Document/Exhibit Description Pages Size
1: 10QSB Quarterly Report -- Small Business 18 100K
2: EX-2 Plan of Acquisition, Reorganization, Arrangement, 7 29K
Liquidation or Succession
3: EX-3.1 Articles of Incorporation/Organization or By-Laws 13 44K
4: EX-4 Instrument Defining the Rights of Security Holders HTML 5K
5: EX-31.1 Certification per Sarbanes-Oxley Act (Section 302) 2± 10K
6: EX-31.2 Certification per Sarbanes-Oxley Act (Section 302) 2± 10K
7: EX-32.1 Certification per Sarbanes-Oxley Act (Section 906) 1 7K
8: EX-32.2 Certification per Sarbanes-Oxley Act (Section 906) 1 7K
9: EX-99 Miscellaneous Exhibit 2 11K
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
Commission File No. 000-26213
ROOMLINX, INC.
(Formerly Arc Communications, Inc.)
(Exact name of small business issuer as specified in its charter)
A Nevada Corporation 83-0401552
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
401 Hackensack Avenue, 3rd Floor, Hackensack, New Jersey 07601
(Address of principal executive offices)
(201) 525-1777
(Issuer's telephone number)
788 Shrewsbury Avenue
Tinton Falls, New Jersey 07724
(Former address of principal executive offices)
Check whether the issuer (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 |_|
The number of shares outstanding of the Issuer's common stock as of August 13,
2004 was 102,504,456.
ROOMLINX, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
a) Condensed Balance Sheet as of June 30, 2004
b) Condensed Statements of Operations for the Three and Six Months Ended June
30, 2004 and 2003
c) Condensed Statements of Cash Flows for the Three and Six Months Ended June
30, 2004 and 2003
d) Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations General Critical Accounting Policies and Estimates Results
of Operations Liquidity and Capital Resources
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 2. Changes in Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROOMLINX, INC.
CONDENSED BALANCE SHEET
(Unaudited)
[Enlarge/Download Table]
June 30
2004
------------
ASSETS
Current assets:
Cash $ 587,612
Accounts receivable and other 266,194
Inventory 37,726
Work in progress 179,187
Due from sale of the continuing professional education segment 75,000
Prepaid and other current assets Total current assets 15,156
------------
1,160,875
Property and equipment, net 237,882
Other assets 7,878
------------
Total assets $ 1,406,635
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 590,632
Deferred revenue 274,969
Current portion of obligations under capital lease 217,685
Other current liabilities 14,463
------------
Total current liabilities 1,097,749
Convertible debenture 10,000
------------
Total liabilities 1,107,749
Commitments and contingencies
Stockholders' equity:
Preferred stock, stated value $.20, 5,000,000 shares authorized; 720,000 shares
issued and outstanding 144,000
Common stock, $.001 par value, authorized 250,000,000 shares; issued and
outstanding 102,504,456 102,504
Additional paid-in capital 14,531,983
Deferred compensation (1,740,000)
Warrants 495,550
Accumulated deficit (13,235,151)
------------
Total stockholders' equityTotal liabilities and stockholders' equity 298,886
------------
$ 1,406,635
============
ROOMLINX, INC.
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
[Enlarge/Download Table]
Three months ended June 30, Six months ended June 30,
2004 2003 2004 2003
------------ ------------ ------------ ------------
Revenues
System sales and installation $ 240,347 $ 260,954 $ 528,043 $ 683,357
Service, maintenance and usage 175,221 123,493 323,880 216,570
------------ ------------ ------------ ------------
415,568 384,447 851,923 899,927
Cost of revenue
System sales and installation 209,430 199,673 460,492 492,477
Service, maintenance and usage 90,016 48,544 141,023 86,175
------------ ------------ ------------ ------------
299,446 248,217 601,515 78,652
------------ ------------ ------------ ------------
Gross profit
116,122 136,230 250,408 321,275
------------ ------------ ------------ ------------
Operating expenses
Sales and marketing 209,484 110,267 512,950 204,330
General and administrative 227,405 144,034 469,397 262,368
Depreciation of property and equipment 20,760 27,545 40,618 54,170
------------ ------------ ------------ ------------
457,649 281,846 1,022,965 520,868
------------ ------------ ------------ ------------
Loss from operations
(341,527) (145,616) (772,557) (199,593)
Other income (expense)
Interest expense (10,337) (9,999) (25,437) (18,363)
Reorganization Costs (6,364,996) -- (6,364,996) --
Foreign exchange 1,074 (33,274) 8,159 (57,236)
Financing costs -- (8,967) -- (29,280)
Non-cash financing costs (3,000) (10,500) (478,850) (18,000)
------------ ------------ ------------ ------------
Total other income (expense) (6,377,259) (62,740) (6,861,124) (122,879)
------------ ------------ ------------ ------------
Net loss $ (6,718,786) $ (208,356) $ (7,633,681) $ (322,472)
============ ============ ============ ============
Basic net loss per share $ (0.10) $ (0.01) $ (0.13) $ (0.02)
============ ============ ============ ============
Diluted net loss per share $ (0.10) $ (0.01) $ (0.13) $ (0.02)
============ ============ ============ ============
Weighted average shares used in computation of
basic net loss per share 65,913,288 14,426,963 60,206,917 14,426,963
Weighted average shares used in computation of
diluted net loss per share 65,913,288 14,426,963 60,206,917 14,426,963
ROOMLINX, INC.
