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EX-31.2 - EXHIBIT 31.2 SECTION 302 CERTIFICATION - RVUE HOLDINGS, INC. | f10q093015_ex31z2.htm |
EX-31.1 - EXHIBIT 31.1 SECTION 302 CERTIFICATION - RVUE HOLDINGS, INC. | f10q093015_ex31z1.htm |
EX-32.1 - EXHIBIT 32.1 SECTION 906 CERTIFICATION - RVUE HOLDINGS, INC. | f10q093015_ex32z1.htm |
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 September 30, 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) |
|
|
17W220 22nd Street, Suite 200 |
|
|
Oak Brook Terrace, IL 60181 |
| (855) 261-8370 |
(Address of principal executive offices, |
| (Registrants 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 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 issuers classes of common stock as of the close of business on November 12, 2015 is as follows:
Class |
| Number of Shares |
Common Stock: $0.001 Par Value |
| 150,515,839 |
RVUE HOLDINGS, INC.
TABLE OF CONTENTS
PART I | FINANCIAL INFORMATION |
|
|
|
|
Item 1. | Financial Statements. |
|
| Condensed Consolidated Balance Sheets September 30, 2015 and December 31, 2014 | 3 |
| Condensed Consolidated Statements of Operations Three and Nine Months Ended September30, 2015 and 2014 | 4 |
| Condensed Consolidated Statements of Stockholders Equity (Deficit) Nine Months Ended September 30, 2015 | 5 |
| Condensed Consolidated Statements of Cash Flows Nine Months Ended September 30, 2015 and 2014 | 6 |
| Notes to Condensed Consolidated Financial Statements | 7 |
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. | 16 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 24 |
Item 4. | Controls and Procedures. | 24 |
|
|
|
PART II | OTHER INFORMATION |
|
|
|
|
Item 1. | Legal Proceedings. | 25 |
Item 1A. | Risk Factors. | 25 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 25 |
Item 3. | Defaults Upon Senior Securities. | 25 |
Item 4. | Mine Safety Disclosures. | 25 |
Item 5. | Other Information. | 25 |
Item 6. | Exhibits. | 25 |
2
rVUE HOLDINGS, INC. |
CONDENSED CONSOLIDATED BALANCE SHEETS |
|
| September 30, |
| December 31, | ||
|
| 2015 |
| 2014 | ||
|
| (unaudited) |
| (audited) | ||
Assets |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 2,939 |
| $ | 418,803 |
Accounts receivable |
|
| 118,569 |
|
| 332,563 |
Prepaid expenses |
|
| 48,936 |
|
| 70,101 |
|
|
|
|
|
|
|
Total current assets |
|
| 170,444 |
|
| 821,467 |
|
|
|
|
|
|
|
Property and equipment, net |
|
| 48 |
|
| 662 |
Software development costs |
|
| 134,286 |
|
| 136,717 |
Deposits |
|
| 6,339 |
|
| 3,180 |
|
|
|
|
|
|
|
|
| $ | 311,117 |
| $ | 962,026 |
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity (Deficit) |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 146,412 |
| $ | 168,591 |
Accrued expenses |
|
| 227,876 |
|
| 204,821 |
Interest payable |
|
| 4,130 |
|
| - |
Note payable |
|
| 29,096 |
|
| - |
Convertible notes |
|
| 100,637 |
|
| - |
Derivative liability |
|
| 103,169 |
|
| - |
Deferred revenue |
|
| 10,500 |
|
| 10,500 |
|
|
|
|
|
|
|
Total current liabilities |
|
| 621,820 |
|
| 383,912 |
|
|
|
|
|
|
|
Commitments and contingencies (Note 10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity (deficit): |
|
|
|
|
|
|
Preferred stock, $0.001 par value per share; 10,000,000 shares authorized; none |
|
| - |
|
| - |
Common stock, $0.001 par value per share; 240,000,000 shares authorized at September 30, 2015 and December 31, 2014;141,944,156 issued and outstanding at September 30, 2015 and 140,872,727 at December 31, 2014 |
|
| 141,944 |
|
| 140,873 |
Additional paid-in capital |
|
| 13,236,104 |
|
| 13,105,717 |
Accumulated deficit |
|
| (13,688,751) |
|
| (12,668,476) |
|
|
|
|
|
|
|
Total stockholders' equity (deficit) |
|
| (310,703) |
|
| 578,114 |
|
|
|
|
|
|
|
|
| $ | 311,117 |
| $ | 962,026 |
3
rVUE HOLDINGS, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
(unaudited) |
|
| For the Three Months Ended |
| For the Nine Months Ended | ||||||||
|
| 2015 |
| 2014 |
| 2015 |
| 2014 | ||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Core fees |
| $ | 133,264 |
| $ | 248,940 |
| $ | 749,302 |
| $ | 641,112 |
Non-core fees |
|
| 31,500 |
|
| 31,500 |
|
| 94,500 |
|
| 98,925 |
|
|
| 164,764 |
|
| 280,440 |
|
| 843,802 |
|
| 740,037 |
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
| 115,117 |
|
| 219,392 |
|
| 681,427 |
|
| 564,229 |
Selling, general and administrative expenses |
|
| 298,474 |
|
| 323,507 |
|
| 1,044,859 |
|
| 1,002,514 |
Depreciation and amortization |
|
| 33,594 |
|
| 27,604 |
|
| 103,902 |
|
| 59,298 |
Interest expense |
|
| 31,508 |
|
| - |
|
| 31,959 |
|
| - |
Change in fair value of derivative instruments |
|
| 1,930 |
|
| - |
|
| 1,930 |
|
| - |
|
|
| 480,623 |
|
| 570,503 |
|
| 1,864,077 |
|
| 1,626,041 |
Loss before provision for income taxes |
|
| (315,859) |
|
| (290,063) |
|
| (1,020,275) |
|
| (886,004) |
Provision for income taxes |
|
| - |
|
| - |
|
| - |
|
| - |
Net loss |
| $ | (315,859) |
| $ | (290,063) |
| $ | (1,020,275) |
| $ | (886,004) |
Net loss per common share - basic and diluted |
| $ | (0.00) |
| $ | (0.00) |
| $ | (0.01) |
| $ | (0.01) |
Shares used in computing net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
| 141,944,156 |
|
| 139,200,211 |
|
| 141,785,426 |
|
| 136,691,309 |
4
rVUE HOLDINGS, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) |
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 |
(unaudited) |
|
| 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 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 56,458 |
|
| - |
|
| 56,458 |
Net loss |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (1,020,275) |
|
| (1,020,275) |
Balance,September30, 2015 |
|
| - |
| $ | - |
