UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q  

 

(Mark One)

 

  X .   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2015

 

      .   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 Road, Suite 201
Elmhurst , IL 60126		(855) 261-8370
(Address of principal executive offices,		(Registrant’s telephone number,
including zip code)		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    X .  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    X .  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   X .

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes       .  No   X .

 

The number of shares outstanding of each of the issuer’s classes of common stock as of the close of business on May 14, 2015 is as follows:

Class		Number of Shares
Common Stock: $0.001 Par Value		141,944,156

 

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RVUE HOLDINGS, INC.

TABLE OF CONTENTS

 

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements.
	Condensed Consolidated Balance Sheets – March 31,2015 and December 31, 2014	1
	Condensed Consolidated Statements of Operations – Three Months Ended March 31, 2015 and 2014	2
	Condensed Consolidated Statements of Stockholders’ Equity – Three Months Ended March 31, 2015	3
	Condensed Consolidated Statements of Cash Flows –Three Months Ended March 31, 2015 and 2014	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.	15
Item 4.	Controls and Procedures.	16
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings.	17
Item 1A.	Risk Factors.	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	17
Item 3.	Defaults Upon Senior Securities.	17
Item 4.	Mine Safety Disclosures.	17
Item 5.	Other Information.	17
Item 6.	Exhibits.	17

 

 

 

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PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements.

rVUE HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		March 31,			December 31,
		2015			2014
		(unaudited)
Assets
Current assets:
Cash and cash equivalents		$	185,271		$	418,803
Accounts receivable			73,594			332,563
Prepaid expenses			46,866			70,101
Total current assets			305,731			821,467
Property and equipment, net			115			662
Software development costs			127,324			136,717
Deposits			3,100			3,180
		$	436,270		$	962,026
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable		$	86,052		$	168,591
Accrued expenses			78,692			204,821
Deferred revenue			10,500			10,500
Total current liabilities			175,244			383,912
Commitments and contingencies (Note 9)
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; 240,000,000 shares authorized at March 31, 2015 and December 31, 2014; 141,944,156 issued and outstanding at March 31, 2015 and 140,872,727 issued and outstanding at December 31, 2014			141,944			140,873
Additional paid-in capital			13,198,706			13,105,717
Accumulated deficit			(13,079,624)			(12,668,476)
Total stockholders' equity			261,026			578,114
		$	436,270		$	962,026

 

 

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rVUE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

		For the Three Months Ended March 31,
		2015			2014
Revenue
rVue advertising revenue		$	73,135		$	192,664
Network			31,500			35,925
			104,635			228,589
Costs and expenses
Cost of revenue			64,546			169,759
Selling, general and administrative expenses			414,453			346,387
Depreciation and amortization			36,784			12,427
			515,783			528,573
Loss before provision for income taxes			(411,148)			(299,984)
Provision for income taxes			-			-
Net loss		$	(411,148)		$	(299,984)
Net loss per common share - basic and diluted		$	(0.00)		$	(0.00)
Shares used in computing net loss per share:
Basic and diluted			141,467,965			135,130,206

  

 

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rVUE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2015

(unaudited)

 

														Additional
		Preferred Stock						Common Stock						Paid-In			Accumulated
		Shares			Amount			Shares			Amount			Capital			Deficit			Total
Balance, December 31, 2014			-		$	-			140,872,727		$	140,873		$	13,105,717		$	(12,668,476)		$	578,114
Common stock issued			-			-			1,071,429			1,071			73,929			-			75,000
Stock based compensation expense			-			-			-			-			19,060			-			19,060
Net loss			-			-			-			-			-			(411,148)			(411,148)
Balance, March 31, 2015			-		$	-			141,944,156		$	141,944		$	13,198,706		$	(13,079,624)		$	261,026

 

 

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rVUE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

		For the Three Months Ended March 31,
		2015			2014
Operating activities
Net loss		$	(411,148)		$	(299,984)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			36,784			12,427
Stock-based compensation expense			19,060			15,088
Common stock issued for services			22,500			-
Changes in operating assets and liabilities:
Accounts receivable			258,970			(17,770)
Prepaid expenses			735			(1,046)
Accounts payable			(82,539)			25,235
Accrued expenses			(126,129)			(6,958)
Deferred revenue			-			10,500
Cash used in operating activities			(281,767)			(262,508)
Investing activities
Payments for property, equipment and software development			(26,845)			(44,200)
Change in deposits			80			1,550
Cash used in investing activities			(26,765)			(42,650)
Financing activities
Proceeds from the issuance of common stock			75,000			175,000
Cash provided by financing activities			75,000			175,000
Decrease in cash and cash equivalents			(233,532)			(130,158)
Cash and cash equivalents, beginning of period			418,803			844,589
Cash and cash equivalents, end of period		$	185,271		$	714,431

 

See supplemental non-cash information in Note 10.

