UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




Form 10-Q




(Mark One)


x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


For the quarterly period ended June 30, 2012




o Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


For the transition period from______________ to _______________




Commission File Number: 000-26213




ROOMLINX, INC.




(Exact name of registrant as specified in its charter)




Nevada                                                             83-0401552

(State or other jurisdiction of                               (I.R.S. Employer

incorporation or organization)                             Identification No.)



11101 W. 120th Ave., Suite 200, Broomfield, Colorado 80021

(Address of principal executive offices)



(303) 544-1111

(Issuer’s telephone number)




Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes x No o




Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).




Yes x No o




Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.




Large accelerated filer o                                                                                     Accelerated filer o


Non-accelerated filer o                                                                                      Smaller reporting company x




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Yes o No x




The number of shares outstanding of the Issuer’s common stock as of August 13, 2012, was 6,405,413.









ROOMLINX, INC.




INDEX


PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets as of June 30, 2012 (unaudited) and December 31, 2011
1Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2012 and 2011 (unaudited)
2Consolidated Statement of Changes in Equity for the Six Months Ended June 30, 2012 (unaudited)
4Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011 (unaudited)
3Notes to Consolidated Financial Statements (unaudited)
5Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
13Item 3. Quantitative and Qualitative Disclosures About Market Risk
23Item 4. Controls and Procedures
23PART II. OTHER INFORMATION
24Item 1. Legal Proceedings
25Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
25Item 6. Exhibits
25Signatures
27









ROOMLINX, INC.
 CONSOLIDATED BALANCE SHEETS




June 30,


December 31,2012


2011(unaudited)ASSETSCurrent assets:$
2,861,965


$
361,228Accounts receivable, net


1,296,834



889,657Leases receivable, current portion


974,976



994,728Prepaid and other current assets


340,853



192,221Inventory, net


1,903,820



1,244,072Total current assets


7,378,448



3,681,906Property and equipment, net


1,972,809



2,145,831Leases receivable, non-current


2,181,623



2,697,696Total assets

$
11,532,880


$
8,525,433LIABILITIES AND EQUITYCurrent liabilities:Accounts payable

$
1,606,718


$
632,428Accrued expenses and other current liabilities


547,065



462,296Notes payable and other obligations, current portion


39,628



63,182Unearned income, current portion


223,527



245,058Deferred revenue, current portion


993,587



611,572Total current liabilities


3,410,525



2,014,536Deferred revenue, less current portion


86,531



-Other non-current liabilities


57,697



-Notes payable and other obligations, less current portion


22,254



1,582Unearned income, less current portion


258,370



363,381Line of credit, net of discount


3,836,164



3,025,223Total liabilities


7,671,541



5,404,722Equity: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 )


144,000



144,000Common stock - $0.001 par value, 200,000,000 shares authorized: 6,402,136and 5,118,877 shares issued and outstanding at June 30, 2012 andDecember 31, 2011, respectively


6,402



5,119Additional paid-in capital


36,683,053



33,102,512Accumulated deficit


(33,022,790
)


(30,185,925
)Accumulated other comprehensive loss


(16,193
)


(8,802
)3,794,472



3,056,904Non-controlling interest


66,867



63,807Total equity


3,861,339



3,120,711Total liabilities and equity

$
11,532,880


$
8,525,433








1




ROOMLINX, INC.
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 (unaudited)
  Three Months Ended June 30,


Six Months Ended June 30,2012


2011


2012


2011Revenues:Hospitality

$
1,904,531


$
1,121,785


$
3,203,158


$
2,321,817Residential


230,855



237,146



469,769



460,286Total


2,135,386



1,358,931



3,672,927



2,782,103Direct costs and operating expenses:Direct Costs (exclusive of operating expenses and depreciation shown seperately below):Hospitality


1,888,967



774,687



2,943,911



1,581,801Residential


174,488



152,723



339,922



306,751Operating expensesOperations


552,367



204,794



991,130



436,772Product development


315,853



157,832



576,586



373,559Selling, general and administrative


753,816



657,229



1,137,032



1,035,514Depreciation


188,873



172,410



367,975



346,8713,874,364



2,119,675



6,356,556



4,081,268Loss from operations


(1,738,978
)


(760,744
)


(2,683,629
)


(1,299,165
)Interest and other income (expense), net


(72,652
)


3,005



(153,236
)


2,248Net loss


(1,811,630
)


(757,739
)


(2,836,865
)


