UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For Quarterly Period Ended December 31, 2005
[ ] Transition Report under Section 13 or 15(d) of the Exchange Act For the
Transition period from _______________ to ______________
Commission file number 0-13215
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ROAMING MESSENGER, INC.
----------------------------
(Exact name of Registrant as Specified in its Charter)
Nevada 30-0050402
-------------- -----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
50 Castilian Dr. Suite A, Santa Barbara, California 93117
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(Address of principal executive offices) (Zip Code)
(805) 683-7626
-------------------------------
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(B) of the Act:
Name of Each Exchange On
Title of Each Class Which Registered
COMMON STOCK OTC
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 during the proceeding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _______
--------------
Indicate by check mark whether the Registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [ X ] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date:
As of February 21, 2006 the number of shares outstanding of the
registrant's only class of common stock was 186,431,266.
Transitional Small Business Disclosure Format (check one):
Yes ________ No ____X____
Table of Contents
Page
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements 2
Balance Sheets as of December 31, 2005 (unaudited) and June 30, 2005................................. 2
Statements of Operations for the Three Months and Six Months ended December 31, 2005
and 2004 (unaudited)................................................................................. 3
Statements of Cash Flows for the Six Months ended December 31, 2005 and 2004 (unaudited)............. 4
Notes to Condensed Consolidated Financial Statements
(unaudited).......................................................................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................................ 8
Item 3. Controls and Procedures.............................................................................. 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ................................................................................... 13
Item 2. Changes in Securities................................................................................ 13
Item 3. Defaults upon Senior Securities...................................................................... 14
Item 4. Submission of Matters to a Vote of Security Holders.................................................. 14
Item 5. Other Information.................................................................................... 14
Item 6. Exhibits and Reports on Form 8-K..................................................................... 15
Signatures.................................................................................................... 16
1
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
ROAMING MESSENGER, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
December 31, June 30,
2005 2005
---------------- -------------
CURRENT ASSETS
Cash $ 268,932 $ 237,529
Accounts receivable, net of allowance for doubtful account of $3,230 and $7,380 274,434 178,729
Prepaids and other current assets 22,018 19,347
---------------- -------------
TOTAL CURRENT ASSETS 565,384 435,605
---------------- -------------
PROPERTY & EQUIPMENT
Furniture, Fixtures & Equipment 88,341 88,341
Computer Equipment 481,550 435,292
Commerce Server 50,000 50,000
Computer Software 7,960 7,960
---------------- -------------
627,851 581,593
Less: Accumulated depreciation & amortization (378,561) (331,053)
---------------- -------------
NET PROPERTY & EQUIPMENT 249,290 250,540
---------------- -------------
OTHER ASSETS
Lease deposit 9,749 10,237
Restricted Cash 93,000 93,000
Loan Costs 92,500 -
Deferred Costs 67,133
Other assets 2,714 3,935
---------------- -------------
TOTAL OTHER ASSETS 265,096 107,172
---------------- -------------
TOTAL ASSETS $ 1,079,770 $ 793,317
================ =============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 173,772 $ 121,645
Accrued liabilities 252,760 227,420
Bank line of credit 99,658 -
Deferred Income 48,333 26,667
Accrued officer salary Officer salaries payable 237,981 237,981
Accrued staff salary and related 83,944 50,410
Note payable 30,000 30,000
Current portion - obligations under capitalized leases 47,366 49,846
---------------- -------------
TOTAL CURRENT LIABILITIES 973,814 743,969
---------------- -------------
LONG TERM LIABILITIES
Convertible Debenture 366,433 -
Obligations under capitalized leases 84,928 89,785
---------------- -------------
TOTAL LONG TERM LIABILITIES 451,361 89,785
---------------- -------------
TOTAL LIABILITIES 1,425,175 833,754
---------------- -------------
COMMITMENTS AND CONTINGENCIES, note 5
SHAREHOLDERS' DEFICIT
Capital Stock 186,356 180,807
Additional Paid-in Capital 5,544,123 4,950,066
Accumulated deficit (6,075,884) (5,171,310)
---------------- -------------
TOTAL SHAREHOLDERS' DEFICIT (345,405) (40,437)
---------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 1,079,770 $ 793,317
================ =============
Prepared without audit.
