Troika Media Group, Inc. - Quarter Report: 2008 March (Form 10-Q)
U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
(Mark
One)
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For
the quarterly period ended March 31, 2008
o Transition Report
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For
the transition period from______________ to _______________
Commission
File No. 000-26213
ROOMLINX,
INC.
(Exact
name of registrant as specified in its charter)
|
Nevada
|
83-0401552
|
|
(State or other
jurisdiction of
|
(I.R.S.
Employer
|
|
incorporation or
organization)
|
Identification
No.)
|
2150 – W.
6th
Ave., Unit H Broomfield, Colorado 80020
(Address
of principal executive offices)
(303)
544-1111
(Issuer's
telephone number)
Indicate
by check mark whether the registrant (1) 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 o No x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer o Accelerated
filer o
Non-accelerated
filer o
Smaller reporting company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No x
The
number of shares outstanding of the Issuer's common stock as of October 14, 2008
was 158,483,488.
ROOMLINX,
INC.
| PART I. | FINANCIAL INFORMATION | |
|
Item
1.
|
||
|
Item
2.
|
||
|
Item
3.
|
||
|
Item
4T.
|
||
| PART II. | OTHER INFORMATION | |
|
Item
1.
|
||
|
Item
2.
|
||
|
Item
3.
|
||
|
Item
4.
|
||
|
Item
5.
|
||
|
Item
6.
|
||
|
CONSOLIDATED
BALANCE SHEETS
|
||||||||
|
March 31,
|
||||||||
|
2008
|
December
31,
|
|||||||
|
ASSETS
|
(Unaudited)
|
2007
|
||||||
|
Current
assets:
|
||||||||
|
Cash and cash
equivalents
|
$ | 708,853 | $ | 915,165 | ||||
|
Accounts receivable,
net
|
216,082 | 358,794 | ||||||
|
Prepaid and other current
assets
|
39,235 | 37,721 | ||||||
|
Work in
progress
|
- | 382 | ||||||
|
Total current
assets
|
964,170 | 1,312,062 | ||||||
|
Property and equipment,
net
|
56,288 | 49,822 | ||||||
|
Total
assets
|
$ | 1,020,458 | $ | 1,361,884 | ||||
|
LIABILITIES
AND STOCKHOLDERS' (DEFICIT)
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts payable and accrued
expenses
|
$ | 301,487 | $ | 399,782 | ||||
|
Officer and stockholder note
payable
|
12,500 | 12,500 | ||||||
|
Accrued
interest
|
34,672 | 35,926 | ||||||
|
Deferred
revenue
|
260,362 | 238,124 | ||||||
|
Total current
liabilities
|
609,021 | 686,332 | ||||||
|
Convertible
debentures
|
1,864,526 | 2,101,352 | ||||||
|
Stockholders'
(deficit):
|
||||||||
|
Preferred stock - $0.20 par value,
5,000,000 shares authorized:
|
||||||||
|
Series A - 720,000 shares
authorized, issued and outstanding
|
144,000 | 144,000 | ||||||
|
Series B - 2,000,000 shares
authorized; none issued and outstanding
|
- | - | ||||||
|
Common stock - $0.001 par value,
245,000,000 shares authorized:
|
||||||||
|
150,505,160 and 149,068,107 shares
issued and outstanding, respectively
|
150,505 | 149,068 | ||||||
|
Additional paid-in
capital
|
19,954,748 | 19,920,259 | ||||||
|
Deferred stock
compensation
|
(43,485 | ) | (59,335 | ) | ||||
|
Accumulated
(deficit)
|
(21,658,857 | ) | (21,579,792 | ) | ||||
|
Total stockholders'
(deficit)
|
(1,453,089 | ) | (1,425,800 | ) | ||||
|
Total liabilities and
stockholders' (deficit)
|
$ | 1,020,458 | $ | 1,361,884 | ||||
The accompanying notes are
an integral part of these consolidated financial statements.
