M2 Communications is also doing Wi-Fi rollouts and maintenance for third parties through its IT services business. One such example is the build out in 2012/2013 for AT&T of Wi-Fi networks in various New York public parks. It was paid for the rollout by AT&T, and is paid a monthly recurring fee from them for the broadband connectivity. The M2 Communications and M2 nGage subsidiaries of SPHC were transferred to a new holding company, Digital Media Acquisition Group Corp. (DMAG), and DMAG is the 100% shareholder of both subsidiaries. The Company is the sole owner of DMAG.
SignalShare Operations
SignalShare was created to meet the demand for mobile Wi-Fi access as suchusers increase their integration of digital technology into their daily lives. The proliferation of Wi-Fi enabled mobile devices has a tariff filed with the Colorado Public Utility Commission that allows itdramatically grown and will continue to expand. Signal Share offered new products and services designed to provide traditional land line services throughout Colorado. Cardinal Broadband offers “bundled” service wherever possible, meaning that they can provide telephone, television,permanent and internet servicetemporary Wi-Fi and data collection and analysis for live sporting and entertainment events. Signal Share provided all of the technology, infrastructure and resources necessary to construct a broadband wireless network for an event. Regardless of the same customer, allowinglocation, event type or duration, Signal Share connected fans in a single pointwhole new way.
On July 5, 2016, SignalShare, LLC filed for bankruptcy voluntarily pursuant to Chapter 7 of contact for customer service the Bankruptcy Code. The case was filed in the U.S. Bankruptcy Court, District of New Jersey and a single invoice for multiple services.is captioned case no. 16-23003.
Arista Communications, LLC
Arista Communications, LLC is a joint venture between Cardinal Broadband and Wiens Real Estate Ventures, LLC, with each entity having a 50% membership interest.
Wiens is the developer of the Arista residential/retail/office development in Broomfield, Colorado. The joint venture was formed to provide telecommunication services to the Arista community. Arista Communications provides telephone, television, and internet connectivity to the residents and businesses of the Arista development, including the 1st1st Bank Center, an 8,000-seat music and sports venue. Roomlinx ownsThe Company owned a 50% membership interest in Arista Communications through its Cardinal Broadband division. Cardinal Broadband manages the operations of Arista Communications. The financial statements of Arista Communications, LLC are consolidated with Roomlinxthe Company in accordance with ASC Topic 810, Consolidation. The Company's interest in Arista Communications, LLC were sold as part of the Cardinal Broadband sale agreement effective May 1, 2016.
The Company’s primary business isof SSI focused on providing in-room media, entertainment, and HD television programming solutions along with wired networking solutions and Wireless Fidelity networking solutions, also known as Wi-Fi, for high speed internetInternet access to hotels, resorts, and time share properties. The Company also providesprovided both wired and wireless internetInternet access, HD satellite television service, and telephone service both Plain Old Telephone Service (“POTS”("POTS") and Voice over Internet Protocol (“VOIP”("VOIP"), to residential and business customers.
On May 3, 2016 at 10:00 A.M. (Local Time) Cenfin, the senior secured lender of SSI, sold all right, title and interest in substantially all personal property of SSI to the highest qualified bidder at a public auction pursuant to Article 9 of the Uniform Commercial Code. The auction took place at the offices of DLA Piper LLP, 203 N. LaSalle Street, Chicago, Illinois 60601. There was one bidder and the transaction closed on May 11, 2016 and all employees of SSI were terminated and the operations of SSI ceased
Hyatt Master Services Agreement
On March 12, 2012, the Company and Hyatt Corporation ("Hyatt") entered into a Master Services and Equipment Purchase Agreement (the "MSA") pursuant to which SSI agreed to provide in-room media and entertainment solutions, including its proprietary Interactive TV (or iTV) platform, high speed internet, free-to-guest, on-demand programming and related support services, to Hyatt-owned, managed or franchised hotels that are located in the United States, Canada and the Caribbean. Under the MSA, Hyatt will use its commercially reasonable efforts to cause its managed hotels to order the installation of the Company's iTV product in a minimum number of rooms in Hyatt hotels within certain time frames.
On November 16, 2015, SSI entered into a Settlement, Mutual Release, and Indemnification Agreement (the "Settlement Agreement") with Hyatt which had claimed that the Company had breached the MSA and various Hotel Services and Equipment Purchase Agreements (the "HSAs"). Pursuant to the terms of the Settlement Agreement, the parties terminated various HSAs and SSI agreed to sell and assign iTV services for the remainder of the amended HSAs to third party providers and to provide Transition Services (as defined) for up to ninety (90) days after an HSA is terminated. All of such administrative costs for such services are capped at $250,000 and shall be deducted from the deposits currently on hand with SSI, for which Hyatt had demanded repayment.
The Company measures its performance and recurring revenue trend based onparties agreed to extend the numberterms of revenue generating units (“RGUs”) in service. Regarding the hospitality sector, a hotel room may have one or more RGUs. An RGU is defined as a product or serviceamended HSAs for which we invoice the hotel monthly, including interactive television, video on demand, free to guest programming, and high speed internet access. Residential properties may also have more than one RGU, which includes telephone, internet and television. As of December 31, 2013, the Company was servicing approximately 64,000 RGUs within the hospitality sector, and 14 residential communities and small businesses representing an additional 2,400 RGUs.
Residential Media and Communications
We provide residential and business customers telecommunication services including telephone, satellite television, and wired and wireless internet access. Telephone service is provided through traditional, analog “twisted pair”"twisted pair" lines, as well as digital “VoIP”"VoIP". Analog phone service is typically provided via an interconnection agreement with CenturyLink, Inc., which allows the Company to resell CenturyLink service through their wholesale and retail accounts with CenturyLink. VoIP service is provided at properties where the Company maintains a broadband internet service to the end customer, allowing the Company to provide digital phone service (VoIP) over the same lines as their internet service.
Television service is typically provided via the Company’sCompany's agreements with DISH Network and DirecTV. Most television service is provided via a head-end distribution system, or an L-Band digital distribution system. Television service is offered in high definition whenever possible.
Internet service is provided via both wired and wireless network design. The Company provisions and manages broadband access to the residential customers through both wholesale and resale methods. Wholesale methods exist when the Company owns and controls the internet circuit and resale methods exist when the Company uses an affiliated third party to provide the internet circuit.
● | Network design and installation services |
● | Delivery of telephone service (billed monthly) |
● | Delivery of Internet service (billed monthly) |
● | Delivery of television service (billed by the satellite provider with monthly commissions paid to the Company) |
Many of our existing and potential competitors may have greater financial, technical, marketing and distribution resources than we do. Additionally, many of these companies may have greater name recognition and more established relationships with our target customers.
Product Development
We seek to continually enhance the features and performance of our existing products and services. In addition, we are continuing to evaluate new products to meet our customers’customers' expectations of ongoing innovation and enhancements.
Our ability to meet our customers’customers' expectations depends on a number of factors, including our ability to identify and respond to emerging technological trends in our target markets, develop and maintain competitive products, enhance our existing products by adding features and functionality that differentiate them from those of our competitors and offering products on a timely basis and at competitive prices. Consequently, we have made, and we intend to continue to make, investments in product development.
Patents and Trademarks
We own the registered trademarks of “SuiteSpeed®"SuiteSpeed®,” “SmartRoom®" "SmartRoom®,”" and “Roomlinx®"Roomlinx®.”" We also have proprietary processes and other trade secrets that we utilize in our business.
Customer Support Systems
We provide live support from our call centers 24 hours a day, seven days per week, and 365 days a year. Support representatives are specifically trained to enable them to offer customers customized support depending on the product or service at issue. We utilize industry standard coaching and employee development and training programs to help achieve high quality customer interactions. As such, most callers will reach a live representative in less than one minute and, when they do; trained agents work to address any concerns or issues on that very first call into the support system. Customer care operations strive to ensure first call resolutions are over 80% for customer issues and those issues escalated to a higher level are handled quickly by senior engineers. Customer care centers cater to the diverse needs and preferences of its customers.
Network Architecture and Deployment
We offer an integrated voice and data network as an advanced and secure network, sophisticated voice and data applications, as well as outstanding, reliability, redundancy, and security. The diversity and resiliency of our network are designed to insulate customers from network failures by providing diverse network access points in each market and multiple private peering arrangements. All of this is supported by power backup and a self-healing high capacity fiber optic backbone. We are able to manage and control the entire network: equipment, points of presence, and fiber optic backbone—providing customers with reliability, high availability service, and security. We believe that such network deployment strategies will allow it to enter new markets rapidly and to offer customers flexible technological solutions tailored to their specific needs.
Our network was built from the ground up by professionals with many years of combined engineering and design experience in voice and data technologies. This network infrastructure and operations support systems enable it to control the types of services that it offers, how these services are packaged and how they are integrated to serve customers. Through the installation of IP routers at its switch sites, we deploy packet-based technology to augment its traditional circuit-switching technology. Its customer-specific voice and data solutions are driven by customer preferences and priorities, as it strives to provide industry-leading packet delivery, latency, and backbone availability over its core IP network, enabling rapid, secure, and accurate transmissions. By providing the latest in IP technologies, we seek to maintain an advanced architecture that supports converged technologies. This allows it to deliver cutting-edge products, features and services to customers efficiently over a single, next-generation network—including unified messaging, IP video and trunking, presence management, and online feature management—allowing customers to combine voice and data services to increase efficiency and reduce costs.
We rely on various equipment vendors and integration partners to provide us with equipment and services to offer our services. We anticipate that these vendors have adequate supply and technology to meet our deployment and institutional needs. Moreover, SignalShare Software Development Corp. has its own development team associated with its products.
We provide pro-active, real-time monitoring to protect customer services. Our Network Operations Command Center (NOCC) in Hackensack, New Jersey provides 24/7/365 surveillance of its network elements to support our customers' services. The NOCC is equipped with proactive monitoring tools to ensure quick identification and resolution of network issues. In addition to this constant surveillance of individual network elements, we will perform routine equipment audits to ensure reliability. The network is highly sectionalized, with remote access to all devices that allows us to communicate with devices such as modems and routers to speed detection and repair. We employ the latest telecommunications standards to ensure that we maintain the low mean-time-to-repair performance. In addition, it adheres to stringent "maintenance window" schedules, where repairs are done overnight to minimize or eliminate any impact on its customers. The NOCC provides advanced, "always-on" monitoring for latency, jitter, utilization and packet loss in real time. Customer Premise Equipment, local loops and backbone elements are constantly under surveillance with proactive monitoring systems for fast failure detection and recovery. Because of these capabilities, many problems are identified and rectified before customers are even aware there is an issue. Our highly trained staff is provided with the right tools, training and state-of-the-art equipment to maintain network reliability and keep the network and its customers up and running.
Stringent Security Regulations.
We meet the most demanding security standards and regulations to safeguard customers' critical data and processes against disruption, and provide privacy protection. For example, M2 Communications complies with the FCC's stringent Customer Network Proprietary Information, or CPNI, standards that safeguard customer proprietary information and prevent "data mining."
Competition
The primary competitors in the Merger Agreement, the Merger Subsidiary will be merged withmarketplace include hardware manufacturers of access points and into Signal Point, a provider of domesticswitches, Incumbent Local Exchange Carriers, or ILECs, such as Verizon and AT&T, and other national and international telecommunications services, with Signal Point continuingproviders such as Level 3 Communications, LLC, XO Communications and Cogent Communications, Inc. Additionally; regional and local providers such as Broadview Networks, Inc. and Paetec/Windstream, GuestTek and Sonifi also compete in some of our market offerings. Although many are much larger organizations, they may be less apt to handle the surviving entitysmall to mid-size market that is SPHC's focus. The Company believes that it is able to compete effectively in the Merger asmarketplace by solution oriented sales, personal and prompt client support and services, and competitive pricing. It further believes that its technology and offerings are well positioned to compete in this marketplace, provide a wholly-owned subsidiarysuperior experience for end users, and provide for the most efficient use of network resources. While there are other companies offering such services, M2 Communications is one of a limited number of companies that has the Company (the “Merger”).
Regulatory Obligations
In 2015, the FCC reversed its previous rulings that Internet services are interstate information services that are not subject to regulation as a minimumtelecommunications service under federal law or to state or local utility regulation. The FCC determined that broadband providers are common carriers subject to FCC regulation similar to telephone providers, but decided to forbear much of the more onerous regulations applicable to telephone providers. Accordingly, our broadband Internet services are, therefore, not subject to many of the regulatory requirements imposed on wireless and wireline telecommunications service providers. For example, we are not currently required to contribute a percentage of gross revenues from our Internet access services to the universal service funds used to support local telephone service and advanced telecommunications services for schools, libraries and rural health care facilities. Our wireless broadband Internet services are, however, subject to a number of roomsfederal regulatory requirements, including the Communications Assistance for Law Enforcement Act ("CALEA") requirement that high-speed Internet service providers implement certain network capabilities to assist law enforcement in Hyatt hotels within certain time frames.conducting surveillance of persons suspected of criminal activity and the FCC's CPNI rules.
With respect to services based on customer analytics raises privacy concerns that can impact state and federal law pertaining to personal information and data protection depending on if the data is personally identifiable or non-personally identifiable. Monitoring of programs to insure that personally identifiable information is not disclosed will be necessary to insure the company does not violate state and federal law. Moreover, data collection associated with minors may impose differing and more stringent obligations on our use of such data. Our terms of service with customers and users will require proper disclosure of our uses of the information in order to obtain proper consent from users and customers in order to avoid privacy concerns and potential consumer protection law violations.
Intellectual Property
To protect its proprietary rights, we rely on a combination of trademark, copyright, patent, trade secret and Hyatt mutually agreed to suspend certain Hyatt obligations under the MSA that had not been met, including the suspension of the obligations of Hyatt to cause a certain number of rooms in both Hyatt ownedother intellectual property laws, employment, confidentiality and managed properties to place orders for Roomlinx’s iTV products within certain time frames. At the time of the December 2012 suspension of these Hyatt obligations, the Company had installed certain servicesinvention assignment agreements with its employees and products in approximately 19,000 rooms (including approximately 9,000 installs of its iTV product) in Hyatt hotels. During the year ended December 31, 2013, the Company completed the installation of approximately 1,000 additional rooms. contractors, and confidentiality agreements and protective contractual provisions with our partners, licensees and other third parties.
Trademarks. As of December 31, 20132015, SPHC maintained the following trademarks: "SignalPoint Communications" and 2012, deposits received"SignalPoint". Roomlinx, Inc. maintains the following trademarks: "Roomlinx" and "SmartRoom."
Copyrights. SPHC has not registered any copyrights. All works of original authorship fixed in a tangible form that may exist are unregistered.
Patents. We maintain one patent for "Communications System and Call Forwarding Management" Patent No. US 8,036,362 B1. The Company's M2 nGage subsidiary has filed one provisional patent for "A One-Tap Operation on statementsMobile Device Touchscreens to Instantly Send a New Text Message Chosen From a User-Customizable Set of workPhrases Displayed in a Keyboard-like Grid."
Other Materials. From time to time, employees will report on potential intellectual property opportunities for Hyatt properties are recordedthe company. These opportunities may include new product and service offerings, and potential proprietary information association with such services which may warrant application for formal IP protection. Regarding potential patentable material, personnel will conduct interviews with the inventors, may perform initial prior art searches, and if a determination is made that the proprietary material is valuable enough to the company to warrant patent protection, such applications will be made with the assistance of third-party patent counsel with support of our own in-house counsel. In addition, the company will also seek to maintain certain intellectual property and proprietary know-how as customer deposits in the accompanying balance sheet in the amounttrade secrets, and generally require our partners to execute non-disclosure agreements prior to any substantive discussions or disclosures of approximately $1,295,000 and $1,125,000, respectively.our technology.
Employees
As of March 15, 2014August 25, 2016, we had a totalapproximately 33 employees companywide; however, the number of 38 full-time personnel and one part-time employee.employees may increase or decrease as we deem fit. None of our employees are covered byis subject to a collective bargaining agreement or an employment agreement. .
An investment in our companyCompany is very speculative and involves a very high degree of risk. An investment in our company is suitable only for the persons who can afford the loss of their entire investment. Accordingly, investors should carefully consider the following risk factors, as well as other information set forth in this report, in making an investment decision with respect to our securities. We have sought to identify what we believe to be all material risks and uncertainties to our business and ownership of our common stock, but we cannot predict whether, or to what extent, any of such risks or uncertainties may be realized nor can we guarantee that we have identified all possible risks and uncertainties that might arise. Additional risks and uncertainties that we do not currently know about or that we currently believe are immaterial may also harm our business operations. If any of these risks or uncertainties occurs, it could have a material adverse effect on our business.
Risks Relating to Our Business
We have a history of losses from operations which may continue, and which may harm our ability to obtain financing and continue our operations.
The Company's financial statements reflect that it has incurred significant losses since inception, including net losses of $81,479,644 and $11,996,546 for the years ended December 31, 2015, and 2014, respectively. The Company expects to Consummatecontinue to have losses and negative cash flow for the foreseeable future and it is possible we may never reach profitability. Therefore, there is a significant risk that public investors may lose all or some of their investment.
Our independent auditors have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.
The audit report of our independent auditors dated August 29, 2016 on our consolidated financial statements for the year ended December 31, 2015 included an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern. Our auditors' doubts are based on our recurring net loss of $81.5 million, and negative cash generated from operating activities of $4.6 million for the year ended December 31, 2015 and our negative working capital of $30.0 million as of December 31, 2015. Our ability to continue as a going concern will be determined by our ability to improve our business profitability, our ability to generate sufficient cash flow from our operations and our ability to obtain additional funding in the short term to meet our operating needs and the current portion of our required obligation payments for the next twelve months from the date of this report. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Our Subsidiary Merger with Signal Point Holdings Corp. Could Have an Adverse Effect on Our Operationscaused some disruption of our business, has diluted our stockholders and may harm our business, financial condition or operating results.
We cannot assure you that we will successfully integrate all of our business. In addition, we cannot assure you that, our continued business will achieve sales levels, profitability, efficiencies or synergies that justify acquisition or that the Exchange Act to be disclosed therein. The Companyacquisition will also discloseresult in the 8-K Amendment additional information regarding Signal Point and the post-merger management and stockholders of the Company, including but not limited to, information regarding security ownership of certain beneficial owners and management, directors and executive officers (including compensation thereof), and management’s discussion and analysis ofincreased earnings for us in any future period. These factors could have a material adverse effect on our business, financial condition, prospects and results of operations.operating results.
We Have Only a Limited Operating History, Which Makes It Difficult to Evaluate an Investment in Our Common Stock.
We have only a limited operating history upon which our business, financial condition and operating results may be evaluated. We face a number of risks encountered by early stage technology companies that participate in new technology markets, including our ability to:
| ● | Maintain our engineering and support organizations, as well as our distribution channels; | |
| ● | Negotiate and maintain favorable rates with our vendors; |
| ● | Retain and expand our customer base at profitable rates; | |
| ● | Recoup our expenses associated with the wireless devices we resell to subscribers; |
| ● | Manage expanding operations, including our ability to expand our systems if our subscriber base grows substantially; | |
| ● | Attract and retain management and technical personnel; | |
| ● | Find adequate sources of financing; and |
| ● | Anticipate and respond to market competition and changes in technologies as they develop and become available. |
We may not be successful in addressing or mitigating these risks and uncertainties, and if we are not successful our business could be significantly and adversely affected.
Both our management and our independent registered public accounting firm have identified material weaknesses in our internal control over financial reporting. If we are unable to correct these weaknesses, our ability to accurately and timely report our financial results or prevent fraud may be adversely affected, and investor confidence and the market price of our shares may be adversely impacted.
The Securities and Exchange Commission, or the SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, adopted rules requiring every public company to include a management report on such company’scompany's internal control over financial reporting in its annual report, which contains management’smanagement's assessment of the effectiveness of the company’scompany's internal control over financial reporting. In addition, if in future years, we were to meet certain market capitalization and other benchmarks, our independent registered public accounting firm would also report on the effectiveness of our internal control over financial reporting. As of December 31, 2013,2015, our management concluded that our internal control over our financial reporting was not effective.as effective as they can be.
In connection with their audit of our consolidated financial statements for the year ended December 31, 2013,2015, our management and our independent registered public accounting firm identified and communicated to us material weaknesses in our internal control over financial reporting as defined in the standards established by the U.S. Public Company Accounting Oversight Board ("PCAOB") that there is reasonable possibility that a material misstatement in our annual or interim consolidated financial statements would not be prevented or detected on a timely basis by our internal controls. The material weaknesses identified by our independent auditors include lack of adequate resources and experience within the accounting and finance department to ensure timely identification, resolution and recording of accounting matters.
Although we have adopted a remediation plan to improve our internal control over financial reporting, the plan may not be sufficient to overcome these material weaknesses. We will continue to implement measures to remedy these material weaknesses as well as other deficiencies identified by our independent auditors and us in order to meet the deadline and requirements imposed by Section 404 of the Sarbanes-Oxley Act. If we fail to timely achieve and maintain the adequacy of our internal controls, we may not be able to conclude that we have effective internal control over financial reporting. Moreover, effective internal control over financial reporting is necessary for us to produce reliable financial reports and is important to help prevent fraud. As a result, our failure to achieve and maintain effective internal control over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the market price of our shares.
Risks Related to DMAG, SPHC and their Affiliates Business and Industry
Our market is extremely competitive and we face intense competition from other providers of Our Supplies Are Provided By One Supplier Eachcommunications services that have significantly greater resources.
The remote control devices required to utilizemarket for broadband and VoIP related services is highly competitive and we compete with several companies within each of our services are currently supplied by a single supplier. The contentmarkets. We face competition from several different sources including wireless carriers, incumbent local exchange carriers, cable operators and Internet service providers. Many of these operators have substantially greater resources and greater brand recognition than we have. Further, there is no guarantee that they will not enter the wireless Internet connectivity market and compete directly with us for our unlimited movie services is currently supplied by a single supplier. Therefore, in the event that the supply of any of these items from any of these suppliers was to be interrupted without sufficient notice, it wouldsubscriber base, which could have a material adverse impacteffect on us.our future operations.
Our current or future competitors may provide services comparable or superior to those provided by us, or at lower prices, or adapt more quickly to evolving industry trends or changing market requirements.
We rely on various equipment vendors and integration partners to provide us with equipment and services. M2 Communications entered into a Master Services and Equipment PurchaseUnilateral Wi-Fi Roaming Agreement (the “MSA”) pursuantwith AT&T in New York City to which Roomlinx has agreedoffer AT&T access to provide in-room media and entertainment solutions, including its proprietary Interactive TV (or iTV) platform, high speed internet, free-to-guest, on-demand programming and related support services,M2 Communications' network to Hyatt-owned, managedhave AT&T customers offload the data traffic to M2 Communications' network. This, in turn, frees up the carrier network for more voice calls. We cannot be certain that we will be able to rollout our Wi-Fi network in this manner or franchised hotels that are located in the United States, Canada and the Caribbean. Under the agreement, Hyattit will use its commercially reasonable effortsbe attractive to cause its managed hotelsother carriers. The failure to order the installation of the Company’s iTV product in a minimum number of rooms in Hyatt hotels within certain time frames.
The "Wholesale or "Neutral Host" model may require capital expenditures without having agreements from customers.
Our ability to profitably capture mobile wireless data users in each building is predicated on being able to secure sufficient "wholesale" revenue from wireless carriers who wish to off-load bandwidth from their "out-of-building" networks. We will have to scout locations and enter into or expand their presencewholesale agreements with significant wireless carriers in addition to AT&T to make the television-based interactive services business. Increased competitionwholesale model work. It is likely that we will have to expend substantial capital to deploy our in-building wireless networks before we have additional commitments from wireless carriers to purchase its wholesale services.
The long distance telecommunications industry is highly competitive which may adversely affect our businessperformance.
The long distance telecommunications industry, including VoIP, is intensely competitive and is significantly influenced by the scale, sourcemarketing and volatilitypricing decisions of the larger industry participants. With recent developments in technology, the industry has relatively limited barriers to entry with numerous entities competing for the same customers. Customers frequently change long distance providers in response to the offering of lower rates or promotional incentives by competitors. Generally, our customers will be able to switch carriers at any time to other VoIP providers or traditional long distance telephone companies. We believe that competition in all of our revenue streams,markets is likely to increase. In each of our targeted regions, we will compete primarily on the basis of price (particularly with respect to our sales to other carriers), and also on the basis of customer service and our ability to provide a variety of telecommunications products and services. There can be no assurance that we will be able to compete successfully in the future.
Many of our competitors are significantly larger, have substantially greater financial, technical and marketing resources and larger networks than us and a broader portfolio of services, control transmission lines and have strong name recognition and loyalty, long-standing relationships with our target customers, and economies of scale which can result in a lower cost structuresstructure for transmission and cash flow,related costs. These competitors include, among others, AT&T, Verizon Business, Sprint and may require us to significantly changeVerizon. We will also compete with numerous other long distance providers, some of which focus their efforts on the same customers targeted by us. Increased competition in the United States as a result of the foregoing, and other competitive developments could have an adverse effect on our operations.future business, results of operations, prospects and financial condition.
Our Businessrelationships with vendors, suppliers and customers are material to our operations and many of our contracts with such entities are out of term and in renewal terms.
We contract with many vendors, suppliers and customers that account for significant portions of our revenues or infrastructure. Many of the contracts we acquired upon our acquisition in bankruptcy of Wave2Wave Communications ("W2W") were "out of term" (i.e., the original term of the contract had expired) when we assumed them and are in renewal terms (i.e., the contract is Generally Impactedextended for some period of time depending on its terms) or "evergreen" (i.e., the terms of the former agreement continue while the parties renegotiate the agreement) while the parties negotiate replacement terms. Termination or renegotiation requests associated with these agreements may come at any time and negotiations, especially in the case of complex agreements, such as telecommunications interconnection agreements, can be extended. Any disruptions experienced by Conditions Affectingthese vendors, suppliers and customers as a result of these negotiations or the Hospitality Industry’s Performancesudden termination of an agreement may affect our ability to deliver products or services and impact our revenues and could have an adverse effect on our business.
If third-party vendors fail to deliver equipment or deploy our in-building network, we may be unable to execute our business strategy.
Our resultssuccess will depend on third parties that we do not control to deliver equipment and deploy our in-building network. We rely on other companies to lease or sell to us telecommunications equipment, computer hardware and software, networking equipment and related services that are generally connectedcritical to the performancemaintenance and operation of our network. We cannot be certain that third parties will be successful in their development and deployment efforts. Even if these parties are successful, the hospitality industry, where occupancy rates may fluctuate resulting from various factors. Reductiondelivery and deployment process could be lengthy and subject to delays. If these delays occur, we will be unable to deploy our network for carrier offloading in hotel occupancya timely manner, negatively impacting our business plan and consumer buy rates resulting from business, economicour prospects and results could be harmed.
We do not carry substantial inventories of our products and cannot be assured that we will be able to lease the products and services that we need on a timely basis, or other events, such as generally weak economic conditions, significant international crises, acts of terrorism, war or public health issues, adversely impactsin sufficient quantities. If we are unable to obtain critical services and products in the quantities required by us and on a timely basis, our business, financial condition and results of operations may be materially adversely affected.
We depend on third-party providers whom we do not control to install our integrated access devices at customer locations. We must maintain relationships with efficient installation service providers in current cities and identify similar providers as we will enter new markets in order to maintain quality in our operations.
The installation of integrated access devices at customer locations is an essential step that will enable our customers to obtain our services. We outsource the installation of integrated access devices to a number of different installation vendors in each market. We must insure that these vendors adhere to the timelines and quality that we require to provide our customers with a positive installation experience. In addition, we must obtain these installation services at reasonable prices. If we are unable to continue maintaining a sufficient number of installation vendors in our markets who provide high quality service at reasonable prices to us, we may have to use our own employees to perform installations of integrated access devices. We may not be able to manage such installations effectively using our own employees with the quality we desire and at reasonable costs.
We depend on local telephone companies for the installation and maintenance of our customers' access lines and other network elements and facilities.
Our customers' access lines are sometimes installed and maintained by local telephone companies in each of our markets. If the local telephone company does not perform the installation properly or in a timely manner, our customers could experience disruption in service and delays in obtaining our services. We expect to experience routine delays in the installation of access lines by the local telephone companies to our customers in each of our markets, although these delays are not expected to result in any material impact to our ability to compete and add customers in our markets. Any work stoppage action by employees of a local telephone company that provides our services in one of our markets could result in substantial delays in activating new customers' lines and could materially harm our future operations. Furthermore, we are also dependent on traditional local telephone companies for access to their collocation facilities and we utilize certain of their network elements. Failure of these elements or damage to a local telephone company's collocation facility would cause disruptions in our service.
System disruptions could cause delays or interruptions of our service, which could cause us to lose customers or incur additional expenses.
Our success depends on our ability to provide reliable service. Although our network service is designed to minimize the possibility of service disruptions or other outages, our service may be disrupted by problems on its system, such as malfunctions in its software or other facilities, overloading of its network and problems with the systems of competitors with which we interconnect, such as physical damage to telephone lines and power surges and outages. Any significant disruption in its network could cause it to lose customers and incur additional expenses.
We depend on key personnel and our ability to hire and retain sufficient numbers of qualified personnel.
We rely heavily on the expertise, experience and continued services of Aaron Dobrinsky, our Chairman of the Board, Christopher Broderick, our Chief Operating Officer, Andrew Bressman, Managing Director and Head of Corporate Development, as well as other key employees. Although Messrs. Broderick and Bressman are employed under employment contracts, the loss of any of their services and the inability to replace any of them and/or attract or retain other key individuals, could materially adversely affect us. If any of the three persons or other key executive employees were to leave, we could face substantial difficulty in hiring a qualified successor and could experience a loss in productivity while any success obtains the necessary training and experience. We do not have key man life insurance policies on our management.
Our resources may not be sufficient to manage our intended growth; failure to properly manage potential growth would be detrimental to our business.
We may fail to adequately manage our intended future growth. Our initial administrative, financial and operational functions come from existing operations. Any growth in our operations will place a significant strain on our resources, and increase demands on our management and on our operational and administrative systems, controls and other resources. We cannot assure you that our existing personnel, systems, procedures or controls will be adequate to support our operations in the future or that we will be able to successfully implement appropriate measures consistent with our growth strategy. As part of this growth, we may have to implement new operational and financial systems, procedures and controls to expand, train and manage our employee base, and maintain close coordination among our staff. We cannot guarantee that we will be able to do so.
In addition to our merger with SPHC, to the extent we acquire any business entity, we will also need to integrate and assimilate new operations, technologies and personnel. If we are unable to manage growth effectively, such as if our sales and marketing efforts exceed our capacity to install, maintain and service our products or if new employees are unable to achieve performance levels, our business, operating results and financial condition could be materially adversely affected. As with all expanding businesses, the potential exists that growth will occur rapidly. If we are unable to effectively manage this growth, our business and operating results could suffer. Anticipated growth in future operations may place a significant strain on management systems and resources. In addition, the integration of new personnel will continue to result in some disruption to ongoing operations. The general economicability to effectively manage growth in a rapidly evolving market requires effective planning and management processes. We will need to continue to improve operational, financial and managerial controls, reporting systems and procedures, and will need to continue to expand, train and manage our work force.
We must keep up with rapid technology change and evolving industry standards in order to be successful. Our competitors may be better positioned than we are to adapt to rapid changes in technology, and we could lose customers.
