RMG Networks Holding Corp - FORM 10-Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


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

For the quarterly period ended March 31, 2015


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-51644

RMG Networks Holding Corporation

(Exact Name of Registrant as Specified in Its Charter)

Delaware

27-4452594

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

15301 Dallas Parkway

Suite 500

Addison, Texas 75001

(800) 827-9666

(Address including zip code, and telephone number, including area code, of principal executive offices)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ 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 definition 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	☐	Smaller reporting company	☒

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

As of May 15, 2015, 37,182,041 shares of common stock, par value $0.0001 per share, of the registrant were outstanding.

TABLE OF CONTENTS


		Page
	PART I — FINANCIAL INFORMATION	3

Item1.	Consolidated Financial Statements	3

	Consolidated Balance Sheets as of March 31, 2015 (unaudited) and December 31, 2014	3

	Unaudited Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2015 and 2014	4

	Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014	5

	Unaudited Notes to Consolidated Financial Statements	6

Item2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item3.	Quantitative and Qualitative Disclosures about Market Risk	19

Item4.	Controls and Procedures	19

	PARTII — OTHER INFORMATION	20

Item1.	Legal Proceedings	20

Item1A.	Risk Factors	20

Item2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

Item 5.	Other Information

Item6.	Exhibits	29

SIGNATURES		30

PART I

Item 1. Consolidated Financial Statements

RMG Networks Holding Corporation

Consolidated Balance Sheets

March 31, 2015 and December 31, 2014


	March 31, 2015		December 31, 2014
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	11,063,486	$	3,076,708
Accounts receivable, net		11,463,397		13,060,536
Inventory, net		1,775,781		1,460,876
Deferred tax assets		-		6,671
Prepaid assets		1,192,483		1,174,894
Current assets of discontinued operations		864,700		2,810,857
Total current assets		26,359,847		21,590,542
Property and equipment, net		5,154,325		5,230,215
Property and equipment of discontinued operations		384,994		455,582
Intangible assets, net		10,886,375		11,518,997
Loan origination fees		-		743,082
Other assets		175,505		177,832
Other assets of discontinued operations		62,255		72,531
Total assets	$	43,023,301	$	39,788,781
Liabilities and Stockholders’ equity (deficit)
Current liabilities:
Accounts payable	$	2,957,202	$	4,348,804
Accrued liabilities		3,167,182		3,379,651
Loss on long-term contract		2,914,386		2,648,644
Deferred revenue		8,785,013		9,350,177
Liabilities of discontinued operations		5,514,967		5,145,565
Total current liabilities		23,338,750		24,872,841
Notes payable – non current		-		14,000,000
Warrant liability		1,157,846		1,447,308
Deferred revenue – non current		2,598,039		1,478,041
Deferred tax liabilities		3,413		-
Loss on long-term contract - non-current		1,172,555		1,035,804
Capital leases and other		386,397		501,386
Non-current liabilities of discontinued operations		310,983		341,644
Total liabilities		28,967,983		43,677,024
Commitment and Contingencies
Series A, Preferred Stock , $100.00 par value (1,000,000 shares authorized, 250,000 shares outstanding at March 31, 2015)		24,627,300		-
Stockholders’ equity (deficit):
Common stock, $.0001 par value, (250,000,000 shares authorized; 12,467,756 and 12,467,756 shares issued; 12,167,756 and 12,167,756 shares outstanding, at March 31, 2015 and December 31, 2014, respectively.)		1,247		1,247
Additional paid-in capital		82,501,468		82,089,504
Accumulated comprehensive income (loss)		(188,278)		6,211
Retained earnings (accumulated deficit)		(92,406,419)		(85,505,205)
Treasury Stock, at cost (300,000 shares)		(480,000)		(480,000)
Total stockholders’ equity (deficit)		(10,571,982)		(3,888,243)
Total liabilities and stockholders’ equity (deficit)	$	43,023,301	$	39,788,781

See accompanying notes to consolidated financial statements.

RMG Networks Holding Corporation

For the Three Months Ended March 31, 2015 and March 31, 2014

Consolidated Statements of Comprehensive Loss


	Three Months Ended March 31, 2015		Three Months Ended March 31, 2014
	(Unaudited)		(Unaudited)
Revenue:
Advertising	$	-	$	-
Products		3,082,317		2,206,420
Maintenance and content services		3,626,375		4,302,725
Professional services		2,601,822		2,463,566
Total Revenue		9,310,514		8,972,711
Cost of Revenue:
Advertising		-		-
Products		1,654,739		1,907,151
Maintenance and content services		640,425		760,146
Professional services		1,625,753		1,609,830
Loss on long-term contract		1,035,993		-
Total Cost of Revenue		4,956,910		4,277,127
Gross Profit		4,353,604		4,695,584
Operating expenses:
Sales and marketing		2,685,118		3,558,341
General and administrative		4,065,424		4,937,163
Research and development		681,396		844,702
Depreciation and amortization		912,578		1,205,843
Total operating expenses		8,344,516		10,546,049
Operating income (loss)		(3,990,912)		(5,850,465)
Other Income (Expense):
Warrant liability income (expense)		289,462		(4,641,471)
Interest expense and other – net		(1,244,447)		(239,043)
Loss before income taxes and discontinued operations		(4,945,897)		(10,730,979)
Income tax expense (benefit)		(16,546)		(950,079)
Loss from discontinued operations		(1,971,863)		(2,650,751)
Net loss		(6,901,214)		(12,431,651)
Other comprehensive loss -
Foreign currency translation adjustments		(194,489)		4,606
Total comprehensive loss	$	(7,095,703)	$	(12,427,045)
Net loss per share of Common Stock (basic and diluted):
Continuing operations	$	(0.41)	$	(0.82)
Discontinued operations		(0.16)		(0.22)
Net loss per share of Common Stock (basic and diluted):		(0.57)		(1.04)
Weighted average shares used in computing basic and diluted net income (loss) per share of Common Stock		12,167,756		11,952,172

See accompanying notes to consolidated financial statements.

RMG Networks Holding Corporation

Consolidated Statements of Cash Flows (Inclusive of Discontinued Operations)

For the Three Months Ended March 31, 2015 and March 31, 2014


	Three Months Ended March 31, 2015		Three Months Ended March 31, 2014
	(Unaudited)		(Unaudited)
Cash flows from operating activities
Net loss	$	(6,901,214)	$	(12,431,651)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		983,167		1,920,033
Change in warrant liability		(289,462)		4,641,471
Stock-based compensation		411,964		1,029,688
Non-cash loan origination fees		743,082		57,161
Non-cash consulting expense		120,000		144,750
Non-cash directors’ fees		31,250		116,464
Allowance for doubtful accounts		345,000		-
Deferred tax (benefit)		10,084		(950,081)
Changes in operating assets and liabilities:
Accounts receivable		3,000,395		7,935,314
Inventory		(314,905)		328,808
Other current assets		(69,196)		267,418
Other assets, net		(107,397)		8,027
Accounts payable		(1,247,450)		(3,379,598)
Accrued liabilities		87,158		(2,421,096)
Deferred revenue		604,854		418,971
Loss on long-term contract		1,035,993		-
Other non-current liabilities		(779,151)		-
Net cash used in operating activities		(2,335,828)		(2,314,321)

Cash flows from investing activities
Purchases of property and equipment		(204,066)		(1,164,125)
Net cash used in investing activities		(204,066)		(1,164,125)

Cash flows from financing activities
Proceeds from long-term debt		1,000,000		-
Issuance of preferred shares, net of issuance costs		9,627,301		-
Net cash provided by financing activities		10,627,301		-

Effect of exchange rate changes on cash		(100,629)		4,606

Net increase (decrease) in cash and cash equivalents		7,986,778		(3,473,840)

Cash and cash equivalents, beginning of period		3,076,708		8,235,566

Cash and cash equivalents, end of period	$	11,063,486	$	4,761,726

Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	549,028	$	100,480
Cash paid during the period for income taxes	$	18,410	$	-

See accompanying notes to consolidated financial statements

RMG Networks Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

Basis of Presentation for Interim Financial Statements

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange Commission. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and the notes required by GAAP for complete financial statements. The Balance Sheet and the Statements of Comprehensive Income and Cash Flows for the year ending December 31, 2014 have been derived from the Company’s audited financial statements, but do not include all disclosures required by GAAP for complete financial statements. In the opinion of management, the unaudited condensed interim consolidated financial statements reflect all adjustments and disclosures necessary for a fair presentation of the results of the reported interim periods. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s annual audited consolidated financial statements and notes there to. The interim results of operations are not necessarily indicative of the results to be expected for the full year.

Inventory

Inventory consists primarily of software-embedded smart products, electronic components, computers and computer accessories. Inventories are stated at the lower of average cost or market. Write-offs of slow moving and obsolete inventories are provided based on historical experience and estimated future usage.

The composition of inventory at March 31, 2015 and December 31, 2014 was as follows:


	March 31, 2015		December 31, 2014

Finished Goods	$	1,368,370	$	1,014,959
Raw Materials		407,411		445,917
Total	$	1,775,781	$	1,460,876

Revenue Recognition

The Company recognizes revenue primarily from these sources:

Products

Maintenance and content services

Professional services

Advertising

The Company recognizes revenue when (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred, which is when product title transfers to the customer, or services have been rendered; (iii) customer payment is deemed fixed or determinable and free of contingencies and significant uncertainties; and (iv) collection is reasonably assured. The Company assesses collectability based on a number of factors, including the customer’s past payment history and its current creditworthiness. If it is determined that collection of a fee is not reasonably assured, the Company defers the revenue and recognizes it at the time collection becomes reasonably assured, which is generally upon receipt of cash payment. If an acceptance period is required, revenue is recognized upon the earlier of customer acceptance or the expiration of the acceptance period. Sales and use taxes are reported on a net basis, excluding them from revenue and cost of revenue.

Multiple-Element Arrangements

Products consist of proprietary software and hardware equipment. The Company considers the sale of software more than incidental to the hardware as it is essential to the functionality of the hardware products. The Company enters into multiple-product and services contracts, which may include any combination of equipment and software products, professional services, maintenance and content services.

Multiple Element Arrangements (“MEAs”) are arrangements with customers which include multiple deliverables, including a combination of equipment and services. The deliverables included in the MEAs are separated into more than one unit of accounting when (i) the delivered equipment has value to the customer on a stand-alone basis, and (ii) delivery of the undelivered service element(s) is probable and substantially in the Company's control. Revenue from arrangements for the sale of tangible products containing both software and non-software components that function together to deliver the product’s essential functionality requires allocation of the arrangement consideration to the separate deliverables using the relative selling price (“RSP”) method for each unit of accounting based first on Vendor Specific Objective Evidence (“VSOE”) if it exists, second on third-party evidence (“TPE”) if it exists, and on estimated selling price (“ESP”) if neither VSOE or TPE of selling price of the Company's various applicable tangible products containing essential software products and services. The Company establishes the pricing for its units of accounting as follows:

VSOE— For certain elements of an arrangement, VSOE is based upon the pricing in comparable transactions when the element is sold separately. The Company determines VSOE based on its pricing and discounting practices for the specific product or service when sold separately, considering geographical, customer, and other economic or marketing variables, as well as renewal rates or standalone prices for the service element(s).

