FORM 10-KSB/A
Amendment No. 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: June 30, 2006
For the transition period from July 1, 2005 to June 30, 2006
COMMISSION FILE NUMBER 0-13215
WARP 9, INC.
FORMERLY KNOWN AS ROAMING MESSENGER, INC.
(Exact name of registrant as specified in its charter)
NEVADA 30-0050402
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(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 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |X|
The aggregate market value of voting stock held by non-affiliates of
the registrant was approximately $1,476,386 as of September 30, 2006 (computed
by reference to the last sale price of a share of the registrant's Common Stock
on that date as reported by NASDAQ).
There were 200,499,788 shares outstanding of the registrant's Common
Stock as of September 30, 2006.
TABLE OF CONTENTS
10KSB
PART I.................................................................... 1
ITEM 1.................................................................... 1
ITEM 2.................................................................... 8
ITEM 3.................................................................... 8
ITEM 4.................................................................... 8
PART II................................................................... 9
ITEM 5.................................................................... 9
ITEM 6.................................................................... 11
ITEM 7.................................................................... 15
ITEM 8.................................................................... 36
ITEM 8A................................................................... 36
ITEM 8B................................................................... 36
PART III.................................................................. 37
ITEM 9.................................................................... 37
ITEM 10................................................................... 39
ITEM 11................................................................... 41
ITEM 12................................................................... 41
ITEM 13................................................................... 42
ITEM 14................................................................... 43
SIGNATURES................................................................ 44
CERTIFICATIONS............................................................ 45
PART I
ITEM 1. BUSINESS
COMPANY HISTORY
Roaming Messenger, Inc. (the "Company") is a Nevada corporation
formerly known as Latinocare Management Corporation ("LMC"). The Company
originally incorporated in Colorado in July 1983. Effective April 1, 2003, the
Company completed a Plan and Agreement of Reorganization with Warp 9, Inc., a
Delaware corporation ("W9") and effective June 30, 2003, the Company completed a
second Plan and Agreement of Reorganization with W9 (collectively the
"Reorganization"). Pursuant to the Reorganization, LMC acquired all of the
issued and outstanding common stock of W9 in exchange for approximately
131,026,173 newly issued shares of LMC common stock, W9 became a wholly owned
subsidiary of LMC, and the shareholders of W9 became the controlling
shareholders of LMC. Prior to its business combination with W9, LMC had no
tangible assets and insignificant liabilities. Subsequent to the Reorganization
the Company changed its name to Roaming Messenger, Inc.
On August 24, 2006, the Company's board of directors and majority
shareholders voted to change the name of the Company from Roaming Messenger,
Inc. to Warp 9, Inc. to reflect a new strategic plan of focusing primarily on
the business of the Company's wholly owned subsidiary, Warp 9, Inc., an
e-commerce Software-as-a-Service provider.
On September 18, 2006, we signed an Exclusive Technology Licensing
Agreement with one licensee for our Roaming Messenger mobile messaging
technology. In light of granting this exclusive license, it allowed us to reduce
our personnel count which reduced our overall cash utilization.
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GENERAL
We are a provider of e-commerce software platforms and services for the
catalog and retail industry. Our suite of software platforms is designed to help
online retailers maximize the Internet channel by using advanced technologies
for online catalogs, e-mail marketing campaigns, and interactive visual
merchandising. Offered on an outsourced and fully managed Software-as-a-Service
("Saas") model, our products allow customers to focus on their core business,
rather than technical implementations. We also offer professional services to
our clients which include online catalog design, merchandizing and optimization,
order management, e-mail marketing campaign development, integration to third
party payment processing and fulfillment systems, analytics, custom reporting
and strategic consultation.
Our products and services allow our clients to focus on promoting and
marketing their brand, product line and website while leveraging the investments
we have made in technology and infrastructure to operate a dynamic online
catalog.
We charge our customers a monthly fee for using our e-commerce software
based on a Software-as-a-Service model. Unlike traditional software companies
that sell software on a perpetual license where quarterly and annual revenues
are quite difficult to predict, our SaaS model spreads the collection of
contracts over several quarters or years and makes our revenues more predictable
for a longer period of time.
We also licensed our Roaming Messenger mobile messaging technology, on
an exclusive basis to one licensee in September 2006, from which we are entitled
to receive royalty revenues.
We have generated only minimal revenues from the licensing of Roaming
Messenger technology, and earned minimal revenues from that technology when we
operated the business before the exclusive license. To date, almost all of our
revenues are generated from Warp 9 e-commerce products and services.
INDUSTRY OVERVIEW
GROWTH OF THE INTERNET AND E-COMMERCE
Online retailing and e-commerce sales continue to grow with no sign of
slowing down. The U.S. Commerce Department reported that e-commerce sales in the
fourth quarter of 2005 rose 23.4% compared to the fourth quarter of 2004,
continuing a series of strong quarterly growth reports. According to the 2006
State of Retailing Online report from Forrester Research, online sales will top
$200 billion this year alone, representing an increase of 100% from just 3 years
ago. According to the report, retailers are recognizing the importance that the
online channel plays in overall sales, with more than 38% of online customers
being new to a retailer's entire business.
We believe there are a number of factors that are contributing to the
growth of e-commerce: (i) adoption of the Internet continues to increase
globally; (ii) broadband technology is becoming more widely available and the
adoption of broadband for Internet use is increasing at a rapid rate; (iii)
Internet users are increasingly comfortable with the process of buying products
online; (iv) the functionality of online stores continues to improve, a greater
range of payment options are available, and special offers and shipping
discounts are making online shopping more attractive; (v) businesses are placing
more emphasis on their online stores as they can reach a larger audience at a
comparatively lower cost than the methods used to drive traffic to traditional
brick-and-mortar retail stores or sell through printed paper catalogs. As a
result of these growth drivers, retailers and catalogers have begun to build
large, global customer bases that can be reached cost-effectively, potentially
resulting in higher sales and profitability.
OPPORTUNITIES FOR OUTSOURCED E-COMMERCE
We believe there are advantages to outsourced e-commerce that will
continue to make solutions like Warp 9 an attractive alternative to building and
maintaining this capability in-house. These advantages include: (i) eliminating
the substantial up-front and ongoing costs of computer hardware, network
infrastructure and specialized application software and personnel; (ii) reducing
the time it takes to get online stores live and productive; (iii) shifting the
ongoing technology, financial, regulatory and compliance risks to a proven
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service provider; (iv) leveraging the expertise of an e-commerce service
provider to accelerate growth of an online business; and (v) allowing businesses
to focus on their specific core competencies.
TECHNOLOGY PRODUCTS
We primarily offer two proprietary software systems to our customers -
e-commerce and e-mail marketing. It is our product development goal to create
other complementary systems to deliver a fully integrated platform for a
successful e-commerce operation.
WARP 9 INTERNET COMMERCE SYSTEM (WARP 9 ICS)
The Warp 9 ICS is an enterprise-grade software system that enables
catalogers and retailers to expand their operation to the Internet with minimal
investment, overhead and risk. A business does not need to invest in new
hardware or software in order to utilize the Warp 9 ICS, because it is offered
as a fully managed online catalog system hosted in our Internet datacenter. With
a range of easy to use and highly customizable features for product presentation
as well store management, Warp 9 ICS satisfies many of the current and next
generation requirements of catalogers and retailers. We charge our customers a
recurring monthly fee for using the Warp 9 ICS software based on 12, 24 and 36
month term agreements. There are various pricing packages for Warp 9 ICS,
depending on the customer's desired level of scalability and reliability.
Warp 9 ICS is designed with a highly scalable enterprise architecture
that allows us to provide our customers with maximum performance and system
uptime. As our customer base or transaction volume grows, we simply add new
servers, CPUs, memory and bandwidth without substantial changes to the ICS
software. The high end version of the Warp 9 ICS offering operates on a cluster
of load balanced and fault-tolerant servers in our datacenter. If a server in
the cluster fails for any reason, the architecture shifts the traffic to other
available servers, thus minimizing downtime and disruption to our customers'
mission critical e-commerce websites.
WARP 9 E-MAIL MARKETING SYSTEM (WARP 9 EMS)
Warp 9 EMS is a web-based e-mail campaign and list management system
designed for high performance and reliability. EMS's sophisticated technology
will allow markets to send targeted e-mail campaigns that help grow, retain and
maximize the lifetime value of their customers. Through content personalization
and list segmentation, campaign efforts will result in higher response rates,
higher conversion rates and improved customer loyalty. E-mail marketing systems,
such as Warp 9 EMS, enable unprecedented response times that are not achievable
through traditional forms of direct marketing. Most ICS customers also purchase
EMS to complement their online commerce strategy.
PROFESSIONAL SERVICES
Our customers are not technology companies and have very little
internal expertise in the areas of e-commerce, online marketing and web
technologies. To provide a complete solution to our customers, we also offer
professional services to help our customers maximize the use of our technology
or other online e-commerce technologies. Professional services include but are
not limited to e-commerce web page template development, e-mail campaign content
creation, custom system configuration, graphics design, management of online
marketing programs, and integration to backend business systems.
SITE DESIGN AND DEVELOPMENT
We offer our clients site design services that utilize our experience
and expertise to create efficient and effective online catalogs powered by Warp
9 ICS. Our e-commerce solutions can be deployed quickly for our clients and
implemented in a variety of ways from simple shopping websites to complex
systems that integrate to backend inventory management systems. This is all done
by maximally using the feature set of Warp 9 ICS.
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MERCHANDIZING AND PROMOTIONS DESIGN
The Warp 9 ICS technology platform supports a wide range of
merchandising activities. On an ongoing basis, we help our clients create
effective promotional activities, up-sell, cross-sell as well as promote
featured products during any phase of the shopping process. By doing so, our
professional services team continues to work with our clients to deliver
targeted offers designed to increase close ratios and average order size.
ADVANCED REPORTING AND ANALYTICS
Warp 9 ICS captures a great deal of information about sales and visitor
activities in its database. We provide our clients access to a collection of
standard and customizable reports as well as create any report they need for
their individual business making decisions. For example, we can create custom
reports to help our clients analyze the average orders size of one design versus
another. This enables our clients to track and analyze sales, products,
transactions and customer behavior to further refine their market strategies to
increase sales.
STRATEGIC MARKETING SERVICES
We offer a wide range of strategic marketing services designed to
increase customer acquisition, retention and lifetime value. Through a
combination of web analytics, analytics-based statistical testing and
optimization, our team of strategic marketing consultants develop, deliver and
manage programs such as paid search advertising, search engine optimization,
affiliate marketing, store optimization and e-mail optimization for our clients.
We believe our ability to capture and analyze integrated traffic and commerce
data enhances the value of our strategic marketing services as we can precisely
determine the effectiveness of specific marketing activities, website changes,
and other actions taken by our clients.
REVENUE MODEL
We charge our customers a monthly fee, based on termed contracts, to
use the Warp 9 ICS and Warp 9 EMS products under a Software-as-a-Service
("SaaS") model. Unlike traditional software companies that sell software on a
perpetual license where quarterly and annual revenues are very difficult to
predict, our SaaS model spreads the collection of contracts over several
quarters or years and makes our revenues more predictable for a longer period of
time.
Over half of the Company's revenues are from the ICS product which
continues to be a growing product. EMS is a smaller revenue-generating product
and usually sold to customers already subscribing to the ICS product. The
monthly subscription fee for Warp 9 ICS is generally variable with the growth of
a client's online revenues. Therefore, when our customers sell more online, our
revenues and profit margin increases without dramatic increase in costs.
BENEFITS TO CLIENTS
Our complete solution of providing robust technology along with
complementary professional services delivers many benefits to our customers
which help drive our continual growth.
REDUCED TOTAL COST OF OWNERSHIP AND RISK
Utilizing our technology and services, businesses can dramatically
reduce or eliminate upfront and ongoing hardware, software, maintenance and
support costs associated with developing, customizing, deploying and upgrading
an in-house e-commerce solution. They can have a global e-commerce presence
without assuming the costs and risks of developing it themselves and take
immediate advantage of the investments we continually make in our e-commerce
systems and associated services. Our ongoing investment in the latest
technologies and e-commerce functionality helps ensure that our clients maintain
pace with industry advances.