The markets for our services are characterized by rapidly changing technology and evolving industry standards. Any products or processes that we develop may become obsolete or uneconomical before we recover any expenses incurred in connection with their development. Our future success will depend, in part, on our ability to effectively identify and implement leading technologies, develop technical expertise and influence and respond to emerging industry standards and other technology changes.
All this must be accomplished in a timely and cost-effective manner. We may not be successful in effectively identifying or implementing new technologies, developing new services or enhancing our existing services in a timely fashion. Some of our competitors, including the local telephone companies, have a much longer operating history, more experience in making upgrades to their networks and greater financial resources than we will have. We cannot assure you that we will obtain access to new technologies as quickly or on the same terms as our competitors, or that we will be able to apply new technologies to our existing networks without incurring significant costs or at all. In addition, responding to demand for new technologies would require us to increase our capital expenditures, which may require additional financing in order to fund. Further, our competitors, in particular the larger incumbent providers, enjoy greater economies of scale in regard to equipment acquisition and vendor relationships. As a result of those factors, we could lose customers and our financial results could be harmed. If we fail to identify and implement new technologies or services, our business, financial condition and results of operations could be materially adversely affected.
Difficult conditions in the global capital markets and the economy generally may materially adversely affect our business and results of operations, and we do not expect these conditions to improve in the near future.
Our results of operations can be materially affected by conditions in the global capital markets and the economy generally, both in the U.S. and elsewhere around the world. Stresses experienced by global capital markets over the last severalfew years have resulted in continuing concerns over inflation, energy costs, geopolitical issues, the availability and cost of credit, the U.S. mortgage market, uncertain real estate markets, increased volatility and diminished expectations for the economy. These factors, combined with volatile oil prices, high unemployment levels and any decline in business and consumer confidence may have an adverse effect on our business.
We must maintain adequate processes and systems for collecting our accounts receivable, or if we are otherwise unable to collect material amounts of our accounts receivables our cash flow and profitability will be negatively affected.
The communications industry has experienced difficulties in the recent past in collecting accounts receivable from telecommunications providers due to the complexity involved in billing and the uncertainty with regard to certain regulatory matters. If we do not maintain adequate processes and systems for collecting our accounts receivable, our cash flow and profitability will be negatively affected.
We face considerable uncertainty in the estimation of revenues, related costs of services and their subsequent settlement.
Our revenues and the related cost of sales will often be earned and incurred with the same group of carriers who can be our vendors, suppliers and customers simultaneously. These revenues and their related costs may be based on estimated amounts accrued for pending disputes with other carriers, the contractual rates charged by our service providers, as well as sometimes contentious interpretations of existing tariffs and regulations. Subsequent adjustments to these estimates may occur after the bills are received/tendered for the actual costs incurred and revenues earned, and these adjustments can often be material to our future operating results. Industry practice is to routinely dispute charges that a company such as ours believes have been billed in error or incorrectly; these disputed balances are recorded in accounts payable in its consolidated balance sheets. Some of these disputed amounts are normally granted by providers in the form of credits subsequent to the periods in which they were incurred. In some cases we expect to enter into settlements with customers and issue credits against outstanding amounts owed in return for long-term agreements. These credits can be material to our results and will be charged directly against revenues in periods subsequent to where the revenues/costs of services were initially measured. Judgment is required in estimating the ultimate outcome of the dispute resolution process, as well as any other amounts that may be incurred to conclude the negotiations. Actual results can differ from estimates, and such differences could be material.
Intellectual property infringement claims are common in the industry and, should such claims be made against us, and if we do not prevail, our business, financial condition and operating results could be harmed.
Patent positions in the telecommunications industry are uncertain and involve complex legal, scientific and factual questions and often conflicting claims. The industry has in the past been characterized by a substantial amount of litigation and related administrative proceedings regarding patents and intellectual property rights. In addition, established companies have used litigation against emerging growth companies and new technologies as a means of gaining a competitive advantage. Third parties may claim we are infringing their patents, copyrights, trademarks or other intellectual property and may go to court to attempt to stop us from engaging in our ongoing operations and activities. These lawsuits can be expensive to defend and conduct and may divert the time and attention of management.
If a third-party successfully asserts an infringement claim against us, a court could order us to cease the infringing activity.
The court could also order us to pay damages for the infringement, which could be substantial. Any order or damage award could harm our business, financial condition and operating results.
In addition, we may be required to participate in interference proceedings in the United States Patent and Trademark Office to determine the relative priorities of our inventions and third parties' inventions. An adverse outcome in an interference proceeding could require us to cease using the technology or to license rights from prevailing third parties.
If we were unable to obtain any necessary license following an adverse determination in litigation or in interference or other administrative proceedings, we would have to redesign our products to avoid infringing a third-party's patent and could temporarily or permanently have to discontinue manufacturing and selling the infringing products. If this were to occur, it would negatively impact future sales and could harm our business, financial condition and operating results.
Our business activities require additional financing that might not be obtainable on acceptable terms, if at all, which could have a material adverse effect on our financial condition, liquidity and our ability to operate going forward.
We need to raise additional capital from equity or debt sources in order to meet our working capital and capital expenditure requirements, as well as other potential cash needs to finance future growth, including the deployment of our network for Wi-Fi offloading by carriers and the expansion of service within existing markets and to new markets, which can be capital intensive. As a result of the deterioration of the equity markets, in general, and the decline in our stock price, we have had difficulty in raising money during 2015 and into 2016.
The actual amount of capital required to fund our operations and development may vary materially from our estimates. In order to obtain additional funding in the future, we may have to sell assets, seek debt financing, or obtain additional equity capital. In addition, any indebtedness we incur in the future could subject us to restrictive covenants limiting our flexibility in planning for, or reacting to changes in, our business as described above. If we raise funds by selling more stock, your ownership in us will be diluted, and we may grant future investors preferred rights superior to those of the Common Stock that you own. If we are unable to obtain additional capital when needed, we will have to delay, modify or abandon some of our expansion plans, including, but not limited to, the deployment of our network for Wi-Fi offloading by carriers. This could slow our growth, negatively affect our ability to compete in our industry and adversely affect our financial condition.
Our operational support systems and business processes may not be adequate to effectively manage our growth.
Our continued success depends on the scalability of our systems and processes. We cannot be certain that our systems and processes are adequate to support ongoing growth in customers. Failure to manage our future growth effectively could harm our quality of service and customer relationships, which could increase our customer churn, result in higher operating costs, write-offs or other accounting charges, and otherwise materially harm our financial condition and results of operations.
We may not be able to continue to grow our customer base at prior rates, which would result in a decrease in the rate of revenue growth.
Future growth in our existing markets may be more difficult than prior growth, due to increased or more effective competition in the future, difficulties in scaling our business systems and processes, or difficulty in maintaining sufficient numbers of qualified market management personnel, sales personnel and qualified integrated access device installation service providers to obtain and support additional customers. Failure to continue to grow our customer base at prior rates would result in a corresponding decrease in the rate of its revenue growth.
Our systems may experience security breaches which could negatively impact our business.
Despite the implementation of network security including firewalls, encryption for the radio frequency signal and user authentication measures, the core of our infrastructure is vulnerable to computer viruses, break-ins and similar disruptive problems. Computer viruses or other problems caused by third parties could lead to significant interruptions or delays in service to customers. We may face liability associated with such breaches and may lose potential customers. While we will attempt to reduce the risk of such losses through warranty disclaimers and liability limitation clauses in our license agreements and by maintaining product liability insurance, there can be no assurances that such measures will be effective in limiting our liability for such damages or avoiding government sanctions.
The wireless portion of our Wi-Fi network operates in the unlicensed frequency band, which means other operators can operate in the same frequency and there is a risk of interference with our wireless signal.
Because we operate our in-building Wi-Fi network in unlicensed spectrum, other devices are allowed to operate in the same frequency band in the same geographic areas in which we operate. Users of unlicensed spectrum are not entitled to protection from other users of that spectrum. Therefore, use of unlicensed spectrum is inherently subject to interference from third parties. While several precautions have been taken to avoid interference, there is no guarantee that we will not experience interference on the wireless portion of our network. If we experience interference, it could cause customers to be dissatisfied with our wireless services, resulting in customers cancelling this portion of services or cancelling all of our services. This could greatly impair our ability to retain and or generate new customers in any building that has interference issues.
As a result of the Wave2Wave Acquisition, we have substantial senior indebtedness which may require us to seek additional financing, minimize capital expenditures, or seek to refinance some or all of our debt.
As a result of the Wave2Wave acquisition, the principal amount of SPHC's indebtedness to the senior lenders thereunder totaled approximately $15,328,397 at the end of 2012. (Both Senior Lenders are affiliates of Robert DePalo, currently the Company's principal stockholder.) In a 2012 exchange and redemption offering to Brookville and Veritas holders by SPHC, such holders accepted 6,156,213 shares of Common Stock, at a then valuation of $1.20 per share, in exchange for a portion of their respective Brookville and Veritas debt holdings. In 2014, the Company issued an additional 2,581,657 shares of Common Stock in exchange for the cancellation of $3,872,489 of debt held by Brookville and Veritas. The 2012 exchange and redemption transaction resulted in a reduction of approximately $7,388,603 in the total amount of principal and accrued interest on SPHC indebtedness to the Senior Lenders, and the shares of Common Stock issued to the exchanging holders of the Senior Lenders were contributed to SPHC's treasury by Mr. DePalo from his personal holdings.
Despite such reduction, SPHC's outstanding senior indebtedness, which carries a weighted annual interest rate of 14%, was approximately $2,488,000 plus interest as of December 31, 2015, of which no additional principal indebtedness had been paid as of August 11, 2016. Such indebtedness, which is substantial in relation to our size, has adversely affected the hotel industryCompany's financial position, and limit our available cash and the Company's access to additional capital. As a result of the Subsidiary Merger, the Company currently needs to obtain additional financing to repay this and other outstanding indebtedness. From time to time, we have been unable to obtain additional financing, and have been declared in default in the repayment of such debt, which has had a material adverse effect on our financial position, results of operations and related cash flows.
The level of SPHC's indebtedness has had important consequences, including:
● a substantial portion of our cash flow from operations has been dedicated to debt service and has not been available for other purposes;
● limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
● limiting our ability to obtain financing for working capital, capital expenditures and general corporate purposes, including acquisitions, and may impede our ability to secure favorable terms;
● making us more vulnerable to economic and industry downturns which may limit our ability to withstand competitive pressures;
● placing us at a competitive disadvantage to our competitors with less indebtedness;
● limiting our ability to fund working capital, capital expenditures, and other general corporate purposes; and
● reducing our flexibility in responding to changing business and economic conditions.
The terms of our Senior Lenders' credit facilities contain restrictions and limitations that have significantly impacted our ability to operate our business.
SPHC is required to maintain compliance with certain financial covenants and our credit facilities contain certain restrictions and limitations that have significantly limited our ability to operate our business. In the absence of any recoveryrequired waiver or consent, these restrictions may not be sustained. The overall travel industrylimit its ability to:
● incur or guarantee additional indebtedness;
● create liens on our assets;
● make investments;
● engage in mergers and consumer buying pattern can be, has beenacquisitions;
● redeem capital stock
● make capital expenditures;
● sell any of our assets;
● �� maintain certain leverage ratios on a quarterly basis; and
● declare any dividends.
Therefore, we have needed to seek permission from our Senior Lenders in order to engage in some corporate and commercial actions that we believe were in the past and/best interest of our business, and a denial of permission has made it difficult for us to successfully execute our business strategy and effectively compete with companies that are not similarly restricted. Our Senior Lenders' interests have been different, at times, from our interests or currently is, adverselyour stockholders' interests, and we cannot guarantee that we will be able to obtain our Senior Lenders' permission when needed.
Our ability to comply with the covenants and restrictions contained in our credit facilities may be affected by weakereconomic, financial and industry conditions and other factors beyond our control. Any default under our credit facilities, which is not waived by the required lenders could substantially decrease the value of your investment. If we are unable to repay indebtedness, our Senior Lenders and any new facilities could proceed against the collateral securing that indebtedness. This could have serious consequences to our financial condition and results of operations and could cause us to become bankrupt or need to scale back our operations. Our ability to comply with these covenants in future periods will also depend substantially on the value of our assets, our success at keeping our costs low and our ability to successfully implement our overall business strategy.
We are highly leveraged and may incur substantial additional debt, which could adversely affect our financial health and our ability to obtain financing in the future, react to changes in our business and make debt service payments. If we increase the amount of our indebtedness in the future, our high level of indebtedness could have important consequences to stockholders.
Highly leveraged companies are significantly more vulnerable to unanticipated downturns and setbacks, whether directly related to their business or flowing from a general economic climates, consumer sentiment, geopolitical instabilityor industry condition, and concerns about public health.
We May Incur Additional Liabilities as a Result of the successForeclosure Sale of our direct and indirect distribution channels and acquisition strategy, andSSI Operations.
On May 11, 2016, SSI completed the foreclosure sale under Article 9 of the UCC of substantially all of its assets, which consisted of the operations of Roomlinx prior to the Subsidiary Merger.
The sale resulted from SSI's inability to pay approximately $3.6 million of indebtedness to SSI's senior lender. While the Company intends to have SSI liquidated under Chapter 7 of the Bankruptcy Code, there can be no assurance that theseSSI and/or the Company will be successful. Our customers’ experiences may be unsatisfactory to the extent that our service malfunctions or our customer care efforts, including our website and 800 number customer service efforts, do not meet or exceed subscriber expectations. In addition, factors beyond our control, such as technological limitations of the current generation of devices, which may cause our customers’ experiences with our service to not meet their expectations, can adversely affect our revenues.incur additional liabilities.
We May Acquire or Make Investments in Companies or Technologies That Could Cause Loss of Value to Our Stockholders and Disruption of Our Business.
Subject to our capital constraints, we intend to continue to explore opportunities to acquire companies or technologies in the future. Entering into an acquisition entails many risks, any of which could adversely affect our business, including:
| ● | Failure to integrate the acquired assets and/or companies with our current business; | |
| ● | The price we pay may exceed the value we eventually realize; |
| ● | Loss of share value to our existing stockholders as a result of issuing equity securities as part or all of the purchase price; |
| ● | Potential loss of key employees from either our current business or the acquired business; |
| ● | Entering into markets in which we have little or no prior experience; | |
| ● | Diversion of |
| ● | Assumption of unanticipated liabilities related to the acquired assets; and | |
| ● | The business or technologies we acquire or in which we invest may have limited operating histories, may require substantial working capital, and may be subject to many of the same risks we are. |
We Have Limited Resources and We May be Unable to Effectively Support Our Operations.
We must continue to develop and expand our systems and operations in order to remain competitive. We expect this to place strain on our managerial, operational and financial resources. We may be unable to develop and expand our systems and operations for one or more of the following reasons:
| ● | We may not be able to retain at reasonable compensation rates qualified engineers and other employees necessary to expand our capacity on a timely basis; | |
| ● | We may not be able to dedicate the capital necessary to effectively develop and expand our systems and operations; and |
| ● | We may not be able to expand our customer service, billing and other related support systems. |
If we cannot manage our operations effectively, our business and operating results will suffer. Moreover, even if we are successful in obtaining new customers for our products and services, we may encounter difficulty in, or be unable to, obtaining adequate resources, including financial and human, to roll-out our products and services to such customers.
Our Business Could be Harmed if we are Unable to Protect our Proprietary Technology.
We rely primarily on a combination of trade secrets, copyright and trademark laws and confidentiality procedures to protect our technology. Despite these precautions, unauthorized third parties may infringe, copy, or reverse engineer portions of our technology. In the absence of significant patent protection, we may be vulnerable to competitors who attempt to copy our products, processes or technology, which could harm our business.
Our Business Prospects Depend in Part on Our Ability to Maintain and Improve Our Services as Well as to Develop New Services.
We believe that our business prospects depend in part on our ability to maintain and improve our current services and to develop new services. Our services will have to achieve market acceptance, maintain technological competitiveness and meet an expanding range of customer requirements. We may experience difficulties that could delay or prevent the successful development, introduction or marketing of new services and service enhancements. Additionally, our new services and service enhancements may not achieve market acceptance.
Our Management and Operational Systems Might Be Inadequate to Handle Our Potential Growth.
We may experience growth that could place a significant strain upon our management and operational systems and resources. Failure to manage our growth effectively could have a material adverse effect upon our business, results of operations and financial condition. Our ability to compete effectively and to manage future growth will require us to continue to improve our operational systems, organization and financial and management controls, reporting systems and procedures. We may fail to make these improvements effectively. Additionally, our efforts to make these improvements may divert the focus of our personnel. We must integrate our key executives into a cohesive management team to expand our business. If new hires perform poorly, or if we are unsuccessful in hiring, training and integrating these new employees, or if we are not successful in retaining our existing employees, our business may be harmed. To manage the growth we will need to increase our operational and financial systems, procedures and controls. Our current and planned personnel, systems, procedures and controls may not be adequate to support our future operations. We may not be able to effectively manage such growth, and failure to do so could have a material adverse effect on our business, financial condition and results of operations.
If We Do Not Respond Effectively and on A Timely Basis to Rapid Technological Change, Our Business Could Suffer.
Our industry is characterized by rapidly changing technologies, industry standards, customer needs and competition, as well as by frequent new product and service introductions. Our services are integrated with the computer systems of our customers. We must respond to technological changes affecting both our customers and suppliers. We may not be successful in developing and marketing, on a timely and cost-effective basis, new services that respond to technological changes, evolving industry standards or changing customer requirements. Our success will depend, in part, on our ability to accomplish all of the following in a timely and cost-effective manner:
| ● | Effectively using and integrating new technologies; | |
| ● | Continuing to develop our technical expertise; |
| ● | Enhancing our engineering and system design services; | |
| ● | Developing services that meet changing customer needs; | |
| ● | Advertising and marketing our services; and |
| ● | Influencing and responding to emerging industry standards and other changes. |
We Depend on Retaining Key Personnel. The Loss of Our Key Employees Could Materially Adversely Affect Our Business.
Due to the technical nature of our services and the dynamic market in which we compete, our performance depends in part on our retaining key employees. Competitors and others may attempt to recruit our employees. A major part of our compensation to our key employees is in the form of stock option grants. A prolonged depression in our stock price could make it difficult for us to retain our employees and recruit additional qualified personnel.
Our Data Systems Could Fail or Their Security Could Be Compromised, and We Will Increasingly Be Handling Personal Data Requiring Our Compliance With a Variety of Regulations.
Our business operations depend on the reliability of sophisticated data systems. Any failure of these systems, or any breach of our systems’systems' security measures, could adversely affect our operations, at least until our data can be restored and/or the breaches remediated. We have, to a limited extent, begun to serve as a conduit for personal information to third-party credit processors, service partners and others, and it is likely we will do so more regularly. The handling of such personal information requires we comply with a variety of federal, state and industry requirements governing the use and protection of such information, including, but not limited to, FCC consumer proprietary network information regulations, FTC consumer protection regulations, and Payment Card Industry (“PCI”("PCI") data security standards and, for the Healthcare division, the requirements of the Health Insurance Portability and Accountability Act (“HIPAA”("HIPAA") and regulations thereunder. While we believe we have taken the steps necessary to assure compliance with all applicable regulations and have made necessary changes to our data systems, any failure of these systems or any breach of the security of these systems could adversely affect our operations and expose us to increased cost, liability for lost personal information and increased regulatory obligations.
An Interruption in the Supply of Products and Services That We Obtain From Third Parties Could Cause a Decline in Sales of Our Services.
In designing, developing and supporting our services, we rely on many third party providers. These suppliers may experience difficulty in supplying us products or services sufficient to meet our needs or they may terminate or fail to renew contracts for supplying us these products or services on terms we find acceptable. If our liquidity deteriorates, our vendors may tighten our credit, making it more difficult for us to obtain suppliers on terms satisfactory to us. Any significant interruption in the supply of any of these products or services could cause a decline in sales of our services, unless and until we are able to replace the functionality provided by these products and services. We also depend on third parties to deliver and support reliable products, enhance their current products, develop new products on a timely and cost-effective basis and respond to emerging industry standards and other technological changes.
We Operate in a Very Competitive Industry, Which May Negatively Impact Our Prices for Our Services or Cause Us to Lose Business Opportunities.
The market for our services is becoming increasingly competitive. Our competitors may use the same products and services in competition with us. With time and capital, it would be possible for competitors to replicate our services and offer similar services at a lower price. We expect that we will compete primarily on the basis of the functionality, breadth, quality and price of our services. Our current and potential competitors include:
| ● | Other wireless high speed internet access providers, such as SDSN, Guest-Tek Wayport, Greentree, Core Communications and | |
| ● | Other viable network carriers, such as SBC, Comcast, Sprint and COX Communications; and |
| ● | Other internal information technology departments of large companies. |
Many of our existing and potential competitors have substantially greater financial, technical, marketing and distribution resources than we do. Additionally, many of these companies have greater name recognition and more established relationships with our target customers. Furthermore, these competitors may be able to adopt more aggressive pricing policies and offer customers more attractive terms than we can. In addition, we have established strategic relationships with many of our potential competitors. In the event such companies decide to compete directly with us, such relationships would likely be terminated, which could have a material adverse effect on our business and reduce our market share or force us to lower prices to unprofitable levels.
We May be Sued by Third Parties For Infringement of Their Proprietary Rights and We May Incur Substantial Defense Costs and Possibly Substantial Royalty Obligations or Lose The Right to Use Technology Important To Our Business.
Any intellectual property claims, with or without merit, could be time consuming and expensive to litigate or settle and could divert management attention from administering our business. A third party asserting infringement claims against us or our customers with respect to our current or future products may materially adversely affect us by, for example, causing us to enter into costly royalty arrangements or forcing us to incur settlement or litigation costs.
We may be subject to claims that DMAG, SPHC and its employees or our employees may have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of former employers or competitors. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management. If we fail in defending such claims, in addition to paying money claims, we may lose valuable intellectual property rights or personnel. A loss of key research personnel or their work product could hamper or prevent our ability to commercialize certain products, which could severely harm our business.
Our Quarterly Operating Results are Subject to Significant Fluctuations and, As A Result, Period-To-Period Comparisons of Our Results of Operations are Not Necessarily Meaningful.
| ● | The success of our brand building and marketing campaigns; | |
| ● | Price competition from potential competitors; |
| ● | The amount and timing of operating costs and capital expenditures relating to establishing the | |
| ● | The demand for and market acceptance of our products and services; |
| ● | Changes in the mix of services sold by our competitors; |
| ● | Technical difficulties or network downtime affecting communications generally; |
| ● | The ability to meet any increased technological demands of our customers; and | |
| ● | Economic conditions specific to our industry. |
Therefore, our operating results for any particular quarter may differ materially from our expectations or those of security analysts and securities traders and may not be indicative of future operating results. The failure to meet expectations may cause the price of our common stock to decline. Since we are susceptible to these fluctuations, the market price of our common stock may be volatile, which can result in significant losses for investors who purchase our common stock prior to a significant decline in our stock price.
Covenants under our Credit FacilityFacilities may restrict our future operations and adverse consequences could result in the event of non-compliance
Our current Credit Facility containscredit facilities, including those of SPHC also contain other customary covenants, whichincluding covenants that require us to meet specified financial ratios and financial tests. We may restrictnot be able to comply with these covenants in the future. Our failure to comply with these covenants may result in the declaration of an event of default and cause us to be unable to borrow under our ability to finance future operations or capital needs or to engage in other business activities. Future borrowing instruments, such as credit facilities and indentures,debt instruments. In addition to preventing additional borrowings under these agreements, an event of default, if any, are also likely to contain restrictive covenants andnot cured or waived, may result in the acceleration of the maturity of indebtedness outstanding under these agreements, which would require us to pledge assets as security under those future arrangements. The termspay all amounts outstanding. If an event of default occurs, we may not be able to cure it within any applicable cure period, if at all. If the maturity of our current Credit Facility, include many restrictive financial and other covenants. Events beyond our control, including changes in general economic and business conditions, as well as our financial performance,indebtedness is accelerated, we may adversely affect our business. Such changes in general economic and business conditions,not have sufficient funds available for repayment or our financial performance,we may affect ournot have the ability to meet those covenants andborrow or obtain sufficient funds to otherwise remain in compliance withreplace the requirements of our Credit Facility and other material agreements. A breach of any of these covenants would result in a default under the applicable debt instrumentaccelerated indebtedness on terms acceptable to us or agreement. In that event, the amounts under the applicable agreement could be declared immediately due and payable, or require us to amend the Credit Facility, resulting in significantly higher annual interest expense, and such a default may cause a default under some of our material agreements. As a result of these covenants and restrictions, we are limited in how to conduct our business and we may be unable to compete effectively, to meet our customer demands for installations or service or take advantage of new business opportunities.
Many of our Key Functions Are Concentrated in a Single Location, and a Natural Disaster or Act of Terrorism Could Seriously Impact Our Ability to Operate.
Our IT systems, production, inventory control systems, executive offices and finance/accounting functions, among others, are primarily centralized in our Broomfield, Colorado facility. A natural disaster, such as a tornado, could seriously disrupt our ability to continue or resume normal operations for some period of time. Similarly, an act of terrorism could disrupt our facility. While we have certain business continuity plans in place, no assurances can be given as to how quickly we would be able to resume operations and how long it may take to return to normal operations. We may experience business interruptions and could incur substantial losses beyond what may be covered by applicable insurance policies, and may experience a loss of customers, vendors and employees during the recovery period.
We rely on third-party vendors for information systems. If these vendors discontinue support for our systems or fail to maintain quality in future software releases, we could sustain a negative impact on the quality of our services to customers, the development of new services and features, and the quality of information needed to manage our business.
We have agreements with vendors that provide for the development and operation of back office systems such as ordering, provisioning and billing systems. We also rely on vendors to provide the systems for monitoring the performance and condition of our network. The failure of those vendors to perform their services in a timely and effective manner at acceptable costs could materially harm our growth and our ability to monitor costs, bill customers, and provision customer orders, maintain the network and achieve operating efficiencies. Such a failure could also negatively impact our ability to retain existing customers or to attract new customers.
Regulatory Risks
We are subject to complex and sometimes unpredictable government regulations. Changes to such regulations could have a material adverse impact on our business operations or, if we fail to comply with these regulations, we could incur significant fines and penalties.
There are now in effect, or pending, at the federal and state levels of government, numerous regulatory programs and proposals of general application to the industry, Internet providers and competitive carriers, many of which have or may have important effects on the operations of the Company and/or its affiliates in many areas, including licensing, tax, regulatory compliance, fees, charges and interconnection rights and obligations. The number and scope of such programs and proposals are significant. Some examples of these matters include state investigation of access charges, the FCC's review of intercarrier compensation charges, special access charges and Universal Service Fund assessments.
Our quarterly operating resultsbroadband Internet access services are subject to various attempts to impose so-called "net neutrality" rules, some of which were affirmed and others vacated on appeal by the U.S. District Court for the District of Columbia in early 2014. Proponents of these rules want to limit the ways that a broadband Internet access service provider can structure business arrangements and manage its network. Some of these parties have urged the FCC to "reclassify" broadband Internet access service as a "telecommunications service" under Title II of the Communications Act, thus subjecting these services to traditional utility-style regulation which the FCC did on February 26, 2015, releasing the order on March 12, 2015 (See Report and Order on Remand, Declaratory Ruling, and Order, Protecting and Promoting the Open Internet, GN Docket No. 14-28, FCC 15-24 (rel. Mar. 12, 2015). The order classifies broadband internet as a "telecommunications" service subject to common carrier regulation under Title II of the Communications Act of 1934, as amended.
The scope of the rules and potential litigation is uncertain and implementing rules are being appealed in the courts (See United States Telecom Association, No. 15-1063 (D.C. Cir.). The further regulation of broadband, wireless, and our other activities and any related court decisions could restrict our ability to compete in the marketplace and limit the return we can expect to achieve on past and future investments in our networks. The FCC's net neutrality rules could limit our flexibility in managing our broadband networks and delivering broadband services, and could have an adverse effect on certain of our business operations and restrict our ability to compete in the marketplace. The new rules would also require enhanced disclosure in our terms and conditions to the extent such new disclosures are required. Finally, end users may fluctuate significantlybring action at the FCC if they feel a provider has breached the rules or the FCC may institute an enforcement action upon its own motion.
We are unable to predict what additional federal or state legislation or regulatory initiatives may be enacted in the future regarding our business or the telecommunications industry in general. Federal or state governments may impose additional restrictions or adopt interpretations of existing laws that could have a material adverse effect on us. If we fail to comply with any existing or future regulations, restrictions or interpretations, we could incur significant fines and penalties, including, but not limited to, loss of license or suspension of operating authority.
Regulatory decisions could materially increase our costs of leasing last-mile facilities.
In order to reach our end user customers, we will often lease lines from incumbent carriers, who will also be our competitors. The extent to which the incumbent carrier must provide these facilities to us at low rates is dependent on federal and state regulatory actions. To date, we are still able to lease these facilities at low rates in most of our intended markets.
Incumbent carriers are, however, allowed to escape this requirement in discrete geographic areas, typically in major urban centers, where there is substantial competitive deployment of facilities by other carriers. Additionally, incumbent carriers have been employing a statutorily authorized process called regulatory forbearance in an effort to lift these requirements over much larger areas. To the extent that the incumbents are successful in these actions in markets where we will operate, our costs of obtaining these facilities could materially increase, adversely affecting our profit margins.
The FCC is reexamining its policies towards VoIP and telecommunications in general and changes in regulation could subject us to additional fees or increase the competition it faces.
Voice over Internet Protocol, or VoIP, can be used to carry user-to-user voice communications over dial-up or broadband service. The FCC has ruled that some VoIP arrangements are not regulated as telecommunications services, but that a conventional telephone service that uses Internet protocol in its backbone is a telecommunications service. The FCC has initiated a proceeding to review the regulatory status of VoIP services and the possible application of various regulatory requirements, including the payment of access charges, which are not required at the present time. Expanded use of VoIP technology could reduce the access revenues received by local exchange carriers like us, while carriers dispute its charges during the FCC's review of the issue. We cannot predict whether or when VoIP providers may be required to pay or be entitled to receive access charges, or the extent to which users will substitute VoIP calls for traditional wireline communications. Furthermore, if, as planned in our business strategy, we carry wireless carrier originated voice traffic over the Wi-Fi network, this traffic may be considered interconnected VoIP traffic under the FCC's rules and may be subject to separate regulatory requirements for us and the wireless carriers.
Judicial review and FCC decisions pursuant to the Federal Telecommunications Act of 1996 may adversely affect our business.
The Telecommunications Act of 1996 provides for significant changes and increased competition in the telecommunications industry. This federal statute and its related regulations remain subject to judicial review and additional rulemakings of the FCC, thus making it difficult to predict what effect the legislation will have on us, our operations and our competitors. In addition to reviewing intercarrier compensation and access to last mile facilities, the FCC is also reviewing applying more common carrier regulation to internet services. Depending on the classifications and reach of such regulations, if implemented, it may create burdens to competition or increase compliance costs.
Risks Relating to Our Common Stock
All of the shares to be issued and outstanding after the consummation of the Subsidiary Merger are restricted and not freely transferrable.
Upon completion of the Subsidiary Merger, only a very small portion of the shares of Common Stock issued and outstanding following the Reverse Split have the same status of registered and publicly tradable securities. In addition, all of the restricted Dividend Shares (9.4% of the fully diluted shares) Cenfin shares (5.2% of fully diluted shares) and the shares issued to SPHC shareholders (85.4% of fully diluted shares) were subject to a nine (9) month lock-up, which expired at December 31, 2015. The holders of such shares continue to be subject to restrictions and limitations on transfer, and will be required to comply with the provisions of the Securities Act and SEC rules concerning registration requirements and/or exemptions from such requirements prior to seeking to dispose of such shares.
