
 
Revenue
 
Revenue was $487,672 for the nine-month period ended September 30, 2013 compared to $353,161 for the nine-month period ended September 30, 2012, a $134,511 increase, or 38.1%. We earned revenue as follows:
 
 
 
Nine Months Ended
 
 
 
 
 
 
 
 
 
 
September 30,
 
 
 
 
 
 
 
 
Revenue Category
 
2013
 
2012
 
$ Change
 
% Change
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
rVue advertising revenue – Core fees
 
$
357,597
 
$
46,142
 
$
311,455
 
 
675.0
%
 
Network Revenue – Non Core Fees
 
 
130,075
 
 
307,019
 
 
(176,944)
 
 
(57.6)
%
 
Total Revenue
 
$
487,672
 
$
353,161
 
$
134,511
 
 
38.1
%
 
 
rVue advertising revenue – Core fees
 
We earn transaction fees from advertisers and agencies for placing advertising with networks through rVue and generate advertising revenue from advertisers who engage us to execute campaigns through managed services. 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. We act, in certain transactions, as a principal to purchase advertising on behalf of a client who issues a purchase order for the strategic media services we provide. We contract in our name with the networks to purchase the necessary space and time to execute the campaign. In these instances, we assume the full financial risk of the campaign and are liable to the networks for the cost of network space and time.
 
 
16

 
rVue fees were $357,597 for the nine-month period ended September 30, 2013, a $311,455 or 675.0% improvement over the $46,142 rVue fees for the nine-month period ended September 30, 2012. While the majority of our revenue historically has been from network services and license fees, the development of the rVue platform and generating revenue and fees from the rVue platform is the focus of our business. As the rVue platform gains traction with advertisers and agencies, we expect to generate additional revenue and fees in 2013 and beyond from advertisers and agencies for placing advertising with DOOH networks through rVue. This is the focus of our business and the area in which we expect to generate the majority of our revenue in 2013 and beyond. We cannot assure you that advertisers or agencies will accept the rVue platform as their platform of choice for placing advertising with DOOH networks.
 
Network Revenue – Non-core fees
 
Network revenue was $130,075 for the nine-month period ended September 30, 2013, a $176,944, or 57.6%, decrease compared to the $307,019 for the nine-month period ended September 30, 2012. We earned fixed monthly fees of $11,975 from one client and fees from special projects from one client. We expect to continue to receive revenue from these services to this client for the remainder of 2013, but we do not intend to pursue additional network-related service opportunities as the focus of our business is the rVue platform.
 
Cost of Revenue
 
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 $262,792 for the nine-month period ended September 30, 2013 compared to $93,560 for the nine-month period ended September 30, 2012, a $169,232 increase, or 180.9%, and was comprised of:
 
 
 
Nine Months Ended
 
 
 
 
 
 
 
 
 
 
September 30,
 
 
 
 
 
 
 
 
 
 
2013
 
2012
 
$ Change
 
% Change
 
 
Compensation and benefits
 
$
3,536
 
$
48,362
 
$
(44,826)
 
 
(92.7)
%
 
Stock-based compensation expense
 
 
-
 
 
1,487
 
 
(1,487)
 
 
(100.0)
%
 
Network services
 
 
500
 
 
7,851
 
 
(7,351)
 
 
(93.6)
%
 
rVue operations
 
 
258,756
 
 
35,860
 
 
222,896
 
 
621.6
%
 
Total
 
$
262,792
 
$
93,560
 
$
169,232
 
 
180.9
%
 
 
The increase in cost of revenue is attributable to a $134,511 increase in sales compared to September 30, 2012, and the change in revenue category mix. The increase in core related revenues increases the cost of network expenses which are recorded in rVue operations. The substantial decrease in compensation and benefits is due to head count reduction for the non-core related services.
 