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
||||||||
|
for the Three Months Ended March
31, 2008 and 2007
|
||||||||
|
(Unaudited)
|
||||||||
|
2007
|
||||||||
|
2008
|
(Restated)
|
|||||||
|
Revenues
|
||||||||
|
System sales and
installation
|
$ | 91,129 | $ | 165,481 | ||||
|
Service, maintenance and
usage
|
286,536 | 344,821 | ||||||
| 377,665 | 510,302 | |||||||
|
Costs and
expenses
|
||||||||
|
System sales and
installation
|
38,249 | 107,922 | ||||||
|
Service, maintenance and
usage
|
264,155 | 321,540 | ||||||
|
Sales and
marketing
|
65,034 | 47,302 | ||||||
|
Product
development
|
114,416 | - | ||||||
|
General and administrative stock
compensation
|
15,850 | - | ||||||
|
General and
administrative
|
162,584 | 132,562 | ||||||
|
Depreciation
|
5,879 | 2,029 | ||||||
| 666,167 | 611,355 | |||||||
|
Operating
(loss)
|
(288,502 | ) | (101,053 | ) | ||||
|
Other income
(expense)
|
||||||||
|
Interest
expense
|
(36,382 | ) | (95,981 | ) | ||||
|
Financing
expense
|
- | (37,500 | ) | |||||
|
Derivative
income
|
238,536 | - | ||||||
|
Foreign
currency loss
|
(1,366 | ) | (5,866 | ) | ||||
|
Other income
(expense)
|
8,649 | (4,341 | ) | |||||
| 209,437 | (143,688 | ) | ||||||
|
(Loss) before income
taxes
|
(79,065 | ) | (244,741 | ) | ||||
|
Provision for income
taxes
|
- | - | ||||||
|
Net (loss)
|
$ | (79,065 | ) | $ | (244,741 | ) | ||
|
Net (loss) per common
share:
|
||||||||
|
Basic and
diluted
|
$ | (0.00 | ) | $ | (0.00 | ) | ||
|
Weighted average shares
outstanding:
|
||||||||
|
Basic and
diluted
|
150,505,155 | 139,868,381 | ||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||
|
for the Three Months Ended March
31, 2008 and 2007
|
||||||||
|
(Unaudited)
|
||||||||
|
2007
|
||||||||
|
2008
|
(Restated)
|
|||||||
|
Cash flows from operating
activities:
|
||||||||
|
Net cash (used in) operating
activities
|
$ | (193,966 | ) | $ | (95,564 | ) | ||
|
Cash flows from investing
activities:
|
||||||||
|
Purchase of property and
equipment
|
(12,346 | ) | - | |||||
|
Net cash (used in) investing
activities
|
(12,346 | ) | - | |||||
|
Cash flows from financing
activities:
|
||||||||
|
Principal payments on notes
payable
|
- | (30,000 | ) | |||||
|
Principal payments on officer and
stockholder notes payable
|
- | (15,103 | ) | |||||
|
Net cash (used in) financing
activities
|
- | (45,103 | ) | |||||
|
Net (decrease) in cash and
equivalents
|
(206,312 | ) | (140,667 | ) | ||||
|
Cash and equivalents at beginning
of period
|
915,165 | 144,540 | ||||||
|
Cash and equivalents at end of
period
|
$ | 708,853 | $ | 3,873 | ||||
|
Supplemental Cash Flow
Information
|
||||||||
|
Cash paid for
interest
|
$ | - | $ | 3,016 | ||||
|
Non-cash investing and financing
activities:
|
||||||||
|
Shareholder payables
forgiven
|
$ | - | $ | 3,000 | ||||
|
Shareholder notes payable
forgiven
|
$ | - | $ | 9,897 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
Notes
to Consolidated Financial Statements
March
31, 2008
(Unaudited)
1. Overview
and Summary of Significant Accounting Policies
Roomlinx,
Inc. (the “Company”) is incorporated under the laws of the state of
Nevada. The Company sells, installs and services hardware for wired
networking solutions and wireless fidelity networking solutions, also known as
Wi-Fi, for high-speed internet access to hotels, convention centers, corporate
apartments and special events locations. The Company installs and creates
services that address the productivity and communications needs of hotel guests,
convention center exhibitors, corporate apartment customers and individual
consumers. The Company utilizes third party contractors to install such hardware
and software.
Basis of Presentation: The accompanying unaudited
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information. They do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments
considered necessary for a fair presentation, have been included in the
accompanying unaudited financial statements. Operating results for
the periods presented are not necessarily indicative of the results that may be
expected for the full year. For further information, refer to the
financial statements and notes thereto, included in the Company's Form 10-KSB as
of and for the year ended December 31, 2007.
Restatement: The 2007 financial
statements have been restated to reflect a capital contribution from the
forgiveness of shareholder payables and notes payable in the amount of
$12,897.
Per Share Amounts: The Company computes net
income (loss) per share under the provisions of SFAS No. 128, “Earnings per
Share” (SFAS 128). Under the provisions of SFAS 128, basic net income
(loss) per share is computed by dividing the Company’s net income for the period
by the weighted-average number of shares of common stock outstanding during the
period. Diluted net income (loss) per share excludes potential common
shares if the effect is anti-dilutive. Diluted net income (loss) per
share is determined in the same manner as basic net income per share except that
the number of shares is increased assuming exercise of dilutive stock options
and warrants using the treasury stock method and shares issuable upon conversion
of convertible debt and adding back to net income the related interest
expense.
Derivative financial
instruments: We do not use derivative instruments to hedge
exposures to cash flow, market, or foreign currency risks.
We review
the terms of convertible debt instruments we issue to determine whether there
are embedded derivative instruments, including the embedded conversion option,
that are required to be bifurcated and accounted for separately as a derivative
financial instrument. In circumstances where the convertible instrument contains
more than one embedded derivative instrument, including the conversion option,
that is required to be bifurcated, the bifurcated derivative instruments are
accounted for as a single, compound derivative instrument. Also, in connection
with the sale of convertible debt, we may issue freestanding options or warrants
that may, depending on their terms, be accounted for as derivative instrument
liabilities, rather than as equity. We may also issue options or warrants to
non-employees in connection with consulting or other services they
provide.
When the
ability to physical or net-share settle the conversion option or the exercise of
the freestanding options or warrants is deemed to be not within the control of
the company or if the conversion option, options or warrants are not indexed
only to the underlying common stock, the embedded conversion option or
freestanding options or warrants may be required to be accounted for as a
derivative financial instrument liability.
Derivative
financial instruments are initially measured at their fair value. For derivative
financial instruments that are accounted for as liabilities, the derivative
instrument is initially recorded at its fair value and is then re-valued at each
reporting date, with changes in the fair value reported as charges or credits to
income. For option-based derivative financial instruments, we use the
Cox-Ross-Rubinstein binomial model to value the derivative
instruments. To the extent that the initial fair values of the
freestanding and/or bifurcated derivative instrument liabilities exceed the
total proceeds received, an immediate charge to income is recognized, in order
to initially record the derivative instrument liabilities at their fair
value.
