Troika Media Group, Inc. - Quarter Report: 2013 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

Commission File Number: 000-26213

ROOMLINX, INC.

(Exact name of registrant as specified in its charter)

11101 W. 120^th Ave., Suite 200, Broomfield, Colorado 80021

(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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 

Yes ¨ No x

The number of shares outstanding of the Issuer's common stock as of August 14, 2013, was 6,405,413.

ROOMLINX, INC.

Roomlinx, Inc.

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial statements.

Roomlinx, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

for the three and six months ended June 30, 2013 and 2012

(unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

Roomlinx, Inc.

CONSOLIDATED STATEMENT OF CHANGES IN DEFICIT

for the six months ended June 30, 2013

(unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

Roomlinx, Inc.

CONSOLIDATED CASH FLOW STATEMENTS

for the six months ended June 30, 2013 and 2012

(unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

Roomlinx, Inc.

Notes to Consolidated Financial Statements

June 30, 2013

(Unaudited)

1.     Organization and Significant Accounting Policies

Description of Business:    Roomlinx, Inc. (“Roomlinx” or the “Company”) is incorporated under the laws of the state of Nevada. The Company sells, installs, and services in-room media and entertainment solutions for hotels, resorts, and time share properties; including its proprietary Interactive TV platform, internet, and free to guest and video on demand programming. Roomlinx also sells, installs and services telephone, internet, and television services for residential consumers. The Company develops software and integrates hardware to facilitate the distribution of Hollywood, adult, and specialty content, business applications, national and local advertising, and concierge services. The Company also 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, resorts, and time share locations. The Company installs and creates services that address the productivity and communications needs of hotel, resort and time share guests, as well as residential consumers.

Basis of Consolidation:    The consolidated financial statements include Roomlinx, Inc. and its wholly-owned subsidiaries, Canadian Communications LLC, Cardinal Connect, LLC, Cardinal Broadband, LLC, and Arista Communications, LLC, a 50% subsidiary, controlled by the Company. Canadian Communications and Cardinal Connect, LLC, are non-operating entities. All significant intercompany accounts and transactions have been eliminated in consolidation.

Basis of Presentation: The accompanying consolidated 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-K as of and for the year ended December 31, 2012.

Reclassification: Certain amounts in the 2012 financial statements have been reclassified to conform to the current year presentation.

Going Concern and Management Plans: The Company has experienced recurring losses and negative cash flows from operations. At June 30, 2013, the Company had approximate balances of cash and cash equivalents of $1,770,000, working capital of $160,000, total deficit of $2,305,000 and accumulated deficit of $39,684,000. To date, the Company has in large part relied on debt and equity financing to fund its shortfall in cash generated from operations. As of June 30, 2013, the Company has available approximately $19,800,000 under its line of credit; however, as described below, any borrowings under the line of credit could be limited.

As described in Note 5, on May 4, 2013, the Company executed a Fourth Amendment to the Revolving Credit, Security and Warrant Purchase Agreement previously entered into with Cenfin on June 5, 2009 (the “Original Agreement”). Pursuant to the Amendment, the Original Agreement has been amended to provide that the making of any and all Revolving Loans (as defined in the Original Agreement) shall be at the sole and absolute discretion of Cenfin. Accordingly, the Company’s ability to borrow under the line of credit is at the discretion of the lender, and there are no assurances that the lender, will permit the Company to borrow under the line of credit. Management is closely monitoring the cash balances, cash needs and expense levels and has implemented a cost reduction plan. If the Company is unable to borrow additional funds under the line of credit or obtain financing from alternative sources, the Company estimates its current cash and cash equivalents are sufficient to fund operations for the next eight to twelve months. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might result should the Company be unable to continue as a going concern.

Accounts Receivable:    Accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. Accounts receivable are stated at the amount billed to the customer. Accounts receivable in excess of 30 days old are considered delinquent. Outstanding customer invoices are periodically assessed for collectability. The assessment and related estimate are based on current credit-worthiness and payment history. As of June 30, 2013 and December 31, 2012, the Company recorded an allowance of approximately $248,000 and $229,000, respectively.

Revenue Recognition:    Revenue is derived from the installation and ongoing services of in-room media, entertainment, and HD television programming solutions in addition to wired networking solutions and Wireless Fidelity networking solutions. Revenue is recognized when all applicable recognition criteria have been met, which generally include a) persuasive evidence of an existing arrangement; b) fixed or determinable price; c) delivery has occurred or service has been rendered; d) collectability of the sales price is reasonably assured.

Installations and service arrangements are contractually predetermined and such contractual arrangements may provide for multiple deliverables, revenue is recognized in accordance with ASC Topic 605, Multiple Deliverable Revenue. The application of ASC Topic 605 may result in the deferral of revenue recognition for installations across the service period of the contract and the re-allocation and/or deferral of revenue recognition across various service arrangements. Below is a summary of such application of the revenue recognition policy as it relates to installation and service arrangements the Company has with its customers.

The Company enters into contractual arrangements to provide multiple deliverables which may include some or all of the following - systems installations and a variety of services related to high speed internet access, free-to-guest, video on demand and iTV systems as well as residential phone, internet and television. Each of these elements must be identified and individually evaluated for separation. The term “element” is used interchangeably with the term “deliverable” and the Company considers the facts and circumstances as it relates to its performance obligations in the arrangement and includes product and service elements, a license or right to use an asset, and other obligations negotiated for and assumed in the agreement. Analyzing an arrangement to identify all of the elements requires the use of judgment. In the determination of the elements included in Roomlinx agreements, embedded software and inconsequential or perfunctory activities were taken into consideration.

Once the Deliverables have been identified, the Relative Fair Value of each Element was determined under the concept of Relative Selling Price (RSP) for which the Company applied the hierarchy of selling price under ASC Topic 605 as follows:

VSOE - Vendor specific objective evidence is still the most preferred criteria with which to establish fair value of a deliverable. VSOE is the price of a deliverable when a company sells it on an open market separately from a bundled transaction.

TPE - Third party evidence is the second most preferred criteria with which to establish fair value of a deliverable. The measure for the pricing of this criterion is the price that a competitor or other third party sells a similar deliverable in a similar transaction or situation.

RSP - Relative selling price is the price that management would use for a deliverable if the item were sold separately on a regular basis which is consistent with company selling practices. The clear distinction between RSP and VSOE is that under VSOE, management must sell or intend to sell the deliverable separately from the bundle, or has sold the deliverable separately from the bundle already. With RSP, a company may have no plan to sell the deliverable on a stand-alone basis.