|
| 141,944,156 |
| $ | 141,944 |
| $ | 13,236,104 |
| $ | (13,688,751) |
| $ | (310,703) |
5
rVUE HOLDINGS, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(unaudited) |
|
| For the Nine Months Ended | ||||
|
| 2015 |
| 2014 | ||
Operating activities |
|
|
|
|
|
|
Net loss |
| $ | (1,020,275) |
| $ | (886,004) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
|
| 103,902 |
|
| 59,298 |
Non-cash interest |
|
| 26,876 |
|
| - |
Stock-based compensation expense |
|
| 56,458 |
|
| 45,264 |
Common stock issued for services |
|
| 45,000 |
|
| - |
Change in fair value of derivative instruments |
|
| 1,930 |
|
| - |
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
Accounts receivable |
|
| 213,995 |
|
| (75,421) |
Prepaid expenses |
|
| 33,765 |
|
| (8,080) |
Accounts payable |
|
| (22,179) |
|
| 47,242 |
Accrued expenses |
|
| 23,055 |
|
| 53,731 |
Deferred revenue |
|
| - |
|
| 10,500 |
Accrued interest expense |
|
| 4,130 |
|
| - |
|
|
|
|
|
|
|
Cash used in operating activities |
|
| (533,343) |
|
| (753,470) |
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property, equipment and software development |
|
| (100,858) |
|
| (113,449) |
Change in deposits |
|
| (3,159) |
|
| 7,500 |
Cash used in investing activities |
|
| (104,017) |
|
| (105,949) |
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
Proceeds from the issuance of common stock |
|
| 75,000 |
|
| 485,000 |
Proceeds from convertible notes |
|
| 175,000 |
|
| - |
Payments on debt |
|
| (28,504) |
|
| - |
|
|
|
|
|
|
|
Cash provided by financing activities |
|
| 221,496 |
|
| 485,000 |
Decrease in cash and cash equivalents |
|
| (415,864) |
|
| (374,419) |
Cash and cash equivalents, beginning of period |
|
| 418,803 |
|
| 844,589 |
Cash and cash equivalents, end of period |
| $ | 2,939 |
| $ | 470,170 |
See supplemental non-cash information in Note 12.
6
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 Companys 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 Companys 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 statement of operations for the three and nine months ended September 30, 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 $13,688,751 at September 30, 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 businesses. Managements plan in order to meet our operating cash flow requirements includes financing activities such as private placements of common stock and private issuances of debt and convertible instruments and the continued establishment of strategic relationships which we expect will lead to the generation of additional revenue opportunities.
While we believe that we will be successful in obtaining the necessary financing to fund our operations, there is no assurance 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, 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 and nine months ended September 30, 2015 and 2014 since this would have an anti-dilutive effect.
7
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, | ||||||||
|
| 2015 |
| 2014 |
| 2015 |
| 2014 | ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (315,859) |
| $ | (290,063) |
| $ | (1,020,275) |
| $ | (886,004) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding |
|
| 141,944,156 |
|
| 139,200,211 |
|
| 141,785,426 |
|
| 136,691,309 |
Effect of dilutive securities (1) |
|
| - |
|
| - |
|
| - |
|
| - |
Weighted-average diluted shares |
|
| 141,944,156 |
|
| 139,200,211 |
|
| 141,785,426 |
|
| 136,691,309 |
Basic and diluted loss per share |
| $ | (0.00) |
| $ | (0.00) |
| $ | (0.01) |
| $ | (0.01) |
| (1) | The following stock options and warrants outstanding as of September 30, 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 | ||||
|
| September 30, | ||||
|
| 2015 |
| 2014 | ||
Stock options |
|
| - |
|
| - |
Warrants |
|
| 1,608 |
|
| 73,138 |
|
|
| 1,608 |
|
| 73,138 |
Note 4 Financial Instruments
Accounts Receivable
We sell our services directly to our customers. Accounts receivable from three of our customers accounted for 100% of total accounts receivable at September 30, 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 September 30, 2015 or at December 31, 2014.
Convertible Notes
The carrying amount of convertible notes approximates their fair value based on the recentness of the transaction. The embedded derivative liability is reported at fair value calculated using a binomial lattice model.
8
RVUE HOLDINGS, INC. |
Notes to Condensed Consolidated Financial Statements |
(unaudited) |
Note 5 Convertible Note Financing
On July 8, 2015 (the Closing Date), the Company entered into a Securities Purchase Agreement dated July 7, 2015 but effective July 8, 2015 (the Typenex SPA) with Typenex Co-Investment, LLC (Typenex). Pursuant to the Typenex SPA, the Company issued to Typenex a convertible promissory note (the Typenex Note) in the principal amount of $252,500, deliverable in four tranches as described below.
Typenex Convertible Note Financing
The Typenex Note has a term of 17 months, an interest rate of 10% per annum and an original issue discount (OID) of $22,500. The commitment to the Company from the Typenex Note were $225,000, in the form of: (a) an initial tranche of $75,000 in cash (gross proceeds of $87,500, less $7,500 in OID and $5,000 in expense reimbursements), and a (b) future commitment of three promissory notes of $55,000 each (each consisting of $55,000 in gross proceeds, less $5,000 in OID (the Investor Notes). Typenex may elect, in its sole discretion, to fund one or more of the Investor Notes. Absent such an election by Typenex, the Investor Notes will not result in cash proceeds to, or an obligation to repay on the part of, the Company.
