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 September 30, 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 November 12, 2008 was 158,483,488.
INDEX
| PART I. FINANCIAL INFORMATION | ||
| PART II. OTHER INFORMATION | ||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| September 30 | ||||||||
| 2008 | December 31, | |||||||
| ASSETS | (Unaudited) | 2007 | ||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 2,542,339 | $ | 915,165 | ||||
| Accounts receivable, net | 231,367 | 358,794 | ||||||
| Prepaid and other current assets | 26,896 | 37,721 | ||||||
| Work in progress | 263,925 | 382 | ||||||
| Inventory | 48,569 | - | ||||||
| Total current assets | 3,113,096 | 1,312,062 | ||||||
| Property and equipment, net | 117,342 | 49,822 | ||||||
| Total assets | $ | 3,230,438 | $ | 1,361,884 | ||||
| LIABILITIES AND STOCKHOLDERS' (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 494,537 | $ | 399,782 | ||||
| Officer and stockholder note payable | - | 12,500 | ||||||
| Accrued interest | 35,443 | 35,926 | ||||||
| Deferred revenue | 425,627 | 238,124 | ||||||
| Total current liabilities | 955,607 | 686,332 | ||||||
| Convertible debentures | 3,141,813 | 2,101,352 | ||||||
| Stockholders' (deficit): | ||||||||
| Preferred stock - $0.20 par value, 5,000,000 shares authorized: | ||||||||
| Class A - 720,000 shares authorized, issued and outstanding | 144,000 | 144,000 | ||||||
| Series B - 2,000,000 shares authorized; none issued and outstanding | - | - | ||||||
| Series C - 1,400 shares authorized; 1,000 issued and outstanding | 200 | - | ||||||
| Common stock - $0.001 par value, 245,000,000 shares authorized: | ||||||||
| 157,065,781 and 149,068,107 shares issued and outstanding | 157,066 | 149,068 | ||||||
| Additional paid-in capital | 23,387,981 | 19,920,259 | ||||||
| Deferred stock compensation | (320,770 | ) | (59,335 | ) | ||||
| Accumulated (deficit) | (24,235,459 | ) | (21,579,792 | ) | ||||
| Total stockholders' (deficit) | (866,982 | ) | (1,425,800 | ) | ||||
| Total liabilities and stockholders' (deficit) | $ | 3,230,438 | $ | 1,361,884 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| for the Three Months Ended | for the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2008 | 2007 (Restated) | 2008 | 2007 (Restated) | |||||||||||||
| Revenues | ||||||||||||||||
| System sales and installation | $ | 299,176 | $ | 54,779 | $ | 499,354 | $ | 552,998 | ||||||||
| Service, maintenance and usage | 283,128 | 333,484 | 885,007 | 1,001,468 | ||||||||||||
| 582,304 | 388,263 | 1,384,361 | 1,554,466 | |||||||||||||
| Costs and expenses | ||||||||||||||||
| System sales and installation | 288,295 | 44,892 | 353,909 | 239,065 | ||||||||||||
| Service, maintenance and usage | 276,989 | 240,593 | 744,336 | 890,977 | ||||||||||||
| Sales and marketing | 118,459 | 48,390 | 255,156 | 153,973 | ||||||||||||
| Product development | 183,665 | 106,478 | 429,609 | 182,736 | ||||||||||||
| General and administrative stock compensation | 559,344 | 27,815 | 578,830 | 306,055 | ||||||||||||
| General and administrative | 153,988 | 133,246 | 493,127 | 508,621 | ||||||||||||
| Depreciation | 6,792 | 2,903 | 19,711 | 6,961 | ||||||||||||
| 1,587,533 | 604,317 | 2,874,677 | 2,288,388 | |||||||||||||
| Operating (loss) | (1,005,229 | ) | (216,054 | ) | (1,490,316 | ) | (733,922 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | (39,011 | ) | (36,294 | ) | (112,916 | ) | (154,841 | ) | ||||||||
| Financing expense | (15,000 | ) | - | (15,000 | ) | (252,207 | ) | |||||||||
| Derivative expense | 125,858 | 548,965 | (1,032,717 | ) | (579,383 | ) | ||||||||||