Even if an active public market for our securities develops, it is not possible to predict the extent, liquidity and duration of any public trading market for our shares.
The size and nature of the trading market for our securities post-merger has been sporadic and subject to fluctuations. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations of the price of the Company's Common Stock. There can be no assurance that a variety of factors, most of which are outsidemore active market for the Company's Common Stock will develop, or if one should develop, there is no assurance that it will be sustained. This severely limits the liquidity of our control, including:Common Stock, and has had a material adverse effect on the demandmarket price of the Company's Common Stock and on our ability to raise additional capital.
The ability of any such market to provide liquidity for our productsthe holders of such shares and services; seasonal trends in purchasing; the amountto establish a reasonable and timing of capital expenditures and other costs relating to the development of our products and services; price competition orrational pricing changes in the industry; technical difficulties or system downtime;mechanism, will likely depend on many variables. These may include general economic conditions, public evaluation of the business model being utilized by such successor entity, the revenues, earnings and economic conditions specific togrowth potential of such entity, the hospitality industry. Our quarterly results may also be significantly impacted byreputation of its management, the general state of the U.S. telecommunications industry, the impact of competition and regulation, and the accounting treatment of acquisitions, financing transactions or other matters. Due to the foregoing factors, among others, it is likely that our operating results will fall below our expectations or those of investors in some future quarter.like.
Limitation of Liability and Indemnification of Officers and Directors
Our officers and directors are required to exercise good faith and high integrity in the management of our affairs. Our Articles of Incorporation provides, however, that our officers and directors shall have no personal liability to us or our stockholders for damages for any breach of duty owed to us or our stockholders, unless they breached their duty of loyalty, did not act in good faith, knowingly violated a law, or received an improper personal benefit. Our Articles of Incorporation and By-Laws also provide for the indemnification by us of our officers and directors against any losses or liabilities they may incur by reason of their serving in such capacitates,capacities, provided that they do not breach their duty of loyalty, act in good faith, do not knowingly violate a law, and do not received an improper personal benefit. Additionally, we have entered into individual Indemnification Agreements with each of our directors and officers to implement with more specificity the indemnification provisions provided by the Company’sCompany's By-Laws and provide, among other things, that to the fullest extent permitted by applicable law, the Company will indemnify such director or officer against any and all losses, expenses and liabilities arising out of such director’sdirector's or officer’sofficer's service as a director or officer of the Company, as the case may be. The Indemnification Agreements also contain detailed provisions concerning expense advancement and reimbursement.
Resale of Shares Could Adversely Affect the Market Price of Our Common Stock and Our Ability to Raise Additional Equity Capital
In general, a non-affiliated person who has held restricted shares for a period of six months, under Rule 144, may sell into the market our common stock all of their shares, subject to the Company being current in its periodic reports filed with the SEC. An affiliate may sell an amount equal to the greater of 1% of the outstanding shares 136,019,348 as of August 11, 2016 or the average weekly number of shares sold in the last four weeks prior to such sale. Such sales may be repeated once every three months, and any of the restricted shares may be sold by a non-affiliate without any restriction after they have been held one year.
Further Issuances of Equity Securities May Be Dilutive to Current Stockholders.
Articles of Incorporation Grants the Board of Directors the Power to Designate and Issue Additional Shares of Preferred Stock.
Our Articles of Incorporation grants our Board of Directors authority to, without any action by our stockholders, designate and issue, from our authorized capital, shares in such classes or series as it deems appropriate and establish the rights, preferences, and privileges of such shares, including dividends, liquidation and voting rights. The rights of holders of classes or series of preferred stock that may be issued could be superior to the rights of the common stock offered hereby. Our board of directors’directors' ability to designate and issue shares could impede or deter an unsolicited tender offer or takeover proposal. Further, the issuance of additional shares having preferential rights could adversely affect other rights appurtenant to the shares of common stock offered hereby. Any such issuances will dilute the percentage of ownership interest of our stockholders and may dilute our book value.
Limited Market Due To Penny Stock Related to SPHC Capital Structure. See "Risks" below.
Our stock differs from many stocks, in that it is considered a penny stock. The Securities and Exchange CommissionSEC has adopted a number of rules to regulate penny stocks. These rules include, but are not limited to, Rules 3a5l-l, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6 and 15g-7 under the Securities and Exchange Act of 1934, as amended.Act. Because our securities probably constitute penny stock within the meaning of the rules, the rules would apply to our securities and us. The rules may further affect the ability of owners of our stock to sell their securities in any market that may develop for them. There may be a limited market for penny stocks, due to the regulatory burdens on broker-dealers. The market among dealers may not be active. Investors in penny stock often are unable to sell stock back to the dealer that sold them the stock. The mark-ups or commissions charged by the broker-dealers may be greater than any profit a seller may make. Because of large dealer spreads, investors may be unable to sell the stock immediately back to the dealer at the same price the dealer sold the stock to the investor. In some cases, the stock may fall quickly in value. Investors may be unable to reap any profit from any sale of the stock, if they can sell it at all.
Stockholders should be aware that, according to the Securities and Exchange Commission Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. These patterns include: control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; “boiler room”"boiler room" practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons; excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.
Furthermore, the penny stock designation may adversely affect the development of any public market for our shares of common stock or, if such a market develops, its continuation. Broker-dealers are required to personally determine whether an investment in penny stock is suitable for customers. Penny stocks are securities (i) with a price of less than five dollars ($5.00) per share; (ii) that are not traded on a “recognized”"recognized" national exchange; (iii) whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ-listed stocks must still meet requirement (i) above); and (iv)(iii) of an issuer with net tangible assets less than $2,000,000 (if the issuer has been in continuous operation for at least three years) or $5,000,000 (if in continuous operation for less than three years), or with average annual revenues of less than $6,000,000 for the last three years. Section 15(g) of the Exchange Act and Rule 15g-2 of the CommissionSEC require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor’sinvestor's account. Potential investors in our common stock are urged to obtain and read such disclosure carefully before purchasing any shares that are deemed to be penny stock. Rule 15g-9 of the CommissionSEC requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor.
This procedure requires the broker-dealer to (i) obtain from the investor information concerning his financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’sinvestor's financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for the Company’sCompany's stockholders to resell their shares to third parties or to otherwise dispose of them.
We have not declared or paid any cash dividend on our Common Stock and do not currently intend to do so for the foreseeable future. UnlessWe currently anticipate that we paywill retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends our stockholders will not be able to receive a return on theirfor the foreseeable future. Therefore, the success of an investment in shares of common stock unless they sell them.our Common Stock will depend upon any future appreciation in their value. There is no guarantee that shares of our Common Stock will appreciate in value or even maintain the price at which our shareholders have purchased their shares.
Sarbanes-Oxley and Federal Securities Laws Reporting Requirements Can Be Expensive
As a public reporting company, we are subject to the Sarbanes-Oxley Act of 2002, as well as the information and reporting requirements of the Securities Exchange Act of 1934, as amended and other federal securities laws. The costs of compliance with the Sarbanes-Oxley Act and of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC, and furnishing audited reports to stockholders, are significant and may increase in the future. See Risk Factors - "Both our Management and our independent registered public accounting firm have identified material weaknesses in our internal control over financial reporting. If we are unable to correct these weaknesses, our ability to accurately and timely report our financial results or prevent fraud may be adversely affected, and investor confidence and the market price of our shares may be adversely impacted."
The trading price of the Common Stock may become volatile, which could lead to losses by investors and costly securities litigation.
The trading price of the Common Stock is likely to be highly volatile and could fluctuate in response to factors such as:
● actual or anticipated variations in our operating results;
● announcements of developments by us or our competitors;
● regulatory actions regarding our products;
● announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
● adoption of new accounting standards affecting our industry;
● additions or departures of key personnel;
● introduction of new products by us or our competitors;
● sales of our Common Stock or other securities in the open market; and
● other events or factors, many of which are beyond our control.
The stock market is subject to significant price and volume fluctuations. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been initiated against such a company.
Litigation initiated against us, whether or not successful, could result in substantial costs and diversion of our management's attention and resources, which could harm our business and financial condition.
Insiders will continue to have substantial control over the Company, which could delay or prevent a change in corporate control or result in the entrenchment of management or our board of directors.
As of August 24, 2016 Robert DePalo, together with any affiliates and related persons, beneficially owns, in the aggregate, approximately 43,260,969 (32%) shares of our 136,019,348 outstanding shares of common stock. As a result, Mr. DePalo may have the ability to influence the outcome of matters submitted to our shareholders for approval, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets. Mr. DePalo may have the ability to influence the management and affairs of the Company in the foreseeable future. The foregoing could have the effect of:
● delaying, deferring or preventing a change in control;
● entrenching or changing our management or our Board of Directors;
● impeding a merger, consolidation, takeover or other potential transaction affecting our business or the control of our Company.
In October 2015 and April 2016, the Company entered into various Debt and Preferred Stock Restructuring Documents with Robert Depalo and affiliated entities as set forth in Item 13. "Certain Relationships and Related Transaction and Director Independence." Pursuant to these agreements, the Company agreed (subject to shareholder approval not yet obtained) to amend its charter and other relevant documents to provide for certain restrictions which would provide Mr. DePalo with further control over various matters.
Risks Related to Capital Structure
Because the Subsidiary Merger may be characterized as a "reverse merger," we may not be able to attract the attention of brokerage firms.
The Subsidiary Merger may be characterized as a "reverse merger." Accordingly, additional risks may exist as a result of such characterization. For example, securities analysts of brokerage firms may not provide coverage of us since there is little incentive to brokerage firms to recommend the purchase of our Common Stock. No assurance can be given that brokerage firms will want to conduct any secondary offerings on our behalf in the future.
We cannot provide assurance that we will be able to maintain the status of a public reporting company.
While M2 Group is currently a public reporting company, the continuation of such status will depend on various factors such as continuous and timely filing of audited consolidated financial statements and other required periodic reports with the SEC, satisfying the internal control and assessment requirements of the Sarbanes-Oxley Act of 2002, and instituting and monitoring procedures to control the unauthorized use of company information and prevent inside trading violations.
Applicable regulatory requirements may make it difficult for us to retain or attract qualified officers and directors, which could adversely affect the management of its business and its ability to obtain or retain listing of our Common Stock.
We may be unable to attract and retain those qualified officers, directors and members of board committees required to provide for effective management because of the rules and regulations that govern publicly held companies, including, but not limited to, certifications by principal executive officers. The enactment of the Sarbanes-Oxley Act has resulted in the issuance of a series of related rules and regulations and the strengthening of existing rules and regulations by the SEC, as well as the adoption of new and more stringent rules by the stock exchanges. The perceived increased personal risk associated with these changes may deter qualified individuals from accepting roles as directors and executive officers.
Further, some of these changes heighten the requirements for board or committee membership, particularly with respect to an individual's independence from the corporation and level of experience in finance and accounting matters. We may have difficulty attracting and retaining directors with the requisite qualifications. If we are unable to attract and retain qualified officers and directors, the management of our business and our ability to obtain or retain listing of our shares of Common Stock on any stock exchange (assuming we elect to seek and are successful in obtaining such listing) could be adversely affected.
We have been assessing our internal controls and believe that they require improvements. If we fail to implement changes to our internal controls or any others that we identify as necessary to maintain an effective system of internal controls, it could harm our operating results and cause investors to lose confidence in our reported financial information. Any such loss of confidence would have a negative effect on the trading price of our stock.
Provisions of our charter, bylaws, and Nevada law may make an acquisition of us or a change in our management more difficult.
Certain provisions of our certificate of incorporation and Bylaws that are in effect could discourage, delay or prevent a merger, acquisition or other change in control that shareholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions also could limit the price that investors might be willing to pay in the future for shares of our common stock. Shareholders who wish to participate in these transactions may not have the opportunity to do so.
Furthermore, these provisions could prevent or frustrate attempts by our shareholders to replace or remove our management. These provisions:
● allow the authorized number of directors to be changed only by resolution of our board of directors;
● authorize our board of directors to issue without shareholder approval blank check preferred stock that, if issued, could operate as a "poison pill" to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that is not approved by our board of directors;
● establish advance notice requirements for shareholder nominations to our board of directors or for shareholder proposals that can be acted on at shareholder meetings;
● authorize the Board of Directors to amend the By-laws;
● limit who may call shareholder meetings; and
● require the approval of the holders of a majority of the outstanding shares of our capital stock entitled to vote in order to amend certain provisions of our certificate of incorporation.
Section 78.438 of the NRS prohibits a publicly held Nevada corporation from engaging in a business combination with an interested stockholder, generally a person that together with its affiliates owns or within the last two years has owned 10% of voting stock, for a period of two years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner, or falls within certain exemptions under the NRS. As a result of these provisions in our charter documents under Nevada law, the price investors may be willing to pay in the future for shares of our common stock may be limited.
In addition, because SPHC is incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may, unless certain criteria are met, prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a prescribed period of time.
We do not anticipate paying cash dividends on our Common Stock, and accordingly, shareholders must rely on stock appreciation for any return on their investment.
We have not declared or paid any cash dividend on our Common Stock and do not currently intend to do so for the foreseeable future. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Therefore, the success of an investment in shares of our Common Stock will depend upon any future appreciation in their value. There is no guarantee that shares of our Common Stock will appreciate in value or even maintain the price at which our shareholders have purchased their shares.
ITEM 1B. UNRESOLVED STAFF COMMENTS
The Company leases approximately 10,885 square-feet of office space at 433 Hackensack Avenue Hackensack, New Jersey 07601; and a small meeting office in New York. The Company does not own any real estate and believes its existing facilities are suitable and adequate for the business conducted therein, appropriately used and have sufficient capacity for their intended purpose.
Co-Location Space
In addition to the Hackensack office described above, M2 Group leases several co-location sites throughout the region. These sites are leased to provide secure locations for mission-critical equipment within its network. These sites allow it to locate network switching, server and storage equipment in secure, geographically diverse sites, and interconnect to a variety of telecommunications and other network service provider(s) with a minimum of cost and complexity. These sites include: 111 8th Avenue in NYC, 21 Harborview, Stamford, CT, 111 Pavonia, Jersey City, NJ and 111 North Canal, Chicago, ILL. These serve as primary POPs, "point of presence," and are the anchor locations for the geographically redundant network architecture. All of these locations are equipped with high levels of physical security including 24 hours per day, seven days per week, guard services. These locations are also equipped with redundant power facilities including generators and/or back up battery power systems to guard against any type of power related outages. The cooling systems in these facilities are continuously maintained to avoid any type of heat related issues with network switching equipment. Signal Point provides most of the technical and facilities support to co-locations at these building by dispatching technicians when necessary. However, in certain key locations, Signal Point will also deploy "remote hands", or contract services to other telecommunications technicians to provide emergency technical or facilities related support.
The Company is subject to the various legal proceedings and claims discussed below as well as certain other non-material legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business.
El Dorado Offices 2, LP
The Company received notice that El Dorado Offices 2, LP ("Landlord") had filed suit against the Company and SignalShare Infrastructure, Inc. associated with amounts due under a terminated office space lease and an associated promissory note. The Landlord seeks approximately $326,000, plus costs, associated with the failure to repay the promissory note. The Company was served with the complaint on November 24, 2015 and answered the Complaint.
On June 1, 2016, the Company settled this matter for a total payment of $125,000, payable in installments ending in October of 2016. Subsequently, the Company completed the Foreclosure Sale of substantially all assets of SSI, and these amounts are included in the liabilities of discontinued operations.
CLC Networks and Skada
The Company is in receipt of a District Court Civil Summons, dated May 29, 2012, in the matter of “CLC"CLC Networks, Inc. and Skada Capital, LLC v. Roomlinx, Inc.”", commenced in the District Court of Boulder County, Colorado (the “Action”"Action"). The plaintiffs in the Action claimed that the Company owed them certain unpaid sales commissions, including with respect to Hyatt Corporation in connection with that certain Master Services and Equipment Purchase Agreement, as described inabove under Business. The Company and the Company’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 13, 2012.
SignalShare payroll tax matter
SignalShare LLC is recorded in accrued expensesdefault of its payment obligations for payroll taxes to the IRS for the first and second quarter of 2015. The amount of trust fund taxes, including penalties and interest, is approximately $673,888. The IRS has also placed liens on SignalShare, LLC and attempted to levy certain of its receivables. The IRS has also indicated that it intends to pursue responsible persons for the consolidated balance sheet.amounts due. As a result of this matter, the Company has moved SignalShare's payroll process to its corporate offices in order to strengthen the controls over the payroll functions. As a result of the SSI bankruptcy, these amounts are included as part of the liabilities of discontinued operations.
SignalShare Office Lease
SignalShare received notice on October 1, 2015 that its lease with Aerial Realty Corp. for office space in Morrisville, NC was being terminated due to non-payment and that the office's locks were changed. The Landlord expressed its intention to avail itself of all remedies under the lease including the collection of waived rent (equal to $21,875), attorney's fees, brokerage fees and any other amounts due under the Lease which was under term until March 31, 2020 and approximating total cost of $287,000. The Company is reviewing its options and the Landlord's claims and cannot determine the ultimate outcome at this time. As a result of the SignalShare bankruptcy, these amounts are included in the liabilities of discontinued operations.
TIG
The Company is in receipt ofreceived a letter from Technology Integration Group (“TIG”("TIG") demanding payment of approximately $2,430,000 with respect to inventory and services whichthat the Company purchased from TIG. TIG subsequently filed an action in California State Court (Case No. 37-2012-00046436-CU-BC-NC (the "Action"). On September 23, 2014, the Company entered into a Settlement Agreement and Mutual General Release with TIG. The Settlement Agreement was conditioned on the SPHC merger taking place. On March 24, 2015, the Company, Michael S. Wasik, Anthony DiPaolo and SSI entered into the Settlement Agreement and Mutual General Release with PC Specialists Inc. (d/b/a TIG), replacing the agreement signed in the fourth quarter of 2014. As of March 23, 2015, the Company owed TIG $3,003,267, consisting of $2,064,223 for equipment purchased and stored, $879,998 of interest on such amount and $59,046 of attorneys' fees and costs. Under the Settlement Agreement, the Company agreed to pay a settlement amount of $1,919,239, of which $400,000 was paid by SPHC upon the closing of the SMA. As a result, the Company, Wasik and DiPaolo were released from the Action and TIG consented to the transfer of rights and obligations under the Settlement Agreement to SSI with no recourse to the Company or SPHC. On April 5, 2016, counsel for TIG approached the Company regarding payment deficiencies under the settlement agreement and threatened further legal action. As of December 31, 2013 and 2012,2015 the Company had the entire liability due TIG recorded in accounts payable. Subsequently, the Company completed the Foreclosure Sale of substantially all assets of SSI, and these amounts are included as part of the liabilities of discontinued operations.
ScanSource
The Company received a District Court Civil Summons, dated August 23, 2013, in the matter of "ScanSource v. Roomlinx, Inc.", commenced in the District Court of Greenville County, South Carolina. The plaintiffs in such action claimed that the Company owed them approximately $2,100,000 (net of payments made in 2013) and $2,430,000, respectively,$473,000 with respect to inventory purchased by the Company. The amount is recorded in accounts payable in the accompanying consolidated balance sheets. TIG subsequently filed ansheets as of December 31, 2015 and December 31, 2014. On March 31, 2015, the Company and ScanSource entered into a settlement agreement with respect to such action in California State Court althoughwhich SSI agreed to pay ScanSource a total of $471,000 plus interest as follows: (a) payment of $100,000 on or before June 1, 2015, (b) beginning June 1, 2015, interest accruing on the outstanding balance of 12% per annum until the balance is paid in full, (c) beginning July 1, 2015 and continuing for 12 months thereafter, payment of $8,000 per month, and (d) following the initial 12 month payment schedule set forth in (b), payment of $316,715 in 24 monthly payments according to an amortization schedule agreed to by the Company has not yet been servedand ScanSource. Subsequently, the Company completed the Foreclosure Sale of substantially all assets of SSI, and these amounts are included in such action. The Company believes that it has meritorious defenses and counterclaims in respectthe liabilities of TIG’s claim. The Company intends to pursue a settlement of all claims with TIG and is in discussions with TIG in respect thereof.discontinued operations.
WFG
The Company is in receipt of a letter dated November 10, 2014 on behalf of Wi-Fi Guys, LLC ("WFG") demanding payment from the Company for amounts relating to development and software services in the amount of $297,000. The Company evaluated all of its options, including legal options, with respect to the validity of the WFG letter and the alleged grounds for demanding payment and formally responded in a letter dated December 1, 2014 in which the Company denied WFG's claims and additionally made separate counter-claims against WFG. Subsequently, the Company completed the Foreclosure Sale of substantially all assets of SSI, and these amounts are included in the liabilities of discontinued operations.
AGC
The Company is in receipt of a letter dated April 10, 2015 on behalf of America's Growth Capital, LLC d/b/a AGC Partners ("AGC") demanding payment from the Company for amounts relating to the occurrence of a strategic transaction between the Company and Signal Point Holdings Corp in the amount of $300,000. The Company has evaluated all of its options, including legal options, with respect to the validity of the AGC letter and the alleged grounds for demanding payment and formally responded in a letter dated April 16, 2015 in which the Company denied AGC's claims. Subsequently, the Company completed the Foreclosure Sale of substantially all assets of SSI, and these amounts are included as part of the discontinued operations.
NFS AND RELATED MATTERS
On January 28, 2016, NFS Leasing, Inc. ("NFS") filed suit against SignalShare, LLC and Signal Point Holdings Corp. ("SPHC"), wholly-owned subsidiaries of the Company, for non-payment of amounts due under certain agreements with NFS and two employees of SignalShare, LLC. NFS seeks $7,828,597, plus interest and attorneys' fees, from SignalShare, LLC and seeks enforcement of certain guarantees of the debt by SPHC and named officers of SignalShare, LLC. In July 2015, SignalShare, LLC converted certain equipment leases from NFS into a secured Term Loan. The Note evidencing the loans is secured by a subordinated security interest in the assets of SignalShare and SPHC and is guaranteed by SPHC. NFS has also sought to include subsidiaries of the Company in the litigation, including DMAG. Pursuant to an Intercreditor, Modification and Settlement Agreement, dated as of November 13, 2015 by and among NFS, SPHC, SignalShare LLC and the Company's senior lenders, such Intercreditor agreement excluded any security interest in the parent company, Roomlinx, Inc. or of the subsidiaries of SPHC, which are M2 nGage, M2 Communications, SPC and SSI. Thus, NFS' suit and claims reside solely in SignalShare LLC and SPHC, but none of the assets (other than SignalShare LLC) of SPHC. The case was filed in the U.S. District Court for the District of Massachusetts (Civ Action No. 16-10130). SPHC and SignalShare answered the complaint and are in the process of litigating the matter. SignalShare LLC and SPHC intend to vigorously defend the matter.
Notwithstanding the foregoing, NFS amended its complaint and added the new subsidiary of the Company, Digital Media Acquisition Group Corp. ("DMAG"), to the case. It also filed a motion for a preliminary injunction to prevent the corporate restructuring resulting from the Brookville/Veritas/Allied court actions. On June 15, 2016, NFS withdrew its request for injunctive relief regarding DMAG and was granted an injunction regarding SignalShare, LLC. to prevent the company from making certain payments and required certain information regarding SignalShare. The Company believes the new amended claims are without merit, is opposing such actions and has filed motions to dismiss the claim as it relates to DMAG. The companies will vigorously defend these matters if the parties are unable to resolve the dispute. As a result of the SignalShare bankruptcy filing, the case related to SignalShare is stayed. On the same day, Joseph Costanzo, a former employee of SignalShare and a codefendant in the litigation, filed a cross claim against SignalShare and SPHC and related parties ("SPHC Parties") alleging that he was induced by SignalShare and the SPHC Parties into entering certain agreements related to NFS. Any disputes between Costanzo, the SPHC Parties and SignalShare were settled pursuant to a settlement agreement executed between the parties. Pursuant to the terms of the Settlement Agreement, the parties mutually released each other from any claims and SPHC agreed to pay Joseph Costanzo $92,000 over a period of a year associated with amounts due.
Hyatt
The Company received a request for indemnification from Hyatt Corporation ("Hyatt") dated July 3, 2013 in connection with a case brought in US Federal Court in California by Ameranth, Inc., against, among others, Hyatt. In connection with such case, the plaintiffs have identified the Company’sCompany's e-concierge software as allegedly infringing Ameranth’sAmeranth's patents. The Company licenses the e-concierge software from a third party and accordingly has made a corresponding indemnification request to such third party. The Company believes that any such claim may also be covered by the Company’sCompany's liability insurance coverage and accordingly the Company does not expect that this matter will result in any material liability to the Company.
On March 12, 2012, the Company and Hyatt Corporation ("Hyatt") entered into a Master Services and Equipment Purchase Agreement (the "MSA") pursuant to which the Company has agreed to provide in-room media and entertainment solutions, including its proprietary Interactive TV (or iTV) platform, high speed internet, free-to-guest, on-demand programming and related support services, to Hyatt-owned, managed or franchised hotels that are located in the United States, Canada and the Caribbean. Under the MSA, Hyatt will use its commercially reasonable efforts to cause its managed hotels to order the installation of the Company's iTV product in a minimum number of rooms in Hyatt hotels within certain time frames.
In December 2012, the Company and Hyatt mutually agreed to suspend certain Hyatt obligations under the MSA that had not been met; including the suspension of the obligations of Hyatt to cause a certain number of rooms in both Hyatt owned and managed properties to place orders for the Company's iTV products within certain time frames. At the time of the December 2012 suspension of these Hyatt obligations, the Company had installed certain services and products in approximately 19,000 rooms (including approximately 9,000 installs of its iTV product) in Hyatt hotels. During the year ended December 31, 2013, the Company completed the installation of approximately 1,000 additional rooms. As of December 31, 2015 and December 31, 2014, deposits received on statements of work for Hyatt properties are recorded as customer deposits in the consolidated balance sheets in the amounts of approximately $1,262,000.
In connection with the Merger Agreement, the Company and Hyatt entered into a Waiver and Consent Agreement dated as of March 11, 2014 (the "Hyatt Consent Agreement"), pursuant to which Hyatt provided its conditional consent and approval to the transactions contemplated by the Merger Agreement and any assignment of the Company's assets contemplated thereunder, including the assignment to SSI of the Company's right, title and interest under the MSA and under the Hotel Services & Equipment Purchase Agreements (the "HSAs") entered into by the Company with individual hotel owner entities.
On September 29, 2014, the Company received a letter from Hyatt (the "September 29th Letter") notifying the Company that Hyatt is terminating the HSAs with respect to the following five hotels in which the Company has yet to install any equipment or provide any services – the Hyatt Regency Indianapolis, the Hyatt Regency Greenwich, the Grand Hyatt New York City, the Hyatt Regency Coconut Point and the Hyatt Regency Lake Tahoe (collectively, the "Hotels"). Hyatt's September 29th Letter does not affect any Hyatt hotels under the MSA currently being serviced by the Company. Hyatt's termination of the HSAs is based on alleged noncompliance by the Company and SSI with certain provisions of the Hyatt Consent Agreement. The Company evaluated the validity of the Hyatt Letter and the alleged grounds for terminating the HSAs for the Hotels, and believes such grounds are without merit.
Hyatt's September 29th Letter also requested repayment of deposits in the aggregate amount of $966,000 paid to the Company by the Hotels in connection with the HSAs. A second letter dated November 14, 2014 (the "November 14th Letter") received by the Company from Hyatt demanded repayment of such deposits by November 21, 2014. Upon evaluating the validity of Hyatt's November 14th Letter and again determining that Hyatt's grounds for terminating the HSA and demanding the return of the aforementioned deposits are without merit, the Company formally responded in a letter to Hyatt dated March 3, 2015 wherein the Company denied Hyatt's claims. The Company subsequently received a third letter from Hyatt dated March 26, 2015 (the "March 26th Letter") in which Hyatt again demanded the repayment of the aforementioned deposits. The Company has evaluated the validity of the March 26th Letter and the alleged grounds for terminating the HSAs for the Hotels, and believes such grounds are without merit. The Company has not made any such repayment to Hyatt. On May 4, 2015, the Company received a letter from Hyatt alleging that the Hyatt Consent Agreement did not apply to the merger between Signal Point Holdings Corporation and the Company and further contends that such merger triggered Hyatt's right to terminate the MSA. The Company believes Hyatt's arguments and conclusion are without merit.
The Parties began negotiations to rectify the disputes between them and entered into a Settlement Agreement on November 17, 2015 providing for the orderly termination of iTV services at Hyatt locations. The Settlement Agreement also provided for the extension of high speed internet services for 36 months in retained Hyatt locations and gave the Company the right to bid on all future Wi-Fi installations at hotels and business center locations. The Settlement Agreement also provided that the deposit would be used to fund transitional services and future installation costs. Finally, the Settlement Agreement provided for mutual releases. See Note 18 "Commitments and Contingencies" in the accompanying consolidated financial statements.
Wincomm v. SignalShare.
SignalShare, LLC. received a demand letter from counsel for Winncom Technologies, Inc. demanding payment due under a note previously issued by SignalShare. The demand seeks payment of the $10,000 outstanding payment. The demand further states that if the payment is not made, Winncomm will seek payment on the entire note amount, $837,589, and threatens legal action. SignalShare has contacted Winncom's counsel and will seek to settle the matter amicably. SignalShare intends to settle the matter but has not provided WinnComm with a settlement offer as of this date. As a result of the SignalShare bankruptcy, these amounts are included in the liabilities of discontinued operations.
Network Cabling V. SignalShare.
On February 19, 2016, Network Cabling sued SignalShare, LLC. seeking $47,755 in damages for failure to pay amounts due. As a result of the SignalShare bankruptcy, these amounts will now be handled as part of the liabilities of discontinued operations.
See also "Legal Proceedings Concerning Our Principal Shareholder, Robert DePalo.
Cenfin Corporate Guaranty
On November 19, 2015, SignalShare Infrastructure, Inc. ("SSI") and the Company entered into a Guaranty and Payment Agreement with Cenfin LLC, a senior lender of the Company, whereby the M2 Communications borrowed $150,000 from SSI in exchange for an unsecured guaranty of the debt of SSI up to $1,500,000 until the $150,000 will be paid back to SSI. The Company believes its obligations, if any, under the Guaranty were satisfied and no amount is due. Subsequently, the Company completed the Foreclosure Sale of substantially all assets of SSI, and these amounts are included as part of the liabilities of discontinued operations.
Cenfin Default
On September 30, 2015, Roomlinx and its subsidiary SSI received a notice of default under the Amended and Restricted Revolving Credit and Surety Agreement with Cenfin LLC dated March 24, 2014 (the "Credit Agreement"). SSI was unable to pay the amounts due to Cenfin, LLC and the parties agreed to allow Cenfin to foreclose under Agreement. This relates to approximately $3,622,275 of indebtedness including approximately $308,772 of accrued interest incurred by SSI which holds Roomlinx's operations prior to the Company's March 27, 2015 acquisition of Signal Point Holdings Corp. On May 11, 2016 SSI completed the foreclosure sale of substantially all assets of SSI to a non-affiliated third party at a public auction pursuant to Article 9 of the Uniform Commercial Code, and these amounts are included as part of the liabilities of discontinued operations. The auction took place at the offices of DLA Piper LLP, 203 N. LaSalle Street, Chicago, Illinois 60601. There was one bidder and the transaction closed on May 11, 2016 and all employees of SSI were terminated and the operations of SSI ceased.
