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Article by DailyStocks_admin    (12-05-13 10:40 PM)

Description

RVUE HOLDINGS, INC. Director, 10% Owner Robert W. Roche bought 9,285,714 shares on 11-25-2013 at $ 0.07

BUSINESS OVERVIEW

Corporate History and Acquisition

We were incorporated as Rivulet International, Inc. in the State of Nevada on November 12, 2008. Prior to May 13, 2010, we were a shell company in the development stage, had no revenue, and our efforts were devoted to entering the automobile export business. On March 29, 2010 we (1) declared a stock dividend of 11.25490196078 shares of Common Stock for every one share of Common Stock then outstanding, and (2) amended and restated our certificate of incorporation in order to: (a) change our name to rVue Holdings, Inc., (b) designate a resident agent and registered office, (c) increase the number of authorized shares of capital stock from 75,000,000 shares to 150,000,000 shares, divided into two classes: 140,000,000 shares of common stock, par value $.001 per share (the “Common Stock”), and 10,000,000 shares of “blank check” preferred stock, par value $.001 per share (the “Preferred Stock”), (d) set the number of directors of the Company at no less than 1, (e) state the legal purpose of the Company, (f) provide for the limitation of liability of directors of the Company to the fullest extent permitted by the Nevada Revised Statutes, and (g) provide for the indemnification of officers and directors of the Company to the fullest extent permissible under the laws of the State of Nevada.

On May 13, 2010, we acquired all of the issued and outstanding capital stock and the business of rVue, Inc., a Delaware corporation ("rVue, Inc.") from Argo Digital Solutions, Inc., a Delaware corporation ("Argo"), as well as any and all assets related to the rVue business held by Argo, pursuant to an asset purchase agreement, dated as of May 13, 2010 (the "Asset Purchase Agreement"), by and between Argo, rVue, Inc. and the Company (the “Transaction”).

Immediately following the Transaction we transferred all of our pre-transaction assets and liabilities to our wholly-owned subsidiary Rivulet International Holdings, Inc. (“SplitCo”). Thereafter, we transferred all of the outstanding capital stock of SplitCo to certain of our stockholders in exchange for the cancellation of 36,764,706 shares of our Common Stock (the “Split-Off”). Following the Transaction and Split-Off, we discontinued our former business and succeeded to the business of rVue, Inc. as our sole line of business. Accordingly, rVue, Inc., which began operations on September 15, 2009, became the accounting acquirer of the Company for financial statement purposes.

Our principal executive offices are located at 10740B Grand Avenue, Franklin Park, IL 60131, and our telephone number is 855-261-8370.

Our Business

Effective as of September 15, 2009, Argo contributed certain assets and liabilities to a newly formed Delaware corporation, rVue, Inc., and launched the rVue business in order to enable rVue's management team to focus on developing the rVue business operations and attract capital investment in the rVue business.

We are an advertising technology company and operate rVue, a demand-side platform (“DSP”) for planning, buying and managing Digital Place-Based Networks and Digital Billboards and Signage (collectively “Digital Out-of-Home” or “DOOH”) advertising. We provide 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 campaigns on behalf of advertising clients or their agencies. For the year ended December 31, 2012, we had revenue of $602,364 from the rVue platform (approximately $405,000 in non core revenue and approximately $197,000 in core revenue).

In connection with the Transaction, the Company acquired from Argo all of its assets related to the rVue business, which included all of the common stock of rVue, Inc. as well as software, contracts and technology. Such software and technology included the rVue DSP technology and software as well as legacy rVue client and server software, which allows an end user to manage and operate a DOOH network. The client software is used to manage each screen or site and the server software is used to manage the client software.

We provide network services and receive fees under contract or on a monthly basis, from Accenture. We provide monitoring and troubleshooting services on a 24/7 basis to Accenture for a private display network that they own under a contract for which we receive $11,975 per month. We expect to continue to receive revenue from these services to Accenture through 2013, but consider this non-core revenue. The primary forward strategy of our business is to earn transaction fees and margin from rVue technology and strategic media services, as discussed elsewhere herein.


Our Products and Services

We operate rVue, a DSP for planning, buying and managing DOOH and place-based media advertising. We provide an online, internet based DSP that connects advertisers and/or advertising agencies with third party DOOH media or networks, that allows the advertiser to create a targeted advertising campaign and media plan, and negotiate that media plan simultaneously with all the third-party networks selected. Through our strategic media services group, we execute complete campaigns on behalf of advertising clients or their agencies.

The rVue DSP is accessible via the Internet. Through rVue, once an advertising campaign has been agreed to between the advertiser and the DOOH network owner, the DOOH networks receive the display advertising to be shown on their installed base of digital media displays. rVue allows programming and advertising to be customized for display in specific venues, at specific times, and for demographic targeting. We provide the tools for advertisers and advertising agencies to customize campaigns for details as specific as location, customer preference, product availability, current events and other needs. We provide Proof-of-Play analytics and the network statistics necessary to monitor advertising on the networks and assist in evaluating the performance or refinements required for an advertising campaign, in some cases real time. Furthermore, rVue’s integrated analytics provide insight and opportunities for advertisers and agencies to extend the reach, impact and engagement of future campaigns.

As of December 31, 2012, 182 networks comprising approximately 770,000 screens and delivering over 250 million daily impressions representing the top 50 market areas 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.

Under a contractual arrangement with Accenture we provide technical services on a monthly basis for a fixed monthly payment resulting in total monthly revenue of approximately $12,000. Under these arrangements, we provide technical services, including network monitoring, troubleshooting and maintenance, among other services. Other non-core services were provided to Mattress Firm and AutoNation in 2012. See the Revenue section for more information.

Targeting Specific Consumer Demographics

rVue employs, and allows the advertiser to use, sophisticated search tools to create a campaign. Campaigns may be generated by geographic areas, i.e. media market, radius, zip code or specific address. Demographic information such as sex, age, income and education can be selected, as can environment types, such as retail, malls, gas pumps, gyms, airports and sports stadiums. Unlike network TV or cable, the advertiser’s message can reach individually addressable screens, such as digital image displays in elevators and digital billboards, among others.

Our Approach

rVue allows advertisers to select as many or as few of the DOOH screens that are available through rVue when creating media plans and advertising campaigns. Offers can then be submitted to each of those networks and negotiate the final campaign price. Networks may accept, reject or counter offer. Once the campaign is agreed to rVue earns a transaction fee negotiated on the gross amount of the advertising.

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.