The
discount from the face value of the convertible debt instruments resulting from
allocating some or all of the proceeds to derivative instruments, together with
the stated interest on the instrument, is amortized over the life of the
instrument through periodic charges to income, using the effective interest
method.
Certain
instruments, including convertible debt and freestanding options or warrants
issued, may be subject to registration rights agreements, which may impose
penalties for failure to register the underlying common stock by a defined
date. Any such penalties are accounted for in accordance with FAS 5
and are accrued when they are deemed probable.
The
classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is re-assessed periodically,
including at the end of each reporting period. If re-classification is required,
the fair value of the derivative instrument, as of the determination date, is
re-classified. Any previous charges or credits to income for changes in the fair
value of the derivative instrument are not reversed. Derivative instrument
liabilities are classified in the balance sheet as current or non-current based
on whether or not net-cash settlement of the derivative instrument could be
required within 12 months of the balance sheet date.
2. Convertible
Debentures
On June
11, 2007 and June 13, 2007, we sold an aggregate of $2,350,000 principal amount
of Convertible Debentures due May 2012 (the “Convertible Debentures”) to a
number of investors in reliance on Section 4(2) of the Securities Act, and
pursuant to a Securities Purchase Agreement with certain investors (the “June
Purchase Agreement”).
The
Convertible Debentures are initially convertible into Series B Preferred Stock,
which Series B Preferred Stock will not be convertible into Common Stock until
such time as the Company has sufficient number of shares of Common Stock
authorized to permit the conversion of the Convertible Debentures into Common
Stock, at which time the Convertible Debentures will automatically be
convertible into Common Stock and not Series B Preferred Stock. The
conversion price into shares of Common Stock of the Convertible Debentures is
$0.02 per share, subject to certain standard anti-dilution
adjustments. In the event that the Convertible Debentures are not
repaid when due, the conversion price will be reduced to $0.01 per
share. Because this potential reduction in the conversion price
effectively indexes the return to the investors to a factor other than the
underlying value of our common stock, the embedded conversion option has been
bifurcated and accounted for separately as a derivative instrument
liability.
Pursuant
to the June Purchase Agreement, each purchaser also received an option,
exercisable for a six month period from the Closing under the Purchase
Agreement, to purchase additional Convertible Debentures (“Additional
Convertible Debentures”) in an amount up to 50% of the original amount of
Convertible Debentures purchased. This option was also accounted for
as a derivative instrument liability. All such options expired
unexercised.
The
Convertible Debentures bear interest at an annual rate of 6%, payable quarterly,
either in cash or, at the Company’s election, in shares of our capital
stock. As of October 14, 2008, accrued interest, aggregating
$183,591, through September 30, 2008 has been settled in shares of our common
stock.
Pursuant
to the terms of the June Purchase Agreement, we are obligated to register the
shares of Common Stock issuable on conversion of the Convertible Debentures
within one year of the Closing under the June Purchase Agreement or as soon as
our Common Stock is listed on the Over-the-Counter Bulletin Board, whichever is
sooner. The June Purchase Agreement does not provide for any specific
penalties for not complying with this requirement, which has not yet been
met. As of October 14, 2008, the Company has not accrued any
penalties that may ultimately be paid, as it does not believe any penalties are
probable as of that date.
3. Derivative
Financial Instruments
As
discussed above, the embedded conversion option in our Convertible Debentures
and options issued to the investors to acquire additional debentures have been
accounted for as derivative instrument liabilities.
We use
the Cox-Ross-Rubinstein binomial model to value warrants, and the embedded
conversion option components of any bifurcated embedded derivative instruments
that are recorded as derivative liabilities. See Note 2 related to embedded
derivative instruments that have been bifurcated from our Convertible Debentures
and the options to acquire additional Convertible Debentures held by the
investors. The options and conversion options can be exercised by the
holders at any time. The options held by the investors to acquire
additional Convertible Debentures expired in December 2007.
In
valuing the embedded conversion option components of the bifurcated embedded
derivative instruments and the options, at the time they were issued and at
March 31, 2008, we used the market price of our common stock on the date of
valuation, an expected dividend yield of 0%, an estimated volatility of 250%
based on a review of our historical volatility and the remaining period to the
expiration date of the option or repayment date of the convertible debt
instrument. The risk-free rate of return used was 4.23%, based on
constant maturity rates published by the U.S. Federal Reserve, applicable to the
remaining life of the options.
At March
31, 2008, the following derivative liabilities were outstanding:
|
Issue
Date
|
Expiry
Date
|
Instrument
|
Conversion/
Exercise
Price
Per Share |
Value
–
Issue
Date
|
Value
-
March
31,
2008 |
|||||||||
|
June
2007
|
May
2012
|
$2,350,000
Convertible Debentures |
$ | 0.02 | $ | 2,338,899 | $ | 1,858,783 | ||||||
|
June
2007
|
Convertible
Debentures
Carrying Amount |
5,743 | ||||||||||||
|
June
2007
|
December
2007
|
Option
to acquire
$1,175,000 Convertible Debentures |
$ | 0.03 | 431,264 | 0 | ||||||||
|
Total
derivative financial instruments
|
$ | 2,770,163 | $ | 1,864,526 | ||||||||||
4. Stockholders'
(Deficit)
Preferred
Stock: The Company has authorized 5,000,000
preferred shares with a $0.20 par value. There are two designations
of the class of preferred shares: Class A and Series B Preferred
Stock. The Class A preferred stock is entitled to receive cumulative
annual dividends at the rate of 9%, payable in either cash or additional shares
of Class A Preferred Stock, at the option of the Company. The Series
B Preferred Stock is not entitled to any dividends. As of March 31,
2008, there were 720,000 shares of Class A Preferred stock an no shares of Class
B Preferred Stock issued and outstanding. Dividends accrued and
unpaid as of March 31, 2008 were $123,600.