| Foreign currency gain (loss) | (2,071 | ) | (1,578 | ) | (6,286 | ) | (9,432 | ) | ||||||||
| Other income | 15,689 | 9,703 | 25,576 | 7,176 | ||||||||||||
| Income from discharge of indebtedness | - | 6,506 | 992 | 1,471,713 | ||||||||||||
| 85,465 | 527,302 | (1,140,351 | ) | 483,026 | ||||||||||||
| Income (loss) before income taxes | (919,764 | ) | 311,248 | (2,630,667 | ) | (250,896 | ) | |||||||||
| Provision for income taxes | - | - | - | - | ||||||||||||
| Net income (loss) | (919,764 | ) | 311,248 | (2,630,667 | ) | (250,896 | ) | |||||||||
| Series C Preferred Stock Dividends | 25,000 | - | 25,000 | - | ||||||||||||
| Net Income (loss) available to common shareholders | $ | (944,764 | ) | $ | 311,248 | $ | (2,655,667 | ) | $ | (250,896 | ) | |||||
| Net Income (loss) per common share: | ||||||||||||||||
| Basic and diluted | $ | (0.01 | ) | $ | 0.00 | $ | (0.02 | ) | $ | (0.00 | ) | |||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic and diluted | 156,067,018 | 144,433,598 | 152,833,251 | 141,406,843 | ||||||||||||
| 156,067,018 | 310,503,997 | 152,833,251 | 141,406,843 | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| for the Nine Months Ended September 30, 2008 and 2007 | ||||||||
| (Unaudited) | ||||||||
| 2007 | ||||||||
| 2008 | (Restated) | |||||||
| Cash flows from operating activities: | ||||||||
| Net cash (used in) operating activities | $ | (773,095 | ) | $ | (401,647 | ) | ||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | (87,231 | ) | (25,466 | ) | ||||
| Net cash (used in) investing activities | $ | (87,231 | ) | $ | (25,466 | ) | ||
| Cash flows from financing activities: | ||||||||
| Cash proceeds from convertible debentures | - | 2,300,000 | ||||||
| Cash Proceeds from Sale of Preferred Stock | 2,500,000 | |||||||
| Principal payments on convertible debenture | - | (550,000 | ) | |||||
| Principal payments on notes payable | - | (277,500 | ) | |||||
| Principal payments on officer and stockholder notes payable | (12,500 | ) | (137,603 | ) | ||||
| Net cash provided by financing activities | 2,487,500 | 1,334,897 | ||||||
| Net increase (decrease) in cash and equivalents | 1,627,174 | 907,784 | ||||||
| Cash and equivalents at beginning of period | 915,165 | 144,540 | ||||||
| Cash and equivalents at end of period | $ | 2,542,339 | $ | 1,052,324 | ||||
| Supplemental Cash Flow Information | ||||||||
| Cash paid for interest | $ | - | $ | 3,016 | ||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| Non-cash investing and financing activities: | ||||||||
| Accrued expenses converted to stock | $ | 30,000 | $ | - | ||||
| Notes payable converted to convertible debentures | $ | - | $ | (50,000 | ) | |||
| Accounts payable and accrued expenses forgiven | $ | 992 | $ | 8,602 | ||||
| Convertible debt forgiven | $ | - | $ | 550,000 | ||||
| Notes payable forgiven | $ | - | $ | 37,500 | ||||
| Interest and penalties forgiven | $ | - | $ | 457,192 | ||||
| Shareholder paybles forgiven | $ | - | $ | 3,000 | ||||
| Shareholder notes forgiven | $ | - | $ | 139,397 | ||||
| Shareholder interest and penalties forgiven | $ | - | $ | 104,553 | ||||
| Capital lease forgiven | $ | - | $ | 418,418 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements
September 30, 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 wired and wireless high-speed internet networking solutions and in-room media and entertainment systems, to hotels, resorts, convention centers, timeshare, 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 $244,950. This adjustment resulted in an increase in the net loss for the nine months ended September 30, 2007 of $244,950. There was no effect on previously reported net loss per share.