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REVENUE GROWTH
Through our team of services consultants, we help our clients grow
their businesses by applying our technology and experience to (i) increase the
acquisition, retention and lifetime value of new customers; (ii) extending their
businesses into new geographic markets; and (iii) expanding the visibility and
sales of their products through new online sales channels. We have developed
substantial expertise in online marketing and merchandising, which we apply to
help our clients increase traffic to their online stores, and improve order
close ratios, average order sizes and repeat purchases, all of which are
designed to generate higher revenues for our clients' businesses and greater
revenue for Warp 9.
DEPLOYMENT SPEED
Businesses can reduce the time required to develop an e-commerce
presence by utilizing our outsourced business model. Typically, a new client can
have an online store live in a matter of days or weeks compared with months or
longer if they decide to build, test and deploy the e-commerce capability
in-house. Once they are operational on our platform, most clients can utilize
our remote control toolset to make real-time changes to their online store,
allowing them to address issues and take advantage of opportunities without
technical assistance.
FOCUS ON CORE COMPETENCY
By utilizing our outsourced e-commerce model, businesses can focus on
developing, marketing and selling their products rather than devoting time and
resources to building and maintaining an e-commerce infrastructure. Management
can focus their time on what they know best while ensuring they have access to
the latest technologies, tools and expertise for running a successful e-commerce
operation.
SALES AND MARKETING
Our objective is to be the leading provider of outsourced e-commerce
solutions for online catalog and retail operations. To achieve this objective,
we intend to enhance, promote and support the idea that Warp 9 is the complete
provider of the necessary technology platform and professional services to
effectively conduct a serious e-commerce operation.
We currently market our e-commerce solutions directly to clients and
prospective clients. We focus our efforts on generating awareness of the Warp 9
brand and capabilities, establishing our position as a leader in the online
catalog space. Our sales team calls on senior marketing and IT executives within
a retailer or catalog company who are looking to create or expand their
e-commerce operation. During the client sales process, our sales staff delivers
demonstrations, presentations, collateral material, return-on-investment
analyses, proposals and contracts.
A great deal of our new customers comes from word-of-mouth referrals
due to the fact that Warp 9 has been in the industry for a number of years with
strong references and a proven track record. Prospective clients quite often
look for us at tradeshows to learn more about Warp 9 based on the
recommendations of our existing customers. Word-of-mouth referrals have been
very valuable to us and we intend to continue nurturing our customer and
industry relationships to maximize these referrals.
While our success to date has been from direct sales efforts, we intend
to explore a channel partner strategy to expand our customer base quickly in the
fiscal quarters to come. Prospective channel partners include consultants and
designers in the catalog industry, as well as backend order fulfillment systems
providers. With the growing maturity of multi-channel e-commerce strategies,
many of the robust backend systems providers are looking for a robust front-end
e-commerce system, like Warp 9 ICS, to deliver a fully integrated online/offline
solution to their clients.
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COMPETITION
The market for e-commerce solutions is highly competitive, especially
as it reaches maturity. We compete with e-commerce solutions that our customers
develop themselves or contract with third parties to develop. We also compete
with other outsourced e-commerce providers. The competition we encounter
includes:
o In-house development of e-commerce capabilities using tools or
applications from companies such as Art Technology Group, Broadvision,
and IBM;
o E-Commerce capabilities custom-developed by companies such as IBM
Global Services, and Accenture, Inc.;
o Other providers of outsourced e-commerce solutions, such as GSI
Commerce, Inc., Macrovision Corporation, asknet Inc. and eSellerate,
Inc.;
o Companies that provide technologies, services or products that support
a portion of the e-commerce process, such as payment processing,
including CyberSource Corporation and PayPal Corp.;
o High-traffic branded websites that generate a substantial portion of
their revenue from e-commerce and may offer or provide to others the
means to offer their products for sale, such as Amazon.com, Inc.; and
o Web hosting, web services and infrastructure companies that offer
portions of our solution and are seeking to expand the range of their
offering, such as Network Solutions, LLC, Akamai Technologies, Inc.,
Yahoo! Inc., eBay Inc. and Hostopia.com Inc.
PATENTS AND PATENT APPLICATIONS
Our intellectual property portfolio consists of the following patent
and patent applications, which primarily related to the Roaming Messenger
technology that was licensed on an exclusive basis to another company in
September 2006:
SELF CONTAINED BUSINESS TRANSACTION CAPSULES
A self-contained business transaction capsule, or eCapsule, is a small
electronic capsule that contains all the necessary data and logic to complete a
business transaction. The eCapsule is a "thin" and "lightweight" small
computer-readable file that is device independent. The eCapsule allows a
business, for example, to encapsulate an individual product or offer into an
intelligent object that is capable of completing entire transactions. The
eCapsule includes data about the product or service being provided, such as the
product price, a textual description, or options for the product or service (a
transaction description). The eCapsule also includes transaction logic or
business logic capable of completing the transaction, such as billing and
shipping information, order routing information, order status information,
shipping status information, and any other transaction rules necessary to
process the transaction. Moreover, the eCapsule is adapted to be broadcasted to,
and stored on, a portable electronic device, such as a mobile wireless-enabled
device, like a cellular telephone, a personal digital assistant (PDA) or a
laptop computer. This patent was issued on September 12, 2006. This patent has
been licensed, in September 2006, to one licensee on an exclusive basis,
including to the exclusion of the Company, in consideration for an agreement by
the licensee to pay royalties if it earns revenue from the technology.
A METHOD OF AND SYSTEM FOR TRANSMITTING A MOBILE AGENT FOR INSTRUCTION EXECUTION
This invention relates to transmitting a mobile agent for executing
programmable instructions and, more particularly, to transmitting a virtual
machine in a mobile agent to assist instruction execution. This patent
application discloses the actual system implementation of the Roaming Messenger
platform using a mobile agent approach. The application for this patent was
filed on December 7, 2004. This patent application has been licensed to one
licensee on an exclusive basis, including to the exclusion of the Company, in
September, 2006.
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A METHOD OF AND INSTRUCTION SET FOR EXECUTING OPERATIONS ON A DEVICE
This invention relates to executable instructions and, more
particularly, to instructions that are executable on a device that receives a
mobile agent. This patent application discloses the actual implementation of the
Roaming Messenger device engine and messenger instruction sets and modes of
execution. The application for this patent was filed on December 7, 2004. This
patent application has been licensed to one licensee on an exclusive basis,
including to the exclusion of the Company, in September, 2006.
UTILIZING MOBILE DEVICES AS A COMMUNICATION PROXY FOR NON-CONNECTED TERMINALS
This invention is a method and system in which terminals, appliances
and machines without dedicated Internet connections can complete Internet based
transactions by piggy-backing on the connection of the user's handheld device.
An example of an application of this invention is a vending machine that can
conduct electronic wireless payments without having an internal wireless device
that communicates with a server on the Internet. Existing solutions require the
vending machine to be equipped with an internal cell phone. Using this
invention, the vending machine can communicate with the consumer's handheld
device via Infrared or Bluetooth and simply uses the handheld device as the
conduit to the Internet for remote payment processing. This invention also
covers many other applications including secured doorways, factory floors and
smart data acquisition sensors. The application for this patent was filed on
February 21, 2002.
On September 18, 2006, we entered into a ten year Exclusive Technology
Licensing Agreement with Zingerang, Inc. Under this agreement, the Company
grants to Zingerang, an exclusive, worldwide, sub-licensable, transferable,
royalty-bearing right and license to the Roaming Messenger technology and
related patent portfolio. In consideration for granting the license to
Zingerang, the Company is entitled to an ongoing royalty fee equal to five
percent (5%) of Zingerang's gross sales related to the licensed technology, to
be paid quarterly. The Company will immediately receive a one time payment equal
to $100,000 as a recoupable advance against the royalties. During the term of
the Agreement, Zingerang may, at its sole discretion, pay to the Company a
one-time royalty payment of $500,000, in lieu of ongoing royalties, less certain
patent application fees.
Additionally, the Company participated in Zingerang's founder round of
financing where it acquired forty million (40,000,000) shares of common stock in
Zingerang, which represents a large minority position, for a total investment of
$10,000.
GOVERNMENT REGULATION
We are subject to various federal, state, and local laws affecting
medical e-commerce and communication businesses. The Federal Trade Commission
and equivalent state agencies regulate advertising and representations made by
businesses in the sale of their products, which apply to us. We are also subject
to government laws and regulations governing health, safety, working conditions,
employee relations, wrongful termination, wages, taxes and other
mattersapplicable to businesses in general.
EMPLOYEES
As of June 30, 2006, we had fifteen full time employees, six of whom
are employed in administrative, marketing, and sales positions, and nine
technical employees employed in research, development, and technical product
maintenance positions. As a result of entering into the Exclusive Technology
Agreement on September 18, 2006, we laid-off five employees that were involved
in the marketing and engineering of the Roaming Messenger operation.
All of our employees have executed agreements that impose nondisclosure
obligations on the employee and assign to us (to the extent permitted by
California law) all copyrights and other inventions created by the employee
during his employment with us. Additionally, we have a trade secret protection
policy in place that management believes to be adequate to protect our
intellectual property and trade secrets.
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SEASONALITY
We do not anticipate that our business will be substantially affected
by seasonality.
TRADEMARKS
We have registered trademarks for Roaming Messenger(R), eCapsule(R),
and Warp 9(R), although, we have licensed the Roaming Messenger(R) and
eCapsule(R) trademarks to Zingerang, Inc. on an exclusive basis under the
Exclusive Technology License Agreement, dated September 18, 2006.
ITEM 2. PROPERTIES
The Company currently leases approximately 8,605 square feet of office
space at 50 Castilian Dr., Suite A, Santa Barbara, California 93117 for
approximately $7,750 per month, triple net, pursuant to a six year lease
agreement with rent commencing on October 1, 2004.
The Company has vacated its old office space of approximately 3,650
square feet located at 6144 Calle Real, Suite 200 Santa Barbara, California
93117 which it has subleased for the remainder of the lease until March 2007.
ITEM 3. LEGAL PROCEEDINGS
The Company may be involved in legal actions and claims arising in the
ordinary course of business, from time to time, none of which at this time are
considered to be material to the Company's business or financial condition.
Furthermore, in February 2006, Jonathan Lei, our Chairman and Chief
Executive Officer, and Bryan Crane, our then 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 these 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 incurred by the Company, (ii) possible departure of senior members
of management and (iii) possible damage to the Company's reputation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 24, 2006, holders of 106,074,025 shares of the Company's
common stock, or approximately 52.9% of the total issued and outstanding common
stock of the Company, voted to change the name of the Company from Roaming
Messenger, Inc. to Warp 9, Inc., by amending the Company's articles of
incorporation. The Board of Directors of the Company voted unanimously to
implement this shareholder action.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on the OTC Bulletin Board Market
under the symbol "RMSG." The range of high and low bid quotations for each
fiscal quarter within the last two fiscal years was as follows:
Year Ended June 30, 2006 HIGH LOW
---- ---
First Quarter ended September 30, 2005 $0.19 $0.09
Second Quarter ended December 31, 2005 $0.15 $0.07
Third Quarter ended March 31, 2006 $0.09 $0.05
Fourth Quarter ended June 30, 2006 $0.06 $0.02
Year Ended June 30, 2005 HIGH LOW
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First Quarter ended September 30, 2004 $0.68 $0.04
Second Quarter ended December 31, 2004 $0.75 $0.25
Third Quarter ended March 31, 2005 $0.31 $0.19
Fourth Quarter ended June 30, 2005 $0.26 $0.11
Year Ended June 30, 2004 HIGH LOW
---- ---
First Quarter ended September 30, 2003 $0.52 $0.27
Second Quarter ended December 31, 2003 $0.45 $0.25
Third Quarter ended March 31, 2004 $3.60 $0.27
Fourth Quarter ended June 30, 2004 $1.90 $0.45
-----------------------
The above quotations reflect inter-dealer prices, without retail
markup, mark-down, or commission and may not necessarily represent actual
transactions.