Common
Stock: The Company has authorized 245,000,000
shares of $0.001 par value common stock. As of March 31, 2008, there
were 150,505,155 shares of common stock issued and outstanding.
On
January 1, 2008, the Board approved issuance of 1,437,048 shares of our common
stock, as interest for the fourth quarter of 2007, pursuant to the clauses
outlined in the convertible debenture agreements of June 11, 2007.
Warrants: At
March 31, 2008, the Company had the following outstanding and exercisable
warrants:
|
Exercise
Price
|
Number
of
Shares |
Remaining
Contractual Life (in years) |
Exercise
Price
times Number of Shares |
Weighted
Average Exercise Price |
|||||||||||||
|
$0.020
|
2,962,500 |
4.2
|
$ | 59,250 | |||||||||||||
|
$0.030
|
7,000,000 |
4.2
|
210,000 | ||||||||||||||
|
$0.030
|
3,900,000 |
3.8
|
117,000 | ||||||||||||||
|
$0.075
|
10,963,333 |
1.9
|
822,250 | ||||||||||||||
| 24,825,833 | $ | 1,208,500 | $ |
0.049
|
|||||||||||||
|
Warrants
|
Number
of
Shares
|
Weighted
Average
Exercise Price |
||||||
|
Outstanding
at January 1, 2008
|
24,825,833 | $ | 0.049 | |||||
|
Issued
|
----- | ----- | ||||||
|
Exercised
|
----- | ----- | ||||||
|
Expired
/ Cancelled
|
----- | ----- | ||||||
|
Outstanding
at March 31, 2008
|
24,825,833 | $ | 0.049 | |||||
Options: The
Company adopted a long term incentive stock option plan (the "Stock Option
Plan"). The Stock Option Plan provides for the issuance of 25,000,000 shares of
common stock upon exercise of options which may be granted pursuant to the Stock
Option Plan. As of March 31, 2008, options to purchase 22,950,000 shares were
outstanding and 2,050,000 shares are available for future grants of options. The
options vest as determined by the Board of Directors and are exercisable for a
period of no more than 10 years.
For the three months ended March 31,
2008, the Company recorded $15,850 of amortization of deferred compensation
related to stock options granted in 2006 and 2007.
At March 31, 2008, the Company had the
following outstanding stock options:
|
Exercise
Price
|
Number
of
Shares |
Remaining
Contractual Life (in years) |
Exercise
Price
times Number of Shares |
Weighted
Average Exercise Price |
|||||||||||||
|
$0.026
|
1,000,000 |
7.75
|
$ | 26,000 | |||||||||||||
|
$0.010
|
4,000,000 |
6.25
|
40,000 | ||||||||||||||
|
$0.100
|
1,000,000 |
2
|
100,000 | ||||||||||||||
|
$0.020
|
|
12,800,000 |
6
|
256,000 | |||||||||||||
|
$0.020
|
900,000 |
.25
|
18,000 | ||||||||||||||
|
$0.025
|
1,000,000 |
6.25
|
25,000 | ||||||||||||||
|
$0.015
|
2,050,000 |
6.75
|
30,750 | ||||||||||||||
|
$0.015
|
100,000 |
.5
|
1,500 | ||||||||||||||
|
$0.015
|
100,000 |
.25
|
1,500 | ||||||||||||||
| 22,950,000 | $ | 498,750 | $ |
0.022
|
|||||||||||||
|
Options
|
Number
of
Shares
|
Weighted
Average
Exercise Price |
||||||
|
Outstanding
at January 1, 2008
|
23,750,000 | $ | 0.022 | |||||
|
Granted
|
- | - | ||||||
|
Exercised
|
- | - | ||||||
|
Expired
|
(800,000 | ) | 0.020 | |||||
|
Outstanding
at March 31, 2008
|
22,950,000 | $ | 0.022 | |||||
5. Subsequent
Events
On April
1, 2008, the Board approved issuance of 1,386,885 shares of our common stock, as
interest for the first quarter of 2008, pursuant to the clauses outlined in the
convertible debenture agreements of June 11, 2007.
On April
14, 2008, we issued to Creative Hospitality Associates (“CHA”) a Warrant
pursuant to a sales agent agreement with CHA (the “Agreement”).
The
Warrant is initially exercisable for Series B Preferred Stock. At such
time as we have a sufficient number of shares of Common Stock authorized to
permit the exercise of the Warrant for Common Stock (the “Triggering Event”),
the Warrant will automatically be exercisable for Common Stock and not Series B
Preferred Stock. The maximum number of shares of Common Stock for which
the Warrant is ultimately exercisable for is 15,000,000 and the ultimate
exercise price per share of Common Stock for which the Warrant is exercisable is
$0.02 per share, each of which is subject to adjustment and the conditions
contained in the Warrant. The Warrant becomes ultimately exercisable for
such 15,000,000 shares of Common Stock pursuant to a vesting schedule as set
forth in the Warrant that provides that the Warrant becomes ultimately
exercisable for 500,000 shares of Common Stock with each 1,000 rooms in a hotel
or other property that CHA or its affiliate introduces to us and in which our
Media and Entertainment System is installed.