Cardinal Broadband, LLC. Sale:
The Company is in receiptthe process of selling its Cardinal Broadband, LLC subsidiary for approximately $375,000. In accordance with applicable settlement agreement and lender documentation, the proceeds of the sale have been pledged to Cenfin, LLC, a District Court Civil Summons, dated August 23, 2013,senior debt holder of SSI without any offset. The transaction closed effective May 1, 2016 and all assets of Cardinal, including its interest in the matter of “ScanSource v. Roomlinx, Inc.”Arista Communications, LLC., commenced in the District Court of Greenville County, South Carolina (the “Action”have been sold.
IT Hospitality Solutions LLC. v, SignalShare, LLC. And Signal Point Telecommunications Corp.
On February 16, 2016, SignalShare, LLC ("SSLLC"). The plaintiffs in the Action claim that the Company owes them approximately $473,000 with respect to inventory which the Company purchased. The amount is recorded in accounts payable in the accompanying consolidated balance sheets as of December 31, 2013 and 2012. The Company intends to pursue a settlement of all claims.
Other than the foregoing, there are no material legal proceedings to which the Company (or any officer or director of the Company, or any affiliate or owner of record or beneficially of more than five percent of the Common Stock, to management’smanagement's knowledge) is party to or to which the property of the Company is subject is pending, and no such material proceeding is known by management of the Company to be contemplated.
Legal Proceedings Concerning Our Principal Shareholder, Robert DePalo
Robert DePalo currently owns approximately 31% of the issued and outstanding common stock of M2 Group. In connection with the SMA described in Item 1 above, Mr. DePalo resigned as a director, officer and/or employee of SPHC (and any subsidiaries thereof), as of March 27, 2015. As a result, Mr. DePalo has not been and will not be involved in the day to day management of the Company or any of its subsidiaries. On May 20, 2015, the New York County District Attorney charged Robert DePalo with various offenses relating to foreign investors. Simultaneously, the SEC commenced an action against Mr. DePalo (et al.) in the Southern District of New York based on the same facts alleged by the New York District Attorney. A copy of the complaint can be found on the SEC's website, www.sec.gov. The Company takes seriously the New York County District Attorney and SEC actions and will monitor these actions very closely.
The Company has no knowledge and cannot provide any further details regarding these proceedings against Mr. Depalo. The actions described therein have no relation to the Company or its wholly-owned subsidiaries, SPHC, SSI or DMAG. However, pursuant to the terms of Mr. DePalo's consulting agreement, the Company is obligated to pay 100% of Mr. DePalo's legal fees whether or not related to the agreement.
On February 24, 2016, Brookville Special Purpose Fund, LLC. ("Brookville"), Veritas High Yield Fund LLC ("Veritas") and Allied International Fund, Inc. ("Allied") (collectively the "Plaintiffs") filed suit in separate actions in the U.S. District Court for the Southern District of New York against Signal Point Holdings Corp., Signal Point Software Development Corp. and Signal Point Telecommunications Corp. ("Defendants") seeking foreclosure on the secured loans with the Defendants and the imposition of a temporary restraining order. On April 7, 2016, the parties entered into a settlement agreement in lieu of foreclosure upon the following terms:
- The Defendants affirmed the amounts owed under the secured loans
- The Defendants made payments to cure the defaults related to Brookville and Veritas and entered into a payment arrangement to cure the arrears related to Allied.
- Plaintiffs agreed to forbear from foreclosure provided the Defendants entered into a Restructuring, Omnibus Pledge, Security and Intercreditor Agreement which provides for, among other things, the transfer of 100% of the shares of Signal Point Telecommunications Corp. and SignalShare Software Development Corp. to a new holding company under Roomlinx, Inc.
- The Defendants agreed to meet with the Plaintiffs weekly to discuss operations and other matters.
- The Defendants agreed to provide notice to Plaintiffs of certain expenses over $25,000.
- The Defendants reduced the compensation of certain members of the management team.
- The Parties agreed to mutual releases.
- The Defendants agreed to indemnify the Plaintiffs for certain claims.
The settlement agreement was filed with the court and, in accordance with its terms, the Plaintiffs ceased foreclosure proceedings. On April 11, 2016, a Court Order was entered before J. Vernon S. Broderick in the U.S. District Court SDNY, detailing that in lieu of foreclosure proceedings, the Company will transfer the excluded entities into a new holding company with all equity of such entity pledged to Brookville, Veritas and Allied, as well as perfecting liens against all of the assets. In exchange for the forbearance of the foreclosure on the assets of the Debtors, the Company agreed to transfer the subsidiaries of SPHC (specifically, M2 Communications and M2 nGage), with the exception of SignalShare LLC and Signal Point Corp., to "NEWCO," a new subsidiary of the Company, so that the subsidiaries of SPHC will become subsidiaries of NEWCO. The Debtors granted the Secured Parties a lien on the assets of the Debtors and pledged the securities of NEWCO, M2 Communications and M2 nGage to the Secured Parties (collectively, the "Collateral"). NEWCO was formed as Digital Media Acquisition Group Corp. ("DMAG") and the shares of M2 Communications and M2 nGage were transferred to DMAG and the senior secured creditors received stock pledges in the shares of M2 Communications and M2 nGage owned by DMAG as required by the terms of the Settlement Agreement and the relevant loan documents.
Please refer to Section 13 "Certain Relationships and Related Transactions and Director Independence for a description of the relationship of the Plaintiffs to Mr. DePalo.
Not applicable.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASERSPURCHASES OF EQUITY SECURITIES
| SYMBOL | TIME PERIOD | LOW | HIGH | |||||||||||||||
| SYMBOL | TIME PERIOD | LOW | HIGH | |||||||||||||||
RMLX | January 1, - March 31, 2012 | $ | 2.25 | $ | 4.80 | |||||||||||||
| April 1, - June 30, 2012 | $ | 2.15 | $ | 3.50 | ||||||||||||||
| MTWO | April 1, - June 30, 2016 | $ | 0.27 | $ | 0.38 | |||||||||||||
| January 1, - March 31, 2016 | $ | 0.21 | $ | 0.39 | ||||||||||||||
| July 1, - September 30, 2012 | $ | 2.30 | $ | 3.98 | ||||||||||||||
| January 1 - March 31, 2015 | $ | 3.00 | $ | 10.20 | ||||||||||||||
| October 1, - December 31, 2012 | $ | 1.80 | $ | 2.75 | April 1 - June 30, 2015 | $ | 1.90 | $ | 5.50 | |||||||||
| July 1 - September 30, 2015 | $ | 0.85 | $ | 2.00 | ||||||||||||||
| January 1, - March 31, 2013 | $ | 1.15 | $ | 2.39 | October 1 - December 31, 2015 | $ | 0.21 | $ | 1.75 | |||||||||
| April 1, - June 30, 2013 | $ | 0.52 | $ | 1.90 | January 1, - March 31, 2014 | $ | 5.40 | $ | 24.00 | |||||||||
| April 1, - June 30, 2014 | $ | 12.00 | $ | 18.00 | ||||||||||||||
| July 1, - September 30, 2013 | $ | 0.11 | $ | 0.65 | July 1, - September 30, 2014 | $ | 7.20 | $ | 16.80 | |||||||||
| October 1, - December 31, 2014 | $ | 2.40 | $ | 8.40 | ||||||||||||||
| October 1, - December 31, 2013 | $ | 0.03 | $ | 0.34 | ||||||||||||||
RMLXP | January 1, - March 31, 2012 | $ | 0.10 | $ | 0.10 | April 1 - June 30, 2016 | $ | 0.10 | $ | 0.11 | ||||||||
| January 1 - March 31, 2016 | $ | 0.10 | $ | 0.16 | ||||||||||||||
| April 1, - June 30, 2012 | $ | 0.10 | $ | 0.10 | ||||||||||||||
| January 1 - March 31, 2015 | $ | 0.17 | $ | 0.18 | ||||||||||||||
| July 1, - September 30, 2012 | $ | 0.10 | $ | 0.12 | April 1 - June 30, 2015 | $ | 0.20 | $ | 0.18 | |||||||||
| July 1 - September 30, 2015 | $ | 0.22 | $ | 0.18 | ||||||||||||||
| October 1, - December 31, 2012 | $ | 0.05 | $ | 0.12 | October 1, - December 31, 2015 | $ | 0.20 | $ | 0.16 | |||||||||
| January 1, - March 31, 2013 | $ | 0.20 | $ | 0.20 | January 1, - March 31, 2014 | $ | 6.00 | $ | 8.40 | |||||||||
| April 1, - June 30, 2014 | $ | 12.60 | $ | 15.60 | ||||||||||||||
| April 1, - June 30, 2013 | $ | 0.10 | $ | 0.20 | July 1, - September 30, 2014 | $ | 12.60 | $ | 14.40 | |||||||||
| October 1, -December 31, 2014 | $ | 10.20 | $ | 14.40 | ||||||||||||||
| July 1, - September 30, 2013 | $ | 0.10 | $ | 0.11 | ||||||||||||||
| October 1, - December 31, 2013 | $ | 0.10 | $ | 0.10 | ||||||||||||||
The closing bid for ourthe Company's Common Stock on the OTC-Bulletin BoardOTC Pink Limited on March 15, 2014August 24, 2016 was $0.30. Stockholders are urged to obtain current market quotations for our common stock.$0.26. As of March 15, 2014, 6,411,413August 11, 2016, 136,019,348 shares of Common Stock were issued and outstanding (giving retroactive effect to the 1 for 60 reverse stock split and subsequent dividend) which were held of record by approximately 270 shareholders.400 stockholders. As of March 15, 2014,August 11, 2016, 720,000 shares of Class A Preferred Stock were issued and outstanding which were held of record by approximatelya single shareholder although we believe that an estimated 40 beneficial shareholders own Class A Preferred Stock. As of August 11, 2016, 2,495,000 shares of Series B Preferred Stock were issued and outstanding which were held of record by 17 shareholders.
Dividends
The Company has not paid any cash dividends on its stock. Dividends may not be paid on the common stock while there are accrued but unpaid dividends on the Class A Preferred Stock, which bears a 9% cumulative dividend. As of December 31, 20132015 accumulated but unpaid Class A Preferred Stock dividends aggregated $198,120.$224,040. Payments must come from funds legally available for dividend payments. It is the current intention of the Company to retain any earnings in the foreseeable future to finance the growth and development of its business and not pay dividends on the common stock.
Issuer Purchases of Equity Securities
During 2013,2015, the Company did not repurchase any shares of ourits common or preferred stock.
The following graph comparessales of unregistered securities occurred during the percentage change inyear ended December 31, 2015, which were not previously reported:
On April 24, 2015, the Company’s cumulative total stockholder return on itsCompany issued 12,603,473 shares of common stock with (i)as dividends to its existing shareholders. The dividend shares are restricted and could not be transferred without the cumulative total return of the NASDAQ Market Index and (ii) the cumulative total return of all companies (the “Peer Group”) with the same four-digit standard industrial code (“SIC”) as the Company (SIC 4841 – Cable and Other Pay Television Services over the period and SIC 4899 – Communication Services, NEC) over the period from January 1, 2008 through December 31, 2013. The graph assumes an initial investment of $100 in eachprior written consent of the Company the NASDAQ Market Index and the Peer Group and reinvestment of dividends.prior to December 31, 2015. The Company did not declare or pay any dividends on its common stock in 2012. The graph is not necessarily indicative of future price performance.
On July 30, 2015, the Company issued 61,927 restricted shares to Alan J. Werksman TTEE UTD 2/8/96 in settlement of a claim. The issuance was exempt from registration pursuant to Section 4(a)(2) under the Exchange Act, except toSecurities Act. The Company relied upon the extentrepresentations and warranties made by Alan Werksman in the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.settlement agreement.
There have beenwere no recentplacement agents or underwriters involved in the above transactions and no sales of unregistered securities.commissions were paid.
Not required.
ITEM 7. MANAGEMENT’SMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read together with our consolidated financial statements, the accompanying notes to these financial statements, and the other financial information that appears elsewhere in this Annual Report on Form 10-K or our SEC filings.
CRITICAL ACCOUNTING POLICIES
Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of itsthe Company's consolidated financial statements.
Accounts Receivable and Allowance for Doubtful Accounts - The Company enters into contractual arrangementsextends credit to provide multiple deliverables which may include some or allcertain customers in the normal course of business, based upon credit evaluations, primarily with 30 – 60 day terms. The Company's reserve requirements are based on the following - systems installationsbest facts available to the Company and are reevaluated and adjusted as additional information is received. The Company's reserves are also based on amounts determined by using percentages applied to certain aged receivable categories. These percentages are determined by a variety of factors including, but not limited to, current economic trends, historical payment and bad debt write-off experience. Accounts are written off when they are deemed uncollectible.
Revenue Recognition – M2 Communications derives the majority of its revenue from monthly recurring fees and usage-based fees that are generated principally by sales of its network, carrier and subscription services.
Monthly recurring fees include the fees billed by M2 Communication's network and carrier services customers for lines in service and additional features on those lines. M2 Communication primarily bills monthly recurring fees in advance, and recognizes the fees in the period in which the service is provided.
Usage-based fees consist of fees billed by M2 Communication's network and carrier services customers for each call made. These fees are billed in arrears and recognized in the period in which the service is provided.
Subscriber fees include monthly recurring fees billed by M2 Communication's end-user subscribers for lines in service, additional features on those lines, and usage-based per-call and per-minute fees. Subscriber fees also consist of provision of access to data, wireless, and VoIP services. These fees are billed in advance for monthly recurring items and in arrears for usage-based items, and revenues are recognized in the period in which service is provided.
Deferred Revenue and Customer Prepayments - M2 Communication bills customers in advance for certain of its telecommunications services. If the customer makes payment before the service is rendered to the customer, M2 Communication records the payment in a liability account entitled customer prepayments and recognizes the revenue related to high speed internet access, free-to-guest programming, video on demand,the communications services when the customer receives and iTV as well as residential phone, internet and television. Each of these elements must be identified and individually evaluated for separation. The term “element”utilizes that service, at which time the earnings process is used interchangeably with the term “deliverable” and the Company considers the facts and circumstances as it relates to its performance obligations in the arrangement and includes product and service elements, a license or right to use an asset, and other obligations negotiated for and assumed in the agreement. Analyzing an arrangement to identify all of the elements requires the use of judgment, however, once the deliverables have been identified, the Relative Fair Value of each Element was determined under the concept of Relative Selling Price (RSP) for which the Company applied the hierarchy of selling price under ASC Topic 605, “Revenue Recognition”.
RESULTS OF OPERATIONS
Revenues
Our revenues for the years ended December 31, 20132015 and 20122014 were $9,448,543approximately $10.6 million and $13,003,915$11.3 million, respectively, a decrease of $3,555,372,approximately $0.7 million or 27%, reflecting6.1%. This decrease primarily relates to a decrease in installation revenue of approximately $5,600,000 and an increase in recurring revenue of approximately $1,925,000. Substantially all of the changes in revenue were attributable to the Hyatt MSA. The decrease in installation revenue was primarily realizedchange in the fourth quartermix of 2013 vs 2012, whencustomer services to slightly lower priced products and the Company installed approximately 1,700 RGU’sloss of some broadband customers due to extremely competitive pricing in 2013 vs 20,000 RGU’s in 2012, the resultCompany's largest market.
Cost of Hyatt and Roomlinx agreeing to slow installations of the iTV product at the end of 2012. The increase in annual recurring revenue reflects the substantial number of hotel installations in 2012 and 2013, generating an increase of approximately $1,975,000.Sales
Selling, General and an increase in recurring revenue of $2,025,000 or 70%. As of December 31, 2013Administrative Expense
Total selling, general and 2012, the Company had approximately 64,000 and 43,500 RGUs in service. Substantially all of the increased revenue was attributable to the Hyatt MSA.
Our residential segment includes multi-dwelling unit and business customers in the United States. The products offered include the installation of, and the support and service of, telephone, internet, and television services.
Non-Operating
Interest expense increased from approximately $0.9 million for the year ended December 31, 2012, a decrease of $2,558,724, or 44%.2014, to approximately $1.0 million for the year ended December 31, 2015. This decrease isincrease in interest expense was primarily attributable to the additional interest related to conversion of preferred stock to a net increase in revenues less direct costsnote during 2015 and the additional financing cost savings achieved through the Company’s 2013 cost reduction and containment program, as described above. related to managing existing debt.
For the years ended December 31, 20132015 and 2012, continuing operational expenses (operating, product development, and selling, general and administrative costs) decreased 82% as a percentage of recurring revenue to 81% in 2013 compared to 163% in 2012.
Discontinued Operations
Discontinued operations are the result of the bankruptcy of SignalShare, the Article 9 sale of the assets of SSI and the sale of Cardinal Broadband in the first half of 2016 and the termination of all CHL contracts on December 20,our wholesale telecom business unit in September 2013, resulting in a loss on discontinued operations of $422,503approximately $55.1 million (including impairment of goodwill of approximately $46.9) and $3.8 million for the yearyears ended December 31, 2013. Under ASC 360-10, the consolidated statements of comprehensive income have been reclassified for the year ended December 31, 2012, to identify a loss on discontinued operations of $1,250,324.2015 and 2014, respectively.
Net Loss
For the years ended December 31, 20132015 and 2012,2014, the Company experienced net losses attributable to common shareholders of $4,153,816approximately $81.7 million and $7,391,734$12.6 million, respectively, a net decreaseincrease of $3,327,918, comprisedapproximately $69.0 million. This increase includes impairment of good will included in discontinued operations of approximately $46.9 million and additional stock based compensation recorded in 2015 of approximately $21.6 million. Net loss attributable to common shareholders increased by approximately $2.4 million with exclusion of the goodwill impairment and stock based compensation, which is primarily attributable to the increased payroll costs associated with the addition of software developers to help support our live-fi product, an increase in revenue less direct costs of approximately $1,520,000, ainterest expense and the decrease of approximately $1,800,000 in costs of operations, and a decrease of approximately $830,000 in loss from discontinued operations less a loss on asset impairment of approximately $832,000, all of which are more fullyoperating margins between the years as described above.
Related Party Transactions
CenFin LLC
Since June 5, 2009, the Company has maintained a Revolving Credit, Security and Warrant Purchase Agreement (the “Credit Agreement”"Credit Agreement") with Cenfin LLC ("Cenfin"), an entity principally owned by significant shareholders of the Company (see Note 86 to the Consolidated Financial Statements). The Credit Agreement permits us to borrow up to $25 million until June 5, 2017. On May 3, 2013,March 24, 2015, in connection with the closing of the Subsidiary Merger, the Company entered into an amended and restated Revolving Credit and Security Agreement with Cenfin executed a fourth amendment(the "Revolver"). Cenfin consented to the Credit Agreement which provided Cenfin sole and absolute discretion related to funding any advance requested by Roomlinx. Advances must be repaid at the earliertransfer of 5 years from the date of borrowing or at the expirationall of the Credit Agreement.Company's assets to SSI in consideration of (i) payment of $750,000 to CenFin reducing the balance owed to $3,962,000; and (ii) 7,061,295 shares of M2 Group common stock (5.07% of M2 Group's fully diluted shares). In addition, all subsequent payments are adjusted based on a pro-ration of the accelerated payment. The principal balance may be repaidrevolving loan is secured by the assets of SSI, but not secured by those of M2 Group (except to the extent not assigned to SSI) and not secured by any assets of SPHC, DMAG or their subsidiaries. Under a Stock Pledge Agreement, dated as of March 24, 2015, the Company pledged to Cenfin all equity interests of SSI and Cardinal Broadband LLC. Interest is accrued at any time without penalty. Borrowings accrue interest, payable quarterly on the unpaid principal and interest at a rate equal to the Federal Funds Rate at July 15 of each year plus 5% (approximately 5.09%per annum, payable quarterly, with a default rate of 13% per annum. The loan is repayable during the period ending March 15, 2017. The Revolver provides that CenFin, at December 31, 2013).its discretion, may lend up to an aggregate of $10,000,000. The Credit Agreement is collateralized by substantially allRevolver contains covenants and restrictions customary for a facility of our assets, and requires we maintain a total outstanding indebtedness to total assets ratio of less than 3 to 1.this size.
During the year ended December 31, 2013,2015, the Company made interest payments to Cenfin of $256,942.$61,431 and principal payments of $573,447. Amounts outstanding under the Credit Agreement were $5,176,000 at$3,240,160 plus accrued interest of $160,931 as of December 31, 2013.2015.
On June 30, 2015, the Company entered into the First Amendment (the "First Amendment) to the Amended and Restated Revolving Credit Agreement, dated as of June 30, 2015 (the "Credit Agreement"), by and among the Company, SSI and Cenfin. The material terms of the First Amendment provided that Cenfin would be entitled to 33% of the gross proceeds raised in any equity or debt financing activities by either the Company or SSI, not including operational leases, for so long as there is any outstanding balance under the Credit Agreement for which only SSI is obligated (the "Cenfin Equity Payment Obligation"). In consideration of the First Amendment, the Company and SSI released Cenfin from all claims related to the loan documents.
On October 7, 2015, in settlement of a non-payment default, the Company and SSI entered into a consulting arrangementForbearance Agreement with Cenfin upon the following terms:
● The interest rate on each Revolving Loan (as defined) was increased to the Federal Funds Rate plus 13%, from 5%.
● Subject to compliance by the Company and SSI with the terms and conditions of the Second Amendment and the Loan Agreement, Cenfin agreed to forebear from exercising its rights and remedies against SSI with respect to the default for marketing services with TRG,non-payment on September 29, 2015 until the earlier of November 7, 2015 or a Forbearance Default (as defined) occurs (the "Forbearance Period"). SSI also agreed during the Forbearance Period not to make any payments to creditors or lenders of SSI without Cenfin's prior written consent, except for contractual payments, in the ordinary course of business to vendors of SSI.
● M2 Group (formerly Roomlinx) agreed during the Forbearance Period not to make any payments to any of the creditors or lenders of the Company (other than NFS Leasing) without first giving Cenfin two (2) business days prior written notice, except for contractual payments to vendors in the ordinary course of business.
On November 19, 2015, the Company entered into a Guaranty and Payment Agreement pursuant to which the Company Guaranteed a $150,000 intercompany loan from SSI to the Company and an additional installment payment of $75,000 was made to Cenfin. Until such time as the $150,000 is repaid to SSI, the Company guaranteed up to $1,500,000 of SSI debt to Cenfin.
On May 11, 2016, completed the Foreclosure Sale of substantially all assets of SSI (other than certain excluded agreements) pursuant to Article 9 of the Uniform Commercial Code. SSI terminated all of its employees and ceased operations. The Foreclosure Sale resulted from SSI's inability to pay approximately $3,622,275 of indebtedness to SSI's senior lender, Cenfin, LLC. The winning bid was made by Single Digits, Inc., an entityunaffiliated New Hampshire corporation and accepted by Cenfin. There was no relationship between SSI or its affiliates and Single Digits prior to the transaction. The consideration was $700,000 plus SSI's cash on hand at Closing less $207,106.72, such amount representing 75% of deposits received by SSI prior to closing for future installations for which work had not been substantially completed for Hyatt. The amount of accounts receivables included in the transferred assets was approximately $440,000 as of May 9, 2016.
NFS Leasing, Inc.
On July 31, 2015, certain wholly owned subsidiaries of the Company identified below entered into the following agreements in connection with the conversion of certain equipment leases into secured loans (collectively referenced as the "NFS Loan Documents"):
| · | Lease Schedule Termination and Loan Agreement (the "Termination Agreement"), by and between SignalShare, LLC ("SignalShare") and NFS Leasing, Inc. ("NFS"); |
| · | Security Agreement by and between Signal Point Holdings Corp. ("SPHC") and NFS; |
| · | Promissory Note issued by SignalShare to NFS in the principal amount of $4,946,212 (the "Note"); |
| · | Corporate Guaranty Agreement by and between SPHC and NFS; and |
| · | First Amendment to the Security Agreement by and between SignalShare and NFS. |
The NFS Loan Documents provided that amounts owed by Michael S. Wasik,SignalShare to NFS pursuant to certain equipment leases would be converted into secured debt as evidenced by the CEONote. The Note provides for SignalShare to make seventy-five consecutive weekly payments of $71,207 with a final payment of $18,887 due upon maturity of the Note on December 19, 2016 (the "Maturity Date"). The Note is secured by subordinated security interests in all of the assets of SignalShare and ChairmanSPHC. The Note is also guaranteed by SPHC. In addition to the payment obligations under the Note, the Termination Agreement provides that SignalShare will make concurrent weekly payments of Roomlinx.$28,793 for payments due pursuant to the Master Equipment Lease Number: 2013-218 dated as of March 11, 2013 through the Maturity Date.
In connection with the NFS Loan Documents, the Company issued NFS a Warrant to purchase 1,111,111 shares of Common Stock at an exercise price of $1.80 per share with an exercise period of five years (the "Warrant").
On September 22, 2015, NFS notified SignalShare of a default for non-payment. On September 28, 2015 NFS withdrew the default. In exchange for withdrawing the default, NFS, SignalShare and SPHC agreed that unless NFS, on or before Friday, October 2, 2015, is in receipt of payment in the amount of $389,416 or alternatively, if a forbearance arrangement satisfactory to NFS were not executed between the parties by the close of business (5:00 P.M.) on that day, NFS would be entitled to renew its Notice of Default to SignalShare and SPHC (with respect to its guaranty), in which event SignalShare and SPHC each would waive all applicable cure periods with respect to such default.
On October 2, 2015, NFS gave notice of default to SignalShare and SPHC and stated that NFS would seek payment from SignalShare under the Note and from SPHC under the Corporate Guaranty Agreement given to NFS by SPHC as security for the converted SignalShare loans. The marketing services wereparties negotiated a settlement upon the following material terms:
● SignalShare shall pay NFS via wire transfer the sum of $150,000 within one business day of its receipt of the final payment from one of its customers, which is expected to be performedreceived on or about October 30, 2015.
● SignalShare shall pay NFS the amount of $28,793 via wire transfer on each Monday, commencing October 12, 2015 through Monday November 16, 2015, under the Master Lease. SignalShare has made its first three payments under these terms on October 12, 19 and 26, 2015.
● SignalShare shall, on or before October 23, 2015, cause UCC termination statements to be filed by Chris Wasik,each of Brookville and Veritas.
● On or before November 16, 2015, if SignalShare and SPHC close a bridge loan funding, or any other similar funding event, NFS will receive a $500,000 payment which NFS will apply against the wife of Mr. Wasik. As of December 31, 2012, Roomlinx had paid TRG $94,950 for services performedoutstanding Term Note in accordance with said arrangement. At the beginningprovisions of the Note.
● Upon NFS' receipt of the aforementioned $500,000 payment, NFS, in its sole discretion, may choose to restructure the remaining balance of the Note. In such event the $28,793 weekly Master Lease payments will remain in effect until the leases are paid in full.
● SignalShare shall, make a payment to NFS in the amount of $20,000 on or before December 2012, Chris Wasik became1, 2015 as reimbursement of NFS's attorneys' fees and other expenses.
● SignalShare shall pay the past due Personal Property tax of $50,217 owed to NFS on or before December 15, 2015.
● One million shares of the Company's common stock will be issued to NFS upon, and subject to, NFS' execution of an employeeInvestment Intent Letter agreed to by the Company confirming that the shares are being acquired only for lawful investment purposes under applicable law.
In the event SignalShare or SPHC fails to timely pay to NFS any amounts set forth above, or otherwise fails to timely perform any other obligation set forth above, NFS shall have the right to immediately, upon e-mail notice to SignalShare reinstate the default, with no cure rights.
On November 18, 2015, NFS gave notice of RoomlinxDefault to SignalShare and simultaneously gave notice to SPHC that NFS would be seeking payment under the SignalShare note pursuant to the corporate guarantee given NFS by SPHC as its Director of Marketing with a salary of $85,000 per annum, effectively severing the consulting arrangement with TRG. Subsequently in December 2013, Ms. Wasik assumed responsibilitysecurity for the Company’s call center atconverted SignalShare loans. The parties entered in negotiations in order to remove the default and restructure the obligations. On November 19, 2015, the parties agreed to restructure the loan and make certain payments to NFS. The parties formalized the agreement which time her salary was increased to $101,400. Formodified the year ended December 31, 2013, Ms. Wasik was paid $88,275negotiated settlement resulting from the October 2, 2015 default as an employeefollows:
| · | The $150,000 payment from the impending customer payment was increased to $250,000. |
| · | The Company's agreed to share information with NFS and provide status updates. |
| · | The payment dates associated with NFS' attorneys' fees and tax obligations were extended. |
| · | SignalShare agreed to pay NFS 20% of any upfront initial Wi-Fi installation payment received. |
| · | Effective 2/2/2016, the note monthly payment will be effective at a rate of $150,000 a month. |
| · | Upon receipt of an additional $2,000,000 in funding, the term note will be re-amortized to a monthly payment of $250,000 until the note is repaid. |
See Item 3 "Legal Proceedings" regarding the current lawsuit brought by NFS. Subsequently, SignalShare filed for bankruptcy, and these amounts are included in the liabilities of
LIQUIDITY & CAPITAL RESOURCES
As of December 31, 20132015, the Company had $2,125,655approximately $36,000 in cash and cash equivalent, which is sufficient to continue business operations for at least the next twelve months. During the first half of 2013, the Company executed against a phased reduction whereby at the end of the year, the Company had realized a 37% reduction in personnel to mitigate its fixed cost base, substantially contributing to the reduction of operational expenses, which consist of operations, product development and selling, general and administrative costs as a percentage of recurring revenue to 79%, as compared to 170% for the same period in 2012. In addition, the Company has developed an effective vendor management program to reduce its outstanding payables and extend payment terms.
equivalents. Working capital at December 31, 20132015 was a deficit of $946,114approximately ($30.0) million as compared to $1,700,723approximately ($9.3) million at December 31, 2012.2014. The decreaseincrease in working capital deficit of $2,646,837approximately $20.7 million is primarily due to (i) a reduction in cash approximating $1,085,000$1.5 million, (ii) the additional working capital deficit resulted from the reverse merger of which a substantial portion wasapproximately $6.5 million, (iii) an increase in current maturities of debt related to vendor paymentsthe Company's various existing and new borrowings of approximately $10.8 million, and (iv) increase in the second quarterdeferred revenue of 2013, (ii) an impairment of asset charge related to inventory approximating $832,000 recorded on the consolidated statements of comprehensive income, and (iii) the recognition of a loss on discontinued operations of which approximately $167,000 related to accounts receivable and inventory. Additionally, $464,000 of the Cenfin line of credit was classified as a current liability thereby resulting in a reduction in working capital.$2.6 million. The remaining decreaseincrease in working capital deficit of approximately $100,000$2.5 million is the net change in the working capital assets and liabilities.
- 45 -
Operating Activities
Net cash used byin operating activities was $1,950,101approximately $4.6 million and $1,793,538$10.2 million for the years ended December 31, 20132015 and 2012,2014, respectively. The increasedecrease in cash used in operations of $156,563$5.6 million was primarily attributable to the decrease in cash provided by operations of $3,394,481 less the decrease in net loss of $3,237,918. Cash provided by operations included (i) a decrease of $519,646 in non-cash expenses consisting of a decrease of $827,821 from the loss on discontinued operations, a decrease in the provision for uncollectible accounts and leases receivable of $400,157, a decrease in depreciation expense of $250,462, an increase in loss on asset impairment of $832,429 and fluctuations in other recurring non-cash adjustments such as stock based compensationinsufficient funds to pay off past due liabilities and the amortizationmanagement of debt discount, and (ii) a decrease of $2,874,835 from the fluctuation in changes in operating assets and liabilities.accounts payable during 2015.