TPE— If the Company cannot establish VSOE of selling price for a specific product or service included in a multiple-element arrangement, it uses third-party evidence of selling price. The Company determines TPE based on sales of comparable amounts of similar products or services offered by multiple third parties considering the degree of customization and similarity of the product or service sold.

ESP— The estimated selling price represents the price at which the Company would sell a product or service if it were sold on a stand-alone basis. When VSOE or TPE does not exist for an element, the Company determines ESP for the arrangement element based on sales, cost and margin analysis, as well as other inputs based on its pricing practices. Adjustments for other market and Company-specific factors are made as deemed necessary in determining ESP.

The Company has also established VSOE for its professional services and maintenance and content services based on the same criteria as previously discussed under the software revenue recognition rules.

The Company uses the estimated selling price to determine the relative sales price of its products. Revenue for elements that cannot be separated is recognized once the revenue recognition criteria for the entire arrangement has been met or over the period that our last remaining obligation to perform is fulfilled. Consideration for elements that are deemed separable is allocated to the separate elements at the inception of the arrangement on the basis of their relative selling price and recognized based on meeting authoritative criteria.

The Company sells its products and services through its global sales force and through a select group of resellers and business partners. In North America, approximately 94% of sales have historically been generated solely by the Company’s sales team, with 6% or less through resellers. In the United Kingdom, Western Europe, the Middle East and India, the situation is reversed, with around 74% of sales historically coming from the reseller channel. Overall, approximately 76% of the Company’s global revenues have historically been derived from direct sales, with the remaining 24% generated through indirect partner channels.

The Company has formal contracts with its resellers that set the terms and conditions under which the parties conduct business. The resellers purchase products and services from the Company, generally with agreed-upon discounts, and resell the products and services to their customers, who are the end-users of the products and services. The Company does not offer contractual rights of return other than under standard product warranties and product returns from resellers have be insignificant to date. The Company therefore sells directly to its resellers and recognizes revenue on sales to resellers upon delivery, consistent with its recognition policies as discussed above. The Company bills the resellers directly for the products and services they purchase. Software licenses and product warranties pass directly from the Company to the end-users.

The Company recognizes revenue on sales to resellers consistent with its recognition policies as discussed below.

Product revenue

The Company recognizes revenue on product sales generally upon delivery of the product or customer acceptance depending upon contractual arrangements with the customer. Shipping charges billed to customers are included in revenue and the related shipping costs are included in cost of revenue.

Maintenance and content services revenue

Maintenance support consists of hardware maintenance and repair and software support and updates. Software updates provide customers with rights to unspecified software product upgrades and maintenance releases and patches released during the term of the support period. Support includes access to technical support personnel for software and hardware issues. Content services consist of providing customers live and customized news feeds.

Maintenance and content services revenue is recognized ratably over the term of the contracts, which is typically one to three years. Maintenance and support is renewable by the customer annually. Rates, including subsequent renewal rates, are typically established

based upon specified rates as set forth in the arrangement. The Company’s hosting support agreement fees are based on the level of service provided to its customers, which can range from monitoring the health of a customer’s network to supporting a sophisticated web-portal.

Professional services revenue

Professional services consist primarily of installation and training services. Installation fees are recognized either on a fixed-fee basis or on a time-and-materials basis. For time-and materials contracts, the Company recognizes revenue as services are performed. For fixed-fee contracts, the Company recognizes revenue upon completion of the installation. Such services are readily available from other vendors and are not considered essential to the functionality of the product. Training services are also not considered essential to the functionality of the product and have historically been insignificant; the fee allocable to training is recognized as revenue as the Company performs the services.

Advertising

The Airline Media Network is being held for sale and classified as discontinued operations.

This segment sells advertising through agencies and directly to a variety of customers under contracts ranging from one month to one year. Contracts usually specify the network placement, the expected number of impressions (determined by passenger or visitor counts) and the cost per thousand impressions (“CPM”) over the contract period to arrive at a contract amount. The Company bills for these advertising services as requested by the customer, generally on a monthly basis following delivery of the contracted number of impressions for the particular ad insertion. Revenue is recognized at the end of the month in which fulfillment of the advertising order occurred. Although the Company typically presents invoices to an advertising agency, collection is reasonably assured based upon the customer placing the order.

Under Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) 605-45 Principal Agent Considerations (Reporting Revenue Gross as a Principal versus Net as an Agent) , the Company has recorded its advertising revenues on a gross basis.

Payments to airline and other partners for revenue sharing are paid on a monthly basis either under a minimum annual guarantee (based upon estimated advertising revenues), or as a percentage of the advertising revenues following collection from customers. The portion of revenue that the Company shares with its partners ranges from 25% to 80% depending on the partner and the media asset. The Company makes minimum annual guarantee payments under two agreements (one to an airline partner and one to another partner). Payments to all other partners are calculated on a revenue sharing basis. The Company’s partnership agreements have terms ranging from one to two years.

Research and Development Costs

Research and development costs incurred prior to the establishment of technological feasibility of the related software product are expensed as incurred. After technological feasibility is established, any additional software development costs are capitalized in accordance with ASC 985-20, Costs of Software to be Sold, Leased, or Marketed. The Company believes its process for developing software is essentially completed concurrent with the establishment of technological feasibility and, accordingly, no software development costs have been capitalized to date.

Advertising

Advertising costs, which are included in selling, general and administrative expense, are expensed as incurred and are not material to the consolidated financial statements.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Concentration of Credit Risk and Fair Value of Financial Instruments

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable and accounts payable. The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities reflected in the financial statements approximates fair value due to the short-term maturity of these instruments; the short term debt and the long-term debt’s carrying value approximates its fair value due to the variable market interest rate of the debt.

The Company does not generally require collateral or other security for accounts receivable. However, credit risk is mitigated by the Company’s ongoing evaluations of customer creditworthiness. The Company maintains an allowance for doubtful accounts receivable balances.

The Company maintains its cash and cash equivalents in the United States with three financial institutions. These balances routinely exceed the Federal Deposit Insurance Corporation insurable limit. Cash and cash equivalents of $622,845 held in foreign countries as of March 31, 2015 were not insured.

Net Income (Loss) per Common Share

Basic net income (loss) per share for each class of participating common stock, excluding any dilutive effects of stock options, warrants and unvested restricted stock, is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted income (loss) per share is computed similar to basic; however diluted income (loss) per share reflects the assumed conversion of all potentially dilutive securities. Due to the reported net loss for all periods presented, all stock options, warrants, or other equity instruments outstanding at March 31, 2015 and December 31, 2014 were anti-dilutive.

Foreign Currency Translation

The functional currency of the Company’s United Kingdom subsidiary is the British pound sterling. All assets and all liabilities of the subsidiary are translated to U.S. dollars at quarter-end exchange rates. Income and expense items are translated to U.S. dollars at the weighted-average rate of exchange prevailing during the year. Resultant translation adjustments are recorded in accumulated other comprehensive income (loss), a separate component of stockholders’ equity.

The Company includes currency gains and losses on temporary intercompany advances in the determination of net loss. Currency gains and losses are included in interest and other expenses in the consolidated statements of comprehensive loss.

Business Segments

Operating segments are defined as components of an enterprise about which separate financial information is available and evaluated regularly by the Company’s chief operating decision maker (the Company’s Chief Executive Officer (“CEO”)) in assessing performance and deciding how to allocate resources. The Company’s business is comprised of two operating segments, enterprise solutions and media advertising. The CEO reviews financial data that encompasses the Company’s enterprise solutions and media advertising revenues, cost of revenues, and gross profit. Since the Company operates as a single entity globally, it does not allocate operating expenses to each segment for purposes of calculating operating income, EBITDA, or other financial measurements for use in making operating decisions and assessing financial performance. The CEO manages the business based primarily on broad functional categories of sales, marketing and technology development and strategy.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with FASB ASC No. 718-10 - “Compensation – Stock Compensation”. Stock-based compensation expense recognized during the period is based on the value of the portion of share-based awards that are ultimately expected to vest during the period. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The fair value of restricted stock is determined based on the number of share granted and the closing price of the Company's common stock on the date of grant. Compensation expense for all share-based payment awards is recognized using the straight-line amortization method over the vesting period.

Recent Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued guidance creating Accounting Standards Codification (“ASC”) Section 606, “Revenue from Contracts with Customers”. The new section will replace Section 605, “Revenue Recognition” and creates modifications to various other revenue accounting standards for specialized transactions and industries. The section is intended to conform revenue accounting principles with a concurrently issued International Financial Reporting Standards with previously differing treatment between United States practice and those of much of the rest of the world, as well as, to enhance disclosures related to disaggregated revenue information. The updated guidance is effective for annual reporting periods beginning on or after December 15, 2016, and interim periods within those annual periods. The Company will adopt the new provisions of this accounting standard at the beginning of fiscal year 2017, given that early adoption is not an option. The Company will further study the implications of this statement in order to evaluate the expected impact on the consolidated financial statements.

Reclassifications

Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations.

2. Notes Payable

Outstanding notes payable of $14,999,999 was converted to Series A Preferred Stock, as described in Note 6 below.

3. Sale of Accounts Receivable

In September 2014, the Company entered into an agreement with a third party (the “Purchaser”) under which the Company will, from time to time, sell specific accounts related to the Airline Media Network receivable to the Purchaser. The Purchaser has agreed to advance to the Company 85% of the total value of the purchased accounts, up to a maximum of $3,000,000. The Company will receive the remaining 15% of the total value of the purchased accounts upon the collection of the full amount of the purchased accounts. All customer payments of the purchased accounts are made to a lock-box controlled by the Purchaser. The Company pays interest to the Purchaser on the total amount of cash advances that have not been repaid at the rate of prime plus 1%; however, the interest rate can never be less than 4.25%. In addition, the Company pays the Purchaser a service charge of 2% on each cash advance.

The purchased accounts are sold by the Company to the Purchaser with full recourse and, in the event the purchased accounts are not fully repaid, the Company is liable for the unpaid portion of the purchased accounts. At March 31, 2015 the amount of unpaid purchased accounts was $788,631. The Company has collateralized the agreement by granting the Purchaser a security interest in the total receivables of its Media business segment and is included as a credit to accounts receivable on the balance sheet.

4. Income Taxes

The Company is reporting a significant book loss for the three months ended March 31, 2015. The Company reported a full valuation allowance against its net deferred income assets at the 2014 year-end. All evidence and information available suggests that the Company will maintain the full valuation allowance in 2015. Therefore, no income tax benefit was recorded on the Q1 2015 U.S. pre-tax book loss.

5. Discontinued Operations

Due to ongoing losses, the Company decided to exit the Airline Media network segment. This strategic shift will allow the Company to focus on its core Enterprise digital signage business and to improve the Company’s overall margins and profitability. The Company anticipates that it will exit these operations imminently and that it will have limited involvement with the operations post disposal. Therefore, under applicable accounting standards, the Company has classified its Airline Media network operations, as discontinued operations for financial reporting purposes in all periods presented.