See notes to condensed consolidated financial statements.
2
ROAMING MESSENGER, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Six Three Six
months ended months ended months ended months ended
December 31, December 31, December 31, December 31,
2005 2005 2004 2004
----------------- ---------------- --------------- ----------------
REVENUE $ 518,146 $ 856,072 $ 307,228 $ 616,932
COST OF REVENUE (159,332) (266,386) (141,030) (238,588)
----------------- ---------------- --------------- ----------------
GROSS PROFIT 358,814 589,686 166,198 378,344
OPERATING EXPENSES
Selling, general and administrative expense 522,615 1,130,258 637,312 1,130,687
Depreciation and amortization 23,972 47,365 21,777 40,472
Research and development 106,972 212,754 66,638 188,752
----------------- ---------------- --------------- ----------------
TOTAL OPERATING EXPENSES 652,964 1,390,377 725,727 1,359,911
----------------- ---------------- --------------- ----------------
OPERATING LOSS (294,150) (800,691) (559,529) (981,567)
----------------- ---------------- --------------- ----------------
OTHER INCOME (EXPENSES)
Interest income 763 1,779 4,453 6,610
Other Income 9,579 15,965
Interest expense (111,359) (121,627) (7,110) (11,107)
----------------- ---------------- --------------- ----------------
TOTAL OTHER INCOME (EXPENSES) (101,017) (103,883) (2,657) (4,497)
----------------- ---------------- --------------- ----------------
NET LOSS $ (395,167) $ (904,574) $ (562,186) $ (986,064)
================= ================ =============== ================
BASIC AND DILUTED LOSS
PER SHARE $ (0.00) (0.00) $ (0.00) $ (0.01)
================= ================ =============== ================
WEIGHTED AVERAGE NUMBER
OF SHARES 184,151,379 182,798,365 172,530,810 172,488,310
================= ================ =============== ================
Prepared without audit.
See notes to consolidated financial statements.
3
ROAMING MESSENGER, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Six
months ended months ended
December 31, December 31,
2005 2004
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (904,574) $ (986,064)
Adjustment to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 47,508 40,472
Warrants and Stock issued for services 2,843 81,062
Common stock issued for services 123,100 17,000
Conversion feature recorded as interest expense 100,000 -
Decrease (increase) in account receivable (95,705) (16,220)
Decrease (increase) in prepaid and other assets (963) (24,545)
(Decrease) increase in accounts payable 52,127 33,229
(Decrease) increase in officer salaries payable - (5,749)
(Decrease) increase in other liabilities 92,540 14,491
---------------- ---------------
NET CASH USED IN OPERATING ACTIVITIES (583,124) (846,324)
---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Employee advances - (469)
Purchase of property & equipment (26,462) (48,596)
---------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (26,462) (49,065)
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock, net of costs 272,963 6,352
Proceeds from bank line of credit 99,658 -
Proceeds from Convertible Debenture 295,500 -
Deposit for shares of common stock - 19,875
Payments on notes payable - (8,500)
Payments on capitalized lease obligations (27,133) (22,180)
---------------- ---------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 640,988 (4,453)
---------------- ---------------
NET INCREASE (DECREASE) IN CASH 31,402 (899,842)
---------------- ---------------
CASH AT BEGINNING OF PERIOD 237,529 1,495,102
---------------- ---------------
CASH AT END OF PERIOD $ 268,932 $ 595,260
================ ===============
Supplementary disclosures:
Interest paid $ 21,627 $ 11,107
================ ===============
Capitalized leases contracted $ 19,796 $ 107,469
================ ===============
Prepared without audit.
See notes to condensed consolidated financial statements.