Investing Activities
Net cash provided by investing activities was $907,321approximately $0.8 million for the year ended December 31, 20132015 compared to $628,268 provided bynet cash used in investing activities duringof approximately $0.2 for the same period in 2012. The increase inyear ended December 31, 2014. Net cash provided by investing activities of $279,053 was attributable to a savings of $142,879 resulting from a decrease in financing customer installation, and a savings of $189,940 resulting from a decline in capital expenditures during 2013 versus 2012, offset by a decrease in 2013 cash receipts against leases receivable totaling $48,766.
Financing Activities
Net cash provided by financing activities was approximately $2.2 million and $11.9 million for the yearyears ended December 31, 2012. . The decrease in2015 and 2014, respectively. In 2015 the majority of cash of $3,986,257 in financing activities is primarily attributableprovided by was from funds received related to 2012 activities that included (i) the saleissuance of common stock which resulted inof approximately $1.6 million, various notes of approximately $1.5 million, and contributed capital received from a principal shareholder of approximately $615,000, offset by repayment of related party debt of approximately $0.8 million, payment of dividends to Series A Preferred Stock shareholder of $175,000 and repayments of debt related to discontinued operations of approximately $588,000. In 2014, the majority of the net cash provided by was from the proceed of the sale by the former Chief Executive Officer of the Company and principal shareholder, of shares of his personal Common Stock holdings with net proceeds of $2,933,311approximately $7.8 million paid to the Company and (ii)net proceeds received primarily related to capital leases of approximately $5.5 million offset by the receiptnet repayment of an advance against its linerelated party note of credit inapproximately $644,000 and the amountpayment of $1,000,000.dividends to Series A Preferred Stock shareholder of $625,000 .
Contractual Obligations
We have operating and capital lease commitments, note payable commitments, and a line of credit commitment. The following table summarizes these commitments at December 31, 2013:2015:
| Years ended | Line of | Notes | Lease Obligations | Minimum | Line of | Note | Capital/Finance | Operating | Minimum | |||||||||||||||||||||||||||||||
| December 31, | Credit | Payable | Capital | Operating | Payments | Credit | Payable | Leases | Leases | Payments | ||||||||||||||||||||||||||||||
| 2014 | $ | 464,000 | $ | 11,065 | $ | 12,309 | $ | 224,934 | $ | 712,308 | ||||||||||||||||||||||||||||||
| 2015 | 1,232,000 | 12,345 | 3,253 | 114,064 | 1,361,662 | |||||||||||||||||||||||||||||||||||
| (Discontinued operations) | (Continuing and Discontinued operations) | (Discontinued operations) | (Continuing and Discontinued operations) | (Continuing and Discontinued operations) | ||||||||||||||||||||||||||||||||||||
| (b) | ||||||||||||||||||||||||||||||||||||||||
| 2016 | 2,480,000 | 7,851 | - | - | 2,487,851 | $ | 3,240,160 | $ | 8,191,905 | (a) | $ | 2,580,700 | $ | 412,589 | $ | 17,082,504 | ||||||||||||||||||||||||
| 2017 | 1,000,000 | - | - | - | 1,000,000 | - | 281,680 | - | 339,434 | 621,114 | ||||||||||||||||||||||||||||||
| 2018 | - | 305,056 | - | 346,567 | 651,623 | |||||||||||||||||||||||||||||||||||
| 2019 | - | 330,375 | - | 157,348 | 487,723 | |||||||||||||||||||||||||||||||||||
| 2020 | - | 357,796 | - | 15,216 | 373,012 | |||||||||||||||||||||||||||||||||||
| Thereafter | - | 523,678 | - | - | 523,678 | |||||||||||||||||||||||||||||||||||
| $ | 5,176,000 | $ | 31,261 | $ | 15,562 | $ | 338,998 | $ | 5,561,821 | $ | 3,240,160 | $ | 9,990,490 | $ | 2,580,700 | $ | 1,271,154 | $ | 17,082,504 | |||||||||||||||||||||
| (a) |
| (b) |
We are exposed to market risks, primarily changes in U.S. and LIBOR interest rates and risk from potential changes in the U.S./Canadian currency exchange rates as they relate to our services and purchases for our Canadian customers.
Foreign exchange gain / (loss)
Transactions denominated in a foreign currency give rise to a gain (loss) which is included in selling, general and administrative expenses in the consolidated statementstatements of operations and comprehensive income (loss).loss. For the years ended December 31, 20132015 and 2012,2014, transaction losses were not material.
Translation of Financial Results
Because we translate a portion of our financial results from Canadian dollars to U.S. dollars, fluctuations in the value of the Canadian dollar directly effect on our reported consolidated results. We do not hedge against the possible impact of this risk. A ten percent adverse change in the foreign currency exchange rate would not have a significant impact on our consolidated results of operations and comprehensive loss or financial position.
 |
|
M2 nGage Group, Inc. and Subsidiaries(Formerly Roomlinx, Inc. and Subsidiaries)Index to Consolidated Financial StatementsFor the Years Ended December 31, 2015 and 2014
| Page(s) | |
| 48 | |
| Consolidated Financial Statements: | |
| 49 | |
| 50 | |
| 51 | |
| 52 | |
| 53 to 91 |
- 47 -
To the Board of Directors and Shareholders
Roomlinx,Stockholders of
M2 nGage Group, Inc.
and Subsidiaries
We have audited the accompanying consolidated balance sheets of M2 nGage Group, Inc. (Formerly Roomlinx, Inc.) and its subsidiaries (“the Company”Subsidiaries (the "Company") as of December 31, 20132015 and 2012,2014 and the related consolidated statements of operations and comprehensive loss, changes in deficit and cash flows for each of the two years then ended.in the period ended December 31, 2015. 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 audits.
We conducted our audits 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 financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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 audits provide 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 the CompanyM2 nGage Group, Inc. and Subsidiaries as of December 31, 20132015 and 2012,2014, and the consolidated results of itstheir operations and itstheir cash flows for each of the two years thenin the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.
accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 13 to the accompanying consolidated financial statements, the Company has sufferedincurred recurring net losses, used cash in operating activities, and had negative cash flows from operations thatworking capital, which raise substantial doubt about its ability to continue as a going concern. Management’sManagement's plans in regard to these matters are also described in Note 1.3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As discussed in Note 17 to the consolidated financial statements, in March 2014, the Company entered into a merger agreement with a company in a related industry. Our opinion is not modified with respect to this matter.
/s/ GHP Horwath, P.C.
Denver, Colorado
March 31, 2014
| 2013 | 2012 | |||||||||||
ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | 2,125,655 | $ | 3,211,182 | ||||||||
| Accounts receivable, net | 1,241,459 | 1,761,503 | ||||||||||
| Leases receivable, current portion | 764,879 | 995,220 | ||||||||||
| Prepaid and other current assets | 87,303 | 115,902 | ||||||||||
| Inventory, net | 1,434,337 | 3,308,792 | ||||||||||
| Total current assets | 5,653,633 | 9,392,599 | ||||||||||
| Property and equipment, net | 317,486 | 790,873 | ||||||||||
| Leases receivable, non-current | 816,487 | 1,672,245 | ||||||||||
| Total assets | $ | 6,787,606 | $ | 11,855,717 | ||||||||
LIABILITIES AND DEFICIT | ||||||||||||
| Current liabilities: | ||||||||||||
| Line of credit, current portion | $ | 464,000 | $ | - | ||||||||
| Accounts payable | 3,970,034 | 5,079,204 | ||||||||||
| Accrued expenses and other current liabilities | 512,683 | 668,012 | ||||||||||
| Customer deposits | 1,295,450 | 1,125,248 | ||||||||||
| Notes payable and other obligations, current portion | 23,374 | 21,884 | ||||||||||
| Unearned income, current portion | 59,344 | 187,540 | ||||||||||
| Deferred revenue, current portion | 274,862 | 609,988 | ||||||||||
| Total current liabilities | 6,599,747 | 7,691,876 | ||||||||||
| Deferred revenue, less current portion | 251,595 | 294,963 | ||||||||||
| Notes payable and other obligations, less current portion | 23,449 | 47,691 | ||||||||||
| Unearned income, less current portion | 103,268 | 198,404 | ||||||||||
| Line of credit, net of discount, less current portion | 3,885,203 | 4,007,177 | ||||||||||
| Total liabilities | 10,863,262 | 12,240,111 | ||||||||||
| Deficit: | ||||||||||||
| Preferred stock - $0.20 par value, 5,000,000 shares authorized: | ||||||||||||
Class A - 720,000 shares authorized, issued and outstanding (liquidation preference of $144,000 at December 31, 2013 and 2012) | 144,000 | 144,000 | ||||||||||
Common stock - $0.001 par value, 200,000,000 shares authorized: 6,411,413 and 6,405,413 shares issued and outstanding at December 31, 2013 and 2012, respectively | 6,411 | 6,405 | ||||||||||
| Additional paid-in capital | 37,460,577 | 36,971,369 | ||||||||||
| Accumulated deficit | (41,713,638 | ) | (37,571,896 | ) | ||||||||
| Accumulated other comprehensive income | (18,976 | ) | 7,684 | |||||||||
| Total Roomlinx, Inc. shareholders’ deficit | (4,121,626 | ) | (442,438 | ) | ||||||||
| Non-controlling interest | 45,970 | 58,044 | ||||||||||
| Total deficit | (4,075,656 | ) | (384,394 | ) | ||||||||
| Total liabilities and deficit | $ | 6,787,606 | $ | 11,855,717 | ||||||||
| 2013 | 2012 | |||||||
| Revenues: | ||||||||
| Hospitality: | ||||||||
| Product and installation | $ | 3,556,389 | $ | 9,034,223 | ||||
| Services | 5,030,160 | 3,054,638 | ||||||
| Residential: | ||||||||
| Services | 861,994 | 915,054 | ||||||
| Total | 9,448,543 | 13,003,915 | ||||||
| Direct costs and operating expenses: | ||||||||
| Direct costs (exclusive of operating expenses and depreciation shown seperately below): | ||||||||
| Hospitality | 6,259,578 | 11,231,195 | ||||||
| Residential | 621,021 | 644,655 | ||||||
| Operating expenses: | ||||||||
| Operations | 1,278,320 | 2,128,652 | ||||||
| Product development | 805,885 | 1,280,743 | ||||||
| Selling, general and administrative | 2,672,324 | 3,047,946 | ||||||
| Depreciation | 247,706 | 498,168 | ||||||
| Loss on asset impairment | 832,429 | - | ||||||
| 12,717,263 | 18,831,359 | |||||||
| Operating loss | (3,268,720 | ) | (5,827,444 | ) | ||||
| Non-operating income (expense): | ||||||||
| Interest expense | (642,813 | ) | (601,725 | ) | ||||
| Interest income | 180,220 | 287,759 | ||||||
| (462,593 | ) | (313,966 | ) | |||||
| Net loss from continuing operations | (3,731,313 | ) | (6,141,410 | ) | ||||
| Discontinued operations: | ||||||||
| Loss from discontinued operations | (422,503 | ) | (1,250,324 | ) | ||||
| Net loss | (4,153,816 | ) | (7,391,734 | ) | ||||
| Less: net loss attributable to the non-controlling interest | 12,074 | 5,763 | ||||||
| Net loss attributable to the Company | (4,141,742 | ) | (7,385,971 | ) | ||||
| Other comprehensive (loss) income: | ||||||||
| Currency translation (loss) income | (26,660 | ) | 16,486 | |||||
| Comprehensive loss | (4,168,402 | ) | (7,369,485 | ) | ||||
| Comprehensive loss attributable to the non-controlling interest | - | - | ||||||
| Comprehensive loss attributable to the Company | $ | (4,168,402 | ) | $ | (7,369,485 | ) | ||
| Net loss per common share: | ||||||||
| Basic and diluted | $ | (0.65 | ) | $ | (1.27 | ) | ||
| Loss attributable to continuing operations per common share | ||||||||
| Basic and diluted | $ | (0.58 | ) | $ | (1.06 | ) | ||
| Loss attributable to discontined operations per common share | ||||||||
| Basic and diluted | $ | (0.07 | ) | $ | (0.22 | ) | ||
| Weighted average shares outstanding: | ||||||||
| Basic and diluted | 6,407,484 | 5,809,406 | ||||||
| Roomlinx, Inc. Shareholders | ||||||||||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||||||||||
| Preferred Stock A | Common Stock | Additional | Other | Total | ||||||||||||||||||||||||||||||||
| Number of | Par Value | Number of | Par Value | Paid - in | Comprehensive | Accumulated | Non-Contolling | Stockholders’ | ||||||||||||||||||||||||||||
| Shares | $0.20 | Shares | $0.001 | Capital | Income (Loss) | (Deficit) | Interest | (Deficit) Equity | ||||||||||||||||||||||||||||
| Balances, January 1, 2012 | 720,000 | $ | 144,000 | 5,118,877 | $ | 5,119 | $ | 33,102,512 | $ | (8,802 | ) | $ | (30,185,925 | ) | $ | 63,807 | $ | 3,120,711 | ||||||||||||||||||
| Warrants issued in conjuction with draw on line of credit | 350,167 | 350,167 | ||||||||||||||||||||||||||||||||||
| Shares issued at $2.50 per share, net of costs | 1,280,000 | 1,280 | 2,992,031 | 2,993,311 | ||||||||||||||||||||||||||||||||
| Cashless option exercises | 6,536 | 6 | (6 | ) | - | |||||||||||||||||||||||||||||||
| Stock based compensation | 526,665 | 526,665 | ||||||||||||||||||||||||||||||||||
| Comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||
| Net loss | (7,385,971 | ) | (5,763 | ) | (7,391,734 | ) | ||||||||||||||||||||||||||||||
| Translation loss | 16,486 | 16,486 | ||||||||||||||||||||||||||||||||||
| Balances, December 31, 2012 | 720,000 | $ | 144,000 | 6,405,413 | $ | 6,405 | $ | 36,971,369 | $ | 7,684 | $ | (37,571,896 | ) | $ | 58,044 | $ | (384,394 | ) | ||||||||||||||||||
| Restricted shares of common stock vested | 6,000 | 6 | 11,994 | 12,000 | ||||||||||||||||||||||||||||||||
| Stock based compensation | 477,214 | 477,214 | ||||||||||||||||||||||||||||||||||
| Comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||
| Net loss | (4,141,742 | ) | (12,074 | ) | (4,153,816 | ) | ||||||||||||||||||||||||||||||
| Translation loss | (26,660 | ) | (26,660 | ) | ||||||||||||||||||||||||||||||||
| Balances, December 31, 2013 | 720,000 | $ | 144,000 | 6,411,413 | $ | 6,411 | $ | 37,460,577 | $ | (18,976 | ) | $ | (41,713,638 | ) | $ | 45,970 | $ | (4,075,656 | ) | |||||||||||||||||
| 2015 | 2014 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ | 35,570 | $ | 1,584,541 | ||||
| Accounts receivable, net | 232,388 | 314,941 | ||||||
| Prepaid expenses and deferred cost | 237,493 | 180,268 | ||||||
| Deferred finance fees - current | 208,858 | - | ||||||
| Other current assets | 45,613 | 62,173 | ||||||
| Current assets of discontinued operations | 9,565,096 | 3,133,351 | ||||||
| Total current assets | 10,325,018 | 5,275,274 | ||||||
| Property, equipment and software, net | 61,516 | 10,828 | ||||||
| Intangible assets, net | 2,004,166 | 2,104,167 | ||||||
| Security deposits | 684,179 | 775,341 | ||||||
| Other assets | - | 20,575 | ||||||
| Other assets of discontinued operations | - | 5,800,450 | ||||||
| Total Assets | $ | 13,074,879 | $ | 13,986,635 | ||||
| Liabilities and Deficit | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 5,159,171 | $ | 4,310,346 | ||||
| Current maturities of notes payable, related party | 3,160,622 | 832,030 | ||||||
| Accrued expenses | 1,455,098 | 864,368 | ||||||
| Note payable and other obligations, current portion | 87,500 | - | ||||||
| Deferred revenue and customer prepayments | 825,859 | 756,052 | ||||||
| Other current liabilities | 702,283 | - | ||||||
| Current liabilities of discontinued operations | 28,892,528 | 7,803,134 | ||||||
| Total current liabilities | 40,283,061 | 14,565,930 | ||||||
| Non-current liabilities | ||||||||
| Long-term portion of notes payable, related party | 1,798,585 | 2,067,601 | ||||||
| Nonconvertible Series A prefered stock, related party | - | 10 | ||||||
| Other liabilities of discontinued operations | - | 5,040,948 | ||||||
| Total non-current liabilities | 1,798,585 | 7,108,559 | ||||||
| Total liabilities | 42,081,646 | 21,674,489 | ||||||
| Commitments and contingencies | - | - | ||||||
| Deficit | ||||||||
| M2 nGage Group, Inc. stockholders' deficit | ||||||||
| Preferred stock, par value $0.20 per share, 5,000,000 shares authorized: | ||||||||
Class A - 720,000 and nil shares authorized, issued and outstanding (liquidation preference of $144,000 and $0 at December 31, 2015 and 2014, respectively) | 144,000 | - | ||||||
| Preferred stock, par value $0.01 per share, 10,000,000 shares authorized and nil and 1,010 shares designated and outstanding at December 31, 2015 and 2014, respectively: | ||||||||
Series A preferred stock, par value $0.01 per share, 1,000 shares designated, nil and 1,000 shares issued and outstanding at December 31, 2015 and 2014, respectively | - | - | ||||||
| Series B preferred stock, par value $0.01 per share, 10 shares designated, nil and 10 shares issued and outstanding at December 31, 2015 and 2014, respectively | - | - | ||||||
Common stock, par value $0.001 per share, 400,000,000 shares authorized, 136,019,348 and 115,282,137 shares issued and outstanding at December 31, 2015, and 2014, respectively | 136,018 | 115,282 | ||||||
| Additional paid-in capital | 105,353,800 | 45,179,249 | ||||||
| Accumulated deficit | (134,629,262 | ) | (52,982,385 | ) | ||||
| Accumulated other comprehensive loss | (3,556 | ) | - | |||||
| Total M2 nGage Group, Inc. stockholders' deficit | (28,999,000 | ) | (7,687,854 | ) | ||||
| Non-controlling interest - discontinued operations | (7,767 | ) | - | |||||
| Total deficit | (29,006,767 | ) | (7,687,854 | ) | ||||
| Total Liabilities and Deficit | $ | 13,074,879 | $ | 13,986,635 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
Arista has been classified as discontinued operations under SSI, see Note 6.
17. Pro-forma Financial Information
The following presents the pro-forma combined results of operations of the Company in connection with the reverse acquisition transaction completed on March 27, 2015 for the years ended December 31, 20132015 and 2012, respectively.2014, after giving effect to certain pro-forma adjustments and assuming the reverse acquisition transaction completed as of the beginning of 2014.
| For the years ended December 31, | ||||||||
| 2015 | 2014 | |||||||
| Revenues | $ | 10,610,520 | $ | 11,294,276 | ||||
| Cost of sales | 6,933,066 | 8,053,486 | ||||||
| Gross profit | 3,677,454 | 3,240,790 | ||||||
| Selling, general and administrative expenses | 29,070,604 | 10,417,592 | ||||||
| Operating loss | (25,393,150 | ) | (7,176,802 | ) | ||||
| Interest expense, net | (982,252 | ) | (896,298 | ) | ||||
| Other income, net | (14,776 | ) | (97,686 | ) | ||||
| Loss from continuing operations before income taxes | (26,081,396 | ) | (8,170,786 | ) | ||||
| Income taxes. | - | - | ||||||
| Loss from continuing operations | (26,390,178 | ) | (8,170,786 | ) | ||||
| Loss from discontinued operations | (13,105,307 | ) | (6,496,780 | ) | ||||
| Net loss | (39,495,485 | ) | (14,667,566 | ) | ||||
| Net loss attributable to the non-controlling interest – discontinued operations | 9,106 | 8,243 | ||||||
| Net loss attributable to M2 nGage Group, Inc. | (39,486,379 | ) | (14,659,323 | ) | ||||
Less: Dividends on preferred stock | (175,000 | ) | (600,000 | ) | ||||
Net loss attributable to M2 nGage Group, Inc. common shareholders | (39,661,379 | ) | (15,259,323 | ) | ||||
Other comprehensive income - currency translation loss | 10,196 | 10,520 | ||||||
| Comprehensive loss | $ | (39,651,183 | ) | $ | (15,248,803 | ) | ||
These pro-forma financial statements reflect the results of SSI and Signalshare being classified as discontinued operations and therefore being reflected in the lin item above as loss from discontinued operations.
18. Commitments and Contingencies
Non-Income Taxes
The Company remits state excise tax on various telecommunication services, as it is the Company's position that the telephone service originates in the states where the equipment or customers are located or the services are rendered. State taxing authorities are constantly revising the laws and regulations with regard to telecommunication services and therefore, the Company is subject to potential excise tax in other jurisdictions based upon these constantly changing laws and regulations. However, the Company cannot determine such potential amount as of December 31, 2015.
Litigation
The Company is party to various legal proceedings and claims related to its normal business operations. In the opinion of management, the Company has substantial and meritorious defenses for these claims and proceedings in which it is a defendant, and believes these matters will be ultimately resolved without a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company. The aggregate provision for losses related to contingencies arising in the ordinary course of business is not material, individually or in the aggregate, to the consolidated operating results for the years ended December 31, 2015 and 2014.
El Dorado Offices 2, LP
The Company received notice that El Dorado Offices 2, LP ("Landlord") had filed suit against the Company and SignalShare Infrastructure, Inc. associated with amounts due under a terminated office space lease and an associated promissory note. The Landlord seeks approximately $326,000, plus costs, associated with the failure to repay the promissory note. The Company was served with the complaint on November 24, 2015 and answered the Complaint. On June 1, 2016 the matter was settled during court ordered mediation for a total amount of $125,000 paid in installments until October, 2016. Subsequently, the Company had a Foreclosure Sale of substantially all assets of SSI, and these amounts are included in the liabilities of discontinued operations.
CLC Networks and Skada
The Company is in receipt of a District Court Civil Summons, dated May 29, 2012, in the matter of "CLC Networks, Inc. and Skada Capital, LLC v. Roomlinx, Inc.", commenced in the District Court of Boulder County, Colorado (the "Action"). The plaintiffs in the Action claimed that the Company owed them certain unpaid sales commissions, including with respect to Hyatt Corporation in connection with that certain Master Services and Equipment Purchase Agreement, as described above under Business. The Company and the plaintiffs executed a settlement agreement in February 2014 for $106,528 to be paid in 19 even monthly installments commencing March of 2014. As of December 31, 2015 the Company had paid its liability in full. Subsequently, the Company completed the Foreclosure Sale of substantially all assets of SSI, and these amounts are included in the liabilities of discontinued operations.
SignalShare payroll tax matter
SignalShare LLC is in default of its payment obligations for payroll taxes to the IRS for the first and second quarter and part of third quarter of 2015. The amount of trust fund taxes outstanding as of December 28, 2016 March, 2016 is $673,888.63 which includes penalties and interest. The IRS has filed liens against SignalShare and may pursue personal action against the responsible SignalShare management team members if payment of the trust fund balance is not made. As a result of this matter, the Company has moved SignalShare's payroll process to its corporate offices in order to strengthen the controls over the payroll functions. Subsequently, the SignalShare filed bankruptcy, these amounts are included in the liabilities of discontinued operations.
SignalShare Office Lease
SignalShare received notice on October 1, 2015 that its lease with Aerial Realty Corp. for office space in Morrisville, NC was being terminated due to non-payment and that the office's locks were changed. The Landlord expressed its intention to avail itself of all remedies under the lease including the collection of waived rent (equal to $21,875.), attorney's fees, brokerage fees and any other amounts due under the Lease which was under term until March 31, 2020 and approximating total cost of $287,000. The Company is reviewing its options and the Landlord's claims and cannot determine the ultimate outcome at this time. A a result of the SignalShare bankruptcy, these amounts are included in the liabilities of dicontinued operations.
TIG
The Company received a letter from Technology Integration Group (“TIG”("TIG") demanding payment of approximately $2,430,000 with respect to inventory and services whichthat the Company purchased from TIG. TIG subsequently filed an action in California State Court (Case No. 37-2012-00046436-CU-BC-NC (the "Action"). On September 23, 2014, the Company entered into a Settlement Agreement and Mutual General Release with TIG. The Settlement Agreement was conditioned on the SPHC merger taking place. On March 24, 2015, the Company, Michael S. Wasik, Anthony DiPaolo and SSI entered into the Settlement Agreement and Mutual General Release with PC Specialists Inc. (d/b/a TIG), replacing the agreement signed in the fourth quarter of 2014. As of March 23, 2015, the Company owed TIG $3,003,267, consisting of $2,064,223 for equipment purchased and stored, $879,998 of interest on such amount and $59,046 of attorneys' fees and costs. Under the Settlement Agreement, the Company agreed to pay a settlement amount of $1,919,239, of which $400,000 was paid by SPHC upon the closing of the SMA. As a result, the Company, Wasik and DiPaolo were released from the Action and TIG consented to the transfer of rights and obligations under the Settlement Agreement to SSI with no recourse to the Company or SPHC. On April 5, 2016, counsel for TIG approached the Company regarding payment deficiencies under the settlement agreement and threatened further legal action. As of December 31, 2013 and 2012,2015 the Company hadhas the entire liability due TIG recorded in accounts payable. Subsequently, the Company completed the Foreclosure Sale of substantially all assets of SSI, and these amounts are included in the liabilities of discontinued operations.
ScanSource
The Company received a District Court Civil Summons, dated August 23, 2013, in the matter of "ScanSource v. Roomlinx, Inc.", commenced in the District Court of Greenville County, South Carolina. The plaintiffs in such action claimed that the Company owed them approximately $2,100,000 (net of payments made in 2013) and $2,430,000, respectively,$473,000 with respect to inventory purchased by the Company. The amount is recorded in accounts payable in the accompanying consolidated balance sheets. TIG subsequently filed ansheets as of December 31, 2015 and December 31, 2014. On March 31, 2015, the Company and ScanSource entered into a settlement agreement with respect to such action in California State Court althoughwhich Roomlinx agreed to pay ScanSource a total of $471,000 plus interest as follows: (a) payment of $100,000 on or before June 1, 2015, (b) beginning June 1, 2015, interest accruing on the outstanding balance of 12% per annum until the balance is paid in full, (c) beginning July 1, 2015 and continuing for 12 months thereafter, payment of $8,000 per month, and (d) following the initial 12 month payment schedule set forth in (b), payment of $316,715 in 24 monthly payments according to an amortization schedule agreed to by the Company has not yet been servedand ScanSource. Subsequently, the Company completed the Foreclosure Sale of substantially all assets of SSI, and these amounts are included in such action. The Company believes that it has meritorious defenses and counterclaims in respectthe liabilities of TIG’s claim. The Company intends to pursue a settlement of all claims with TIG and is in discussions with TIG in respect thereof.discontinued operations.
WFG
The Company is in receipt of a letter dated November 10, 2014 on behalf of Wi-Fi Guys, LLC ("WFG") demanding payment from the Company for amounts relating to development and software services in the amount of $297,000. The Company evaluated all of its options, including legal options, with respect to the validity of the WFG letter and the alleged grounds for demanding payment and formally responded in a letter dated December 1, 2014 in which the Company denied WFG's claims and additionally made separate counter-claims against WFG. Subsequently, the Company completed the Foreclosure Sale of substantially all assets of SSI, and these amounts are included in the liabilities of discontinued operations.
Hyatt
The Company received a request for indemnification from Hyatt Corporation ("Hyatt") dated July 3, 2013 in connection with a case brought in US Federal Court in California by Ameranth, Inc., against, among others, Hyatt. In connection with such case, the plaintiffs have identified the Company’sCompany's e-concierge software as allegedly infringing Ameranth’sAmeranth's patents. The Company licenses the e-concierge software from a third party and accordingly has made a corresponding indemnification request to such third party. The Company believes that any such claim may also be covered by the Company’sCompany's liability insurance coverage and accordingly the Company does not expect that this matter will result in any material liability to the Company.
In December 2012, the Company and Hyatt mutually agreed to suspend certain Hyatt obligations under the MSA that had not been met; including the suspension of the obligations of Hyatt to cause a certain number of rooms in both Hyatt owned and managed properties to place orders for the Company's iTV products within certain time frames. At the time of the December 2012 suspension of these Hyatt obligations, the Company had installed certain services and products in approximately 19,000 rooms (including approximately 9,000 installs of its iTV product) in Hyatt hotels. During the year ended December 31, 2013, the Company completed the installation of approximately 1,000 additional rooms. As of December 31, 2015 and December 31, 2014, deposits received on statements of work for Hyatt properties are recorded as customer deposits in the District Court of Greenville County, South Carolina (the “Action”). The plaintiffsconsolidated balance sheets in the Action claim thatamounts of approximately $1,262,000.
In connection with the Merger Agreement, the Company owes them approximately $473,000and Hyatt entered into a Waiver and Consent Agreement dated as of March 11, 2014 (the "Hyatt Consent Agreement"), pursuant to which Hyatt provided its conditional consent and approval to the transactions contemplated by the Merger Agreement and any assignment of the Company's assets contemplated thereunder, including the assignment to SSI of the Company's right, title and interest under the MSA and under the Hotel Services & Equipment Purchase Agreements (the "HSAs") entered into by the Company with individual hotel owner entities.
On September 29, 2014, the Company received a letter from Hyatt (the "September 29th Letter") notifying the Company that Hyatt is terminating the HSAs with respect to inventorythe following five hotels in which the Company purchased.has yet to install any equipment or provide any services – the Hyatt Regency Indianapolis, the Hyatt Regency Greenwich, the Grand Hyatt New York City, the Hyatt Regency Coconut Point and the Hyatt Regency Lake Tahoe (collectively, the "Hotels"). Hyatt's September 29th Letter does not affect any Hyatt hotels under the MSA currently being serviced by the Company. Hyatt's termination of the HSAs is based on alleged noncompliance by the Company and SSH with certain provisions of the Hyatt Consent Agreement. The amount is recorded in accounts payableCompany evaluated the validity of the Hyatt Letter and the alleged grounds for terminating the HSAs for the Hotels, and believes such grounds are without merit.
Hyatt's September 29th Letter also requested repayment of deposits in the accompanying consolidated balance sheets asaggregate amount of December 31, 2013$966,000 paid to the Company by the Hotels in connection with the HSAs. A second letter dated November 14, 2014 (the "November 14th Letter") received by the Company from Hyatt demanded repayment of such deposits by November 21, 2014. Upon evaluating the validity of Hyatt's November 14th Letter and 2012.again determining that Hyatt's grounds for terminating the HSA and demanding the return of the aforementioned deposits are without merit, the Company formally responded in a letter to Hyatt dated March 3, 2015 wherein the Company denied Hyatt's claims. The Company intendssubsequently received a third letter from Hyatt dated March 26, 2015 (the "March 26th Letter") in which Hyatt again demanded the repayment of the aforementioned deposits. The Company has evaluated the validity of the March 26th Letter and the alleged grounds for terminating the HSAs for the Hotels, and believes such grounds are without merit. The Company has not made any such repayment to pursueHyatt. On May 4, 2015, the Company received a settlement of all claims.letter from Hyatt alleging that the Hyatt Consent Agreement did not apply to the merger between Signal Point Holdings Corporation and the Company and further contends that such merger triggered Hyatt's right to terminate the MSA. The Company believes Hyatt's arguments and conclusion are without merit.