Customers and Market

A DOOH network is an accumulation of Out Of Home digital displays. rVue does not own any DOOH networks, but provides a DSP that connects advertisers with networks, for a fee. rVue’s customers are the advertisers who advertise on the DOOH displays. As an internet based DSP for DOOH, rVue is a platform that intelligently connects the advertiser to these third-party networks providing an opportunity for displays and messages to be delivered to these screens and billboards. Since each display device possesses a unique addressable Internet Protocol (“IP”) address, information can be directed from advertisers, across our platform, to a single screen or a group of screens that are owned by one, or many, networks, and information such as frequency, location and timing of displayed advertisements can be fed back across our platform to advertisers.

rVue gathers traffic to its internet site from internet users who have a need for rVue’s services and who use internet based search tools to find companies like rVue. rVue has not advertised its services or capabilities to date, but promotes its business through direct contact with advertising agencies and media placement services that rVue has identified as representing advertisers that will likely advertise on DOOH networks, through word of mouth, and through inquiries received as a result of press that rVue has received in trade publications.

The DOOH media sector is one of the fastest growing advertising segments in the U.S. Furthermore, in 2012 the U.S. was the largest DOOH market among 28 countries reviewed by PQ Media, with $2.17 billion in revenues. This sector enables advertisers to engage target consumers in captive locations during their daily routines through video advertising networks, digital billboards and ambient ad platforms. The media platforms are further categorized by various venues and locations, including theaters, retail, offices, entertainment, transit, universities, roadside, and on various objects. rVue does not own any networks or displays. Instead, we rely on network companies connected to our platform who install and manage the physical digital signage.

According to PQ Media’s Global Digital Out-of-Home Media Forecast 2013-2017, as the global economy continues to improve, marketers have invested more heavily in DOOH and consequently network operators have invested in more digital screens and environments. PQ Media has projected global Digital Out of Home revenue growth will accelerate in 2013, rising 12.6% to $8.88 billion. Specifically, PQ Media expects the U.S. market to also see accelerated growth in 2013, expanding 8.3% to $2.35 billion.

DOOH will be one of the fastest-growing media around the world over the next five years, according to Magna Global’s latest advertising forecast, with a compounded annual growth rate of 16.9% through 2017, more than three times the overall media average. That puts DOOH behind only mobile, programmatic, and online video, which are estimated to grow at 30.6%, 25% and 20.3% respectively. In contrast, overall growth across all media channels is 5.2%.

Advertisers and Agencies

rVue provides one central conduit for advertiser and agency DOOH needs. Once an advertiser or agency has determined the specific market they wish to target, rVue simplifies the complexities of a media buy. Using rVue's web-based interface, a “campaign” is created in six simple steps: (i) enter the campaign details; (ii) enter target their locations by media market, address, single point or multi-point location search; (iii) pick the desired demographics/audience; (iv) select the environment type; (v) create the offers, insertion orders and flight schedules; and (vi) submit the offers to the selected networks and negotiate acceptance with each network. Once a campaign is accepted and is ready to commence, the advertiser’s video content is uploaded to rVue's servers via the Internet. We review the uploaded content to ensure quality control and then deploy the content to the networks. Once the advertisement is running, participating advertisers and agencies have access to reporting tools through the rVue website. rVue's progress reports provide analytics and proof of playback, so every broadcast is accounted for.

Networks

rVue is an IP-based DSP that connects to a network's digital signage to promote its business and sell advertising to outside companies. Affiliated networks have a network profile including specific information about their networks, which may or may not be verified or audited by one of the leading media and market research firms such as Nielson Media Research or Arbitron, covering locations, number of screens, type of technology, demographics (e.g., age and sex of the audience) and the nature of the environment (e.g. retail, sports event, movie theater, etc.) and as advertisers enter campaigns and submit bids each selected network will be offered the opportunity to accept, reject or counter-offer some or all of the advertiser’s offer.

rVue’s platform makes loading content onto a network’s existing system as easy as copying music onto an MP3 player. Networks utilizing this software can click, drag and drop the creative content to incorporate it into their schedules. rVue does not require special manipulation of the content by the network; we do that processing for them according to their profile. So, rVue-provided content will play seamlessly on their network, alongside in-house commercials or other outside advertising. Furthermore, rVue enables networks to manage multiple locations with ease. Networks may schedule ads for different days and times and preview the content in their browser, exactly as it will appear on their DOOH screens.

Revenue

Total revenue for the years ended December 31, 2012 and 2011 was $602,363 and $643,483, respectively.

Please note, rVue earns revenue from transactions executed through the rVue platform-core fees and from network services fees – non-core fees.

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.

This is the focus of our business. rVue revenue for the years ended December 31, 2012 and 2011 was $197,444 and $203,276, respectively. We believe that, as the rVue platform gains traction among advertisers and agencies, we may generate additional revenue in 2013 and beyond. However, there is no 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

We provide network services and receive fees, either under contract or on a monthly basis, from Accenture, which is more fully described below. Additionally, effective December 1, 2009, we entered into an agreement to license certain software to an entity in Canada that was to build and operate a DOOH network, and in anticipation of establishing the network, we provided consulting services for which we received a $50,000 fee, which we recognized over the 11-month term of the contract. Network revenue for the years ended December 31, 2012 and 2011 was $404,919 and $440,207, respectively.

Commencing January 1, 2010, we assumed certain work from Argo for Accenture, AutoNation and Mattress Firm, which we consider to be network services. Services to AutoNation continued on an as-needed basis through March 2012 and then were not continued by rVue in keeping with the change in rVue business focus. Services to Mattress Firm continued through December 2012, with approximately $20,000 a month in compensation until the month of December when it dropped to $10,000. Mattress Firm merged with Mattress Giant earlier in 2012, and mutually agreed with rVue to not-renew for 2013.

We assist Accenture with the maintenance and troubleshooting of a private network they operate. We provide 24/7 services to ensure that the network operates without interruption. We expect to continue to receive revenue from these services to Accenture through 2013, but we do not intend to pursue new network related service opportunities as the focus of our business is to earn transaction fees from rVue as discussed above.

Competition

We face competition from traditional media and advertising, as well as other aggregators of DOOH networks. Aggregators, such as Adcentricity, database operators such as Domedia, ad networks such as Vukunet, and network operators, such as Gas Station TV, Captivate and Zoom, each of whom maintains internal sales forces and negotiates directly with advertisers, as well as other brokers and agencies who contract directly with individual DOOH networks, also compete with us. In addition, advertisers may seek out networks, which maintain internal sales forces and purchase or place ad content with them directly. Our service differs, however, in that we offer both a DSP where advertisers and agencies can place content on multiple networks and can negotiate offers with those networks inside the rVue platform, and we offer managed services where we manage the entire campaign.