Per Share Amounts: The Company computes net income per share under the provisions of SFAS No. 128, “Earnings per Share” (SFAS 128). Under the provisions of SFAS 128, basic net income 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 per share excludes potential common shares if the effect is anti-dilutive. Diluted net income 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. | Officer and Stockholder Notes Payable |
From November 2004 through January 2005, the Company received proceeds of $320,000 in exchange for 10% promissory notes maturing six months from the date of issuance. During 2005, the Company repaid $40,000 of the notes. The Company was not able to retire the remaining balance of the promissory notes as scheduled and was in default of the repayment terms. In June 2007, all interest and penalties were forgiven, and the notes were settled for $142,603, of which $12,500 was paid in September 2008.
| 3. | Convertible Debentures |
On June 11, 2007 and June 13, 2007, we sold an aggregate of $2,300,000 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”). In addition, a note payable in the amount of $50,000 was converted into a convertible debenture.
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 November 12, 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. At November 12, 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.
| 4. | 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 3 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 September 30, 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 September 30, 2008, the following derivative liabilities were outstanding:
| Issue Date | Expiry Date | Instrument | Conversion/ Exercise Price Per Share | Value – Issue Date | Value - September 30, 2008 | |||||||||
| June 2007 | May 2012 | $2,350,000 Convertible Debentures | $ | 0.02 | $ | 2,338,899 | $ | 3,130,036 | ||||||
| June 2007 | Convertible Debentures Carrying Amount | 11,777 | ||||||||||||
| June 2007 | December 2007 | Option to acquire $1,175,000 Convertible Debentures | $ | 0.03 | 431,264 | 0 | ||||||||
| Total derivative financial instruments | $ | 2,770,163 | $ | 3,141,813 | ||||||||||
| 5. | Stockholders' (Deficit) |
Preferred Stock: The Company has authorized 5,000,000 preferred shares with a $0.20 par value. There are three designations of the class of preferred shares: Class A, Series B, and Series C 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. The Series C stock accrues dividends at an annual rate of 6% per year, payable quarterly, either in cash or, at the Company’s election, shares of common stock. As of September 30, 2008, there were 720,000 shares of Class A Preferred Stock, no shares of Series B Preferred Stock, and 1,000 shares of Series C Preferred Stock issued and outstanding. Class A dividends accrued and unpaid as of September 30, 2008, were $130,080, Series C dividends accrued and unpaid as of September 30, 2008, were $25,000.
On July 28, 2008, the Company’s board of directors approved the designation of 1,400 shares of Series C Preferred Stock. The Series C preferred stock accrues dividends at an annual rate of 6% per year, payable quarterly, either in cash or, at the Company’s election, shares of common 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.
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, we also issued 40,000,000 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.
In connection with the Purchase Agreement, we 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 beginning by April 30, 2009.
Common Stock: The Company has authorized 245,000,000 shares of $0.001 par value common stock. As of September 30, 2008, there were 157,065,781 shares of common stock issued and outstanding.
On January 1, 2008, the Board approved issuance of 1,437,048 shares of our common stock, valued at $0.025 per share for accrued interest of $35,926 for the fourth quarter of 2007, pursuant to the clauses outlined in the convertible debenture agreements of June 11, 2007.
On April 1, 2008, the Board approved issuance of 1,386,890 shares of our common stock, valued at $0.025 per share for accrued interest of $34,672 for the first quarter of 2008, pursuant to the clauses outlined in the convertible debenture agreements of June 11, 2007.
On July 1, 2008, the Board approved issuance of 1,402,302 shares of our common stock, valued at $0.025 per share for accrued interest of $35,057 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 at $0.01 per share on a cashless basis resulting in the net issuance of 2,571,429 shares of common stock.
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.
Warrants: 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 July 31, 2008, Pursuant to the Purchase Agreement above, the Company issued (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.