(1,296,917
)Less: Net (income) loss attributable to the non-controlling interest


2,358



(1,740
)


3,060



70Net loss attributable to the Company


(1,809,272
)


(759,479
)


(2,833,805
)


(1,296,847
)Other comprehensive income (loss):Currency translation gain (loss)


(15,338
)


(3,803
)


(7,391
)


13,039Comprehensive loss


(1,824,610
)


(763,282
)


(2,841,196
)


(1,283,808
)Comprehensive loss attributable to the non-controlling interest

$
-


$
-


$
-


$
-Comprehensive loss attributable to the Company

$
(1,824,610
)

$
(763,282
)

$
(2,841,196
)

$
(1,283,808
)Net loss per common share:Basic and diluted

$
(0.31
)

$
(0.15
)

$
(0.52
)

$
(0.26
)Weighted average shares outstanding:Basic and diluted


5,893,814



5,093,400



5,506,347



5,026,529









2




ROOMLINX, INC.
 CASH FLOW STATEMENTS
 (unaudited)




Six months ended June 30,2012


2011Net loss

$
(2,836,865
)

$
(1,296,847
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation


367,975



346,871Amortization of debt discount


161,108



63,367Stock-based compensation


238,346



307,835Provision for uncollectable accounts


144,189



105,770Reserve for inventory obsolescence


15,000



-Loss on cancellation of contracts


60,211



-Change in operating assets and liabilities:Accounts receivable


(551,366
)


(57,600
)Prepaid and other current assets


(148,632
)


15,810Inventory


(674,748
)


184,980Accounts payable and other liabilities


1,116,756



75,243Unearned income


(126,542
)


(104,328
)Deferred revenue


468,546



177,360Total adjustments


1,070,843



1,115,308Net cash used in operating activities:


(1,766,022
)


(181,539
)Cash flows from investing activities:Lease financing provided to customers


-



(546,768
)Payments received on leases receivable


475,614



324,250Purchase of property and equipment


(160,336
)


(101,691
)Net cash provided by (used in) investing activities:


315,278



(324,209
)Cash flows from financing activities:Proceeds from sale of common stock, net


2,993,311



125,000Proceeds from the line of credit


1,000,000



710,000Payments on capital lease


(7,082
)


(5,084
)Payments on notes payable


(30,417
)


(37,918
)Net cash provided by financing activities


3,955,812



791,998Effect of exchange rate on cash


(4,331
)


24,646Net increase in cash and equivalents


2,500,737



310,896Cash and cash equivalents at the beginning of year


361,228



314,368Cash and cash equivalents at the end of year

$
2,861,965


$
625,264Supplemental Cash Flow Information:Cash paid for interest

$
132,297


$
73,789Non-cash investing and financing activities:Transfer of asset

$
-


$
19,041Assets acquired under capital lease

$
34,617


$
-Warrants issued in connection with line of credit

$
350,167


$
-








3




ROOMLINX, INC.
 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
 Six months ended June 30, 2012
 (unaudited)


Roomlinx, Inc. ShareholdersAccumulatedPreferred Stock A


Common Stock


Additional


Other











TotalNumber of





Number of





Paid - in


Comprehensive


Accumulated


Non-Contolling


Comprehensive


Stockholders’Shares


Amount


Shares


Amount


Capital


Income


(Deficit)


Interest


Income


EquityBalances,  January 1, 2012


720,000


$
144,000



5,118,877


$
5,119


$
33,102,512


$
(8,802
)

$
(30,185,925
)

$
63,807


$
-


$
3,120,711Warrants issued in conjuction with
draw on line of credit











350,167



















350,167Shares issued at $2.50 per share, net of costs










1,280,000



1,280



2,992,031



















2,993,311Cashless option exercises










3,259



3



(3
)


















-Stock based compensation


















238,346



















238,346Comprehensive income (loss):Net loss


























(2,836,865
)


3,060



(2,833,805
)


(2,833,805
)Other comprehensive income (loss):Translation gain (loss)






















(7,391
)










(7,391
)


(7,391
)Total other comprehensive income (loss)


































(7,391
)


(7,391
)Comprehensive income (loss)

































$
(2,841,196
)


(2,841,196
)Balances,  June 30, 2012


720,000


$
144,000



6,402,136


$
6,402


$
36,683,053


$
(16,193
)

$
(33,022,790
)

$
66,867






$
3,861,339
    4


Roomlinx, Inc.