4
ROAMING MESSENGER, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
1. BASIS OF PRESENTATION AND GOING CONCERN
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all normal recurring adjustments considered necessary for a fair
presentation have been included. Operating results for the three-month
period ended December 31, 2005 are not necessarily indicative of the
results that may be expected for the year ending June 30, 2006. For further
information refer to the financial statements and footnotes thereto
included in the Company's Form 10K-SB for the year ended June 30, 2005.
The accompanying financial statements have been prepared on a going concern
basis of accounting, which contemplates continuity of operations,
realization of assets and liabilities and commitments in the normal course
of business. The accompanying financial statements do not reflect any
adjustments that might result if the Company is unable to continue as a
going concern. The Company's losses and negative cash flows from operations
and the possible impact of the contingencies described in note 5 raise
substantial doubt about the Company's ability to continue as a going
concern. The ability of the Company to continue as a going concern and
appropriateness of using the going concern basis is dependent upon, among
other things, additional cash infusion.
2. STOCK OPTIONS AND WARRANTS
Stock-Based Compensation
------------------------
The Company accounts for employee stock option grants in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees and related interpretations (APB 25), and has adopted the
"disclosure only" alternative described in Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, amended by SFAS No. 148 Accounting for Stock-Based
Compensation-Transition and Disclosure.
SFAS No. 123, Accounting for Stock-Based Compensation, requires pro forma
information regarding net income (loss) using compensation that would have
been incurred if the Company had accounted for its employee stock options
under the fair value method of that statement. Options to purchase
1,200,000 and 0 shares of Roaming Messenger, Inc. were granted during the
six months ended December 31, 2005 and 2004, respectively. The fair value
of options granted, which have been estimated at $36,390 and $0,
respectively, at the date of grant were determined using the Black-Scholes
Option pricing model with the following assumptions:
2005 2004
---------------- -----------
Risk free interest rate 4.01% - 4.39% 3.60%
Stock volatility factor 0.18 - 0.24 0.40
Weighted average expected option life 4 years 4 years
Expected dividend yield None None
Prepared without audit.
5
ROAMING MESSENGER, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
2. STOCK OPTIONS AND WARRANTS (Continued)
The pro forma net loss and loss per share had the Company accounted for the
options using FAS 123 would have been as follows:
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
December December December December
31, 2005 31, 2005 31, 2004 31, 2004
-------------- -------------- --------------- --------------
Net loss as reported $ (395,167) (904,574) $ (562,186) (986,064)
Basic and diluted net loss per share as reported (0.00) (0.00) (0.00) (0.01)
Add: Stock based employee compensation
expense included in net reported loss, net of related taxes - -
Deduct: Stock based employee
compensation expense determined under fair value based
method for all awards, net of related taxes (9,383) (40,346) (42,475) (61,445)
-------------- -------------- --------------- --------------
Pro forma net loss $ (404,550) $ (944,920) $ (604,661) $ (1,047,509)
============== ============== =============== ==============
Basic and diluted pro forma loss per share $ (0.00) $ (0.01) $ (0.00) $ (0.01)
============== ============== =============== ==============
During the six month period ended December 31, 2005 (i) 900,000, 200,000
and 100,000 options were granted at an exercise price of $0.13, $0.10 and
$0.07 per share respectively, (ii) 225,000 previously granted options were
cancelled and/or forfeited. At December 31, 2005, total outstanding
unexercised options are 5,209,994.
Warrants
--------
In December 2005, the Company granted warrants to purchase 321,000 shares
of common stocks at $0.10 per share for consulting services. These warrants
expire on December 31, 2007, and were valued at $995. In December 2005, the
Company granted five-year warrants to purchases 1,500,000, 4,000,000 and
4,000,000 shares of common stocks at $0.08, $0.10 and $0.12.respectively to
an accredited investor as an incentive to enter into a convertible
debenture agreement. These warrants were valued at $100,700. One-third of
this $100,700 expense amount, or $33,567, was applied as a discount to the
$400,000 convertible debenture entered into on December 28, 2005. The
remaining two-third, $67,133, is deferred as the remainder of the total
$1,200,000 convertible debenture has not been received from the investor.