Hospitality Installation Revenues

Hospitality installations include High Speed Internet Access (HSIA), Interactive Television (iTV), Free to Guest (FTG) and Video on Demand (VOD). Under the terms of these typical product sales and equipment installation contracts, a 50% deposit is due at the time of contract execution and is recorded as deferred revenue. Upon the completion of the installation process, deferred revenue is realized. However, in some cases related to VOD installations or upgrades, the Company extends credit to customers and records a receivable against the revenue recognized at the completion of the installation.

Additionally, the Company may provide the customer with a lease financing arrangement provided the customer has demonstrated its credit worthiness to the satisfaction of the Company. Under the terms and conditions of the lease arrangements, these leases have been classified and recorded as Sale-Type Leases under ASC Topic 840-30 and accordingly, revenue is recognized upon completion and customer acceptance of the installation which gives rise to a lease receivable and unearned income.

Hospitality Service, Content and Usage Revenues

The Company provides ongoing 24x7 support to both its hotel customers and their guests, content and maintenance as applicable to those products purchased, installed and serviced under contract. Generally, support is invoiced in arrears on a monthly basis with content and usage, which are dependent on guest take rates and buying habits. Service maintenance and usage revenue also includes revenue from meeting room services, which are billed as the events occur.

Residential Revenues

Residential revenues consist of equipment sales and installation charges, support and maintenance of voice, internet, and television services, and content provider residuals, installation commissions, and management fees. Installations charges are added to the monthly service fee for voice, internet, and television, which is invoiced in advance creating deferred revenue to be realized in the appropriate period. The Company’s policy prohibits the issuance of customer credits during the month of cancelation. The Company earns residuals as a percentage of monthly customer service charges and a flat rate for each new customer sign up. Residuals are recorded monthly. Commissions and management fees are variable and therefore revenue is recognized at the time of payment.

Concentrations

Credit Risk:    The Company's operating cash balances are maintained in financial institutions and periodically exceed federally insured limits. The Company believes that the financial strength of these institutions mitigates the underlying risk of loss. To date, these concentrations of credit risk have not had a significant impact on the Company’s financial position or results of operations.

Accounts Receivable: At June 30, 2013 and December 31, 2012, Hyatt Corporation-controlled properties represented 7% and 49%, respectively, of accounts receivable, and other Hyatt properties in the aggregate represented 69% and 29%, respectively, of accounts receivable.

Revenue:  During the three months ended June 30, 2013 and 2012, Hyatt Corporation-controlled properties contributed 21% and 51%, respectively, and other Hyatt properties in the aggregate contributed 68% and 19%, respectively, of Roomlinx’s US Hospitality revenue.  Additionally, one customer contributed 51% to Roomlinx’s Canadian hospitality revenue in 2013 versus one customer contributing 55% in 2012.

During the six months ended June 30, 2013 and 2012, Hyatt Corporation-controlled properties contributed 28% and 32%, respectively, and other Hyatt properties in the aggregate contributed 54% and 22%, respectively, of Roomlinx’s US Hospitality revenue.  Additionally, one customer contributed 53% to Roomlinx’s Canadian hospitality revenue in 2013 and 2012.

Fair Value Measurement:   The Company discloses fair value information about financial instruments based on a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of June 30, 2013 and December 31, 2012.

The respective carrying value of certain financial instruments approximate their fair values. These financial instruments include cash and cash equivalents, accounts receivable, leases receivable, accounts payable, capital lease obligations, notes payable and the line of credit. The carrying value of cash and cash equivalents, accounts receivable, leases receivable, and accounts payable approximate fair value due to their short term nature. The carrying amount of capital lease obligations and notes payable approximates their fair values as the pricing and terms of these liabilities approximate market rates. The fair value of the line of credit is not practicable to estimate because of the related party nature of the underlying transactions. The Company has no financial instruments with the exception of cash and cash equivalents (level 1) valued on a recurring basis.

Long-Lived Assets: The Company reviews the carrying value of long-lived assets, such as property and equipment, whenever events or circumstances indicate the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized to reduce the carrying value of the asset to its estimated fair value.

Segments: We operate and prepare our financial reports based on two segments; Hospitality and Residential. We have determined these segments based on the location, design, and end users of our products.

Hospitality: Our Hospitality segment includes hotels, resorts, and timeshare properties in the United States, Canada, and Other Foreign. As of June 30, 2013 and 2012, Other Foreign included Mexico and Aruba. The products offered under our hospitality segment include the installation of, and the support and service of, high-speed internet access networks, proprietary Interactive TV platform, free to guest programming, and on-demand movie programming, as well as advertising and e-commerce products.

Residential: Our residential segment includes multi-dwelling unit customers and business customers (non-hospitality) in the United States. The products offered include the installation of, and the support and service of, telephone, internet, and television services.

Foreign Currency Translation:    The US Dollar is the functional currency of the Company. Assets and liabilities denominated in foreign currencies are re-measured into US Dollars and the resulting gains and losses are included in the consolidated statements of comprehensive loss as a component of other income (expense).

Earnings (loss) Per Share:    The Company computes earnings (loss) per share by dividing net income (loss) by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding during the period. Dilutive common stock equivalents consist of shares issuable upon the exercise of the Company's stock options and warrants. Potentially dilutive securities, purchase stock options and warrants, are excluded from the calculation when their inclusion would be anti-dilutive, such as periods when a net loss is reported or when the exercise price of the instrument exceeds the fair market value. Accordingly, the weighted average shares outstanding have not been adjusted for dilutive shares. Outstanding stock options and warrants are not considered in the calculation as the impact of the potential common shares (totaling approximately 2,470,100 and 2,505,421 shares as of June 30, 2013 and June 30, 2012, respectively) would be to decrease the net loss per share.

Use of Estimates: The preparation of the Company’s consolidated financial statements in conformity with generally accepted accounting principles requires the Company’s management to make estimates and assumptions that affect the amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

2.     Leases Receivable

As of June 30, 2013, the Company had $2,114,875 in leases receivables compared to $2,802,465 at December 31, 2012, less a reserve for uncollectible accounts of $0 and $135,000, respectively. During the six months ended June 30, 2013 and 2012, the Company received payments of $469,822 and $475,614, respectively. The Company did not enter into any new leases in the six months ended June 30, 2013 and June 30, 2012. These leases have terms of 60 months and an average interest rate of 9.5%. In addition, during the six months ended June 30, 2013 and 2012, the Company recorded a loss of $82,768 and $60,211 respectively, related to the early termination of lease receivable contracts. These amounts are net of the return of equipment to inventory and are included in direct costs in the consolidated statements of comprehensive loss.

Future minimum receipts on lease receivables are as follows: 

3.     Inventory

Inventory, principally large order quantity items which are required for the Company’s media and entertainment installations, is stated at the lower of cost (first-in, first-out) basis or market. The Company generally maintains only the inventory necessary for contemplated installations. Work in progress represents the cost of equipment and third party installation related to installations which were not yet completed.