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
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Six Months Ended June 30,
2004 2003
----------- -----------
Operating activities
Loss for the period ................................. $(7,633,681) $ (322,472)
Items not affecting cash:
Amortization of property and equipment .......... 40,618 54,170
Amortization of capital lease obligation ........ (7,689) 31,390
Non-cash operating costs ........................ 169,600 --
Non-cash reorganization costs ................... 6,364,996
Non-cash financing costs ........................ 478,850 18,000
Change in operating assets and
liabilities .......................................... (22,411) 67,864
----------- -----------
Cash used in operating activities .................... (609,717) (151,048)
----------- -----------
Investing activities
Purchase of property and equipment ................ (8,692) (10,513)
Proceeds from merger .............................. 711,117
----------- -----------
Cash provided by (used in) investing activities ...... 702,425 (10,513)
----------- -----------
Financing activities
Due to related parties ............................ (72,009) 6,635
Loans payable ..................................... (23,139) 80,000
Convertible debenture ............................. -- 60,000
Issuance of common shares - cash .................. 582,800 --
----------- -----------
Cash provided by financing activities ................ 487,652 146,635
----------- -----------
Net (decrease) increase in cash and
cash equivalents .................................. 580,360 (14,926)
Cash and cash equivalents
(Bank overdraft), beginning of period ............. 7,252 (8,182)
----------- -----------
Cash and cash equivalents
(Bank overdraft), end of period ................... $ 587,612 $ (23,108)
=========== ===========
Supplement Disclosures of Cash Flow Information:
Cash paid for interest ............................ $ 10,000 $ 10,000
Satisfaction of liability to consultants through the
issuance of common stock ......................... $ 384,000
ROOMLINX, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-QSB and Rule 10-01 of
Regulation S-B and include the results of RoomLinX, Inc. (the "Company").
Accordingly, certain information and footnote disclosures required in financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted. In the opinion of the
Company's management, the accompanying unaudited condensed financial statements
contain all adjustments (consisting only of normal recurring adjustments except
as otherwise disclosed herein) that the Company considers necessary for the fair
presentation of its financial position as of June 30, 2004 and the results of
its operations and its cash flows for the six month period ended June 30, 2004
and 2003. These financial statements should be read in conjunction with the
Company's audited financial statements for the year ended December 31, 2003
included in the Definitive 14A Statement filed with the Securities and Exchange
Commission on June 15, 2004.
The Company provides wired networking solutions and Wireless Fidelity networking
solutions, also known as Wi-Fi, for high speed internet access to hotels,
convention centers, corporate apartments and special events locations. The
Company installs and creates services that address the productivity and
communications needs of hotel guests, convention center exhibitors, corporate
apartment customers and individual consumers. The Company specializes in
providing advanced Wi-Fi wireless services such as the wireless standards known
as 802.11a/b/g.
The accompanying unaudited condensed financial statements have been prepared
assuming that the Company will continue as a going concern. However, the Company
has incurred significant operating losses since its inception and, as of June
30, 2004, has an accumulated deficit of $13,235,000 as of June 30, 2004, the
Company had $588,000 in cash and cash equivalents ($522,000 as of July 31,
2004). Management has evaluated the Company's alternatives to enable it to pay
its liabilities as they become due and payable in the current year, reduce
operating losses and obtain additional or new financing in order to advance its
business plan. As a result, the Company completed the merger with Arc
Communications Inc. ("Arc"), on June 28, 2004. Additional alternatives being
considered by management include, obtaining financing from new lenders and the
issuance of additional equity or debt. The Company believes these measures will
provide liquidity for it to continue as a going concern throughout fiscal 2004,
however, management can provide no assurance with respect to their success in
affecting one or more of these measures, or whether, if affected, such measures
will provide sufficient financing to sustain operations.
These unaudited condensed financial statements do not reflect adjustments that
would be necessary if the going concern assumption were not appropriate because
management believes that the actions already taken or planned will mitigate the
adverse conditions and events that raise doubts about the validity of the going
concern assumption used in preparing these financial statements.
Results for the interim period are not necessarily indicative of results that
may be expected for the entire year.
On June 28, 2004, the Company completed its merger with Arc Communications Inc.
formerly a full service marketing consulting and New Media design firm. As a
result of the merger, the stockholders of RoomLinX before the merger received
68,378,346 shares of common stock of the Company and at the effective time of
the merger, owned approximately 62% of the outstanding shares of the Company.
The stockholders of RoomLinX before the merger also received warrants to
purchase an additional 11,465,001 shares of common stock of the Company. The
transaction has been accounted for as a recapitalization, which is accounted for
similar to the issuance of stock by RoomLinX for the net assets of Arc with no
goodwill or other intangibles being recorded. Concurrent with the closing, Arc
changed its name to RoomLinX, Inc.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
INVENTORY
Inventory, principally wireless devices related to Wi-Fi installations, are
stated at the lower of cost (first-in, first-out) basis or market. Inventories
are recorded net of any reserve for excess and obsolescence.
RECLASSIFICATIONS
Certain items have been reclassified to conform with the presentation adopted in
the current period.
NOTE 3 - EARNINGS PER SHARE
The Company computes net loss per share under the provisions of SFAS No. 128,
"Earnings per Share" (SFAS 128), and SEC Staff Accounting Bulletin No. 98 (SAB
98).