Beginning on the date that is six (6) months after the Closing Date and on the same day of each month thereafter until the maturity date of the Typenex Note, so long as any amount is outstanding thereunder, the Company is required to pay to Typenex installments of principal equal to $21,041 (or such lesser principal amount as is then outstanding), plus the sum of any accrued and unpaid interest. Payments of each installment amount may be made in cash. Alternatively, Typenex or the Company may elect to convert an installment amount into Common Stock as described below.
Beginning six (6) months after the Closing Date, Typenex may convert the balance of the Typenex Note, or any installment or portion thereof, utilizing the conversion price calculation set forth below. Generally, the Lender Conversion Price shall be $0.08. However, in the event that the Companys market capitalization falls below $3,000,000 at any time, then in such event (a) the conversion price for all lender conversions occurring after the first date of such occurrence shall equal the lower of the Lender Conversion Price and the Market Price as of any applicable date of conversion. The Market Price is calculated by applying a discount of 30% to the average of the three (3) lowest closing bid prices during the twenty (20) trading days immediately preceding the applicable conversion. The Company may also elect to make payment of installments in the form of equity on substantially the same terms, subject to the terms and conditions of the Typenex Note.
Carebourn Convertible Note Financing
On July 30, 2015 (the Closing Date), the Company entered into a Securities Purchase Agreement dated July 30, 2015 (the Carebourn SPA) with Carebourn Capital, L.P. (Carebourn). Pursuant to the Carebourn SPA, the Company issued to Carebourn a convertible promissory note (the Carebourn Note) in the principal amount of $115,000.
The Carebourn Note has a term of 9 months and an interest rate of 10% per annum. The net proceeds to the Company from the Carebourn Note were $100,000, consisting of gross proceeds of $115,000, less $10,000 in OID and $5,000 in expense reimbursements. The entire principal balance of the Carebourn Note, together with all accrued interest, is due and payable on April 30, 2016.
Beginning on the date that is ninety (90) days after the Closing Date, so long as any amount is outstanding under the Carebourn Note, Carebourn may convert all or any portion of the balance of the Carebourn Note into shares of the Companys common stock Generally, the conversion price will be calculated by applying a discount of 40% to the average of the three (3) lowest closing bid prices for the common stock during the twenty (20) trading days immediately preceding the applicable conversion. Carebourn is generally prohibited from acquiring more than 4.99% of the Companys outstanding shares pursuant to the Carebourn Note.
9
RVUE HOLDINGS, INC. |
Notes to Condensed Consolidated Financial Statements |
(unaudited) |
Derivatives
The Typenex Note and the Carebourn Note described above have conversion features which are embedded derivatives as defined in FASB Accounting Standards Codification (ASC) 815. Derivative financial instruments are initially measured at their fair value and then are re-valued at each reporting date, with changes in fair value reported as charges or credits to income. At July 8, 2015 we valued the embedded derivative conversion feature for the Typenex Note to be $25,370. At July 30, 2015 we valued the embedded derivative conversion feature of the Carebourn Note to be $75,869. We determined the fair value of the two embedded conversion features based on available data using a binomial lattice valuation model given all the rights and obligations of the instruments.
The Company recorded a discount on the Typenex Note and the Carebourn Note equal to the fair value of the derivative liability of the notes. The discount is being amortized using the straight line method over the term of the notes.
|
| Three Months Ended September 30, 2015 |
| December 31, | ||
Principle |
| $ | 202,500 |
| $ | - |
Original issue discount and debt issuance costs |
|
| (27,500) |
|
| - |
Derivative liability at inception |
|
| (101,239) |
|
| - |
Amortization of discount on notes |
|
| 26,876 |
|
| - |
|
| $ | 100,637 |
| $ | - |
The Typenex Note derivative liability has been measured at fair value at September 30, 2015 using a binomial model. The inputs into the binomial model are as follows:
| September 30, 2015 |
| December 31, | |||
Closing share price |
| $ | 0.0349 |
| $ | - |
Conversion price |
| $ | 0.0800 |
| $ | - |
Risk free rate |
|
| 0.378% |
|
| - |
Expected volatility |
|
| 75% |
|
| - |
Dividend yield |
|
| 0% |
|
| - |
Expected life |
|
| 1.19 years |
|
| - |
Lattice steps |
|
| 310 |
|
| - |
Conversion rest price |
| $ | 0.0211 |
| $ | - |
Base conversion factor |
|
| 70% |
|
| - |
Conversion factor trigger |
| $ | 0.0200 |
| $ | - |
Interest rate on note |
|
| 10% |
|
| - |
The Carebourn Note derivative liability has been measured at fair value at September 30, 2015 using a binomial model. The inputs into the binomial model are as follows:
| September 30, 2015 |
| December 31, | |||
Closing share price |
| $ | 0.0349 |
| $ | - |
Conversion price |
| $ | 0.0800 |
| $ | - |
Risk free rate |
|
| 0.203% |
|
| - |
Expected volatility |
|
| 75% |
|
| - |
Dividend yield |
|
| 0% |
|
| - |
Expected life |
|
| 0.58 years |
|
| - |
Lattice steps |
|
| 152 |
|
| - |
Variable conversion factor |
|
| 60% |
|
| - |
Conversion factor trigger |
| $ | 0.0200 |
| $ | - |
Interest rate on note |
|
| 10% |
|
| - |
10
RVUE HOLDINGS, INC. |
Notes to Condensed Consolidated Financial Statements |
(unaudited) |
Note 6 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. The carrying amounts of our financial instruments, including cash, accounts receivable, accounts payable and accrued liabilities, approximate fair value because of their generally short maturities.