The Company performs an analysis of slow-moving or obsolete inventory periodically and any necessary valuation reserves, which could potentially be significant, are included in the period in which the evaluations are completed. As of June 30, 2013 and December 31, 2012, the inventory obsolescence reserve was mainly related to raw materials and results in a new cost basis for accounting purposes.

Inventory balances as of June 30, 2013 and December 31, 2012 are as follows:

4.     Notes Payable

The Company has a note payable with a principal balance of $35,526 at June 30, 2013 versus two notes payable with an aggregate principal balance of $42,761 ($41,178 and $1,583) at December 31, 2012. This note bears interest at 11%, and matures August 1, 2016. Monthly principal and interest payments total $1,163.

5.     Line of Credit

On June 5, 2009, the Company entered into a Revolving Credit, Security and Warrant Purchase Agreement (the “Credit Agreement”) with Cenfin LLC, an entity principally owned by significant shareholders of the Company. The Credit Agreement permits us to borrow up to $25 million until June 5, 2017. On May 3, 2013, the Company and Cenfin executed a fourth amendment to the Credit Agreement which provided Cenfin sole and absolute discretion related to funding any advance requested by Roomlinx. Advances must be repaid at the earlier of 5 years from the date of borrowing or at the expiration of the Credit Agreement. The principal balance may be repaid at any time without penalty. Borrowings accrue interest, payable quarterly on the unpaid principal and interest at a rate equal to the Federal Funds Rate at July 15 of each year plus 5% (approximately 5.19% at June 30, 2013). The Credit Agreement is collateralized by substantially all of our assets, and requires the Company to maintain a total outstanding indebtedness to total assets ratio of less than 3 to 1.

Amounts outstanding under the Credit Agreement were $5,176,000 at June 30, 2013 and December 31, 2012. These advances will be repaid at various dates between 2014 and 2017. A total of $19,824,000 is available for future borrowings, subject to the terms of the amended agreement. Interest expense of $122,708 and $128,353, exclusive of accretion of the debt discount of $171,013 and $161,108, was recorded for the six months ended June 30, 2013 and 2012, respectively. The unamortized balance of the debt discount was $997,810 and $1,168,823 at June 30, 2013 and December 31, 2012, respectively.

The Credit Agreement requires that, in conjunction with each advance, we issue Cenfin warrants to purchase shares of Roomlinx common stock equal to 50% of the principal amount funded divided by (i) $2.00 on the first $5,000,000 of borrowings on or after July 15, 2010 ($4,712,000 as of June 30, 2013) or (ii) thereafter the fair market value of the Company’s common stock on the date of such draw for advances in excess of $5,000,000. The exercise price of the warrants is $2.00 for the warrants issued on the first $5,000,000 of borrowings made after July 15, 2010 and, thereafter, the average of the high and low market price for the Company’s common stock on the date of issuance. The exercise period of these warrants expire three years from the date of issuance.

Future minimum payments against the line of credit are as follows:

6.     Commitments and Contingencies

Operating Leases:    On April 10, 2012, the Company executed a lease agreement for office space with an effective date of May 1, 2012. Terms of the lease established a base rent per square foot plus operating expenses throughout the term of the lease which expires September 30, 2015, and which includes the lessor waiving several months of base rent and pre-defined annual escalation of the base rent per square foot. The Company had a deferred rent liability of $57,698 and $55,025 included in other liabilities as of June 30, 2013 and December 31, 2012, respectively. The Company has future minimum lease payments of $133,727, $151,210 and $38,021 during the twelve months ended June 30, 2014, 2015, and 2016, respectively.

Capital Lease Obligations:  The Company has a capital lease arrangement related to the acquisition of software. These arrangements are collateralized by the software and expire in March 2015 with future minimum lease payments as follows: $11,769 and $9,545 for the twelve month periods ended June 30, 2014 and 2015, respectively.

7.     Equity

Preferred Stock:    The Company has authorized 5,000,000 preferred shares with a $0.20 par value, of which 720,000 shares have been designated as Class A Preferred Stock. The Class A Preferred stock has a liquidation preference of $0.20 per share and 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. As of June 30, 2013 and December 31, 2012, there were 720,000 shares of Class A Preferred Stock issued and outstanding. Undeclared Class A dividends accumulated and unpaid as of June 30, 2013 and December 31, 2012, were $191,640 and $185,160, respectively; these dividends are not included in accrued expenses.

Common Stock:    The Company has authorized 200,000,000 shares of $0.001 par value common stock. As of June 30, 2013 and December 31, 2012, there were 6,405,413 shares of common stock issued and outstanding.

During the six months ended June 30, 2013, the Company granted 24,000 restricted shares of common stock at a fair market value of $2.00 per share (equal to the closing price of the Company’s common stock quoted on the NASDAQ Bulletin Board Service as of the grant date) to three non-employee directors of the Company. The Company recognized compensation cost of $12,000 recorded in selling, general and administrative expenses in the consolidated statement of comprehensive loss. The amount is included in accrued expenses in the accompanying balance sheet. So long as the recipient’s service as a member of the Company’s Board of Directors has not been terminated, the shares shall vest in equal annual installments beginning on August 27, 2013 through 2015, or immediately upon a change of control as follows: (i) 50% of restricted shares shall vest upon a change of control prior to August 27, 2013, and (ii) 100% of restricted shares shall vest upon a change of control between August 27, 2013 and August 27, 2015.

Warrants: 

As of June 30, 2013 and December 31, 2012, the Company had 1,542,800 warrants outstanding in connection with the line of credit (see Note 5). During the six months ended June 30, 2012, the Company issued 250,000 warrants. No warrants were issued in the six month period ended June 30, 2013.

The following are assumptions utilized in estimation of the fair value of the warrants granted during the six month period ended June 30, 2012:

The following is a summary of such outstanding warrants for the six month period ended June 30, 2013:

Options:

In 2004, the Company adopted a long term incentive stock option plan (the “Stock Option Plan”) which covers key employees, officers, directors and other individuals providing bona fide services to the Company. On December 27, 2012, subject to stockholder approval, the board of directors voted to amend the Stock Option Plan to (i) adjust the maximum allowable shares of common stock upon exercise of options which may be granted from 1,200,000 to 2,000,000 shares of common stock and (ii) remove the provision from the Stock Option Plan which provided that any shares that are surrendered to or withheld by the Company in connection with any award or that are otherwise forfeited after issuance shall not be available for purchase pursuant to incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended. As of June 30, 2013, options to purchase 925,027 shares were outstanding. The options vest as determined by the Board of Directors and are exercisable for a period of no more than 10 years.