Under the provisions of SFAS 128 and SAB 98, basic loss per share is computed by
dividing the Company's net loss for the period by the weighted-average number of
shares of common stock outstanding during the period. Diluted net loss per share
excludes potential common shares if the effect is anti-dilutive. Diluted loss
per share is determined in the same manner as basic loss per share except that
the number of shares is increased assuming exercise of dilutive stock options
and warrants using the treasury stock method. As the Company had a net loss, the
impact of the assumed exercise of the stock options and warrants is
anti-dilutive and as such, these amounts have been excluded from the calculation
of diluted loss per share.
NOTE 4 - STOCK-BASED COMPENSATION
The Company accounts for employee stock-based compensation in accordance with
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees", using the intrinsic value approach to measure compensation
expense, if any. Under this method, compensation expense is recorded on the date
of the grant only if the current market price of the underlying stock exceeds
the exercise price. Options issued to non-employees are accounted for in
accordance with SFAS 123, "Accounting for Stock-Based Compensation", and
Emerging Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods and Services", using a fair value approach.
SFAS No.123 established accounting and disclosure requirements using a fair
value-basis method of accounting for stock-based employee compensation plans. As
allowed by SFAS No. 123, the Company has elected to continue to apply the
intrinsic value-based method of accounting described above, and has adopted the
disclosure requirements of SFAS No. 123. Had the Company elected to recognize
compensation cost based on fair value of the stock options at the date of grant
under SFAS 123, such costs would have been recognized ratably over the vesting
period of the underlying instruments and the Company' net loss and net loss per
common share would have increased to the pro forma amounts indicated in the
table below.
[Enlarge/Download Table]
Three months ended June 30 Six months ended June 30
2004 2003 2004 2003
------------- ------------- ------------- -------------
Net loss, as reported $ (6,718,786) $ (208,356) $ (7,633,681) $ (322,472)
Deduct: Stock-based employee compensation
expense included in reported net loss -- -- -- --
Add: Total stock-based employee compensation
expense determined under fair value based
method for all awards -- -- -- --
------------- ------------- ------------- -------------
Pro forma net loss $ (6,718,786) $ (208,356) $ (7,633,681) $ (322,472)
============= ============= ============= =============
Loss per share - basic, as reported $ (0.10) $ (0.01) $ (0.13) $ (0.02)
============= ============= ============= =============
Loss per share - diluted, as reported $ (0.10) $ (0.01) $ (0.13) $ (0.02)
============= ============= ============= =============
Pro forma loss per share - basic $ (0.10) $ (0.01) $ (0.13) $ (0.02)
============= ============= ============= =============
Pro forma loss per share - diluted $ (0.10) $ (0.01) $ (0.13) $ (0.02)
============= ============= ============= =============
NOTE 5 - MERGER WITH ARC COMMUNICATIONS INC.
On June 28, 2004, the Company completed its merger with Arc
Communications, Inc. As a result of the merger, the stockholders of RoomLinX
before the merger received 68,378,346 shares of common stock of the Company and
at the effective time of the merger, owned approximately 62% of the outstanding
shares of the Company. The stockholders of RoomLinX before the merger also
received warrants to purchase an additional 11,465,001 shares of common stock of
the Company. The transaction has been accounted for as a recapitalization, which
is accounted for similar to the issuance of stock by RoomLinX for the net assets
of Arc with no goodwill or other intangibles being recorded. Concurrent with the
closing, Arc changed its name to RoomLinX, Inc.
Pursuant to the Merger Agreement with Arc, the Company was required to
raise a minimum of $400,000 in additional capital prior to the closing of the
merger. During the six months ended June 30, 2004, the Company issued and sold
5,738,510 shares of common stock at a price of $0.11 per share including
2,869,255 two year warrants to purchase common stock at an exercise price of
$0.22 per share for gross proceeds of approximately $624,000(issue costs of
approximately $53,000). The total fair value of the warrants issued during the
quarter was determined to be $335,800 and was recorded as a non-cash financing
cost in the statement of operations. Net proceeds from the sale of common stock
were used to eliminate certain of the Company's existing liabilities
approximating $205,000, reduce accounts payable and accrued expenses by
approximately $261,000 and general working capital purposes.
In order to reduce the Company's existing debt prior to the closing of the
merger, the Company issued 2,002,640 shares of common stock and 1,001,320 two
year warrants to purchase common stock at an exercise price of $0.22 per share
in settlement of approximately $217,800 of debt and liabilities. Furthermore,
the Company issued 1,315,784 shares of common stock and 657,892 two year
warrants to purchase common stock at an exercise price of $0.22 per share to
unrelated parties as a fee related to the private placement. In lieu of cash
compensation to certain employees and unrelated vendors, the Company issued
1,535,541 shares of common stock and 767,770 two year warrants to purchase
common stock at an exercise price of $0.22 per share.
Additionally, during February 2004, Arc closed a private placement of its
securities in reliance upon Rule 506 of Regulation D under the Securities Act.
In the private placement, the Company sold 16,666,666 shares of common stock at
a price of $.075 per share including 8,333,333 three-year warrants to purchase
common stock at an exercise price of $.015 per share. Gross proceeds from the
private placement were $1,250,000 before direct issuance costs of approximately
$54,000. The proceeds of the private placement were used to eliminate certain of
the Company's existing liabilities approximating $175,000, pay professional fees
associated with the merger of approximately $50,000 and working capital for the
surviving corporation after the merger is complete.