The Parties began negotiations to rectify the disputes between them and entered into a Settlement Agreement on November 17, 2015 providing for the orderly termination of iTV services at Hyatt locations. The Settlement Agreement also provided for the extension of high speed internet services for 36 months in retained Hyatt locations and gave the Company the right to bid on all future Wi-Fi installations at hotels and business center locations. The Settlement Agreement also provided that the deposit would be used to fund transitional services and future installation costs. Finally, the Settlement Agreement provided for mutual releases.
AGC
The Company is in receipt of a letter dated April 10, 2015 on behalf of America's Growth Capital, LLC d/b/a AGC Partners ("AGC") demanding payment from the BSA Software Alliance (“BSA”) in connection with copyright infringementCompany for amounts relating to the occurrence of computer software products alleging the unauthorized duplication of various computer software products. BSA has threatened to file an action againsta strategic transaction between the Company if it does not timely respondand Signal Point Holdings Corp in the amount of $300,000. The Company has evaluated all of its options, including legal options, with respect to the validity of the AGC letter and the alleged grounds for demanding payment and formally responded in a letter dated April 16, 2015 in which the Company denied AGC's claims. See Note 19 "Subsequent Events." Subsequently, the Company completed the Foreclosure Sale of substantially all assets of SSI, and these amounts are included in the liabilities of discontinued operations.
NFS LITIGATION AND RELATED MATTERS
On January 28, 2016, NFS Leasing, Inc. ("NFS") filed suit against SignalShare, LLC and SPHC, wholly-owned subsidiaries of the Company, for non-payment of amounts due under certain agreements with NFS and two employees of SignalShare, LLC. NFS seeks $7,828,597, plus interest and attorneys' fees, from SignalShare, LLC and seeks enforcement of certain guarantees of the debt by SPHC and named officers of SignalShare, LLC. In July 2015, SignalShare, LLC converted certain equipment leases from NFS into a secured Term Loan. The Note evidencing the loans is secured by a subordinated security interests in the assets of SignalShare and SPHC and is guaranteed by SPHC. Pursuant to an Intercreditor, Modification and Settlement Agreement, dated as of November 13, 2015 by and among NFS, SPHC, SignalShare LLC and the Company's senior lenders, such Intercreditor agreement excluded any security interest in the parent company, Roomlinx, Inc. or of the subsidiaries of SPHC, which are M2 nGage, M2 Communications, SPC and SSI. Thus, NFS' suit and claims reside solely in SignalShare LLC and SPHC, but none of the assets (other than SignalShare LLC) of SPHC. The case was filed in the U.S. District Court for the District of Massachusetts (Civ Action No. 16-10130). SPHC and SignalShare answered the complaint and are in the process of litigating the matter. SignalShare LLC and SPHC intend to vigorously defend the matter.
NFS has also sought to include the subsidiaries of the Company in the litigation, including the DMAG. Pursuant to an Intercreditor, Modification and Settlement Agreement, dated as of November 13, 2015 by and among NFS, SPHC, SignalShare LLC and the Company's senior lenders, such Intercreditor agreement excluded any security interest in the parent company, M2 Group, or of the subsidiaries of SPHC, which are M2 nGage, M2 Communications, SPC and SSI. Thus, NFS' suit and claims reside solely in SignalShare LLC and SPHC, but none of the assets (other than SignalShare LLC) of SPHC. However, NFS amended its complaint and added the new subsidiary of the Company, Digital Media Acquisition Group Corp. ("DMAG"), to the case. It also filed a motion for a preliminary injunction to prevent the corporate restructuring resulting from the Brookville/Veritas/Allied court actions. On June 15, 2016, NFS withdrew its request for injunctive relief regarding DMAG and was granted an internal audit.injunction regarding SignalShare, LLC. to prevent the company from making certain payments and required certain information regarding SignalShare. The Company believes the new amended claims are without merit, is opposing such actions and has filed motions to dismiss the claim as it relates to DMAG. The companies will vigorously defend these matters if the parties are unable to resolve the dispute. As a result of the SignalShare bankruptcy filing, the case related to SignalShare is stayed. On the same day, Joseph Costanzo, a former employee of SignalShare and a codefendant in the litigation, filed a cross claim against SignalShare and SPHC and related parties ("SPHC Parties") alleging that he was induced by SignalShare and the SPHC Parties into entering certain agreements related to NFS. Any disputes between Costanzo, the SPHC Parties and SignalShare were settled pursuant to a settlement agreement executed between the parties. Pursuant to the terms of the Settlement Agreement, the parties mutually released each other from any claims and SPHC agreed to pay Joseph Costanzo $92,000 over a period of a year associated with amounts due. Subsequently, the Company completed the Foreclosure Sale of substantially all assets of SSI, these amounts are included in the liabilities of discontinued operations.
Wincomm v. SignalShare.
SignalShare, LLC. received a demand letter from counsel for Winncom Technologies, Inc. demanding payment due under a note previously issued by SignalShare. The demand seeks payment of the $10,000 outstanding payment. The demand further states that if the payment is not made, Winncomm will seek payment on the entire note amount, $837,589, and threatens legal action. SignalShare has contacted Winncom's counsel and will seek to settle the matter amicably. SignalShare intends to review BSA’ssettle the matter but has not provided WinnComm with a settlement offer as of this date. As a result of the SignalShare bankruptcy, these amounts are included in the liabilities of discontinued operations.
Network Cabling V. SignalShare
Network Cabling sued SignalShare, LLC. seeking $47,755 in damages for failure to pay amounts due. As a result of the SingalShare bankruptcy, these amounts are included in the liabilities of discontinued operations.
IT Hospitality Solutions, LLC. v. SignalShare and Signal Point Telecommunications Corp.
On January 27, 2016, IT Hospitality Solutions, LLC. filed suit against Signal Point Telecommunications Corp. ("SPTC") and SignalShare, LLC. in the Superior Court of Irenell County, North Carolina alleging failure to pay certain amounts due in the amount of approximately $453,850. On April 11, 2016, SPTC and SignalShare filed motions to dismiss for failure to state claims upon which relief can be granted. The companies intend to vigorously defend this case. As a result of the SingalShare bankruptcy, any claims related to SignalShare will be addressed by the bankruptcy court.
See also "Legal Proceedings Concerning Our Principal Shareholder, Robert DePalo.
Cenfin Corporate Guaranty
On November 19, 2015, SignalShare Infrastructure, Inc. ("SSI") and respond appropriately.the Company entered into a Guaranty and Payment Agreement with Cenfin LLC, a senior lender of the Company, whereby the SPTC borrowed $150,000 from SSI in exchange for an unsecured guaranty of the debt of SSI up to $1,500,000 until the $150,000 was paid back to Cenfin. As of this date, the amount has been paid in full.
Cenfin Default
On September 30, 2015, M2 Group and its subsidiary SSI received a notice of default under the Amended and Restricted Revolving Credit and Surety Agreement with Cenfin LLC dated March 24, 2014 (the "Credit Agreement"). SSI was unable to pay the amounts due to Cenfin, LLC and the parties agreed to allow Cenfin to foreclose under Agreement. This relates to approximately $3,622,275 of indebtedness including approximately $308,772 of accrued interest incurred by SSI which holds RoomLinx's operations prior to the Company's March 27, 2015 acquisition of Signal Point Holdings Corp. On May 11, 2016 SSI completed the foreclosure sale of substantially all assets of SSI to a non-affiliated third party at a public auction pursuant to Article 9 of the Uniform Commercial Code. The auction took place at the offices of DLA Piper LLP, 203 N. LaSalle Street, Chicago, Illinois 60601. There was one bidder and the transaction closed on May 11, 2016 and all employees of SSI were terminated and the operations of the company ceased.
Cardinal Broadband, LLC. Sale:
The Company is in receiptthe process of selling its Cardinal Broadband, LLC subsidiary for approximately $375,000. In accordance with applicable settlement agreement and lender documentation, the proceeds of the sale have been pledged to Cenfin, LLC, a letter from an attorney representingsenior debt holder of the Signal Share Infrastructure, Inc., without any offset. The transaction closed on May 1, 2016, as a past employee claiming retaliationresult all assets and discriminationoperations for Cardinal Broadband, including its interest in connection with the termination of his employment seeking damages approximating $85,000. No claim has been file with the District Court. The Company rejects these charges and should it be served with a summons, the Company will vigorously defend its position.Arista Communications, Inc., were sold.
Other than the foregoing, no material legal proceedings to which the Company (or any officer or director of the Company, or any affiliate or owner of record or beneficially of more than five percent of the Common Stock, to management’smanagement's knowledge) is party to or to which the property of the Company is subject is pending, and no such material proceeding is known by management of the Company to be contemplated.
Legal Proceedings Concerning Our Principal Shareholder, Robert DePalo
Robert DePalo currently owns approximately 31% of the issued and outstanding common stock of M2 nGage Group, Inc. In connection with the SMA described in Item 1 above, Mr. DePalo resigned as a director, officer and/or employee of SPHC (and any subsidiaries thereof), as of March 27, 2015. As a result, Mr. DePalo has not been and will not be involved in the day to day management of the Company or any of its subsidiaries. On May 20, 2015, the New York County District Attorney charged Robert DePalo with various offenses relating to foreign investors. Simultaneously, the SEC commenced an action against Mr. DePalo (et al.) in the Southern District of New York based on the same facts alleged by the New York District Attorney. A copy of the complaint can be found on the SEC's website, www.sec.gov. The Company takes seriously the New York County District Attorney and SEC actions and will monitor these actions very closely.
M2 nGage Group, Inc. has no knowledge and cannot provide any further details regarding these proceedings against Mr. DePalo. The actions described therein have no relation to the Company or its wholly-owned subsidiary, SPHC. However, pursuant to the terms of Mr. DePalo's consulting agreement, the Company is obligated to pay 100% of Mr. DePalo's legal fees whether or not related to the agreement.
Other
The Company is dependent on the use of incumbent local exchange carriers' local and transport networks and access services to provide telecommunications services to its customers. Charges for leasing local and transport network components and purchasing special access services historically have made up a significant percentage of both the Company's and the Predecessor Company's overall cost of providing telecommunications services to its customers. These network components and services are purchased in each market through interconnection agreements, special access contracts, commercial agreements or a combination of such agreements from the incumbent local exchange carrier, or, where available, from other wholesale network service providers. These costs are recognized in the period in which the services are delivered and are included as a component of the Company's cost of sales.
Other than the foregoing, no material legal proceedings to which the Company (or any officer or director of the Company, or any affiliate or owner of record or beneficially of more than five percent of the Common Stock, to management's knowledge) is party to or to which the property of the Company is subject is pending, and no such material proceeding is known by management of the Company to be contemplated.
19. Subsequent Events
DePalo Related Entity Litigation:
On February 23, 2016, Brookville, Veritas and Allied ("Plaintiffs") filed suit in separate actions in the federal District Court for the Southern District of New York against SPHC, M2 Communications and M2 nGage ("Defendants") seeking foreclosure on the secured loans with the Defendants and the imposition of a temporary restraining order.
On April 7, 2016, the Company and Brookville et al. settled the litigation as follows. The Company, in order to forebear the current foreclosures with its secured lenders, entered into a consulting arrangement for marketing services with TRG, Inc., an entity owned by Michael S. Wasik, the CEORestructuring, Omnibus Pledge, Security and Chairman of Roomlinx.Intercreditor Agreement (the "Omnibus Agreement"). The marketing services were to be performed by Chris Wasik, the wife of Mr. Wasik. As of December 31, 2012, Roomlinx had paid TRG $94,950 for services performed in accordance with said arrangement. At the beginning of December 2012, Chris Wasik became an employee of Roomlinx as its Director of Marketing with a salary of $85,000 per annum, effectively severing the consulting arrangement with TRG. Subsequently in December 2013, Ms. Wasik assumed responsibility for the Company’s call center at which time her salary was increased to $101,400. For the year ended December 31, 2013, Ms. Wasik was paid $88,275 as an employee of the Company.
On March 14, 2014, the Company entered into an Agreement and Plan of Merger (“Merger Agreement”) with Signal Point Holdings Corp. (“Signal Point”) and Roomlinx Merger Corp.,SPHC, a wholly-owned subsidiary of the Company, (“Merger Subsidiary”). Upon the termsM2 Communications, a wholly-owned subsidiary of SPHC, and subjectM2 nGage, a wholly-owned subsidiary of SPHC. SPHC, M2 Communications and M2 nGage are collectively referred to the conditions set forth in the Merger Agreement, the Merger Subsidiary will be merged with and into Signal Point, a provider of domestic and international telecommunications services, with Signal Point continuing as the surviving entity in"Debtors." Brookville, Veritas and Allied are collectively referred to as the merger. Simultaneous"Secured Parties," and collectively with the effective timeDebtors, referred to as the "Parties."
In exchange for the forbearance of the merger,foreclosure on the assets of the Debtors, the Company will affectagreed to transfer the subsidiaries of SPHC (specifically, M2 Communications and M2 nGage) with the exception of SignalShare LLC and SPHC to "NEWCO," a reverse split of its common stock utilizing a ratio resulting in the Company having 600,000 shares of common stock issued and outstanding following the reverse stock split.
The effect of the merger will result in the owners of Signal Point holding 86% of the Company’s common stock at the date of the transaction and the holders of the Company’s stock immediately prior to the transaction owning 14%. Cenfin, LLC, a secured lendernew subsidiary of the Company, so that the subsidiaries of SPHC will receivebecome subsidiaries of NEWCO. The Debtors granted the Secured Parties a currently undetermined numberlien on the assets of sharesthe Debtors and pledged the securities of NEWCO, M2 Communications and M2 nGage to be includedthe Secured Parties (collectively, the "Collateral").
The Parties: (i) reaffirmed the priorities of the Secured Parties in the 14% ownership. Collateral; (ii) agreed that the Secured Parties' subordinated security interest in the assets of Signal Share LLC shall be governed by the terms of the Intercreditor, Modification and Settlement Agreement dated as of November 13, 2015 by and among SPHC, Signal Share, the Secured Parties and NFS Leasing, Inc. ("NFS") in which agreement NFS acknowledged that it never has, nor will it ever have any security interest in the SPHC Excluded Entities which included a) M2 Communications, b) SPC, c) M2 nGage, d) the Company, e) Signal Point Infrastructure, Inc. and their respective Affiliates and (iii) agreed the Secured Parties and SPTC shall notice EBF Lending to the transactions contemplated by the Omnibus Agreement, since EBF has filed liens on SPTC redated to an accounts receivable line of financing to which the Secured Parties have consented and any payments or amounts owed EBF will continue as is as was from either NEWCO or other applicable entity.
The preferred shareholdersParties agreed to representations, warranties and covenants consistent with the prior Loan Documents. Upon an event of default, the Secured Parties shall have all remedies confirmed in the Loan Documents at law and equity, and all rights and remedies of a secured party under the UCC. Any deficiency upon a disposition of the Collateral will receive paymentsbear interest at 15% per annum plus reasonable attorneys' fees.
Please refer to Item 13 "Certain Relationships and Related Transactions and Director Independence" - for a description of the relationship of the Plaintiffs to Mr. DePalo.
TIG
The Company received a letter from Technology Integration Group ("TIG") demanding payment of approximately $2,430,000 with respect to their shares (currently undetermined)inventory and upon execution ofservices that the Company purchased from TIG. TIG subsequently filed an action in California State Court (Case No. 37-2012-00046436-CU-BC-NC (the "Action"). On September 23, 2014, the Company entered into a Settlement Agreement and Mutual General Release with TIG. The Settlement Agreement was conditioned on the SPHC merger there will be no shares oftaking place. On March 24, 2015, the Company’s preferred stock outstanding. In addition, upon merger, all outstanding options immediately prior toCompany, Michael S. Wasik, Anthony DiPaolo and SSI entered into the transaction will be terminated.
All conditions includedSettlement Agreement and Mutual General Release with PC Specialists Inc. (d/b/a TIG), replacing the agreement signed in the Mergerfourth quarter of 2014. As of March 23, 2015, the Company owed TIG $3,003,267, consisting of $2,064,223 for equipment purchased and stored, $879,998 of interest on such amount and $59,046 of attorneys' fees and costs. Under the Settlement Agreement, must be completed (somethe Company agreed to pay a settlement amount of $1,919,239, of which require approval of the Company’s shareholders) in order for the merger to be executed. Upon completing all conditions, the Company will receive a cash contribution from Signal Point of $1,000,000 (subject to certain use limitations) at$400,000 was paid by SPHC upon the closing of the merger. Upon execution,SMA. As a result, the Company, will haveWasik and DiPaolo were released from the Action and TIG consented to the transfer of rights and obligations under the Settlement Agreement to SSI with no recourse to the Company or SPHC. On April 5, 2016, counsel for TIG approached the Company regarding payment deficiencies under the settlement agreement and threatened further legal action. The parties are in discussions regarding becoming current and potential restructuring on the settlement agreement terms. On May 5, 2016, TIG defaulted SSI and sought to enforce its rights under the Settlement Agreement. As of December 31, 2015 the Company had the entire liability due TIG recorded in accounts payable. Subsequently, the Company completed the Foreclosure Sale of substantially all assets of SSI, and these amounts are included in the liabilities of discontinued operations.
IT Hospitality Solutions, LLC. v. SignalShare and Signal Point Telecommunications Corp.
On January 27, 2016, IT Hospitality Solutions, LLC. filed suit against Signal Point Telecommunications Corp. ("SPTC") and SignalShare, LLC. in the Superior Court of Irenell County, North Carolina alleging failure to pay certain obligations including an accelerated debt payment of $750,000 (see Note 7), payments to preferred stock holders, and bonus paymentsamounts due in the amount of approximately $500,000$453,850.01. On April 11, 2016, SPTC and SignalShare filed motions to certain officers of the Company in accordance with employment agreementsdismiss for failure to state claims upon which will onlyrelief can be incurred and become due upon completion of the merger.granted. The companies intend to vigorously defend this case.
Cenfin Default
On September 30, 2015, Roomlinx and its subsidiary SSI received a notice of default under the Amended and Restricted Revolving Credit and Surety Agreement with Cenfin LLC dated March 24, 2014 (the "Credit Agreement"). SSI was unable to pay the amounts due to Cenfin, LLC and the parties agreed to allow Cenfin to foreclose under Agreement. This relates to approximately $3,622,275 of indebtedness including approximately $308,772 of accrued interest incurred by SSI which holds Roomlinx's operations prior to the Company's March 27, 2015 acquisition of Signal Point Holdings Corp. On May 11, 2016, SSI completed the foreclosure sale of substantially all assets of SSI to a non-affiliated third party at a public auction pursuant to Article 9 of the Uniform Commercial Code, these amounts will now be included as part of the discontinued operations. The auction took place at the offices of DLA Piper LLP, 203 N., LaSalle Street, Chicago, Illinois 60601. There was one bidder and the transaction closed on May 11, 2016 and all employees of SSI were terminated and the operations of the company ceased.
Cardinal Broadband, LLC. Sale:
On May 1, 2016 the Company sold Cardinal Broadband, LLC a subsidiary of SSI for approximately $375,000. In accordance with applicable settlement agreement and lender documentation, the proceeds of the sale have been pledged to Cenfin, LLC, a senior debt holder of SSI, without any offset. Accordingly, CBB has been classified as discontinued operations, see Note 6.
Shutdown of SignalShare:
During January 2016, the Company closed down the operations of SignalShare. This decision was made as a result of a continuing decline in revenue and increasing costs. On July 5, 2016, SignalShare filed for voluntary bankruptcy pursuant to Chapter 7 of the Bankruptcy Code. Accordingly, Signalshare has been classified as discontinued operations, see Note 6.
Shutdown of SSI:
On May 3, 2016 Cenfin, the senior secured lender of SSI, sold all right, title and interest in substantially all personal property of SSI to the highest qualified bidder at a public auction pursuant to Article 9 of the Uniform Commercial Code. There was one bidder and the transaction closed on May 11, 2016 and all employees of SSI were terminated and the operations of the company ceased. Accordingly, SSI has been classified as discontinued operations, see Note 6.
Issuance of Series B Preferred Stock
Subsequent to December 31, 2015 the company issued 2,495,000 shares of preferred series B stock for $2,495,000 to 17 shareholders. The stock carries an annual interest of 10% and is convertible into common stock of the company at $0.28 per share at the Company's option. In addition, for every Series B Preferred share purchased a warrant to purchase three shares of the Company's common stock for $.40 was issued.
Amendments to Articles of Incorporation or Bylaw
Subsequent to December 31, 2015, the Company filed an Amendment to Certificate of Designation After Issuance of Class or Series (the "Amendment") for the Series B Convertible Preferred Stock ("Preferred Stock") with the Secretary of State of Nevada on March 25, 2016. The Amendment increased the number of Series B Preferred Stock from 2,000,000 shares authorized to 3,000,000 shares authorized.
On July 28, 2016, Roomlinx, Inc., a Nevada corporation, amended its Articles of Incorporation to change its name to M2 nGage Group, Inc. In addition, the Company's trading symbol in the over-the-counter market has been changed to MTWO from RMLX.
Change in Officers
On July 7, 2016, the Board of directors appointed Aaron Dobrinsky president and Christopher Broderick Treasurer of M2 Group. On May 5, 2016, Joseph Costanzo resigned all positions with M2 Group and its affiliated companies.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”"Exchange Act"). Based on this evaluation, our principal executive officer and our principal financial officer concluded that, because our internal controls over financial reporting are not effective, as described below, our disclosure controls and procedures were inadequatenot effective as of the end of the period covered by this annual report.December 31, 2015.
Our Company’sCompany's management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.
Our management is also required to assess and report on the effectiveness of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 ("Section 404"). Management assessed the effectiveness of the Company’sCompany's internal control over its financial reporting as of December 31, 2013.2015. In undertaking this assessment, management used the criteria establishedset forth by the Committee of the Sponsoring Organizations (COSO) of the Treadway Commission contained(COSO) in the Internal Control—Integrated Framework.
As of December 31, 2013,2015, based on management’smanagement's assessment as described above, we have determined that the Company did not maintain effective controls over financial reporting. Specifically, due to the limited number of individuals within our accounting and finance departmentfunctions and department turn-over in the fourth quarter, we had a lack of segregation of duties and a lack of adequate resources, including headcount, to ensure timely identification, resolution and recording of accounting matters. Since these controls have a pervasive effect across the organization, management has determined that these circumstances constitute a material weaknesssignificant deficiency in internal control over financial reporting. .We did not effectively implement comprehensive entity-level internal controls and financial controls that were properly designed to meet the control objectives or address all risks of the processes or the applicable assertions of the significant accounts. Due to a significant deficiency identified at our entity level controls we did not test whether our financial activity level controls or our information technology general controls were operating sufficiently to identify a deficiency, or combination of deficiencies, that may result in a reasonable possibility that a material misstatement of the consolidated financial statements would not be prevented or detected on a timely basis. As of December 31, 2013,2015, the Company has implemented certain internal control procedures related to the purchase order cycle and review procedures to address timely identification of accounting matters. We will continue to implement appropriate processes and measures to remediate this material weakness.significant deficiency. A search for a permanent Chief Financial Officer is under way.
The Company has just discovered and confirmed that management's report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’sCompany's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permitSEC, Sarbanes Oxley Act Section 404(b) on the effectiveness of the Company's internal control over financial reporting for incusion in this Annual Report on Form 10-K. The Company will engage a third party SOX consulting firm to assist the formal documentation of management's assessment of the Company's internal control over financial reporting. Also, the Company will engage its registered public accounting firm to provide only management’sconduct an audit on its internal control over financial reporting. The Company will amend its Form 10-K upon completion of the audit and will include an attestation report of its registered public accounting firm in this annual report.its amendment to Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during our fiscal quarter ended December 31, 20132015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| Name | | | Age | | | Position | |
| Aaron Dobrinsky | | | 52 | | | Chairman of the Board and President. | |
| Christopher Broderick | | | 54 | | | Chief Operating Officer, Treasurer, Interim Chief Financial Officer and Director. | |
Aaron Dobrinsky was elected Chairman of the Board and a Director of the Company on March 27, 2015 and President on July 7, 2016. He served as Chief Executive Officer of the Company from March 27, 2015 until January 4, 2016. He had been the President of SPHC from December 12, 2012 until January 4, 2016. Prior to that he served as Chief Executive Officer of Wave2Wave from September 2010 to July 2012. Since January 2006, Mr. Dobrinsky has served as President of Dobrinsky Management, Inc. (DMI), a management consulting and advisory firm providing strategic, operational and financial guidance to startup and mid-stage companies. Mr. Dobrinsky also served as interim-chief executive officer of KSR, an online national specialty supermarket from June 2009 through September 2010. Mr. Dobrinsky was an executive member of the board of directors of Roomlinx, Inc. from June 2004 through November 2005, where he also served as chief executive officer from June 2004 through November 2005. Mr. Dobrinsky founded GoAmerica (now Purple Communications) in 1996, and from 1996 to June 2008, he served as the chairman of its board of directors. He also served as president of GoAmerica until November 2000 and chief executive officer until January 2003. Mr. Dobrinsky served as chairman of the board of directors of Purple Communications from 2003 through 2009 and rejoined the board of directors in March 2010 as a director. He also served as a strategic advisor to the board of directors of Purple Communications. Mr. Dobrinsky has served as a board advisor and board member for several private companies and non-profit organizations. Mr. Dobrinsky received his BA in Economics and Finance from Yeshiva University and he attended New York University School of Business where he studied Marketing and Finance. The Company determined that Mr. Dobrinsky is qualified to serve on the Board of Directors based on his prior service to the Company, as well as his particular knowledge and extensive experience in the telecommunications industry, including that with SPHC.
Christopher Broderick was elected Chief Operating Officer and a Director of the Company on March 27, 2015. He was named Interim Chief Financial Officer in January 2016 and Treasurer on July 7, 2016. He has served as Chief Operating Officer of SPHC since October 17, 2012. Mr. Broderick has 30 years of experience in the telecommunications industry and is responsible for the Company's domestic network operations of wired and wireless topologies, supporting voice, data, internet products and services. He is also the operational leader for the development and build-out of SPHC's continued network expansion. Prior to joining SPHC Mr. Broderick served as Senior Director of Business Client Services for FairPoint Communications from 2008 to 2011. Mr. Broderick was responsible for Retail Business segment, outside sales support, billing, and SMB sales across Northern New England. Previously, Mr. Broderick served as Chief Operating Officer and Vice President of Operations at IntelliSpace and Wave2Wave from February 2000 to January 2008. Mr. Broderick was responsible for the design, implementation and day-to-day U.S. and U.K. operations of the company.
Mr. Broderick spent the majority of his career at New York Telephone, NYNEX, and Bell Atlantic where he was highly successful in the management of all facets of the telephone company's Field Operations, Central Offices and outside plant facilities in New York City business districts. He also led sales and support "mega" call-center operations, for complex business accounts. In addition to his technical background, Mr. Broderick has an extensive education in quality process management, systems efficiency and design. He has utilized his extensive background to help build SPHC into one of the most reliable "Converged Networks" in the USA. The Company determined that Mr. Broderick's 30 years of particular knowledge and experience in the telecommunications industry, and his position with SPHC, strengthens the Board's collective qualifications, skills and experience.
Set forth below is certain background and biographical information concerning our officers and key employees as of December 31, 2015.
| Name | Age | Position | ||
| Aaron Dobrinsky | 52 | Chairman and President | ||
| Christopher Broderick | 53 | Chief Operating Officer and Director | ||
| Steven Vella | 51 | Chief Financial Officer | ||
| Andrew Bressman | 51 | Managing Director and Head of Business Development | ||
| Joseph Costanzo | 46 | Chief Technology Officer | ||
| Michael S. Wasik | ||||
| Chris Barnes | 49 | Executive Vice President Strategic Relations | ||
| Peter Walsh | 57 | |||
Senior Vice President - Mobile Products |
Aaron Dobrinsky - see biography above under Board of Directors.
Christopher Broderick – see biography above under Board of Directors.
Steve Vella, - joined SPHC as Chief Financial Officer in June 2014 and was Chief Financial Officer of the Company from August 1, 2015 to January 22, 2016. Mr. Vella was responsible for the financial operations for the SPHC, and will be instrumental in the development, implementation, and measurement of financial and operational strategy. Mr. Vella has over 25 years of experience in finance and accounting. Prior to joining SPHC, Mr. Vella was the Interim CFO and Corporate Controller of TransCare Corporation. TransCare is one of the nation's largest for-profit ambulance and paratransit companies operating throughout the East Coast. Prior to that Mr. Vella was the Vice President of Finance of Environmental Logistics Services (ELS), CFO of Loving Care Agency as well as serving in various finance and accounting management positions for publicly traded and privately owned companies. He began his career working in public accounting firms including the big four firm Deloitte & Touche LLP. Mr. Vella is a Certified Public Accountant.
Andrew Bressman, was elected Managing Director and Head of Business Development of the Company on March 27, 2015. He was Managing Director and Head of Business Development of Wave2Wave from November 1999 and has continued in that position with SPHC since October 2012. Mr. Bressman participates with the Company's executive team in overseeing the day-to-day operations and management of the Company; locates and develops new strategic opportunities; generates business and strategic relationships; and interfaces with technology partners and vendors. Mr. Bressman was one of Wave2Wave's original founders and was one of its key employees from that company's founding in November 1999 until November 2003 and from June 2005 until October 2012 when he assumed those positions with SPHC.
Mr. Bressman is a member of SAB Management LLC, which acts as consultant to SPHC, and is employed as Managing Director of SPHC. See "Employment and Consulting Agreements" below.
The SAB Management LLC Consulting Agreement and Andrew Bressman's Employment Agreement have been filed as exhibits to the Company's Form 8-K for March 27, 2015 and are available at the SEC's website, www.sec.gov.
You may want to consider the background history and past proceedings against Mr. Bressman and others:
Prior to joining Wave2Wave, Mr. Bressman spent five and a half years, from January 1990 until July 1996, working on Wall Street. From January 1990 through August 1992, Mr. Bressman was a registered representative at D.H. Blair & Co., Inc., a registered broker-dealer. In August 1992, Mr. Bressman left D.H. Blair to become a registered representative and president of A.R. Baron & Co., Inc., which was also a registered broker-dealer. In February 1993, Mr. Bressman became a registered principal at A.R. Baron and in September 1993 he began serving as its chief executive officer. Mr. Bressman's employment with A.R. Baron ended in July 1996 when the company was placed into liquidation pursuant to the Securities Investors Protection Act.
The SEC alleged that, during his association with D.H. Blair and A.R. Baron, Mr. Bressman and others engaged in a scheme to manipulate the market for the common stock of several public companies marketed by D.H. Blair and A.R. Baron and engaged in certain abusive sales practices. In November 1999, Mr. Bressman entered into a consent decree with the SEC which resolved all SEC allegations without Mr. Bressman admitting or denying them. As part of the settlement, Mr. Bressman agreed to the entry of an injunction enjoining him from committing future violations of the U.S. securities laws, including the antifraud provisions set forth in Section 17(a) of the Securities Act of 1933, as amended, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Mr. Bressman also agreed to a permanent bar from associating with any securities broker or dealer. In addition, Mr. Bressman agreed to and paid monetary penalties and disgorgement of profits over a five-year period. Bear Stearns Securities Corp., A.R. Baron's clearing house, agreed to contribute $30 million to a restitution fund for A.R. Baron's investors and the Securities Investors Protection Company recovered sufficient money to permit it to reimburse the majority of A.R. Baron's customers for their full out-of-pocket losses.