On January 11, 2013, the board of directors approved the grant of 30,000 Incentive Stock Options at an exercise price of $2.06 per share. These options vest ratably on the anniversary date over a three-year period and expire 7 years from the grant date. The weighted average grant date fair value of such options was $1.68.

Pursuant to the execution of the Hyatt MSA, on March 14, 2012 the board of directors approved the grant of 500,000 stock options (“Hyatt options”) at a strike price of $4.00 per share vesting on a pro rata basis over three years or the acceleration of such vesting rights relative to installation performance metrics at the Hyatt properties as defined by the board of directors, whichever is greater, and expiring 7 years from the date of grant. On December 27, 2012, the board of directors approved re-pricing the Hyatt options from the exercise price of $4.00 per share to $2.10 per share ($0.10 above the closing price per the NASDAQ OTC Bulletin as of that date), resulting in a change to the expected volatility and risk free interest rate as previously reported.

As of June 14, 2013, the Company had outstanding options to purchase an aggregate of 925,027 shares of common stock, of which options to purchase 300,833 shares of common stock were Hyatt Options, when the Board determined to reduce the exercise price of a total of 354,445 of the non-Hyatt Options to $0.60 per share (the closing price of the common stock on June 14, 2013 was $0.60 per share). None of the Options subject to the exercise price reduction are Hyatt Options.

The following are the assumptions utilized in the estimation of stock-based compensation related to the stock option grants for the six month periods ended June 30, 2013 and June 30, 2012:

A summary of stock option activity under the Stock Option Plan is presented below:

The Company recorded stock-based compensation expense of $237,029 and $238,346 for the six month periods ended June 30, 2013 and 2012, respectively. The amounts are recorded in selling, general and administrative expense in the consolidated statements of comprehensive income (loss). The fair value of stock options that vested and became exercisable during the six months ended June 30, 2013 and 2012 was $334,618 and $20,124 respectively. At June 30, 2013, there was approximately $600,000 in unrecognized compensation cost related to stock options that will be recorded over a weighted average future period of approximately 3 years.

A summary of the activity of non-vested options under the Company’s plan for the six months ended June 30, 2013 is presented below:

8.     Segment Information

Financial information for our segment as of and for the three and six months ended June 30, 2013 and 2012, is as follows:

Financial information of geographical data by segment as of and for the three and six months ended June 30, 2013 and 2012, is as follows:

9.     Contingent Liabilities

The Company is in receipt of a District Court Civil Summons, dated May 29, 2012, in the matter of “CLC Networks, Inc. and Skada Capital, LLC v. Roomlinx, Inc.”, commenced in the District Court of Boulder County, Colorado (the “Action”). The plaintiffs in the Action claim that the Company owes them certain unpaid sales commissions, including with respect to Hyatt Corporation in connection with that certain Master Services and Equipment Purchase Agreement, as described in the Company’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 13, 2012. The Company believes the plaintiffs’ claims are without merit. The Action is currently pending.

The Company is in receipt of a summons brought in Circuit Court of Cook County, Illinois by a sub-contractor for monies allegedly owed by the Company to the sub-contractor. The sub-contractor seeks damages of approximately $65,000 from the Company. The Company believes it has meritorious defenses to the claim.

As of June 30, 2013, the Company was also a defendant in three actions brought in Colorado state court – one action brought by a former employee for monies allegedly owed by the Company and two by recruiting companies for amounts allegedly due to such recruiting company. As discussed further in Note 10, the Company has settled the claims of its former employee and one of the recruiting companies. The Company believes it has meritorious defenses to the remaining claim.

The Company is in receipt of a letter from Technology Integration Group ("TIG") demanding payment of approximately $2,430,000 with respect to inventory and services which the Company purchased from TIG. The amount is recorded in accounts payable in the accompanying consolidated balance sheets as of June 30, 2013 and December 31, 2012. TIG subsequently filed an action in California State Court although the Company has not yet been served in such action. The Company believes that it has meritorious defenses and counterclaims in respect of TIG's claim. The Company intends to pursue a settlement of all claims with TIG and is in discussions with TIG in respect thereof.

10.    Subsequent Events

The Company is in receipt of a request for indemnification from Hyatt in connection with a case brought in US Federal Court in California by Ameranth, Inc., against, among others, Hyatt. In connection with such case, the plaintiffs have identified the Company’s e-concierge software as allegedly infringing Ameranth’s patents. The Company licenses the e-concierge software from a third party and accordingly has made a corresponding indemnification request to such third party. The Company believes that any such claim may also be covered by the Company’s liability insurance coverage and accordingly, the Company does not expect that this matter will result in any material liability to the Company.

As of June 30, 2013, the Company was a defendant in two actions brought in Colorado state court – one action brought by a former employee for monies allegedly owed by the Company and two by recruiting companies for amounts allegedly due to such recruiting companies. In July 2013, the Company settled these actions for the aggregate sum of approximately $22,000.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and the consolidated financial statements and related notes thereto included in our December 31, 2012 Annual Report on Form 10-K, filed with the SEC and with the unaudited interim financial statements and related notes thereto presented in this Quarterly Report on Form 10-Q, as well as our reports on Form 8-K and other SEC filings.

FORWARD-LOOKING STATEMENTS

This report contains or incorporates forward-looking statements within the meaning of the federal securities laws that involve risks and uncertainties. Statements regarding future events, developments, the Company’s future performance, as well as management’s expectations, beliefs, intentions, plans, estimates or projections relating to the future are forward-looking statements within the meaning of these laws. We develop forward-looking statements by combining currently available information with our beliefs and assumptions. These statements relate to future events, including our future performance, and management’s expectations, beliefs, intentions, plans or projections relating to the future and some of these statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “seeks,” “future,” “continue,” “contemplate,” “would,” “will,” “may,” “should,” and the negative or other variations of those terms or comparable terminology or by discussion of strategy, plans, opportunities or intentions. As a result, actual results, performance or achievements may vary materially from those anticipated by the forward-looking statements. 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.

Among the factors that could cause actual results, performance or achievements to differ materially from those indicated by such forward-looking statements are:

We make these statements under the protection afforded by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Because forward-looking statements are subject to assumptions and uncertainties, actual results, performance or achievements may differ materially from those expressed or implied by such forward-looking statements. Stockholders are cautioned not to place undue reliance on such statements, which speak only as of the date such statements are made. Except to the extent required by applicable law or regulation, Roomlinx undertakes no obligation to revise or update any forward-looking statement, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

GENERAL

Currently we offer the following services to our customers:

Overview

Roomlinx, Inc., a Nevada corporation ("we," "us" or the "Company"), provides four core products and services:

In-room media and entertainment

Roomlinx provides a suite of in-room media and entertainment products and services for hotels, resorts, and time share properties. Products and services included within our in-room media and entertainment offering include our proprietary Interactive TV platform (“iTV”) and on-demand movies.