The following table shows the results of operations of the Company’s discontinued operations:


	March 31		March 31
	2015		2014
	(Unaudited)		(Unaudited)
Sales	$	1,482,631	$	2,802,418
Cost of Sales		(2,041,289)		(2,338,515)
Operating Expenses		(1,320,995)		(3,104,958)
Operating Loss		(1,879,653)		(2,641,055)
Other expenses, net		92,210		9,696
Net Loss from discontinued operations	$	(1,971,863)	$	(2,650,751)

The following table shows the assets and liabilities of the Company’s discontinued operations at March 31, 2015 and December 31, 2014:


	March 31		December 31,
	2015		2014
	(Unaudited)
Accounts receivable	$	690,094	$	2,687,858
Prepaid assets		174,606		122,999
Current assets of discontinued operations		864,700		2,810,857
Property, plant & equipment		384,994		455,582
Other assets		62,255		72,531
Other assets of discontinued operations		447,249		528,113
Total Assets		1,311,949		3,338,970

Accounts payable		469,573		348,660
Accrued revenue share & agency fees		4,472,231		3,861,967
Accrued liabilities		573,163		926,604
Deferred revenue		-		8,333
Current liabilities of discontinued operations		5,514,967		5,145,564
Other long-term liabilities		310,983		341,644
Total liabilities	$	5,825,950	$	5,487,208

6. Preferred Stock

The Company is authorized to issue 1,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors.

On March 26, 2015, the Company issued and sold an aggregate of 249,999.99 shares of newly-designated Series A convertible preferred stock (the “Series A Preferred Stock”) to certain accredited investors (collectively, the “Investors”), including certain of the Company’s executive officers and directors (or affiliated entities), at a price per share of $100.00, pursuant to a Purchase Agreement dated March 25, 2015 (the “Financing”). As part of the Financing, $15 million of the shares of Series A Preferred Stock were issued and sold to White Knight Capital Management LLC and Children’s Trust C/U the Donald R. Wilson 2009 GRAT #1 (together, the “Lenders”), which entities were the lenders under the Credit Agreement, dated April 19, 2013 (as subsequently amended, the “Senior Credit Agreement”), to which the Company and certain of its subsidiaries were party, in consideration for the satisfaction and discharge of all principal amounts owed to the Lenders under the Senior Credit Agreement on a dollar-for-dollar basis. In addition, simultaneously with the closing of the Financing the Company paid all accrued interest and any other amounts due from the Company to the Lenders under the Senior Credit Agreement. As a result, all amounts due under the Senior Credit Agreement were paid in full and the Senior Credit Agreement was terminated.

The shares of Series A Preferred Stock have the rights and preferences set forth in the Certificate of Designation of Series A Convertible Preferred Stock filed by the Company on March 25, 2015 (the “Certificate of Designation”). Pursuant to the Certificate of Designation, each share of Series A Preferred Stock shall automatically convert into 100 shares of the Company’s common stock on such date on which the stockholders of the Company approve a proposal (the “Proposal”) to permit the issuance of shares of common stock upon the conversion of the Series A Preferred Stock (the “Stockholder Approval”). The conversion price will be subject to adjustment in the event of the issuance by the Company of other securities at a price per share of less than the conversion price of the Series A Preferred Stock, or to reflect stock dividends, stock splits and other recapitalizations affecting the Common Stock. Prior to the Stockholder Approval, the shares of Series A Preferred Stock shall not be convertible. If the Stockholder Approval has not been obtained, and the outstanding shares of Series A Preferred Stock have not converted into shares of Common Stock, by the 60^th day following the Closing (or by the 75^th day following the Closing if the Securities and Exchange Commission (the “SEC”) comments on the preliminary proxy materials filed by the Company in connection with seeking the Stockholder Approval, which it did), then commencing on the next business day holders of the Series A Preferred Stock will be entitled to cumulative quarterly dividends at a rate of 12% per annum calculated from the original issuance date, calculated based on a price of $100 per share (the “Stated Value”), in preference and priority to the holders of all other classes or series of the Company’s capital stock. Upon the Company’s liquidation prior to the conversion of the Series A Preferred Stock, each share of Series A Preferred Stock would participate on a pari passu basis with the holder of Common Stock (on an as-converted basis) in the net assets of the Company. Holders of Series A Preferred Stock will be entitled to vote with the holders of the Common Stock on an as-converted basis, except that the Series A Preferred Stock shall have no voting rights with respect to the Proposal. In addition, prior to the conversion of the Series A Preferred Stock the consent of the holders of at least 66% of the Series A Preferred Stock then outstanding, voting together as a class, will be required for the Company to take certain actions, including authorizing an increased number of shares of Series A Preferred Stock or any class or series of capital stock ranking senior to or on parity

with the Series A Preferred Stock, adopting a plan for liquidation, entering into a Change of Control Transaction (as such term is defined in the Certificate of Designation), entering into certain transactions with affiliates, or incurring indebtedness for borrowed money in excess of $500,000 in the aggregate (other than indebtedness incurred under the Company’s existing factoring facility). From and after the first anniversary of the Closing, the Required Holders (as defined below) will have the right to elect to cause the Company to redeem, out of funds legally available therefore, all but not less than all of the then outstanding shares of Series A Preferred Stock, for a price per share equal to the Stated Value for such share, plus the amount of any accrued and unpaid dividends thereon. As used in the Certificate of Designation, the term “Required Holders” means each holder who, together with its affiliates, purchases at least $2.5 million of Series A Preferred Stock pursuant to the Purchase Agreement and the holders of at least a majority of the shares of Series A Preferred Stock then outstanding.

Pursuant to the terms of the Purchase Agreement, the Company agreed to take all action necessary to call (1) a meeting of its stockholders (the “Stockholder Meeting”) to seek the Stockholder Approval, by no later than the 60^th day after the Closing (or the 75^th day after the Closing if the SEC comments on the preliminary proxy materials filed by the Company in connection with seeking the Stockholder Approval, which it did), and (2) if the Stockholder Approval is not obtained at the Stockholder Meeting, up to three additional meetings of stockholders to seek the Stockholder Approval. The Company also agreed that, subject to their fiduciary duties under applicable law, the non-interested members of the Board will recommend to the Company’s stockholders that they vote in favor of the Proposal, and take all commercially reasonable action to solicit the approval of the stockholders for the Proposal. The Company also agreed, in addition to other covenants contained in the Purchase Agreement, not to issue any other shares of Common Stock or securities convertible into or exchangeable for shares of Common Stock, subject to certain exceptions, for a period of 90 days following the effective date (the “Effective Date”) of the first registration statement filed pursuant to the Registration Rights Agreement (as defined below).

In connection with the Financing, on March 25, 2015 the Company entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with the Investors pursuant to which the Company has agreed to prepare and file with the SEC within 30 days following the closing of the Financing a registration statement covering the resale of the shares of Common Stock issuable upon conversion of the Series A Preferred Stock (the “Registrable Securities”), and to use commercially reasonable efforts to cause such registration statement to be declared effective under the Securities Act of 1933, as amended (the “Securities Act”), as soon as practicable. If (1) the registration statement is not filed within 30 days after the closing, (2) the registration statement is not declared effective by the earlier of (A) five business days after the SEC shall have informed the Company that it will not review the registration statement or that it has no further comments on the registration statement or (B) within 90 days after the closing, (3) the registration statement ceases for any reason to be effective at any time before the Registrable Securities have not been resold for more than 20 consecutive days or a total of 45 days in any 12 month period, or (4) the Company fails to keep public information available or to otherwise comply with certain obligations such that the Investors are unable to resell the Registrable Securities pursuant to the provisions of Rule 144 promulgated under the Securities Act, then the Company shall be obligated to pay to each Investor an amount in cash, as liquidated damages and not as a penalty, equal to 1.5% of the purchase price paid by such Investor for the Shares purchased under the Purchase Agreement per month until the applicable event giving rise to such payments is cured. The Company is obligated to file additional registration statements under certain circumstances, including if the Company is not able to include all of the Registrable Securities in the initial registration statement pursuant to the provisions of Rule 415 promulgated under the Securities Act, and to pay liquidated damages, equivalent to those applicable to the initial registration statement, if certain conditions applicable to any such additional registration statement are not satisfied. The registration statement was filed on May 8, 2015 and shareholders approved issuance of common stock upon conversion of preferred shares on May 13, 2015.

In connection with the Financing, each of Gregory H. Sachs, 2012 DOOH Investments, LLC, DRW Commodities, LLC and PAR Investment Partners, L.P., which collectively (together with certain affiliated entities) beneficially own, in the aggregate, approximately 45% of our outstanding common stock, entered into a support agreement pursuant to which each agreed to vote in favor of the Proposal.

The Company recorded its Convertible Preferred Stock at fair value on the dates of issuance, net of issuance costs. A redemption event would have been made possible upon reaching a one year anniversary of the closing of the Preferred Stock agreement. At that date, the Preferred Stock would have become redeemable at the option of the holder. As the redemption event was outside the control of the Company, all shares of Convertible Preferred Stock have been presented outside of permanent equity as of March 31, 2015. The current carrying value of the Preferred Stock is equal to the redemption amount. In connection with the recent conversion of the Preferred Stock to common stock on May 13, 2015, the redemption feature has been eliminated and the Preferred Stock will be reclassified to permanent equity on this date. As a result of the Preferred Stock automatically converting to common stock, the Company may need to record a deemed dividend on that date associated with the conversion feature, if it is determined to be beneficial. The deemed dividend would equal the difference between the fair value of the common stock on the date of the Preferred Stock agreement and the $1.00 per share conversion price. There was no accounting for a beneficial conversion feature as of March 31, 2015, as the conversion feature was contingent upon a future event.

7. Geographic Information

Revenue by geographic area are based on the deployment site location of end-user customers. Substantially all of the revenue from North America are generated from the United States of America. Geographic area information related to revenue from customers is as follows:


Region	Three Months Ended			Three Months Ended
	March 31, 2015			March 31, 2014
North America	$	6,257,717	67.2%	$	5,783,014	64.5%
International-
Europe		2,305,655	24.8%		2,199,166	24.5%
Rest of World		747,142	8.0%		990,531	11.0%
Total International		3,052,797	32.8%		3,189,697	35.5%
Total	$	9,310,514	100.0%	$	8,972,711	100.0%

The vast majority of the Company's long-lived assets are located in the United States.

8. Equity Incentive Plan

There were no new equity awards granted during the three months ended March 31, 2015. The cost associated with stock options during the three months ended March 31, 2015 and 2014 was $411,964 and the unamortized cost of the options at March 31, 2015 was $1,479,477 to be recognized over a weighted-average life of 2.2 years. At March 31, 2015, and December 31, 2014, 622,292 and 565,000 shares of the options were exercisable. In addition, there was no intrinsic value associated with the options as of March 31, 2015. The weighted-average remaining contractual life of the options outstanding is 8.4 years.