In December 1997, Mr. Bressman pled guilty to New York State charges of enterprise corruption and grand larceny based on some of the same conduct while employed at A.R. Baron for which he settled with the SEC. Mr. Bressman served 18 months of confinement in a New York State prison for these offenses commencing in November 2003, after which he was released to a work release program for the next 18 months; his term of parole supervision was terminated early.
Joseph Costanzo, Chief Technology Officer of the Company is a technology leader and visionary with deep expertise in business intelligence and analytics, having worked with companies ranging from Fortune 100 to the U.S. Department of Defense, to devise and implement business intelligence strategies. Mr. Costanzo joined SignalShare in 2013 upon its acquisition of SPHC and served until May 5, 2016. Mr. Costanzo has extensive technical knowledge in the areas of data warehouse architecture and design, customer relationship management (CRM) and analytics. He is also an experienced trainer and international speaker, with expertise in serving the retail, telecommunications, media, entertainment and financial industries. Mr. Costanzo attended the Citadel and the University of North Carolina at Wilmington, studying Business Economics and receiving his B.S. in Management Information Systems.
Michael S. Wasik has, was elected President and Chief Executive Officer of SignalShare Infrastructure, Inc. on March 27, 2015 and served until May 13, 2016. Prior thereto, he served as the Company’sCompany's Chief Executive Officer and member of the Board of Directors sincefrom November 2, 2005. Mr. Wasik joined the Roomlinx Executive Management team in August of 2005 after executing the merger of his company, SuiteSpeed, with Roomlinx. During Mr. Wasik’sWasik's first three years as CEO, he successfully restructured Roomlinx’Roomlinx' balance sheet, eliminating debt and raising just under ten million dollars in debt and equity financing. He also took Roomlinx from a non-reporting, pink sheet company to a fully reporting company with the SEC currently trading on the OTC exchange. Currently Mr. Wasik is responsible for leading Roomlinx, which includes the development and market penetration of Roomlinx’ newest product, Roomlinx Interactive TV..
Prior to thejoining Roomlinx, merger,Mr. Wasik was the CEO/Founder of SuiteSpeed Inc. a wireless Internet provider within the hospitality market. Having launched SuiteSpeed in late 2002, Mr. Wasik was responsible for defining technology architecture, market direction, and the overall vision for this fast growing WiFi company. Mr. Wasik expanded the company’scompany's geographical coverage from its Denver backyard to serving hotel chains and independents across the U.S. Under his direction, SuiteSpeed was on Mercury’sMercury's top 100 fastest growing companies list for 2003 and 2004.
Mr. Wasik iswas also the Founder and Chairman of the Board of TRG Inc., an IT consulting company. Having launched TRG in late 1997 with no outside funding, Mr. Wasik was responsible for the overall sales and marketing effort, and defined TRG’sTRG's overall vision. Under his leadership, the company achieved average growth of 300% per year, over the first four years with positive EBITDA. Mr. Wasik expanded the company’scompany's billable resources from 6 consultants in 1997 to 60 consultants in 2000 serving Fortune 500 corporations across the U.S. Mr. Wasik has managed over 60 people in 4 offices throughout the United States.
Mr. Wasik was nominated for the 2005 Ernst and Young Entrepreneur of the Year award.
Christopher Barnes, Executive Vice President - Strategic Relations of the Chief Financial OfficerCompany until February 2015, is a seasoned business development and sales executive with extensive experience developing technology and service businesses across industries. Mr. Barnes has been vetted at every level of Pearlstine Distributors,operations and sales, from management through executive. He has built national sales organizations from the bottom up and has played a privately held distributor of Anheuser Busch, Samuel Adams, Heineken, New Belgium and other craft beers to the Charleston, South Carolina market from 2008 through 2011. In addition to serving as the Chief Financial Officer, duringkey role in company successes, including his first year with Pearlstine Distributors,startup IPO effort, which carried a market cap in excess of $1.2 Billion. Prior to SignalShare's acquisition by SPHC in January 2013, Mr. Fine servedBarnes was employed by Zencos Consulting LLC, where he managed global customers and the U.S. roll-out of European and Asian data systems. He has also held positions at National Data Corp, CAIS Internet, and Matrics Technology, as the Director of Operations with respect to the re-engineering of warehouse operations and overseeing certain warehouse additions. Mr. Fine joined the Companywell as spent time in 2011, assuming the role ofcommercial real estate. Barnes has a B.A. in Marketing from Morehouse College.
Peter Walsh, Vice President of FinanceSports and in January 2013 was appointed as interim Chief Financial Officer and interim Principal Accounting Officer of the Company.
Committees
The Company does not currently have any independent directors and the entire Board of Directors has determined that Carl R. Vertuca, Jr.is performing all duties of the Audit, Nominating and Erin L. Lydon are “independent” as defined in NASDAQ Marketplace Rule 4200.Corporate Governance and Compensation Committees.
Code of Ethics
Subsequent Events
DePalo Related Entity Litigation:
On February 23, 2016, Brookville, Veritas and Allied ("Plaintiffs") filed suit in separate actions in the federal District Court for the Southern District of New York against SPHC, M2 Communications and M2 nGage ("Defendants") seeking foreclosure on the secured loans with the Defendants and the imposition of a temporary restraining order.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors, named executive officers and directors and persons who ownholding more than 10 percent10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC. During and/or with respect to the fiscal year ended December 31, 2013, (i) Michael S. Wasik, the CEO and Chairman of the Company, filed two Form 4s reporting a total of four transactions on a timely basis, (ii) Matthew Hulsizer, a beneficial owner of more than ten percent of the Company’s Common Stock, filed one Form 4 reporting a total of ten transactions on a non-timely basis, and (iii) Jennifer Just, a beneficial owner of more than ten percent of the Company’s Common Stock, filed one Form 4 reporting a total of ten transactions on a non-timely basis. Other than as disclosed in the previous sentence, to the Company’s knowledge, no director, officer or beneficial owner of more than ten percent of any class of registered equity securities of the Company failed to file with the SEC and to provide us with initial reports of ownership, reports of changes in ownership and annual reports of ownership of Common Stock and other equity securities of the Company. Based solely on a timely basis reports required by Section 16(a)review of the Exchange Actreports furnished to us, or written representations from reporting persons that all reportable transaction were reported, we believe that during the fiscal year ended December 31, 2013.2015, our officers, directors and greater than ten percent owners timely filed all reports they were required to file under Section 16(a).
EXECUTIVE OFFICERS AND DIRECTOR COMPENSATION
Summary Compensation Table
The following table sets forth the cash and non-cash compensation for awarded to or earned by (i) each individual serving as our chiefprincipal executive officer and principal financial officer during the fiscal years ended December 31, 20132015 and 2012,2014, and (ii) each other individual that served as an executive officer at the conclusion of the fiscal yearyears ended December 31, 20132015 and 2012,2014, and who received in excess of $100,000 in the form of salary and bonus during such fiscal year (collectively, the “named"named executive officers”officers").
| Name and Principle Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Stock Based Compensation ($)(1) | Non-Equity Incentive Plan Compensation | Nonqualified Deferred Compensation Earnings | All Other Compensation ($) | Total ($) | |||||||||||||||||
| Michael S. Wasik, CEO | 2013 | 200,000 | - | - | - | - | - | - | 200,000 | |||||||||||||||||
| Michael S. Wasik, CEO | 2012 | 159,900 | - | - | 351,555 | - | - | - | 511,455 | |||||||||||||||||
| Jason A. Baxter, COO | 2013 | 150,000 | - | - | 6,000 | - | - | - | 156,000 | |||||||||||||||||
| Robert Wagener, EVP of Sales | 2013 | 150,000 | - | - | - | - | - | - | 150,000 | |||||||||||||||||
| Alan Fine, interim CFO | 2013 | 108,000 | - | - | - | - | - | - | 108,000 | |||||||||||||||||
| Name and Principle Position | Year | Salary | Bonus | Stock Awards | Stock Based Comp | Non-Equity Incentive Plan Comp | Non-qualified Deferred Comp Earnings | All Other Comp | Total | |||||||||
Aaron Dobrinsky, PEO and President of SHC (1) | 2015 2014 | $330,534 $264,583 | $47,496 | $330,534 $312,079 | ||||||||||||||
| Michael S. Wasik, | 2015 | $245,773 | $188,317 | $434,090 | ||||||||||||||
| PEO and interim CFO (2) | 2014 | $200,000 | $200,000 | |||||||||||||||
| Steve Vella, PFO (3) | 2015 | $225,559 | $225,559 | |||||||||||||||
| Alan Fine, | 2014 | $73,000 | $73,000 | |||||||||||||||
| interim PFO (4) | ||||||||||||||||||
Chris Broderick, COO of SPHC (5) | 2015 2014 | $265,170 $235,493 | $35,000 | $265,170 $270,493 | ||||||||||||||
Andrew Bressman, Managing Director and Head of Business Development (6) | 2015 2014 | $155,271 $91,874 | $425,000 $790,625 | $580,271 $882,499 | ||||||||||||||
Joseph J. Costanzo, CTO of SPHC (8) | 2015 2014 | $298,294 $250,000 | $60,417 $226,324 | $358,711 $476,324 | ||||||||||||||
Christopher Barnes, EVP Strategic Relations of SPHC (9) | 2015 2014 | $332,653 $250,000 | $60,417 $225,539 | $393,071 $475,539 |
(2) Mr. Wasik resigned as Chief Executive Officer of the Company as of March 27, 2015 upon the completion of the Subsidiary Merger.
(3) Mr. Vella resigned as Chief Financial Officer of the Company on January 29, 2016.
(4) Alan Fine resigned from M2 nGage Group, Inc. on July 3, 2014.
(5) Mr. Broderick was elected Chief Operating Officer of M2 nGage Group, Inc. as of March 27, 2015.
(6) Mr. Bressman was the Managing Director and ChairmanHead of Business Development for SPHC in 2014 and holds the same positions with the Company.
(7) Substantially all of this amount was paid to SAB Management LLC ("SAB"), of which Mr. Bressman is a member, under the Consulting Agreement with SPHC. On March 27, 2015, the Company entered into a new five-year Consulting Agreement with SAB.
(8) Includes $205,620 of commissions paid under Mr. Costanzo's employment agreement.
(9) Includes $205,051 of commissions paid under Mr. Barnes' Employment Agreement.
Compensation Discussion and Analysis
The primary objectives of the Board of Directors with respect to executive compensation will be to attract and retain the best possible executive talent, to motivate our executive officers to enhance our growth and profitability and increase stockholder value and to reward superior performance and contributions to the achievement of corporate objectives. Upon the completion of this Offering, the Company expects to enter into employment and/or consulting agreements with key management of the companies.
We expect that the focus of our executive pay strategy will be to tie short- and long-term cash and equity incentives to the achievement of measurable corporate and individual performance objectives, and to align executives' incentives with stockholder value creation. To achieve these objectives, the Company will develop and maintain a compensation plan that ties a substantial portion of executives' overall compensation to the Company's sales, operational, and regulatory performance. Because we believe that the performance of every employee is important to our success, we will be mindful of the effect our executive compensation and incentive program has on all of our employees.
Our compensation plan will be designed to attract and retain the best possible talent, and we recognize that different elements of compensation are more or less valuable depending on the individual. For this reason, we will offer a broad range of compensation elements. We intend to offer our executive team salaries that are competitive with the market, executive bonuses that are in line with our corporate goals, and dependent on measurable results, plus stock option plans designed to retain talent, promote a sense of company ownership, and tie corporate success to monetary rewards. Specifically, all management employed by the Company or one of its subsidiaries will be entitled to participate in an equity incentive plan that will compensate management if certain financial performance and milestones are met. The Company reserves the right to increase the size of the plan as it deems necessary, at its sole discretion.
We expect that base salaries for our executive officers will be determined based on the scope of their job responsibilities, prior experience, and uniqueness of industry skills, education, and training. Compensation paid by industry competitors for similar positions, as well as market demand will also take into account. Base salaries will be reviewed annually as part of our performance management program, whereby merit or equity adjustments may be made. Merit adjustments will be based on the level of success in which individual and corporate performance goals have been met or exceeded. Equity adjustments may be made to ensure base salaries are competitive with the market and will be determined using benchmark survey data.
Our compensation structure will be primarily comprised of base salary, annual performance bonus and stock options. In setting executive compensation, the Board of Directors will consider the aggregate compensation payable to an executive officer and the form of the compensation. The Board will seek to achieve an appropriate balance between immediate cash rewards and long-term financial incentives for the achievement of both annual and long-term financial and non-financial objectives.
Options - 2015 Plan
On April 15, 2013, the SPHC board of directors and stockholders adopted the 2015 Employees, Directors and Consultants Equity Incentive Plan (the "2015 Plan"). The purpose of the 2015 Plan is to provide an incentive to attract and retain directors, officers, consultants, advisors and employees whose services are considered valuable, to encourage a sense of proprietorship, and to stimulate an active interest of these persons in our development and financial success. Under the 2015 Plan, we are authorized to issue up to 12,000,000 shares of Common Stock, including incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended, non-qualified stock options, stock appreciation rights, performance shares, restricted stock and long term incentive awards. The 2015 Plan will be administered by our board of directors until authority has been delegated to a committee of the Board of Directors. At
The 2014 Stock Appreciation Rights Agreements
The Board of Directors of SPHC authorized the Company to enter into a Stock Appreciation Rights agreement (the "Agreement") by and between the Company and four current officers and a consultant for the Company (the "Recipients"). The Agreement granted stock appreciation rights ("SARs") as an inducement for the Recipients to promote the best interests of the Company and its stockholders. The spread between the then fair market value of the Company's common stock, par value $0.001 per share ("Common Stock") and the then fair market value of the stock on the date of exercise shall be payable to the Recipients, less applicable tax withholdings.
The SARs will be granted upon the consummation by the Company of any transaction or series of transactions (the "Transaction" that results in (i) shares of the Common Stock being registered under Section 12 of the Exchange Act; or (ii) shares of Common Stock being exchanged for equity interests of an entity that is listed or authorized for trading on a national securities exchange, or the OTC Electronic Bulletin Board, meeting held on December 27, 2012,or is an entity with a class of securities registered under Section 12 of the Board approved anExchange Act. To the extent that there are changes in the number or kind of Common Stock outstanding as a result of a business transaction (e.g., merger, reorganization or any extraordinary or unusual event), the number of SARs granted to the Recipients will be appropriately adjusted to reflect any increase or decrease in Mr. Wasik’s base compensation per his Employment Agreement from $150,000the number of shares related to $200,000 effectivethat business transaction. The SARs are subject to graded vesting provisions and may only be exercised when the Recipients SARs have vested. The SARs granted prior to the SMA vest 50% on January 1, 2013.10, 2015 and 50% on January 10, 2016 and the SARs may only be exercised in the year in which they vest. The SARs granted as of March 27, 2015 will vest 100% on January 10, 2017. Vested SARs that remain unexercised at the end of a vesting year will expire at that time. Any unvested SARs will be immediately forfeited and canceled in the event that a Recipient's employment or other service with the Company is terminated for any reasons.
Set forth below is information with regard to the individuals, number of shares and exercise price of the SARs:
● Christopher Broderick, Chief Operating Officer, or an Amendedentity of his choosing, SARs were authorized for an aggregate of 5,250,000 shares (1,750,000 of which were forfeited for non-exercise) of Common Stock for $.50 per share, provided Mr. Broderick remains employed by the Company.
● SAB Management LLC, an entity owned by Andrew Bressman, Managing Director, and Restated his wife, SARS were authorized for an aggregate of 12,750,000 shares (4,250,000 of which were forfeited for non-exercise) of Common Stock for $.10 per share, provided Mr. Bressman remains employed by the Company.
● Christopher Barnes, Executive Vice President of Strategic Alliances & Business Development of Signal Share, SARs were authorized for 1,000,000 shares of Common Stock for $1.80 per share, provided Mr. Barnes remains employed by the Company.
● Joseph Costanzo, Chief Technology Officer of SignalShare, SARs were authorized for 1,000,000 shares (all of which were forfeited in 2016) of Common Stock for $1.80 per share, provided Mr. Costanzo remains employed by the Company.
Employment Agreement (“Restated Employment Agreement”) with Agreements
Mr. Wasik. The Restated Employment Agreement amendedDobrinsky received a salary of $325,000 and restated Mr. Wasik’s employment agreement dated as of June 5, 2009, as amended. The termsis eligible to earn annual variable compensation at the sole discretion of the Restated Employment AgreementCompensation Committee based upon SPHC's achievement of stated goals, as established by the Compensation Committee. Since January 4, 2016, Mr. Dobrinsky has been compensated at the rate of $225,000 with the balance accrued by the Company. Mr. Dobrinsky was awarded SARS for 3,500,000 shares of Common Stock, which can be exchanged for an equal number of shares of the Company's Common Stock. One half (50%) of the SARS vested on January 10, 2015 (which was forfeited) and the remaining 50% of such shares shall vest on January 10, 2016. Mr. Dobrinsky was awarded, on March 27, 2015, an additional SARS agreement for 1,750,000 shares of Common Stock, 100% of which will vest on January 10, 2017. The Base Price of each SAR is identical to$0.50. The exercise price of SARS shall be payable in cash or on a cashless basis. Vested SARS may only be exercised during the terms of his originalcalendar year in which SARS vest. All unvested SARS shall be immediately forfeited and cancelled in the event the recipient's employment agreementor other service with the Company is terminated prior to the applicable vesting date. A form of such SARS agreement has been filed as disclosed in our Current Report onan exhibit to the Company's Form 8-K filed with the Securities and Exchange Commission on June 11, 2009, as thereafter amended, except that (i) the definition of a “Sale of the Company” has been clarified to mean any transaction or related series or combination of transactions whereby, directly or indirectly, control of a majority (defined as greater than 50% of the outstanding voting capital stock of Roomlinx) of the equity interests of Roomlinx (or any direct or indirect parent of Roomlinx),for March 27, 2015.
The employment agreement is terminable for Cause (as defined) or the majority of Roomlinx’s businessemployee terminates his employment without Good Reason (as defined) in which case the employee shall not be entitled to any compensation other than accrued benefits. In the event the employment agreement is terminated other than for Cause or assets is acquired, leased or licensed by a third party in a sale or exchange of stock, merger or consolidation, sale, lease or license of assets or joint venture (regardless of whether Roomlinx has control of said joint venture or is a minority owner), including by way of an exchange or tender offer, a leveraged buyout, a recapitalization, restructuring or reorganization of Roomlinx; and (ii) in connection with a Sale of the Company, Mr. Wasik will receive a bonus payment equal to one year of Mr. Wasik’s then current base salary.
Excluding the Merger with the Company, in the event of a Change of Control (as defined) 100% of the Employee's unvested SARS, options or shares shall immediately vest, and if the employee is no longer employed by the Company he shall be entitled to receive 12 months' severance. Any benefits to be received by employee in the event of a Change of Control that would constitute a "parachute payment" within the meaning of Section 280G of the Internal Revenue Code (the "Code") will be reduced to the extent necessary so that no excise tax is due. To the extent any payment under the employment agreement constitutes an incentive stock optionamount payable under a "Non-Qualified Deferred Compensation Plan (as defined in Section 409A of the Code), such payment could not be made to purchase 100,000 sharesthe employee earlier than the date that is six months from termination of our Common Stock.employee's separation from service.
The Employment Agreement may be terminated atcontains a restricted period of nine (9) months from any time by eithertermination date during which the Companyemployee cannot directly or Mr. Wasik; provided, however, that inindirectly compete with SPHC, nor solicit the event Mr. Wasik terminates for “Good Reason”services of any employee of SPHC on the termination date, or solicit or provide services to any customer of SPHC on the Company terminates without “Cause”, each as defined intermination date or who was a customer during the one-year period preceding the termination date.
SPHC entered into an Executive Employment Agreement then Mr. Wasik shall, on the fulfillment of certain conditions, be entitled to severance compensation equal to twelve (12) months’ salary.
SPHC entered into an Executive Vice PresidentEmployment Agreement with Andrew Bressman, as Managing Director on the same terms as Mr. Dobrinsky, except as noted herein, Mr. Bressman is entitled to receive a Base Salary of Sales$125,000 per annum. Since February 2016, he has been compensated at the rate of $125,000, with the balance accrued by the Company.
Consulting Agreement with SAB Management LLC
On March 27, 2015, SPHC entered into a five (5)-year Consulting Agreement with SAB Management LLC ("Consultant"), of which Andrew Bressman is a Member. Consultant shall render consulting services to SPHC relating to strategic planning, product development and Marketing. Termsgeneral business and financial matters. Consultant shall not be required to devote more than 2,000 hours per year to SPHC. Consultant is being paid at the rate of $425,000 per year. SAB was granted SARS for 8,500,000 and 4,250,000 shares, respectively, with a base price of $0.10 per share, but otherwise, on the same terms as Mr. Dobrinsky. Upon voluntary termination, the Consultant shall only receive consulting fees earned, but yet paid. If the consultant is terminated for Cause (as defined), it shall be entitled to consulting fees earned but not yet paid. In the event of any litigation, investigation or other matter naming Andrew Bressman or SAB Management LLC, the Company will pay 100% of legal fees to a lawyer of their choice. Consultant is subject to a 12 month non-solicitation restriction from the end of the Agreements are identical and grant a starting salary of $150,000 per year and entitle the employee to be eligible for a discretionary performance based bonus. In addition, under the terms of the Agreements, and in connection with a sale of the Company, consistent with the definition of a “Sale of the Company” under Mr. Wasik’s Restated Employment Agreement, Mr. Baxter and Mr. Wagener will receive a bonus payment equal to one year of their then current base salary.term.
Outstanding Equity Awards At Fiscal Year-End (Fiscal Year-End December 31, 2013)2015
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(1) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | ||||||||||
| Aaron Dobrinsky (2) | 3,500,000 (2) | 1,750,000 | 1,750,000 | $0.50 | 12/31/17 | 1,750,000 | - | - | - | ||||||||||
| Christopher Broderick (2) | 3,500,000 | 1,750,000 | 1,750,000 | $0.50 | 12/31/17 | 1,750,000 | - | - | - | ||||||||||
| S&B Management LLC (3) | 8,500,000(3 | 4,250,000 | 4,250,000 | $0.10 | 12/31/17 | 4,250,000 | - | - | - |
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | ||||||||||||||||||||||||
| Michael S. Wasik | 100,000 | - | - | $ | 2.00 | 11/20/16 | - | $ | - | - | $ | - | |||||||||||||||||||||
Michael S. Wasik (1) | 100,000 | - | - | $ | 0.60 | 06/05/16 | - | $ | - | - | $ | - | |||||||||||||||||||||
Michael S. Wasik (1) | 3,378 | - | - | $ | 0.60 | 04/11/17 | - | $ | - | - | $ | - | |||||||||||||||||||||
| Michael S. Wasik | 117,500 | 78,333 | - | $ | 2.10 | 03/13/19 | - | $ | - | - | $ | - | |||||||||||||||||||||
Michael S. Wasik (1) | 23,600 | 15,733 | - | $ | 0.60 | 06/05/19 | - | $ | - | - | $ | - | |||||||||||||||||||||
Michael S. Wasik (1) | 10,000 | 6,667 | - | $ | 0.60 | 12/17/19 | - | $ | - | - | $ | - | |||||||||||||||||||||
| Michael S. Wasik | 60,000 | 40,000 | - | $ | 2.00 | 12/26/19 | - | $ | - | - | $ | - | |||||||||||||||||||||
Jason A. Baxter (1) | 20,000 | 13,333 | - | $ | 2.10 | 05/09/19 | - | $ | - | - | $ | - | |||||||||||||||||||||
Jason A. Baxter (1) | 30,000 | 20,000 | - | $ | 2.10 | 12/17/19 | - | $ | - | - | $ | - | |||||||||||||||||||||
Jason A. Baxter (1) | 5,833 | 3,889 | - | $ | 2.00 | 12/26/19 | - | $ | - | - | $ | - | |||||||||||||||||||||
| Jason A. Baxter | 10,000 | 10,000 | - | $ | 0.60 | 01/11/20 | - | $ | - | - | $ | - | |||||||||||||||||||||
Robert Wagener (1) | 5,000 | - | - | $ | 0.60 | 07/20/15 | - | $ | - | - | $ | - | |||||||||||||||||||||
Robert Wagener (1) | 12,000 | - | - | $ | 0.60 | 02/22/16 | - | $ | - | - | $ | - | |||||||||||||||||||||
Robert Wagener (1) | 1,688 | - | - | $ | 0.60 | 04/11/17 | - | $ | - | - | $ | - | |||||||||||||||||||||
| Robert Wagener | 100,000 | 66,667 | - | $ | 2.10 | 03/13/19 | - | $ | - | - | $ | - | |||||||||||||||||||||
Robert Wagener (1) | 11,800 | 7,867 | - | $ | 0.60 | 06/05/19 | - | $ | - | - | $ | - | |||||||||||||||||||||
Robert Wagener (1) | 37,500 | 25,000 | - | $ | 0.60 | 12/26/19 | - | $ | - | - | $ | - | |||||||||||||||||||||
| Alan Fine | 15,000 | 10,000 | - | $ | 2.10 | 03/13/19 | - | $ | - | - | $ | - | |||||||||||||||||||||
Alan Fine (1) | 1,967 | 1,311 | - | $ | 0.60 | 06/05/19 | - | $ | - | - | $ | - | |||||||||||||||||||||
Alan Fine (1) | 10,000 | 6,667 | - | $ | 0.60 | 12/26/19 | - | $ | - | - | $ | - | |||||||||||||||||||||
| (1) | Effective June 14, 2013, the Board of Directors determined to reduce the option exercise price to $0.60 per share, the closing price of common stock on said date. | ||||||||||||||||||||||||||||||||
(2) Does not include 1,750,000 shares of common stock forfeited as of December 31, 2015 for non-exercise of Stock Appreciation Rights.
(3) Does not include 4,250,000 shares of common stock forfeited as of December 31, 2015 for non-exercise of Stock Appreciation Rights.
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||
| Michael Wasik | - | - | - | - | - | - | - | |||||||||||||||||||||
| Judson Just | - | - | - | - | - | - | - | |||||||||||||||||||||
| Carl R Vertuca, Jr. | - | 20,000 | - | - | - | - | 20,000 | |||||||||||||||||||||
| Erin Lydon | - | 16,000 | - | - | - | - | 16,000 | |||||||||||||||||||||
Jay Coppoletta (2) | - | 12,000 | - | - | - | - | 12,000 | |||||||||||||||||||||
| �� | ||||||||||||||||||||||||||||
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following tables set forth certain information regarding the beneficial ownership of our common stock and preferred stock as of March 15, 2014,August 18, 2016, by (i) each person who is known by us to be the beneficial owner of more than 5% of our outstanding common stock or preferred stock;stock (reflecting the effect of the Reverse Stock Split and Stock Dividend); (ii) each of our directors and executive officers; and (iii) all of our directors and executive officers as a group. Beneficial Ownership is determined in accordance with the rules and regulations of the Securities and Exchange Commission and generally include voting or warrant power with respect to the securities. In determining the number and percentage of shares beneficially owned by each person, shares that may be acquired by such person under options or warrants exercisable within 60 days of March 15, 2014this report are deemed beneficially owned by such person and are deemed outstanding for purposes of determining the total number of outstanding shares for such person and are not deemed outstanding for such purpose for all other stockholders.
Name and Address (1) | Number of Shares of Common Stock Beneficially Owned (2 ) | Percent of Common Stock Beneficially Owned | ||
| Aaron Dobrinsky (3) | 1,750,000 | (4) | 1.29% | |
| Christopher Broderick (3) | 1,750,000 | (4) | 1.29% | |
| All executive officers and directors (2 persons) | 3,500,000 | 2.57% | ||
| Matthew Hulsizer (5) | 9,996,070 | 7.35% | ||
| Jennifer Just | ||||
| c/o Roomlinx, Inc. | ||||
11101 W. 120th Avenue | ||||
| Broomfield, CO 80021 | ||||
| Robert DePalo (6) | 43,260,969 | 31.81% | ||
| 570 Lexington Avenue, | ||||
22nd Floor | ||||
| New York, NY 10022 | ||||
| George S. Mennen Trust (7) | 10,000,000 | 7.35% | ||
| FBO John H. Mennen U/A/D 11/25/1970, Kevin M. Kilcullen Trustee | ||||
| c/o Steven A. Kilcullen, LLC | ||||
| 325 Columbia Turnpike | ||||
| Suite 110, P.O. Box 992 | ||||
| Florham Park, NJ 07932-0992 | ||||
| Andrew Bressman | 4,250,000 | (8) | 3.12% | |
| Signal Point Communications, Inc. | ||||
Continental Plaza, 6th Floor | ||||
| 433 Hackensack Avenue | ||||
| Hackensack, NJ 07601 | ||||
| Joshua Gladtke | 9,500,000 | 6.98% | ||
| 180 Long Pond Road | ||||
| Hewitt, NJ 07421 | ||||
| Cenfin, LLC (9) | 7,899,344 | 5.81% | ||
| 141 W. Jackson Blvd., Suite 500 | ||||
| Chicago, IL 60604 |
| 1 | Unless otherwise indicated, the address of each beneficial owner listed below is c/o M2 nGage Group, Inc., 433 Hackensack Avenue, Hackensack, New Jersey 07601. |
| 2 | Based on 136,019,348 shares of common stock issued and outstanding as of August 18, 2016. There were 720,000 shares of Series A Preferred Stock and 2,945,000 shares of Series B Preferred Stock convertible into approximately 12,798,814 shares of common stock at $0.28 per share. No officer and director held any shares of preferred stock and no person was entitled to 5% or more of the Company's common stock on an as converted basis. |
| 3 | This person was elected an executive officer of the Registrant on March 27, 2015, in connection with the Subsidiary Merger. These shares are issuable upon exercise of Stock Appreciation Rights ("SARs") granted by Signal Point Holdings Corp. on October 30, 2014, and assumed by the Registrant as of March 27, 2015, which vested and became exercisable on January 10, 2016 and will terminate on December 31, 2016. The shareholdings in the table do not include: an additional 1,750,000 SARs granted on March 27, 2015 which will vest on January 10, 2017, if employment is not terminated prior to the vesting date and will terminate on December 31, 2017. |
| 4 | These shares are issuable upon exercise of SARs, which vested and became exercisable on January 1, 2016 and will terminate on December 31, 2016. Shareholdings do not include 1,750,000 SARs granted on March 27, 2015, which will vest on January 1, 2017 if employment is not terminated prior to vesting and will terminate on December 31, 2017. |
- 102 -
| Includes (i) | |
| 6 | |
| 7 | Kevin M. Kilcullen, Trustee, has the power to vote and dispose of these shares. |
| 9 | Matthew Hulsizer has the power to vote and dispose of these shares. |
Subsidiary Merger Agreement
On February 10, 2015, the Company and SPHC terminated their Agreement and Plan of Merger dated March 14, 2014, due to unexpected delays in meeting the closing conditions by the Audit Committeethen extended termination date almost one year after the original agreement was entered into. Robert DePalo was then the principal shareholder of SPHC and became the principal shareholder of the Board of Directors.