The Company develops proprietary software and integrates hardware to facilitate the distribution of its Interactive TV platform. With Roomlinx, iTV guests will have access to a robust feature set through the HDTV such as:

Hotel guests can also easily order room service, interact with hotel associates, make restaurant reservations, edit and print documents as well as gain direct access to local dining, shopping, nightlife, cultural events or attractions all through a dynamic user interface on the TV. The Interactive TV platform integrates the TV and Internet experience.

The Company provides proprietary software, a media console and an extended USB port for the hotel guest, a proprietary wireless keyboard with built-in mouse, and a proprietary remote control with a built in mouse. The Company installs and supports these components.

The Company also supplies video-on-demand services to the hospitality industry. Roomlinx offers a full selection of video-on-demand services and technology; including first non-theatrical release Hollywood motion pictures, adult, and specialty content.

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.

The Company generates revenue through:

Free-To-Guest Television Programming (“FTG”).

Our hotel satellite television programming services provide for delivery and viewing of high definition and standard definition television programming for hotels, resorts, and time share properties. The Company installs and provides services that address the entertainment and information needs of hotel guests and resort guests. We specialize in providing advanced high definition equipment for delivering digital television programming such as ESPN, HBO, Starz, and other specialty and local channels.

The Company generates revenue through:

Customers typically pay a one-time fee for the installation of the equipment and then pay monthly programming fees for delivery of a specific TV channel lineup.

Wired Networking Solutions and Wireless Fidelity Networking Solutions.

We provide wired networking solutions and wireless fidelity networking solutions, also known as Wi-Fi, for high speed internet access at hotels, resorts, and timeshare locations. The Company installs and creates services that address the productivity and communications needs of hotel, resort, and timeshare guests. We specialize in providing advanced Wi-Fi wireless services such as the wireless standards known as 802.11a/b/g/n/i.

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.

The Company generates revenue through:

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.

Residential Media and Communications

We provide residential and business customers telecommunication services including telephone, satellite television, and wired and wireless internet access. Telephone service is provided through traditional, analog “twisted pair” lines, as well as digital voice over internet protocol (“VoIP”) Analog phone service is typically provided via an interconnection agreement with CenturyLink, Inc. (formerly Qwest Communications), which allows the Company to resell CenturyLink service through their wholesale and retail accounts with CenturyLink. VoIP service is provided at properties where the Company maintains a broadband internet service to the end customer, allowing the Company to provide digital phone service (VoIP) over the same lines as their internet service.

Television service is typically provided via the Company’s agreements with DISH Network and DirecTV. Most television service to customers is provided via a head-end distribution system, or an L-Band digital distribution system. Television service is offered in high definition whenever possible.

Internet service is provided via both wired and wireless network design. The Company provisions and manages broadband access to the residential customers through both wholesale and resale methods. Wholesale methods exist when the Company owns and controls the internet circuit and resale methods exist when the Company uses an affiliated third party to provide the internet circuit.

The Company generates revenue through:

Recent Financial Developments

On March 12, 2012, Roomlinx and Hyatt Corporation entered into a Master Services and Equipment Purchase Agreement (the “MSA”) pursuant to which Roomlinx has agreed to provide in-room media and entertainment solutions, including its proprietary Interactive TV (or iTV) platform, high speed internet, free-to-guest, on-demand programming and related support services, to Hyatt-owned, managed or franchised hotels that are located in the United States, Canada and the Caribbean. Roomlinx’s media and entertainment solutions may be provided in the “full option” (Interactive TV) or the “lite option” (Video on Demand).

Pursuant to the MSA, we have agreed to make financing available to hotels that exceed certain minimum credit criteria for the purchase of equipment necessary for the provision of the Services at annual interest rates of no greater than 11.5% per annum and subject to certain restrictions and limitations. The amount of financing that Roomlinx is required to provide will not exceed the lesser of (i) the amount of installation fees that are payable by Hyatt-owned hotels under Hotel Service Agreements that have not elected to receive equipment financing or (ii) $11 million. To date, no financing has been requested by Hyatt properties.

The MSA terminates on the later of (i) 60 days following the five year anniversary of the effective date or (ii) if any Hotel Services Agreement is in effect on such five year anniversary, then the MSA will continue to apply to such Hotel Services Agreement until it expires. The MSA may be terminated by Hyatt in the event (i) Roomlinx is in breach of certain obligations under the MSA, (ii) Roomlinx is subject to bankruptcy, assignment for the benefit of its creditors, is in receivership or similar proceeding or (iii) in the event of a delegation, transfer, assignment, change of control or ownership by Roomlinx or the sale of all or substantially all of its assets.

In March 2012, Roomlinx and Hyatt entered into the MSA which provided for, among other things, the obligation of Hyatt to order and to use its commercially reasonable efforts to cause its managed hotels to order the installation of the Company’s iTV product in a minimum number of rooms in Hyatt hotels within certain time frames measured from March 2012, subject to Roomlinx’s satisfaction of certain other conditions of the MSA.

In December of 2012, Hyatt had met certain obligations to place orders with Roomlinx for its systems and services. In December 2012, Roomlinx and Hyatt mutually agreed to suspend certain Hyatt obligations under the MSA that had not been met, including the suspension of the obligations of Hyatt to cause a certain number of rooms in both Hyatt owned and managed properties to place orders for Roomlinx’s iTV products within certain time frames measured from the original execution of the MSA. At the time of the December 2012 suspension of these Hyatt obligations, the Company had installed certain services and products in approximately 19,000 rooms (including approximately 9,000 installs of its iTV product) in Hyatt hotels and by the end of January 2013, had executed Statements of Work with other Hyatt hotels to install its iTV product in approximately an additional 4,600 rooms, and in connection with such Statements of Work, had received deposits from such hotels in the aggregate amount of approximately $1.3 million. As of June 30, 2013 and December 31, 2012, such deposits are recorded as customer deposits in the accompanying balance sheet in the amount of approximately $1,123,000 and $1,125,000, respectively.