The common stock of the Company has a par value of $0.001, and
495,000,000 shares are authorized to be issued. The Company is also authorized
to issue 5,000,000 shares of preferred stock with a par value of $0.001. The
rights, preferences and privileges of the holders of the preferred stock will be
determined by the Board of Directors prior to issuance of such shares.
As of June 30, 2006, there were approximately 350 record holders of the
Company's common stock, not including shares held in "street name" in brokerage
accounts which are unknown. As of June 30 2006, there were approximately
189,803,146 shares of common stock outstanding on record.
The Company has not declared or paid any cash dividends on its common
stock and does not anticipate paying dividends for the foreseeable future.
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 June 30, 2006:
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NUMBER OF SECURITIES
NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE EXERCISE REMAINING AVAILABLE FOR
ISSUED UPON EXERCISE OF PRICE OF OUTSTANDING STOCK FUTURE ISSUANCE UNDER EQUITY
OUTSTANDING STOCK OPTIONS OPTIONS COMPENSATION PLANS
------------------------- -------------------------- ----------------------------
Equity compensation plans 5,209,994 $0.11 22,225,000
approved by security
holders
In March 2006, the Company cancelled 300,000 shares of common stock,
previously issued to a consultant, as a settlement to a dispute.
During the quarter ended September 30, 2005, the Company issued 470,000
shares of unregistered common stock to three individuals as compensation for
services rendered to the Company. The shares were valued at the market price of
the Company's common stock at the time of issuance ranging from $0.13 to $0.16
per share. These shares were issued pursuant to Section 4(2) of the Securities
Act of 1933, as amended.
During the quarter ended September 30, 2005, the Company issued 640,000
shares of registered common stock to Wings Fund Inc. for a gross proceed of
$40,000 pursuant to the Periodic Equity Investment Agreement entered into on
March 28, 2005. The shares were issued in a transaction exempt under Regulation
D.
In September 2005, the Company issued two-year warrants to purchase
163,500 shares of Common Stock at $0.10, to a business development consultant.
In October 2005, the Company issued and sold 1,580,611 shares of
registered common stock at a price of $0.06 per share for aggregate gross
proceeds of $98,000 to Wings Fund Inc. pursuant to the Periodic Equity
Investment Agreement entered into on March 28, 2005. The shares were issued in a
transaction exempt under Regulation D.
In October 2005, the Company 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, the Company 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, the Company 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, the Company 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. pursuant to the Periodic Equity Investment Agreement
entered into on March 28, 2005. The shares were issued in a transaction exempt
under Regulation D.
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. 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 our common stock. In connection
with the sale of the convertible debenture, 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.
-10-
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, the Company issued two-year warrants to purchase
321,000 shares of Common Stock at $0.10, to a business development consultant.
In January 2006, the Company 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, the Company 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.
During the quarter ended March 31, 2006, the Company issued two-year
warrants to purchase 321,000 shares of Common Stock at $0.10, to a business
development consultant.
During the quarter ended June 30, 2006, the Company issued 3,271,881
shares of common stock ranging from $0.0194 per share to $0.036 per share to
Cornell Capital Partners, LLP for the conversion of $60,000 of principal balance
of the $1,200,000 debenture issued to Cornell in December 2005. The shares were
issued in a transaction exempt under Regulation D.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
CAUTIONARY STATEMENTS
This Form 10-KSB contains financial projections and other
"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: statements concerning the
potential for revenues and expenses and other matters that are not historical
facts. These statements may be made expressly in this Form 10-KSB. You can find
many of these statements by looking for words such as "believes," "expects,"
"anticipates," "estimates," or similar expressions used in this Form 10-KSB.
These forward-looking statements are subject to numerous assumptions, risks and
uncertainties that may cause the Company's actual results to be materially
different from any future results expressed or implied by the Company in those
statements. The most important facts that could prevent the Company 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 and barriers to raising the additional capital
or to obtaining the financing needed to implement its business
plans;
(e) inadequate capital to continue business;
(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.
-11-
Because the statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by the
forward-looking statements. The Company cautions you not to place undue reliance
on the statements, which speak only as of the date of this Form 10-KSB. The
cautionary statements contained or referred to in this section should be
considered in connection with any subsequent written or oral
forward-lookingstatements that the Company 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-KSB or to reflect the occurrence of unanticipated events.
The following discussion should be read in conjunction with our
condensed consolidated financial statements and notes to those statements. In
addition to historical information, the following discussion and other parts of
this quarterly report contain forward-looking information that involves risks
and uncertainties.
CURRENT OVERVIEW
We are a provider of e-commerce software platforms and services for the
catalog and retail industry. Our suite of software platforms are designed to
help online retailers maximize the Internet channel by using advanced
technologies for online catalogs, e-mail marketing campaigns, and interactive
visual merchandising. Offered on an outsourced and fully managed
Software-as-a-Service ("Saas") model, our products allow customers to focus on
their core business, rather than technical implementations. We also offer
professional services to our clients which include online catalog design,
merchandizing and optimization, order management, e-mail marketing campaign
development, integration to third party payment processing and fulfillment
systems, analytics, custom reporting and strategic consultation.
Our products and services allow our clients to focus on promoting and
marketing their brand, product line and website while leveraging the investments
we have made in technology and infrastructure to operate a dynamic online
catalog.
We charge our customers a monthly fee for using our e-commerce software
based on a Software-as-a-Service model. Unlike traditional software companies
that sell software on a perpetual license where quarterly and annual revenues
are quite difficult to predict, our SaaS model spreads the collection of
contracts over several quarters or years and makes our revenues more predictable
for a longer period of time.
We also licensed our Roaming Messenger mobile messaging technology, on
an exclusive basis to one licensee, from which we derive royalty revenues. We
have generated only minimal revenues from the licensing of Roaming Messenger
technology, and earned minimal revenue from the operation of the Roaming
Messenger business before we licensed it. To date, almost all of our revenues
are generated from Warp 9 e-commerce products and services.
As of the date of this report, a number of Warp 9 ICS client websites
are in the implementation phase. Once the implementation phase is completed, the
client's e-commerce website is released to the public. When an ICS enabled
website is released to the public, we can start to bill the client the
contracted monthly fees. As of the date of this report, there is approximately
$250,000 of total recurring annual ICS contract revenue that is waiting to be
realized once the client sites are launched.
On September 18, 2006, we signed an Exclusive Technology Licensing
Agreement with one licensee for our Roaming Messenger mobile messaging
technology. In light of granting this exclusive license we laid-off all
dedicated personnel that were engaged in the Roaming Messenger operation and
eliminated related expenses to reduce our operating costs. We anticipate that
the losses for the fiscal year in 2007 will be less than losses incurred in the
fiscal year ended June 30, 2006 primarily due to the reduction of expenses
associated with the Roaming Messenger operation.
-12-
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of
operations, including the discussion on liquidity and capital resources, are
based upon 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 us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an ongoing basis,
management re-evaluates its estimates and judgments, particularly those related
to the determination of the estimated recoverable amounts of trade accounts
receivable, impairment of long-lived assets, revenue recognition and deferred
tax assets. We believe the following critical accounting policies require more
significant judgment and estimates used in the preparation of the financial
statements.
We maintain an allowance for doubtful accounts for estimated losses
that may arise if any of our customers are unable to make required payments.
Management specifically analyzes the age of customer balances, historical bad
debt experience, customer credit-worthiness, and changes in customer payment
terms when making estimates of the uncollectability of our trade accounts
receivable balances. If we determine that the financial conditions of any of our
customers deteriorated, whether due to customer specific or general economic
issues, increases in the allowance may be made. Accounts receivable are written
off when all collection attempts have failed.
We follow the provisions of Staff Accounting Bulletin ("SAB") 101,
"Revenue Recognition in Financial Statements" for revenue recognition and SAB
104. Under Staff Accounting Bulletin 101, four conditions must be met before
revenue can be recognized: (i) there is persuasive evidence that an arrangement
exists, (ii) delivery has occurred or service has been rendered, (iii) the price
is fixed or determinable and (iv) collection is reasonably assured.
Income taxes are accounted for under the asset and liability method.
Under this method, to the extent that we believe that the deferred tax asset is
not likely to be recovered, a valuation allowance is provided. In making this
determination, we consider estimated future taxable income and taxable timing
differences expected in the future. Actual results may differ from those
estimates.
As of June 30, 2006 the Company adopted financial accounting standard
123 (revised 2004) using the modified prospective method. In accordance with
this method, the financial statements for prior periods have not been restated
to reflect, and do not include, the impact of FAS 123R. See footnote #2 to the
attached financial statements for further discussion of the adoption of this
accounting standard.
FAS 123R was adopted for the financial statements for the fiscal year
ended June 30, 2006, an not interim financial statements for the quarters ended
September 30, 2005, December 31, 2005, and March 31, 2006.
RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 2006 AND 2005
Total revenue for the twelve month period ended June 30, 2006 increased
by $573,473 to $1,757,685 from $1,184,212 in the prior year. Revenue was derived
principally from our Warp 9 Inc. subsidiary. The increase in revenue was the
result of an increase in new Warp 9 clients, related professional services and
reselling of third party online marketing services.
The cost of revenue, in terms of percentage of revenue, for the twelve
month period ended June 30, 2006 was 25% as compared to 34% for the twelve-month
period ended June 30, 2005. The decrease in the cost of revenue is a result of
the increased sales of higher margin Warp 9 products and services.
Total costs and expenses for the twelve month period ended June 30,
2006 increased by $198,657 to $3,445,527 from $3,246,870 in 2005. The change is
primarily due to increase in selling, general and administrative expenses.
Selling, general and administrative expenses increased by $189,999
during the twelve months ended June 30, 2006 to $2,925,889 from $2,735,890 in
the prior year. The increase in selling, general and administrative expenses
were primarily due to the expensing of employee stock options and conversion
features associated with a convertible debenture.
-13-
Non-cash selling, general and administrative expenses for the year
ended June 30, 2006 totaled $928,209 which include (i) $136,350 in warrant and
stock compensation in lieu of payment in cash to our consultants and independent
contractors for business development and strategic advisory services, (ii)
$161,793 in employee stock option expenses, and (iii) $630,066 of net expenses
associated with the accounting for a convertible debenture in accordance with
EITF 00-19 and EITF 00-27.
Expense related to depreciation was $92,602 for the twelve months ended
June 30, 2006 as compared to $113,775 for the prior year.
Research and development expenses increased by $29,831 during the
twelve months ended June 30, 2006 to $427,036 from $397,205 in the prior year
due to additional staff.
Total other income and expense was ($35,321) for the twelve months
ended June 30, 2006 as compared to ($17,177) in the prior year.
For the twelve months ended June 30, 2006, our consolidated net loss
was ($2,164,352) as compared to a consolidated net loss of ($2,479,100) for the
twelve months ended June 30, 2005.
LIQUIDITY AND CAPITAL RESOURCES
We had cash at June 30, 2006 of $387,180 as compared to cash of
$237,529 as of June 30, 2005. We had net working capital deficit (i.e. the
difference between current assets and current liabilities) of ($848,174) at June
30, 2006 as compared to a net working capital deficit of ($308,364) at June 30,
2005. Cash flow utilized by operating activities was ($1,006,578) for the year
ended June 30, 2006 as compared to cash utilized for operating activities of
($1,677,198) for the year ended June 30, 2005. Cash flow used in investing
activities was ($61,143) for the year ended June 30, 2006 as compared to cash
used in investing activities of ($151,603) during the year ended June 30, 2005.
Cash flow provided by financing activities was $1,217,372 for the year ended
June 30, 2006 as compared to cash provided by financing activities of $571,228
during the year ended June 30, 2005.
For the twelve months ended, June 30, 2006, our capital needs have
primarily been met from the proceeds of (i) the sale of a secured convertible
10% debenture in the amount of $1,200,000 and (ii) a Periodic Equity Investment
Agreement with Wings Fund, Inc. which was terminated on December 28, 2005, under
which we sold approximately 4,279,174 shares of common stock for total proceeds
of $272,147.