Notes to Consolidated Financial Statements


June 30, 2012


(Unaudited)




1.     Organization and Significant Accounting Policies




Description of Business:    Roomlinx, Inc. (“Roomlinx” or the “Company”) is incorporated under the laws of the state of Nevada.  The Company sells, installs, and services in-room media and entertainment solutions for hotels, resorts, and time share properties; including its proprietary Interactive TV platform, internet, and free to guest and on demand programming.  Roomlinx also sells, installs and services telephone, internet, and television services for residential consumers.  The Company develops software and integrates hardware to facilitate the distribution of Hollywood, adult, and specialty content, business applications, national and local advertising, and concierge services.  The Company also sells, installs and services hardware for wired networking solutions and wireless fidelity networking solutions, also known as Wi-Fi, for high-speed internet access to hotels, resorts, and time share locations. The Company installs and creates services that address the productivity and communications needs of hotel, resort and time share guests, as well as residential consumers.




Basis of Consolidation:The consolidated financial statements include Roomlinx, Inc. and its wholly-owned subsidiaries and Arista Communications, LLC, a 50% subsidiary.  All significant intercompany accounts and transactions have been eliminated in consolidation.




Basis of Presentation:The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information.  They do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  In the opinion of management, all adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation, have been included in the accompanying unaudited financial statements.  The results for the three-month and six-month periods ended June 30, 2012 are not necessarily indicative of the results expected for the year ending December 31, 2012.  These interim financial statements should be read in conjunction with the consolidated financial statements and footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC on March 30, 2012.




Reclassification:Certain amounts in the 2011 financial statements have been reclassified to conform to the current year presentation.




Revenue Recognition:    Revenue is derived from the installation and ongoing services of in-room media, entertainment, and HD television programming solutions in addition to wired networking solutions and Wireless Fidelity networking solutions. Revenue is recognized when all applicable recognition criteria have been met, which generally include a) persuasive evidence of an existing arrangement; b) fixed or determinable price; c) delivery has occurring or service has been rendered; d) collectability of the sales price is reasonably assured.




Wherein installation and service arrangements are contractually predetermined, and whereas such contractual arrangements may provide for multiple deliverables, revenue is recognized in accordance with ASC Topic 650, Multiple Deliverable Revenue, the application of which may be to defer revenue recognition for installations across the service period of the contract and to re-allocate and/or defer revenue recognition across various service arrangements.  Below is a summary of the execution of such application as it relates to installation and service arrangements the Company has with its customers.




The Company enters into contractual arrangements to provide multiple deliverables which may include some or all of the following - systems installations and a variety of services related to high speed internet access, free-to-guest, video on demand and iTV systems as well as residential phone, internet and television.  Each of these elements must be identified and individually evaluated for separation. The term “element” 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.  In the determination of the elements included in Roomlinx agreements, embedded software and inconsequential or perfunctory activities were taken into consideration.




5




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 as follows:




VSOE -Vendor specific objective evidence is still the most preferred criteria with which to establish fair value of a deliverable. VSOE is the price of a deliverable when a company sells it on an open market separately from a bundled transaction.


TPE -Third party evidence is the second most preferred criteria with which to establish fair value of a deliverable. The measure for the pricing of this criterion is the price that a competitor or other third party sells a similar deliverable in a similar transaction or situation.


RSP -Relative selling price is the price that management would use for a deliverable if the item were sold separately on a regular basis which is consistent with company selling practices. The clear distinction between RSP and VSOE is that under VSOE, management must sell or intend to sell the deliverable separately from the bundle, or has sold the deliverable separately from the bundle already. With RSP, a company may have no plan to sell the deliverable on a stand-alone basis.




Hospitality Installation Revenues




Hospitality installations include High Speed Internet Access (HSIA), Interactive Television (iTV), Free to Guest (FTG) and Video on Demand (VOD).  Under the terms of these typical product sales and equipment installation contracts, a 50% deposit is due at the time of contract execution and is recorded as deferred revenue.  Upon the completion of the installation process, deferred revenue is realized.  However, in some cases related to VOD installations or upgrades, the Company extends credit to customers and records a receivable against the revenue recognized at the completion of the installation.  Monthly payments against those receivables equal a pre-determined percentage of VOD guest room revenue until such time as the receivable has been paid in full.  Thereafter, 100% of the monthly invoice is recorded as recurring VOD revenue.