The following related parties participated in Arc's private placement:
Peter A. Bordes, Jr., chairman and then chief executive officer of the Company
purchased $75,000 of common stock and warrants; Arla Sheinwald, the wife of Alan
Sheinwald, the principal of Alliance Advisors, purchased $100,000 of common
stock and warrants; Deborah Berkley, the wife of Richard Berkley, a principal of
Roccus Capital, purchased $10,000 of common stock and warrants; Aaron Dobrinsky,
appointed Chief Executive Officer of the Company on April 27, 2004, purchased
$70,000 of common stock and warrants, and Frank Elenio, appointed Chief
Financial Officer of the Company on April 27, 2004, purchased $10,000 of common
stock and warrants.
NOTE 6 - CONSULTING ARRANGEMENT
In consideration for providing general consulting services to the Company
in the areas of operations, finance, recruitment of officers and directors and
sales and marketing for the twelve month period ended December 31, 2003, in
which the Company had recorded a liability of $384,000, the Arc Communications,
Inc. issued, during the first quarter 2004 an aggregate of 1,600,000 shares to
Alliance Advisors and Roccus Capital Partners, L.L.C. in satisfaction of the
liability.
NOTE 7 - CONVERTIBLE DEBENTURE
The debenture balance of $10,000 is the remaining balance of a private placement
of debentures having an aggregate subscription level of $500,000 of which
$370,000 was converted into common stock at $0.40 immediately prior to the
closing of the merger of the Company with Arc. Each debenture has a face value
of $10,000 and has a term of two years, expiring at various dates beginning
November 1, 2004. All or any portion of the outstanding principal sum and
accrued interest of each debenture is convertible at the option of the
subscriber into common shares of the Company at a price of $0.50 per share if
converted on or before the due date. The debentures are due and payable on the
due date, if not converted prior to the due date. As security for the payment of
the principal and interest, the Company has granted a general security interest
on all of its present and after-acquired personal property and a floating chare
over all of its present and after-acquired real property. Each debenture carries
interest at the rate of 12% per annum, payable quarterly.
For each $1.00 invested, each debenture holder was also granted two share
purchase warrants, entitling the holder to purchase one share of common stock at
a price of $0.75. The warrants have a two-year term. The total fair value of the
warrants issued during the year was determined to be $54,000 and was recorded as
a non-cash financing cost in the statement of operations.
NOTE 8 - SEGMENTED DISCLOSURES
The Company manages it operations in one business segment, the provision of
wireless high-speed Internet network solutions to hotel, conference centers and
commercial buildings. The Company attributes revenue among geographical areas
based on location of the customers involved. The following table presents a
summary of total revenues by geographical region:
Three Months Ended Six Months Ended
June 30,
2004 2003 2004 2003
-------- -------- -------- --------
United States $359,115 $330,869 $752,526 $826,877
Canada 56,453 53,578 99,397 73,050
-------- -------- -------- --------
$415,568 $384,447 $851,923 $899,927
======== ======== ======== ========
The following table presents a summary of property and equipment by geographical
region:
June 30,
2004 2003
United States $162,692 $219,382
Canada 75,190 95,105
-------- --------
$237,882 $314,487
======== ========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
RoomLinX, Inc., a Nevada corporation ("We," "Us" or the "Company"), provides
wired networking solutions and Wireless Fidelity networking solutions, also
known as Wi-Fi, for high speed internet access to hotels, convention centers,
corporate apartments and special events locations. The company installs and
creates services that address the productivity and communications needs of hotel
guests, convention center exhibitors and corporate apartment customers. We
specialize in providing advanced Wi-Fi wireless services such as the wireless
standards known as 802.11a/b/g.
Hotel customers sign long-term service agreements, where we provide the
maintenance for the networks, as well as the right to provide value added
services over the network.
We derive our revenues primarily from the installation of the wired and wireless
networks we provide to hotels, convention centers and apartment buildings. We
derive additional revenue from the maintenance of these networks. Customers
typically pay a one-time fee for the installation of the network and then pay
monthly maintenance fees for the upkeep and support of the network. During March
1999, we commenced offering our services commercially. Since our inception, we
have invested significant capital to build our technical infrastructure and
network operations. We have incurred operating losses since our inception and
expect to incur operating losses for at least the next 3 fiscal quarters. 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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and the related disclosures of contingent assets and
liabilities. On an on-going basis, management evaluates its estimates and
judgments, including those related to revenue recognition, allowance for
doubtful accounts and property and equipment valuation. Management bases its
estimates and judgments on historical experience and on various other factors
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions and conditions.
Management believes the following critical accounting policies, among others,
affect its more significant judgments and estimates used in the preparation of
its consolidated financial statements. Our system sales and installation revenue
primarily consists of wired and wireless network equipment and installation fees
associated with the network and is recognized as revenue when the installation
is completed and the customer has accepted such installation. Our service,
maintenance and usage revenue, which primarily consists of monthly maintenance
fees related to the upkeep of the network is recognized on a monthly basis as
services are provided. We estimate the collectibility 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. 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, 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.
We have incurred substantial operating losses since our inception. As a result
of such operating losses, we have recorded a substantial net operating loss for
tax purposes. In light of our historical operating results, we have not recorded
a deferred tax asset due to the uncertainty surrounding future income.