On May
15, 2008, the Registrant’s Board of Directors approved the grant to employees
and consultants, under the Registrant’s Long-Term Incentive Plan, of an
aggregate of 100,000 Incentive Stock Options and an aggregate of 100,000
Non-Qualified Stock Options. Such options were issued at an exercise
price of $0.017 per share and vest one-third (1/3) on each of the first three
anniversaries of the employment date.
On July
1, 2008, the Board approved issuance of 1,402,302 shares of our common stock, as
interest for the period April 1 through June 30, 2008, pursuant to the clauses
outlined in the convertible debenture agreements of June 11, 2007.
On July
15, 2008 Aaron Dobrinsky exercised 4,000,000 options on a cashless basis
resulting in the net issuance of 2,571,429 shares of common stock
On July
21, 2008, the Registrant’s Board of Directors approved the grant, under the
Registrant’s Long-Term Incentive Plan, of an aggregate of 400,000 Incentive
Stock Options and an aggregate of 600,000 Non-Qualified Stock
Options. Such options were issued at an exercise price of $0.02 per
share and vest one-third (1/3) on each of the first three anniversaries of the
employment date
On July
31, 2008 we entered into a Securities Purchase Agreement (the “Purchase
Agreement”), with
an Investor Group, and
certain affiliated trusts (collectively, the “Investors”), pursuant to
which we simultaneously sold and issued to the Investors an aggregate of
$2,500,000 of Series C Preferred Stock (“Series C Stock”). In
connection with the Purchase Agreement, the Registrant also issued Warrants to
the Investors for the purchase of additional shares of Series C Stock or Common
Stock and entered into a Registration Rights Agreement with the
Investors.
Each
share of Series C Stock is convertible into such number of shares of Common
Stock as is determined by dividing $2,500 by the initial conversion price of
$0.025 per share (or 100,000 shares of Common Stock for each share of Series C
Stock converted). However, the Series C Stock is not convertible into Common
Stock until such time as the Company has a sufficient number of shares of Common
Stock authorized to permit the conversion of all of the Series C Stock into
Common Stock, at which time the Series C Stock will automatically convert into
Common Stock.
The
Series C Stock accrues dividends at an annual rate of 6% per year, payable
quarterly, either in cash or, at the Registrant’s election, shares of the
Registrant’s capital stock. There are no redemption rights associated
with the Series C Stock. Each holder of Series C stock is entitled to
voting rights on an “as converted” to Common Stock basis together with the
holders of Common Stock.
Pursuant
to the Purchase Agreement, the Investors also received (i) Series C-1 Warrants
to purchase an aggregate of 200 shares of Series C Stock, at an initial exercise
price of $4,000 per share of Series C Stock, and (ii) Series C-2 Warrants to
purchase an aggregate of 200 shares of Series C Stock, at an initial exercise
price of $6,000 per share of Series C Stock. The Warrants are
immediately exercisable and expire on the third anniversary of their date of
issuance. At such time as the Company has a sufficient number of
shares of Common Stock authorized to permit the conversion of all Series C Stock
into Common Stock, each Warrant will no longer be exercisable for shares of
Series C Stock but instead will be exercisable for the number of shares of
Common Stock into which the Series C Stock that the Warrant could have been
exercised for prior thereto would have been convertible into, at an initial
exercise price of $.04 per share of Common Stock under the Series C-1 Warrants
and at initial exercise price of $.06 per share of Common Stock under the Series
C-2 Warrants.
In
connection with the Purchase Agreement, the Registrant entered into a
Registration Rights Agreement. Pursuant to the Registration Rights Agreement,
the Registrant is obligated to register for resale under the Securities Act the
shares of Common Stock issuable upon conversion of the Series C Stock and
exercise of the Warrants by April 30, 2009.
On August
19, 2008, the Registrant’s Board of Directors approved the grant, under the
Registrant’s Long-Term Incentive Plan, of an aggregate of 300,000 Incentive
Stock Options. Such options were issued at an exercise price of
$0.012 per share and vest one-third (1/3) on each of the first three
anniversaries of the grant date.
On August
19, 2008, the Company granted under our Long-Term Incentive Plan, an aggregate
of 500,000 Non-Qualified Stock Options (“NQOs”). The NQOs were
granted to Christopher Blisard with respect to his service as a member of the
Board of Directors during 2008 and 2009 and vest on December 31,
2009. The options were issued at an exercise price of $0.012 per
share, representing the closing price of the Company’s common stock on such
date.
On August
19, 2008, the Company issued 1,200,000 shares as Board of Director compensation
for the year ended December 31, 2007. 800,000 of the shares were issued to Peter
Bordes and 400,000 of the shares were issued to Herbert Hunt. The
shares were valued at $0.025 per share for a fair market value of
$30,000. This compensation was accrued for in 2007.
On
October 1, 2008, the Board approved issuance of 1,417,707 shares of our common
stock, as interest for the period July 1 through September 30, 2008, pursuant to
the clauses outlined in the convertible debenture agreements of June 11,
2007.