Hyatt recently requested, in exchange for other considerations, that, among other things, Roomlinx (i) remove the obligations of Hyatt to cause its own hotels and use commercially reasonable efforts to cause its managed hotels to order the installation of the Company’s iTV product into a certain number of rooms within a certain timeframe, (ii) restructure or release the obligation of Hyatt to install iTV in a portion or all of the additional 4,600 rooms covered by such Statements of Work but not yet installed, and (iii) obtain credits or refunds of any portion of the $1.3 million of deposits held by the Company pursuant to the Statements of Work referred to above but not applied towards installations of the Company’s iTV product. The Company and Hyatt have held discussions regarding a resolution of these items. Such resolution may include, among other things, that the Company agree to certain of Hyatt’s requests in consideration for the Company being authorized as a Hyatt approved provider of multiple products and services and favorable shifts in the advertising revenue sharing arrangement between the parties. However, there are no guarantees that the parties will reach a resolution of these items at all or on the terms summarized above or that the suspension of obligations referred to in the preceding paragraph will end. Hyatt Hotels continues to place orders for certain Roomlinx products and services. Notwithstanding the foregoing, the Company is installing its iTV product in approximately 1,000 of the 4,600 additional rooms.

Trends and Business Outlook

Our goal is to be the leading provider of all facets of in-room entertainment, programming and internet connectivity. We believe that we are developing the scale, capacity, and reach to respond to customers’ needs quickly and that our product offerings differentiate us from other market participants in terms of usability, technical innovation and breadth of offerings. Over the past year, we have taken significant steps towards these goals and in the first quarter of 2012 we signed a master services agreement with Hyatt Corporation. We believe there has been a fundamental shift in the way people communicate and from where they get their content. This shift is affecting guest habits within the hotel room. Hotel guests are getting their content from the internet or alternative mobile sources, such as laptops and smartphones. Roomlinx developed the Interactive TV platform to embrace these changing habits and allow guests easy access to their content, work, and the internet via the in-room flat panel LCD. We have seen strong usage of the Interactive TV platform at our current hotel installations and we believe there is even greater ability to monetize our Interactive TV platform as we increase hotel penetration and usage. We believe our Interactive TV platform creates a true differentiation for Roomlinx and we will continue to invest in product enhancements and Interactive TV sales and marketing efforts.  These investments and enhancements will be focused on meeting the desires of hotel guests in a manner consistent with hotel needs.

To this end, our sales and product initiatives are aimed at accelerating market penetration by significantly reducing the cost of installation while still meeting the needs of hotel guests and generating an attractive gross margin.  Towards that end, Roomlinx is targeting a launch of its iTV Mobile platform during the fourth quarter of 2013.  Roomlinx iTV Mobile is the next progression in the Roomlinx product offerings.  Roomlinx iTV brings the internet, content and guest services to the hotel room TV, Roomlinx iTV Mobile expands the benefits of iTV to guests’ personal devices.  We believe iTV Mobile will accelerate market penetration by allowing properties to choose between a full iTV integration or a more cost effective iTV mobile option.

The Company believes the benefits of iTV Mobile include:

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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.

The Company enters into contractual arrangements to provide multiple deliverables which may include some or all of the following - systems installations and a variety of services related to high speed internet access, free-to-guest programming, video on demand, and iTV as well as residential phone, internet and television. Each of these elements must be identified and individually evaluated for separation. The term “element” is used interchangeably with the term “deliverable” and the Company considers the facts and circumstances as it relates to its performance obligations in the arrangement and includes product and service elements, a license or right to use an asset, and other obligations negotiated for and assumed in the agreement. Analyzing an arrangement to identify all of the elements requires the use of judgment, however, once the deliverables have been identified, the Relative Fair Value of each Element was determined under the concept of Relative Selling Price (RSP) for which the Company applied the hierarchy of selling price under ASU Topic 650.

The effect of application of this standard may be to defer revenue recognition for installations across the service period of the contract and to re-allocate and/or defer revenue recognition across various service arrangements.

In order to promote the Interactive TV platform, Roomlinx has agreed to provide certain customers with direct sales-type lease financing to cover the cost of installation. These transactions result in the recognition of revenue and associated costs in full upon the customer’s acceptance of the installation project and give rise to a lease receivable and unearned income.

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.

Inventory includes materials on-hand at our warehouses as well as the cost of hardware, software, and labor which has been incurred by us for installation at our customer’s property, but has not been accepted by the customer.

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.

The Company provides compensation costs for our stock option plans determined in accordance with the fair value based method to 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.

ASU No 2013-02, which became effective for fiscal years beginning after December 15, 2012, provided guidance on the disclosure of significant amounts of components of accumulated other comprehensive income. The Company adopted this ASU effective January 1, 2013.

RESULTS OF OPERATIONS

The Company measures its performance and recurring revenue trend based on the number of revenue generating units (“RGUs”) in service. Regarding the hospitality sector, a hotel room may have one or more RGUs. An RGU is defined as a product or service for which we invoice the hotel monthly, including interactive television, video on demand, free to guest programming, and high speed internet access. Residential properties may also have more than one RGU, which includes telephone, internet and television. As of June 30, 2013 the Company was servicing approximately 82,000 RGUs within the hospitality sector representing a net increase of 34,000 RGUs or 71%, within the hospitality sector over the twelve months ended June 30, 2012, and 16 residential communities and small businesses, representing an additional 2,400 RGUs.

THREE MONTHS ENDED JUNE 30, 2013 COMPARED TO THREE MONTHS ENDED JUNE 30, 2012

Our revenues for the three months ended June 30, 2013 and 2012 were $2,445,802 and $2,135,386 respectively, an increase of $310,416 or 15%, reflecting an increase in recurring service revenue of approximately $557,000, or 58%, offset by a decrease in product and installation revenue of approximately $247,000, or 21%. The increase in our recurring revenue is the result of a net addition of approximately 34,000 RGUs placed into service during the twelve months ended June 30, 2013.

Direct costs exclusive of operating expenses and depreciation (“direct costs”) for the three months ended June 30, 2013 and 2012 were $1,815,305 and $2,063,455 respectively, a decrease of $248,150 or 12%. Direct costs of hospitality installations decreased approximately $506,000. Direct costs of recurring service costs increased approximately $268,000, the result of having placed into service approximately 34,000 RGUs during the twelve months ended June 30, 2013.

Hospitality

The hospitality segment includes hotel and meeting rooms in the following geographic segments: United States, Canada, and Other Foreign. As of June 30, 2013 and 2012, Other Foreign included Mexico and Aruba. The products offered under our hospitality segment include the installation of, and the support and service of, high-speed internet access, interactive TV services, free to guest programming, and on-demand programming, as well as advertising and e-commerce products.

United States: US hospitality revenue for the three months ended June 30, 2013 and 2012 was $1,961,059 and $1,714,511 respectively, an increase of $246,548 or 14%. This increase is attributable to an increase in recurring service revenue of approximately $630,000 or 118%, the result of a net increase of approximately 34,000 RGUs to 65,000 RGUs in service at June 30, 2013, and a decrease in product and installation revenue of approximately $384,000 or 33%.