RESULTS OF OPERATIONS
Three months ended June 30, 2004 Compared to Three months ended June 30, 2003
System sales and installation revenue. System sales and installation revenue
decreased to $240,000 for the quarter ended June 30, 2004 from $261,000 for the
quarter ended June 30, 2003. While during the quarter ended June 30, 2004, we
obtained 8 new customers as compared to 4 in the same period last year, revenue
decreased due to the size of the customers added. During the quarter ended June
30, 2004, the average revenue per customer was approximately $30,000 as compared
to $65,000 during the same period last year. Due to the nature of our business,
such fluctuations may occur from time to time based off the size of the new
customer contracts during the period. We expect the system sales and
installation revenue to increase during remainder of 2004 as we continue to
expand our customer base.
Service, maintenance and usage revenue. Service, maintenance and usage revenue
increased to $175,000 for the quarter ended June 30, 2004 from $123,000 for the
quarter ended June 30, 2003. The increase was due an increase in the number of
customers we service on a recurring basis to 67, or 17,999 rooms as of June 30,
2004 as compared to 29 or 7,383 rooms as of June 30, 2003. We anticipate that
service, maintenance and usage revenue will increase as we continue to increase
our customer base.
Cost of system sales and installation revenue. Cost of system sales and
installation revenue increased to $209,000 for the quarter ended June 30, 2004
from $200,000 for the quarter ended June 30, 2003. The increase was primarily
attributable to unexpected cost overruns on two projects. . We anticipate that
cost of system sales and installation revenue will increase during the remainder
2004 as we continue to expand our customer base.
Cost of service, maintenance and usage revenue. Cost of service, maintenance and
usage revenue increased to $90,000 for the quarter ended June 30, 2004 from
$49,000 for the quarter ended June 30, 2003. Such increase is directly
attributable to the increased corresponding revenue. We anticipate that cost of
service, maintenance and usage revenue will increase during the remainder of
2004 as we continue to increase Service, maintenance and usage revenues.
Sales and marketing. Sales and marketing expense increased by $99,000 to
$209,000 during the quarter ended June 30, 2004 from $110,000 for the quarter
ended June 30, 2003. Such increase is attributable to increased personnel and
personnel levels and related personnel costs of $56,000, as well as more
aggressive sales initiatives such as travel related costs of $43,000. During the
remainder of 2004, we anticipate sales and marketing expense to increase as we
will continue with our aggressive sales and marketing initiatives.
General and administrative. General and administrative expense increased by
$83,000 to $227,000 for the quarter ended June 30, 2004 from $144,000 for the
quarter ended June 30, 2003. The increase is attributable to increased personnel
and personnel related costs of $10,000, office related expenses such as rent,
telephone and supplies of $23,000, travel and professional fees of $50,000.
During the remainder of 2004 we anticipate general and administrative costs to
increase since the Company became a publicly traded entity pursuant to its
merger with Arc, which will further increase personnel costs as well as
professional fees.
Depreciation of property and equipment. Depreciation of property and equipment
decreased 25% or $7,000 to $21,000 for the quarter ended June 30, 2004 as
compared to $28,000 for the quarter ended June 30, 2003. The decrease is
primarily related to assets that were fully depreciated during 2003 and smaller
capital expenditures during 2003 and the quarter ended June 30, 2004. We
anticipate amortization of property and equipment will decrease as a percentage
of total revenue as we are do not expect major capital expenditures during the
remainder of 2004.
Interest expense. Interest expense remained constant at $10,000 for the quarters
ended June 30, 2004 and 2003. Such relative consistency primarily relates our
convertible debt, which remained constant during the periods. We anticipate that
interest expense will decrease during the remainder of 2004 as we have
renegotiating all, except for $10,000, of our convertible notes and loans into
equity as part of our merger with Arc Communications, Inc.
Reorganization costs. In connection with the merger with Arc, the transaction
was accounted for as a recapitalization of RoomLinX. Under recapitalization
accounting, RoomLinX effectively issued its stock in exchange for the net
monetary liabilities of Arc. Accordingly RoomLinX has recorded a one-time,
non-cash reorganization cost, related to the difference between the fair value
of Arc's common stock on the date of the merger agreement and the net assets of
Arc.
Foreign exchange. Foreign exchange income/expense decreased $34,000 to $1,000 of
income for the quarter ended June 30, 2004 from expense of $33,000 for the
quarter ended June 30, 2003. The decreased expense primarily relates to the
exchange rate fluctuations between the U.S. Dollar and the Canadian Dollar. We
currently incur operating expenses in Canadian dollars but derive a large
portion of revenue and cost of revenue from U.S. sources denominated in U.S.
dollars. Due to daily fluctuations in the foreign exchange rates between the U.S
and Canada, as well as the increasing business we are recording in the United
States, we are not in the position to estimate what such expense or income will
be during the remainder of 2004. (See - Foreign Currency Exchange Rate Risk)
Non-cash financing costs. Non-cash financing costs decreased $8,000 to $3,000
for the quarter ended June 30, 2004 as compared to $11,000 for the quarter ended
June 30, 2003. The decrease relates to the completion of financing during the
first quarter 2004 and the portion expensed during the current quarter relates
to issuance of warrants for financing received at the close of the first
quarter. We anticipate Non-cash financing costs will decrease during the
remainder of 2004 as we do not plan to enter into transactions that will give
rise to such costs.
Six months ended June 30, 2004 Compared to Six months ended June 30, 2003
System sales and installation revenue. System sales and installation revenue
decreased to $528,000 during the six months ended June 30, 2004 from $683,000
for the six months ended June 30, 2003. While during the six months ended June
30, 2004, we obtained 17 new customers as compared to 12 in the same period last
year, revenue decreased due to the size of the customers added. During the six
months ended June 30, 2004, the average revenue per customer was approximately
$31,000 as compared to $57,000 during the same period last year. Due to the
nature of our business, such fluctuations may occur from time to time based off
the size of the new customer contracts during the period.