At December 31, 2005, total outstanding unexercised warrants are
10,823,000.
3. LINE OF CREDIT
On August 11, 2005, the Company was approved for a $100,000 revolving line
of credit from Bank of America at an interest of prime plus 4 percentage
points. This line of credit is not secured by assets of the Company. The
effective interest rate of the line of credit at December 31, 2005 was 11%.
As of December 31, 2005, $99,658 was borrowed under this line of credit
Prepared without audit.
6
ROAMING MESSENGER, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
4. CONVERTIBLE DEBENTURES
On December 28, 2005, we consummated a securities purchase agreement with
Cornell Capital Partners L.P. providing for the sale by us to Cornell of
our 10% secured convertible debentures in the aggregate principal amount of
$1,200,000 of which the first installment of $400,000 was advanced
immediately. The net amount of the first installment received by the
Company was $295,500 after paying total fees of $92,500 which included
legal, structuring, due diligence, commitment fees, and prior liability of
$12,000. An interest expense of $100,000, representing the value of the
conversion feature in accordance to EITF 98-5, was incurred at the receipt
of this first installment.
Holders of the debentures may convert at any time amounts outstanding under
the debentures into shares of our common stock at a conversion price per
share equal to the lesser of (i) $0.15 or (ii) 80% of the lowest volume
weighted average price of our common stock during the five trading days
immediately preceding the conversion date as quoted by Bloomberg, LP.
Cornell has agreed not to short any of the shares of Common Stock.
We have the right to redeem a portion or all amounts outstanding under the
debenture prior to the maturity date at a 20% redemption premium provided
that the closing bid price of our common stock is less than $0.15. In
addition, in the event of a redemption, we are required to issue to Cornell
50,000 shares of common stock for each $100,000 redeemed.
We also issued to Cornell five-year warrants to purchase 1,500,000,
4,000,000 and 4,000,000 shares of Common Stock at $0.08, $0.10 and $0.12,
respectively.
The second installment of $350,000 ($295,000 net of fees) was advanced on
January 27, 2006. The last installment of $450,000 will be advanced two
business days prior to the date the registration statement is declared
effective. The debentures mature on the third anniversary of the date of
issuance and we are not required to make any payments until the maturity
date.
5. COMMITMENTS AND CONTINGENCIES
Jonathan Lei and Bryan Crane have been indicted by a federal grand jury in
February 2006, alleging that they conspired to commit securities, mail and
wire fraud in connection with an offer for private funding made to Roaming
Messenger Inc. over a year ago, in February 2005, by a fake investment fund
formed by the Government. The Company did not obtain any funding from the
entity or the management company that were posing as prospective investors.
Mr. Crane and Mr. Lei pleaded not guilty to all charges on February 17,
2006 and intend to defend themselves in court. There is no assurance
regarding the outcome of these cases. Mr. Lei will continue his duties as
chairman and chief executive officer of the company and Mr. Crane will
continue as part-time vice president of corporate development. While
management does not believe the cases will have a material adverse impact
on the business of the Company while they are pending, there is no
assurance that they will not ultimately have a material adverse impact. The
Company was not named in the indictment.
Prepared without audit.
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Cautionary Statements
This Form 10-QSB may contain "forward-looking statements," as that term is
used in federal securities laws, about Roaming Messenger, Inc.'s financial
condition, results of operations and business. These statements include, among
others:
o statements concerning the potential benefits that Roaming Messenger,
Inc. ("RMI" or the "Company") may experience from its business
activities and certain transactions it contemplates or has completed;
and
o statements of RMI's expectations, beliefs, future plans and
strategies, anticipated developments and other matters that are not
historical facts. These statements may be made expressly in this Form
10-QSB. You can find many of these statements by looking for words
such as "believes," "expects," "anticipates," "estimates," "opines,"
or similar expressions used in this Form 10-QSB. These forward-looking
statements are subject to numerous assumptions, risks and
uncertainties that may cause RMI's actual results to be materially
different from any future results expressed or implied by RMI in those
statements. The most important facts that could prevent RMI from
achieving its stated goals include, but are not limited to, the
following:
(a) volatility or decline of the Company's stock price;
(b) potential fluctuation in quarterly results;
(c) failure of the Company to earn revenues or profits;
(d) inadequate capital to continue or expand its business, inability
to raise additional capital or financing to implement its
business plans;
(e) failure to commercialize its technology or to make sales;
(f) changes in demand for the Company's products and services;
(g) rapid and significant changes in markets;
(h) litigation with or legal claims and allegations by outside
parties;
(i) insufficient revenues to cover operating costs.