At September 30, 2008, the Company had the following outstanding warrants:
| Exercise Price | Number of Common Shares | Remaining Contractual Life (in years) | Exercise Price times Number of Common Shares | Weighted Average Exercise Price | |||||||||||||
| $0.020 | 15,000,000 | 4.5 | $ | 300,000 | |||||||||||||
| $0.020 | 2,962,500 | 3.7 | 59,250 | ||||||||||||||
| $0.030 | 7,000,000 | 3.7 | 210,000 | ||||||||||||||
| $0.030 | 3,900,000 | 3.2 | 117,000 | ||||||||||||||
| $0.040 | 20,000,000 | 2.8 | 800,000 | ||||||||||||||
| $0.060 | 20,000,000 | 2.8 | 1,200,000 | ||||||||||||||
| $0.075 | 10,963,333 | 1.4 | 822,250 | ||||||||||||||
| 79,825,833 | $ | 3,508,500 | $0.044 | ||||||||||||||
| Warrants | Number of Common Shares | Weighted Average Exercise Price | ||||||
| Outstanding at January 1, 2008 | 24,825,833 | $ | 0.049 | |||||
| Issued | 55,000,000 | 0.042 | ||||||
| Exercised | ----- | ----- | ||||||
| Expired / Cancelled | ----- | ----- | ||||||
| Outstanding at September 30, 2008 | 79,825,833 | $ | 0.044 | |||||
| Exercisable at September 30, 2008 | 64,825,833 | $ | 0.050 | |||||
The Company recorded compensation expense of $538,455 in connection with the warrants granted during the quarter ended September 30, 2008. The fair value of the warrant grants was estimated on the date of grant utilizing the Black-Scholes option pricing model with the following weighted average assumptions for grants: expected life of warrants of 3 years, expected volatility of 140%, risk-free interest rate of 2.8% and no dividend yield. The weighted average fair value at the date of grant for warrants granted during the quarter ended September 30, 2008, approximated $0.013 per warrant.
The Company recorded deferred compensation expense of $270,555 in connection with warrants granted during the quarter ended June 30, 2008. The fair value of the warrant grants was estimated on the date of grant utilizing the Black-Scholes option pricing model with the following weighted average assumptions for grants: expected life of warrants of 5 years, expected volatility of 144%, risk-free interest rate of 4% and no dividend yield. The weighted average fair value at the date of grant for warrants granted during the quarter ended June 30, 2008, approximated $0.018 per warrant.
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 September 30, 2008, options to purchase 20,650,000 shares were outstanding and options to purchase 4,000,000 shares have been exercised. The options vest as determined by the Board of Directors and are exercisable for a period of no more than 10 years.
On May 15, 2008, the 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 15, 2008 Aaron Dobrinsky exercised 4,000,000 options at $0.01 per share on a cashless basis resulting in the net issuance of 2,571,429 shares of common stock.
On July 21, 2008, the Board of Directors approved the grant 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 August 19, 2008, the Board of Directors approved the grant 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 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.
At September 30, 2008, the Company had the following outstanding stock options:
| Exercise Price | Number of Common Shares | Remaining Contractual Life (in years) | Exercise Price times Number of Common Shares | Weighted Average Exercise Price | |||||||||||||
| $0.012 | 800,000 | 6.9 | $ | 9,600 | |||||||||||||
| $0.020 | 1,000,000 | 6.8 | 20,000 | ||||||||||||||
| $0.017 | 100,000 | 6.6 | 1,700 | ||||||||||||||
| $0.015 | 1,950,000 | 6.1 | 29,250 | ||||||||||||||
| $0.025 | 1,000,000 | 5.6 | 25,000 | ||||||||||||||
| $0.020 | 13,600,000 | 5.1 | 272,000 | ||||||||||||||
| $0.026 | 1,000,000 | 3.9 | 26,000 | ||||||||||||||
| $0.100 | 1,000,000 | 1.3 | 100,000 | ||||||||||||||
| $0.017 | 100,000 | 0.1 | 1,700 | ||||||||||||||
| $0.015 | 100,000 | 0.1 | 1,500 | ||||||||||||||
| 20,650,000 | $ | 486,750 | $0.024 | ||||||||||||||
| Options | Number of Shares | Weighted Average Exercise Price | ||||||
| Outstanding at January 1, 2008 | 23,750,000 | $ | 0.025 | |||||
| Granted | 2,000,000 | 0.017 | ||||||
| Exercised | 4,000,000 | 0.010 | ||||||
| Expired | (1,100,000 | ) | 0.019 | |||||
| Outstanding at September 30, 2008 | 20,650,000 | $ | 0.024 | |||||
The Company recorded deferred compensation expense of $28,025 in connection with options granted during the quarter ended September 30, 2008. The fair value of the option grants was estimated on the date of grant utilizing the Black-Scholes option pricing model with the following weighted average assumptions for grants: expected life of options of 7 years, expected volatility of 142%, risk-free interest rate of 4% and no dividend yield. The weighted average fair value at the date of grant for options granted during the quarter ended September 30, 2008, averaged $0.016 per option.
