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ALLDIGITAL HOLDINGS, INC. FILES (8-K/A) Disclosing Other Events, Financial Statements and Exhibits(Edgar Glimpses Via Acquire Media NewsEdge) Item 8.01 Other Events [Disclosure Begins on Following Page] TABLE OF CONTENTS OUR BUSINESS 2 RISK FACTORS 15 MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 29 OPERATIONS SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 44 DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS 45 EXECUTIVE COMPENSATION 47 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 49 DESCRIPTION OF OUR CAPITAL STOCK 53 ITEM 9.01 FINANCIAL STATEMENT AND EXHIBITS 57 1 OUR BUSINESS Forward-Looking Statements This Report contains statements that constitute forward-looking statements. Such statements can be identified by the use of the forward-looking words "anticipate," "estimate," "project," "likely," "believe," "intend" or "expect" or similar words. When considering such forward-looking statements, you should keep in mind the risk factors noted in the section of this Report entitled "Risk Factors" and other cautionary statements throughout this Report. You should also keep in mind that all forward-looking statements are based on management's existing beliefs about present and future events outside of management's control and on assumptions that may prove to be incorrect. Merger of Aftermarket Enterprises, Inc. and AllDigital, Inc. AllDigital Holdings acquired all of the assets and operations of AllDigital in the Merger that was effected on July 29, 2011. AllDigital Holdings was named "Aftermarket Enterprises, Inc" at the time and subsequently changed its name to AllDigital Holdings, Inc. on August 25, 2011. Throughout this Report, AllDigital Holdings and AllDigital, as a consolidated entity, are referred to as the "Company", "we" or "us". To the extent we need to distinguish AllDigital Holdings from AllDigital, we refer to AllDigital Holdings as "AllDigital Holdings" and to AllDigital as "AllDigital." To the extent we refer to the operations of AllDigital Holdings prior to the Merger or the automotive accessories business conducted by AllDigital Holdings prior to the Merger, we refer to AllDigital Holdings by its former name "Aftermarket". As of this date of this Report, we have two business lines: AllDigital's digital services business and Aftermarket's automotive accessories business. Going forward, we expect our focus to be on AllDigital's digital services business and expect to dispose of the automotive accessories business historically conducted by Aftermarket. Our Digital Services Business Certain Technical Terms In this Report, we use certain technical terms to describe our business, which terms are important to an understanding of our business, including the following: • "Apps" are software applications that operate on a Device, and which can act as the front-end of a remotely hosted, cloud-based Digital Service. • "Devices" are Internet-connected devices, including without limitation smartphones, tablet computers, desktop and laptop computers, game consoles, televisions, home theatre systems, streaming players, "smart" appliances, and digital signage. • "Digital Services" are remotely hosted, cloud-based software applications intended for use on, interactivity with, and the delivery of digital media to or from, one or more Devices. Examples of Digital Services including NetFlix's Movies On-Demand, Google Maps, Pandora Radio, Amazon's Kindle, and Facebook. 2 • "Pairing" is the process of setting-up and managing the ongoing data exchange between a Digital Service and a Device. Pairing includes not only the initial process of ensuring the compatibility of the Digital Service with one or more Devices but may also include any or all of the following: o managing various elements of and processes related to the ongoing data exchange between a Digital Service and a Device, including Device compatibility, security, quality of service, and dynamic updates; o procuring and managing high-speed and scalable cloud-based storage; o applying real-time business rules, work flows, and processes to data assets (e.g., such as converting master video files into formats compatible with the target Device) and Digital Services (e.g., user authentication); and o acting as the origin for data exchange between the Digital Service and Device. General Overview We provide the software tools and back-end services required by providers of Digital Services to manage and optimize the ongoing Pairing of the Digital Services they offer with an increasingly diverse and complex offering of Devices. We accomplish this by enabling and maximizing the performance of, the cloud-based storage, processing and transit of those Digital Services to Devices. Our business model primarily targets providers of Digital Services that need to distribute their Digital Services to a large, increasingly fragmented, and rapidly growing market of diverse Devices operating on a number of different Device platforms. Market Opportunity Industry analysts have predicted that, over the next few years, providers will develop several hundred thousand different Apps that enable new and innovative functionality to a growing universe of Devices and Digital Services. The makers and providers of these Apps and related Digital Services will come from a number of different market segments, including media and entertainment, enterprise, education, interactive gaming and government, and represent AllDigital's existing and target customers. High-definition video, broadband wireless access, the proliferation of Devices, consumer convenience and other factors are