There is no assurance that the Company will be profitable, the Company may
not be able to successfully develop, manage or market its products and services,
the Company may not be able to attract or retain qualified executives and
technology personnel, the Company may not be able to obtain customers for its
products or services, the Company's products and services may become obsolete,
government regulation may hinder the Company's business, additional
8
dilution in outstanding stock ownership may be incurred due to the issuance of
more shares, warrants and stock options, or the exercise of outstanding warrants
and stock options, and other risks inherent in the Company's businesses.
Because the statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by the
forward-looking statements. RMI cautions you not to place undue reliance on the
statements, which speak only as of the date of this Form 10-QSB. The cautionary
statements contained or referred to in this section should be considered in
connection with any subsequent written or oral forward-looking statements that
RMI or persons acting on its behalf may issue. The Company does not undertake
any obligation to review or confirm analysts' expectations or estimates or to
release publicly any revisions to any forward-looking statements to reflect
events or circumstances after the date of this Form 10-QSB, or to reflect the
occurrence of unanticipated events.
CURRENT OVERVIEW
We are a software company and have developed a proprietary system that
enables software programs and other business applications connect to and
communicate with wired and wireless devices, such as cellular phones, computers
and personal digital assistants. This system, known as the Roaming Messenger
Platform, serves as a gateway to the mobile world for a variety of software
programs and other business applications such as those used in emergency
response, homeland security, logistics, healthcare and financial services.
The Roaming Messenger Platform allows applications to send out smart
messages, or "messengers," to mobile devices. Unlike regular e-mail messages,
these software messengers are encrypted, and have the ability to roam
automatically among mobile devices, trying to get the attention of the user,
confirm receipt, present interactive forms, and transmit real-time responses
back to the sending application. They also have the ability to move
independently to alternative recipients in if the originally intended recipient
does not respond in a timely fashion.
For example, a software messenger may try to locate a person on his or her
computer, and if there is no response, move to that person's cellular phone, and
subsequently move to that person's personal digital assistants. If still
unanswered, the messenger will travel automatically to the next person with
authority to act on the message, such as a superior of the originally intended
recipient.
The Roaming Messenger Platform is being offered as a standalone server
product or a hosted service. We expect to sell and license the Roaming Messenger
product to system integrators and application developers in markets such as
emergency response services, the military and private businesses. For example,
we might sell a Roaming Messenger Gateway server to a systems integrator that is
designing an emergency alert and notification system. We plan to sell Roaming
Messenger through channel partners and value-added resellers (VARs) who are
established in their respective vertical markets.
9
While Roaming Messenger is a horizontal product with applications in many
markets, our primary sales and marketing strategy continues to be vertically
focused. We will however continue to execute various low-cost horizontal
marketing programs, concurrently, to identify new opportunities in non-primary
vertical markets - for example, healthcare and enterprise markets.
Our growth strategy consists of three phases:
o During Phase I we will focus our marketing efforts on the Homeland
Security and Public Safety markets
o During Phase II we will focus on the enterprise markets for business
process management and communication applications.
o During Phase III we will focus on the consumer markets for application
such as mobile commerce and mobile gaming.
In executing our growth strategy, strategic acquisition of synergistic
companies may be explored. When deciding on potential acquisition candidates, we
will consider whether the candidate offers (i) access to customers and (ii)
complementary products or services.
We have generated only minimal revenues from the Roaming Messenger
Platform. To date, almost all of our revenues have been generated by Warp 9,
Inc., our wholly-owned subsidiary that offers web-based e-commerce software
products and services to the catalog and direct marketing industry.
RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED DECEMBER 31, 2005
COMPARED TO THE SAME PERIOD IN 2004
Total revenue for the three-month period ending December 31, 2005 was
$518,146, representing an increased of 69% from the three-month period ending
December 31, 2004 of $307,228. Almost all the increase is attributed to the
revenue growth from the Warp 9 Inc. operation.
The cost of revenue for the three-month period ending December 31, 2005 was
31% as compared to 46% for the three-month period ending December 31, 2004. The
decrease in the cost of revenue is a result of the increased sales of higher
margin Warp 9 e-commerce software products and services.
Total operating expenses was $652,964 for the three months ended December
31, 2005 as compared to $725,727 for the three months ended December 31, 2004.
The $652,964 operating expenses includes total non-cash charges of $50,995
which includes (i) $50,000 expense for the issuance of unregistered common stock
for business development and advisory services, (ii) $995 expense for the
issuance of warrants to business development contractors in lieu of cash payment
for their services. The value of the warrants was determined using the Black
Scholes model. The value of unregistered common stock was the same as closing
price of the Company's public stock at the time of issuance.
10
Operating costs are expected to exceed revenue in the foreseeable future as
the Company continues to increase sales and marketing efforts as well as
increasing staff.
Total other interest and income expense was $101,017 for the three months
ended December 31, 2005, as compared to $2,657 for the three months ended
December 31, 2004. The increase is the result a $100,000 charge for the
conversion feature of the convertible debenture with Cornell Capital on December
28, 2005, in accordance with EITF 98-5.
For the three months ended December 31, 2005, the Company's consolidated
net loss was ($395,167) as compared to a consolidated net loss of ($562,186) for
the three months ended December 31, 2004.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash at December 31, 2005 of $268,932 as compared to cash
of $237,529 as of June 30, 2005. The Company had net working capital deficit
(i.e. the difference between current assets and current liabilities) of
($408,430) at December 31, 2005 as compared to a net working capital deficit of
($308,364) at June 30, 2005. Cash flow utilized by operating activities was
($583,124) for the six months ended December 31, 2005 as compared to cash
utilized for operating activities of ($846,324) during the six months ended
December 31, 2004. Cash flow used in investing activities was ($26,462) for the
six months ended December 31, 2005 as compared to cash used in investing
activities of ($49,065) during the six months ended December 31, 2004. Cash flow
provided by financing activities was $640,988 for the six months ended December
31, 2005 as compared to cash used by financing activities of ($4,453) for the
six months ended December 31, 2004.
On August 11, 2005, the Company was approved for a $100,000 revolving line
of credit from Bank of America at an interest of prime plus 4 percentage points.
This line of credit is not secured by assets of the Company. The effective
interest rate of the line of credit at December 31, 2005 was 11%. As of December
31, 2005, $99,658 was borrowed under this line of credit
On December 28, 2005, we consummated a securities purchase agreement with
Cornell Capital Partners L.P. providing for the sale by us to Cornell of our 10%
secured convertible debentures in the aggregate principal amount of $1,200,000
of which the first installment of $400,000 was advanced immediately. The net
amount of the first installment received by the Company was $295,500 after
paying total fees of $92,500 which included legal, structuring, due diligence,
commitment fees and prior liability of $12,000. At the date of this report, the
second installment of $350,000 has been advanced upon filing of the registration
statement on January 27, 2006. The net amount of the second installment received
by the Company was $295,000 after paying total fees of $55,000 which included
legal and commitment fees. The last installment of $450,000 will be advanced two
business days prior to the date the registration statement is declared
effective. The debentures mature on the third anniversary of the date of
issuance and we are not required to make any payments until the maturity date.
11
Holders of the debentures may convert at any time amounts outstanding under
the debentures into shares of our common stock at a conversion price per share
equal to the lesser of (i) $0.15 or (ii) 80% of the lowest volume weighted
average price of our common stock during the five trading days immediately
preceding the conversion date as quoted by Bloomberg, LP. Cornell has agreed not
to short any of the shares of Common Stock.