The Company recorded deferred compensation expense of $3,230 in connection with options granted during the quarter ended June 30, 2008. The fair value of the option grants was estimated on the date of grant utilizing the Black-Scholes option pricing model with the following weighted average assumptions for grants: expected life of options of 7 years, expected volatility of 144%, risk-free interest rate of 4% and no dividend yield. The weighted average fair value at the date of grant for options granted during the quarter ended June 30, 2008, approximated $0.016 per option.
| 6. | Subsequent Events |
On October 1, 2008, the Board approved issuance of 1,417,707 shares of our common stock, valued at $0.025 per share for accrued interest of $35,443 for the period July 1 through September 30, 2008, pursuant to the clauses outlined in the convertible debenture agreements of June 11, 2007.
On October 31, 2008, the Registrant’s Board of Directors approved the grant of an aggregate of 200,000 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.
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, resorts, convention centers, timeshare, 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 on-site support. We are no longer including on-site support in the base price for maintenance; these services are either billed for at the time of service or the base price is increased.
2. In-room media and entertainment solutions for hotels, resorts, and timeshare 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 (optional), a media console (consisting of a DVD player, CD 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 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 a Management and Ownership group, of high end properties, out of Florida. We have signed contracts to install into a resort in Asheville, NC and into select rooms of hotels in Merryville, IN and Lexington, KY. We also have completed the installation into 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 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.
Inventory and 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 implemented SFAS No. 123(R), “Share-Based Payment,” which requires us to 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 September 30, 2008 compared to three months ended September 30, 2007:
For the three months ended September 30, 2008, we reported a net loss of $919,764 and a net loss available to common shareholders of $944,764, compared to a net income of $311,248 available to common shareholders for the three months ended September 30, 2007. Our operating loss for the three months ended September 30, 2008 was $1,005,229, a decline in operating results of $789,175 compared to the operating loss of $216,054 that we reported for the three months ended September 30, 2007. $531,529 of this variance is attributable to the non-cash stock compensation transactions for the three months ended September 30, 2008. The remainder, as discussed below, is attributable to our continued investing of significant capital in the design, production, and marketing of our new media and entertainment product.
System sales and installation revenue. System sales and installation revenue increased 446% to $299,176 during the three months ended September 30, 2008 from $54,779 during the three months ended September 30, 2007. We completed upgrades on three existing customers and completed a large equipment sale, related to our media and entertainment product, during the three months ended September 30, 2008, compared to one new installation during the three months ended September 30, 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.
Service, maintenance and usage revenue. Service, maintenance and usage revenue decreased 15% to $283,128 for the three months ended September 30, 2008 from $333,484 for the three months ended September 30, 2007. The decrease was due to a decrease in the number of customers we service on a recurring basis to a total of 143 customers compared to 166 customers as of September 30, 2007.
Cost of system sales and installation. Cost of system sales and installation increased 542% to $288,295 for the three months ended September 30, 2008 from $44,892 for the three months ended September 30, 2007. The increase was attributable to the increased corresponding revenue during the period as well as the increased costs on the sale of equipment.
Cost of service, maintenance and usage. Cost of service, maintenance and usage increased 15% to $276,989 for the three months ended September 30, 2008 from $240,593 for the three months ended September 30, 2007. The increase was attributable to an increase in monitoring and on-site support costs.
Sales and marketing. Sales and marketing expense increased by $70,068 to $118,458 during the three months ended September 30, 2008 from $48,390 for the three months ended September 30, 2007. During 2008, we continued marketing our new media and entertainment product. Our personnel and personnel related costs increased by $44,528 to $90,595 in 2008 from $46,067 in 2007; travel expenses increased by $8,229 to $10,552 in 2008 from $2,323 in 2007; and advertising expense increased to $17,311 in 2008 from $0 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 $183,665 during the three months ended September 30, 2008, compared to $106,478 during the three months ended September 30, 2007. This cost included $129,106 in labor and personnel expense in 2008 compared to $30,339 in 2007, and $54,559 in equipment, supplies and testing costs in 2008 compared to $76,139 in 2007.
Stock compensation. For the three months ended September 30, 2008, the Company recorded $20,889 of amortization of deferred compensation related to stock options, compared to $27,815 for the three months ended September 30, 2007. In addition, the Company recorded stock compensation expense of $538,455 for the fair market value warrants issued during the three months ended September 30, 2008.