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 on the line of credit at June 30, 2006 was 12% per
annum. At June 30, 2006, $342 was borrowed under this line of credit.
As of the date of this report, a number of Warp 9 ICS client websites
are in the implementation phase. Once the implementation phase is completed, the
client's e-commerce website is released to the public. When an ICS enabled
website is released to the public, we can start to bill the client the
contracted monthly fees. As of the date of this report, there is approximately
$250,000 of total annual ICS contract revenue that is waiting to be realized
once the client sites are launched.
While we expect our losses to be less in the next fiscal year due to
the reduction of expenses previously incurred by the Roaming Messenger operation
before it was exclusively licensed to a third party in September 2006, there is
no assurance that losses will actually be less or the Company will have
sufficient capital to finance its growth and business operations, or that such
capital will be available on terms that are favorable to the Company or at all.
We anticipate that we may be able to obtain 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.
-14-
ITEM 7. FINANCIAL STATEMENTS OF ROAMING MESSENGER, INC.
ROAMING MESSENGER, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2006 AND 2005
REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS
CONTENTS
PAGE
Reports of Independent Registered Public Accounting Firms .............. 16
Consolidated Balance Sheet.............................................. 18
Consolidated Statements of Operations................................... 19
Consolidated Statements of Changes in Shareholders Equity............... 20
Consolidated Statements of Cash Flows .................................. 21
Notes to Consolidated Financial Statements ............................. 22-35
-15-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Report of Independent Registered Public Accounting Firm
To the Board of Directors
Roaming Messenger, Inc.
Santa Barbara, California
We have audited the consolidated balance sheet of Roaming Messenger, Inc. and
Subsidiary as of June 30, 2006, and the related consolidated statements of
operations, stockholders' deficit and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provided a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Roaming
Messenger, Inc. and Subsidiary as of June 30, 2006, and the results of their
operations and their cash flows for the year then ended, in conformity with U.S.
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring losses
from operations since inception. This raises substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ HJ Associates & Consultants, LLP
-------------------------
HJ Associates & Consultants, LLP
Salt Lake City, Utah
September 27, 2006
-16-
ROSE, SNYDER & JACOBS
A CORPORATION OF CERTIFIED PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Roaming Messenger, Inc.
We have audited the accompanying consolidated statements of operations,
shareholders' deficit and cash flows of Roaming Messenger, Inc. (a Nevada
Corporation) and Subsidiary for the year ended June 30, 2005. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with the standards established by the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement.
An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of Roaming Messenger, Inc. and Subsidiary for the year ended June 30,
2005 in conformity with accounting principles generally accepted in the United
States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 2 to the
consolidated financial statements, the Company has suffered recurring losses and
negative cash flows from operations that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in note 2. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/Rose, Snyder & Jacobs
A Corporation of Certified Public Accountants
Encino, California
September 16, 2005
-17-
ROAMING MESSENGER, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 2006
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 387,180
Accounts Receivable, net 161,070
Prepaid and Other Current Assets 23,891
-----------------
TOTAL CURRENT ASSETS 572,141
-----------------
PROPERTY & EQUIPMENT, at cost
Furniture, Fixtures & Equipment 89,485
Computer Equipment 498,544
Commerce Server 50,000
Computer Software 8,478
-----------------
646,507
Less accumulated depreciation (399,101)
-----------------
NET PROPERTY AND EQUIPMENT 247,406
-----------------
OTHER ASSETS
Lease Deposit 9,749
Restricted Cash 93,000
Internet Domain, net 1,404
Loan Costs 177,917
-----------------
TOTAL OTHER ASSETS 282,070
-----------------
TOTAL ASSETS $ 1,101,617
=================
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts Payable $ 171,492
Credit Cards Payable 86,219
Accrued expenses 394,071
Bank Line of Credit 342
Deferred Income 61,333
Note Payable 25,000
Customer Deposit 35,808
Derivative Liability-Debenture 598,805
Capitalized Leases, Current Portion 47,245
-----------------
TOTAL CURRENT LIABILITIES 1,420,315
-----------------
LONG TERM LIABILITIES
Convertible Debenture, net of Beneficial Conversion Feature 879,236
Capitalized Leases 61,565
-----------------
TOTAL LONG-TERM LIABILITIES 940,801
-----------------
TOTAL LIABILIITIES 2,361,116
-----------------
SHAREHOLDERS' DEFICIT
Common stock, $0.001 par value;
495,000,000 authorized shares;
189,803,146 shares issued and outstanding 189,803
Additional paid in capital 5,886,360
Accumulated deficit (7,335,662)
-----------------
TOTAL SHAREHOLDERS' DEFICIT (1,259,499)
-----------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 1,101,617
=================
The accompanying notes are an integral part of these financial statements
-18-
ROAMING MESSENGER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30,
------------ -------------
2006 2005
------------ -------------
REVENUE $ 1,757,685 $ 1,184,212
COST OF SERVICES 441,189 399,265
------------ -------------
GROSS PROFIT 1,316,496 784,947
OPERATING EXPENSES
Selling, general and administrative expenses 2,925,889 2,735,890
Research and development 427,036 397,205
Depreciation and amortization 92,602 113,775
------------ -------------
TOTAL OPERATING EXPENSES 3,445,527 3,246,870
------------ -------------
LOSS FROM OPERATIONS BEFORE OTHER INCOME (EXPENSES) (2,129,031) (2,461,923)
OTHER INCOME/(EXPENSE)
Gain on Settlement 24,000 -
Interest and Other Income 65,733 9,258
Interest Expense (125,054) (26,435)
------------ -------------
(35,321) (17,177)
------------ -------------
LOSS FROM OPERATIONS BEFORE PROVISION FOR TAXES (2,164,352) (2,479,100)
PROVISION FOR INCOME TAXES - -
------------ -------------
NET LOSS (2,164,352) (2,479,100)
============ =============
BASIC AND DILUTED LOSS PER SHARE $ (0.01) $ (0.01)
============ =============
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED 184,846,599 174,247,486
============ =============
The accompanying notes are an integral part of these financial statements
-19-
ROAMING MESSENGER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
FOR THE YEAR ENDED JUNE 30, 2006
Additional
Common Paid-in Accumulated
Shares Stock Capital Deficit Total
----------------- ------------ ----------- ------------- --------------
Balance, June 30, 2004 172,399,614 $172,400 $3,871,738 $ (2,692,210) $ 1,351,928
Issuance of common stock, note 6 8,407,477 8,407 949,308 - 957,716
Issuance of warrants, note 7 129,020 129,020
Net loss - - - (2,479,100) (2,479,100)
----------------- ------------ ----------- ------------- --------------
Balance, June 30, 2005 180,807,091 $ 180,807 $4,950,066 $ (5,171,310) $ (40,437)
Issuance of common stock, note 6
Convertible debenture 3,271,881 3,272 56,728 60,000
Issuance of common stock, note 6 4,579,174 4,579 282,568 287,147
Stock issued for cash
Issuance of common stock, note 6
Stock issued for services 1,145,000 1,145 135,205 136,350
Warrant Compensation 16,828 16,828
Discount on convertible debenture 300,000 300,000
Option Compensation, net 144,965 144,965
Net Loss (2,164,352) (2,164,352)
----------------- ------------ ----------- ------------- --------------
Balance, June 30, 2006 189,803,146 $ 189,803 $5,886,360 $ (7,335,662) $ (1,259,499)
================= ============ =========== ============= ==============
The accompanying notes are an integral part of these financial statements
-20-
ROAMING MESSENGER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
June 30
2006 2005
---------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (2,164,352) (2,479,100)
Adjustment to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 68,048 111,877
Issuance of common shares and warrants for services 136,350 459,482
Gain on Settlement (24,000) -
Beneficial conversion feature 300,000 -
Amortization of loan costs 24,583 -
Cost of warrant and stock options recognized 161,793 -
Derivative expense 590,830 -
Beneficial conversion feature (260,764)
(Increase) Decrease in:
Accounts receivable 17,659 (62,322)
Prepaid and other assets (1,525) (14,043)
Increase (Decrease) in:
Accounts payable 49,847 96,752
Accrued expenses 32,116 (1,838)
Deferred Income 34,666 26,667
Other liabilities (3,625) 185,327
---------------- --------------
NET CASH USED IN OPERATING ACTIVITIES (1,038,374) (1,677,198)
---------------- --------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Restricted Cash - (93,000)
Purchase of property and equipment (61,143) (58,603)
---------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (61,143) (151,603)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on note payable (5,000) (9,500)
Payments on capitalized leases (30,821) (46,526)
Proceeds from line of credit 342
Proceeds from Convertible Debenture, net 997,500 -
Proceeds from issuance of common stock, net of cost 287,147 627,254
---------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,249,168 571,228
---------------- --------------
NET INCREASE IN CASH 149,651 (1,257,573)
CASH, BEGINNING OF PERIOD 237,529 1,495,102
---------------- --------------
CASH, END OF PERIOD 387,180 237,529
================ ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid 41,169 18,580
================ ==============
Taxes paid 1,600 63
================ ==============
SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS During the year ended June 30,
2006, the Company received a $24,000 settlement due to a law suit; during the
year ended June 30, 2006 and 2005, the Company purchased $19,796 and $107,467
of equipment under capital leases respectively. During the year ended June
30, 2006 the Company converted $60,000 of the principal balance of the
convertible debenture in exchange for 3,271,881 shares of common stock.
The accompanying notes are an integral part of these financial statements
-21-
ROAMING MESSENGER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
1. ORGANIZATION
Roaming Messenger, Inc., formerly known as Latinocare Management
Corporation ("LMC), originally known as JNS Marketing, Inc. was
incorporated in Colorado in 1983, and then reincorporated in Nevada.
On April 1, 2003, LMC a publicly traded company, entered into a Plan and
Agreement of Reorganization which resulted in Warp 9, Inc. ("Warp 9")
becoming a wholly-owned subsidiary of LMC. In connection with the
transaction, all officers and directors of LMC resigned and were replaced
by the management team and directors of Warp 9. Subsequently, LMC was
renamed to Roaming Messenger Inc. by the new board of directors. Although
from a legal perspective, Roaming Messenger, Inc. acquired Warp 9, Inc.,
the transaction is viewed as a recapitalization of Warp 9, Inc.,
accompanied by an issuance of stock by Warp 9, Inc. to the shareholders of
Roaming Messenger, Inc. This is because Roaming Messenger, Inc. did not
have operations immediately prior to the transaction, and following the
transaction, Warp 9, Inc. was the operating company.
Warp 9, Inc. is a provider of e-commerce platforms and services for the
catalog and retail industry. Its suite of software platforms is designed to
help online retailers maximize the Internet channel by applying advanced
technologies for online catalogs, e-mail marketing campaigns, and
interactive visual merchandising. Offered on a fully managed
Software-as-a-Service model, Warp 9 products allow customers to focus on
their core business, rather than technical implementations. Warp 9, Inc.
was incorporated in the state of Delaware, under the name of eCommerceland,
on August 27, 1999. The Company, based in Goleta, California, began
operations October 1, 1999. Prior to October 1, 1999, the Company was
operated as WARP 9 Technologies, LLC ("LLC"), a California limited
liability company. LLC was merged with and into eCommerceland effective at
its close of business, September 30, 1999, and on December 21, 2000 changed
its name to Warp 9, Inc. For accounting and reporting purposes, the
"merger" was considered a continuation of the same business, under a
different type of entity. The operations and ownership of Warp 9, Inc. were
substantially the same as LLC. The Company's primary source of income is
service of their Warp 9 contracts, which relates to fully hosted web based
e-commerce software products.
On August 24, 2006, the Company's board of directors and majority of
shareholders voted to change the name of the Company from Roaming
Messenger, Inc. to Warp 9, Inc. to reflect a new strategic plan of focusing
primarily on the business of the Company's wholly owned subsidiary, Warp 9,
Inc. The Company anticipates that it will be able to effectuate the name
change in October 2006.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GOING CONCERN
The accompanying consolidated 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 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. The Company
has funded its operation through the sale of its common stock through
private offerings and equity financing, as discussed in note 6. Management
believes, but there is no assurance, that the Company will obtain the
additional working capital that it needs through the sale of its Common
Stock. The Company has incurred operating deficits since inception, which
are expected to continue until its business model is fully developed.