We distinguish our product line from our competitors' offerings by being a "one-stop shopping" source for our customers. Many competitors in our markets offer a far narrower choice of services than we offer. For example, some content providers deliver their own content, while we offer the content of multiple providers. We provide an API to connect our technology to other platforms and the proprietary operating systems that a client network may need to utilize rVue. We strive to meet every customer's needs at every level and partner with them across product lines and extensions.

CEO BACKGROUND

Director Biographies

Jason Kates is the founder of rVue, Inc., and has served as our chief executive officer and president since May 13, 2010. He also served as our Chairman of the Board from May 13, 2010 until June 24, 2011. Mr. Kates began his career in 1986 as a broker with Oppenheimer & Co. Inc., where he rose to vice president, managing corporate capital. In 1990 he founded Kates Communications, a digital marketing and product marketing company that harnessed the power of digital media to capture consumer attention and awareness. From 1993 to 1996 Mr. Kates served as executive vice president and head of marketing of Investec, an international manufacturing company selling a digital pacifier thermometer via digital media. In 1996, upon Investec’s sale, Mr. Kates founded Retail Media Systems, Inc. (now Argo Digital Solutions, Inc.). Mr. Kates earned a bachelor’s degree in Social Science from Florida State University. Mr. Kates was selected to serve as a director on our Board due to his significant experience in the DOOH industry, his knowledge of rVue, including its operations, its strategies, and his position as chief executive officer of rVue. He is also a large stockholder.

Michael Mullarkey has served as a director of ours since December 21, 2010, as our non-executive chairman since June 24, 2011, and is chairman of the Audit Committee and serves as a member of the Compensation and Nominating and Governance Committees of the Board. He is an experienced director and is a C-Level digital executive with extensive build-up/turnaround expertise in both entrepreneurial and established companies in internet, social media and advertising/marketing services. Since December 2010, Mr. Mullarkey has served as the managing partner of ODK Capital Management, a fund that invests in Social Media, cloud-based software and emerging technology with patented or disruptive technologies. Mr. Mullarkey founded and managed Workstream, Inc. (OTC:WSTM), a provider of SaaS-based Talent Management Software, serving from 2001 through September 2010, in various capacities including chief executive officer, president, chairman of the board and acting chief financial officer. Prior thereto, he spent 10 years with SONY Electronics in various positions including senior vice president of Diversified Markets, with profit and loss responsibility for business-to-business sales and marketing for a $1.2 billion specialty markets business. Mr. Mullarkey is a Board Member and supporter of the Cystic Fibrosis Foundation . Mr. Mullarkey was elected as a director due to his extensive knowledge of internet marketing, his valuable legal and financial expertise and his experience as a director and executive officer of public and private companies. He has helped build numerous private, and one public, entities from the early stages to significant operating entities.

Bob Chimbel has served as a Director of ours since May 2010, and is chairman of the Compensation Committee and serves as a member of the Audit and Nominating and Governance Committees of the Board. Mr. Chimbel is an innovative marketing and communications executive whose has founded and profitably managed a diverse group of integrated marketing enterprises. For the past ten years Mr. Chimbel has held several high-level executive positions for Omnicom Group, Inc. Since January 2006, Mr. Chimbel has served as CEO of The Component Group, a consortium marketing communications companies he created which consists of three interrelated marketing companies each with a specific area of expertise: UPROAR! , now one of the nation’s pre-eminent kids, “tweens” and teens advertising and marketing company; The Launch Point , a new product design and development group and business innovation consultancy; and Encircle Marketing , an agency that targets emerging and re-emerging brands primarily for private equity firms. The Component Group has offices in Dallas and New York. In February 2009, DDB Worldwide, a division of Omnicom, tapped Mr. Chimbel to head up a new division, DDB Entertainment Group, to develop branded entertainment and branded content properties. Mr. Chimbel also oversees The Ant Farm , a Los Angeles entertainment company specializing in advertising and marketing for film, television and digital games, and Red Urban Digital , a diverse interactive agency with a specialization in developing and implementing social media initiatives. While at Omnicom, Mr. Chimbel served as chief creative officer and then president of TracyLocke, a top 50 marketing solutions companies with expertise in advertising, promotion, media, merchandising and sales/field marketing. Prior to his role at Omnicom, Mr. Chimbel has spent his career at such companies as Digitas, Leo Burnett and Hasbro, as well as founding his own advertising and marketing agency, which was eventually sold to the Earle Palmer Brown group. Mr. Chimbel graduated from Northwestern University in 1975 with a bachelor’s degree in Science. Mr. Chimbel was selected to serve on our Board due to his extensive knowledge of the advertising industry, and his experience as an executive officer of public companies.

Patrick O’Donnell has served as a director of ours since December 21, 2010 and is chairman of the Nominating and Governance Committee, and is a member of the Audit and Compensation Committees of the Board. He is a private investor and entrepreneur, and a senior business and technology executive with over 25 years experience and a proven record of delivering success within the financial services industry. Since 2005, Mr. O’Donnell's primary activity has been in running his private hedge fund. From 1997 through 2004 Mr. O’Donnell served as the chief technology officer of UBS Investment Bank and a member of its management board. Prior thereto he held senior positions within UBS and its predecessors. Mr. O’Donnell was selected as a director because of his extensive experience as an executive officer of a major international corporation. Mr. O’Donnell has experience in leading a 6,000 person technology organization and combines that expertise with numerous global businesses, including experience in: equity, interest rates, derivatives, foreign exchange, commodities, energy and corporate finance. In April 2010 Mr. O’Donnell joined the NYSE Liffe US board. NYSE Liffe is the global derivatives business of the NYSE Euronext group.

Family Relationships

There are no family relationships among our directors and executive officers. There is no arrangement or understanding between or among our executive officers and directors pursuant to which any director or officer was or is to be selected as a director or officer.

Director or Officer Involvement in Certain Legal Proceedings

Our directors and executive officers were not involved in any legal proceedings as described in Item 401(f) of Regulation S-K in the past ten years.

Required Vote

The affirmative vote of the holders of a plurality of the shares of common stock present in person or represented by proxy at the Annual Meeting will be required to elect four directors to our Board under Proposal 1. This means that the four persons who receive the most votes are elected. Therefore, for purposes of the election of directors, abstentions and broker non-votes have no effect on the results of the election.

Recommendation

The Board unanimously recommends a vote “ For ” the election of the nominated slate of directors.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

Effective as of September 15, 2009, Argo contributed certain assets and liabilities to a newly formed Delaware corporation, rVue, Inc., and launched the rVue business in order to enable rVue's management team to focus on developing the rVue business operations and attract capital investment in the rVue, Inc. business.