  

 

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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 GAAP. 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, 2014, included in our Annual Report on Form 10-K (the “2014 Form 10-K”).

 

The unaudited condensed consolidated statements of operations for the three months ended March 31, 2015 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 $13,079,624 at March 31, 2015. 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 meet our operating cash flow requirements will include financing activities such as private placements of common stock and the continued establishment of strategic relationships which we expect 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 months ended March 31, 2015 and 2014, diluted loss per common share has not been computed by giving effect to all potentially dilutive common shares that were outstanding during the three months ended March 31, 2015 and 2014. 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 derivative securities.

 

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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
		March 31,
		2015			2014
Numerator:
Net loss		$	(411,148)		$	(299,984)
Denominator:
Weighted-average shares outstanding			141,467,965			135,130,206
Effect of dilutive securities (1)			-			-
Weighted-average diluted shares			141,467,965			135,130,206
Basic and diluted loss per share		$	(0.00)		$	(0.00)

 

	(1)	The following stock options, warrants and convertible notes outstanding as of March 31, 2015 and 2014 were not included in the computation of dilutive loss per share because the net effect would have been anti-dilutive:

 

		Three Months Ended
		March 31,
		2015			2014
Stock options			-			-
Warrants			91,178			64,750
			91,178			64,750

Note 4 – Financial Instruments

  

Accounts Receivable

 

We sell our services directly to our customers. Accounts receivable from two of our customers accounted for 100% of total accounts receivable at March 31, 2015, and accounts receivable from three of our customers accounted for 99.4 % of total accounts receivable at December 31, 2014.  We had no allowance for doubtful accounts at either March 31, 2015 or at December 31, 2014.

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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.

 

 

 

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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 March 31, 2015 and December 31, 2014:

 

Prepaid expenses		March 31, 2015			December 31, 2014
Insurance		$	8,636		$	14,871
Other			38,230			55,230
		$	46,866		$	70,101

 

Property and Equipment		Estimated Useful Lives		March 31,			December 31,
		(Years)		2015			2014
Computers and software		2 - 5		$	91,083		$	91,083
Equipment		3			22,977			22,977
Gross property and equipment					114,060			114,060
Less accumulated depreciation					(113,945)			(113,398)
Net property and equipment				$	115		$	662

 

Depreciation expense was $547 and $654 for the three months ended March 31, 2015 and 2014, respectively.

 

Software Development Costs		Estimated Useful Lives		March 31,			December 31,
		(Months)		2015			2014
Software development costs		18		$	1,320,765		$	1,293,920
Less accumulated amortization					(1,193,441)			(1,157,203)
Net software development costs				$	127,324		$	136,717

 Amortization expense was $36,237 and $11,773 for the three months ended March 31, 2015 and 2014, respectively.
 

	March 31,			December 31,
Accrued Expenses	2015			2014
Personnel costs	$	11,488		$	9,497
Network costs		33,252			166,211
Other		33,952			29,113
	$	78,692		$	204,821

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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-month periods ended March 31, 2015 and 2014, respectively, since management has determined that the realization of the net deferred tax asset is 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, 2014, we had no unrecognized tax benefits, and no tax-related interest or penalties. There were no changes in unrecognized tax benefits during the period ended March 31, 2015. We did not recognize any interest or penalties during 2014 related to unrecognized tax benefits, or through the period ended March 31, 2015.

Note 8 - Stockholders’ Equity and Stock Based Compensation

 

Equity Awards

 

Stock Option Activity

 

A summary of the Company’s stock option activity for the three-month period ended March 31, 2015 is as follows:

 

		Number of Options			Weighted Average Exercise Price Per Share			Weighted Average Remaining Contractual Term			Aggregate Intrinsic Value
Balance at December 31, 2014			2,340,000			0.16			7.55			-
Options granted			850,000			0.10			10.00			-
Options exercised			-			-			-			-
Options forfeited			100,000			0.10			10.0			-
Balance at March 31, 2015			3,090,000			0.15			7.91			-
Exercisable at March 31, 2015			1,615,827			0.18			6.80			-
Expected to vest after March 31, 2015			1,474,173			0.12			9.13			-

 

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.