Selling, general and administrative expenses
 
SG&A were $2,057,050 for the nine-month period ended September 30, 2013, compared to $1,965,648 for the nine-month period ended September 30, 2012, a $91,402 increase, or 4.6%. Changes by major component of SG&A are:
 
 
 
Nine Months Ended
 
 
 
 
 
 
 
 
 
 
September 30,
 
 
 
 
 
 
 
 
 
 
2013
 
2012
 
$ Change
 
% Change
 
 
Compensation and benefits
 
$
395,818
 
$
1,047,937
 
$
(652,119)
 
 
(62.2)
%
 
Stock-based compensation expense
 
 
754,723
 
 
22,115
 
 
732,608
 
 
331.3
%
 
Facility expense
 
 
78,214
 
 
129,018
 
 
(50,804)
 
 
(39.4)
%
 
Communications expense
 
 
81,499
 
 
65,428
 
 
16,071
 
 
24.6
%
 
Travel expense
 
 
47,267
 
 
38,775
 
 
8,492
 
 
21.9
%
 
Advertising and marketing expense
 
 
78,071
 
 
31,373
 
 
46,698
 
 
148.8
%
 
Investor relations and investment banking fees
 
 
1,836
 
 
134,289
 
 
(132,453)
 
 
(98.6)
%
 
Professional and consulting fees
 
 
538,028
 
 
409,863
 
 
128,165
 
 
31.3
%
 
Office support and supply expense
 
 
81,594
 
 
86,850
 
 
(5,256)
 
 
(6.0)
%
 
Total
 
$
2,057,050
 
$
1,965,648
 
$
91,402
 
 
4.6
%
 
 
 
17

 
Compensation and benefits decreased $652,119, or 62.2% for the nine-months ended September 30, 2013 when compared to the nine-months ended September 30, 2012. This change was due to a $104,211 reduction in the amount of payroll costs being capitalized for software development, a reduction in payroll of $630,498 due to staff reductions that were implemented in the nine-months ended September 30, 2013, a $1,019 increase in the vacation accrual for recent staff increase, a $59,702 reduction in benefit costs due to staff reductions and a reduction of payroll tax expense of $52,559 and a reduction in payroll administrative costs of $14,590 due to lower payroll costs.
 
Stock-based compensation expense increased $732,608 or 331.3%, in the nine-month period ended September 30, 2013, when compared to the nine-month period ended September 30, 2012. $748,000 of the 2013 stock based compensation relates to a board approved one time, performance based payment to a former director who served as the interim CEO and CFO for approximately one year, and the remainder of the 2013 expense relates to options granted in August of 2013. Options that were granted in 2010 and 2011 have now vested and were fully expensed in 2012.  
 
Advertising and marketing expense increased by $46,698 or 148.8%, in the nine-month period ended September 30, 2013, when compared to the nine-month period ended September 30, 2012. This increase is a result of rVue’s investment in new product development.
 
Investor relations and investment banking fees for the nine-month period ended September 30, 2013 decreased $132,453, or 98.6%, when compared to the nine-month period ended September 30, 2012. The Company ended its agreement with its investor relations representative to reduce its operating costs.
 
Professional and consulting fees for the nine-month period ended September 30, 2013 increased $128,165, or 31.3%, compared to the nine-month period ended September 30, 2012. Consulting fees increased approximately $70,489 due to consulting fees paid to former CEO Jason Kates, as prescribed in his separation agreement, legal fees decreased $5,961, fees related to SEC filings increased $16,082 and directors’ fees increased $46,235 due to stock issued to the former CEO, while accounting and other fees increased $1,320.
 
Depreciation and amortization
 
Depreciation was $9,247 for the nine-month period ended September 30, 2013 compared to $28,598 for the nine-month period ended September 30, 2012, a $19,351 decline, or 67.7%. For the nine-month period ended September 30, 2013, amortization expense for software development was $20,632, compared to $339,696 for the nine-month period ended September 30, 2012, a $319,064 decline, or 93.9%. The large decrease in depreciation and amortization expense for software development costs is due to the costs being amortized over an 18 month period with minimal additions since December 31, 2011. Additionally the Company recognized nil and $54,374 of loan cost amortization in the nine-months ended September 30, 2013 and 2012, respectively.
 