We have the right to redeem a portion or all amounts outstanding under the
debenture prior to the maturity date at a 20% redemption premium provided that
the closing bid price of our common stock is less than $0.15. In addition, in
the event of a redemption, we are required to issue to Cornell 50,000 shares of
common stock for each $100,000 redeemed.
We also issued to Cornell five-year warrants to purchase 1,500,000,
4,000,000 and 4,000,000 shares of Common Stock at $0.08, $0.10 and $0.12,
respectively.
In connection with the purchase agreement, we also entered into a
registration rights agreement with Cornell providing for the registration of the
shares of common stock issuable upon conversion of the debentures and exercise
of the warrants. We are obligated to use our best efforts to cause the
registration statement to be declared effective no later than April 27, 2006 and
to insure that the registration statement remains in effect until all of the
shares of common stock issuable upon conversion of the debentures and exercise
of the warrants have been sold. In the event of a default of our obligations
under the registration rights agreement, including our agreement to file the
registration statement no later than January 27, 2006, or if the registration
statement is not declared effective by April 27, 2006, we are required to pay to
Cornell, as liquidated damages, for each month that the registration statement
has not been filed or declared effective, as the case may be, either a cash
amount or shares of our common stock equal to 2% of the liquidated value of the
Debentures.
Our obligations under the purchase agreement are secured by substantially
all of our assets. As further security for our obligations thereunder, Jon Lei,
our Chief Executive Officer, has granted a security interest in 2,000,000 shares
of common stock that he owns.
Also on December 28, 2005, we terminated the Periodic Equity Investment
Agreement dated March 28, 2005 with Wings Fund, Inc. That agreement provided for
the sale to Wings of up to $3,000,000 worth of our common stock at our
discretion in twelve monthly increments of up to $250,000 commencing after the
registration statement was declared effective on August 2005. On the date of
termination of that agreement, we had sold approximately 4,279,174 shares of
common stock for total proceeds of $272,147 during the six months ended December
31, 2005.
We believe that the funds received and to be received from Cornell will be
sufficient to fund and expand our business over a 12 month period. If for some
reason we are required to repay the entire $1,200,000 under the convertible
debentures, we may have to obtain additional operating capital from other
sources to enable us to execute our business plan. We anticipate that we will
obtain any additional required working capital through the private placement of
Common Stock to domestic accredited investors pursuant to Regulation D of the
Securities Act of 1933, as amended (the "Act"), or to offshore investors
pursuant to Regulation S of the Act. There is no assurance that we will obtain
the additional working capital that we need through the private placement of
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Common Stock. In addition, such financing may not be available in sufficient
amounts or on terms acceptable to us.
Item 3. CONTROLS AND PROCEDURES
The Company's Chairman, Chief Executive Officer, and Chief Financial
Officer has evaluated the effectiveness of the Company's disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended) as of the end of the period covered by this
quarterly report and, based on this evaluation, has concluded that the
disclosure controls and procedures are effective.
There have been no changes in the Company's internal control over financial
reporting that occurred during the Company's third fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
PART II. - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is involved in certain legal actions and claims arising in the
ordinary course of business. It is the opinion of management, based on advice of
legal counsel, that such litigation and claims will be resolved without a
material effect on the Company's financial position.
Jonathan Lei and Bryan Crane have been indicted by a federal grand jury in
February 2006, alleging that they conspired to commit securities, mail and wire
fraud in connection with an offer for private funding made to Roaming Messenger
Inc. over a year ago, in February 2005, by a fake investment fund formed by the
Government. The Company did not obtain any funding from the entity or the
management company that were posing as prospective investors. Mr. Crane and Mr.
Lei pleaded not guilty to all charges on February 17, 2006 and intend to defend
themselves in court. There is no assurance regarding the outcome of these cases.