-22-
ROAMING MESSENGER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ACCOUNTS RECEIVABLE
The Company extends credit to its customers, who are located primarily in
California. Accounts receivable are customer obligations due under normal
trade terms. The Company performs continuing credit evaluations of its
customers' financial condition. Management reviews accounts receivable on a
regular basis, based on contracted terms and how recently payments have
been received to determine if any such amounts will potentially be
uncollected. The Company includes any balances that are determined to be
uncollectible in its allowance for doubtful accounts. After all attempts to
collect a receivable have failed, the receivable is written off.
REVENUE RECOGNITION
The Company recognizes income when the service is provided or when product
is delivered. We present revenue, net of customer incentives. Most of the
income is generated from monthly fees from clients who subscribe to the
Company's fully hosted web based e-commerce products on terms averaging
twelve months. Unless terminated accordingly with prior written notice, the
agreements automatically renew for another term.
We provide online marketing services that we purchase from third parties.
The gross revenue presented in our statement of operations is in accordance
with EITF No. 99-19.
We also offer professional services such as development services. The fees
for development services constitute a separate unit of accounting in
accordance with EITF No. 00-21, and are recognized as the work is
performed.
Upfront fees for development services or other customer services are
deferred until certain implementation or contractual milestones have been
achieved. Deferred income for the fiscal year ended, June 30, 2006, was
$61,333.
For the fiscal year ended, June 30, 2006, monthly fee from web products and
associated service fees account for 42% of the Company's total revenues,
professional services account for 32% and the remaining 26% of total
revenues are from resale of third party products and services.
For the fiscal year ended, June 30, 2005, monthly fee from web products and
associated service fees account for 55% of the Company's total revenues,
professional services account for 23% and the remaining 22% of total
revenues are from resale of third party products and services.
RETURN POLICY
On all service offerings such as web based e-commerce products there are no
returns. Monthly fees are assessed and revenue is recognized at the end of
every month, after service has been provided. Some higher paying customers
may have service level agreements where we guarantee system uptime such as
99.9% of the time per month. If we fall below the agreed upon level of
uptime, we shall credit one day of service fee for each hour our system is
down up to a maximum of one monthly fee. This guarantee only covers
downtime as a result of failure in the Company's hardware, software or
gross negligence. Historical, the Company has not had to issue any credits
for such returns.
COST OF REVENUE
Cost of revenue includes the direct costs of operating the Company's
network, including telecommunications charges and third party internet
marketing charges.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Total research and
development costs were $427,036 and $397,205 for the years ended June 30,
2006 and 2005, respectively.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
-23-
ROAMING MESSENGER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the accompanying financial
statements. Significant estimates made in preparing these financial
statements include the allowance for doubtful accounts, the estimate of
useful lives of property and equipment, the deferred tax valuation
allowance, and the fair value of stock options and warrants. Actual results
could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities are carried
at cost, which approximates their fair value, due to the relatively short
maturity of these instruments. As of June 30, 2006 and 2005, the Company's
capital lease obligations and notes payable have stated borrowing rates
that are consistent with those currently available to the Company and,
accordingly, the Company believes the carrying value of these debt
instruments approximates their fair value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and are depreciated or amortized
using the straight-line method over the following estimated useful lives:
Furniture, fixtures & equipment 7 Years
Computer equipment 5 Years
Commerce server 5 Years
Computer software 3 - 5 Years
Leasehold improvements Length of the lease
Property and equipment assets leased under capitalized leases with an
original cost of $218,179 and $199,418 at June 30, 2006 and 2005,
respectively. Amortization of assets under capitalized leases is included
in depreciation and amortization expense. During the years ended June 30,
2006 and 2005, additions to fixed assets through capitalized leases totaled
$19,796 and $107,467, respectively.
During the year ended June 30, 2005, the Company vacated its premises on
6144 Calle Real in Santa Barbara. The Company recorded an expense for
$23,485, representing the cost of the remaining related leasehold
improvements,
CONCENTRATIONS OF BUSINESS AND CREDIT RISK
The Company operates in a single industry segment. The Company markets its
services to companies and individuals in many industries and geographic
locations. The Company's operations are subject to rapid technological
advancement and intense competition in the telecommunications industry.
Accounts receivable represent financial instruments with potential credit
risk. The Company typically offers its customers credit terms. The Company
makes periodic evaluations of the credit worthiness of its enterprise
customers and other than obtaining deposits pursuant to its policies, it
generally does not require collateral. In the event of nonpayment, the
Company has the ability to terminate services.
ADVERTISING COSTS
The Company expenses the cost of advertising and promotional materials when
incurred. Total advertising costs were $50,751 and $53,147 for the years
ended June 30, 2006 and 2005, respectively.
-24-
ROAMING MESSENGER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
STOCK-BASED COMPENSATION
As of June 30, 2006, the Company adopted Financial Accounting Standards No.
123 (revised 2004), "Share-Based Payment" (FAS) No. 123R, that addresses
the accounting for share-based payment transactions in which an enterprise
receives employee services in exchange for either equity instruments of the
enterprise or liabilities that are based on the fair value of the
enterprise's equity instruments or that may be settled by the issuance of
such equity instruments. The statement eliminates the ability to account
for share-based compensation transactions, as we formerly did, using the
intrinsic value method as prescribed by Accounting Principles Board, or
APB, Opinion No. 25, "Accounting for Stock Issued to Employees," and
generally requires that such transactions be accounted for using a
fair-value-based method and recognized as expenses in our statement of
income. The adoption of (FAS) No. 123R by the Company had no material
impact on the statement of income.
The Company adopted FAS 123R using the modified prospective method which
requires the application of the accounting standard as of June 30, 2006.
Our financial statements as of and for the year ended June 30, 2006 reflect
the impact of adopting FAS 123R. In accordance with the modified
prospective method, the financial statements for prior periods have not
been restated to reflect, and do not include, the impact of FAS 123R.
Stock-based compensation expense recognized during the period is based on
the value of the portion of stock-based payment awards that is ultimately
expected to vest. Stock-based compensation expense recognized in the
consolidated statement of operations during the year ended June 30, 2006,
included compensation expense for the stock-based payment awards granted
prior to, but not yet vested, as of June 30, 2006 based on the grant date
fair value estimated in accordance with the pro forma provisions of FAS
148, and compensation expense for the stock-based payment awards granted
subsequent to June 30, 2006, based on the grant date fair value estimated
in accordance with FAS 123R. As stock-based compensation expense recognized
in the statement of income for the year ended June 30, 2006 is based on
awards ultimately expected to vest, it has been reduced for estimated
forfeitures. FAS 123R requires forfeitures to be estimated at the time of
grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. In the pro forma information
required under FAS 148 for the periods prior to the year ended June 30,
2006, we accounted for forfeitures as they occurred. The stock-based
compensation expense recognized in the consolidated statement of operations
during the year ended June 30, 2006 is $159,545.
Year Ended Year Ended
6/30/2006 6/30/2005
----------------- ----------------
Net loss as reported $ (2,164,352) $ (2,479,100)
Add: Stock-based employee compensation - -
expense included in net reported loss
Deduct: Stock based employee - (13,839)
compensation expense determined under fair value
based method for all awards
----------------- ----------------
Pro forma net loss $ (2,164,352) $ (2,492,939)
================= ================
Basic and diluted pro forma loss per share
As reported $ (0.01) $ (0.01)
================= ================
Proforma $ (0.01) $ (0.01)
================= ================
-25-
ROAMING MESSENGER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
NET LOSS PER SHARE
Net loss per common share is computed using the weighted average number of
common shares outstanding during the periods presented. Options to purchase
shares of the Company's stock under its stock option plan and warrants may
have a dilutive effect on the Company's earnings per share in the future
but are not included in the calculation for 2006 and 2005 because they have
an antidilutive effect in these periods.
INCOME TAXES
The Company uses the liability method of accounting for income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to financial statements carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. The measurement of deferred
tax assets and liabilities is based on provisions of applicable tax law.
The measurement of deferred tax assets is reduced, if necessary, by a
valuation allowance based on the amount of tax benefits that, based on
available evidence, is not expected to be realized.
NEW ACCOUNTING PRONOUNCEMENTS
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity"
which is effective for financial instruments entered into or modified after
May 31, 2003, and is otherwise effective at the beginning of the first
interim period beginning after June 15, 2003. This statement establishes
standards for how an issuer classifies and measures in its statement of
financial position certain financial instruments with characteristics of
both liabilities and equity. It requires that an issuer classify a
financial instrument that is within its scope as a liability (or an asset
in some circumstances) because that financial instrument embodies an
obligation of the issuer. The adoption of SFAS No. 150 did not have a
material effect on the financial statements of the Company.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - an
amendment of ARB No. 43, Chapter 4." SFAS No. 151 seeks to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling
costs and wasted material (spoilage) in the determination of inventory
carrying costs. The statement requires such costs to be treated as a
current period expense. This statement is effective for the company on July
2, 2006. The company does not believe the adoption of SFAS No. 151 will
have a material impact on its financial statements.
In December 2004, the Financial Accounting Standards Board ("FASB") issued
revised Statement 123R, "Share-Based Payment," to be effective for annual
periods beginning after December 15, 2005 for Roaming Messenger, Inc.
Statement 123R requires all share-based payments to employees, including
grants of employee stock options, to be recognized as compensation expense
in the income statement. The cost is recognized over the requisite service
period based on fair values measured on grant dates. The new standard may
be adopted using either the modified prospective transition method or the
modified retrospective method. We are currently evaluating our share-based
employee compensation programs, the potential impact of this statement on
our consolidated financial position and results of operations, and the
alternative adoption methods.
In December 2004, the Financial Accounting Standards Board issued two FASB
Staff Positions - FSP FAS 109-1, Application of FASB Statement 109
"Accounting for Income Taxes" to the Tax Deduction on Qualified Production
Activities Provided by the American Jobs Creation Act of 2004, and FSP FAS
109-2 Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of 2004.
Neither of these affected the Company as it does not participate in the
related activities.
In March 2005, the SEC released Staff Accounting Bulletin No. 107,
"Share-Based Payment" ("SAB 107"), which provides interpretive guidance
related to the interaction between SFAS 123(R) and certain SEC rules and
regulations. It also provides the SEC staff's views regarding valuation of
-26-
ROAMING MESSENGER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
share-based payment arrangements. In April 2005, the SEC amended the
compliance dates for SFAS 123(R), to allow companies to implement the
standard at the beginning of their next fiscal year, instead of the next
reporting period beginning after June 15, 2005. Management is currently
evaluating the impact SAB 107 will have on our financial statements.
In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations" ("FIN 47"). FIN 47 provides
guidance relating to the identification of and financial reporting for
legal obligations to perform an asset retirement activity. The
Interpretation requires recognition of a liability for the fair value of a
conditional asset retirement obligation when incurred if the liability's
fair value can be reasonably estimated. FIN 47 also defines when an entity
would have sufficient information to reasonably estimate the fair value of
an asset retirement obligation. The provision is effective no later than
the end of fiscal years ending after December 15, 2005. The Company will
adopt FIN 47 beginning the first quarter of fiscal year 2006 and does not
believe the adoption will have a material impact on its financial position
or results of operations or cash flows.
In May 2005, the FASB issued FASB Statement No. 154, "Accounting Changes
and Error Corrections." This new standard replaces APB Opinion No. 20,
"Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes
in Interim Financial Statements," and represents another step in the FASB's
goal to converge its standards with those issued by the IASB. Among other
changes, Statement 154 requires that a voluntary change in accounting
principle be applied retrospectively with all prior period financial
statements presented on the new accounting principle, unless it is
impracticable to do so. Statement 154 also provides that (1) a change in
method of depreciating or amortizing a long-lived non-financial asset be
accounted for as a change in estimate (prospectively) that was effected by
a change in accounting principle, and (2) correction of errors in
previously issued financial statements should be termed a "restatement."
