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 March 31, 2006
[ ] Transition Report under Section 13 or 15(d) of the Exchange Act For the
Transition period from _______________ to ______________
FOR QUARTER ENDED MARCH 31, 2006
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
-------------------------------
(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 May 11, 2006 the number of shares outstanding of the registrant's
only class of common stock was 186,809,444
Transitional Small Business Disclosure Format (check one):
Yes ________ No X
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Page
----
Balance Sheets as of March 31, 2006 (unaudited)...................................................... 1
Statements of Operations for the Three Months and Nine Months ended March 31, 2006
and 2005 (unaudited)................................................................................. 2
Statements of Cash Flows for the Nine Months ended March 31, 2006 and 2005 (unaudited)............... 3
Notes to Condensed Consolidated Financial Statements
(unaudited).......................................................................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................................ 8
Item 3 Controls and Procedures.............................................................................. 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ................................................................................... 13
Item 2. Changes in Securities................................................................................ 13
Item 3. Defaults upon Senior Securities...................................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders.................................................. 13
Item 5. Other Information.................................................................................... 13
Item 6. Exhibits and Reports on Form 8-K..................................................................... 14
Signatures.................................................................................................... 15
PART I. FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ROAMING MESSENGER, INC. AND SUBSIDIARY
BALANCE SHEET
MARCH 31, 2006
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 317,780
Accounts Receivable, net 170,295
Prepaid and Other Current Assets 32,967
-----------------
TOTAL CURRENT ASSETS 521,042
-----------------
PROPERTY & EQUIPMENT, at cost
Furniture, Fixtures & Equipment 88,341
Computer Equipment 497,162
Commerce Server 50,000
Computer Software 7,960
-----------------
643,463
Less accumulated depreciation (402,571)
-----------------
NET PROPERTY AND EQUIPMENT 240,892
-----------------
OTHER ASSETS
Lease Deposit 9,749
Restricted Cash 93,000
Loan Costs 136,736
Deferred Cost 33,566
Other Assets 2,845
-----------------
TOTAL OTHER ASSETS 275,896
-----------------
TOTAL ASSETS $ 1,037,830
=================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 134,683
Accrued expenses 541,442
Bank Line of Credit 99,658
Deferred Income 73,334
Note Payable 30,000
Capitalized Leases, Current Portion 45,910
-----------------
TOTAL CURRENT LIABILITIES 925,027
-----------------
LONG TERM LIABILITIES
Convertible Debentures 682,866
Capitalized Leases 73,477
-----------------
TOTAL LONG TERM LIABILITIES 756,343
-----------------
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, $0.001 par value;
495,000,000 authorized shares;
186,531,265 shares issued and outstanding 186,531
Additional paid in capital 5,644,519
Accumulated deficit (6,474,590)
-----------------
TOTAL SHAREHOLDERS' DEFICIT (643,540)
-----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 1,037,830
=================
The accompanying notes are an integral part of these financial statements
1
ROAMING MESSENGER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
--------------------------- ----------------------------
March 31, March 31,
2006 2005 2006 2005
------------- ------------ ------------- -------------
REVENUE $ 399,885 $ 295,925 $ 1,255,956 $ 912,857
COST OF SERVICES 85,286 92,593 351,672 331,181
------------- ------------ ------------- -------------
GROSS PROFIT (DEFICIT) 314,599 203,332 904,284 581,676
OPERATING EXPENSES
Selling, general and administrative expenses 519,472 806,217 1,649,729 1,936,904
Research and development 106,377 98,399 319,131 287,151
Depreciation and amortization 24,847 22,889 72,212 63,361
------------- ------------ ------------- -------------
TOTAL OPERATING EXPENSES 650,696 927,505 2,041,072 2,287,416
------------- ------------ ------------- -------------
LOSS FROM OPERATIONS BEFORE OTHER INCOME (EXPENSES) (336,097) (724,173) (1,136,788) (1,705,740)
OTHER INCOME/(EXPENSE)
Other Income 35,583 1257 53,327 7,867