9. Loss on Long-Term Contract

During the first quarter, in connection with the Company’s strategic shift and additional historical revenue results, the Company reviewed future revenue projections that were offsetting the accrued loss and now estimates that the loss on the long-term contract will be more than previously recorded. Consequently, the Company has recorded an additional loss on long-term contract of $1,035,993 during the three months ended March 31, 2015.

10. Segment Reporting

The Company sells enterprise-class digital signage solutions to customers worldwide and provides advertising services through digital place-based networks. The Company had two separate reporting business segments – Enterprise and Media - for the following reasons:

The segments had different business models. The Enterprise segment sells intelligent visual solutions that consist of its proprietary software and hardware products and third-party displays. The Enterprise segment also provides installation services and maintenance and support services to corporate customers. The Media segment sells advertising to major corporate advertisers and the advertising is placed on screens owned by business partners. In return for the use of their screens, the business partners share in the advertising revenue.

The Enterprise segment realizes a higher gross margin on revenues than the Media segment.

Each segment has a different head of operations that manages the segment. Each segment head uses discrete financial information about his individual segment and regularly reviews the operating results of that component.

The Airline Media network is held for sale and classified as discontinued operations on the financial statements.

Since the Company operates as a highly integrated entity which is characterized by substantial inter-segment cooperation and sharing of personnel and assets, it limits its segment reporting to revenues, cost of revenues, and gross profit by segment.

An analysis of the two reporting business segments follows:


	Three Months Ended				Three Months Ended
	March 31, 2015				March 31, 2014
	Media		Enterprise		Media		Enterprise
Revenues	$	1,482,631	$	9,310,514	$	2,546,091	$	9,229,038
Cost of Revenues		2,041,289		4,956,910		2,335,743		4,279,899
Gross Profit	$	(558,658)	$	4,353,604	$	210,348	$	4,949,139
Gross Profit %		(37.7%)		46.8%		8.3%		53.6%

11. Subsequent Event

On March 19, 2015, the Company announced that it had entered into a non-binding letter of intent (the “LOI”) to sell the RMG Airline Network to an unaffiliated third party. Since that announcement, the exclusivity period of the LOI has expired and the Company has elected not to renew it. The Company continues to work through due diligence with the potential buyer contemplated under the letter of intent as well as additional unrelated third-parties in order to progress towards a definitive agreement. In the meantime, the Company continues to evaluate its strategic alternatives for the business. There can be no assurances that this sale will occur on terms favorable to the Company, or at all.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this report and in our annual report on Form 10-K for the year ended December 31, 2014. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in "Risk Factors" in Item 1A of Part II.

Overview

The Company was formed on January 5, 2011 for the purpose of acquiring, through a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, exchangeable share transaction or other similar business transaction, one or more operating businesses or assets. The Company consummated the acquisition of Reach Media Group Holdings, Inc. (“RMG”) on April 8, 2013 and on April 19, 2013 acquired Symon Holdings Corporation (“Symon”). Symon is considered to be the Company's predecessor corporation for accounting purposes.

As a result of its two acquisitions, the Company is a global provider of enterprise-class digital signage solutions and media applications. Through an extensive suite of products, including media services, proprietary software, software-embedded hardware, maintenance and creative content service, installation services, and third-party displays, the Company delivers complete end-to-end intelligent visual communication solutions to its clients. The Company is one of the largest integrated digital signage solution providers globally and conducts operations through its RMG Media Networks and its RMG Enterprise Solutions business units.

The RMG Enterprise Solutions business unit provides end-to-end digital signage applications to power intelligent visual communication implementations for critical contact center, supply chain, employee communications, hospitality, retail and other applications with a large concentration of customers in the financial services, telecommunications, manufacturing, healthcare, pharmaceutical, utility and transportation industries, and in federal, state and local governments. These solutions are relied upon by approximately 70% of the North American Fortune 100 companies and thousands of overall customers in locations worldwide. The installations of Enterprise Solutions deliver real-time intelligent visual content that enhance the ways in which organizations communicate with employees and customers. The solutions are designed to integrate seamlessly with a customer’s IT infrastructure and data and security environments.

The RMG Media Networks business unit engages elusive audience segments with relevant content and advertising delivered through digital place-based networks. These networks include the RMG Airline Media Network. The RMG Airline Media Network is a U.S.-based network focused on selling advertising across airline digital media assets in executive clubs, on in-flight entertainment, or IFE, systems, on in-flight Wi-Fi portals and in private airport terminals. The network, which spans almost all major commercial passenger airlines in the United States, delivers advertising to an audience of affluent travelers and business decision makers in a captive and distraction-free video environment. On March 19, 2015, it announced that it had entered into a non-binding letter of intent to sell the RMG Airline Media Network to an unaffiliated third party. As of the date of this report, that letter of intent has expired, and it has not reached an agreement with the potential purchaser regarding the terms of a sale of the RMG Airline Media Network. There can be no assurance that the sale of the RMG Airline Media Network will occur, or if it does occur that the purchase price or other material terms will be as initially contemplated by the non-binding letter of intent. If a definitive agreement is not reached or a sale is otherwise not consummated, it intends to consider all available options with respect to the RMG Airline Network, which may include continuing to operate the business as part of the Company, or a liquidation of its assets.

Revenue

The Company derives its revenue as follows:

●

Product sales:

●

Licenses to use its proprietary software products;

●

Proprietary software-embedded media players;

●

Proprietary LED displays; and

●

Third-party flat screen displays and other third-party hardware.

●

Customer support services:

●

Product maintenance services; and

●

Subscription-based and custom creative content services.

●

Professional installation and training services

●

Advertising

Revenue is recognized as outlined in “Critical Accounting Policies - Revenue Recognition” below.

RMG Enterprise Solutions Revenues

The Company sells its Enterprise products and services through its global sales force and through a select group of resellers and business partners. In the United States, approximately 94% of its enterprise sales are generated solely by the Company’s sales team, with approximately 6% through resellers in 2014. In the United Kingdom, Western Europe, the Middle East and India, the situation is reversed, with around 74% of sales coming from the reseller channel. Overall, approximately 76% of the Company’s global enterprise revenues are derived from direct sales, with the remaining 24% generated through indirect partner channels.

The Company has formal contracts with its resellers that set the terms and conditions under which the parties conduct business. The resellers purchase products and services from the Company, generally with agreed-upon discounts, and resell the products and services to their customers, who are the end-users of the products and services. The Company does not offer contractual rights of return other than under standard product warranties, and product returns from resellers have been insignificant to date. The Company sells directly to its resellers and recognizes revenue on sales to resellers upon delivery, consistent with its recognition policies. The Company bills resellers directly for the products and services they purchase. Software licenses and product warranties pass directly from the Company to the end-users.

RMG Media Networks Revenues

The Company sells advertising through agencies and directly to a variety of customers under contracts ranging from one month to one year. Contracts usually specify the network placement, the expected number of impressions (determined by passenger or visitor counts), and the cost per thousand impressions (“CPM”) over the contract period to arrive at a contract amount. The Company bills for these advertising services as required by the customer, but most frequently on a monthly basis following the delivery of the contracted ad insertions. Revenue is recognized at the end of the month in which fulfillment of the advertising orders occurred.

Cost of Revenue

RMG Enterprise Solutions Cost of Revenue

The cost of revenue associated with RMG Enterprise Solutions product sales consist primarily of the costs of media players, the costs of third-party flat screen displays and the operating costs of the Company’s assembly and distribution center. The cost of revenue of professional services is the salary and related benefit costs of the Company’s employees and the travel costs of personnel providing installation and training services. The cost of revenue of maintenance and content services consists of the salary and related benefit costs of personnel engaged in providing maintenance and content services and the annual costs associated with acquiring data from third-party content providers.

RMG Media Networks Cost of Revenue

The cost of revenue associated with RMG Media Networks revenues consists primarily of revenue sharing with the Company’s airline and other business partners. Revenue sharing payments to airlines and other business partners are made on a monthly basis under either under minimum annual guarantees, or as a percentage of advertising revenues following collection from customers. The portion of revenue shared with partners ranges from 25% to 80% depending on the partner and the media asset. The Company makes minimum

annual payments to three partners and revenue sharing payments to all other partners. The Company’s partnership agreements have terms generally ranging from one to five years. Four of the Company’s partnership agreements renew automatically unless terminated prior to renewal, and the remaining agreements have no obligation to renew.

Operating Expenses

The Company’s operating expenses are comprised of the following components:

Sales and marketing expenses include salaries and related benefit costs of sales personnel, sales commissions, travel by sales and sales support personnel, and marketing and advertising costs.

Research and development (“R&D”) costs consist of salaries and related benefit costs of R&D personnel and expenditures to outside third-party contractors. To date, all R&D expenses are expensed as incurred.

General and administrative expenses consist primarily of salaries and related benefit costs of executives, accounting, finance, administrative, and IT personnel. Also included in this category are other corporate expenses such as rent, utilities, insurance, professional service fees, office expenses, travel by general and administrative personnel and meeting expenses.

Depreciation and amortization costs include depreciation of the Company’s office furniture, fixtures and equipment and amortization of intangible assets.

Results of Operations

Comparison of the three months ended March 31, 2015 to the three months ended March 31, 2014

The following financial statements present the results of operations of the Company for the three months ended March 31, 2015 and 2014.


	Three Months		Three Months		Change
	Ended		Ended
	March 31,		March 31,
	2015		2014		Dollars		%
Revenue	$	9,310,514	$	8,972,711	$	337,803		3.8%
Cost Of Revenue		4,956,910		4,277,127		679,783		15.9%
Gross Profit		4,353,604		4,695,584		(341,980)		(7.3%)
Operating Expenses -
Sales and marketing		2,685,118		3,558,341		(873,223)		24.5%
General and administrative		4,065,424		4,937,163		(871,739)		17.7%
Research and development		681,396		844,702		(163,306)		19.3%
Depreciation and amortization		912,578		1,205,843		(293,265)		24.3%
Total Operating Expenses		8,344,516		10,546,049		(2,201,533)		20.9%
Operating Income (Loss)		(3,990,912)		(5,850,465)		1,859,553		31.8%
Warrant liability income (expense)		289,462		(4,641,471)		4,930,933		(106.2%)
Interest expense and other - net		(1,244,447)		(239,043)		(1,005,404)		(420.6%)
Loss before income taxes and discontinued operations		(4,945,897)		(10,730,979)		5,785,082		53.9%
Income Tax Expense (Benefit)		(16,546)		(950,079)		933,533		98.3%
Net loss before discontinued operations		(4,929,351)		(9,780,900)		4,851,549		49.6%
Loss from discontinued operations		(1,971,863)		(2,650,751)		678,888		25.6%
Net Loss	$	(6,901,214)	$	(12,431,651)	$	5,530,437		44.5%

Revenue

Revenue was $9,310,514 and $8,972,711 for the three months ended March 31, 2015 and 2014, respectively. This represents a $337,803, or 3.8%, increase. The higher revenues were the result of higher demand for the Company’s products and services offset by lower maintenance and content service revenue.