Mr. Lei will continue his duties as chairman and chief executive officer of the
company and Mr. Crane will continue as part-time vice president of corporate
development. While management does not believe the cases will have a material
adverse impact on the business of the Company while they are pending, there is
no assurance that they will not ultimately have a material adverse impact. The
Company was not named in the indictment.
Item 2. CHANGES IN SECURITIES
In October 2005, Roaming Messenger issued and sold 1,580,611 shares of
common stock at a price of $0.06 per share for aggregate gross proceeds of
$98,000 to Wings Fund Inc. The shares were issued in a transaction exempt under
Regulation D.
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In October 2005, Roaming Messenger issued 250,000 shares of common stock at
$0.10 per share for consulting services. These shares were issued pursuant to
Section 4(2) of the Securities Act of 1933, as amended.
In December 2005, Roaming Messenger issued 250,000 shares of common stock
at $0.10 per share for consulting services. These shares were issued pursuant to
Section 4(2) of the Securities Act of 1933, as amended.
In December 2005, Roaming Messenger issued and sold 300,000 shares of
unregistered common stock at a price of $0.05 per share for aggregate gross
proceeds of $15,000. The shares were issued to 2 accredited investors in
transactions exempt under Rule 506 of Regulation D promulgated under Section
4(2) of the Securities Act of 1933, as amended.
In December 2005, Roaming Messenger issued and sold 2,058,563 shares of
common stock at a price of $0.07 per share for aggregate gross proceeds of
$134,147 to Wings Fund Inc. The shares were issued in a transaction exempt under
Regulation D.
On December 28, 2005, Roaming Messenger sold $400,000 in principal amount
convertible debentures to one accredited investor. It also issued to the same
investor five-year warrants to purchase 1,500,000, 4,000,000 and 4,000,000
shares of Common Stock at $0.08, $0.10 and $0.12, respectively. The securities
were issued in a transaction exempt under Rule 506 of Regulation D promulgated
under Section 4(2) of the Securities Act of 1933, as amended.
In December 2005, Roaming Messenger issued two-year warrants to purchase
321,000 shares of Common Stock at $0.10, to a business development consultant.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT DESCRIPTION
NO.
--- -----------------------------------------------------------------
3.1 Articles of Incorporation (1)
3.2 Bylaws (1)
4.1 Specimen Certificate for Common Stock (1)
4.2 Non-Qualified Employee Stock Option Plan (2)
10.1 First Agreement and Plan of Reorganization between Latinocare
Management Corporation, a Nevada corporation, and Warp 9, Inc., a
Delaware corporation (3)
10.2 Second Agreement and Plan of Reorganization between Latinocare
Management Corporation, a Nevada corporation, and Warp 9, Inc., a
Delaware corporation (4)
10.3 Exchange Agreement and Representations for Shareholders of Warp
9, Inc.(3)
31.1 Section 302 Certification
32.1 Section 906 Certification
(1) Incorporated by reference from the exhibits included with the Company's
prior Report on Form 10-KSB filed with the Securities and Exchange Commission,
dated March 31, 2002.
(2) Incorporated by reference from the exhibits included in the Company's
Information Statement filed with the Securities and Exchange Commission, dated
August 1, 2003.
(3) Incorporated by reference from the exhibits included with the Company's
prior Report on Form SC 14F1 filed with the Securities and Exchange Commission,
dated April 8, 2003.
(4) Incorporated by reference from the exhibits included with the Company's
prior Report on Form 8K filed with the Securities and Exchange Commission, dated
May 30, 2003.
(b) The following is a list of Current Reports on Form 8-K filed by the
Company during and subsequent to the quarter for which this report is filed.
(1) Form 8-K Report filed on December 29, 2005
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: February 21, 2006 ROAMING MESSENGER, INC.
By: \s\ Jonathan Lei
-------------------------------------
Jonathan Lei, Chairman of the Board,
Chief Executive Officer, President
Chief Financial Officer, and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
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\ Jonathan Lei Dated: February 21, 2006
--------------------------------------
Jonathan Lei, Chairman of the Board,
Chief Executive Officer, President
Chief Financial Officer, and Secretary
16