This Form
10-Q contains or incorporates by reference “forward-looking statements,” as that
term is used in federal securities laws, about our financial condition, results
of operations and business. These statements include, among
others:
-
statements concerning the benefits that we expect will result from our business
activities and results of exploration that we contemplate or have completed,
such as increased revenues; and
-
statements of our expectations, beliefs, future plans and strategies,
anticipated developments and other matters that are not historical
facts.
These
statements may be made expressly in this document or may be incorporated by
reference to other documents that we will file with the SEC. You can
find many of these statements by looking for words such as “believes,”
“expects,” “anticipates,” “estimates” or similar expressions used in this report
or incorporated by reference in this report.
These
forward-looking statements are subject to numerous assumptions, risks and
uncertainties that may cause our actual results to be materially different from
any future results expressed or implied in those statements. Because
the statements are subject to risks and uncertainties, actual results may differ
materially from those expressed or implied. We caution you not to put
undue reliance on these statements, which speak only as of the date of this
report. Further, the information contained in this document or
incorporated herein by reference is a statement of our present intention and is
based on present facts and assumptions, and may change at any time and without
notice, based on changes in such facts or assumptions.
Roomlinx, Inc., a Nevada corporation ("We," "Us"
or the "Company"), provides two core products and
services:
1. Wired networking solutions and
wireless fidelity networking solutions, also known as Wi-Fi,
for high speed internet access to hotels, convention centers, corporate
apartments and special events locations. The Company installs and creates
services that address the productivity and communications needs of hotel guests, convention center exhibitors
and corporate apartment customers. We specialize in providing advanced Wi-Fi
wireless services such as the wireless standards known as
802.11a/b/g.
Hotel customers sign long-term service
agreements, where we provide the maintenance for the networks, as
well as the right to provide value added services over the
network.
We derive our revenues primarily from
the installation of the wired and wireless networks we provide to hotels,
convention centers and apartment buildings. We derive additional revenue
from the maintenance of these networks. Customers typically pay a one-time fee
for the installation of the network and then pay monthly maintenance fees for
the upkeep and support of the network. During 2008 we made a fundamental change in our business model
pertaining to our Tier 3 services. We are no longer including Tier 3
services in the regular room rate for maintenance; these services are either
billed for at the time of service or the regular room rate is
increased to cover the
estimated costs.
2. In-room media and entertainment solutions for hotels, resorts, and time-share properties. The
Company develops software and integrates hardware to facilitate the distribution
of entertainment, business applications, national and local advertising, and
content. The content consists of adult, Hollywood, and specialty
programming, music, internet based television programming, digital global
newspapers, global radio and television stations, business applications
(allowing the guest to use Microsoft Office
programs), and hotel-specific services and
advice.
The Company provides proprietary
software an LCD television, a media console (consisting of a DVD player, CD/DVD
burner, and numerous input jacks for the hotel guest), a wireless keyboard with built-in mouse,
and a remote control.
The Company installs and supports these
components.
Hotel customers sign long-term service
agreements, where we provide the maintenance for the networks, as well as the
right to provide value added services over the
network.
We derive our revenues primarily from
charging the hotels a monthly fee for the usage of our software and proprietary
media and entertainment system. We derive additional revenue
from the rental of movies, printing service, advertising and sale of products
through our system. We began marketing this product in September
2007. Since June 2007, we have invested significant capital to
develop our software, integrate our hardware, and develop significant product
and content partnerships.
We have
incurred operating losses since our inception. We will need to
increase our installation and maintenance revenues and improve our gross margins
to become profitable and sustain profitability on a quarterly and annual
basis. We recently completed development of our Media and
Entertainment solution and have commenced marketing it. There is no
assurance that we will be successful in our efforts. We are not able
to predict with any certainty when, if ever, we will attain profitable
operations.
We
currently have our media and entertainment product installed into the Jet Hotel
in Downtown Denver as a pilot. We have signed agreements to install
into select rooms, as pilots, with a select service property in the Denver
Technological Center, managed and owned by a large hotel corporation, and with a
full service hotel located in Chicago, IL, which is also owned by a large hotel
corporation. We have signed an exclusive contract to provide our
media and entertainment and HSIA products and services to the Kessler Collection
of hotels, (www.kesslercollection.com). We have signed
contracts to install into the Bohemian Resort Biltmore Village in Asheville, NC
and into select rooms of a Country Inn and Suites in Merryville, IN and
Lexington, KY. We also have a signed contract to install 120 rooms of
a full service hotel in the Chicago, IL vicinity.
Management’s
Discussion and Analysis (MD&A) is designed to provide the reader of the
financial statements with a narrative discussion of our results of operations;
financial position; liquidity and capital resources; critical accounting
policies and significant estimates; and the impact of recently issued accounting
standards. Our MD&A is presented in five sections:
|
●
|
Critical
Accounting Policies
|
|
●
|
Results
of Operations
|
|
●
|
Recent
Accounting Pronouncements
|
|
●
|
Financial
Condition
|
|
●
|
Forward-Looking
Statements
|
This
discussion should be read in conjunction with our consolidated financial
statements and accompanying Notes included in this report and in the 2007 annual
report on Form 10-KSB, as well as our reports on Form 8-K and other SEC
filings.
Management's Discussion and Analysis of
Financial Condition and Results of Operations discuss our financial statements,
which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and the related
disclosures of contingent assets and liabilities. On an on-going basis,
management evaluates its estimates and judgments, including those related to
revenue recognition, allowance for doubtful accounts and property and
equipment valuation. Management bases its
estimates and judgments on historical experience and on various other factors
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions and conditions.