Assets and liabilities measured at fair value on a recurring basis at September 30, 2015 and December 31, 2014 were as follows:
|
| Quoted Prices |
|
| Significant |
|
| Significant |
|
| Total | ||||
September 30, 2015 |
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
| ||||
Derivative liability |
| $ | - |
|
| $ | - |
|
| $ | 103,169 |
|
| $ | 103,169 |
December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
The fair value of the derivative liability, classified as Level 3, utilized a simulation analysis using a binomial lattice model and other unobservable inputs.
Rollforward of Level 3 Net Liability
The table below sets forth a summary of changes in the fair value of the Companys Level 3 liabilities for the three month period ended September 30, 2015:
Balance, July 1, 2015 |
| $ | - |
Issuances |
|
| 101,239 |
Settlements |
|
| - |
Realized and unrealized (gains) losses included in earnings |
|
| 1,930 |
Transfers into or out of level 3 |
|
| - |
Balance, September 30, 2015 |
| $ | 103,169 |
11
RVUE HOLDINGS, INC. |
Notes to Condensed Consolidated Financial Statements |
(unaudited) |
The table below sets forth a summary of changes in the fair value of the Companys Level 3 liabilities for the nine month period ended September 30, 2015:
Balance, January 1, 2015 |
| $ | - |
Issuances |
|
| 101,239 |
Settlements |
|
| - |
Realized and unrealized (gains) losses included in earnings |
|
| 1,930 |
Transfers into or out of level 3 |
|
| - |
Balance, September 30, 2015 |
| $ | 103,169 |
Note 7 Condensed Consolidated Financial Statement Details
The following tables show the Companys condensed consolidated financial statement details as of September 30, 2015 and December 31, 2014:
Prepaid expenses |
| September 30, 2015 |
| December 31, | ||
Insurance |
| $ | 45,706 |
| $ | 14,871 |
Other |
|
| 3,230 |
|
| 55,230 |
|
| $ | 48,936 |
| $ | 70,101 |
Property and Equipment |
| Estimated |
| September 30, |
| 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 |
|
|
|
|
| (114,012) |
|
| (113,398) |
Net property and equipment |
|
|
|
| $ | 48 |
| $ | 662 |
Depreciation expense was $34 and $576 for the three months ended September 30, 2015 and 2014, respectively. Depreciation expense was $613 and $1,827 for the nine months ended September 30, 2015 and 2014, respectively.
Software Development Costs |
| Estimated |
| September 30, |
| December 31, | |||
|
| (Months) |
| 2015 |
| 2014 | |||
Software development costs |
|
| 18 |
| $ | 1,394,778 |
| $ | 1,293,920 |
Less accumulated amortization |
|
|
|
|
| (1,260,492) |
|
| (1,157,203) |
Net software development costs |
|
|
|
| $ | 134,286 |
| $ | 136,717 |
Amortization expense was $33,560 and $27,028 for the three months ended September` 30, 2015 and 2014, respectively. Amortization expense was $103,289 and $57,472 for the nine months ended September 30, 2015 and 2014, respectively.
Accrued Expenses |
| September 30, 2015 |
| December 31, 2014 | ||
Personnel costs |
| $ | 12,942 |
|
| 9,497 |
Network costs |
|
| 54,789 |
|
| 166,211 |
Subscription payable |
|
| 150,645 |
|
| - |
Other |
|
| 9,500 |
|
| 29,113 |
|
| $ | 227,876 |
|
| 204,821 |
12
RVUE HOLDINGS, INC. |
Notes to Condensed Consolidated Financial Statements |
(unaudited) |
Note 8 Note Payable
In May of 2015, the Company entered into a $57,600 financing agreement for the Companys annual directors and officers insurance. The term of the financing agreement is ten months and the interest rate is 4.94%. The first payment of $5,891 was made in June of 2015 and the final payment will be in March 2016.
Note 9 - Income Taxes
There is no income tax benefit for the losses for the nine month periods ended September 30, 2015 and 2014, 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, 2014, 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, 2015. We did not recognize any interest or penalties during 2014 related to unrecognized tax benefits, or through the period ended September 30, 2015.
Note 10 - Stockholders Equity and Stock Based Compensation
Stock Option Activity
A summary of the Companys stock option activity for the nine month period ended September 30, 2015 is as follows:
|
| Number of |
| Weighted |
| Weighted |
| Aggregate | ||||
Balance at December 31, 2014 |
|
| 2,340,000 |
| $ | 0.16 |
|
| 7.55 |
| $ | - |
Options granted |
|
| 850,000 |
| $ | 0.10 |
|
| 9.29 |
|
| - |
Options exercised |
|
| - |
|
| - |
|
| - |
|
| - |
Options forfeited |
|
| 1,383,333 |
| $ | 0.11 |
|
| 8.45 |
|
| - |
Balance at September 30, 2015 |
|
| 1,806,667 |
| $ | 0.17 |
|
| 6.69 |
| $ | - |
Exercisable at September 30, 2015 |
|
| 1,268,333 |
| $ | 0.19 |
|
| 6.98 |
| $ | - |
Expected to vest after September 30, 2015 |
|
| 538,336 |
| $ | 0.11 |
|
| 6.00 |
| $ | - |
Aggregate intrinsic value represents the value of the Companys 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 Companys 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 Companys computation of expected volatility is based on comparable companies average historical volatility.
13
RVUE HOLDINGS, INC. |
Notes to Condensed Consolidated Financial Statements |
(unaudited) |
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 nine-month period ended September 30, 2014. As of September 30, 2015 there was approximately $92,000 of total unrecognized compensation cost related to stock options outstanding. This cost is expected to be recognized over a period of three years.
Stock based compensation expense was $18,337 and $15,088 for the three months ended September 30, 2015 and 2014, respectively. Stock based compensation expense was $56,458 and $45,264 for the nine months ended September 30, 2015 and 2014, respectively.
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 Companys common stock if specific revenue goals are achieved in a twelve month period. On January 1, 2014, the revenue goals for this employment agreement were amended.