During the three months ended March 31, 2015 and 2014, the Company’s revenue was derived as follows.


		Three			Three
		Months			Months
		Ended			Ended
		March 31,			March 31,			Change
		2015	%		2014	%		Dollars	%
Revenue -
Products		3,082,317	33.1%		2,206,420	24.6%		875,897	39.7%
Maintenance and content services		3,626,375	38.9%		4,302,725	48.0%		(676,350)	(15.7%)
Professional services		2,601,822	27.9%		2,463,566	27.5%		138,256	5.6%
Total	$	9,310,514	100.0%	$	8,972,711	100.0%	$	337,803	3.8%

Maintenance revenue declined due to planned end-of-life announcements, partially offset by new product sales.

The following table reflects the Company’s revenue on a geographic basis for the three months ended March 31, 2015 and 2014.


Region	Three Months		Three Months
	Ended March 31,		Ended March 31,
	2015		2014
North America	$	6,257,717	$	5,783,014
International
Europe		2,305,655		2,199,166
Rest of World		747,142		990,531
International		3,052,797		3,189,697
Total	$	9,310,514	$	8,972,711

The higher level of revenue for North America for the three months ended March 31, 2015 was due primarily to growth in product sales.

Cost of Revenue

Cost of revenue totaled $4,956,910 and $4,277,127 for the three months ended March 31, 2015 and 2014, respectively. This $679,783, or 15.9%, increase in cost of revenue is primarily attributable to a $1,035,993 adjustment to the loss on a long-term contract.

The Company’s overall gross margin for the three months ended March 31, 2015 decreased to 46.8% from 52.3% for the three months ended March 31, 2014. The lower gross margin was primarily attributable to the loss on long-term contract. Without loss on long-term contract, gross margin improved to 57.9% based on improved product margins.

Operating Expenses

Operating expenses totaled $8,344,516 and $10,546,049 for the three months ended March 31, 2015 and 2014, respectively. This $2,201,533, or 20.9% decrease in operating expenses is due primarily to the following items:

Stock based compensation was $617,724 lower for the three months ended March 31, 2015 as compared to the three months ended March 31, 2014

Total operating expenses, net of depreciation and amortization, were lower by $1,908,268 in the three months ended March 31, 2015 due to a fifteen percent employee headcount reduction and reduced marketing spend.

Warrant Liability Expense

The Company calculates its warrant liability based on the quoted market value of its outstanding warrants. The warrant liability income credit for the three months ended March 31, 2015 and expense for the three months ended March 31, 2014 was $289,462 and $4,641,471, respectively.

Interest and other – Net

Interest expense and other - net for the three months ended March 31, 2015 and the three months ended March 31, 2014 was $1,244,447 and $239,043. This increase of $1,005,404 was due to the write-off of $743,082 in loan origination fees on March 26, 2015 at which time our outstanding debt was converted into Series A Preferred Shares. See Note 6.

Income Tax Benefit

The income tax benefit for the three months ended March 31, 2015 and the three months ended March 31, 2014 was $16,546 and $950,079, respectively. The Company had a book net loss in both periods with a full valuation allowance in 2015.

Liquidity and Capital Resources

The Company’s primary source of liquidity prior to acquiring RMG and Symon had been the cash generated from its initial public offering. Historically, Symon has generated cash from the sales of its products and services to its global customers. In addition, both RMG and Symon had realized cash through debt agreements with lenders.

The Company’s Airline Media network has entered into a revenue sharing agreement with a customer that requires the Company to make minimum revenue sharing payments of $4,619,842 in 2015.

During 2014, the Company renegotiated a revenue sharing agreement with a business partner. The parties agreed, among other things, to eliminate the Company’s remaining minimum revenue sharing commitment of $11,500,000 if certain terms and conditions are met in the future, resulting in a minimum commitment remaining of $1,563,008 at March 31, 2015.

On March 26, 2015, the Company issued and sold an aggregate of 250,000 shares of newly-designated Series A convertible preferred stock at a price per share of $100.00, discharging all principal amounts owed to the Lenders under the Senior Credit Agreement on a dollar-for-dollar basis. In addition, simultaneously with the closing of the Financing the Company paid all accrued interest and any other amounts due from the Company to the Lenders under the Senior Credit Agreement. As a result, all amounts due under the Senior Credit Agreement were paid in full and the Senior Credit Agreement was terminated.

As a result of the consummation of the Financing and the payment in full and termination of the Senior Credit Agreement, the Company’s management believes that the Company has an adequate amount of cash to operate the Company through at least the next twelve months. Despite our present liquidity position, however, if we fail to achieve the level of revenues that we forecast, including as a result of an extended downturn or lower than expected demand for our products and services, we could generate less cash flow than we have budgeted. Under those circumstances, or if our expenses are greater than we forecast, our cash on hand and funds from operations may not be sufficient to fund our operations or pursue strategic transactions, and we may be required to seek alternative sources of financing. There is no assurance, however, that we will be able to obtain financing on acceptable terms, or at all.

The Company has generated and used cash as follows:


	Three Months		Three Months
	Ended		Ended
	March 31,		March 31,
	2015		2014
Operating cash flow	$	(2,335,828)	$	(2,314,321)
Investing cash flow		(204,066)		(1,164,125)
Financing cash flow		10,627,301		-
Total		8,087,407		(3,478,446)

Activities

The decrease in cash from operating activities of $2,335,828 for the three months ended March 31, 2015 is primarily due to the company’s net loss of $6,901,214. The net loss is offset by the following non-cash items:

Non-cash loss on long-term contract of $1,035,993

Non-cash charge for depreciation and amortization of $983,167

Non-cash amortization of loan origination fees of $743,082

Non-cash stock-based compensation of $411,964

Non-cash income credit related to the decrease in the Company’s warrant liability of $289,462

In addition, the following are the principal changes in assets and liabilities affected cash from operating activities during the period:

Accounts receivable decreased by $3,000,395 due to higher collection in the first quarter compared to year-end 2014

Accounts payable decreased by $1,247,450 due primarily to payment of obligations from the fourth quarter 2014 and lower operating expenses

Investing Activities

The decrease in cash from investing activities of the Company of $204,066 during the three months ended March 31, 2015 was solely due to reduced expenditures for property and equipment.

Financing Activities

The increase in cash due to financing activities during the three months ended March 31, 2015 was due to proceeds received at the end of March from investors in Series A convertible preferred shares. See Note 6

Critical Accounting Policies

The Company's significant accounting policies are described in Note 1 of the Company’s consolidated financial statements included elsewhere in this filing. The Company’s financial statements are prepared in conformity with accounting principles generally accepted in the United States. Certain accounting policies involve significant judgments, assumptions, and estimates by management that could have a material impact on the carrying value of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As a smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are not required to provide the information required by this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information required to be disclosed is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There were no changes in our internal controls over financial reporting during the quarter ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

Item 1. Legal Proceedings

From time to time, we have been and may become involved in legal proceedings arising in the ordinary course of its business. Although the results of litigation and claims cannot be predicted with certainty, except as described below we are not presently involved in any legal proceeding in which the outcome, if determined adversely to us, would be expected to have a material adverse effect on our business, operating results, or financial condition. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

On March 5, 2015, T-Rex Property AB (“T-Rex”), filed a complaint against us in the United States District Court for the North District of Texas, Civil Action Number 3:15-cv-00738-P. T-Rex alleges that we are infringing on three United States patents. T-Rex is seeking unspecified monetary relief, injunctive relief for the payment of royalties and reimbursement for attorneys’ fees. We deny the allegations set forth in the complaint and intend to vigorously defend ourselves in the proceedings.

Item 1A. Risk Factors

Ownership of our securities involves a high degree of risk. Holders of our securities should carefully consider the following risk factors and the other information contained in this Form 10-Q, including our historical financial statements and related notes included herein. The following discussion highlights some of the risks that may affect future operating results. Additional risks and uncertainties not presently known to us, which we currently deem immaterial or which are similar to those faced by other companies in our industry or businesses in general, may also impair our businesses operations. If any of the following risks or uncertainties actually occur, our business, financial condition and operating results could be adversely affected in a material way. This could cause the trading prices of our securities to decline, perhaps significantly, and you may lose part or all of your investment.

Risks Related to Our Business

We have a history of incurring significant net losses, and our future profitability is not assured.

For the year ended December 31, 2014 and the period from April 20, 2013 (the date we consummated our acquisition of Symon) through December 31, 2013, we incurred net losses of approximately $72.5 million and $13.0 million, respectively. Our operating results for future periods are subject to numerous uncertainties and there can be no assurances that we will be profitable in the foreseeable future, if at all. If our revenues decrease in a given period, we may be unable to reduce cost of revenues as a significant part of our cost of revenues are fixed, which could materially and adversely affect our business and, therefore, our results of operations and lead to a net loss (or a larger net loss) for that period and subsequent periods.

We may require significant amounts of additional financing to execute our business plan and fund our other liquidity needs. If we do not raise sufficient funds, and/or if our future operating results do not meet or exceed our projections, we may be unable to continue operations and could be forced to substantially curtail operations or cease operations all together.

As of March 31, 2015, we had approximately $11.1 million in cash and cash equivalents and no outstanding indebtedness. While we currently believe that we have an adequate amount of cash to operate the Company through at least December 31, 2015, if we fail to achieve the level of revenues that we forecast, including as a result of an extended downturn or lower than expected demand for our products and services, we could generate less cash flow than we have budgeted. Under those circumstances, or if our expenses are greater than we forecast, our cash on hand and funds from operations may not be sufficient to fund our operations or pursue strategic transactions, and we may be required to seek alternative sources of financing. If that were to occur, we cannot assure you that we will be able to raise additional equity capital or obtain additional financing on commercially reasonable terms or at all.

The markets for digital signage are competitive and we may be unable to compete successfully.

The markets for digital signage are very competitive and we must compete with other established providers. We compete with larger companies in many of the markets we serve.

We expect existing competitors and new entrants into the markets where we do business to constantly revise and improve their business models in light of challenges from us or other companies in the industry. If we cannot respond effectively to advances by our competitors, our business and financial performance may be adversely affected.

Increased competition may result in new products and services that fundamentally change our markets, reduce prices, reduce margins or decrease our market share. We may be unable to compete successfully against current or future competitors, some of whom may have significantly greater financial, technical, manufacturing, marketing, sales and other resources than we do.

Our operations are subject to the strength or weakness of our customers’ businesses, and we may not be able to mitigate that risk.

A large percentage of our business is attributable to customers in industries which are sensitive to general economic conditions. During periods of economic slowdown or during periods of weak business results, our customers often reduce their capital and advertising expenditures and defer or cancel pending projects, facilities upgrades or promotional activities. Such developments occur even among customers that are not experiencing financial difficulties.