Interest income
 
Interest income was $335 for the nine-month period ended September 30, 2013 compared to $263 for the nine-month period ended September 30, 2012, an $72 increase, or 27.4%. Interest income is a function of cash on hand.
 
Interest expense
 
 
 
Nine Months Ended
 
 
 
September 30,
 
 
 
2013
 
2012
 
Interest on convertible notes
 
$
-
 
$
54,935
 
Original issue discount
 
 
-
 
 
978,781
 
 
 
$
-
 
$
1,033,716
 
 
We issued promissory notes in November 2011 and additional promissory notes in January and May 2012. The interest on these notes accrued at 6% per annum and totaled $54,935 for the nine-month period ended September 30, 2012. The original issue discount represents the amortization of the initial value of the embedded derivative components of the notes.  These notes were converted into shares of our common stock on September 10, 2012.
 
 
18

 
Liquidity and Capital Resources
 
As of September 30, 2013, we had cash and cash equivalents totaling $79,972. Since our inception, we have incurred net losses, and at September 30, 2013, we had an accumulated deficit of $11,478,697 and total stockholders’ deficit of $1,246. We expect to continue to incur losses the remainder of fiscal 2013. There is no guarantee that we will ultimately be able to generate sufficient revenue or reduce our costs in the anticipated time frame to achieve and maintain profitability and have sustainable cash flows.
 
We did not have any material commitments for capital expenditures at September 30, 2013. We have budgeted capital expenditures of approximately $90,000 for fiscal 2013, primarily capitalized labor for software development. 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 the nine-month periods ended September 30, 2013 and 2012. While our business is marginally seasonal, we do not expect this seasonality to have a material adverse effect on our results of operations or cash flows.
 
Cash used in operating activities
 
Net cash used in operating activities totaled $1,036,610 for the nine-month period ended September 30, 2013 compared to $1,526,177 for the nine-month period ended September 30, 2012. In the nine-month period ended September 30, 2013, cash was used to fund a net loss of $1,861,714, reduced by depreciation and amortization of $29,879, stock-based compensation expense of $754,723, common stock issued for services valued at $118,333, and changes in operating assets and liabilities totaling $77,831.
 
In the nine-month period ended September 30, 2012, cash was used to fund a net loss of $3,585,614, reduced by depreciation and amortization of $422,668, stock-based compensation expense of $23,602, common stock issued for services valued at $50,947, convertible loan interest of $1,033,716, a net gain in fair value of derivative instruments of $229,182, loss on early extinguishment of debt of $652,628 and changes in operating assets and liabilities totaling $105,057.
 
Cash used in investing activities
 
Net cash used in investing activities totaled $48,092 for the nine-month period ended September 30, 2013 compared to $157,572 of net cash used in investing activities in the nine-month period ended September 30, 2012. In the nine-month period ended September 30, 2013, cash used in investing activities consisted of $4,510 for fixed asset purchases, $54,892 for software development costs and a decrease in deposits of $11,310. In the nine-month period ended September 30, 2012, cash used in investing activities consisted of $157,572 for software development costs.
 
Cash from financing activities
 
Net cash provided by financing activities totaled $316,500 for the nine-month period ended September 30, 2013 which were the proceeds from the sale of common stock. For the nine-month period ended September 30, 2012, net cash provided by financing activities totaled $2,635,000 and were the proceeds from the sale of $1,435,000 of convertible notes and issuance of common stock valued at $1,200,000.
 