The Company entered into a new employment agreement with Mark Pacchini, our CEO, on August 4, 2015. The agreement term is three years and includes mandatory bonuses payable in stock options if specific revenue goals are achieved in the Companys fiscal year. The revenue goals for this agreement remained the same as those set forth in Mr. Pacchinis previous employment agreement dated as of the January 1, 2014 which was replaced by the August 4, 2015 employment agreement. As of September 30, 2015 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 new agreement. The Company will reassess the probability of the Company achieving the revenue goals included in the agreement on a quarterly basis.
Note 11 Commitments and Contingencies
Other Off-Balance Sheet Commitments
On October 4, 2015 we moved our corporate headquarters to Oak Brook Terrace, Illinois, where we lease approximately 3,100 square feet of office space from Midwest Disability, P.A. under a lease contract that expires on October 31, 2016. Lease payments are approximately $3,200 a month. 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 restricted 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 at the time of the removal of restriction on resale of such restricted shares falls below the share price at issuance. On October 26, 2015 rVue issued 1,016,529 shares of restricted shares of rVue common stock to complete the eight month consulting agreement with the consultant.
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.
14
RVUE HOLDINGS, INC. |
Notes to Condensed Consolidated Financial Statements |
(unaudited) |
Note 12 Supplemental Non-Cash Information
During the nine months ended September 30, 2014, the Company issued common stock totaling $42,000 to a vendor 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 nine months ended September 30, 2015, the Company recognized consulting expenses of $45,000 related to the arrangement. In May of 2015, the Company entered into a $57,600 financing agreement for the Companys annual directors and officers insurance. During the nine months ended September 30, 2015, the Company recognized debt issuance costs of $26,087 related to the issuance of convertible notes.
Note 13 Subsequent Events
In preparing these condensed consolidated financial statements, we have evaluated events and transactions for potential recognition or disclosure through the date of filing. On October 22, 2015, 3,250,000 stock options were granted to current employees and contractors of the Company. On October 26, 2015 rVue issued 1,016,529 shares of restricted shares of rVue common stock to complete the eight month consulting agreement with the consultant. In October and November of 2015 the Company raised $170,000 in issuance of 7,555,354 shares of common stock.
15
Item 2. Managements 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 Companys 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 Companys 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 Companys 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 Companys 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 SECs 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 Companys 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 digital place-based media advertising (DpbM). We provide media services, including an online, Internet based DSP that connects advertisers and/or advertising agencies with third party DpbM 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 DpbM network owner, the DpbM 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, rVues integrated analytics provide insight and opportunities for advertisers and agencies to extend the reach, impact and engagement of future campaigns.
As of September 30, 2015, approximately 190 networks comprising approximately 1,000,000 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 DpbM 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 DpbM platforms are aggregated for advertiser and advertising agencies via the rVue DSP.
Similar models have been successfully deployed for Internet DSPs, 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 DpbM 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.
16
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 Companys discussion and analysis of its financial condition and operating results require the Companys 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 in the Notes to the Consolidated Financial Statements of this Form 10-Q and in the Notes to Consolidated Financial Statements in the Companys 2014 Form 10-K describes the significant accounting policies and methods used in the preparation of the Companys 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 Companys 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 Companys financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters. Management has reviewed these critical accounting policies and related disclosures with the Audit Committee of the Companys Board of Directors.
Results of Operations
Three Months Ended September 30, 2015 and 2014:
Our unaudited results of operations for the three-month periods ended September 30, 2015 and 2014 were as follows:
|
| For the Three Months Ended | ||||
|
| September 30, | ||||
|
| 2015 |
| 2014 | ||
Revenue |
|
|
|
|
|
|
Core fees |
| $ | 133,264 |
|
| 248,940 |
Non-core fees |
|
| 31,500 |
|
| 31,500 |
|
|
| 164,764 |
|
| 280,440 |
Costs and expenses |
|
|
|
|
|
|
Cost of revenue |
|
| 115,117 |
|
| 219,392 |
Selling, general and administrative expenses |
|
| 298,474 |
|
| 323,507 |
Depreciation and amortization |
|
| 33,594 |
|
| 27,604 |
Interest expense |
|
| 31,508 |
|
| - |
Change in fair value of derivative instruments |
|
| 1,930 |
|
| - |
|
|
| 480,623 |
|
| 570,503 |
Loss before provision for income taxes |
|
| (315,859) |
|
| (290,063) |
Provision for income taxes |
|
| - |
|
| - |
Net loss |
| $ | (315,859) |
| $ | (290,063) |
Net loss per common share - basic and diluted |
| $ | (0.00) |
| $ | (0.00) |
Shares used in computing net loss per share: |
|
|
|
|
|
|
Basic and diluted |
|
| 141,944,156 |
|
| 139,200,211 |
17
Revenue
Revenue was $164,764 for the three-month period ended September 30, 2015 compared to $280,440 for the three-month period ended September 30, 2014, a $115,676 decrease, or 41.2%. We earned revenue as follows:
|
| Three Months ended |
|
|
|
|
|
| ||||
|
| September 30, |
|
|
|
|
|
| ||||
Revenue Category |
| 2015 |
| 2014 |
| $ Change |
| % Change | ||||
Core fees |
| $ | 133,264 |
| $ | 248,940 |
| $ | (115,676) |
|
| -46.5% |
Non-core fees |
|
| 31,500 |
|
| 31,500 |
|
| - |
|
| -% |
Total Revenue |
| $ | 164,764 |
| $ | 280,440 |
| $ | (115,676) |
|
| -41.2% |
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.
Core fees were $133,264 for the three-month period ended September 30, 2015, a $115,676 decrease from the $248,940 core fees for the three-month period ended September 30, 2014. 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 the fourth quarter of 2015 from advertisers and agencies for placing advertising within the DpbM category. 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 DpbM networks.
Non-core fees
Non-core fees were $31,500 for the three-month period ended September 30, 2015, and $31,500 for the three-month period ended September 30, 2014. We expect to have $31,500 of revenue in this category in the fourth quarter of 2015.