driving demand and creating new markets for Digital Services. Examples of Digital Services include watching live television on a tablet computer, ordering a pizza by using an App on a smartphone, participating in a worldwide corporate training from a home office and a group of 50 individuals, each with a separate and distinct physical location and gaming console, teaming up to execute a military campaign online. We believe Digital Services are not only rapidly proliferating, but are becoming increasingly critical to enterprise core business applications, implemented to achieve a wide variety of objectives, driving new business models and business strategies, and changing the way our customers store and originate data and software applications. However, developing, launching and operating a successful Digital Service presents a number of complex technical and cost-related challenges for our customers. These challenges include: 3 • managing various elements of and processes related to the ongoing data exchange between a Digital Service and a Device, including Device compatibility, security, quality of service and dynamic updates; • procuring and managing high-speed and scalable cloud-based storage; • applying real-time business rules, work flows and processes to data assets (e.g., such as converting master video files into formats compatible with the target Device) and Digital Services (e.g., user authentication); and • acting as the origin for data exchange between the Digital Service and target Device in a rapid and cost-effective manner across multiple transport partners. As a result of these challenges and others, the investment required to develop, launch and operate a Digital Service that must be Paired to multiple types of Devices can be prohibitive and/or intimidating for many of our customers. The technical complexity and differences between Devices is significant. End-users of Devices expect 24-hour per day, 365 day-per-year access to a high quality Digital Service experience with little to no downtime. The ongoing Pairing of a Digital Service to a Device frequently needs to be optimized for speed, security and scalability. Many of our customers lack the technical expertise, time and/or resources to cost-effectively distribute their Digital Services beyond a traditional Web-page experience designed for desktop computers. Device manufacturers currently operate in a highly competitive marketplace where Devices based on many different operating systems (e.g., Apple OS-X / iOS, Windows 7 / Mobile 7, Google Android, Blackberry and others) compete for market share. Many of the operating systems powering these Devices have different or incompatible features such as user interface standards, security protocols, audio / video decoders, embedded services and screen resolutions. In addition, the complexity of operating system differences is compounded as they occur over four fundamentally different Device platforms (i.e., mobile, desktop, gaming and digital television), which causes the barriers to successfully developing, launching and operating a cross-platform Digital Service to increase significantly. Device manufacturers today are also creating innovative capabilities embedded in Devices. For example, high-resolution digital camera chips are driving massive spikes in 2-way data traffic originating from Devices to the cloud. A single smartphone can now broadcast a live news event from a single person to millions of people within seconds. Recent patents from companies such as Apple, Inc. foresee a future where appliances, such as an air conditioning / heating system, can send and receive data for Digital Services to optimize home power and resource management. Hi-definition cameras are exchanging full screen video "chats" in living rooms across the globe using Digital Services such as Skype. Many of the Digital Service and App pioneers (such as Facebook, Netflix and Pandora) have made, and must continue to make, significant, ongoing investments in order to keep their services Paired to hundreds of different types of Devices. Smaller and emerging companies typically lack the scale and expertise to compete. AllDigital was founded to enable its customers to outsource the complex process of Pairing a Digital Service to a Device to a trusted, third party service provider. 4 Industry Overview The Internet plays a crucial role in the way business enterprises, government agencies and individuals conduct business and communicate internally and externally. The development of various Internet-based technologies has enabled fundamental and structural changes in the way Digital Services and/or Apps are published, combined, implemented, operated, broadcast and retrieved. Over the past 2-3 years, this includes the ability to originate, deliver and remotely manage the Pairing of a wide variety of Digital Services from and to various Devices and Device platforms. We expect that the need for Digital-Service-to-Device software tools and back-end services will accelerate significantly over the next 2-3 years, which acceleration we anticipate will be driven by the convergence of the following key market dynamics: The market for Devices is substantial and rapidly growing. • According to "apprevolutionstocks.com", it is estimated that within the next ten years more than one billion smartphones will be sold annually, resulting in end-user consumption of "several billion" Apps. • According to Analysys Mason, there will be approximately 16 billion Devices connected to the Internet in use by 2020. • According to iSuppli, global shipments of Devices capable of supporting Internet video will increase