Canada: Canadian hospitality revenue for the three months ended June 30, 2013 and 2012 was $107,605 and $146,379 respectively, a decrease of $38,774 or 27%. This revenue is variable and dependent on hotel guest purchases of video on demand films.

Other Foreign: Other foreign hospitality revenue for the three months ended June 30, 2013 and 2012 was $159,299and $43,641, respectively, an increase of $115,658. This increase consists of approximately $137,000 of installation revenue and a decrease in recurring service revenue of approximately $21,000, primarily the result of the loss of a resort hotel.

Residential

Our residential segment includes multi-dwelling unit and business customers in the United States. The products offered include the installation of, and the support and service of, telephone, internet, and television services.

Residential revenue for the three months ended June 30, 2013 and 2012 was $217,839 and $230,855 respectively, and decrease of $13,016 or 6%.

Operational Expenses

Total operating expense for the three months ended June 30, 2013 and 2012 was $1,253,757 and $1,810,909, a decrease of $557,152, or 31%. This decrease is primarily due to a decrease in personnel reducing payroll and related costs expenses approximately $460,000.

Our operations department expense decreased $229,626 to $271,665 in the three months ended June 30, 2013 compared to the same period in 2012. This decrease is primarily due to a decrease in personnel reducing payroll and related expenses approximately $230,000.

Our product development department expense decreased $51,231 to $195,257 in the three months ended June 30, 2013 compared to same period in 2012. This decrease is primarily due to a decrease in personnel reducing payroll and related costs expenses approximately $51,000.

Our selling, general and administrative expenses decreased $179,529 to $694,728 in the three months ended June 30, 2013 compared to the same period in 2012. This decrease is primarily attributable to approximate fluctuations as follows: (i) payroll and related costs, including stock based compensation decreased $14,000, (ii) bad debt expense decreased $132,000, (iii) professional fees increased 86,000, and (iv) a decrease in various operating accounts totaling approximately $120,000.

Depreciation expense for the three months ended June 30, 2013 and 2012 was $92,107 and $188,873 respectively, a decrease of $96,766 or 51%. This decrease reflects the reduction in depreciation expense applicable to the impairment recorded at September 30, 2012.

Our operating loss for the three months ended June 30, 2013 and 2012 was $623,260 and $1,738,978 respectively, a decrease of $1,115,718 or 64%. This decrease is primarily attributable to the reduction in personnel and the resultant decrease in payroll and related costs.

Non-Operating

For the three months ended June 30, 2013 and 2012, our non-operating income was $48,234 and $79,941 respectively. Non-operating income is primarily interest income earned on lease receivables. The decrease of $31,707 of interest income is the result of (i) there were three less properties under lease as of June 30, 2013 as compared to June 30, 2012 and (ii) under the imputed interest method, the recognition of interest income declines over time.

Our non-operating expenses for the three months ended June 30, 2013 and 2012 were $144,064 and $152,593 respectively, a decrease of $8,529. Non-operating expenses are primarily interest expense and the decrease is attributable to an adjustment to the Federal Funds Rate applied to the Cenfin line of credit in 2012.

For the three months ended June 30, 2013, we reported a net loss of $719,090, compared to a net loss of $1,811,630 for the three months ended June 30, 2012, a reduction of net loss of $1,092,540. As discussed above, this decrease is primarily attributable to a reduction in personnel and the resultant decrease in payroll and related costs.

SIX MONTHS ENDED JUNE 30, 2013 COMPARED TO SIX MONTHS ENDED JUNE 30, 2012

Our revenues for the six months ended June 30, 2013 and 2012 were $4,570,866 and $3,672,927 respectively, an increase of $897,939 or 25%, reflecting an increase in recurring service revenue of approximately $1,123,000, or 57%, offset by a decrease in product and installation revenue of approximately $225,000, or 13%. The increase in our recurring revenue is the result of a net addition of approximately 34,000 RGUs placed into service over the twelve months ended June 30, 2013.

Direct costs exclusive of operating expenses and depreciation for the six months ended June 30, 2013 and 2012 were $3,595,276 and $3,283,833 respectively, an increase of $311,443 or 10%. Direct costs of hospitality installations decreased approximately $340,000. Direct costs of recurring service costs increased approximately $656,000, the result of having placed into service approximately 34,000 RGUs during the twelve months ended June 30, 2013.

Hospitality

The hospitality segment includes hotel and meeting rooms in the following geographic segments: United States, Canada, and Other Foreign. As of June 30, 2013 and 2012, Other Foreign included Mexico and Aruba. The products offered under our hospitality segment include the installation of, and the support and service of, high-speed internet access, interactive TV services, free to guest programming, and on-demand programming, as well as advertising and e-commerce products.

United States: US hospitality revenue for the six months ended June 30, 2013 and 2012 was $3,732,522 and $2,820,642 respectively, an increase of $911,880 or 32%. This increase consists of an increase in recurring service revenue of approximately $1,274,000 or 117%, the result of a net increase of approximately 34,000 RGUs to 59,000 RGUs in service at June 30, 2013, and a decrease in product and installation revenue of approximately $362,000 or 21%.

Canada: Canadian hospitality revenue for the six months ended June 30, 2013 and 2012 was $239,608 and $304,870 respectively, a decrease of $65,262 or 21%. This revenue is variable and dependent on hotel guest purchases of video on demand films.

Other Foreign: Other foreign hospitality revenue for the six months ended June 30, 2013 and 2012 was $163,419 and $77,646, respectively, an increase of $85,773 or 111%. This increase consists of approximately $137,000 of installation revenue and a decrease in recurring service revenue of approximately $51,000, primarily the result of a loss a resort hotel.

Residential

Our residential segment includes multi-dwelling unit and business customers in the United States. The products offered include the installation of, and the support and service of, telephone, internet, and television services.

Residential revenue for the six months ended June 30, 2013 and 2012 was $435,317 and $469,769 respectively, and decrease of $34,452 or 7%.

Operational Expenses

Total operating expense for the six months ended June 30, 2013 and 2012 was $2,896,442 and $3,072,723; a decrease of $176,281, or 6%. This decrease is primarily due to a decrease in personnel reducing payroll and related costs expenses approximately $215,000.

Our operations department expense decreased $143,824 to $796,230 in the six months ended June 30, 2013 compared to the same period in 2012. This decrease is primarily due to a decrease in personnel reducing payroll and related costs expenses approximately $146,000.

Our product development department expense decreased $33,672 to $473,549 in the six months ended June 30, 2013 compared to same period in 2012. This decrease is primarily due to a decrease in personnel reducing payroll and related costs expenses approximately $47,000.