We are an advertising technology company and operate rVue, a demand-side platform (“DSP”) for planning, buying and managing Digital Place-Based Networks and Digital Billboards and Signage (collectively “Digital Out-of-Home” or “DOOH”) advertising. We provide 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. As of December 31, 2012, 182 networks comprising over approximately 770,000 screens and delivering over 250 million daily impressions representing the top 50 market areas accessible through rVue. Through our strategic media services group, we execute complete campaigns on behalf of advertising clients or their agencies.

In connection with the Transaction, we acquired from Argo all of its assets related to the rVue business, which included all of the common stock of rVue, Inc. as well as software, contracts and technology. Such software and technology included the rVue DSP technology and software as well as the rVue client and server software which allows an end user to manage and operate a DOOH network. The client software is used to manage each screen or site and the server software is used to manage the client software. rVue had licensed the client and server software to Levoip Corporation for installation in Italy. Under the terms of the contract, Levoip was required to pay rVue: (1) a one-time initial site commissioning fee for first-time sites; (2) a recurring monthly license fee at a fixed dollar per site for each month a site utilized the software; and (3) a 25% share of the gross third-party advertising displayed on the sites. The contract was terminated effective October 6, 2010. Presently, we do not have any plans to license our software.

Throughout 2012 we provided Network services and received fees, either under contract or on a monthly basis, to Accenture, Mattress Firm and AutoNation. We provide monitoring and troubleshooting services on a 24/7 basis to Accenture for a private display network that they own under a contract for which we receive $11,975 per month. Mattress Firm operates an in-store network. We imaged the computers that run the in-store network in each store location, and produced and created custom content, such as in store sales promotions, to display on its network. For these services we received $20,000 per month until the month of December when it dropped to $10,000. We have concluded the agreement with Mattress Firm as of December 31, 2012. Through March 2012, we provided AutoNation with custom content creation services on an as-needed basis for display on its networks. We assist Accenture with the maintenance and troubleshooting of a private network they operate. We provide 24/7 services to ensure that the network operates without interruption. Under a contract that expires on December 31, 2013, we earn a fixed monthly fee of $11,975.

We expect to continue to receive revenue from services to Accenture during the next twelve months. As the rVue platform gains traction among advertisers and agencies, we expect to earn transaction fees from rVue related transactions in 2013.

Results of Operations

Revenue

Revenue was $602,363 for the year ended December 31, 2012 compared to $643,483 for the year ended December 31, 2011, a $41,119 or 6.4% decrease. We earned revenue in two categories as follows:

rVue fees -Core fees

rVue fees were $197,444 for the year ended December 31, 2012, a $5,832 or 2.9% decrease over the $203,276 for the year ended December 31, 2011. While the majority of our revenue historically has been from network services and license fees, the development of the rVue platform and generating revenue and fees is the focus of our business. As the rVue platform gains traction with advertisers and agencies, we expect to generate additional revenue and fees in 2013 from advertisers and agencies for placing advertising with DOOH networks through rVue. This is the focus of our business and the area in which we expect to generate the majority of our revenue in 2013 and beyond. We cannot assure you that advertisers or agencies will accept the rVue platform as their platform of choice for placing advertising with DOOH networks.

Network - Non Core fees

Network revenue was $404,919 for the year ended December 31, 2012, a $35,288 or 8.0% decrease compared to the $440,207 for the year ended December 31, 2011.

Mattress Firm operates an in-store network. We image the computers that run the in-store network in each store location, and produce and create custom content, such as in store sales promotions, to display on its network. For these services we received $20,000 per month. We have concluded the agreement with Mattress Firm as of December 31, 2012.

Through March 2012, we provided AutoNation with custom content creation services on an as-needed basis for display on its networks.

We assist Accenture with the maintenance and troubleshooting of a private network they operate. We provide 24/7 services to ensure that the network operates without interruption. Under a contract that expires on December 31, 2013, we earn a fixed monthly fee of $11,975.

We expect to continue to receive revenue from these services to Accenture during the next twelve months, but we do not intend to pursue additional network related service opportunities. The focus of our business is for rVue platform to gain traction among advertisers and agencies; we expect to earn transaction fees from rVue related transactions in 2013.

Cost of revenue

rVue operations expense decreased in large proportion to decrease in rVue fees. Costs include amounts payable to networks and other fixed operating expenses.

Selling, general and administrative expenses (“SG&A”)

SG&A were $2,328,669 for the year ended December 31, 2012 compared to $3,339,359 for the year ended December 31, 2011, a $1,010,690 decrease or 30.3%.

Compensation and benefits decreased $135,945, or 9.6%, resulting from reduction in our personnel. These costs are reflected in the reduced compensation and benefit costs for the year ended December 31, 2012, compared to the year ended December 31, 2011.

Professional, investor relations and investment banking fees decreased by $213,960 or 27.4%. In 2011, we hired an investment banking firm and they received total compensation of $203,294 which was comprised of (i) a fee of $70,000, and (ii) amortization of the cost of warrants they were issued amounting to $133,294.

We did not engage in any contracted managed services for 2012. We discontinued managed services at June 30, 2011.
Marketing and advertising expense was $32,323 in 2012 compared to $161,538 in 2011, a $129,215 decrease, or 80.0%. No website development fees were incurred in 2012, as compared to $6,315 in 2011 for the re-launched rVue.com public website.

Office support and supply expense was $148,780 in 2012 compared to $153,944 in 2011, a $5,164 decrease or 3.4%. The most significant increases and decreases were in the following categories.

Directors and officers and liability insurance which increased by $3,266;
Payroll administrative costs which decreased by $7,815; Software License Fees which increased by $12,550;
Non-income taxes and fees which decreased by $4,216; and
Domain and hosting fees which decreased by $9,731.

Professional, investor relations, and consulting fees were $564,952 in 2012 compared to $778,912 in 2011, a $213,960 decrease, or 27.4%. The most significant increases and decreases were in the following categories:

Directors fees which increased by $11,667;
Legal fees which increased by $32,923;
Accounting and auditing fees which increased by $21,541; Employee recruiting fees which decreased by $16,074;
Sarbanes-Oxley internal control evaluation fees, SEC related filing fees and annual meeting cost which increased by $9,586

Consulting fees which increased by $135,700; and Investor relations fees decreased $409,303 as we discontinued the use of an investment banking firm during 2012.

On July 23, 2012 we engaged in a consulting agreement through the end of June 30, 2013. We will not be renewing this agreement.