Service, maintenance and usage revenue. Service, maintenance and usage revenue
increased to $324,000 for the six months ended June 30, 2004 from $217,000 for
the six months ended June 30, 2003. The increase was due an increase in the
number of customers we service on a recurring basis to 67 or 17,999 rooms as of
June 30, 2004, an increase of 5,518 rooms during the six months ended June 30,
2004 as compared to 29 or 7,383 rooms as of June 30, 2003, an increase of 2,079
rooms during the six months ended June 30, 2003.
Cost of system sales and installation revenue. Cost of system sales and
installation revenue decreased to $460,000 for the six months ended June 30,
2004 from $492,000 for the six months ended June 30, 2003. The decrease was
directly attributable to the decreased corresponding revenue during the same
period. Such costs increased during six months ended June 30, 2004 as a larger
percentage of revenue as compared to the same period last year due to the scale
of each project and our inability to obtain more favorable pricing due to
smaller size of each project.
Cost of service, maintenance and usage revenue. Cost of service, maintenance and
usage revenue increased to $141,000 for the six months ended June 30, 2004 from
$86,000 for the six months ended June 30, 2003.
Sales and marketing. Sales and marketing expense increased by $309,000 to
$513,000 during the six months ended June 30, 2004 from $204,000 for the six
months ended June 30, 2003. Such increase is attributable to increased personnel
and personnel levels and related personnel costs of $229,000, which includes
non-cash share based compensation of $120,000 paid to certain employees ,
increased advertising costs of $23,000, as well as more aggressive sales
initiatives such as travel related costs of $57,000.
General and administrative. General and administrative expense increased by
$207,000 to $469,000 for the six months ended June 30, 2004 from $262,000 for
the six months ended June 30, 2003. The increase is attributable to increased
personnel and personnel related costs of $90,000, which includes non-cash share
based compensation of $20,000 paid to certain employees, office related expenses
such as rent, telephone and supplies of $38,000, travel and professional fees of
$79,000.
Depreciation of property and equipment. Depreciation of property and equipment
decreased 25% or $13,000 to $41,000 for the six months ended June 30, 2004 as
compared to $54,000 for the six months ended June 30, 2003. The decrease is
primarily related to assets that were fully depreciated during 2003 and smaller
capital expenditures during 2003 and the six months ended June 30, 2004.
Interest expense. Interest expense increased 39% or $7,000 to $25,000 for the
six months ended June 30, 2004 as compared to $18,000 for the six months ended
June 30, 2003. The increase is primarily due to an increase in our convertible
debt and loans payable during 2003. Inc.
Reorganization costs. In connection with the merger with Arc, the transaction
was accounted for as a recapitalization of RoomLinX. Under recapitalization
accounting, RoomLinX effectively issued its stock in exchange for the net
monetary liabilities of Arc. Accordingly RoomLinX has recorded a one-time,
non-cash reorganization cost, related to the difference between the fair value
of Arc's common stock on the date of the merger agreement and the net assets of
Arc.
Foreign exchange. Foreign exchange income/expense decreased $65,000 to $8,000 of
income for the six months ended June 30, 2004 from expense of $57,000 for the
six months ended June 30, 2003. The decreased expense primarily relates to the
exchange rate fluctuations between the U.S. Dollar and the Canadian Dollar. We
currently incur operating expenses in Canadian dollars but derive a large
portion of revenue and cost of revenue from U.S. sources denominated in U.S.
dollars. Due to daily fluctuations in the foreign exchange rates between the U.S
and Canada, as well as the increasing business we are recording in the United
States, we are not in the position to estimate what such expense or income will
be during the remainder of 2004. (See - Foreign Currency Exchange Rate Risk)
Non-cash financing costs. Non-cash financing costs increased $461,000 to
$479,000 for the six months ended June 30, 2004 as compared to $18,000 for the
six months ended June 30, 2003. The increase is primarily due to expenses
recorded with respect to the issuance of warrants in connection with certain
equity and debt financings during the period.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we financed our operations through private placements of
our equity securities, our convertible debentures and shareholder loans, which
resulted in aggregate net proceeds of approximately $6.4 million through June
30, 2004. During the quarter ended June 30, 2004, we completed our merger with
Arc which resulted in cash contributed from Arc of approximately $711,000, the
net proceeds of which were used to extinguish certain short term liabilities,
accounts payable, accrued expenses and working capital.
We have incurred significant operating losses since our inception and as of June
30, 2004 have an accumulated deficit of $13.2 million. During six months ended
June 30, 2004, we incurred a net loss of $7,634,000 and used $610,000 of cash to
fund operating activities. As of June 30, 2004 we had $588,000 in cash and cash
equivalents ($522,000 at July 31, 2004). Management has evaluated the Company's
alternatives to enable it to pay its liabilities as they become due and payable
in the current year, reduce operating losses and obtain additional or new
financing in order to advance its business plan. As a result, the Company
completed the merger with Arc on June 28, 2004. Additional alternatives being
considered by management include, among other things obtaining financing from
new lenders and the issuance of additional equity. The Company believes these
measures will provide liquidity for it to continue as a going concern throughout
fiscal 2004, however, management can provide no assurance with respect to their
success in affecting one or more of these measures, or whether, if affected,
such measures will provide sufficient financing to sustain operations. At this
time, we do not have any bank credit facility or other working capital credit
line under which we may borrow funds for working capital or other general
corporate purposes.