Our selling, general and administrative expenses increased $184,994 to $1,442,467 in the six months ended June 30, 2013 compared to the same period in 2012. This increase is primarily attributable to approximate fluctuations as follows: (i) payroll and related costs, including stock based compensation increased $155,000, (ii) professional fees increased 164,000, (iii) bad debt expense decreased $86,000, and (iv) a decrease in various operating accounts totaling approximately $48,000.

Depreciation expense for the six months ended June 30, 2013 and 2012 was $184,196 and $367,975 respectively, a decrease of $183,779 or 50%. This decrease reflects the reduction in depreciation expense applicable to the impairment recorded at September 30, 2012.

Our operating loss for the six months ended June 30, 2013 and 2012 was $1,920,852 and $2,683,629 respectively, a decrease of $762,777 or 28%. This decrease is primarily attributable to the reduction in personnel and the resultant decrease in payroll and related costs.

Non-Operating

For the six months ended June 30, 2013 and 2012, our non-operating income was $100,960 and $137,909 respectively. Non-operating income is primarily interest income earned on lease receivables. The decrease of $36,949 of interest income is the result of (i) there were three less properties under lease as of June 30, 2013 as compared to June 30, 2012 and (ii) under the imputed interest method, the recognition of interest income declines over time.

Our non-operating expenses for the six months ended June 30, 2013 and 2012 were $297,145 and $291,145 respectively, an increase of $6,612. Non-operating expenses are primarily interest expense attributable to the Cenfin line of credit.

For the six months ended June 30, 2013, we reported a net loss of $2,117,649, compared to a net loss of $2,836,865 for the six months ended June 30, 2012, a reduction of net loss of $719,216. This decrease is primarily attributable to the reduction in personnel and the resultant decrease in payroll and related costs.

FINANCIAL CONDITION

LIQUIDITY & CAPITAL RESOURCES

As of June 30, 2013 we had $1,769,630 in cash and cash equivalent, which is sufficient to continue business operations through June 2014. During the six months ended June 30, 2013, the Company executed a phased reduction of 50% of its personnel to mitigate its fixed cost base and developed a vendor management program to reduce its outstanding payables and extend payment terms, resulting in its ability to fund operations into the 2014. Working capital at June 30, 2013 was $160,326.

As discussed in Note 5 to our interim financial statements, the Company’s Credit Agreement with Cenfin LLC (“Cenfin”) was recently amended to provide that the determination as to whether Cenfin will advance funds under the Credit Agreement shall be made solely by Cenfin. Accordingly, there are no guarantees that Cenfin will make any additional advances under the Credit Agreement. In the event that Cenfin refuses to advance funds to fund the Company’s ongoing business operations, then the Company would need to seek alternative financing to fund its operations and in the event the Company is unable to obtain such alternative financing, the Company could be forced into seeking protection under the US bankruptcy laws.

The Company is in receipt of a letter from Technology Integration Group ("TIG") demanding payment of approximately $2,430,000 with respect to inventory and services which the Company purchased from TIG. The amount is recorded in accounts payable in the accompanying balance sheets as of June 30, 2013 and December 31, 2012. TIG subsequently filed an action in California State Court although the Company has not yet been served in such action. The Company believes that it has meritorious defenses and counterclaims in respect of TIG's claim. The Company intends to pursue a settlement of all claims with TIG and is in discussions with TIG in respect thereof.

Operating Activities

Net cash used by operating activities increased to $1,894,849 for the six months ended June 30, 2013 from $1,766,022 for the six months ended June 30, 2012, an increase of $128,827, attributable to a decrease in net loss of $719,216 adjusted by (i) a decrease of $280,337 in the change from non-cash expenses and (ii) the change in operating assets and liabilities primarily represent current assets and liabilities, or working capital, which increased the use of cash by $567,706. Significant declines in non-cash expenses included depreciation and bad debt expense. The change in operating assets and liabilities is primarily due to the timing of the customer’s acceptance of installations resulting in the expensing of inventory and the corresponding revenue recognition of deposits previously classified as deferred revenue and the payment of vendor invoices.

Investing Activities

Net cash provided by investing activities was $453,282 for the six months ended June 30, 2013 compared to $315,278 provided by investing activities during the same period in 2012. The increase in cash provided by investing activities of $138,004 was primarily attributable to a savings of $143,796 resulting from a decline in capital expenditures 2013 versus 2012 offset by a decrease in 2013 cash receipts against leases receivable totaling $5,792.

Financing Activities

Net cash used in financing activities for the six months ended June 30, 2013 was $12,735 compared to net cash provided by financing activities of $3,955,812 for the six months ended June 30, 2012. The decrease in cash of $3,968,547 in financing activities is primarily attributable to 2012 activities that included (i) the sale of common stock which resulted in proceeds of $2,933,311 and (ii) the receipt of an advance against its line of credit in the amount of $1,000,000.

Contractual Obligations

We have operating and capital lease commitments, note payable commitments, and a line of credit commitment. The following table summarizes these commitments at June 30, 2013:

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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)

Transactions denominated in a foreign currency give rise to a gain (loss) which is included in selling, general and administrative expenses in the Consolidated Statement of Comprehensive Income (Loss). For the six months ended June 30, 2013 and 2012, transaction losses were not material.

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 directly effect on our reported consolidated results. We do not hedge against the possible impact of this risk. A ten percent adverse change in the foreign currency exchange rate would not have a significant impact on our consolidated results of operations or financial position.

Item 4. Controls and Procedures

Management’s Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were inadequate as of the end of the period covered by this quarterly report.

Management’s Report on Internal Control over Financial Reporting

Our Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

Management assessed the effectiveness of the Company’s internal control over its financial reporting as of June 30, 2013. In undertaking this assessment, management used the criteria established by the Committee of the Sponsoring Organizations (COSO) of the Treadway Commission contained in the Internal Control—Integrated Framework.

As of June 30, 2013, based on management’s assessment as described above, we have determined that the Company did not maintain effective controls over financial reporting. Specifically, due to the limited number of individuals within our accounting and finance department and department turn-over, we had a lack of adequate resources, including headcount, to ensure timely identification, resolution and recording of accounting matters. Since these controls have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness in internal control over financial reporting. We have begun to implement and will continue to implement appropriate processes and measures to remediate this material weakness, which will include the installation of a permanent Chief Financial Officer and Principal Accounting Officer, and a restructuring of the organizational chart that clearly defines the CFO’s authority across the organization.

This quarterly report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during our fiscal quarter ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

For information on legal proceedings, refer to Note 9, “Contingent Liabilities” and Note 10, “Subsequent Events” in the notes to the unaudited consolidated financial statements.

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

None

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None

Item 6. Exhibits

Signatures

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.

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.