 

On January 12, 2015, 850,000 stock options were granted to current employees and a contractor of the Company.  We did not grant any options during the three-month period ended March 31, 2014.  As of March 31, 2015 there was approximately $127,000 of total unrecognized compensation cost related to stock options outstanding.  This cost is expected to be recognized over a period of three years.

 

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RVUE HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

The Company entered into an employment agreement with Mark Pacchini, our CEO and acting CFO, on July 1, 2013.  The agreement term is three years and the agreement includes mandatory bonuses payable in the Company’s common stock if specific revenue targets are achieved in a calendar year.  On January 1, 2014, the revenue targets for this agreement were amended.  As of March 31, 2015 it did not appear probable that any of the revenue targets in the amended 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 targets included in the agreement on a quarterly basis.

Note 9 – Commitments and Contingencies

 

Other Off-Balance Sheet Commitments

 

Our corporate headquarters is in Elmhurst, IL, where we lease approximately 2,700 square feet of office space from Real Capital, LLC under a lease contract that expires on September 30, 2015.  Lease payments are approximately $3,100 a month through September 30, 2014 increasing to $3,193 a month through September 30, 2015. This facility accommodates our principal sales, marketing, operations, finance and administrative activities.

 

Contract with Consultant

In November 2014, rVue entered into an eight month consulting agreement that compensated the consultant with 483,871 shares of rVue common stock.  The agreement requires rVue to provide price protection on the shares which may result in the Company issuing additional shares to the consultant if the share price in May 2015 falls below the share price at issuance. 

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 – Supplemental Non-Cash Information

  

In 2014, the Company issued common stock totaling $42,000 to Ken Dvorak for accounting services performed in 2013 and issued common stock totaling $11,400 in the settlement of a lawsuit.  At December 31, 2014, the Company had $45,000 of prepaid consulting services that was paid via the issuance of common stock in 2014.  During the three months ended March 31, 2015, the Company recognized consulting expenses of $22,500 related to the arrangement.  At March 31, 2015, $22,500 remained in prepaid expenses.

 

 

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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 I, Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 (the “2014 Form 10-K”) filed with the U.S. Securities and Exchange Commission (“SEC”). The following discussion should be read in conjunction with the 2014 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 are an advertising technology company and operate rVue, a demand-side platform (“DSP”) for planning, buying and managing DOOH and place-based media advertising. We provide media services, including 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 March 31, 2015, approximately 175 networks comprising approximately 1,200,000 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.

 

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.

 

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Under a contractual arrangement with a large advertiser we provide technical services on a monthly basis for a fixed monthly payment resulting in total monthly revenue of approximately $10,500. Under these arrangements, we provide technical services, including network monitoring, troubleshooting and maintenance, among other services. See the Revenue section for more information.

 

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 2014 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.

 

Results of Operations

 

Three Months Ended March 31, 2015 and 2014:

 

Our unaudited results of operations for the three-month periods ended March 31, 2015 and 2014 were as follows:

 

		For the Three Months Ended March 31,
		2015			2014
Revenue
rVue fees		$	73,135		$	192,664
Network			31,500			35,925
			104,635			228,589
Costs and expenses
Cost of revenue			64,546			169,759
Selling, general and administrative expenses			414,453			346,387
Depreciation and amortization			36,784			12,427
			515,783			528,573
Loss before provision for income taxes			(411,148)			(299,984)
Provision for income taxes			-			-
Net loss		$	(411,148)		$	(299,984)
Net loss per common share - basic and diluted		$	(0.00)		$	(0.00)
Shares used in computing net loss per share:
Basic and diluted			141,467,965			135,130,206

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Revenue

  

Revenue was $104,635 for the three-month period ended March 31, 2015 compared to $228,589 for the three-month period ended March 31, 2014, a $123,954 decrease, or 54.2%. We earned revenue as follows:

 

		Three Months ended March 31,
Revenue Category		2015			2014			$ Change			% Change
rVue Revenue – Core Fees		$	73,135		$	192,664		$	(119,529)			-62.0%
Network Revenue – Non Core Fees			31,500			35,925			(4,425)			-12.3%
Total Revenue		$	104,635		$	228,589		$	(123,954)			-54.2%

 

rVue 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.