Additionally, the Company may provide the customer with a lease financing arrangement provided the customer has demonstrated its credit worthiness to the satisfaction of the Company.  Under the terms and conditions of the lease arrangements, these leases have been classified and recorded as Sale-Type Leases under ASC Topic 840-30 and accordingly, revenue is recognized upon completion and customer acceptance of the installation which gives rise to a lease receivable and unearned income.




Hospitality Service, Content and Usage Revenues




The Company provides ongoing 24x7 support, content and maintenance as applicable to those products purchased, installed and serviced under contract.  Support, when exclusive, is primarily invoiced in advance quarterly, creating deferred revenue which is subsequently recognized in the appropriate periods.  When not exclusive, support is invoiced in arrears on a monthly basis with content and usage, which are dependent on guest take rates and buying habits.  Service maintenance and usage revenue also includes revenue from meeting room services, which are billed as the events occur.





Residential Revenues




Residential revenues consist of equipment sales and installation charges, support and maintenance of voice, internet, and television services, and content provider residuals, installation commissions, and management fees.  Installations charges are added to the monthly service fee for voice, internet, and television, which is invoiced in advance creating deferred revenue to be realized in the appropriate period.  The Company’s policy prohibits the issuance of customer credits during the month of cancelation. The Company earns residuals equal to ‘x’% of monthly customer service charges and a flat rate for each new customer sign up.  Residuals are recorded monthly. Commissions and management fees are variable and therefore revenue is recognized at the time of payment.




Concentrations




Credit Risk:    The Company’s operating cash balances are maintained in financial institutions and periodically exceed federally insured limits. The Company believes that the financial strength of these institutions mitigates the underlying risk of loss.  To date, these concentrations of credit risk have not had a significant impact on the Company’s financial position or results of operations.




6




Accounts Receivable:  At June 30, 2012, one customer represented 20% and one customer represented 18% of the accounts receivable balance compared to one customer representing 42% and one customer representing 13% of the accounts receivable balance at June 30, 2011.
 
 Revenue:During the three months ended June 30, 2012 one customer contributed 18% and one customer contributed 11% of Roomlinx’s US hospitality revenue compared to one customer contributing 22% and one customer contributing 18% of Roomlinx’s US hospitality revenue during the same period in 2011.  Additionally, one customer contributed 55% to Roomlinx’s Canadian hospitality revenue in 2012 versus one customer contributing 49% and one customer contributing 11% in 2011.
 
 During the six months ended June 30, 2012 four customers each contributed 11% of Roomlinx’s US hospitality revenue compared to one customer contributing 12% and one customer contributing 11% of Roomlinx’s US hospitality revenue during the same period in 2011.  Additionally, one customer contributed 53% to Roomlinx’s Canadian hospitality revenue in 2012 versus 52% in 2011.




Fair Value Measurement:    The Company discloses fair value information about financial instruments based on a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of June 30, 2012.




The respective carrying value of certain financial instruments approximate their fair values.  These financial instruments include cash and cash equivalents, accounts receivable, leases receivable, accounts payable, accrued liabilities, capital lease obligations, notes payable and the line of credit.  The carrying value of cash and cash equivalents, accounts receivable, leases receivable, accounts payable and accrued liabilities approximate fair value due to their short term nature. The carrying amount of capital lease obligations and notes payable approximates their fair values as the pricing and terms of these liabilities approximate market rates.The fair value of the line of credit is not practicable to estimate because of the related party nature of the underlying transactions.  The Company has no financial instruments with the exception of cash and cash equivalents (level 1) valued on a recurring basis.




Segments:  We operate and prepare our financial reports based on two segments; Hospitality and Residential.  We have determined these segments based on the location, design, and end users of our products.




Hospitality:Our Hospitality segment includes hotels, resorts, and timeshare properties in the United States, Canada, and Other Foreign.  As of June 30, 2012 and 2011, Other Foreign included Mexico and Aruba.  The products offered under our hospitality segment include the installation of, and the support and service of, high-speed internet access networks, proprietary Interactive TV platform, free to guest programming, and on-demand movie programming, as well as advertising and e-commerce products.




Residential:Our residential segment includes multi-dwelling unit customers and business customers (non-hospitality) in the United States.  The products offered include the installation of, and the support and service of, telephone, internet, and television services.




Foreign Currency Translation:   The US Dollar is the functional currency of the Company. Assets and liabilities denominated in foreign currencies are re-measured into US Dollars and the resulting gains and losses are included in the consolidated statement of operations as a component of other income (expense).