Travel expense was $40,265 in 2012 compared to $72,419 in 2011, a $32,154 decrease, or 44.4%. Airfare decreased by $17,691 and lodging, meals and transportation decreased by $14,463.

Stock based compensation expense was $16,536 in 2012 compared to $326,713 in 2011, a $310,177 decrease, or 94.9%. There were no options granted in 2012. The timing of the 2011 grants and the amortization of the expense over the vesting period resulted in a lower expense in 2012 than in 2011.

Depreciation and amortization

Depreciation and amortization was $444,748 for the year ended December 31, 2012 compared to $620,339 for the year ended December 31, 2011, a $175,591 decrease, or 28.3%. Depreciation and amortization expense is mainly for software development costs. During 2011, we made a periodic reassessment of the estimated useful life over which the costs incurred for software development costs are amortized and reduced the estimated useful lives of software developments costs.

Interest income

Interest income was $807 for the year ended December 31, 2012 compared to $3,653 for the year ended December 31, 2011, a $2,846 decrease, or 77.9%. Interest Income is purely interest earned by funds in our bank institution.

Interest expense

We issued Notes in November 2011 and New Notes in January 2012 and May 2012. The interest on these notes accrues at 6% per annum and totaled $54,936 for the year ended December 31, 2012. The original issue discount represents the amortization of the initial value of the embedded derivative components of the Notes and New Notes, as more fully discussed in Note 9 to our Consolidation Financial Statements.

Loss on early extinguishment of debt

Holders of the Notes exchanged those Notes for New Notes in January 2012, resulting in a loss of extinguishment of debt of $17,456 in January 2012. Upon Conversion of the New Notes in September 2012, the Company recognized loss on extinguishment of debt of $635,172.

Except as disclosed above, the Company’s results of operations for the years ended December 31, 2012 and 2011 did not contain any unusual gains or losses from transactions not in the Company’s ordinary course of business.

Liquidity and Capital Resources

Our business is still in the early stages, having commenced operations on September 15, 2009. As of December 31, 2012, we had cash and cash equivalents totaling $848,174. Since our inception through December 31, 2012, we have incurred net losses, and at December 31, 2012, we had an accumulated deficit of $9,616,983 and total stockholders’ equity of $286,495. We expect to incur losses in fiscal 2013. There is no guarantee that we will ultimately be able to generate sufficient revenue or reduce our costs in the anticipated time frame to achieve and maintain profitability and have sustainable cash flows.
We did not have any material commitments for capital expenditures at December 31, 2012. We have budgeted capital expenditures of $20,000 in 2013, primarily capitalized labor for software development. Any required expenditure will be completed through internally generated funding or from proceeds from the sale of common or preferred stock, or borrowings.

We did not have any significant elements of income or loss not arising from continuing operations in the years ended December 31, 2012 or 2011. While our business is marginally seasonal, we do not expect this seasonality to have a material adverse affect on our results of operations or cash flows.

Cash used in operating activities

Net cash used in operating activities totaled $1,951,826 for the year ended December 31, 2012 compared to $2,261,698 for the year ended December 31, 2011. In the year ended December 31, 2012, cash was used to fund a net loss of $3,839,398, reduced by non cash depreciation of $390,373, stock-based compensation expense of $17,425, common stock issued for services valued at $38,100, convertible note interest of $1,033,717, change in fair value of derivative liability of $229,182, and changes in operating assets and liabilities totaling $69,864.

In the year ended December 31, 2011, cash was used to fund a net loss of $3,616,973, reduced by non cash depreciation of $620,339, stock-based compensation expense of $329,188, common stock issued for services valued at $24,700, warrants issued for services valued at $241,960, convertible note interest of $1,848, change in fair value of derivative liability of ($700), and changes in operating assets and liabilities totaling $137,940.

Cash used in investing activities

Net cash used in investing activities totaled $124,917 for the year ended December 31, 2012 compared to $337,506 for the year ended December 31, 2011. In the year ended December 31, 2012, cash used in investing activities consisted of $128,795 for software development costs and $3,878 for deposits. In the year ended December 31, 2011, cash used in investing activities consisted of $505,640 for software development costs and $3,878 for deposits, reduced by $172,012 of advances that Argo repaid us.

Cash from financing activities

Net cash provided by financing activities totaled $2,905,000 for the year ended December 31, 2012 compared to $285,000 for the year ended December 31, 2011. In the year ended December 31, 2012 we received proceeds from issuance of common stock in the amount of $1,200,000 and $1,435,000 from issuance of the New Notes. Additionally during 2012, we received $270,000 of cash for common stock that was not issued until January 2013. In the year ended December 31, 2011 we received $ 285,000 of net proceeds from the sale of convertible promissory notes.

Financial condition

As of December 31, 2012, we had a working capital of $241,205, an accumulated deficit of $9,616,983 and total stockholders’ equity of $286,495, compared to working capital deficit of $670,911, an accumulated deficit of $5,777,585 and total stockholders’ deficit of $362,196 at December 31, 2011. The increase in our financial condition was due proceeds from issuance of Common Stock and convertible notes net to an increase in our net loss. In 2013, we raised an additional $316,500 in issuance of securities and investments.

We believe that with the cash we have on hand, the cash we raised in 2013 through the sale of stock and the cash we expect to raise through future securities issuances, that we will have sufficient funds available to cover our cash requirements through the next twelve months.

At December 31, 2012 our registered independent public accounting firm expressed substantial doubt as to our ability to continue as a going concern because, since inception, we have incurred substantial losses and negative cash flows from operations. This concern will be addressed by focusing on revenue growth in the coming months. In addition, management will review projected second half (2013) losses 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.

Critical Accounting Policies

Management is responsible for the integrity of the financial information presented herein. Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Where necessary, they reflect estimates based on management's judgment. When selecting or evaluating accounting alternatives, management focuses on those that produce, from among the available alternatives, information most useful for decision-making. We believe that the critical accounting policies discussed below involve additional management judgment due to the sensitivity of the methods, assumptions and estimates necessary in determining the related asset, liability, revenue and expense amounts.

Software Development Costs

We capitalize costs incurred for the production of computer software that generates the functionality of our DSP. Capitalized software development costs typically include direct labor and related overhead for software produced by the Company, as well as the cost of software purchased from third parties. Costs incurred for a product prior to the determination that the product is technologically feasible ( i.e., research and development costs), as well as maintenance costs for established products, are expensed as incurred. Once technological feasibility has been established, development costs are capitalized until the software has completed testing and is released for use by the public. We also capitalize eligible costs to acquire or develop internal-use software (such as billing and accounting) that are incurred subsequent to the preliminary project stage.