 

rVue revenue was $73,135 for the three-month period ended March 31, 2015, a $119,529 decrease compared to the $192,664 rVue revenue for the three-month period ended March 31, 2014. The first quarter of the fiscal year is consistently the softest quarter for sales.  The first quarter of 2015 was unusually slow for sales due to unexpected changes at a few of our larger long-term customers.  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 2015 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 2015 and beyond. We cannot provide assurance 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 $31,500 for the three-month period ended March 31, 2015; a $4,425, or 12.3%, decrease compared to the $35,925 for the three-month period ended March 31, 2014. During the three months ended March 31, 2015 we earned fixed monthly fees of $10,500 from one client. We expect to continue to receive revenue in the amount of $10,500 monthly from these services to this client through September 2015, 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 $64,546 for the three-month period ended March 31, 2015 compared to $169,759 for the three-month period ended March 31, 2014, a $105,213 decrease, or 62.0%, and was comprised of:

 

		Three Months Ended
		March 31,
		2015			2014			$ Change			% Change
Compensation and benefits		$	3,181		$	2,042		$	1,139			55.8%
Network services			180			186			(6)			-3.2%
rVue operations			61,185			167,531			(106,346)			-63.5%
Total		$	64,546		$	169,759		$	(105,213)			-62.0%

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The decrease in cost of revenue is attributable to a 54.2% decrease in rVue revenue compared to March 31, 2014, and the change in revenue category mix. The decrease in core revenues decreases the cost of network expenses which are recorded in rVue operations. 

 

Selling, general and administrative expenses

 

Selling, general and administrative expenses (“SG&A”) were $414,453 for the three-month period ended March 31, 2015 compared to $346,387 for the three-month period ended March 31, 2014, a $68,066 increase, or 19.7%. Changes by major component of SG&A are:

 

		Three Months Ended
		March 31,
		2015			2014			$ Change			% Change
Compensation and benefits		$	158,633		$	153,607		$	5,026			3.3	%
Stock-based compensation expense			19,060			15,088			3,972			26.3	%
Facility expense			12,608			17,943			(5,335)			-29.7	%
Communications expense			17,722			15,926			1,796			11.3	%
Travel expense			3,419			4,896			(1,477)			-30.2	%
Advertising and marketing expense			1,149			570			579			101.6	%
Investor relations and investment banking fees			39,043			1,711			37,332			2,181.9	%
Professional and consulting fees			91,981			95,004			(3,023)			-3.2	%
Office support and supply expense			70,838			41,642			29,196			70.1	%
Total		$	414,453		$	346,387		$	68,066			19.7	%

  

Compensation and benefits increased $5,026, or 3.3% for the three months ended March 31, 2015 when compared to the three months ended March 31, 2014. This change was due to a $17,355 decrease in the amount of payroll costs being capitalized for software development, offset by a $5,813 decrease in payroll, a $3,393 decrease in healthcare benefits and a $2,876 decrease in the vacation accrual.

Stock-based compensation expense increased $3,972 or 26.3% for the three months ended March 31, 2015 when compared to the three months ended March 31, 2014.  This increase is due to the employee stock options granted in January 2015.

Facility expense decreased $5,335 or 29.7% for the three months ended March 31, 2015 when compared to the three months ended March 31, 2014.  The decrease in facility expense is due to the closure of the Florida office.

 

Investor relations and investment banking fees expense increased by $37,332 or 2,181.9%, in the three-month period ended March 31, 2015, when compared to the three-month period ended March 31, 2014. $34,838 of this increase is due to an eight month investor relations program to attract investors to rVue that began in November 2014 and will be completed in May 2015.  The remaining $4,205 of 2015 investor relations and investment banking fees expense is related to fees paid related to the release of the 2014 Form 10-K.

 

Office support and supply expense for the three-month period ended March 31, 2015 increased $29,196 or 70.1%, compared to the three-month period ended March 31, 2014. This increase is attributable to outside consultants rVue has engaged in operations and software development.

 

Depreciation and amortization

 

Depreciation was $547 for the three-month period ended March 31, 2015 compared to $654 for the three-month period ended March 31, 2014, a $107 decline, or 16.4%. For the three-month period ended March 31, 2015, amortization expense for software development was $36,237, compared to $11,773 for the three-month period ended March 31, 2014, a $24,465 increase, or 207.8%. The decrease in depreciation is due to fixed assets being almost completely depreciated.  Amortization expense for software development costs increased due to an increase in the amount of payroll being capitalized due to a refocus on software development beginning in the third quarter of 2013.