Interest Expense (96,270) (7,473) (217,897) (18,580)
------------- ------------ ------------- -------------
(60,687) (6,216) (164,570) (10,713)
------------- ------------ ------------- -------------
LOSS FROM OPERATIONS BEFORE PROVISION FOR TAXES (396,784) (730,389) (1,301,358) (1,716,453)
PROVISION FOR INCOME TAXES (1,922) (63) (1,922) (63)
------------- ------------ ------------- -------------
NET (LOSS) (398,706) (730,452) (1,303,280) (1,716,516)
============= ============ ============= =============
BASIC AND DILUTED LOSS PER SHARE $ (0.00) $ (0.00) $ (0.01) $ $ (0.01)
============= ============ ============= =============
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED 186,571,482 173,305,432 184,013,178 172,756,708
============= ============ ============= =============
The accompanying notes are an integral part of these financial statements
2
ROAMING MESSENGER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
--------------------------------
March 31,
2006 2005
---------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,303,280) $ (1,716,516)
Adjustment to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 72,355 63,823
Gain on settlement (24,000) -
Issuance of common shares and warrants for services 163,193 361,199
Conversion feature recorded as interest expense 187,500 -
Amortization of loan costs 10,764 -
(Increase) Decrease in:
Accounts receivable 8,434 (55,948)
Prepaid and other assets (12,879) (14,680)
Increase (Decrease) in:
Accounts payable 13,037 66,962
Accrued expenses - (2,435)
Other liabilities 72,299 34,515
---------------- -------------
NET CASH USED IN OPERATING ACTIVITIES (812,577) (1,263,080)
---------------- -------------
Net CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment (42,074) (49,548)
---------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on note payable - (9,500)
Payments on capitalized leases (40,040) (34,509)
Proceeds from line of credit 99,658
Deposit for shares of common stock - 19,875
Proceeds from Convertible Debenture 590,500 -
Proceeds from issuance of common stock, net of cost 284,784 478,338
---------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 934,902 454,204
---------------- -------------
NET INCREASE IN CASH 80,251 (858,424)
CASH, BEGINNING OF PERIOD 237,529 1,495,102
---------------- -------------
CASH, END OF PERIOD $ 317,780 $ 636,678
================ =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 30,397 $ 18,580
================ =============
Taxes paid $ 1,922 $ 63
================ =============
SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS
During the nine months ended March 31, 2006, the Company
received 300,000 shares of its common stock as a $24,000
settlement due to a law suit; during the nine months ended
March 31, 2006 and 2005, the Company purchased $19,796 and
$107,467 of equipment under capital leases respectively.
The accompanying notes are an integral part of these financial statements
3
ROAMING MESSENGER, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 2006
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 nine-month
period ended March 31, 2006 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.
Going Concern
-------------
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
nine months ended March 31, 2006 and 2005, 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:
2006 2005
-------------------- ---------------------
Risk free interest rate 4.01% - 4.72% 3.36% - 4.17%
Stock volatility factor 0.18 - 0.31 0.32 - 0.70
Weighted average expected option life 4 years 4 years
Expected dividend yield None None
4
ROAMING MESSENGER, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 2006
2. STOCK OPTIONS AND WARRANTS (Continued)
If the Company had elected to recognize compensation expense based upon the
fair value at the grant date for awards under this plan consistent with the
methodology prescribed by SFAS No. 123, the Company's net income and
earnings per share would be reduced to the pro forma amounts indicated
below for the nine months ended March 31, 2006 and 2005:
2006 2005
---------------- ----------------
Net loss as reported (1,303,280) (1,716,516)
Add: Stock based employee compensation expense - -
included in net reported loss, net of related tax effect
Deduct: Stock based employee compensation expense
determined under fair value based method for all awards,
net of related tax effect
(49,728) (13,368)
---------------- ----------------
Pro forma net loss $ (1,353,008) $ (1,729,884)
================ ================
Basic and diluted pro forma loss per share
As reported $ (0.01) $ (0.01)
================ ================
Proforma $ (0.01) $ (0.01)
================ ================
Effective July 10, 2003, the Company adopted the Roaming Messenger, Inc.