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 $115,117 for the three-month period ended September 30, 2015 compared to $219,392 for the three-month period ended September 30, 2014, a $104,275 decrease, or 47.5%, and was comprised of:
|
| Three Months Ended |
|
|
|
|
|
| ||||
|
| September 30, |
|
|
|
|
|
| ||||
|
| 2015 |
| 2014 |
| $ Change |
| % Change | ||||
Temporary labor |
| $ | 3,247 |
| $ | 3,239 |
| $ | 8 |
|
| 0.2% |
Network services |
|
| 180 |
|
| 180 |
|
| - |
|
| -% |
rVue operations |
|
| 111,690 |
|
| 215,973 |
|
| (104,283) |
|
| -48.3% |
Total |
| $ | 115,117 |
| $ | 219,392 |
| $ | (104,275) |
|
| -47.5% |
The decrease in cost of revenue is attributable to a $115,676 decrease in rVue revenue and network mix compared to September 30, 2014. The decrease in core related revenues decreases the cost of network expenses which are recorded in rVue operations.
18
Selling, general and administrative expenses
Selling, general and administrative expenses (SG&A) were $298,474 for the three-month period ended September 30, 2015, compared to $323,507 for the three-month period ended September 30, 2014 a $25,033 decrease, or 7.7%. Changes by major component of SG&A are:
|
| Three Months Ended |
|
|
|
|
|
| ||||
|
| September 30, |
|
|
|
|
|
| ||||
|
| 2015 |
| 2014 |
| $ Change |
| % Change | ||||
Compensation and benefits |
| $ | 41,688 |
| $ | 143,071 |
| $ | (101,383) |
|
| -70.9% |
Stock-based compensation expense |
|
| 18,337 |
|
| 15,088 |
|
| 3,249 |
|
| 21.5% |
Facility expense |
|
| 10,699 |
|
| 11,252 |
|
| (553) |
|
| -4.9% |
Communications expense |
|
| 18,570 |
|
| 17,547 |
|
| 1,023 |
|
| 5.8% |
Travel expense |
|
| 8,976 |
|
| 11,222 |
|
| (2,246) |
|
| -20.0% |
Investor relations and investment banking fees |
|
| 22,697 |
|
| 16,745 |
|
| 5,952 |
|
| 35.5% |
Professional and consulting fees |
|
| 112,638 |
|
| 45,696 |
|
| 66,942 |
|
| 146.5% |
Office support and supply expense |
|
| 64,869 |
|
| 62,886 |
|
| 1,983 |
|
| 3.2% |
Total |
| $ | 298,474 |
| $ | 323,507 |
| $ | (25,033) |
|
| -7.7% |
Compensation and benefits decreased $101,383, or 70.9% for the three months ended September 30, 2015 when compared to the three months ended September 30, 2014. This change was due to a $96,416 decrease in salary and payroll related expenses and a $9,074 increase in the amount of payroll costs being capitalized for software development, offset by a $4,107 increase in the vacation accrual.
Stock-based compensation expense increased $3,249 or 21.5% for the three months ended September 30, 2015 when compared to the three months ended September 30, 2014. This increase is due to the employee stock options granted in January 2015.
Travel expense decreased $2,246 or 20.0% for the three months ended September 30, 2015 when compared to the three months ended September 30, 2014. The decrease is attributable to a decrease in sales related travel in 2015.
Investor relations and investment banking fees expense increased by $5,952 or 35.5%, in the three-month period ended September 30, 2015, when compared to the three-month period ended September 30, 2014. $4,839 of the increase is due to a 2015 expense related to an investor relations program to attract investors to rVue that was not incurred in 2014. The remaining $1,113 increase in 2015 investor relations and investment banking fees expense is related to fees paid related to various marketing and investor relations outside services.
Professional and consulting fees increased $66,942 or 146.5% for the three months ended September 30, 2015 when compared to the three months ended September 30, 2014. The increase is due to a $7,816 increase in legal fees, a $2,315 increase in accounting and audit fees, a $729 increase in SEC filing service fees and a $56,082 increase in sales, marketing and information technology consulting fees.
Depreciation and amortization
Depreciation and amortization was $33,594 for the three-month period ended September 30, 2015 compared to $27,604 for the three-month period ended September 30, 2014, a $5,990 increase, or 21.7%. The increase in depreciation and amortization is due to the increase in software development.
Interest expense
Interest expense was $31,508 for the three-month period ended September 30, 2015 compared to $0 for the three-month period ended September 30, 2014, a $31,508 increase, or 100.0%. The increase in interest expense is due to the issuance of convertible notes in July of 2015.
19
Nine Months Ended September 30, 2015 and 2014:
Our unaudited results of operations for the nine month periods ended September 30, 2015 and 2014 were as follows:
|
| For the Nine Months Ended | ||||
|
| September 30 | ||||
|
| 2015 |
| 2014 | ||
Revenue |
|
|
|
|
|
|
Core fees |
| $ | 749,302 |
| $ | 641,112 |
Non-core fees |
|
| 94,500 |
|
| 98,925 |
|
|
| 843,802 |
|
| 740,037 |
Costs and expenses |
|
|
|
|
|
|
Cost of revenue |
|
| 681,427 |
|
| 564,229 |
Selling, general and administrative expenses |
|
| 1,044,859 |
|
| 1,002,514 |
Depreciation and amortization |
|
| 103,902 |
|
| 59,298 |
Interest expense |
|
| 31,959 |
|
| - |
Change in fair value of derivative instruments |
|
| 1,930 |
|
| - |
|
|
| 1,864,077 |
|
| 1,626,041 |
Loss before provision for income taxes |
|
| (1,020,275) |
|
| (886,004) |
Provision for income taxes |
|
| - |
|
| - |
Net loss |
| $ | (1,020,275) |
| $ | (886,004) |
Net loss per common share - basic and diluted |
| $ | (0.01) |
| $ | (0.01) |
Shares used in computing net loss per share: |
|
|
|
|
|
|
Basic and diluted |
|
| 141,785,426 |
|
| 136,691,309 |
Revenue
Revenue was $843,802 for the nine month period ended September 30, 2015 compared to $740,037 for the nine-month period ended September 30, 2014, a $103,765 increase, or 14.0%. We earned revenue as follows:
|
| Nine Months ended |
|
|
|
|
|
| ||||
|
| September 30, |
|
|
|
|
|
| ||||
Revenue Category |
| 2015 |
| 2014 |
| $ Change |
| % Change | ||||
Core Fees |
| $ | 749,302 |
| $ | 641,112 |
| $ | 108,190 |
|
| 16.9% |
Non-Core Fees |
|
| 94,500 |
|
| 98,925 |
|
| (4,425) |
|
| -4.5% |
Total Revenue |
| $ | 843,802 |
| $ | 740,037 |
| $ | 103,765 |
|
| 14.0% |
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.