 

Liquidity and Capital Resources

 

As of March 31, 2015, we had cash and cash equivalents totaling $185,271. Since our inception, we have incurred net losses, and at March 31, 2015, we had an accumulated deficit of $13,079,624 and total stockholders’ equity of $261,026. We expect to continue to incur losses in fiscal 2015. At the present time, the Company does not have sufficient cash to continue through the second quarter of 2015.  Management is currently in the process of raising additional capital.

 

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We did not have any material commitments for capital expenditures at March 31, 2015.  We have budgeted capital expenditures of approximately $150,000 for fiscal 2015, 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 arising from continuing operations in the three-month periods ended March 31, 2015 and 2014. 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 $281,767 for the three-month period ended March 31, 2015 compared to $262,508 for the three-month period ended March 31, 2014. In the three-month period ended March 31, 2015, cash was used to fund a net loss of $411,148, reduced by depreciation of $36,784, stock-based compensation of $19,060, common stock previously issued for services incurred in the first quarter of $22,500 and decreased due to changes in operating assets and liabilities totaling $51,037.

 

In the three-month period ended March 31, 2014, cash was used to fund a net loss of $299,984, reduced by depreciation of $12,427, stock-based compensation expense of $15,088 and changes in operating assets and liabilities totaling $9,961.

 

Cash used in investing activities

Net cash used in investing activities totaled $26,765 for the three-month period ended March 31, 2015 compared to $42,650 in the three-month period ended March 31, 2014. In the three-month period ended March 31, 2015, cash used in investing activities consisted of $26,845 for software development costs and a decrease in deposits of $80. In the three-month period ended March 31, 2014, cash used in investing activities consisted of $44,200 for software development costs and $1,550 decrease in deposits.

 

Cash from financing activities

 

Net cash provided by financing activities totaled $75,000 for the three-month period ended March 31, 2015, which were the proceeds from the issuance of common stock. For the three-month period ended March 31, 2014, net cash provided by financing activities totaled $175,000 and were the proceeds from the issuance of common stock.

 

Financial condition

 

As of March 31, 2015, we had a working capital surplus of $130,487, an accumulated deficit of $13,079,624 and total stockholders’ equity of $261,026, compared to a working capital surplus of $437,555, an accumulated deficit of $12,668,467 and total stockholders’ equity of $578,114 at December 31, 2014. The decline in our financial condition was due to losses incurred net of the proceeds from the sale of $75,000 of stock during the quarter ended March 31, 2015.

 

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 end of the year. 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, 2014 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. Management intends to address this concern by focusing on revenue growth and on raising additional capital in the coming 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.

  

As a smaller reporting company, we are not required to provide information in response to by this item.

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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 effective as of March 31, 2015, 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.

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 (as defined in Rule 13a-15(f) under the Exchange Act) during the three-month period ended March 31, 2015 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.

 

 

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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 June 4, 2014, rVue, Inc. filed suit against former rVue director and officer Michael Mullarkey, who left the company on May 31, 2013.  The complaint alleged claims of fraud, constructive fraud and conversion.  rVue also submitted a claim for employee theft to its insurer, CNA, for the amount misappropriated by Mr. Mullarkey.  In November, 2014, CNA approved the claim for employee theft in the amount of $249,459.  rVue received $249,459 in November 2014.

 

Item 1A.        Risk Factors.

  

As a smaller reporting company, we are not required to provide information in response to this item.

 

Item 2.           Unregistered Sales of Equity Securities and Use of Proceeds.

  

On February 9, 2015, the Company sold an aggregate of 1,071,429 shares of its common stock to two individual accredited investors (the “Investors”), for an aggregate cash purchase price of $75,000.  The shares were issued to the Investors without registration in reliance upon the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506(b) promulgated thereunder.

 

Item 3.           Defaults Upon Senior Securities.

  

None.

 

Item 4.           Mine Safety Disclosures.

  

Not applicable.

 

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 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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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: May 14, 2015	By:	/s/ Mark P. Pacchini
		Acting Chief Financial Officer
		(Duly Authorized Officer and
		Principal Financial Officer)

 

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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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