2003 Stock Option Plan for Directors, Officers, Employees and Key
Consultants (the "Plan") authorizing the issuance of up to 25,000,000
shares of the Company's common stock pursuant to the grant and exercise of
up to 25,000,000 stock options. The Plan has been approved by the holders
of the outstanding shares of the Company. The following table sets forth
certain information regarding the Plan as of March 31, 2006:
Number of Securities To Be Weighted-Average Exercise Number of Securities
Issued Upon Exercise of Price of Outstanding Stock Remaining Available For
Outstanding Stock Options Options Future Issuance Under
Equity Compensation Plans
Equity compensation plans
approved by security holders 5,209,994 $0.11 17,015,006
During the nine month period ended March 31, 2006 (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 March 31, 2006, total outstanding
unexercised options are 5,209,994.
5
ROAMING MESSENGER, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 2006
2. STOCK OPTIONS AND WARRANTS (Continued)
Warrants
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. Two-thirds of this $100,700 expense amount, or $67,134, was
applied as a discount to the $750,000 convertible debenture entered into
during the six months ended March 31, 2006, and is being amortized over the
term of the debenture. The remaining one-third, $33,566, is deferred as the
remainder of the total $1,200,000 convertible debenture has not been
received from the investor.
In March 2006, the Company granted warrants to purchase 450,000 shares of
common stocks at $0.10 per share for consulting services. These warrants
expire on March 31, 2008. These warrants were valued at zero and therefore
the Company did not record an expense for them.
At March 31, 2006, total outstanding unexercised warrants are 11,273,000.
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 March 31, 2006 was 11.5%.
As of March 31, 2006, $99,658 was borrowed under this line of credit
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.
6
ROAMING MESSENGER, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 2006
4. CONVERTIBLE DEBENTURES (Continued)
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. An interest expense of $87,500 was incurred, representing
the value of the conversion feature in accordance to EITF 98-5.
The last installment of $450,000 ($395,000 net of fees) was advanced on May
9, 2006, after the registration statement on Form SB-2 filed on April 12,
2006 was declared effective by the Securities and Exchange Commission.
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
In February 2006, Jonathan Lei, our Chairman and Chief Executive Officer,
and Bryan Crane, our Vice President of Corporate Development, were indicted
by a federal grand jury in Florida, 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 surreptitious investment fund formed by the Government. Specifically,
the indictment alleges that Messrs. Lei and Crane conspired with government
agents posing as fund managers to arrange for an illegal payment to be made
to the fund managers as an inducement to that fund making an investment in
the Company. We did not obtain any funding from the entity or the
management company that were posing as prospective investors. The Company
was not named in the indictment. The Company may be obligated to indemnify
Mr. Lei and Mr. Crane for their defense costs in theses cases in amounts to
be determined. This indictment may have a material adverse impact on the
financial position of the company and its results of operations as result
of (i) the possible defense costs to be disbursed by the Company, (ii)
possible departure of these two senior members of management and (iii)
possible damage to the Company's reputation.
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
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.
8
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 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.
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.
9
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 MARCH 31, 2006 COMPARED
TO THE SAME PERIOD IN 2005
Total revenue for the three-month period ending March 31, 2006 was
$399,885, representing an increased of 35% from the three-month period ending
March 31, 2005 of $295,925. 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 March 31, 2006
was 21% as compared to 31% for the three-month period ending March 31, 2005. 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 $650,696 for the three months ended March
31, 2006 as compared to $927,505 for the three months ended March 31, 2005. This
decrease is primarily due the reduction of business development and consultant
expenses.
The $650,696 operating expenses includes total non-cash charges of
$37,250 for the issuance of unregistered common stock for business development
and marketing services. The value of unregistered common stock was the same as
closing price of the Company's public stock at the time of issuance.
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 income and expense was ($60,687) for the three months ended
March 31, 2006, as compared to ($6,216) for the three months ended March 31,
2005. The increase is the result a $87,500 charge for the conversion feature, in
accordance with EITF-98-5, of the second installment of the convertible
debenture with Cornell Capital received on January 27, 2006.
For the three months ended March 31, 2006, the Company's consolidated
net loss was ($398,706) as compared to a consolidated net loss of ($730,452) for
the three months ended March 31, 2005.
RESULTS OF OPERATIONS FOR THE NINE-MONTH PERIOD ENDED MARCH 31, 2006 COMPARED TO
THE SAME PERIOD IN 2005
Total revenue for the nine-month period ending March 31, 2006 was
$1,255,956, representing an increased of 38% from the nine-month period ending
March 31, 2005 of $912,857. Almost all the increase is attributed to the revenue
growth from the Warp 9 Inc. operation.