Net cash used in operating activities was $610,000 for the six month ended June
30, 2004. The principal use of cash in each of these periods was to fund our
losses from operations. During the period, cash used for operating activities
included a decrease of $195,000 in accounts payable and accrued liabilities, an
increase in accounts receivable of $47,000 and an increase of work in progress
of $179,000. The decrease in accounts payable and accrued liabilities is a
result of the payment of accrued liabilities from proceeds of the private
placement, which was completed during the quarter.
Net cash provided by investing activities was $702,000 for the six months ended
June 30, 2004. The cash provided by investing activities was principally from
the net proceeds from the merger of Arc in the amount of $711,000, which was
offset from the purchase of property and equipment in the amount of $9,000.
During 2004, we expect to use approximately $25,000 of cash in investing
activities through capital expenditures to fund the opening of our east coast
office, which includes offices and computer equipment..
Net cash provided by financing activities was $488,000 for the six months ended
June 30, 2004. The cash provided by financing activities primarily resulted from
the issuance of common shares, which was partially offset by the extinguishment
of certain liabilities. During the remainder of 2004, we expect to provide cash
in financing activities through the sale of additional debt and equity
securities.
As of June 30, 2004, our principal commitments consisted of obligations
outstanding under capital and operating leases and convertible debt, which total
$493,000. As of June 30, 2004, future minimum payments for capital leases and
non-cancelable operating leases having terms in excess of one year amounted to
$0 and $258,000, of which $38,000 is payable in the remainder of 2004.
We have evaluated our alternatives to enable us to pay our liabilities as they
become due and payable in the current year, reduce operating losses and obtain
additional or new financing in order to advance its business plan. Alternatives
being considered by us include, among others, completing a merger/public
financing, obtaining financing from new lenders and the issuance of additional
equity. We believe these measures will provide liquidity for us to continue as a
going concern throughout fiscal 2004, however, we can provide no assurance with
regard thereto. Our failure to raise financing or reduce operating losses may
result in our need to reduce operations.
The following table summarizes our contractual obligations at June 30, 2004, and
the effect such obligations are expected to have on our liquidity and cash flows
in future periods.
[Enlarge/Download Table]
Less than After 5
June 30, (in thousands) Total 1 Year 1 - 3 Years 4 - 5 Years Years
-------------- --------------- -------------- --------------- ---------------
Contractual Obligations:
Capital lease obligations $ 225 $ 225 $ -- $ -- $ --
Convertible debentures 10 -- 10 --
Operating lease obligations 258 38 153 67 --
------ ------ ------ ------ ------
Total contractual cash obligations $ 493 $ 263 $ 163 $ 67 --
====== ====== ====== ====== ======
FOREIGN CURRENCY EXCHANGE RATE RISK
A portion of our expenses, primarily general and administrative expenses relate
to our Vancouver, British Columbia, Canada office are denominated in Canadian
dollars while our functional currency is the U.S. dollar. During the quarter
ended June 30, 2004, as a result of depreciation of the Canadian dollar relative
to the U.S. dollar, we realized foreign currency income of approximately $1,000.
In the event the Canadian dollar continues to decline in 2004 we will experience
additional foreign currency income. Holding all other variables constant and on
a hypothetical basis, a further 10% decrease in the value of the Canadian dollar
against the U.S. dollar over 2004 would result in approximately $27,000 in
foreign currency gains for the year. Conversely, a 10% increase over 2004 would
result in approximately $51,000 in foreign currency losses for the year.
We will continue to monitor our exposure to foreign currency fluctuations and
although we have never used financial hedging techniques to date, we may use
them in the future to minimize the effect of these fluctuations. Nevertheless,
we cannot assure you that these fluctuations will not adversely affect our
results of operations in the future.
RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 2002, we adopted Statement of Financial Accounting Standards
("SFAS") No. 144. SFAS No. 144 supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of, and
elements of APB 30, Reporting the Results of Operations - Reporting the Effects
on Disposal of a Segment of a Business and Extraordinary, Unusual or
Infrequently Occurring Events and Transactions. SFAS No. 144 establishes a
single-accounting model for long-lived assets to be disposed of while
maintaining many of the provisions relating to impairment testing and valuation.
The adoption of this statement did not have an impact on our consolidated
financial position, results of operations or cash flows.
In April 2002, SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections, was issued. This
statement provides guidance on the classification of gains and losses from the
extinguishment of debt and on the accounting for certain specified lease
transactions. The adoption of this statement did not have an impact on our
consolidated financial position, results of operations or cash flows.
In June 2002, SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities, was issued. This statement provides guidance on the
recognition and measurement of liabilities associated with disposal activities
and is effective on January 1, 2003. Under SFAS No. 146, companies will record
the fair value of exit or disposal costs when they are incurred rather than at
the date of a commitment to an exit or disposal plan. The adoption of SFAS No.
146 may result in our recognizing the cost of future restructuring activities,
if any, over a period of time rather than in one reporting period.