The new standard is effective for accounting changes and correction of
errors made in fiscal years beginning after December 15, 2005. Early
adoption of this standard is permitted for accounting changes and
correction of errors made in fiscal years beginning after June 1, 2005 .
The Company has evaluated the impact of the adoption of Statement 154 and
does not believe the impact will be significant to the Company's overall
results of operations or financial position.
3. OBLIGATIONS UNDER CAPITALIZED LEASES
Year Ended
Lessor Description 6/30/2006
------------- ---------------------------------------------- --------------
SBBT Payable in monthly installments of $488
interest at 17%, matures in June, 2009. $ 17,028
SBBT Payable in monthly installments of $281
interest at 16%, matures in November, 2009 8,857
SBBT Payable in monthly installments of $726
interest at 17%, matures in August, 2009 21,140
GE Payable in monthly installments of $551
interest at 17%, matures in September, 2008 13,362
GE Payable in monthly installments of $1206
interest at 17%, matures in September, 2008 30,313
Washoe/BofA Payable in monthly installments of $1513,
interest at 6.8%, matures in April, 2007. 14,669
GE Payable in monthly installments of $710
interest at 12.8%, matures in October, 2006. 3,441
--------------
108,810
Less current portion 47,245
--------------
Long-term portion of obligations under
capitalized leases $ 61,565
==============
-27-
ROAMING MESSENGER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
3. OBLIGATIONS UNDER CAPITALIZED LEASES (continued)
Minimum annual lease payments under capitalized lease obligations at June
30, 2006 are as follows:
2007 59,445
2008 39,036
2009 24,423
2010 8,718
--------------
131,622
Less amount representing Interest 22,812
--------------
108,810
Less current portion 47,245
--------------
Long term portion of capitalized lease obligations $ 61,565
==============
4. NOTE PAYABLE
The Company has a note payable to a vendor in the amount of $50,000,
bearing interest at 10%, with monthly interest payments only. The maturity
date, which was originally October 15, 2001, was subsequently amended to
March 15, 2002. The note was not paid off on its amended maturity date and
is in default. At June 30, 2006, the outstanding principal amount on this
note is $25,000. This note is secured by furniture of the Company. See note
12
5. DEFERRED TAX BENEFIT
At June 30, 2006 the Company has available for federal and state income tax
purposes, cumulative net operating loss carryforwards of approximately
$5,700,000, which expire at dates that have not been determined.
The difference between the Company's effective income tax rate and the
statutory federal rate for the year ended June 30, 2006 relates primarily
to losses incurred for which no tax benefit was recognized, due to the
uncertainty of realization. The valuation allowance was $2,503,490 at June
30, 2006, representing a net increase of $523,200 for the year ended June
30, 2006. Because of statutory "ownership changes" the amount of net
operating losses which may be utilized in future years are subject to
significant annual limitations.
A reconciliation of income tax expense that would result from applying the
U.S. Federal and State rate of 40% to pre-tax income from continuing
operations for the years ended June 30, 2006, with federal income tax
expense presented in the financial statements is as follows.
Year Ended
2006
----------------
Income tax benefit computed
at U.S. federal statutory rate (34%) $ (811,260)
State income taxes, net of benefit federal taxes (143,163)
Non deductible stock compensation 418,860
R&D 11,075
Other 1,260
Less valuation allowance 523,228
----------------
Income tax expense $ -
================
-28-
ROAMING MESSENGER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
5. DEFERRED TAX BENEFIT (continued)
The deferred income tax benefit at June 30, 2006 reflects the impact of
temporary differences between the amounts of assets and liabilities
recorded for financial reporting purposes and such amounts as measured in
accordance with tax laws. The items, which comprise a significant portion
of, deferred tax assets and liabilities are approximately as follows:
Year Ended
2006
----------------
Deferred tax assets:
NOL Carryover 2,284,000
Deferred Income 24,500
R&D Credit 94,900
Officer salaries payable 110,890
Depreciation (10,800)
Less: valuation allowance (2,503,490)
----------------
Deferred income tax asset $ -
================
6. CAPITAL STOCK
During the year ended, June 30, 2006, the Company issued 3,271,881 shares
of common stock ranging from $0.0194 per share to $0.036 per share for the
conversion of the debenture with a value of $60,000; 4,279,174 shares of
common stock issued for cash consideration of $272,147; 300,000 shares of
restricted common stock issued for cash of $15,000; 1,145,000 shares of
common stock issued for services with a fair value of $136,350.
For the fiscal year ended, June 30, 2005, the Company issued 6,875,000
shares of restricted common stock for a net cash consideration of $627,254
as a result of a series of private offerings of common stock ranging from
$0.08 per share to $0.10 per share as well as exercise of stock options.
1,532,477 shares of restricted common stock were also issued for $330,462
of services.
The common stock of Roaming Messenger, Inc. has a par value of $0.001, and
495,000,000 shares are authorized to be issued. The Company is also
authorized to issue 5,000,000 shares of preferred stock with a par value of
$0.001. The rights, preferences and privileges of the holders of the
preferred stock will be determined by the Board of Directors prior to
issuance of such shares.
At June 30, 2005, 22,225,000 shares of common stock were reserved for the
issuance of common stock pursuant to the Stock Option Plan, and 838,500
were reserved for the issuance of common stock pursuant to outstanding
warrants.
7. STOCK OPTIONS AND WARRANTS
In July 10, 2003, the Company adopted the Roaming Messenger, Inc. Stock
Option Plan for Directors, Executive Officers, and Employees of and Key
Consultants to Roaming Messenger, Inc. This Plan, may issue 25,000,000
shares of common stock. Options granted under the Plan could be either
Incentive Options or Nonqualified Options, and are administered by the
Company's Board of Directors. Each options may be exercisable in full or in
installment and at such time as designated by the Board. Notwithstanding
any other provision of the Plan or of any Option agreement, each option are
to expire on the date specified in the Option agreement, which date are to
be no later than the tenth anniversary of the date on which the Option was
granted (fifth anniversary in the case of an Incentive Option granted to a
greater-than-10% stockholder). The purchase price per share of the Common
Stock under each Incentive Option are to be no less than the Fair Market
Value of the Common Stock on the date the Option was granted (110% of the
Fair Market Value in the case of a greater-than-10% stockholder).
-29-
ROAMING MESSENGER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
7. STOCK OPTIONS AND WARRANTS (Continued)
The purchase price per share of the Common Stock under each Nonqualified
Option were to be specified by the Board at the time the Option was
granted, and could be less than, equal to or greater than the Fair Market
Value of the shares of Common Stock on the date such Nonqualified Option
was granted, but were to be no less than the par value of shares of Common
Stock. The plan provided specific language as to the termination of options
granted hereunder.
SFAS 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. The Company also used the
historical industry index to calculate volatility, since the Company's
stock history did not represent the expected future volatility of the
Company's common stock. The fair value of options granted was determined
using the Black Schole method with the following assumptions:
Year Ended Year Ended
6/30/2006 6/30/2005
----------------------------------
Risk free interest rate 3.21% - 4.82% 3.36% - 4.00%
Stock volatility factor 0.31 - 0.53 0.29 - 0.81
Weighted average expected option life 4 years 4 years
Expected dividend yield None None
A summary of the Company's stock option activity and related information
follows:
Year ended Year ended
June 30, 2006 June 30, 2005
------------------------ -------------------------
Weighted Weighted
average average
exercise exercise
Options price Options price
--------- --------- --------- --------
Outstanding -beginning of year 4,234,994 $ 0.11 8,297,494 $ 0.11
Granted 1,200,000 0.12 3,500,000 0.12
Exercised - - 275,000 0.08
Forfeited 225,000 0.09 7,287,500 0.12
Outstanding - end of year 5,209,994 $ 0.11 4,234,994 $ 0.11
========= ========= ========= ========
Exercisable at the end of year 2,632,494 $ 0.11 972,980 $ 0.09
========= ========= ========= ========
Weighted average fair value of
options granted during the year $ 0.12 $ 0.12
========= ========
The Black Scholes option valuation model was developed for use in
estimating the fair value of traded options, which do not have vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
-30-
ROAMING MESSENGER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
7. STOCK OPTIONS AND WARRANTS (Continued)
The weighted average remaining contractual life of options outstanding
issued under the plan as of June 30, 2006 was as follows:
Weighted
Average
Number of remaining
Exercise options contractual
prices outstanding life (years)
-------- ------------- ------------
$ 0.07 100,000 3.50
$ 0.08 1,134,994 1.21
$ 0.10 2,400,000 2.72
$ 0.13 900,000 3.07
$ 0.17 700,000 2.18
STOCK WARRANTS
During the year ended June 30, 2006, Roaming Messenger, Inc. issued
warrants for services valued at $16,828, to purchase shares of common stock
of Roaming Messenger, Inc. These warrants became exercisable on their grant
date. Warrants were granted as follows:
Date Number of shares Maturity date Exercise Price
-------------------- ------------------------ ------------------- ---------------
September 30, 2005 163,500 September 30, 2007 $ 0.10
December 31, 2005 321,000 December 31, 2007 $ 0.10
January 1, 2006 75,000 December 31, 2007 $ 0.10
March 31, 2006 375,000 March 31, 2008 $ 0.10
-----------------------
Total Granted 934,500
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. In connection with the sale of the convertible debenture, 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.
At June 30, 2006, warrants to purchase 11,273,000 shares were outstanding.
8. 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 June 30, 2006 was 12%. As
of June 30, 2006, $342 was borrowed under this line of credit
9. 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
-31-
ROAMING MESSENGER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
9. CONVERTIBLE DEBENTURES (continued)
prior liability of $12,000. A beneficial conversion feature of $100,000,
representing the value of the conversion feature in accordance to EITF
00-27 was recorded for the first installment. Under EITF 00-27, the Company
records a beneficial conversion cost associated with the convertibility
feature of the security that equals the value of any discount to market
available at the time of conversion. This beneficial conversion cost is
recorded at the time the convertible security is first issued and is
amortized over the stated terms.
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. EITF
00-19 is applicable to debentures issued by the Company in instances where
the number of shares into which a debenture can be converted is not fixed.
For example, when a debenture converts at a discount to market based on the
stock price on the date of conversion. In such instances, EITF 00-19
requires that the embedded conversion option of the convertible debentures
be bifurcated from the host contract and recorded at their fair value. In
accounting for derivatives under EITF 00-19, the Company records a
liability representing the estimated present value of the conversion
feature considering the historic volatility of the Company's stock, and a
discount representing the imputed interest associated with the beneficial
conversion feature. The discount is then amortized over the life of the
debentures and the derivative liability is adjusted periodically according
to stock price fluctuations. At the time of conversion, any remaining
derivative liability is charged to additional paid-in capital. For purpose
of determining derivative liability, the Company uses Black Scholes
modeling for computing historic volatility.
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
per share, respectively.
The second installment of $350,000 ($295,000 net of fees) was advanced on
January 27, 2006. A beneficial conversion feature of $87,500 was incurred,
representing the value of the conversion feature in accordance to EITF
00-27.
The last installment of $450,000 ($395,000 net of fees) was advanced on May
9, 2006, after the registration statement was declared effective by the
Securities and Exchange Commission. A beneficial conversion feature of
$112,500, representing the value of the conversion feature in accordance to
EITF 00-27, was incurred at the receipt of this third installment.
The debentures mature on the third anniversary of the date of issuance, and
the Company is not required to make any payments until the maturity dates.
Interest is accrued at 10% per annum on the principal balance outstanding.
At June 30, 2006, the outstanding balance of the debentures were
$1,140,000, and the interest accrued was $43,280.
The convertible debenture is presented net of an unamortized discount of
$260,764 at June 30, 2006. This discount will be amortized to interest
expense over the stated term of the debenture.
-32-
ROAMING MESSENGER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
10. CONCENTRATIONS
For the year ended June 30, 2006, the Company had two customers who
represented approximately 34% of total revenue. For the year ended June 30,
2005, the Company had two customers who represented approximately 42% of
total revenue.