Derivative Instruments

In 2012 and 2011 we entered into a Promissory Note Purchase Agreement and issued notes which are convertible into shares of our common stock. We determined under Accounting Standards Codification Topic 815, Deriv atives and Hedging (“ASC 815”) that the conversion feature is an embedded derivative. Embedded derivatives that are not clearly and closely related to the host contract (the notes) are bifurcated and recognized at fair value with changes in fair value recognized as either a gain or loss in earnings. We determined the fair value of the embedded derivative based on available market data using a binomial lattice valuation model, giving consideration to all of the rights and obligations of the instrument. The convertible debt was converted into common stock in September 2012.

Revenue Recognition

Our revenues are derived from advertising campaigns placed through rVue, the maintenance of certain private networks, the production and distribution of network programming, and the licensing of proprietary software. Revenue is recognized as follows:

•
Advertising revenue and transaction fee revenue is recognized in the period in which the advertising impressions occur, and when the following criteria have been met: (i) persuasive evidence of an arrangement exists, (ii) the fees are fixed or determinable, (iii) no significant Company obligations remain, and (iv) collection of the related receivable is reasonably assured.

•
Revenue from the maintenance of private networks, and the production and distribution of network programming content, either under contract or on a piece by piece or monthly basis, is recognized ratably over the term of the related service period if the fees are fixed and determinable, delivery has occurred and collection is probable.

•
Software license revenue is recognized when: (i) there is pervasive evidence of an arrangement, (ii) the fees are fixed and determinable, (iii) the software product has been delivered, and (iv) there are no uncertainties surrounding product acceptance and collection is considered probable. Initial site fees are recognized over the estimated period the sites will be in use.

We record deferred revenue when we receive payment in advance of the performance of services.

Stock Based Compensation

We account for stock-based payment transactions in which we receive employee services in exchange for equity instruments of the Company. Stock-based compensation cost for stock options is estimated at the grant date based on each option’s fair-value as calculated by the Black-Scholes-Merton option-pricing model. We recognize stock-based compensation cost as expense ratably on a straight-line basis over the requisite service period. We will recognize a benefit from stock-based compensation in equity if an incremental tax benefit is realized by following the ordering provisions of the tax law.

Income Taxes

The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. We recognize the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured to determine the actual amount of benefit to recognize in our financial statements.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Available Information

The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”) are filed with the SEC. Such reports and other information filed by the Company with the SEC are available on the Company’s website at www.rvue.com when such reports are available on the SEC website. The public may read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy, and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov . The contents of these websites are not incorporated into this filing. Further, the Company’s references to the URLs for these websites are intended to be inactive textual references only.

Executive Overview

We operate rVue, a demand-side platform (“DSP”) for planning, buying and managing DOOH and place-based media advertising. We provide an online, internet based DSP that connects advertisers and/or advertising agencies with third party DOOH media or networks, that allows the advertiser to create a targeted advertising campaign and media plan, and negotiate that media plan simultaneously with all the third-party networks selected. Through our strategic media services group, we execute complete campaigns on behalf of advertising clients or their agencies.

The rVue DSP is accessible via the Internet. Through rVue, once an advertising campaign has been agreed to between the advertiser and the DOOH network owner, the DOOH networks receive the display advertising to be shown on their installed base of digital media displays. rVue allows programming and advertising to be customized for display in specific venues, at specific times, and for demographic targeting. We provide the tools for advertisers and advertising agencies to customize campaigns for details as specific as location, customer preference, product availability, current events and other needs. We provide Proof- of-Play analytics and the network statistics necessary to monitor advertising on the networks and assist in evaluating the performance or refinements required for an advertising campaign, in some cases real time. Furthermore, rVue’s integrated analytics provide insight and opportunities for advertisers and agencies to extend the reach, impact and engagement of future campaigns.

As of September 30, 2013, over 200 networks comprising approximately 900,000 screens and delivering over 250 million daily impressions representing the top 50 market areas were accessible through rVue. Through our strategic media services group, we execute complete campaigns on behalf of advertising clients or their agencies.

We believe that consumers who are mobile are increasingly difficult to reach via traditional analog media platforms such as television, print and radio. Interaction with these consumers via multiple DOOH platforms has advantages. Advertisers desire, for example, to send pre-programmed, customized messages to specific geographic or demographic targets throughout the life of an advertising campaign. This can be achieved via the Internet, and we believe will increasingly be achieved through digital displays located along roadsides, on trains and buses and train platforms and bus stations, in elevators, in government offices, schools, restaurants and bars. All of these DOOH platforms are aggregated for advertiser and advertising agencies via the rVue DSP.

Similar models have been successfully deployed for Internet DSP’s, through Internet ad networks and exchanges that utilize similar services to sell banner and other advertising by websites and Internet publishers with excess inventory to monetize their assets. For example, Yahoo's Right Media Exchange leverages Yahoo's advertisers to assist publishers in monetizing available Internet advertising inventory. Our services provide a digital advertising solution that streamlines the process of planning, buying and optimizing display advertising on DOOH display networks. rVue is designed to simplify the process of buying and selling digital display ads while connecting all the market players — networks, advertisers, agencies, partners and developers — from a unified platform to do business more efficiently and effectively.

We provide network services and receive fees under contract or on a monthly basis, from Accenture. We provide monitoring and troubleshooting services on a 24/7 basis to Accenture for a private display network that they own under a contract for which we receive $11,975 per month. We expect to continue to receive revenue from these services to Accenture through 2013, but consider this non-core revenue. The primary forward strategy of our business is to earn transaction fees and margin from rVue technology and strategic media services, as discussed elsewhere herein.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with GAAP and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions, and estimates that affect the amounts reported in its condensed consolidated financial statements and accompanying notes. Note 1, “Summary of Significant Accounting Policies” of this Form 10-Q and in the Notes to Consolidated Financial Statements in the Company’s 2012 Form 10-K describes the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates and such differences may be material.

Management believes the Company’s critical accounting policies and estimates are those related to software development costs, derivative instruments, revenue recognition, stock-based compensation and income taxes. Management considers these policies critical because they are both important to the portrayal of the Company’s financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters. The Company’s senior management has reviewed these critical accounting policies and related disclosures with the Audit Committee of the Company’s Board of Directors.