Core fees were $749,302 for the nine month period ended September 30, 2015, a $108,190 or 16.9% improvement over the $641,112 rVue fees for the nine-month period ended September 30, 2014. As the rVue platform gains traction with advertisers and agencies, we expect to generate additional revenue and fees in the last quarter of 2015 from advertisers and agencies for placing advertising with DpbM 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 DpbM networks.
20
Non-core fees
Non-core fees were $94,500 for the nine-month period ended September 30, 2015, a $4,425, or 4.5%, decrease compared to the $98,925 for the nine month period ended September 30, 2014. During the first quarter of 2014 we earned fixed monthly fees of $11,975, which changed to $10,500 per month in the second quarter, from one client. We expect to continue to receive revenue in the amount of $10,500 monthly from these services to this client for the remainder of 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 $681,427 for the nine-month period ended September 30, 2015 compared to $564,229 for the nine-month period ended September 30, 2014, a $117,198 increase, or 20.8%, and was comprised of:
|
| Nine Months Ended |
|
|
|
|
|
| ||||
|
| September 30, |
|
|
|
|
|
| ||||
|
| 2015 |
| 2014 |
| $ Change |
| % Change | ||||
Compensation and benefits |
| $ | 9,648 |
| $ | 8,170 |
| $ | 1,478 |
|
| 18.1% |
Network services |
|
| 540 |
|
| 546 |
|
| (6) |
|
| -1.1% |
rVue operations |
|
| 671,239 |
|
| 555,513 |
|
| 115,726 |
|
| 20.8% |
Total |
| $ | 681,427 |
| $ | 564,229 |
| $ | 117,198 |
|
| 20.8% |
The increase in cost of revenue is attributable to a $103,765 increase in rVue revenue and network mix compared to September 30, 2014. The increase in core related revenues increases the cost of network expenses which are recorded in rVue operations.
Selling, general and administrative expenses
SG&A were $1,044,859 for the nine-month period ended September 30, 2015, compared to $1,002,514 for the nine month period ended September 30, 2014, a $42,345 increase, or 4.2%. Changes by major component of SG&A are:
|
| Nine Months Ended |
|
|
|
|
|
| ||||
|
| June 30, |
|
|
|
|
|
| ||||
|
| 2015 |
| 2014 |
| $ Change |
| % Change | ||||
Compensation and benefits |
| $ | 291,044 |
| $ | 437,686 |
| $ | (146,642) |
|
| -33.5% |
Stock-based compensation expense |
|
| 56,458 |
|
| 45,264 |
|
| 11,194 |
|
| 24.7% |
Facility expense |
|
| 34,097 |
|
| 46,596 |
|
| (12,499) |
|
| -26.8% |
Communications expense |
|
| 53,907 |
|
| 51,445 |
|
| 2,462 |
|
| 4.8% |
Travel expense |
|
| 23,964 |
|
| 22,011 |
|
| 1,953 |
|
| 8.9% |
Investor relations and investment banking fees |
|
| 116,017 |
|
| 33,749 |
|
| 82,268 |
|
| 243.8% |
Professional and consulting fees |
|
| 262,970 |
|
| 199,902 |
|
| 63,068 |
|
| 31.5% |
Office support and supply expense |
|
| 206,402 |
|
| 165,861 |
|
| 40,541 |
|
| 24.4% |
Total |
| $ | 1,044,859 |
| $ | 1,002,514 |
| $ | 42,345 |
|
| 4.2% |
Compensation and benefits decreased $146,462, or 33.5% for the nine months ended September 30, 2015 when compared to the nine months ended September 30, 2014. This change was due to a $168,449 decrease in salary and payroll related expenses and offset by a $9,216 increase in the vacation accrual and a $12,591 decrease in the amount of payroll costs being capitalized for software development.
Stock-based compensation expense increased $11,194 or 24.7% for the nine months ended September 30, 2015 when compared to the nine months ended September 30, 2014. This increase is due to the employee stock options granted in January 2015.
Facility expense decreased $12,499 or 26.8% for the nine months ended September 30, 2015 when compared to the nine months ended September 30, 2014. The decrease in facility expense is due to the closure of the Florida office.
Travel expense increased $1,953 or 8.9% due to for the nine months ended September 30, 2015 when compared to the nine months ended September 30, 2014. The increase is attributable to an increase in sales related travel in 2015.
21
Investor relations and investment banking fees expense increased by $82,268 or 243.8%, in the nine-month period ended September 30, 2015, when compared to the nine-month period ended September 30, 2014. $89,032 of the total expense for 2015 is due to an eight-month investor relations program to attract investors to rVue that began in November 2014 and was completed in May 2015. There was an increase of $2,736 of 2015 investor relations and investment banking fees expense related to fees paid related to investor relations outside services offset by a decrease of $9,500 in marketing expenses.
Professional and consulting fees increased $63,068 or 31.5% for the nine months ended September 30, 2015 when compared to the nine months ended September 30, 2014. The increase is due to a $7,262 decrease in legal fees, a $5,974 increase in accounting and audit fees, a $66,783 increase in sales and marketing, valuation, and information technology consulting fees offset by a $2,427 decrease in SEC filing service fees.