For example, in 2008, a very large U.S.- based mortgage company, which was at the time one of our largest Enterprise Solutions customers, did not buy any of our products as a result of the economic downturn. Similar slowdowns could affect our customers in the hospitality industry in the wake of terrorist attacks, economic downturns or material changes in corporate travel habits. In addition, expenditures by advertisers tend to be cyclical, reflecting economic conditions, budgeting and buying patterns. Periods of a slowing economy or recession, or periods of economic uncertainty, may be accompanied by a decrease in advertising spending.

Continued weakness in the industries we serve has had, and may in the future have, an adverse effect on sales of our products and our results of operations. A long term continued or heightened economic downturn in one or more of the key industries that we serve, or in the worldwide economy, could cause actual results of operations to differ materially from historical and expected results.

Furthermore, even in the absence of a downturn in general economic conditions, our customers may reduce the money they spend on our products and services for a number of other reasons, including:

a decline in economic conditions in an industry we serve;

a decline in advertising or capital spending in general;

a decision to shift expenditures to competing products;

unfavorable local or regional economic conditions; or

a downturn in an individual business sector or market.

Such conditions could have a material and adverse effect on our ability to generate revenue from our products and services, with a corresponding adverse effect on our financial condition and results of operations.

The recent and ongoing global economic uncertainty may adversely impact our business, operating results or financial condition.

As widely reported, financial markets in the U.S., Europe and Asia have experienced extreme disruption since late 2008, and while there has been improvement in recent years, the worldwide economy remains fragile as uncertainty remains regarding when the economy will improve to historical growth levels. Any return to the conditions that existed during the recent recession or other unfavorable changes in economic conditions, including declining consumer confidence, concerns about inflation or deflation, the threat of another recession, increases in the rates of default and bankruptcy and extreme volatility in the credit and equity markets, may lead to decreased demand or delay in payments by our customers or to slowing of their payments to us, and our results of operations and financial condition could be adversely affected by these actions. These challenging economic conditions also may result in:

increased competition for fewer industry dollars;

pricing pressure that may adversely affect revenue and gross margin;

reduced credit availability and/or access to capital markets;

difficulty forecasting, budgeting and planning due to limited visibility into the spending plans of current or prospective customers; or

customer financial difficulty and increased risk of doubtful accounts receivable.

Currency fluctuations may adversely affect our business.

In 2014, approximately 25% of our revenues were generated outside of the United States. Accordingly, we receive a significant portion of our revenues in euros and other foreign currencies. However, for financial reporting purposes, we use the U.S. dollar. To the extent the U.S. dollar strengthens against the euro and other foreign currencies, the translation of foreign currency denominated transactions will result in reduced revenue, operating expenses and net income for us. We have not entered into agreements or purchased instruments to hedge our exchange rate risks, although we may do so in the future. The availability and effectiveness of any hedging transaction may be limited, and we may not be able to successfully hedge our exchange rate risks.

A higher percentage of our sales and profitability occur in the third and fourth quarters.

We sell more of our products in the third and fourth quarters because of traditional technology and advertising buying patterns of our customers. Advertising cycles, corporate year end budgets, government buying and regional economics will affect the amount of our products and services that will fit into customers’ budgets late in the year. Any unanticipated decrease in demand for our products during the third and fourth quarters could have an adverse effect on our annual sales and profitability. In addition, slower selling cycles during the first and second quarters may adversely affect our stock price.

Our quarterly revenues and operating results are difficult to predict and may fluctuate significantly in the future.

Our quarterly revenues and operating results are difficult to predict and may fluctuate significantly from quarter to quarter. These fluctuations may cause the market price of our common stock to decline. We base our planned operating expenses in part on expectations of future revenues, and our expenses are relatively fixed in the short term. If revenues for a particular quarter are lower than we expect, we may be unable to proportionately reduce our operating expenses for that quarter, which would harm our operating results for that quarter. In future periods, our revenue and operating results may be below the expectation of analysts and investors, which may cause the market price of our common stock to decline. Factors that are likely to cause our revenues and operating results to fluctuate include those discussed elsewhere in this section.

Implementation and integration of new products, such as expanding our software, media player and services product portfolios, could harm our results of operations.

A key component of our growth strategy is to develop and market new products. We may be unable to produce new products and services that meet customers’ needs or specifications. If we fail to meet specific product specifications requested by a customer, the customer may have the right to seek an alternate source for a product or service or to terminate an underlying agreement. A failure to successfully meet the specifications of our potential customers could decrease demand or otherwise significantly hinder market adoption of our products and may have a material adverse effect on our business, financial condition or results of operations.

The process of introducing a new product to the market is extremely complex, time consuming and expensive, and will become more complex as new platforms and technologies emerge. In the event we are not successful in developing a wide range of offerings or do not gain wide acceptance in the marketplace, we may not recoup our investment costs, and our business, financial condition and results of operations may be materially adversely affected.

Shortages of components or a loss of, or problems with, a supplier could result in a disruption in the installation or operation of our products or services.

From time to time, we have experienced delays in manufacturing our products for several reasons, including component delivery delays, component shortages and component quality deficiencies. Component shortages, delays in the delivery of components and supplier product quality deficiencies may occur in the future. These delays or problems have in the past and could in the future result in delivery delays, reduced revenues, strained relations with customers and loss of business. Also, in an effort to avoid actual or perceived component shortages, we may purchase more components than we may otherwise require. Excess component inventory resulting from over-purchases, obsolescence, installation cancellations or a decline in the demand for our products could result in equipment impairment, which in the past has had and in the future would have a negative effect on our financial results.

We obtain several of the components used in our products from limited sources. We rarely have guaranteed supply arrangements with our suppliers, and cannot be sure that suppliers will be able to meet our current or future component requirements. If component manufacturers do not allocate a sufficient supply of components to meet our needs or if current suppliers do not provide components of adequate quality or compatibility, we may have to obtain these components at a higher cost from distributors or on the spot market. If we are forced to use alternative suppliers of components, we may have to alter our manufacturing processes or solutions offerings to accommodate these components. Modification of our manufacturing processes or our solutions offerings to use alternative components could cause significant delays and reduce our ability to generate revenues.

The failure of our service providers to provide, install and maintain our equipment could result in service interruptions and damage to our business.

We are and will continue to be significantly dependent upon third-party service providers to provide, install and maintain relevant video display and media player equipment at our installations. The failure of any third-party provider to continue to perform these services adequately and timely could interrupt our business and damage our relationship with our partners and their relationship with consumers. Any outage would also impact our ability to deliver on the contracted service levels, which would prevent us from recognizing revenues.

We rely on third parties for data transmission, and the interruption or unavailability of adequate bandwidth for transmission could prevent us from distributing our programming as planned.

We transmit the majority of the content that we provide to our partners and customers using Internet connectivity supplied by a variety of third-party network providers. We also rely on the networks of some of our partners to transmit content to individual screens. If we or our partners experience failures or limited network capacity, we may be unable to maintain programming and meet our advertising commitments. Problems with data transmission may be due to hardware failures, operating system failures or other causes beyond our control. In addition, there are a limited number of Internet providers with whom we could contract, and we may be unable to replace our current providers on favorable terms, if at all. If the transmission of data to our partners or customers becomes unavailable, limited due to bandwidth constraints or is interrupted or delayed because of necessary equipment changes, our partner and customer relationships and our ability to obtain revenues from current and new partners and customers could suffer.

Our products often operate on the same network used by our customers for other aspects of their businesses, and we may be held responsible for defects or breakdowns in these networks if it is believed that such defects or breakdowns were caused by our products.

Our products are operated across our customers’ proprietary networks, which are used to operate other aspects of these customers’ businesses. In these circumstances, any defect or virus that occurs on our products may enter a customer’s network, which could impact other aspects of the customer’s business. The impact on a customer’s business could be severe, and if we were held responsible, it could have an adverse effect on our customer relationships and on our operating results.

The content we distribute to partners and customers may expose us to liability.

We provide or facilitate the distribution of content for our partners and customers. This content includes advertising-related content, as well as movie and television content and other media, much of which is obtained from third parties. As a distributor of content, we face potential liability for negligence, copyright, patent or trademark infringement, or other claims based on the content that we distribute. We or entities that we license content from may not be adequately insured or indemnified to cover claims of these types or liability that may be imposed on us.

The growth of our business is dependent in part on successfully implementing our international expansion strategy.

Our growth strategy includes expanding our geographic coverage in or into the Asia-Pacific region, Europe and the Middle East. In many cases, we have limited experience in these regions, and may encounter difficulties due to different technology standards, legal considerations, language barriers, distance and cultural differences. We may not be able to manage operations in these regions effectively and efficiently or compete effectively in these new markets. If we do not generate sufficient revenues from these regions to offset the expense of expansion into these regions, or if we do not effectively manage accounts receivable, foreign currency exchange rate fluctuations and taxes, our business and our ability to increase revenues and enhance our operating results could suffer.

If we fail to manage our growth effectively, we may not be able to take advantage of market opportunities or execute on expansion strategies.

We have expanded, and continue to expand, our operations into new markets. The growth in our business and operations has required, and will continue to require, significant attention from management and place a strain on operational systems and resources. To accommodate this growth, we will need to upgrade, improve or implement a variety of operational and financial systems, procedures and controls, including the improvement of accounting and other internal management systems, all of which require substantial management efforts.

We will also need to continue to expand, train, manage and motivate our workforce, manage our relationships with our customers, and add sales and marketing offices and personnel to service these relationships. All of these endeavors will require substantial managerial efforts and skill, and incur additional expenditures. We may not be able to manage our growth effectively and, as a result, may not be able to take advantage of market opportunities, execute on expansion strategies or meet the demands of our customers.

We may not realize the anticipated benefits of future acquisitions or investments.

We acquired our operating subsidiaries in two separate business combinations in April 2013, and our operating subsidiaries, in turn, have grown their businesses in part through acquisitions. For example, AFS Message-Link and Dacon, Ltd. are companies that Symon purchased in 2006 and 2008, respectively. AFS Message-Link allowed Symon to enter the hospitality digital markets as a key industry participant, and Symon’s acquisition of Dacon, a company based in the United Kingdom, expanded Symon’s contact center market presence and its base of large resellers. Likewise, RMG established its executive airline club business through the acquisition of the Executive Media Network and its wholly-owned subsidiaries in April 2011. As part of our business strategy, we intend to make future acquisitions of, or investments in, technologies, products and businesses that we believe could complement or expand our business, enhance our technical capabilities or offer growth opportunities. However, we may be unable to identify suitable acquisition candidates in the future or make these acquisitions on a commercially reasonable basis, or at all. In addition, we may spend significant management time and resources in analyzing and negotiating acquisitions or investments that do not come to fruition. These resources could otherwise be spent on our own customer development, marketing and customer sales efforts and research and development.

Any future acquisitions and investments we may undertake, subject us to various risks, including:

failure to transition key customer relationships and sustain or grow sales levels, particularly in the short-term;

loss of key employees related to acquisitions;

inability to successfully integrate acquired technologies or operations;

failure to realize anticipated synergies in sales, marketing and distribution;

diversion of management’s attention;

adverse effects on our existing business relationships;

potentially dilutive issuances of equity securities or the incurrence of debt or contingent liabilities;

expenses related to amortization of intangible assets and potential write-offs of acquired assets; and

the inability to recover the costs of acquisitions.