approximately 400% between 2009 and 2013, with approximately 375 million Devices dedicated to end-user entertainment shipped worldwide in 2013 alone. • According to Apple, Inc., more than 150 million iPhones and iPads have been sold to date; during Apple's most recent quarter ending in June 2011, the company announced 142% unit growth of iPhone sales, 183% unit growth in iPad sales, and 82% overall revenue growth versus the quarter ending June 2010. • According to the Nielsen Company, new sales of smartphones using the Google Android operating system surpassed sales of the Apple iPhone in August 2010. • According to Morgan Stanley, by 2014 the number of users accessing the Internet via mobile Devices is expected to surpass the number of users accessing the Internet via desktop computers. • According to Gartner, worldwide tablet computer sales are forecast to grow from 20 million in 2010, to 55 million in 2011, to 208 million in 2014, representing an annual growth rate of 80%. • According to International Data Corporation, worldwide smartphone shipments in 2010 are expected to be 270 million units, an increase of 55% versus 2009; smartphone shipments are forecast to increase 25% to 336 million in 2011. 5 Digital Services are increasingly critical to enterprise core business applications, are implemented to achieve a wide variety of objectives and are rapidly proliferating. • According to Ernst & Young, 75% of the top 100 media and entertainment companies are anticipating significant revenue gains from Digital Services offered for Devices. • Pizza Hut recently announced that a series of advertising Apps connected to smartphone Devices via a Digital Service has resulted in "millions" of users. • In November of 2010, Hulu announced the launch of a television subscription service on various Apple, Samsung, and Sony Devices, which provides Hulu an installed base and addressable market of 50 million Device units. • In November of 2010, Netflix reported that its membership base now watches more hours of Internet-based video on Devices than DVD-based video through its traditional U.S. mail service; Netflix's Internet-based video service has grown substantially over the past 24 months, and is credited with more than doubling Netflix's subscriber base in the U.S. and Canada through the period ending June 30, 2011 to nearly 25 million subscribers; Internet-based video services are now available on more than 30 different Device platforms in the U.S. We expect that Digital Services will continue to proliferate as media and entertainment companies, individual media brands, commercial enterprises, government agencies and entrepreneurs continue to develop and launch a wide variety of Digital Services. To date, our target customers have attempted to address Digital-Service-to-Device implementations through various custom software development projects with companies like AllDigital or the establishment of new internal departments (i.e., cost centers). These approaches, however, generally do not address a series of specialized technical requirements related to the cloud-based storage, processing and transit of Digital Services to one or more Devices. These approaches also do not harness cost efficiencies, economies of scale and performance benefits related to working with a vendor dedicated to providing a series of software tools and back-end services designed to manage the distribution of Digital Services to one or more Devices for numerous clients. We believe these requirements and considerations must be addressed for Digital Service providers to successfully develop and deploy Digital Services that are critical to their core business applications. We also believe the growth of the Digital Services market will not be sustainable without the creation of third party service providers that offer to market players the software tools and back-end services necessary to the ongoing Pairing of reliable, secure and high-speed Digital Services to various Devices and Device platforms. Target Market Segments We have targeted several industry segments that we believe to be responsive to a comprehensive offering of software tools and back-end services dedicated to Digital-Service-to-Device market opportunities and Apps. Our business strategy is to provide the tools and services that enable our target customers to distribute a wide range of Digital Services to a wide variety of Devices without requiring significant in-house technical resources. 6 Adoption of Digital-Service-to-Device business models and Apps has seen significant growth in recent years among our target customers, in part because media and entertainment companies, individual media brands, social networking sites and communication companies are typically the earliest adopters of such new technologies. We are not only targeting new market opportunities, but also are attempting to capture the outsourcing of Digital-Service-to-Device implementations by early adopters. We believe that our product and services offerings can provide significant performance improvements, cost efficiencies and the ability to Pair Digital Services with a greater number and type of Devices when compared to earlier distribution models. Examples of targeted industry segments include: Media Content and Service. There are a number of companies of various sizes with media content, online services and/or other application needs that can be distributed to Devices by means of Digital Services. Examples include: Media and Entertainment: This sub-segment includes movie studios, filmmakers, news broadcasters, talk-show hosts, sports broadcasters and communications services