Accounts receivable from two customers represented approximately 35% of
total accounts receivable at June 30, 2006. Accounts receivable from two
customers represented approximately 37% of total accounts receivable at
June 30, 2005.
The Company has a concentration of credit risk for cash by maintaining
deposits with banks, which may at a time exceed insured amounts. At June
30, 2006, the Company had $301,379 exceeding the amount insured by the U.S.
Federal Deposit Insurance Corporation (FDIC).
11. RELATED PARTY TRANSACTIONS
On June 30, 2005, the Company issued 350,000 shares of common stock to Mr.
Tom Djokovich for serving on the Company's Board of Directors through June
30, 2005. An expense of $56,000 was recorded in connection with the
issuance of these shares.
12. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The following is a schedule, by years, of future minimum rental payments
required under operating leases for the facilities and equipment. The lease
for one of the facilities expires in 2010. The following is a schedule of
minimum lease payments for the next four years.
YEARS ENDING RENT PAYMENT RENT INCOME
JUNE 30,
------------ ------------ -----------
2007 $ 176,000 $ 29,000
2008 $ 109,000 $ -
2009 $ 108,000 $ -
2010 $ 109,000 $ -
Total lease expense for the years ended June 30, 2006 and 2005 was $164,161
and $193,708 respectively. The Company is also required to pay its pro rata
share of taxes, building maintenance costs, and insurance in according to
the lease agreement.
During the year ended June 30, 2005, the Company vacated its premises
located at 6144 Calle Real, Santa Barbara, California. The lease expires in
March 2007, therefore the Company is obligated to pay the rent under the
terms of the lease. The Company is subleasing these premises at an agreed
rent amount lower than the rent amount per the original lease, which will
generate a total cumulative shortfall of $99,367 by the end of the lease.
This shortfall has been recognized as an expense for the year ended June
30, 2005, and is included in the accrued expenses.
NOTE PAYABLE IN DEFAULT
The note payable has a default clause that allows the lender to assess late
payment charges in the amount of 10% of the delinquency. Since the Company
did not pay off the entire balance at its due date of March 15, 2002, the
note is currently in default. At June 30, 2006, the outstanding principal
amount on this note is $25,000. The Company has not accrued any delinquent
charges.
-33-
ROAMING MESSENGER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
12. COMMITMENTS AND CONTINGENCIES (continued)
RESTRICTED CASH
The Company has restricted cash in the amount of $93,000. This restricted
cash is used to collateralize a standby letter of credit in favor of the
landlord as part of the Company's lease agreement for its current office
space at 50 Castilian Dr. Santa Barbara, CA 93117. This cash amount is
restricted until the lease expires on June 30, 2010 or when negotiated
down.
LEGAL MATTERS
The Company may be involved in legal actions and claims arising in the
ordinary course of business, from time to time, none of which at the time
are considered to be material to the Company's business or financial
condition.
Furthermore, In February 2006, Jonathan Lei, our Chairman and Chief
Executive Officer, and Bryan Crane, our then 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 these 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 incurred by the Company, (ii) possible departure of senior members of
management and (iii) possible damage to the Company's reputation.
13. SUBSEQUENT EVENT
On August 24, 2006, holders of 106,074,025 shares of the Company's common
stock, or approximately 52.9% of the total issued and outstanding common
stock of the Company, voted to change the name of the Company from Roaming
Messenger, Inc. to Warp 9, Inc., by amending the Company's articles of
incorporation. The Board of Directors of the Company voted unanimously to
implement this shareholder action.
On September 18, 2006, Roaming Messenger, Inc. (the "Company") entered into
an Exclusive Technology License Agreement (the "License Agreement") with
Zingerang, Inc., a Nevada corporation ("Zingerang") pursuant to which the
Company granted an exclusive (including to the exclusion of the Company),
worldwide, sub-licensable, transferable, royalty-bearing right and license
to make, have made, import, use, offer for sale, sell, reproduce,
distribute, display, perform or otherwise exploit the Company's Roaming
Messenger(R) technology, Roaming Messenger(R) and eCapsule(R) trademarks,
and patent application numbers 20060165030, 20060123396, and 20030110097
(the "License") for a period of ten years. In its sole and absolute
discretion, Zingerang may extend the term of the License Agreement for
additional ten year terms by providing written notice to the Company of
such election within thirty (30) days prior to the expiration of the then
current term. In consideration for granting the License to Zingerang, for
each calendar quarter during the term of the License Agreement, the Company
will receive an amount equal to Five Percent (5%) of Gross Sales, as that
that term is defined in the License Agreement (the "Royalties") for such
-34-
ROAMING MESSENGER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006 AND 2005
13. SUBSEQUENT EVENT (continued)
period. The Company will also receive a one-time payment of $100,000 as a
recoupable advance against Royalties. Zingerang may, at its sole and
absolute discretion, pay to the Company, in lieu of ongoing Royalties, a
one-time payment in an amount equal to $500,000 less amounts, not to exceed
$50,000, incurred by Zingerang for legal and filing fees in connection with
the continual prosecution of the Company's three (3) patent applications.
Zingerang has the right to sublicense all or any portion of its rights
under the License Agreement to sublicensees. In light of the Company
granting the worldwide exclusive License to Zingerang, the Company has
laid-off five engineering and marketing personnel who were previously
engaged in the Roaming Messenger business.
On September 18, 2006, the Company subscribed to purchase 40,000,000
founders shares of the common stock of Zingerang for a purchase price of
$0.00025 per share, representing a total purchase price of $10,000.
Pursuant to its subscription agreement with Zingerang (the "Subscription
Agreement"), the Company agreed that it would not sell or offer to sell any
unregistered shares of Zingerang's common stock until a date two (2) years
after a Registration Statement on Form SB-2 is filed by Zingerang and
declared effective by the Securities and Exchange Commission (the "Lock-up
Term"). Upon the expiration of the Lock-up Term, the Company will be
entitled to piggyback registration rights. Zingerang has represented to the
Company that this round of financing in which the Company is participating
will include approximately 59,500,000 additional shares.
-35-
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Rose, Synder and Jacobs, formerly auditors for the Company, was
dismissed as auditor on August 2, 2006. HJ Associates & Consultants, LLP were
engaged as auditors for the Company on August 2, 2006.
The change of accountants was approved by the Board of Directors. The
Company's Board of Directors currently does not have an Audit Committee.
In connection with the audit of the two most recent fiscal years, and
through the date of termination of the accountants, no disagreements exist with
any former accountant on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope of procedure, which
disagreements if not resolved to the satisfaction of the former accountant would
have caused them to make reference in connection with his report to the subject
of the disagreement(s).
The audit report by Rose, Synder and Jacobs for the periods ended June
30, 2005 and June 30, 2004 contained an opinion which included a paragraph
discussing uncertainties related to continuation of the Registrant as a going
concern. Otherwise, the audit reports by Rose, Synder and Jacobs for the fiscal
years ended June 30, 2005 and June 30, 2004 did not contain an adverse opinion
or disclaimer of opinion, nor was qualified or modified as to uncertainty, audit
scope, or accounting principles.
ITEM 8A. 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
annual 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 fiscal year that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
ITEM 8B. OTHER INFORMATION
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, all of which has been advanced. 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 our 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,
which shares would not be required to be registered by the Company. 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 our common stock at $0.08, $0.10 and $0.12 per
share, respectively.
-36-
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 were obligated to use our best efforts to cause
theregistration statement to be declared effective no later than April 27, 2006,
which we accomplished, and to ensure that the registration statement remains in
effect until all of the shares of common stock issuable upon conversion of
thedebentures and exercise of the warrants have been sold.
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.
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 in
September 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.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF EXCHANGE ACT
The following table lists the executive officers and directors of the
Company as of September 30, 2006:
NAME AGE POSITION
Jonathan Lei 34 Chief Executive Officer, President,
Chief Financial Officer, Secretary,
and Chairman
Harinder Dhillon 33 President of Warp 9 Inc. Subsidiary
Louie Ucciferri 45 Director
--------------------
Jonathan Lei has been our Chairman of the Board of Directors, Chief
Executive Officer, President, Chief Financial Officer, and Secretary since April
2003. Mr. Lei received a Bachelor Degree in Electrical and Computer Engineering
from the University of California, Santa Barbara ("UCSB") in 1995 and a Master
of Science Degree in Electrical and Computer Engineering from UCSB in 1996.
While at UCSB, he studied and worked in the field of computer aided design and
development of VLSI and ASIC silicon chips. Mr. Lei was employed by Lockheed
Martin in 1993 where he built data acquisition systems for spacecraft testing.
In 1995, he worked for Intel Corporation where he developed the Triton II
Pentium PCI chipset. From 1995 to 1996, Mr. Lei worked for RC Electronics where
he designed PCI based data acquisition systems. Mr. Lei founded Warp 9, Inc.,
our wholly owned subsidiary in 1996 and in 1998, he negotiated a transaction to
sell Warp 9's consumer ISP division, SBnet, to MindSpring Enterprises. Mr. Lei
was an officer and is a lifetime member of Tau Beta Pi, a national engineering
honor society.
Harinder Dhillon has been our Vice President of Operations since
October 2001 and has been the President of Warp 9 Inc. since July 1, 2005. Mr.
Dhillon joined us in July 2000. Prior to joining us, from 1993 to1998, Mr.
Dhillon served as the Chief Information Officer of Informax Data Systems, an
enterprise systems integrator headquartered in Southern California. Thereafter,
during 1999 until he joined us, he worked as an independent technology
consultant. He has designed, managed, and led the development and deployment of
multi-million dollar enterprise Internet, Intranet and integration projects for
Fortune 500 companies and various government units.
-37-
His client list included Department of Justice, Immigration and Naturalization
Services, US Navy, US Air Force, and the City of Los Angeles. His projects
included enterprise work flow automation, real-time field services,
infrastructure build out, and network and systems integration. Mr. Dhillon
received a Bachelor degree in Electrical and Computer Engineering from the
University of California at Santa Barbara in 1996.
Louie Ucciferri has been one of our directors since 2003 and is
currently the CEO of Regent Capital Group, a NASD registered broker dealer
dedicated to real estate investments. From 1995 to 2004, Mr. Ucciferri served as
the President of Westlake Financial Architects, an investment-banking firm he
founded in 1995 to provide financial and investment advisory services to early
stage companies. He has raised investment capital for both private and public
companies and has created liquidity for investors in the form of public
offerings. Since November 1998, he has also served as President of Camden
Financial Services, a NASD registered broker dealer that serves as the dealer
manager for a real estate company that has raised in excess of $150 million in
equity capital for the acquisition of commercial office properties in southern
California and Arizona.
Under the Nevada General Corporation Law and the Company's Articles of
Incorporation, as amended, the Company's directors will have no personal
liability to the Company or its stockholders for monetary damages incurred as
the result of the breach or alleged breach by a director of his "duty of care".
This provision does not apply to the directors' (i) acts or omissions that
involve intentional misconduct or a knowing and culpable violation of law, (ii)
acts or omissions that a director believes to be contrary to the best interests
of the corporation or its shareholders or that involve the absence of good faith
on the part of the director, (iii) approval of any transaction from which a
director derives an improper personal benefit, (iv) acts or omissions that show
a reckless disregard for the director's duty to the corporation or its
shareholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a director's duties, of a risk
of serious injury to the corporation or its shareholders, (v) acts or omissions
that constituted an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the corporation or its shareholders, or
(vi) approval of an unlawful dividend, distribution, stock repurchase or
redemption. This provision would generally absolve directors of personal
liability for negligence in the performance of duties, including gross
negligence.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
BOARD COMMITTEES
The Board of Directors has not had an Audit Committee since February
2006 when Tom Djokovich, the sole member of the Audit Committee, resigned from
the Company's Board of Directors for personal reasons. Since then, we have not
reappointed an Audit Committee.