The cost of revenue for the nine-month period ending March 31, 2006 was
28% as compared to 36% for the nine-month period ending March 31, 2005. 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.
10
Total operating expenses was $2,041,072 for the nine months ended March
31, 2006 as compared to $2,287,416 for the nine months ended March 31, 2005.
This decrease is primarily due the reduction of business development and
consultant expenses.
The $2,041,072 operating expenses includes total non-cash charges of
$163,193 which includes (i) $160,350 expense for the issuance of unregistered
common stock for business development and advisory services, (ii) $2,843 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. Operating
costs are expected to exceed revenue in the foreseeable future.
Total other income and expense was ($164,570) for the nine months ended
March 31, 2006, as compared to ($10,713) for the nine months ended March 31,
2005. The increase is the result a $187,500 charge for the conversion feature,
in accordance with EITF-98-5, of the convertible debentures with Cornell
Capital.
For the nine months ended March 31, 2006, the Company's consolidated
net loss was ($1,303,280) as compared to a consolidated net loss of ($1,716,516)
for the nine months ended March 31, 2005.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash at March 31, 2006 of $317,780 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
($403,985) at March 31, 2006 as compared to a net working capital deficit of
($308,364) at June 30, 2005. Cash flow utilized by operating activities was
($812,577) for the nine months ended March 31, 2006 as compared to cash utilized
for operating activities of ($1,263,080) during the nine months ended March 31,
2005. Cash flow used in investing activities was ($42,074) for the nine months
ended March 31, 2006 as compared to cash used in investing activities of
($49,548) during the nine months ended March 31, 2005. Cash flow provided by
financing activities was $934,902 for the nine months ended March 31, 2006 as
compared to cash provided by financing activities of $454,204 for the nine
months ended March 31, 2005.
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 March 31, 2006 was 11.5%. As of
March 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. The second
installment of $350,000 has been advanced upon filing of the registration
11
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 has been advanced on
May 9, 2006, after the registration statement was declared effective by the
Securities and Exchange Commission. The net amount of the last installment was
$395,000 after paying total fees of $55,000 which included legal and commitment
fees. 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.
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, upon three-business day notice, 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.
Under the terms of the debenture, the holder has the right to convert all or
part of the debenture within the three-day period following a redemption notice.
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.
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.
We anticipate that the full amount of the convertible debentures will
be converted into shares of our common stock, in accordance with the terms of
these debentures. If we were required to repay the convertible debentures, we
would be required to use our limited working capital and raise additional funds.
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 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.
12
PART II. - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In February 2006, Jonathan Lei, our Chairman and Chief Executive
Officer, and Bryan Crane, our Vice President of Corporate Development, were
indicted by a federal grand jury in Florida, 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
surreptitious investment fund formed by the Government. Specifically, the
indictment alleges that Messrs. Lei and Crane conspired with government agents
posing as fund managers to arrange for an illegal payment to be made to the fund
managers as an inducement to that fund making an investment in the Company. We
did not obtain any funding from the entity or the management company that were
posing as prospective investors. The Company was not named in the indictment.
The Company may be obligated to indemnify Mr. Lei and Mr. Crane for their
defense costs in theses cases in amounts to be determined. This indictment may
have a material adverse impact on the financial position of the company and its
results of operations as result of (i) the possible defense costs to be
disbursed by the Company, (ii) possible departure of these two senior members of
management and (iii) possible damage to the Company's reputation.
Item 2. CHANGES IN SECURITIES
In January 2006, Roaming Messenger issued 75,000 shares of unregistered
common stock at $0.07 per share for consulting services. These shares were
issued pursuant to Section 4(2) of the Securities Act of 1933, as amended.
In February 2006, Roaming Messenger issued 400,000 shares of common
stock at $0.08 per share for consulting services. These shares were issued
pursuant to Section 4(2) of the Securities Act of 1933, as amended.
In March 2006, Roaming Messenger cancelled 300,000 shares of common
stock, previously issued to a consultant, as a settlement in a dispute.
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 NO. DESCRIPTION
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 February 23, 2006
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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: May 15, 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: May 15, 2006
--------------------------------------
Jonathan Lei, Chairman of the Board,
Chief Executive Officer, President
Chief Financial Officer, and Secretary
15