Company. On March 27, 2015, the Company and SPHC agreed upon new terms for the transaction and simultaneously signed and completed the Subsidiary Merger Agreement (the "SMA"). The Company’s policy with regards to Related Person Transactions requires that where a transaction has been identified as a related person transaction, the Audit Committee (but only non-interested members) must approve or ratify it. Management must present to such non-interested members of the Audit Committee a description of,SMA was negotiated based upon, among other things, significantly revised settlement agreements with the material facts,Company's major creditors. These included, among other things, Cenfin LLC, the interests, direct and indirect,Company's secured lender, obtaining 5% of the related persons,approximately 15% of the benefitsissued and outstanding Fully Diluted common stock following the Subsidiary Merger retained by existing Roomlinx shareholders.
Upon the Closing, the Company assumed certain obligations of SPHC and transferred substantially all of the assets and liabilities (other than assets consisting of contracts for which no consent to assignment has been obtained) into SignalShare Infrastructure, Inc. ("SSI"), a newly-formed Nevada corporation wholly owned by the Company. As a result of the foregoing, SSI and SPHC and their respective subsidiaries were the principal operating subsidiaries of the Company.
Pursuant to the terms of the SMA, the Company made a $750,000 cash payment to Cenfin, reducing the amount of the Revolving Loan with Cenfin to $3,962,000, bearing interest at approximately 5% per annum, and Cenfin received 7,061,295 shares of Common Stock. This revolving loan is secured by the assets of SSI, but not those of the parent Company (except to the extent not assigned to SSI) and not by any assets of SPHC. Pursuant to the SMA, SPHC agreed to make a $600,000 cash contribution available to the Company for ongoing operations, of the transaction and whether any alternative transactions were available. To identify Related Person Transactions,which $400,000 was paid directly by SPHC to Technology Integration Group, a principal vendor to the Company, relies on information supplied by its executive officerspursuant to the terms and Directors. In the eventconditions of a Director has an interest in the proposed transaction, the Director must recuse himself or herself from the deliberationsSettlement Agreement and approval. In determining whether to approve, ratify or rejectMutual General Release, a related person transaction, the non-interested memberscopy of the Audit Committee look at, in light of known circumstances, whether the transaction is in, or is not inconsistent with, the best interests of the Company and its stockholders, as determined by them in the good faith exercise of their discretion.
Pursuant to the Compensation Committeeterms and conditions of the SMA, the Board of Directors of the Company declared a dividend of 12,590,317 shares of Common Stock to existing stockholders who held 107,007 shares of Common Stock or an aggregate of 12,697,324 shares (9.4% of the Fully Diluted Shares). Cenfin was issued 7,061,295 (5.23%) shares and the SPHC shareholders were issued 115,282,137 (85.39% of Fully Diluted Shares) of a total of 135,040,756 shares issued and outstanding exclusive of 4,160,000 option shares and 25,250,000 stock appreciation rights. All of the dividend shares and Cenfin Shares were subject to a nine (9) month lock-up agreement, subject to certain registration rights.
The foregoing summary of the terms and conditions of the SMA does not purport to be complete, and is not consideredqualified in its entirety by reference to the full text of the SMA, which was filed as an exhibit to the Company's Form 8-K for March 27, 2015 and is available at the SEC website, www.sec.gov.
Pursuant to the terms and condition of the SMA, all officers and directors of the Company resigned as of March 27, 2015. As set forth under Item 10 "Directors, Executive Officers and Corporate Governance. Aaron Dobrinsky was elected Chairman of the Board, Chief Executive Officer (he resigned as of January 4, 2016) and a Related Party Transaction.Director and Christopher Broderick was elected Chief Operating Officer and a Director. These two persons constitute the entire Board of Directors of the Company. Messrs. Dobrinsky and Broderick also became the initial officers and directors of SSI, together with Michael S. Wasik, formerly President and Chief Executive Officer of the Company, who became President and Chief Operating Officer of SSI.
There are no arrangements, known to the Company, including any pledge by any person of any securities of the Company or any of its parents, the operation of which may, at a subsequent date, result in a change in control of the Company.
On June 5, 2009 we entered into a Revolving Credit, Security and Warrant Purchase Agreement (the “Credit Agreement”"Credit Agreement") with Cenfin LLC, an entity principally owned by significant shareholders of the Company. The Credit Agreement permits us to borrow up to $25 million until June 5, 2017. On May 3, 2013, the Company and Cenfin executed a fourth amendment to the Credit Agreement which provided Cenfin sole and absolute discretion related to funding any advance requested by Roomlinx. Advances must be repaid at the earlier of 5 years from the date of borrowing or at the expiration of the Credit Agreement. The principal balance may be repaid at any time without penalty. Borrowings accrue interest, payable quarterly on the unpaid principal and interest at a rate equal to the Federal Funds Rate at July 15 of each year plus 5% (approximately 5.09% at December 31, 2013)2014). The Credit Agreement is collateralized by substantially all of our assets, and requires we maintain a total outstanding indebtedness to total assets ratio of less than 3 to 1.
During the year ended December 31, 2013,2014, the Company made interest payments of $256,942$258,038 and principal payments of $464,000 to Cenfin.
Principal Stockholder Agreements with Robert DePalo
The following is a description of material transactions engaged in by Robert DePalo and affiliated entities, either with SPHC or its predecessors. Mr. DePalo is a principal stockholder of the Company as a result of the Merger. See "Recent Events Concerning Our Principal Shareholder, Robert DePalo," for information concerning an indictment and SEC proceedings brought against Mr. DePalo, unrelated to the Company's business and the Company's actions regarding these material agreements.
Consulting Agreement
On January 9, 2014, SPHC entered into a Consulting Agreement with Robert DePalo, which was assumed by the Company on March 27, 2015. The agreement is for a seven (7) year term (the "Term") commencing on March 1, 2014 and ending on February 28, 2021, subject to earlier termination. Pursuant to a Board of Directors vote, the Company is accruing all payments to Mr. DePalo under this agreement. Mr. DePalo is not involved in the day-to-day management or operations of the Company and its subsidiaries and is not providing consulting arrangement for marketing services with TRG, Inc., an entity owned by Michael S. Wasik,to the CEOCompany. Mr. DePalo was to render consulting services related to strategic planning, product development and Chairman of Roomlinx. The marketing services weregeneral business and financial matters. He was not required to devote more than 100 hours per year under the agreement. Mr. DePalo was to be performed by Chris Wasik,paid $210,000 per year during the wifeTerm of the Agreement. In addition, pursuant to the terms of the Agreement, in the event of any litigation involving Robert DePalo, the Company will pay 100% of legal fees to a lawyer of Mr. Wasik. DePalo choice. Mr. DePalo can terminate the contract on 30 days' prior written notice if he voluntarily terminates his consulting or if terminated for Cause (as defined). Upon termination, Mr. DePalo shall only be entitled to earned, but unpaid, consulting fees. Mr. DePalo agreed to a one-year non-solicitation provision from the date of termination of employment.
Preferred Stock Cancellation and Debt Modification
On October 26, 2015, the Company, SPHC and all of SPHC's subsidiaries (the "Subsidiaries") entered into the following transactions with certain preferred stock holders of SPHC and senior secured debt holders of the Company and SPHC in order to reduce the overall financial exposure of the Company and to give the Company the maximum flexibility in management and for raising additional capital, while eliminating the preferences and certain controls of the Preferred Stock holders.
On October 26, 2015, Mr. DePalo, the holder of the Series B Preferred Stock of SPHC, agreed to the cancellation of the Series B Preferred Stock. In connection with the cancellation of the SPHC Series B Preferred Stock, the Company agreed that (subject to shareholder approval and the applicable laws and regulations) it would amend its charter and enter into other applicable agreements to provide for the following:
(a) the Company will not approve any reverse stock splits without the affirmative vote of the holders of at least fifty one percent (51%) of the issued and outstanding common stock;
(b) for a period of two (2) years the Company will not issue any class of stock with supermajority voting rights;
(c) DePalo will have the right to appoint one member to the Board of Directors of the Company, subject to such person not being a relative of DePalo and independent of DePalo; and
(d) Until the expiration of the Consulting Agreement between the Company and DePalo, DePalo will be entitled to a monthly payment of $17,500 which payment shall accrue, until the Company and DePalo agree otherwise, or the Company obtains at least $8,000,000 in funding at which time DePalo will be paid all accrued and unpaid monthly payments and regular payments will begin and continue on a monthly basis for the term of the Consulting Agreement.
Brookville Special Purpose Fund, LLC
On March 24, 2011, Wave2Wave entered into a senior secured loan and security agreement with Brookville in the amount of $11.2 million (the "Brookville Loan"). Robert DePalo is the Managing Member of Brookville and acted as the agent for Brookville. The Brookville Loan has a maturity date of November 15, 2015 and has an annual interest rate of 14%. A portion of the Brookville Loan was converted into equity as of March 31, 2014 at an exchange rate of $1.50 per share. The Brookville Loan was secured by a senior security interest (subordinated to the DIP Lender defined below) in and lien against substantially all assets of the Wave2Wave and each of its wholly-owned subsidiaries: (i) RNK, Inc. ("RNK"); (ii) RNK VA, LLC; (iii) Wave2Wave VOIP Communications, LLC; (iv) Wave2Wave Data Communications, LLC; and (v) Wave2Wave Communications Midwest Region, LLC (collectively, the "Subsidiaries"). The Subsidiaries were co-guarantors of the Brookville Loan and pledged their assets as collateral for the Brookville Loan. In addition, Wave2Wave and RNK executed a Patent Security Agreement and Trademark Security Agreement in favor of Brookville, further collateralizing the Brookville Loan with all of the Wave2Wave's right, title and interest in and to their patents, applications, registrations and recordings, as well as Wave2Wave's right, title and interest in and to any trademarks, trade names, tradestyles and service marks.
On February 24, 2016, Brookville Special Purpose Fund, et al. commenced a Strict Foreclosure Action against Signal Point Holdings Corp. et al. calling the Notes that were in default and had matured. The Parties however, agreed to modify the Loan Documents and reached a settlement, together with mutual releases.
On April 7, 2016, the Company and Brookville et al. settled the litigation as follows. The Company in order to forebear the current foreclosures with its secured lenders, entered into a Restructuring, Omnibus Pledge, Security and Intercreditor Agreement (the "Omnibus Agreement"). The Omnibus Agreement is among the Company, SPHC, a wholly-owned subsidiary of the Company, M2 Communications, a wholly-owned subsidiary of SPHC, and M2 Communications, a wholly-owned subsidiary of SPHC. SPHC, M2 Communications and M2 nGage are collectively referred to as the "Debtors." Brookville, Veritas and Allied are collectively referred to as the "Secured Parties," and collectively with the Debtors, referred to as the "Parties."
In exchange for the forbearance of the foreclosure on the assets of the Debtors, the Company agreed to transfer the subsidiaries of SPHC (specifically, M2 Communications and M2 nGage), with the exception of SignalShare LLC and SPC, to "NEWCO," a new subsidiary of the Company, so that the subsidiaries of SPHC will become subsidiaries of NEWCO. The Debtors granted the Secured Parties a lien on the assets of the Debtors and pledged the securities of NEWCO, M2 Communications and M2 nGage to the Secured Parties (collectively, the "Collateral").
The Parties: (i) reaffirmed the priorities of the Secured Parties in the Collateral; (ii) agreed that the Secured Parties' subordinated security interest in the assets of Signal Share LLC shall be governed by the terms of the Intercreditor, Modification and Settlement Agreement dated as of November 13, 2015 by and among SPHC, Signal Share, the Secured Parties and NFS Leasing, Inc. ("NFS") in which agreement NFS acknowledged that it never has, nor will it ever have any security interest in the SPHC Excluded Entities which included a) M2 Communications b) SPC c) M2 nGage d) the Company e) Signal Point Infrastructure, Inc. and their respective Affiliates and (iii) agreed the Secured Parties and M2 Communications shall notice EBF Lending to the transactions contemplated by the Omnibus Agreement, since EBF has filed liens on M2 Communications related to an accounts receivable line of financing to which the Secured Parties have consented and any payments or amounts owed EBF will continue as is as was from either NEWCO or other applicable entity.
The Parties agreed to representations, warranties and covenants consistent with the prior Loan Documents. Upon an event of default, the Secured Parties shall have all remedies confirmed in the Loan Documents at law and equity, and all rights and remedies of a secured party under the UCC. Any deficiency upon a disposition of the Collateral will bear interest at 15% per annum plus reasonable attorneys' fees.
As of December 31, 2015, an aggregate of $2,102,496 of principal indebtedness was outstanding to Brookville.
As of August 9, 2016, an aggregate of $2,471,845 with interest accrued at 14% per annum was outstanding to Brookville.
Veritas High Yield Fund LLC
From August 25, 2011 through November 30, 2011, RNK and Wave2Wave entered into a subordinated senior secured loan and security agreement, whereby RNK and Wave2Wave obtained through a series of transactions from Veritas High Yield Fund LLC ("Veritas") a $4,750,000 loan (the "Veritas Loan"). Robert DePalo is Managing Member of Veritas. A portion of the Veritas Loan has a maturity date of March 5, 2016 and has an annual interest rate of 14%. A portion of the Veritas Loan was converted into equity as of March 31, 2014, at an exchange rate of $1.50 per share. The Veritas Loan was secured by a senior subordinated security interest in and lien against substantially all assets of the Wave2Wave and its subsidiaries, subordinated only to the DIP Lender (see below). The Subsidiaries were co-guarantors of the Veritas Loan and have pledged their assets as collateral for the Veritas Loan. In addition, Wave2Wave and RNK executed a Patent Security Agreement and Trademark Security Agreement in favor of Veritas, further collateralizing the Veritas Loan with all of Wave2Wave's rights, title and interest in and to their patents, applications, registrations and recording, as well as Wave2Wave's right, title and interest in and to any trademarks, trade names,, trade styles and service marks.
As of December 31, 2015, an aggregate of $385,508 of principal indebtedness was outstanding to Veritas. As of August 9, 2016, an aggregate of $518,790, with interest accrued at 14% per annum was outstanding to Veritas.
Allied International Fund, Inc.
See Item 3 Legal Proceedings - DePalo Related Entity Litigation" for information concerning legal proceedings involving Allied International Fund, Inc. ("Allied") an entity controlled by Rosemarie DePalo, Robert DePalo's wife, of which entity Mr. DePalo disclaims beneficial ownership.
Robert DePalo Special Opportunity Fund, LLC
On March 19, 2012, the Robert DePalo Special Opportunity Fund, LLC (the "DIP Lender") entered into a financing agreement to provide Wave2Wave debtor in possession financing in the amount of $3,600,000 for Wave2Wave pursuant to approval from the U.S. Bankruptcy Court in New Jersey (the "Bankruptcy Court"), provided additional funding to Wave2Wave totaling $3,500,000 (the "DIP Financing"). Robert DePalo is Managing Member of the DIP Lender. The DIP Financing had a maturity date of September 13, 2012. The DIP Financing was extended until the prior merger agreement with Roomlinx had paid TRG $94,950 for services performedwas signed in March 2014 and the loan was converted into equity at an exchange rate of $1.50 per share. The DIP Financing was secured by a super priority security interest and lien on all of the assets of Wave2Wave and RNK, as approved by the Bankruptcy Court. The DIP Financing provided that debt payments would continue to be made to Brookville and Veritas in accordance with said arrangement. At the beginningterms of December 2012, Chris Wasik became an employeethe Veritas Loan and the Brookville Loan.
Restructuring, Omnibus Pledge, Security and Intercreditor Agreement
On February 24, 2016, Brookville Special Purpose Fund, et al. commenced a Strict Foreclosure Action against Signal Point Holdings Corp. et al. calling the Notes that were in default and had matured. The Parties however, agreed to modify the Loan Documents and reached a settlement, together with mutual releases.
On April 7, 2016, the Company and Brookville et al. settled the litigation as follows. The Company in order to forebear the current foreclosures with its secured lenders, entered into a Restructuring, Omnibus Pledge, Security and Intercreditor Agreement (the "Omnibus Agreement"). The Omnibus Agreement is among the Company, SPHC, a wholly-owned subsidiary of Roomlinxthe Company, M2 Communications, a wholly-owned subsidiary of SPHC, and M2 Communications, a wholly-owned subsidiary of SPHC. SPHC, M2 Communications and M2 nGage are collectively referred to as its Director of Marketingthe "Debtors." Brookville, Veritas and Allied are collectively referred to as the "Secured Parties," and collectively with a salary of $85,000 per annum, effectively severing the consulting arrangement with TRG. Subsequently in December 2013, Ms. Wasik assumed responsibilityDebtors, referred to as the "Parties."
In exchange for the Company’s call center at which time her salary was increased to $101,400. For the year ended December 31, 2013, Ms. Wasik was paid $88,275 as an employeeforbearance of the Company.foreclosure on the assets of the Debtors, the Company agreed to transfer the subsidiaries of SPHC (specifically, M2 Communications and M2 nGage), with the exception of SignalShare LLC and SPC, to "NEWCO," a new subsidiary of the Company, so that the subsidiaries of SPHC will become subsidiaries of NEWCO. The Debtors granted the Secured Parties a lien on the assets of the Debtors and pledged the securities of NEWCO, M2 Communications and M2 nGage to the Secured Parties (collectively, the "Collateral").
The wifeParties: (i) reaffirmed the priorities of Jason Andrew Baxter, the Company’s Chief Operating Officer, provides certain contractSecured Parties in the Collateral; (ii) agreed that the Secured Parties' subordinated security interest in the assets of Signal Share LLC shall be governed by the terms of the Intercreditor, Modification and financial servicesSettlement Agreement dated as of November 13, 2015 by and among SPHC, Signal Share, the Secured Parties and NFS Leasing, Inc. ("NFS") in which agreement NFS acknowledged that it never has, nor will it ever have any security interest in the SPHC Excluded Entities which included a) M2 Communications b) SPC c) M2 nGage d) the Company e) Signal Point Infrastructure, Inc. and their respective Affiliates and (iii) agreed the Secured Parties and M2 Communications shall notice EBF Lending to the Company through Baxter Facilities, LLC,transactions contemplated by the Omnibus Agreement, since EBF has filed liens on M2 Communications related to an accounts receivable line of financing to which the Secured Parties have consented and any payments or amounts owed EBF will continue as is as was from either NEWCO or other applicable entity.
The Parties agreed to representations, warranties and covenants consistent with the prior Loan Documents. Upon an event of default, the Secured Parties shall have all remedies confirmed in the Loan Documents at law and equity, and all rights and remedies of a limited liability company co-owned by Mr. Baxter. The Company has paid Baxter Facilities, LLC $23,448secured party under the UCC. Any deficiency upon a disposition of the Collateral will bear interest at 15% per annum plus reasonable attorneys' fees.
See Item 11 "Executive Compensation" for information concerning employment agreements and $46,321 for its services for the years ended December 31, 2013consulting agreements with Management and 2012, respectively.Principal Shareholders.
Other than as set forth above, there were no related party transactions in 20132015 and none are currently contemplated.
AUDIT AND RELATED FEES, TAX FEES AND ALL OTHER FEES
On February 24, 2015, the Company dismissed GHP Horwath, PC ("GHP") as our independent registered public accounting firm and appointed KMJ as our independent registered public accounting firm for the year ended December 31, 2014. KMJ has audited our consolidated financial statements for the year ended December 31, 2014.
The following table sets forth the fees billed by our principal independent accountants, RBSM LLP, for professional services rendered for the years ended December 31, 20132015 and 2012,2014. These fees are for work performed in the Company incurred accounting fees for services as follows:years indicated and billed by RBSM LLP.
| Years Ended December 31, | ||||||||
| Category | 2015 | 2014 | ||||||
| Audit Fees | $ | 175,000 | $ | 75,000 | ||||
| Audit Related Fees | $ | 25,000 | $ | 0 | ||||
| Tax Fees | $ | 0 | $ | 20,000 | ||||
| All Other Fees | $ | 0 | $ | 0 | ||||
| 2013 | 2012 | |||||||
Audit fees (1) | $ | 105,560 | $ | 70,000 | ||||
Audit related fees (2) | 26,000 | 41,865 | ||||||
| Tax fees | 16,000 | 15,575 | ||||||
| Other fees | - | - | ||||||
| $ | 147,560 | $ | 127,440 | |||||
| (1) 2012 audit fees include $5,000 to a prior auditor, pursuant to their consent | ||||||||
| (2) 2012 audit related fees include $6,000 to a prior auditor, pursuant to their consents | ||||||||
Audit relatedfees. Consists of fees performed by GHP Horwath, P.C. in 2013 and 2012, includebilled for the reviewaudit of the quarterlyour annual consolidated financial statements, of Roomlinx, Inc. and Forms 10-Q related thereto, consent procedures and the review of additionalour Form 10-K, review of our interim financial statements included in our Form 10-Q and services that are normally provided by the accountant in connection with year-end statutory and regulatory filings or engagements.
Audit-related fees. Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under "Audit Fees", review of our Forms 8-K filings and services that are normally provided by the accountant in connection with the Securitiesnon-year-end statutory and Exchange Commission including Form S-1regulatory filings or engagements.
Tax fees. Consists of professional services rendered by a company aligned with our principal accountant for tax compliance, tax advice and Form 8-K, as appropriate.tax planning.
Other fees. The services provided by our accountants within this category consisted of advice and other services relating to SEC matters, registration statement review, accounting issues and client conferences.
BOARD OF DIRECTORS ADMINISTRATION OF THE ENGAGEMENT
Before GHP Horwath, P.C. wasRBSM LLP and KMJ Corbin & Company LLP were each engaged by the Company for the 2013 audit, GHP Horwath, P.C.’s2015 and 2014 audits, respectively, RBSM's and KMJ's engagement and engagement letter were approved by the Company’sCompany's Board of Directors.
(a) The following Exhibits are filed with this report or incorporated by reference:
| Exhibit No. | Description | |
| 2.1 | Subsidiary Merger Agreement | |
| 2.2 | Termination and Release Agreement dated as of February 10, 2015 by and among the Registrant, Signal Point Holdings Corp. and Roomlinx Merger Corp. |
| 2.3 | Stock Purchase Agreement dated as of May 6, 2016, by and between Digital Media Acquisition Group Corp., and Signal Point Holdings Corporation.** | |
| 3.1 | Amended and Restated Articles of Incorporation of the registrant is incorporated by reference to Exhibit 3.1 to the |
| 3.2 | Amended and Restated By-Laws of the registrant is incorporated by reference to Exhibit 3.1 to the |
| 3.3 | Certificate of | |
| 3.4 | Certificate of Designation of the |
| 3.5 | Amendment to Certificate of Designation of Series B Preferred Stock is incorporated by reference to Exhibit 3.1 to the |
| 4.1 | Form of Revolving Credit Note issued to Cenfin LLC, included as Exhibit A to the Revolving Credit, Security and Warrant Purchase Agreement attached as Exhibit 10.1 to the |
| Incentive Stock Option Agreement, dated June 5, 2009, between Roomlinx, Inc. and Michael S. Wasik, incorporated by reference to Exhibit 3.3 of the |
| 4.3 | Form of Common Stock Investor Warrants issued in connection with Series B Preferred Stock Offering is incorporated by reference to Exhibit 4.1 of the Registrant's Current Report on Form 8-K filed on February 8, 2016. | |
| 10.1 | Roomlinx, Inc. Long Term Incentive Plan is incorporated by reference to Annex A to the definitive proxy statement filed by the registrant with the SEC on January 30, 2009. |
| 10.2 |
Revolving Credit, Security and Warrant Purchase Agreement, dated June 5, 2009, between Roomlinx, Inc. and Cenfin LLC, incorporated by reference to Exhibit 10.1 of the 2009. |
- 109 - |
| First Amendment to Revolving Credit, Security and Warrant Purchase Agreement, dated |
| 10.4 | Form of Director Indemnification Agreement, dated July 30, 2010, between Roomlinx, Inc. and each of its directors and officers, incorporated by reference to Exhibit 10.4 of the |
| Third Amendment to Revolving Credit, Security and Warrant Purchase Agreement, dated December 21, 2011, between Roomlinx, Inc. and Cenfin LLC, incorporated by reference to Exhibit 10.1 of the |
| Master Services and Equipment Purchase Agreement, dated March 12, 2012, by and between Hyatt Corporation and Roomlinx, Inc., incorporated by reference to Exhibit 10.1 of the |
| Fourth Amendment to Revolving Credit, Security and Warrant Purchase Agreement, dated as of May 3, 2013, between Roomlinx, Inc. and Cenfin LLC, incorporated by reference to Exhibit 10.1 of the |
Form of Indemnification Agreement between Roomlinx, Inc. and each of Alan Fine, Jason Andrew Baxter and Robert Wagener, incorporated by reference to Exhibit 10.4 of the |
| 10.9 | Executive Employment Agreement dated as of March 20, 2015 by and between Signal Point Holdings Corp. and Andrew Bressman is incorporated by reference to Exhibit 10.2 of the Registrant's Current Report on Form 8-K filed on April 2, 2015. | |
| 10.10 | Executive Employment Agreement dated as of March 20, 2015 by and between Signal Point Holdings Corp. and Aaron Dobrinsky is incorporated by reference to Exhibit 10.3 of the Registrant's Current Report on Form 8-K filed on April 2, 2015. | |
| 10.11 | Executive Employment Agreement dated as of March 20, 2015 by and between Signal Point Holdings Corp. and Christopher Broderick .is incorporated by reference to Exhibit 10.4 of the Registrant's Current Report on Form 8-K filed on April 2, 2015. | |
| 10.12 | Consulting Agreement dated as of March 24, 2015 by and between Signal Point Holdings Corp. and SAB Management LLC is incorporated by reference to Exhibit 10.5 of the Registrant's Current Report on Form 8-K filed on April 2, 2015. | |
| 10.13 | Consulting Agreement dated as of January 9, 2014 by and between Signal Point Holdings Corp. and Robert P. DePalo, Sr. is incorporated by reference to Exhibit 10.6 of the Registrant's Current Report on Form 8-K filed on April 2, 2015. | |
| 10.14 | Form of | |
| 10.15 | Settlement Agreement and Mutual General Release dated as of March 27, 2015 by and among PC Specialists, Inc. (d/b/a Technology Integration Group) and Roomlinx Inc., | |
| 10.16 | Amended and Restated Revolving Credit and Security Agreement dated as of March 24, 2015 by and between SignalShare Infrastructure, Inc. and Cenfin LLC is incorporated by reference to Exhibit 10.36 of the Registrant's Annual Report on Form 10-K filed on May 18, 2015. | |
| 10.17 | Employment Agreement dated March 27, 2015, by and between Michael S. Wasik and SignalShare Infrastructure, Inc is incorporated by reference to Exhibit 10.37 of the Registrant's Annual Report on Form 10-K filed on May 18, 2015. | |
| 10.18 | First Amendment to Amended and Restated and Revolving Credit Agreement, dated as of June 30, 2015, by and between the Registrant, SSI and Cenfin, incorporated by reference to Exhibit 10.1 of the | |
| 10.19 | Second Amendment to Amended and Restated Revolving Credit and Security Agreement dated as of October 7, 2015 by and between the Registrant, SSI and Cenfin, incorporated by reference to Exhibit 10.1 of the Registrant's Form 8-K filed on October 14, 2015. | |
| 10.20 | Lease Termination and Loan Agreement, by and between SignalShare and NFS Leasing, incorporated by reference to the Registrant's Report on Form 8-K filed on |
| 10.21 | Lease Termination and Loan Security Agreement, by and | |
| 10.22 | Security Agreement by and between SPHC and NFS, incorporated by reference to Exhibit 10.2 of the | |
| 10.23 | Promissory Note, issued by SignalShare to NFS in the principal amount of $4,946,212, incorporated by reference to Exhibit 10.3 of the Registrant's Report on Form 8-K filed on August 6, 2015. | |
| 10.24 | Corporate Guaranty Agreement, by and between SPHC and NFS, incorporated by reference to Exhibit 10.4 of the Registrant's Report on Form 8-K filed on August 6, 2015. | |
| 10.25 | First Amendment to the Security Agreement, by and between SignalShare and NFS, incorporated by reference to Exhibit 10.5 of the Registrant's Report on Form 8-K filed on August 6, 2015. | |
| 10.26 | Warrant to purchase 1,111,111 shares of Common Stock issued by the Company to NFS, incorporated by reference to Exhibit 10.6 of the Registrant's Report on Form 8-K filed on August 6, 2015. | |
| 10.27 | Series A Preferred Termination, Loan and General Release Agreement, by and among SPHC, the Subsidiaries, Allied and the Company, incorporated by reference to Exhibit 10.1 of the Registrant's Report on Form 8-K, filed on October 30, 2015; | |
| 10.28 | Series B Preferred Termination, Consulting Agreement Modification and Settlement Agreement, by and among the Company, SPHC, the Subsidiaries and DePalo, incorporated by reference to Exhibit 10.2 of the Registrant's Report on Form 8-K, filed on October 30, 2015. | |
| 10.29 | Secured Promissory Note, issued by SPHC to Allied, incorporated by reference to Exhibit 10.3 of the Registrant's Report on Form 8-K, filed on October 30, 2015. | |
| 10.30 | First Allonge and Amendment to the Promissory Note issued by SPHC to Allied, dated October 27, 2015, incorporated by reference to Exhibit 10.4 of the Registrant's Report on Form 8-K, filed on October 30, 2015. | |
| 10.31 | Modification Letter Agreement, by and among the Company, SPHC and Allied, dated as of October 27, 2015 is incorporated by reference to Exhibit 10.5 of the Registrant's Report on Form 8-K filed on October 30, 2015. | |
| 10.32 | Modification Letter Agreement, by and among the Company, SPHC and Brookville, dated as of October 27, 2015, incorporated by reference to Exhibit 10.6 the Registrant's Report on Form 8-K, filed on October 30, 2015. | |
| 10.33 | Settlement, Mutual Release and Indemnification Agreement by and between Signal Share, Infrastructure, Inc. and Hyatt Corporation incorporated by reference to Exhibit No.10.1 of the Registrant's Current Report on Form 8-K filed on | |
| 10.34 | Pledge and Security Agreement dated May 6, 2016, by and between Digital Media Acquisition Group Corp., SignalShare Software Development Corp., to Brookville Special Purpose Fund, LLC, Veritas High Yield Fund, LLC and Allied Investment Fund, Inc. incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed on May 12, 2016. | |
| 10.35 | Bill of Sale dated May 21, 2016, by and between SignalShare Infrastructure, Inc., Single Digits Inc. and Cenfin, LLC Incorporated by reference to Exhibit 10.1 of the Registration Current Report on Form 8-K filed on May 18, 2016. | |
| 14.1 | ||
| 16.1 | Letter re: change in certifying accountant, is incorporated by reference to Exhibit 16.1 to the Registrant's Current Report on Form 8-K filed on February 26, 2015 | |
| 16.2 | Letter re: change in certifying accountant is incorporated by reference to Exhibit 16.1 to the Registrant's Current Report on Form 8-K filed on June 26, 2015. | |
| 21.1 | ||
| 31.1 | ||
| 32.1 |
** Filed herewithwith this report.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 31, 2014.August 29, 2016.
| By: | /s/ Christopher Broderick | ||
Chief Operating Officer and Director (Interim Principal Executive |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| August 29, 2016 | By: | /s/ Aaron Dobrinsky | |||||||
| | Aaron Dobrinsky | ||||||||
| | Chairman of the Board | ||||||||
| August 29, 2016 | By: | /s/ Christopher Broderick | |||||||
| Christopher Broderick | |||||||||
| Chief Operating Officer and Director | |||||||||
| (Interim Principal Executive Officer) | |||||||||
| (Interim Principal Accounting Officer) | |||||||||
- 113 -