Results of Operations

Three Months Ended September 30, 2013 and 2012:

Revenue

Revenue was $147,193 for the three-month period ended September 30, 2013 compared to $114,238 for the three-month period ended September 30, 2012, a $32,955 increase, or 28.8%.

rVue advertising revenue – Core fees

rVue advertising revenue were $111,268 for the three-month period ended September 30, 2013, a $92,955 improvement over the $18,313 rVue advertising revenue for the three-month period ended September 30, 2012. While the majority of our revenue historically has been from network services and license fees, the development of the rVue platform and generating revenue and fees is the focus of our business. As the rVue platform gains traction with advertisers and agencies, we expect to generate additional revenue and fees in 2013 from advertisers and agencies for placing advertising with DOOH networks through rVue. This is the focus of our business and the area in which we expect to generate the majority of our revenue in 2013 and beyond. We cannot assure you that advertisers or agencies will accept the rVue platform as their platform of choice for placing advertising with DOOH networks.

Network – Non-core fees

Network revenue was $35,925 for the three-month period ended September 30, 2013, a $60,000, or 62.5%, decrease compared to the $95,925 for the three-month period ended September 30, 2012. We earned fixed monthly fees of $11,975 from one client. We expect to continue to receive revenue from these services to this client through November 2013 and are negotiating a new monthly contract amount for December and the 2014 calendar year, but we do not intend to pursue additional network-related service opportunities as the focus of our business is the rVue platform.

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.

Selling, general and administrative expenses

Compensation and benefits decreased $118,366, or 50.8% for the three months ended September 30, 2013 when compared to the three months ended September 30, 2012. This change was due to a $26,248 reduction in the amount of payroll costs being capitalized for software development, a reduction in payroll of $134,337 and a reduction in payroll taxes of $12,496, a reduction in benefits of $7,902, a reduction of payroll administrative expenses of $1,561 due to staff reductions that were implemented in the three months ended September 30, 2013, and a net $11,682 increase in the vacation accrual for recent staff additions.

Stock-based compensation expense varies depending on the term over which the options vest. Options that were granted in 2010, and 2011 have now vested and were fully expensed in 2012. Options granted in August of 2013 have only been partially expensed resulting in a lower expense in the three-month period ended September 30, 2013 compared to the expense for the three-month period ended September 30, 2012.

Advertising and marketing expense decreased by $793, or 19.6%, in the three-month period ended September 30, 2013, when compared to the three-month period ended September 30, 2012.

Investor relations and investment banking fees for the three-month period ended September 30, 2013 decreased $2,804, or 83.0%, when compared to the three-month period ended September 30, 2012. The Company ended its agreement with its investor relations representative to reduce its operating costs.

Professional and consulting fees for the three-month period ended September 30, 2013 were down $27,796, or 16.1%, compared to the three-month period ended September 30, 2012. Consulting fees were down $84,600 due to a consulting agreement with the former CEO of the Company expiring on June 30, 2013, legal fees were up $22,631, fees related to SEC filings were up $14,605, and accounting and other fees were up by $19,568.

Depreciation and amortization

Depreciation and amortization was $6,332 for the three-month period ended September 30, 2013 compared to $126,979 for the three-month period ended September 30, 2012, a $120,647 decline, or 95%. For the three-month period ended September 30, 2013, the large decrease in depreciation and amortization expense for software development costs is due to the costs being amortized over an 18 month period with minimal additions since December 31, 2011.

Interest income

Interest income was $21 for the three-month period ended September 30, 2013 compared to $93 for the three-month period ended September 30, 2012, a $72 decrease, or 77.4%. Interest income is a function of cash on hand.

Interest expense

We issued promissory notes in November 2011 and additional promissory notes in January and May 2012. The interest on these notes accrued at 6% per annum and totaled $19,833 for the three-month period ended September 30, 2012. The original issue discount represented the amortization of the initial value of the embedded derivative components of the notes. These notes were converted into shares of our common stock on September 10, 2012.

Change in fair value of derivative instruments

The decrease in the fair value of the derivative liability and the Series C Warrants at September 30, 2012 resulted in us recognizing an unrealized loss during the three-month period ended September 30, 2012 of $223,826.

Nine Months Ended September 30, 2013 and 2012:

Revenue

Revenue was $487,672 for the nine-month period ended September 30, 2013 compared to $353,161 for the nine-month period ended September 30, 2012, a $134,511 increase, or 38.1%.

rVue advertising revenue – Core fees

We earn transaction fees from advertisers and agencies for placing advertising with networks through rVue and generate advertising revenue from advertisers who engage us to execute campaigns through managed services. The transaction fee is a percentage of the advertising dollars spent on campaigns, which varies based upon the level of targeting, reporting and other assistance we provide. We act, in certain transactions, as a principal to purchase advertising on behalf of a client who issues a purchase order for the strategic media services we provide. We contract in our name with the networks to purchase the necessary space and time to execute the campaign. In these instances, we assume the full financial risk of the campaign and are liable to the networks for the cost of network space and time.

rVue fees were $357,597 for the nine-month period ended September 30, 2013, a $311,455 or 675.0% improvement over the $46,142 rVue fees for the nine-month period ended September 30, 2012. While the majority of our revenue historically has been from network services and license fees, the development of the rVue platform and generating revenue and fees from the rVue platform is the focus of our business. As the rVue platform gains traction with advertisers and agencies, we expect to generate additional revenue and fees in 2013 and beyond from advertisers and agencies for placing advertising with DOOH networks through rVue. This is the focus of our business and the area in which we expect to generate the majority of our revenue in 2013 and beyond. We cannot assure you that advertisers or agencies will accept the rVue platform as their platform of choice for placing advertising with DOOH networks.

Network Revenue – Non-core fees

Network revenue was $130,075 for the nine-month period ended September 30, 2013, a $176,944, or 57.6%, decrease compared to the $307,019 for the nine-month period ended September 30, 2012. We earned fixed monthly fees of $11,975 from one client and fees from special projects from one client. We expect to continue to receive revenue from these services to this client for the remainder of 2013, but we do not intend to pursue additional network-related service opportunities as the focus of our business is the rVue platform.

Cost of Revenue

Cost of revenue consists primarily of expenses for the purchase of advertising impressions from third-party networks, the cost to deliver network services and the cost of producing content for our network clients.The increase in cost of revenue is attributable to a $134,511 increase in sales compared to September 30, 2012, and the change in revenue category mix. The increase in core related revenues increases the cost of network expenses which are recorded in rVue operations. The substantial decrease in compensation and benefits is due to head count reduction for the non-core related services.

Selling, general and administrative expenses

SG&A were $2,057,050 for the nine-month period ended September 30, 2013, compared to $1,965,648 for the nine-month period ended September 30, 2012, a $91,402 increase, or 4.6%.