Office support and supply expense for the nine month period ended September 30, 2015 increased $40,541 or 24.4%, compared to the nine-month period ended September 30, 2014. $32,465 of the increase is attributable to outside consultants rVue has engaged in operations and software development, a $9,270 increase in insurance, a $8,000 increase in membership fees offset by a $9,194 decrease in other miscellaneous office expenses.
Depreciation and amortization
Depreciation was $613 for the nine month period ended September 30, 2015 compared to $1,827 for the nine-month period ended September 30, 2014, a $1,213 decline, or 66.4%. For the nine-month period ended September 30, 2015, amortization expense for software development was $103,289 compared to $57,472 for the nine-month period ended September 30, 2014, a $45,816 increase, or 79.7.%. The large increase in amortization expense for software development costs is due to the increase in software development by rVue.
Interest expense
Interest expense was $31,959 for the nine-month period ended September 30, 2015 compared to $0 for the nine-month period ended September 30, 2014, a $31,959 increase, or 100.0%. The increase in interest expense is due to the issuance of convertible notes in July of 2015.
Liquidity and Capital Resources
As of September 30, 2015, we had cash and cash equivalents totaling $2,939. Since our inception, we have incurred net losses, and at September 30, 2015, we had an accumulated deficit of $13,688,751and total stockholders deficit of $310,703. We expect to continue to incur losses in fiscal 2015. 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.
During the quarter, the Company raised approximately an additional $175,000 through the issuance of convertible debt. We believe the $175,000 capital raised along with continued operations will provide a sufficient amount of cash to continue through year-end. The Company is currently finalizing an agreement with its largest shareholder to provide equity financing for cash flow purposes over the next 12 months, although no assurance can be given that the Company and the shareholder will ultimately agree on terms. The Company may issue additional shares of Common Stock to investors throughout the remainder of 2015, although no assurance can be given that such expectations will materialize or on what terms
We did not have any material commitments for capital expenditures at September 30, 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 debt or equity securities, or borrowings.
We did not have any significant elements of income or loss arising from continuing operations in the nine-month periods ended September 30, 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.
22
Cash used in operating activities
Net cash used in operating activities totaled $533,344 for the nine-month period ended September 30, 2015 compared to $753,470 for the nine-month period ended September 30, 2014. In the nine month period ended September 30, 2015, cash was used to fund a net loss of $1,020,275, reduced by depreciation and amortization of $103,902, non-cash interest expense of $26,876, stock-based compensation expense of $56,458, common stock previously issued for services received in the first two quarters of $45,000, a change in the fair value of derivative instruments of $1,930, and by changes in operating assets and liabilities totaling $252,766. During the nine-month period ended September 30, 2014, cash was used to fund a net loss of $886,004, reduced by depreciation of $59,298, stock-based compensation expense of $45,264 and changes in operating assets and liabilities totaling $27,972.
Cash used in investing activities
Net cash used in investing activities totaled $104,017 for the nine-month period ended September 30, 2015 compared to $105,949 of net cash used in investing activities in the nine-month period ended September 30, 2014. In the nine-month period ended September 30, 2015, cash used in investing activities consisted of $100,858 for fixed asset purchases and by an increase in deposits of $3,159. In the nine-month period ended September 30, 2014, cash used in investing activities consisted of $113,449 for fixed asset purchases and that amount was offset by a decrease in deposits of $7,500.
Cash from financing activities
Net cash provided by financing activities totaled $221,496 for the nine month period ended September 30, 2015. $75,000 was from the sale of common stock and $175,000 from the issuance of debt and convertible instruments. For the nine-month period ended September 30, 2014, net cash provided by financing activities totaled $485,000 from the sale of common stock.
Financial condition
As of September 30, 2015, we had a working capital deficit of $451,376, an accumulated deficit of $13,688,751 and total stockholders deficit of $310,703, compared to a working capital surplus of $437,555 an accumulated deficit of $12,668,476 and total stockholders equity of $578,114 at December 31, 2014.
We believe that with the cash we have on hand and the cash we expect to raise through future securities issuances and issuances of debt and convertible instruments, that we will have sufficient funds available to cover our cash requirements through the next 12 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, 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. This concern will be addressed by focusing on revenue growth in the coming months. In October and November of 2015 the Company raised $170,000 in issuance of Common Stock. In addition, management will review projected losses for the fourth quarter of 2015 against cash on hand and consider raising capital if required.
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.
23
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 Companys management, the Companys principal executive officer and principal financial officer have concluded that the Companys disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act were effective as of September 30, 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys receipts and expenditures are being made only in accordance with authorizations of the Companys management and board of directors; and |
| (iii) | provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use, or disposition of the Companys assets that could have a material effect on the financial statements. |
Management, including the Companys principal executive officer and principal financial officer, does not expect that the Companys 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 Companys internal control over financial reporting during the three-month period ended September 30, 2015 which were identified in connection with managements 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 Companys internal control over financial reporting.
24
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.
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.
Item 6. Exhibits.
(a) Index to Exhibits
Exhibit No. |
| Exhibit Description |
10.1* 10.2* 10.3 10.4 31.1* |
| Carebourn Note [INCORPORATION BY REFERENCE] Carebourn SPA [INCORPORATION BY REFERENCE] Typenex Note [INCORPORATION BY REFERENCE] Typenex SPA [INCORPORATION BY REFERENCE] 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.
25
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| rVue Holdings, Inc. | |
| (Registrant) | |
|
|
|
|
|
|
|
|
|
|
|
|
Date: November 12, 2015 | By: | /s/ Mark P. Pacchini |
|
| Acting Chief Financial Officer |
|
| (Duly Authorized Officer and |
|
| Principal Financial Officer) |
26
EXHIBIT INDEX |
| ||
Exhibit No. |
| Exhibit Description |
|
10.1* 10.2* 10.3 10.4 31.1* |
| Carebourn Note Carebourn SPA Typenex Note Typenex SPA 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.
27