General and administrative. General and administrative expense increased by $20,742 to $153,988 for the three months ended September 30, 2008 from $133,246 for the three months ended September 30, 2007. During 2008, personnel and personnel related costs increased $2,781 to $69,509 in 2008 from $66,728 in 2007; office related costs such as rent, telephone, and insurance decreased $857 to $29,191 in 2008 from $30,048 in 2007; travel expenses increased $309 to $309 in 2008 from $0 in 2007; professional and corporate fees increased $27,811 to $53,464 in 2008 from $25,653 in 2007; and bad debt expense decreased $9,302 to $1,514 for 2008 from $10,816 in 2007.
Depreciation. Depreciation of property and equipment increased to $6,792 for the three months ended September 30, 2008 as compared to $2,903 for the three months ended September 30, 2007. This increase is attributable to the Company purchasing capital assets for our new media and entertainment product.
Interest expense. Interest expense on the convertible debentures increased $2,717 to $39,011 for the three months ended September 30, 2008 as compared to $36,294 for the three months ended September 30, 2007.
Income from discharge of indebtedness. During the three months ended September 30, 2007, the Company negotiated settlements with several vendors and realized discharge of indebtedness income of $6,506. The Company had no corresponding income during the three months ended September 30, 2008.
Derivative income (expense), net. Derivative instruments income of $125,858 represents the net unrealized (non-cash) change during the three months ended September 30, 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. The derivative instruments income for the three months ended September 30, 2007 was $548,965.
Dividends. Dividends of $25,000 have been accrued pursuant to issuance of Series C Preferred Stock on July 31, 2008.
Nine months ended September 30, 2008 compared to nine months ended September 30, 2007:
For the nine months ended September 30, 2008, we reported a net loss of $2,630,667 and a net loss available to common shareholders of $2,655,677, compared to a net loss of $250,896 available to common shareholders for the nine months ended September 30, 2007. Our operating loss for the nine months ended September 30, 2008 was $1,490,316, a decline in operating results of $756,394 compared to the operating loss of $733,922 that we reported for the nine months ended September 30, 2007. $272,775 of this variance is attributable to the non-cash stock compensation transactions for the nine months ended September 30, 2008. The remainder, as discussed below, is attributable to our continued investing of significant capital in the design, production, and marketing of our new media and entertainment product.
System sales and installation revenue. System sales and installation revenue decreased 10% to $499,354 during the nine months ended September 30, 2008 from $552,998 during the nine months ended September 30, 2007. We completed upgrades on ten existing customers and completed a large equipment sale during the nine months ended September 30, 2008, compared to eight new installations and eleven upgrades during the nine months ended September 30, 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 12% to $885,007 for the nine months ended September 30, 2008 from $1,001,468 for the nine months ended September 30, 2007. The decrease was due to a decrease in the number of customers we service on a recurring basis to a total of 143 customers compared to 166 customers as of September 30, 2007.
Cost of system sales and installation. Cost of system sales and installation increased 48% to $353,909 for the nine months ended September 30, 2008 from $239,065 for the nine months ended September 30, 2007. The increase was attributable to the increased costs on the sale of equipment.
Cost of service, maintenance and usage. Cost of service, maintenance and usage decreased 16% to $744,336 for the nine months ended September 30, 2008 from $890,977 for the nine months ended September 30, 2007. The decrease was attributable to the decrease in customers from 166 in 2007 to 143 in 2008, as well as operational efficiencies created by network upgrades.
Sales and marketing. Sales and marketing expense increased by $101,183 to $255,156 during the nine months ended September 30, 2008 from $153,973 for the nine months ended September 30, 2007. During 2008, we continued marketing our new media and entertainment product. Our personnel and personnel related costs increased by $39,142 to $186,606 in 2008 from $147,464 in 2007; travel expenses increased by $12,766 to $18,828 in 2008 from $6,062 in 2007; and advertising expense increased by $49,275 to $49,722 in 2008 from $447 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 $429,609 during the nine months ended September 30, 2008, compared to $182,736 during the nine months ended September 30, 2007. These costs included $342,180 in labor and personnel expense in 2008 compared to $76,597 in 2007, and $87,429 in equipment, supplies and testing costs in 2008 compared to $106,139 in 2007.