Compensation and benefits decreased $652,119, or 62.2% for the nine-months ended September 30, 2013 when compared to the nine-months ended September 30, 2012. This change was due to a $104,211 reduction in the amount of payroll costs being capitalized for software development, a reduction in payroll of $630,498 due to staff reductions that were implemented in the nine-months ended September 30, 2013, a $1,019 increase in the vacation accrual for recent staff increase, a $59,702 reduction in benefit costs due to staff reductions and a reduction of payroll tax expense of $52,559 and a reduction in payroll administrative costs of $14,590 due to lower payroll costs.

Stock-based compensation expense increased $732,608 or 331.3%, in the nine-month period ended September 30, 2013, when compared to the nine-month period ended September 30, 2012. $748,000 of the 2013 stock based compensation relates to a board approved one time, performance based payment to a former director who served as the interim CEO and CFO for approximately one year, and the remainder of the 2013 expense relates to options granted in August of 2013. Options that were granted in 2010 and 2011 have now vested and were fully expensed in 2012.

Advertising and marketing expense increased by $46,698 or 148.8%, in the nine-month period ended September 30, 2013, when compared to the nine-month period ended September 30, 2012. This increase is a result of rVue’s investment in new product development.

Investor relations and investment banking fees for the nine-month period ended September 30, 2013 decreased $132,453, or 98.6%, when compared to the nine-month period ended September 30, 2012. The Company ended its agreement with its investor relations representative to reduce its operating costs.

Professional and consulting fees for the nine-month period ended September 30, 2013 increased $128,165, or 31.3%, compared to the nine-month period ended September 30, 2012. Consulting fees increased approximately $70,489 due to consulting fees paid to former CEO Jason Kates, as prescribed in his separation agreement, legal fees decreased $5,961, fees related to SEC filings increased $16,082 and directors’ fees increased $46,235 due to stock issued to the former CEO, while accounting and other fees increased $1,320.

Depreciation and amortization

Depreciation was $9,247 for the nine-month period ended September 30, 2013 compared to $28,598 for the nine-month period ended September 30, 2012, a $19,351 decline, or 67.7%. For the nine-month period ended September 30, 2013, amortization expense for software development was $20,632, compared to $339,696 for the nine-month period ended September 30, 2012, a $319,064 decline, or 93.9%. The large decrease in depreciation and amortization expense for software development costs is due to the costs being amortized over an 18 month period with minimal additions since December 31, 2011. Additionally the Company recognized nil and $54,374 of loan cost amortization in the nine-months ended September 30, 2013 and 2012, respectively.

Interest income

Interest income was $335 for the nine-month period ended September 30, 2013 compared to $263 for the nine-month period ended September 30, 2012, an $72 increase, or 27.4%. Interest income is a function of cash on hand.

Interest expense

We issued promissory notes in November 2011 and additional promissory notes in January and May 2012. The interest on these notes accrued at 6% per annum and totaled $54,935 for the nine-month period ended September 30, 2012. The original issue discount represents the amortization of the initial value of the embedded derivative components of the notes. These notes were converted into shares of our common stock on September 10, 2012.

Liquidity and Capital Resources

As of September 30, 2013, we had cash and cash equivalents totaling $79,972. Since our inception, we have incurred net losses, and at September 30, 2013, we had an accumulated deficit of $11,478,697 and total stockholders’ deficit of $1,246. We expect to continue to incur losses the remainder of fiscal 2013. There is no guarantee that we will ultimately be able to generate sufficient revenue or reduce our costs in the anticipated time frame to achieve and maintain profitability and have sustainable cash flows.

We did not have any material commitments for capital expenditures at September 30, 2013. We have budgeted capital expenditures of approximately $90,000 for fiscal 2013, primarily capitalized labor for software development. Any required expenditure will be completed through internally generated funding or from proceeds from the sale of common or preferred stock, or borrowings.

We did not have any significant elements of income or loss not arising from continuing operations in the nine-month periods ended September 30, 2013 and 2012. While our business is marginally seasonal, we do not expect this seasonality to have a material adverse effect on our results of operations or cash flows.

Cash used in operating activities

Net cash used in operating activities totaled $1,036,610 for the nine-month period ended September 30, 2013 compared to $1,526,177 for the nine-month period ended September 30, 2012. In the nine-month period ended September 30, 2013, cash was used to fund a net loss of $1,861,714, reduced by depreciation and amortization of $29,879, stock-based compensation expense of $754,723, common stock issued for services valued at $118,333, and changes in operating assets and liabilities totaling $77,831.

In the nine-month period ended September 30, 2012, cash was used to fund a net loss of $3,585,614, reduced by depreciation and amortization of $422,668, stock-based compensation expense of $23,602, common stock issued for services valued at $50,947, convertible loan interest of $1,033,716, a net gain in fair value of derivative instruments of $229,182, loss on early extinguishment of debt of $652,628 and changes in operating assets and liabilities totaling $105,057.

Cash used in investing activities

Net cash used in investing activities totaled $48,092 for the nine-month period ended September 30, 2013 compared to $157,572 of net cash used in investing activities in the nine-month period ended September 30, 2012. In the nine-month period ended September 30, 2013, cash used in investing activities consisted of $4,510 for fixed asset purchases, $54,892 for software development costs and a decrease in deposits of $11,310. In the nine-month period ended September 30, 2012, cash used in investing activities consisted of $157,572 for software development costs.

Cash from financing activities

Net cash provided by financing activities totaled $316,500 for the nine-month period ended September 30, 2013 which were the proceeds from the sale of common stock. For the nine-month period ended September 30, 2012, net cash provided by financing activities totaled $2,635,000 and were the proceeds from the sale of $1,435,000 of convertible notes and issuance of common stock valued at $1,200,000.

Financial condition

As of September 30, 2013, we had a working capital deficit of $64,749, an accumulated deficit of $11,478,697 and total stockholders’ deficit of $1,296, compared to a working capital surplus of $241,205, an accumulated deficit of $9,616,983 and total stockholders’ equity of $286,495 at December 31, 2012.

We believe that with the cash we have on hand and the cash we expect to raise through future securities issuances, that we will have sufficient funds available to cover our cash requirements through the next twelve months. We further expect that key strategic relationships that we have entered into and that we expect to enter into will lead to additional revenue opportunities. However, no assurance can be given that such expectations will materialize.

At December 31, 2012 our registered independent public accounting firm expressed substantial doubt as to our ability to continue as a going concern because, since inception, we have incurred substantial losses and negative cash flows from operations. This concern will be addressed by focusing on revenue growth in the coming months. In addition, management will review projected near term losses against cash on hand and consider raising capital if required.

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.

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