If our acquisition strategy is not effective, we may not be able to expand our business as expected. In addition, our operating expenses may increase more than our revenues as a result of such expansion efforts, which could materially impact our operating results and our stock price.

Our strategy to expand our sales and marketing operations and activities may not generate the revenue increases anticipated or such revenue increases may only be realized over a longer period than currently expected.

Building a digital signage solutions customer base and achieving broader market acceptance of our digital signage solutions will depend to a significant extent on our ability to expand our sales and marketing operations and activities. We plan to expand our direct sales force both domestically and internationally; however, there is significant competition for direct sales personnel with the sales skills and technical knowledge that we require. Our ability to achieve significant growth in revenue in the future will depend, in large part, on our success in recruiting, training and retaining sufficient numbers of direct sales personnel. Our business could be harmed if our sales and marketing expansion efforts do not generate a corresponding significant increase in revenue.

We have a minimum payment commitment to an advertising partner that if we cannot service could negatively impact our profitability.

We have a minimum payment commitment to one of our advertising partners. This commitment constitutes a significant part of our cost of revenues. If our revenues decrease in a given period, we may be unable to reduce cost of revenues as a significant part of our cost of revenues is fixed, which could materially and adversely affect our business and, therefore, our results of operations and lead to a net loss for that period and subsequent periods.

While the proposed sale of our Airline Media Network business is pending, it creates uncertainty about our future that could have a material adverse effect on our business, financial condition and results of operations.

While the proposed sale of our Airline Media Network business is pending, it creates uncertainty about our future. As a result of this uncertainty, our current or potential business partners may decide to delay, defer or cancel entering into new business arrangements with us pending completion or termination of the proposed sale. In addition, while the proposed sale is pending, we are subject to a number of risks, including:

the diversion of management and employee attention from our day-to-day business;

the potential disruption to business partners and other service providers; and

the possible inability to respond effectively to competitive pressures, industry developments and future opportunities.

The occurrence of any of these events individually or in combination could have a material adverse effect on our business, financial condition and results of operation.

We must adapt our business model to keep pace with rapid changes in the visual communications market, including rapidly changing technologies and the development of new products and services.

Providing visual communications solutions is a relatively new and rapidly evolving business, and we will not be successful if our business model does not keep pace with new trends and developments. If we are unable to adapt our business model to keep pace with changes in the industry, or if we are unable to continue to demonstrate the value of our services to our customers, our business, results of operations, financial condition and liquidity could be materially adversely affected. Our success is also dependent on our ability to adapt to rapidly changing technology and to make investments to develop new products and services. Accordingly, to maintain our competitive position and our revenue base, we must continually modernize and improve the features, reliability and functionality of our products and services. Future technological advances may result in the availability of new service or product offerings or increase in the efficiency of our existing offerings. Some of our competitors have longer operating histories, larger client bases, longer relationships with clients, greater brand or name recognition, or significantly greater financial, technical, marketing and public relations resources than we do. As a result, they may be in a position to respond more quickly to new or emerging technologies and changes in customer requirements, and to develop and promote their products and services more effectively than we can. We may not be able to adapt to such technological changes or offer new products on a timely or cost effective basis or establish or maintain competitive positions. If we are unable to develop and introduce new products and services, or enhancements to existing products and services, in a timely and successful manner, our business, results of operations, financial condition and liquidity could be materially and adversely affected.

We rely significantly on information systems and any failure, inadequacy, interruption or security failure of those systems could harm our ability to effectively operate our business, harm our net sales, increase our expenses and harm our reputation.

Our ability to effectively serve our customers on a timely basis depends significantly on our information systems. To manage the growth of our operations, we will need to continue to improve and expand our operational and financial systems, internal controls and business processes; in doing so, we could encounter implementation issues and incur substantial additional expenses. The failure of our information systems to operate effectively, problems with transitioning to upgraded or replacement systems or a breach in security of these systems could adversely impact financial accounting and reporting, efficiency of our operations and our ability to properly forecast earnings and cash requirements. We could be required to make significant additional expenditures to remediate any such failure, problem or breach. Such events may have a material adverse effect on us.

Our current or future internet-based operations may be affected by our reliance on third-party hardware and software providers, technology changes, risks related to the failure of computer systems that operate our internet business, telecommunications failures, electronic break-ins and similar disruptions. Furthermore, our ability to conduct business on the internet may be affected by liability for online content, patent infringement and state and federal privacy laws.

In addition, we may now and in the future implement new systems to increase efficiencies and profitability. To manage growth of our operations and personnel, we will need to continue to improve and expand our operational and financial systems, internal controls and business processes. When implementing new or changing existing processes, we may encounter transitional issues and incur substantial additional expenses.

Experienced computer programmers and hackers, or even internal users, may be able to penetrate our network security and misappropriate our confidential information or that of third parties, including our customers, create system disruptions or cause shutdowns. In addition, employee error, malfeasance or other errors in the storage, use or transmission of any such information could result in a disclosure to third parties outside of our network. As a result, we could incur significant expenses addressing problems created by any such inadvertent disclosure or any security breaches of its network. Any compromise of customer information could subject us to customer or government litigation and harm our reputation, which could adversely affect our business and growth.

We may not obtain sufficient patent protection for our systems, processes and technology, which could harm our competitive position and increase our expenses.

Our success and ability to compete depends in some regard upon the protection of our proprietary technology. As of December 31, 2014, we held six issued patents and two pending patent applications in the United States. Any patents issued may provide only limited protection for our technology and the rights that may be granted under any future issued patents may not provide competitive advantages to us. Any patent applications may not result in issued patents. Also, patent protection in foreign countries may be limited or unavailable where we need this protection. Competitors may independently develop similar technologies, design around our patents or successfully challenge any issued patent that we hold.

We rely upon trademark, copyright and trade secret laws and contractual restrictions to protect our proprietary rights, and if these rights are not sufficiently protected, our ability to compete and generate revenues could be harmed.

We rely on a combination of trademark, copyright and trade secret laws, and contractual restrictions, such as confidentiality agreements and licenses, to establish and protect our proprietary rights. Our ability to compete and expand our business could suffer if these rights are not adequately protected. We seek to protect our source code for our software, design code for our advertising network, documentation and other written materials under trade secret and copyright laws. We license our software under signed license agreements, which impose restrictions on the licensee’s ability to use the software. We also seek to avoid disclosure of our intellectual property by requiring employees and consultants with access to our proprietary information to execute confidentiality and invention assignment agreements. The steps taken by us to protect our proprietary information may not be adequate to prevent misappropriation of our technology. Our proprietary rights may not be adequately protected because:

laws and contractual restrictions may not prevent misappropriation of our technologies or deter others from developing similar technologies; and

policing unauthorized use of our products and trademarks is difficult, expensive and time-consuming, and we may be unable to determine the extent of any unauthorized use.

The laws of certain foreign countries may not protect the use of unregistered trademarks or our proprietary technologies to the same extent as do the laws of the United States. As a result, international protection of our image may be limited and our right to use our trademarks and technologies outside the United States could be impaired. Other persons or entities may have rights to trademarks that contain portions of our marks or may have registered similar or competing marks for digital signage in foreign countries. There may also be other prior registrations of trademarks identical or similar to our trademarks in other foreign countries. Our inability to register our trademarks or technologies or purchase or license the right to use the relevant trademarks or technologies in these jurisdictions could limit our ability to penetrate new markets in jurisdictions outside the United States.

Litigation may be necessary to protect our trademarks and other intellectual property rights, to enforce these rights or to defend against claims by third parties alleging that we infringe, dilute or otherwise violate third-party trademark or other intellectual property rights. Any litigation or claims brought by or against us, whether with or without merit, or whether successful or not, could result in substantial costs and diversion of our resources, which could have a material adverse effect on our business, financial condition, results of operations or cash flows. Any intellectual property litigation or claims against us could result in the loss or compromise of our intellectual property rights, could subject us to significant liabilities, require us to seek licenses on unfavorable terms, if available at all or prevent us from manufacturing or selling certain products, any of which could have a material adverse effect on our business, financial condition, results of operations or cash flows.

We may face intellectual property infringement claims that could be time-consuming, costly to defend and result in its loss of significant rights.

Other parties may assert intellectual property infringement claims against us, and our products may infringe the intellectual property rights of third parties. From time to time, we receive letters alleging infringement of intellectual property rights of others. In addition, in March 2015 a third party filed a complaint against us in the United States District Court for the North District of Texas, alleging that we are infringing on three United States patents, and seeking unspecified monetary relief, injunctive relief for the payment of royalties and reimbursement for attorneys’ fees. See Item 1 of Part II of this quarterly report for more information. We may also initiate claims against third parties to defend our intellectual property. Intellectual property litigation is expensive and time-consuming and could divert management’s attention from our core business. If there is a successful claim of infringement against us, we may be required to pay substantial damages to the party claiming infringement, develop non-infringing technology or enter into royalty or license agreements that may not be available on acceptable terms, if at all. Our failure to develop non-infringing technologies or license the proprietary rights on a timely basis could harm our business. Also, we may be unaware of filed patent applications that relate to our products. Parties making infringement claims may be able to obtain an injunction, which could prevent us from operating portions of our business or using technology that contains the allegedly infringing intellectual property. Any intellectual property litigation could adversely affect our business, financial condition or results of operations.

We depend on key executive management and other key personal, and may not be able to retain or replace these individuals or recruit additional personnel, which could harm our business.

We depend on the leadership and experience of our key executive management, as well as other key personnel with specialized industry, sales and technical knowledge and/or industry relationships. Because of the intense competition for these employees, particularly in certain of the metropolitan areas in which we operate, we may be unable to retain our management team and other key personnel and may be unable to find qualified replacements if their services were no longer available to us. Most of our key employees are employed on an “at will” basis and we do not have key-man life insurance covering any of our employees. The loss of the services of any of our executive management members or other key personnel could have a material adverse effect on our business and prospects, as we may not be able to find suitable individuals to replace such personnel on a timely basis or without incurring increased costs, or at all.

Our facilities are located in areas that could be negatively impacted by natural disasters.

Our business operations depend on our ability to maintain and protect our facilities, computer systems and personnel, which are primarily located in Addison, Texas. In addition, we manage our networks from our headquarters in Addison and have significant operations in New York City. Addison is located in an area that experiences frequent severe weather, including tornadoes and New York City is a location that has experienced terrorist acts. Should a tornado, terrorist act or other catastrophe, such as fires, floods, power loss, communication failure or similar events, disable our facilities, our operations would be disrupted. While we have developed a backup and recovery plan, such plan may not ultimately prove effective.

Government regulation of the telecommunications and advertising industries could require us to change our business practices and expose us to legal action.

The Federal Communications Commission, or the FCC, has broad jurisdiction over the telecommunications industry. FCC licensing, program content and related regulations generally do not currently affect us. However, the FCC could promulgate new regulations that impact our business directly or indirectly or interpret existing laws in a manner that would cause us to incur significant compliance costs or force us to alter our business strategy.