providers. Targeted media brands in this sub-segment generally require a broad range of software tools and back-end services for securely originating, transporting and selling their media content to Devices via Digital Service offerings. They generally also require assistance with generating revenues from media distribution, increasing audience size, gathering market data, payment processing, providing dynamic updates and managing digital rights, including security. Social Networking: Some of the most popular Digital-Service-to-Device applications are popular established brands such as Facebook, MySpace, Match.com and Twitter. Each of these popular established brands are continuously evolving their Digital-Service-to-Device applications to include: (a) the integration and "on-boarding" of partner Digital Services; (b) the expansion of their Digital Service-based business models for both recurring and event-based purposes, and; (c) expanding their reach and footprint to additional Devices. Additionally, there are many smaller and more vertical social networking websites that could be converted to either a mobile and/or digital television experience via a Digital Service supported by the software tools and back-end services we offer. Music and Radio: Radio stations and musicians benefit from increasing the distribution of their content. Through Internet-based broadcasting or streaming of their programming content, they can increase the size of their potential listening audience to a variety of Internet-connected Devices and into areas not reachable by their conventional broadcast signal, effectively allowing their content to be available to a much larger and more diverse audience. There are a growing number of online radio stations and services utilizing Digital Services to reach various Devices, such as Pandora Radio and other similar websites. Education: Community colleges, universities and other educational organizations can expand upon current course offerings with live or recorded audio and video webcasting. Many of these institutions are already equipped with broadband access and have an Internet savvy student population. Internet broadcasting allows educational institutions to give students and teachers access to classes whenever and wherever they want. Dedicated online services that enable teaching to those who are remotely located or physically disabled (such as an Amazon "Kindle" for education) could benefit greatly from our products and services. For example, using our publishing features, educators could use our platform to bring much needed revenue to their learning institutions. 7 Interactive Gaming: Interactive gaming has become increasingly popular, with many new computer games offering online functionality that enables players to interact with other players, play against other players over the Internet, or stream or download new scenes or worlds for their games. This includes the availability of games on a growing number of Device platforms. Examples include some of the most popular games currently on the market, such as Call of Duty: Black Ops and World of Warcraft. Call of Duty is available via Microsoft's Xbox and Sony's PS3 gaming consoles, as well as various PC desktop Devices and tablets such as Apple's iPad. World of Warcraft is available via Mac and various PC Devices. Enterprise/Government. While consumer adoption of Digital-Service-to-Device business models and applications has already seen significant growth, many corporations and government agencies appear to be at the early stages of a similar paradigm shift. For example, companies are seeking new and creative ways to cut travel costs by offering live and secure corporate training to Devices such as the Apple iPad. Corporate communications such as presentations, public relations campaigns, quarterly earnings reports or company news, are also increasingly frequently being delivered broadly to and managed through multiple Devices. Secure voting and polling among international employees is another example of an enterprise Pairing a Digital Service with more than one Device. As companies develop and launch unique and successful Digital Services, we expect that this target market will provide significant growth opportunities. Government agencies frequently have time and cost saving requirements such as streaming military training and news videos to military bases and troop deployments globally. Hardware Manufacturers. Hardware manufacturers produce a broad spectrum of products that target both business and consumer markets. Examples of products by category include large public displays, digital signage (e.g., dynamic menus at fast food restaurants), medical devices, robotics and artificial intelligence, business and home security, "smart" appliances, resource conservation, business and home automation, toys and consumer electronics. As products such as the iPhone continue to demonstrate new and unique capabilities through a wide array of innovative Apps being developed and made available for download from Apple's App Store, we believe that a similar evolution and economic ecosystem will occur with Devices outside of traditional consumer electronics. Products and Services We provide the software data management tools, back-end services and professional services required to facilitate and manage the Pairing of Digital Services to Devices. The core of our solution is our Media i/o platform, which enables, and maximizes the performance of, the cloud-based storage, processing and transit of Digital Services to a Device. We have developed a pilot version of, and are in the process of developing the production version of, our Media i/o proprietary software platform and related applications to manage customer Digital Services and related data files, media libraries, and other digital assets in third party data center(s). Our software platform is designed to control and integrate the hardware, software and transit services required to Pair a Digital Service to a Device. Additionally, our customers can also purchase the individual Digital-Service-to-Device elements that Media i/o supports, such as Media i/o Cloud-Storage, Media i/o Cloud-Processing and Media i/o Origin Transit Services. 