Stock compensation. For the nine months ended September 30, 2008, the Company recorded $40,375 of amortization of deferred compensation related to stock options, compared to $69,309 for the nine months ended September 30, 2007. In addition, the Company recorded stock compensation expense of $538,455 for the fair market value warrants issued during the nine months ended September 30, 2008. For the nine months ended September 30, 2007, the Company recorded $306,055 of amortization of deferred compensation related to stock options granted in November 2006.
General and administrative. General and administrative expense decreased by $15,494 to $493,127 for the nine months ended September 30, 2008 from $508,621 for the nine months ended September 30, 2007. During 2008, personnel and personnel related costs increased $36,872 to $202,054 in 2008 from $165,182 in 2007; office related costs such as rent, telephone, and insurance increased $15,465 to $93,328 in 2008 from $77,863 in 2007; travel expenses increased $6,636 to $11,518 in 2008 from $4,882 in 2007; professional and corporate fees decreased $85,239 to $150,515 in 2008 from $238,754 in 2007; and bad debt expense increased $10,772 to $35,712 for 2008 from $21,940 in 2007.
Depreciation. Depreciation of property and equipment increased to $19,711 for the nine months ended September 30, 2008 as compared to $6,961 for the nine months ended September 30, 2007. This increase is attributable to the Company purchasing capital assets for our new media and entertainment product.
Interest expense. Interest expense decreased $41,925 to $112,916 for the nine months ended September 30, 2008 as compared to $154,841 for the nine months ended September 30, 2007. The decrease is attributable to the settlement of outstanding and defaulted debt during the nine months ended September 30, 2007.
Income from discharge of indebtedness. During the nine months ended September 30, 2007, the Company negotiated settlements with several vendors and realized discharge of indebtedness income of $1,471,712. The Company had corresponding income during the nine months ended September 30, 2008 of $992.
Derivative income (expense), net. Derivative instruments expense of $1,032,717 represents the net unrealized (non-cash) change during the nine months ended September 30, 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. The derivative instruments expense for the nine months ended September 30, 2007 was $579,383.
Dividends. Dividends of $25,000 have been accrued pursuant to issuance of Series C Preferred Stock on July 31, 2008.
Liquidity and Capital Resources
As of September 30, 2008 we had $2,542,339 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 $773,095 for the nine months ended September 30, 2008 as compared to $401,627 used for the nine months ended September 30, 2007.
Investing Activities
Net cash used by investing activities was $87,231, used to purchase capital assets, for the nine months ended September 30, 2008, as compared to net cash used for investing activity of $25,466 for the nine months ended September 30, 2007.
Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2008 was $2,487,500 as compared to net cash provided by financing activities of $1,334,897 for the nine months ended September 30, 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 $6,286 for the nine months ended September 30, 2008 compared to a loss of $9,432 for the nine months ended September 30, 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 September 30, 2008. Based on that evaluation, our management, including our principal 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 September 30, 2008, that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II - OTHER INFORMATION
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.
On April 1, 2008, the Board approved issuance of 1,386,890 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 July 1, 2008, the Board approved issuance of 1,402,302 shares of our common stock, valued at $0.025 per share for accrued interest of $35,057 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 at $0.01 per share on a cashless basis resulting in the net issuance of 2,571,429 shares of common stock.
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.
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.
None
None
None
(a) Exhibits.
3.1 Certificate of Designation of Series C Preferred Stock, incorporated by reference to Exhibit 3.1 of the Form 8-K filed by the Registrant on August 5, 2008.
3.2 Form of Series C-1 Warrant, incorporated by reference to Exhibit 3.2 of the Form 8-K filed by the Registrant on August 5, 2008.
3.3 Form of Series C-2 Warrant, incorporated by reference to Exhibit 3.3 of the Form 8-K filed by the Registrant on August 5, 2008.
10.1 Form of Securities Purchase Agreement among an investor group, and certain affiliated trusts, dated July 31, 2008, incorporated by reference to Exhibit 10.1 of the Form 8-K filed by the Registrant on August 5, 2008.
10.2 Form of Registration Rights Agreement among the Registrant and the parties to the Securities Purchase Agreement identified in Exhibit 10.1 above, dated July 31, 2008, incorporated by reference to Exhibit 10.2 of the Form 8-K filed by the Registrant on August 5, 2008.
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: | 11/12/08 |
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: | 11/12/08 | ||