FCC regulations also affect many of our content providers and, therefore, these regulations may indirectly affect our business. In addition, the advertising industry is subject to regulation by the Federal Trade Commission, the Food and Drug Administration and other federal and state agencies, and to review by various civic groups and trade organizations, including the National Advertising Division of the Council of Better Business Bureaus. New laws or regulations governing advertising could substantially harm our business.

We may also be required to obtain various regulatory approvals from local, state or federal governmental bodies. We may not be able to obtain any required approvals, and any approval may be granted on terms that are unacceptable to us or that adversely affect our business.

Changes in regulations relating to Wi-Fi networks or other areas of the Internet may require us to alter our business practices or incur greater operating expenses.

A number of regulations, including those referenced below, may impact our business as a result of our use of Wi-Fi networks. The Digital Millennium Copyright Act has provisions that limit, but do not necessarily eliminate, liability for distributing materials that infringe copyrights or other rights. Portions of the Communications Decency Act are intended to provide statutory protections to online service providers who distribute third-party content. The Child Online Protection Act and the Children’s Online Privacy Protection Act restrict the distribution of materials considered harmful to children and impose additional restrictions on the ability of online services to collect information from minors. The costs of compliance with these regulations, and other regulations relating to our Wi-Fi networks or other areas of our business, may be significant. The manner in which these and other regulations may be interpreted or enforced may subject us to potential liability, which in turn could have an adverse effect on our business, financial condition or results of operations. Changes to these and other regulations may impose additional burdens on us or otherwise adversely affect our business and financial results because of, for example, increased costs relating to legal compliance, defense against adverse claims or damages, or the reduction or elimination of features, functionality or content from our Wi-Fi networks. Likewise, any failure on our part to comply with these and other regulations may subject us to additional liabilities.

Any indebtedness we may incur could adversely affect our business and limit our ability to expand our business or respond to changes, and we may be unable to generate sufficient cash flow to satisfy our debt service obligations.

As of March 31, 2015, we had no outstanding debt. We may incur indebtedness in the future. Any indebtedness we may incur and the fact that a substantial portion of our cash flow from operating activities could be needed to make payments on this indebtedness could have adverse consequences, including the following:

reducing the availability of our cash flow for our operations, capital expenditures, future business opportunities, and other purposes;

limiting our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate, which would place us at a competitive disadvantage compared to our competitors that may have less debt;

limiting our ability to borrow additional funds;

increasing our vulnerability to general adverse economic and industry conditions; and

failing to comply with the covenants in our debt agreements could result in all of our indebtedness becoming immediately due and payable.

Our ability to borrow any funds needed to operate and expand our business will depend in part on our ability to generate cash. Our ability to generate cash is subject to the performance of our business as well as general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control. If our business does not generate sufficient cash flow from operating activities or if future borrowings are not available to us in amounts sufficient to enable us to fund our liquidity needs, our operating results, financial condition, and ability to expand our business may be adversely affected. Moreover, our inability to make scheduled payments on our debt obligations in the future would require us to refinance all or a portion of our indebtedness on or before maturity, sell assets, delay capital expenditures or seek additional equity.

The nature of advertising sales cycles and shifting needs of advertisers makes it difficult for us to forecast revenues and increases the variability of quarterly fluctuations, which could cause us to improperly plan for our operations.

A substantial amount of our advertising commitments are made months in advance of when the advertising airs on our media networks. Between the time at which advertising commitments are made and the advertising is aired, the needs of our advertisers can change. Advertisers may desire to change the timing, level of commitment and other aspects of their advertising placements. As a result, our future advertising commitment at any particular date is not necessarily indicative of actual revenues for any succeeding period, making it more difficult to predict our financial performance. These changes could also negatively impact our financial performance, including quarterly fluctuations.

Computer viruses or hacks could cause significant downtime for our media network, decreasing our revenues and damaging our relationships with partners and customers.

We generate revenues from the sales of advertising and content that is aired in our partners’ and customers’ installations. Computer hackers infecting our network, or the networks of our partners or customers in which our network is integrated, with viruses could cause our network to be unavailable. Significant downtime could decrease our revenues and harm our relationships and reputation with partners, customers and consumers.

There is no assurance that the proposed sale of our Airline Media Network business will be completed, and our inability to consummate the proposed sale could harm the market price of our common stock and our business, results of operations and financial condition.

There is no assurance the proposed sale of our Airline Media Network business will occur when and as we expect, or at all. Currently, we are party only to a non-binding letter of intent with respect to the proposed sale, and we may not be able to reach agreement with the prospective purchaser as to the terms of a definitive agreement. In addition, even if we do enter into a definitive agreement, the proposed sale may not be completed, due to a failure to satisfy required closing conditions or otherwise. If the proposed sale is not completed for any reason, the market price of our common stock may decline. In addition, failure to complete the proposed sale will result in a reduction in the amount of cash otherwise available to us and may limit our ability to implement our business strategy. The failure of the sale to occur may also result in negative publicity and a negative impression of us among other potential buyers of our Airline Media Network business, as well as in the investment community generally. We may be unable to locate a buyer willing to purchase the Airline Media Network business on terms equivalent to or more attractive than those contemplated by the existing letter of intent. Finally, we are incurring expenses pursuing the sale of our Airline Media Network business, and these expenses will reduce our earnings and cash flows, whether or not the sale is completed.

Risks Related to Our Common Stock

The concentration of our capital stock ownership with insiders will likely limit your ability to influence corporate matters.

As of March 31, 2015, SCG Financial Holdings LLC (the “Sponsor”) and affiliated persons (including Gregory H. Sachs, our Executive Chairman) and entities together beneficially owned almost 40% of our outstanding common stock. As a result, these persons and entities have the ability to exercise control over most matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate action might be taken even if other stockholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a change in control of our company that other stockholders may view as beneficial.

Compliance with the Sarbanes-Oxley Act of 2002 will require substantial financial and management resources and may increase the time and costs of completing an acquisition.

Section 404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and report on our system of internal controls and, if and when we are no longer a “smaller reporting company,” will require that we have such system of internal controls audited. If we fail to maintain the adequacy of our internal controls, we could be subject to regulatory scrutiny, civil or criminal penalties and/or Stockholder litigation. Any inability to provide reliable financial reports could harm our business. Furthermore, any failure to implement required new or improved controls, or difficulties encountered in the implementation of adequate controls over our financial processes and reporting in the future, could harm our operating results or cause us to fail to meet our reporting obligations. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our securities.

Provisions in our charter documents and Delaware law may discourage or delay an acquisition that stockholders may consider favorable, which could decrease the value of our common stock.

Our certificate of incorporation, our bylaws, and Delaware corporate law contain provisions that could make it harder for a third party to acquire us without the consent of our board of directors. These provisions include those that: authorize the issuance of up to 1,000,000 shares of preferred stock in one or more series without a stockholder vote; limit stockholders’ ability to call special meetings; establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings; and provide for staggered terms for our directors. In addition, in certain circumstances, Delaware law also imposes restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock.

We have not paid cash dividends to our shareholders and currently have no plans to pay future cash dividends.

We plan to retain earnings to finance future growth and have no current plans to pay cash dividends to shareholders. In addition, our credit facility restricts our ability to pay dividends. Because we have not paid cash dividends, holders of our securities will experience a gain on their investment in our securities only in the case of an appreciation of value of our securities. You should neither expect to receive dividend income from investing in our securities nor an appreciation in value.

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

Other than as disclosed in the current report on Form 8-K filed by the Company on March 25, 2015, none.

Item 6. Exhibits


Exhibit Number	Exhibit

3.1	Amended and Restated Certificate of Incorporation, filed with the Secretary of State of the State of Delaware on July 12, 2013 (1)
3.2	Form of Certificate of Designation of Series A Convertible Preferred Stock (2)
3.2	Amended and Restated Bylaws (3)
10.1	Fifth Amendment to Credit Agreement, dated as of January 26, 2015 (4).
10.2	Purchase Agreement, dated March 25, 2015, among the Company and the Investors (2)
10.3	Registration Rights Agreement, dated March 25, 2015, among the Company and the Investorse (2)
10.4	Form of Lock-Up Agreement (2)
10.5	Form of Support Agreement (2)
31.1*	Certification of Chairman and Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.
31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Act of 1934, as amended.
32.1*	Certification of Chairman and Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document


*	Filed herewith
(1)	Incorporated by reference to an exhibit to the Current Report on Form 8-K of RMG Networks Holding Corporation filed with the Securities and Exchange Commission on July 18, 2013.
(2)	Incorporated by reference to an exhibit to the Current Report on Form 8-K of RMG Networks Holding Corporation filed with the Securities and Exchange Commission on March 25, 2015.
(3)	Incorporated by reference to an exhibit to the Current Report on Form 8-K of RMG Networks Holding Corporation filed with the Securities and Exchange Commission on July 24, 2014.
(4)	Incorporated by reference to an exhibit to the Current Report on Form 8-K of RMG Networks Holding Corporation filed with the Securities and Exchange Commission on January 29, 2015.

SIGNATURES

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.


	RMG NETWORKS HOLDING CORPORATION

	By:	/s/ Robert Michelson
		Robert Michelson
		President and Chief Executive Officer (principal executive officer)


	By:	/s/ Jana Ahlfinger Bell
		Jana Ahlfinger Bell
		Chief Financial Officer (principal financial officer)

Date: May 15, 2015

EXHIBIT INDEX


Exhibit Number	Exhibit
3.1	Amended and Restated Certificate of Incorporation, filed with the Secretary of State of the State of Delaware on July 12, 2013 (1)
3.2	Form of Certificate of Designation of Series A Convertible Preferred Stock (2)
3.2	Amended and Restated Bylaws (3)
10.1	Fifth Amendment to Credit Agreement, dated as of January 26, 2015 (4).
10.2	Purchase Agreement, dated March 25, 2015, among the Company and the Investors (2)
10.3	Registration Rights Agreement, dated March 25, 2015, among the Company and the Investorse (2)
10.4	Form of Lock-Up Agreement (2)
10.5	Form of Support Agreement (2)
31.1*	Certification of Chairman and Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.
31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Act of 1934, as amended.
32.1*	Certification of Chairman and Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document


*	Filed herewith
(1)	Incorporated by reference to an exhibit to the Current Report on Form 8-K of RMG Networks Holding Corporation filed with the Securities and Exchange Commission on July 18, 2013.
(2)	Incorporated by reference to an exhibit to the Current Report on Form 8-K of RMG Networks Holding Corporation filed with the Securities and Exchange Commission on March 25, 2015.
(3)	Incorporated by reference to an exhibit to the Current Report on Form 8-K of RMG Networks Holding Corporation filed with the Securities and Exchange Commission on July 24, 2014.
(4)	Incorporated by reference to an exhibit to the Current Report on Form 8-K of RMG Networks Holding Corporation filed with the Securities and Exchange Commission on January 29, 2015.

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