8 We typically charge Media i/o platform management fees, as well as monthly recurring charges for our back-end storage, processing, origin transit, and maintenance and support services. Storage, processing, and origin transit fees are typically billed based on a minimum commitment plus actual usage basis, and the term of customer contracts currently vary. Non-recurring revenues typically come from licensing reference designs and custom "on-boarding" services such as technical consulting, custom App and/or Digital Service development and general setup and testing costs to prepare a Digital Service for launch and distribution to one or more Devices. Since AllDigital's inception, many of its customers have specific requirements or a specific concept to develop and manage the Pairing of a Digital Service to one or more Devices. Other customers, including large enterprises and government agencies, began with only a general concept to distribute their digital media assets; such customers required professional services support in conjunction with the development, launch and operation of their Digital Services. Media i/o Platform As demand increases from Devices requesting cloud-based sources of data and data processing, there are a number of technical and cost challenges for our customers. Those challenges include the expectation that Digital Services are always available with little to no downtime and the exchange of data between a Device and Digital Service operate at a high speed and optimized manner with as little latency as possible. Additionally, issues such as data security related to multiple Devices require specialized technology and expertise. Many of our existing or prospective customers also require the application and optimization of specific business rules and work flows to their Digital Service across multiple Devices. Our Media i/o platform addresses a number of these challenges. For example, we offer a Quality of Service manager that provides real time monitoring of remote Digital Services with feedback to our technical support as well as the customer's support team. The current roadmap for our Media i/o platform includes the development of a virtual "Control Panel" for our customers. Through the Control Panel, we anticipate that our customers will be able to remotely manage their Digital Services, receive real time event reporting, manage their media assets (upload, store, and manage media files), receive back office functions such as billing / reporting, define and implement digital rights management protections and apply business rules such as limiting the distribution or access to data based on geo-location restrictions. In some cases, our customers may wish to manage many of these Media i/o features on their own, or they may prefer to pay us to manage these functions as a professional service. Media i/o Cloud-Storage Our Media i/o Cloud-Storage platform is based on the "cloud storage" methodology where data is stored on multiple servers (located in one or more data centers) typically shared by more than one customer. Our customers buy or lease storage capacity from AllDigital and use it for their unique storage needs related to exchanging data from a Digital Service to a Device. Media i/o, operating in the background as a back-end service, allocates resources according to the requirements of the Digital Service and presents them as storage volumes where files or data objects are stored. Media i/o Cloud Storage may be accessed through a Web service application programming interface (API), or through a Web-based user interface. 9 Media i/o Cloud Computing Cloud computing is Internet-based computing, whereby shared resources, software and data are provided to computers and other Devices on demand. Typical cloud computing services deliver common business applications online that are accessed from another Web service or software like a Web browser, while the software and data are stored on cloud-based servers. In order to provide services such as transcoding of digital media (e.g., convert a master file into a format compatible for a specific Device), we provide cloud-computing assets on the same network as our cloud-storage platform. The advantage of this model is to provide our customers a low latency, simple and cost-effective platform to execute business rules or run their Digital Service. Another advantage is that common applications and services such as Quality of Service monitoring that are required to run or Pair a Digital-Service-to-Device business model can be made into a repeatable process. Media i/o Origin Transit Internet transit is the service of allowing network traffic to cross or "transit" a computer network, usually used to connect a smaller Internet Service Provider ("ISP") to the larger Internet. Our transit model focuses on optimizing the two-way delivery of data to (and from) a connected Device. Customers (or Devices) can send a single transit of data (e.g., a large file) to our storage platform. We refer to that transit as the "ingress" of data. Once the data is . . . |