Management believes the following
critical accounting policies, among others, affect its more significant judgments and
estimates used in the preparation of its consolidated financial
statements.
Our system sales and installation
revenue primarily consists of wired and wireless network equipment and
installation fees associated with the network and is recognized as revenue
when the installation is completed and the customer has accepted such
installation. Our service, maintenance and usage revenue, which primarily
consists of monthly maintenance fees related to the upkeep of the
network, is recognized on a monthly basis as
services are provided.
We estimate the collectability of our
trade receivables. A considerable amount of judgment is required in assessing
the ultimate realization of these receivables, including analysis of
historical collection rates
and the current credit-worthiness of significant customers.
Work in progress represents the cost of
hardware and software which has been purchased by us for installation at our
customers’ facilities, but has not been accepted
by the customer.
We capitalize and subsequently
depreciate our property and equipment over the estimated useful life of the
asset. In assessing the recoverability of our long-lived assets, including
goodwill, we must make certain assumptions regarding the useful life and contribution to the estimated
future cash flows. If such assumptions change in the future, we may be required
to record impairment charges for these assets not previously
recorded.
Since inception, we have accumulated
substantial net operating loss carry forwards for tax
purposes. There are statutory limitations on our ability to realize
any future benefit from these potential tax assets and we are uncertain as to
whether we will ever utilize the tax loss carry
forwards. Accordingly, we have recorded a valuation allowance to offset the
deferred tax asset.
We provide compensation costs for our
stock option plans determined in accordance with the fair value based method
prescribed in SFAS No. 123(R). We estimate the fair value of each
stock option at the grant
date by using the Black-Scholes option-pricing model and provide for expense
recognition over the service period, if any, of the stock
option.
In
connection with the sale of debt or equity instruments, we may sell options or
warrants to purchase our common stock. In certain circumstances, these options
or warrants may be classified as derivative liabilities, rather than as equity.
Additionally, the debt or equity instruments may contain embedded derivative
instruments, such as conversion options, which in certain circumstances may be
required to be bifurcated from the associated host instrument and accounted for
separately as a derivative instrument liability.
The
identification of, and accounting for, derivative instruments is complex. Our
derivative instrument liabilities are re-valued at the end of each reporting
period, with changes in the fair value of the derivative liability recorded as
charges or credits to income, in the period in which the changes occur. For
options, warrants and bifurcated conversion options that are accounted for as
derivative instrument liabilities, we determine the fair value of these
instruments using the Cox-Ross-Rubinstein binomial option pricing model. That
model requires assumptions related to the remaining term of the instruments and
risk-free rates of return, our current common stock price and expected dividend
yield, and the expected volatility of our common stock price over the life of
the instruments. The identification of, and accounting for,
derivative instruments and the assumptions used to value them can significantly
affect our financial statements.
Three months ended March 31,
2008 compared to three months ended March 31, 2007:
For the three months ended March 31, 2008, we reported a net loss of $79,065, compared to a net loss of $244,741 for the three months ended March 31, 2007. Our operating loss for the three months ended March 31, 2008 was $288,502, a decline in operating results of $187,449 compared to the operating loss of $101,053 that we reported for the three months ended March 31,
2007. As discussed below, in 2008 we continued investing significant capital in the
design, production, and marketing of our new media and entertainment
product. That increase in costs, offset by derivative
income, was a primary factor in the
results.
System sales
and installation revenue.
System sales and installation revenue decreased 45% to $91,129 during the three months ended March 31, 2008 from $165,481 during the three months ended March 31, 2007. We completed upgrades on three existing
customers during the
three months ended March 31, 2008, compared to three new installations during the
three months ended March 31, 2007. This component of our
revenue stream is dependent upon the acquisition of new
customers and the upgrade
needs of existing customers, which can vary from year to
year. Our shift
in focus away from the HSIA product and services to the Media and Entertainment
products and services was also an attributing factor in this decrease.
Service,
maintenance and usage revenue. Service, maintenance and usage revenue
decreased 17% to $286,536 for the three months ended March 31, 2008 from $344,821 for the three months ended March 31, 2007. The decrease was due to a
decrease in the number of
customers we service on a recurring basis to a total of 156 customers compared to 185 customers as of March 31, 2007.
Cost of system sales and
installation. Cost of system sales and installation decreased 65% to
$38,249 for the three months ended March 31, 2008 from $107,922 for the three
months ended March 31, 2007. The decrease was attributable to the decreased
corresponding revenue during the period as well as the lowered cost of upgrades
versus installations.
Cost of
service, maintenance and
usage. Cost of service,
maintenance and usage decreased 18% to $264,155 for the three months ended March 31, 2008 from $321,540 for the three months ended March 31, 2007. The decrease was
primarily attributable to the decreased corresponding revenue during the
period.
Sales and
marketing. Sales and
marketing expense increased by $17,732 to $65,034 during the three months ended March 31, 2008 from $47,302 for the three months ended March 31, 2007. During 2008, we increased our sales force
and continued marketing our new media and
entertainment product. Our personnel and personnel related
costs increased by $3,860 to $50,145 in 2008 from
$46,285 in 2007; travel
expenses increased by $2,125 to $2,971 in 2008 from $846 in
2007; and advertising
expense increased by $11,747 to $11,918 in 2008 from $171
in 2007.