Financial condition
 
As of September 30, 2013, we had a working capital deficit of $64,749, an accumulated deficit of $11,478,697 and total stockholders’ deficit of $1,296, compared to a working capital surplus of $241,205, an accumulated deficit of $9,616,983 and total stockholders’ equity of $286,495 at December 31, 2012.
 
We believe that with the cash we have on hand and the cash we expect to raise through future securities issuances, that we will have sufficient funds available to cover our cash requirements through the next twelve months. We further expect that key strategic relationships that we have entered into and that we expect to enter into will lead to additional revenue opportunities.  However, no assurance can be given that such expectations will materialize.
 
At December 31, 2012 our registered independent public accounting firm expressed substantial doubt as to our ability to continue as a going concern because, since inception, we have incurred substantial losses and negative cash flows from operations. This concern will be addressed by focusing on revenue growth in the coming months. In addition, management will review projected near term losses against cash on hand and consider raising capital if required.
 
 
19

 
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.
 
 
20

 
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) and 15d-15(e) under the Exchange Act were not effective as of September 30, 2013, to provide reasonable assurance 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.
 
During the second half of 2012 and first three quarters of 2013, several management positions within the Company had experienced transitions. This led to a lack of timely filing of certain of the Company’s required filings with the SEC. Current management has corrected those shortfalls and returned the Company to a current filing status with the SEC.
 
Inherent Limitations Over Internal Controls
 
The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The Company’s internal control over financial reporting includes those policies and procedures that:
 
 
(i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the Company’s assets;  
 
(ii)
provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and  
 
(iii)
provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
 
Management, including the Company’s principal executive officer and principal financial officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies and procedures may deteriorate.
 
Changes in Internal Control Over Financial Reporting
 
There were no changes in the Company’s internal control over financial reporting during the three-month period ended September 30, 2013 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.
 
 
21

 
PART II – OTHER INFORMATION
 
Item 1.           Legal Proceedings.
 
From time to time, we may become involved in litigation relating to claims arising out of our operations in the normal course of business.
 
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. On January 9, 2012, Viewpoint filed an amended answer to our counterclaim. We believe the case is without merit and are vigorously defending ourselves in connection therewith. In the opinion of management, we do not believe that we have a probable liability related to this legal proceeding that would materially adversely affect our financial condition or operating results. However, the results of legal proceedings cannot be predicted with certainty. If we fail to prevail in this legal matter, the operating results of a particular reporting period could be materially adversely affected.
 
On or about September 14, 2012, Casville Investments, Ltd, MBC Investment, SA, and Watkins International, Ltd., shareholders of Argo Digital Solutions, Inc., asserted claims individually and derivatively on behalf of Argo against rVue Holdings, Inc., Jason M. Kates, Richard J. Sullivan, David A. Loppert, World Capital Markets, Inc., and Solutions, Inc. in the United States District Court for the Southern District of New York. The plaintiffs allege that they were injured as a result of the alleged mismanagement of Argo and the May 2010 asset purchase transaction between Argo, rVue, Inc. and rVue Holdings, Inc. On December 21, 2012, we moved to dismiss the Complaint on various grounds and moved to transfer the case from New York to Florida. The Court has yet to rule on our motion to dismiss the case on other grounds. We believe the case is without merit and are vigorously defending ourselves in connection therewith. In the opinion of management, we do not believe that we have a probable liability related to this legal proceeding that would materially adversely affect our financial condition or operating results. However, the results of legal proceedings cannot be predicted with certainty. If we fail to prevail in this legal matter, the operating results of a particular reporting period could be materially adversely affected.
 
 
22

 
Item 1A.        Risk Factors.
 
Not applicable.
 
Item 2.           Unregistered Sales of Equity Securities and Use of Proceeds.
 
None.
 
Item 3.           Defaults Upon Senior Securities.
 
None.
 
Item 4.           Mine Safety Disclosures.
 
Not applicable.
 
Item 5.           Other Information.
 
None.
 
 
23

 
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 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.
*** XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
 
 
24

 
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.