In November 2002, the EITF reached a consensus on Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables ("Issue 00-21"). Issue 00-21 provides
guidance on how to account for arrangements that involve the deliver or
performance of multiple products, services and/or rights to use assets. The
provisions of Issue 00-21 will apply to revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. We do not believe that the
adoption of Issue 00-21 will have a material effect on our consolidated
financial position, results of operations or cash flows.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness
of Others, ("FIN 45"). FIN 45 requires that we recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in the
issuance of the guarantee. FIN 45 is effective for guarantees issued or modified
after December 31, 2002. The disclosure requirements effective for the year
ending December 31, 2002, expand the disclosures required by a guarantor about
its obligations under a guarantee. The adoption of the accounting requirements
of this statement did not impact our financial position, results of operations
or cash flows. The adoption of the disclosure requirements of this statement did
not result in additional disclosures.
In December 2002, SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure, was issued. SFAS No. 148 amends SFAS No.
123, Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on the
reported results. The disclosure provisions of SFAS No. 148 are effective for
financial statements for fiscal years ending after December 15, 2002 and interim
periods beginning after December 15,2002. The adoption of this statement did not
impact our financial position, results of operations or cash flows.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, ("FIN 46") that addresses the consolidation of
variable interest entities. In December 2003, the FASB issued a revised
Interpretation ("FIN 46R"). Under the revised Interpretation, an entity deemed
to be a business, based on certain specified criteria, need not be evaluated to
determine if it is a Variable Interest Entity. The Company must apply the
provisions to variable interests in entities created before February 1, 2003
during the quarter ended December 31, 2003. Adoption of FIN 46 and FIN 46R did
not have an impact on the Company's financial condition or results of
operations.
In May 2003, the FASB issued Statement No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity ("SFAS No.
150"). SFAS No. 150 establishes standards for classifying and measuring as
liabilities certain financial instruments that embody obligations of the issuer
and have characteristics of both liabilities and equity. SFAS No. 150 represents
a significant change in practice in the accounting for a number of financial
instruments, including mandatorily redeemable equity instruments and certain
equity derivatives. SFAS No. 150 is effective for all financial instruments
created or modified after May 31, 2003, and to other instruments as of July 1,
2003. We will adopt the provisions of SFAS No. 150 on July 1, 2003. We do not
expect that the adoption of this Statement will have a material impact on its
results of operations and financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We believe that we have limited exposure to financial market risks,
including changes in interest rates. At June 30, 2004, all of our available
excess funds are cash and cash equivalents. The value of our cash and cash
equivalents is not materially affected by changes in interest rates. A
hypothetical change in interest rates of 1.0% would result in an annual change
in net loss of approximately $6,000 based on cash and cash equivalent balances
at June 30, 2004. We currently hold no derivative instruments.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures.
As of the end of the period covered by this report, the Company's
management, with the participation of the Company's chief executive officer and
chief financial officer, evaluated the effectiveness of the Company's disclosure
controls and procedures (as such term is defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based on such
evaluation, the Company's chief executive officer and chief financial officer
have concluded that, as of the end of the period covered by this report, the
Company's disclosure controls and procedures are effective to ensure that the
information required to be disclosed by the Company in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Commission's rules and forms.
Internal Control Over Financial Reporting.
There have not been any changes in the Company's internal control over
financial reporting (as such term is defined in Rule 13a-15(f) under the
Exchange Act) during the last fiscal quarter to which this report relates that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
Recent Sales of Unregistered Securities.
On July 28, 2004, in connection with the closing of the merger among the
Company, RL Acquisition Corp. and RoomLinX, Inc. pursuant to the Merger
Agreement dated December 8, 2003, as amended, the Company issued 68,378,346
shares of Common Stock, par value $.001 per share, to shareholders of the former
RoomLinX, Inc. as consideration for the merger in reliance on the exemption
provided by Section 4(2) of the Securities Act, as amended.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting of shareholders held on June 25, 2004, our shareholders
voted upon the following actions:
1. The merger among RL Acquisition Corp., the Company and RoomLinX, Inc.
pursuant to the Merger Agreement dated December 8, 2003, as amended.
FOR AGAINST ABSTAIN NON-VOTE
--- ------- ------- --------
21,957,840 -0- -0- -0-
The merger was approved.
2. Our merger into our wholly-owned subsidiary RL Acquisition for the purpose of
changing our state of incorporation from New Jersey to Nevada.
FOR AGAINST ABSTAIN NON-VOTE
--- ------- ------- --------
21,957,840 -0- -0- -0-
The merger was approved.
3. The amendment to our Certificate of Incorporation to increase the number of
authorized shares of common stock from 45,000,000 to 195,000,000 and to change
our name to RoomLinX, Inc.
FOR AGAINST ABSTAIN NON-VOTE
--- ------- ------- --------
21,957,840 -0- -0- -0-
The amendment was approved.
4. The approval of our Long Term Incentive Plan pursuant to which we can grant
stock options and other stock-based awards to purchase an aggregate of
25,000,000 shares of Common Stock.
FOR AGAINST ABSTAIN NON-VOTE
--- ------- ------- --------
21,957,840 -0- -0- -0-
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
2.0 Amended & Restated Articles of Incorporation.
3.1 Amended & Restated Bylaws of RoomLinX, Inc.
4.0 Specimen Common Stock Certificate.
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for
the Chief Executive Officer
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for
the Chief Financial Officer
32.1 Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Current reports on Form 8-K.
SIGNATURES
In accordance with requirements of the Exchange Act, the Issuer caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: August 23, 2004
ROOMLINX, INC.
By: /s/ Aaron Dobrinsky
-----------------------------------
Aaron Dobrinsky
Chief Executive Officer
Dates Referenced Herein and Documents Incorporated by Reference
3 Subsequent Filings that Reference this Filing
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