Product
development.
In June 2007, we created a new department to handle
the majority of the design, production, and promotion of our new media and
entertainment product. This new department incurred costs of $114,416 during the three months ended
March 31, 2008. This cost included
$94,984 in labor and personnel
expense and $19,432 in test equipment, and services.
Stock
compensation. For the three
months ended March 31, 2008, the Company recorded $15,850 of amortization of deferred
compensation related to stock options granted in 2006 and 2007.
General and
administrative. General and
administrative expense increased by $30,022 to $162,584 for the three months ended March 31, 2008 from $132,562 for the three months ended March 31, 2007. During 2008, personnel and personnel related costs
increased $21,534 to $66,529 in 2008 from $44,995 in 2007; office related costs such as rent,
telephone, and insurance increased $6,882 to $31,306 in 2007 from $24,424 in 2007; travel expenses increased $802 to $5,684 in 2008 from
$4,882 in 2007; professional fees, SEC fees, and investor
relations fees decreased $513 to $52,054 in 2008 from $52,567 in 2007; and bad debt expense increased $1,317 to $7,010 for 2008 from $5,693 in 2008.
Depreciation. Depreciation of property and equipment
increased to $5,879 for the three months ended March 31, 2008 compared to $2,029 for the three months ended March 31, 2007. This increase is attributable to the Company purchasing capital assets for our
new media and entertainment product. Depreciation expense is
computed each year based upon our estimate of the remaining useful lives of the
assets. Our estimates of useful lives are periodically reviewed and
the shorter of the actual
life or the economic life of the assets are used.
Interest
expense. Interest expense
decreased $59,599 to $36,382 for the three months ended March 31, 2008 as compared to $95,981 for the three months ended March 31, 2007. The decrease is attributable to the settlement of outstanding and defaulted
debt.
Derivative income (expense)
net.
Derivative
instruments income of $238,536 represents the net unrealized (non-cash) change
during the three months ended March 31, 2008, in the fair value of our
derivative instrument liabilities related to certain embedded derivatives in our
convertible debt that have been bifurcated and accounted for
separately. There was no derivative instrument income during the
three months ended March 31, 2007.
Liquidity
and Capital Resources
As of March 31, 2008 we had $708,853 in cash and cash
equivalents. In July 2008 we sold
$2,500,000 of Series C Preferred Stock, which amount is sufficient to fund
operating activities and continue investing in our new media and entertainment
product through 2009 and into 2010.
Operating
Activities
Net cash
used by operating activities was $193,966 for the three months ended March 31,
2008 as compared to $95,564 used for the three months ended March 31,
2007.
Investing
Activities
Net cash
used by investing activities was $12,346, used to purchase capital assets, for
the three months ended March 31, 2008, as compared to no investing activity for
the three months ended March 31, 2007.
Financing
Activities
There
were no financing activities for the three months ended March 31, 2008 as
compared to net cash used for financing activities of $45,103 for the three
months ended March 31, 2007.
We are exposed to risk from potential
changes in the U.S./Canadian currency exchange rates as they relate to our
services and purchases for our Canadian customers.
Foreign exchange gain / (loss)
Foreign transactions resulted in a
loss of $1,366 for the three months ended March 31, 2008 compared to a loss of $5,866 for the three months ended March 31, 2007. The amount of gain (loss) will vary
based upon the volume of foreign currency denominated transactions and
fluctuations in the value of the Canadian dollar vis-à-vis the US dollar.
Translation of Financial
Results
Because we translate a portion of our
financial results from Canadian dollars to U.S. dollars, fluctuations in the
value of the Canadian dollar have a direct affect on our reported consolidated
results. We do
not hedge against the possible impact of this risk. A 10 percent
adverse change in the foreign currency exchange rate would not have a
significant impact on our consolidated results of operations or financial
position.
|
(a)
|
Our Management supervised and
participated in an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures as of March 31, 2008. Based on that
evaluation, our management, including our principle executive and financial officer,
concluded that our disclosure controls and procedures were effective to
ensure that information required to be disclosed in the reports filed or
submitted by the Company under the Securities Exchange Act of 1934, as
amended, is recorded, processed,
summarized and communicated to our management, including our principle
executive and financial officer, as appropriate, to allow timely decisions
regarding required disclosure within the time periods specified in the
SEC’s rules and
forms.
|
| Internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems that are determined to be effective by provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. | |
|
(b)
|
There were no changes in our internal control over financial reporting during the period ended March 31, 2008, that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. |
None.
On
January 1, 2008, the Board approved issuance of 1,437,048 shares of our common
stock, as interest for the fourth quarter of 2007, pursuant to the clauses
outlined in the convertible debenture agreements of June 11, 2007.
None.
None.
None.
|
(a) Exhibits.
31.1
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
for the Chief Executive and Chief Financial Officers.
32.1
Certification of the Chief Executive and Chief Financial Officers pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002.
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
| Roomlinx, Inc. | |||
|
|
By:
|
/s/ Michael S. Wasik | |
| Michael S. Wasik | |||
| Chief Executive Officer | |||
| Chief Financial Officer | |||
| Date: 10/15/08 | |||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
|
|
By:
|
/s/
|
Michael S. Wasik |
| Michael S. Wasik | |||
| Chief Executive Officer, | |||
| Chief Financial Officer and Director | |||
| Date: 10/15/08 | |||