AUDITOR INDEPENDENCE
GENERAL. HJ Associates & Consultants, LLP ("HJ") is the Company's
principal auditing accountant firm since August 2006. HJ provided other
non-audit services to the Company. The Company's Board of Directors has
considered whether the provisions of non-audit services are compatible with
maintaining HJ independence.
REPORT OF THE AUDIT COMMITTEE
In February 2006, the sole member of the Company's Audit Committee
resigned from the Board of Directors for personal reasons. The Company has not
reformed the Audit Committee since that time. Accordingly the Company has not
received any reports from the Audit Committee during the fiscal year ended June
30, 2006. The Company's full board of directors is presently performing the
functions of an Audit Committee until a new Audit Committee is formed in the
future.
-38-
COMPLIANCE WITH SECTION 16(A) OF EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and certain persons who own more than 10% of a registered class of
the Company's equity securities (collectively, "Reporting Persons"), to file
reports of ownership and changes in ownership ("Section 16 Reports") with the
Securities and Exchange Commission (the "SEC"). Reporting Persons are required
by the SEC to furnish the Company with copies of all Section 16 Reports they
file.
Based solely on its review of the copies of such Section 16 Reports
received by it, or written representations received from certain Reporting
Persons, all Section 16(a) filing requirements applicable to the Company's
Reporting Persons during and with respect to the fiscal year ended June 30, 2006
have been complied with on a timely basis.
ITEM 10. EXECUTIVE COMPENSATION
DIRECTOR COMPENSATION
Directors receive no cash compensation for their services to the
Company as directors, but are reimbursed for expenses actually incurred in
connection with attending meetings of the Board of Directors.
EXECUTIVE OFFICER COMPENSATION
The following summary compensation table sets forth certain information
concerning compensation paid to our Chief Executive Officer and our most highly
paid executive officers (the "Named Executive Officers") whose total annual
salary and bonus for services rendered in all capacities for the year ended June
30, 2006 was $100,000 or more.
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------------------------------------------------------------------------------
FISCAL OTHER ANNUAL SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION UNDERLYING ALL OTHER
--------------------------- ---- ------ ----- ------------ OPTIONS COMPENSATION
----------- ------------
Jonathan Lei 2006 $138,000 - 0 - - 0 - -0- - 0 -
President, Chief Financial 2005 $138,000 - 0 - - 0 - -0- - 0 -
Officer, and Secretary 2004 $138,000 - 0 - - 0 - -0- - 0 -
Harinder Dhillon 2006 $150,000 (1) $11,371 - 0 - 650,000 (1) - 0 -
President of Warp 9 Inc. 2005 $125,000 $2,894 - 0 - -0- - 0 -
2004 $125,000 $8,714 - 0 - -0- - 0 -
Michael Chuises (2) 2006 $120,000 - 0 - - 0 - -0- - 0 -
Vice President Engineering 2005 $120,000 (2) - 0 - - 0 - 1,000,000 (1) - 0 -
2004 - - 0 - - 0 - -0- - 0 -
------------------------
(1) Effective March 1, 2006, Mr. Dhillon's base annual salary was increased
to $200,000 from $125,000. In addition, he has a performance bonus plan
for earning up to $150,000 based on the profitability of the Warp 9
operation over the subsequent 12 months. In July 2005, Mr. Dhillon
received a cashless stock option grant to purchase 650,000 shares of
unregistered common stock at an exercise price equal to the fair market
value of common stock at the time grant, which was $0.13 per share.
-39-
(2) Mr. Chuises was promoted to Vice President of Engineering on October 1,
2004, with a base salary of $120,000. On April 15, 2005, Mr. Chuises
was granted 1,000,000 stock options to purchase unregistered common
stock at an exercise price equal to the fair market value of
unregistered common stock at the time grant, which was $0.10 per share.
Prior to his promotion, Mr. Chuises had 450,000 options at an exercise
price of $0.08 and 550,000 options at an exercise price of $0.17. Due
to a lay-off of Roaming Messenger staff, Mr. Chuises' employment was
terminated on September 13, 2006.
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table sets forth information with respect to options to
purchase common stock of the Company granted to the Company's officers during
fiscal year 2006.
PERCENT OF TOTAL
OPTIONS GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED FISCAL YEAR PER SHARE DATE
----------------------------------------------------------------------------------------------
Harinder Dhillon 650,000 (1) 54% $0.13 Four years from the
President, Warp 9 Inc. date of grant
-----------------
(1) These stock options were fully vested at the time of grant.
FISCAL YEAR-END OPTION EXERCISES
The following table sets forth information with respect to options to
purchase common stock of the Company held by the Company's executive officers at
June 30, 2006.
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS
JUNE 30, 2006 AT JUNE 30, 2006 (2)
------------- --------------------
SHARES
ACQUIRED
UPON
NAME EXERCISE VALUE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ----------------- ----------- ------------- ----------- -------------
Harinder Dhillon -0- -0- 650,000 -0- -0- -0-
President, Warp 9 Inc.
--------------------
(1) The value realized is the difference between the market price of the common
stock on the date of exercise and the exercise price of the stock option.
The underlying securities held upon exercise are unregistered common stock.
(2) The value of unexercised "in-the-money" options is the difference between
the market price of the common stock on June 30, 2006 ($0.02 per share) and
the exercise price of the option, multiplied by the number of shares
subject to the option. The underlying securities held upon exercise are
unregistered common stock.
EMPLOYMENT AGREEMENTS
The Company has not entered into any employment agreements with its
executive officers to date. The Company may enter into employment agreements
with them in the future.
-40-
STOCK OPTION PLAN
On July 10, 2003, the Board of Directors of the Company adopted the
2003 Stock Option Plan for Directors, Executive Officers, Employees and Key
Consultants of the Company (the "2003 Plan"). The 2003 Plan was ratified by the
shareholders of the Company by written consent effective August 25, 2003. The
2003 Plan authorizes 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. To date, 5,209,994 options to purchase 5,209,994 shares of common stock
at volume weighted average price of $0.11 per share granted under the 2003 Plan
are outstanding. To date, 2,775,000 options have been exercised.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the names the executive officers and
directors of the Company and all persons known by the Company to beneficially
own 5% or more of the issued and outstanding common stock of the Company at
September 30, 2006.
NAME, TITLE AND ADDRESS NUMBER OF SHARES BENEFICIALLY OWNED(1) PERCENTAGE OWNERSHIP
----------------------------------------- -------------------------------------- --------------------
Jonathan Lei
President, Chief Financial Officer,
Secretary, and Chairman 95,639,025 47.70%
Harinder Dhillon
Senior Vice President
(President of Warp 9 Inc.) 2,935,000 1.46%
Louie Ucciferri
Director 3,500,000 1.75%
All current Executive Officers as a Group 98,574,025 49.16%
All current Directors who are not Executive
Officers as a group 3,500,000 1.75%
------------------------------
(1) Except as pursuant to applicable community property laws, the persons
named in the table have sole voting and investment power with respect
to all shares of common stock beneficially owned. The total number of
issued and outstanding shares and the total number of shares owned by
each person does not include unexercised warrants and stock options,
and is calculated as of September 30, 2006.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no related party transactions for the fiscal year ended June 30,
2006.
-41-
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT 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)
4.3 Convertible Debenture dated December 28, 2005 (3)
4.4 Form of $0.08 Warrant (3)
4.5 Form of $0.10 Warrant (3)
4.6 Form of $0.12 Warrant (3)
5.1 Opinion of Sichenzia Ross Friedman Ference LLP(3)
10.1 First Agreement and Plan of Reorganization between Latinocare Management Corporation,
a Nevada corporation, and Warp 9, Inc., a Delaware corporation (4)
10.2 Second Agreement and Plan of Reorganization between Latinocare Management Corporation,
a Nevada corporation, and Warp 9, Inc., a Delaware corporation (5)
10.3 Exchange Agreement and Representations for shareholders of Warp 9, Inc.(4)
10.4 Securities Purchase Agreement dated as of March 28, 2005 between Roaming Messenger,
Inc. and Wings Fund, Inc.(6)
10.5 Periodic Equity Investment Agreement dated as of March 28, 2005 between Roaming
Messenger, Inc. and Wings Fund, Inc.(6)
10.6 Registration Rights Agreement dated as of March 28, 2005 between Roaming Messenger,
Inc. and Wings Fund, Inc.(6)
10.7 Securities Purchase Agreement dated December 28, 2005 between the Company and Cornell
Capital Partners LLP (3)
10.8 Investor Registration Rights Agreement dated December 28, 2005 (3)
10.9 Insider Pledge and Escrow Agreement dated December 28, 2005 by and among the Company,
Cornell and David Gonzalez as escrow agent (3)
10.10 Security Agreement dated December 28, 2005 by and between the Company and Cornell (3)
10.11 Escrow Agreement Dated December 28, 2005 by and among the Company, Cornell and David
Gonzalez, as Escrow Agent (3)
10.12 Irrevocable Transfer Agent Instructions (3)
10.13 Exclusive Technology License Agreement, dated September 18, 2006 (8)
10.14 Subscription Agreement with Zingerang Inc., dated September 18, 2006 (8)
21 List of Subsidiaries(7)
23.1 Consent of Rose, Snyder & Jacobs*
(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 in the
Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on December 29, 2005.
(4) 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.
(5) 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.
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(6) Incorporated by reference to exhibits filed with the Company's
Current Report on Form 8-K filed with the Securities and Exchange
Commission dated March 30, 2005.
(7) Previously filed
(8) Incorporated by reference to exhibits filed with the Company's
Current Report on Form 8-K filed with the Securities and Exchange
Commission dated September 22, 2005.
* Filed Herewith
(b) The following is a list of Current Reports on Form 8-K filed by the Company
during and subsequent to the last quarter of the fiscal year ended June 30,
2006.
(1) Form 8-K, dated December 28, 2005 filed with the SEC
describing the Securities Purchase Agreements between Roaming
Messenger, Inc. and Cornell Capital Partners, LLP.
(2) Form 8-K, dated February 23, 2006 filed with the SEC
reflecting the resignation of Tom Djokovich as Director.
(3) Form 8-K, dated August 2, 2006 filed with the SEC reflecting
the change of the Company's auditors.
(4) Form 8-K, dated September 22, 2006 filed with the SEC
describing the Exclusive Technology Licensing Agreement
between Zingerang, Inc. and Roaming Messenger, Inc.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
HJ & Associates, LLC ("HJ") is the Company's principal auditing
accountant firm since August 2006. HJ provided other non-audit services to the
Company. The Company's Board of Directors has considered whether the provisions
of non-audit services is compatible with maintaining HJ independence.
Prior to August 2006, the Company's principal auditing accounting firm
was Rose Snyder & Jacobs, CPAs ("RSJ"). The Audit Committee approved the
engagement of RSJ before RSJ rendered audit and non-audit services to the
Company.
AUDIT FEES
An aggregate of $60,248 was billed by our auditors for the following
professional services: audit of the annual financial statement of the Company
for the fiscal year ended June 30, 2005, and review of the interim financial
statements included in quarterly reports on Form 10-QSB for the periods ended
September 30, 2005, December 31, 2005, and March 31, 2006.
TAX FEES
HJ has not yet provided tax return preparation services for the Company
for the fiscal year ended June 30, 2006, and therefore has not billed the
Company for those services.
ALL OTHER FEES
Our auditors billed the Company $9,574 for other services, including
response to SEC comments to our registration statements during the fiscal year
ended June 30, 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: April 24, 2007 Warp 9, Inc.
(formerly known as Roaming Messenger, Inc.)
By: \s\ Harinder Dhillon
------------------------------------
Harinder Dhillon, President and Chief
Executive Officer, Director
(principal executive officer)
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\ Harinder Dhillon Dated: April 24, 2007
--------------------------------------
Harinder Dhillon, President and Chief
Executive Officer, Director
(principal executive officer)
By: \s\ Louie Ucciferri Dated: April 24, 2007
--------------------------------------
Louie Ucciferri, Chairman, Corporate Secretary,
Acting Chief Financial Officer
(principal financial/accounting officer)
By: \s\ Kin Ng Dated: April 24, 2007
--------------------------------------
Kin Ng, Director
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