Earnings Per Share:    The Company computes earnings per share by dividing net income (loss) by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding during the period. Dilutive common stock equivalents consist of shares issuable upon the exercise of the Company’s stock options and warrants.  Potentially dilutive securities, purchase stock options and warrants, are excluded from the calculation when their inclusion would be anti-dilutive, such as periods when a net loss is reported or when the exercise price of the instrument exceeds the fair market value. Accordingly, the weighted average shares outstanding have not been adjusted for dilutive shares. Outstanding stock options and warrants are not considered in the calculation as the impact of the potential common shares (totaling approximately 2,505,421 shares as of June 30, 2012 and 1,069,054 as of June 30, 2011) would be to decrease the net loss per share.




Use of Estimates:    The preparation of the Company’s consolidated financial statements in conformity with generally accepted accounting principles requires the Company’s management to make estimates and assumptions that affect the amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.




7




2.   Leases Receivable




As of June 30, 2012, the Company had $3,156,599 in leases receivables, compared to $3,692,424 at December 31, 2011.  During the six months ended June 30, 2012 and 2011 the Company received payments of $475,614 and $324,250 respectively.    These leases have terms of 60 months and an average interest rate of 9.5%.  During the six months ended June 30, 2012, the Company recorded a loss of $60,211 related to the early termination of lease receivable contracts and is included in direct costs in the consolidated statement of comprehensive income (loss).  This loss is net of the return of equipment to inventory.




Future minimum receipts on lease receivables are as follows:




Twelve Months

MinimumEnded June 30,

Receipts2013

$
974,9762014


960,8212015


705,8922016


419,2882017


95,622$
3,156,599




3.    Inventory




Inventory, principally large order quantity items which are required for the Company’s media and entertainment installations, is stated at the lower of cost (first-in, first-out) basis or market.  The Company maintains only the inventory necessary for contemplated installations.  Work in progress represents the cost of equipment and third party installation related to installations which were not completed prior to year-end.
 
 The Company performs an analysis of slow-moving or obsolete inventory periodically and any necessary valuation reserves, which could potentially be significant, are included in the period in which the evaluations are completed.  As of June 30, 2012 and December 31, 2011, the inventory impairment was mainly from raw materials, and results in a new cost basis for accounting purposes.
  Inventory balances as of June 30, 2012 and December 31 2011 are as follows:




2012


2011Raw materials

$
1,578,662


$
671,991Work in Process


430,158



662,0812,008,820



1,334,072Reserve for Obsolescence


(105,000
)


(90,000
)Inventory, net

$
1,903,820


$
1,244,072




4.    Notes Payable




The Company has two notes payable with an aggregate principal balance of $28,868 at June 30, 2012 and $59,285 at December 31, 2011.  These notes bear interest at 12% and 11%, respectively, and mature November 1, 2012 and March 1, 2013, respectively.  Monthly principal and interest payments total $5,533.




5.     Line of Credit




On June 5, 2009 we entered into a Revolving Credit, Security and Warrant Purchase Agreement (the “Credit Agreement”) with Cenfin LLC (the owner of Cenfin LLC beneficially owns approximately 31.8% of the Company’s common stock, inclusive of warrants, as of June 30, 2012), a Delaware limited liability company (“Cenfin”) which permits us to borrow up to $25 million until June 5, 2017.  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 5.25%).  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.





Amounts outstanding under the Credit Agreement were $5,176,000 and $4,176,000 at June 30, 2012 and December 31, 2011, respectively.  These advances will be repaid at various dates between 2014 and 2017.  A total of $19,824,000 is available for future borrowings. Interest expense of $128,353 and $59,902 was recorded for the six month periods ended June 30, 2012 and 2011, respectively.




8




The Credit Agreement requires that in conjunction with each advance we issue Cenfin warrants to purchase shares of Roomlinx common stock equal to 50% of the principal amount funded divided by (i) $2.00 on the first $5,000,000 of borrowings on or after July 15, 2010 ($4,712,000 as of June 30, 2012) or (ii) thereafter the fair market value of the Company’s common stock on the date of such draw for advances in excess of $5,000,000.  The exercise price of the warrants is $2.00 for the warrants issued on the first $5,000,000 of borrowings made after July 15, 2010 and, thereafter, the average of the high and low market price for the Company’s common stock on the date of issuance. The exercise period of these warrants expire three years from the date of issuance.




Using the Black-Scholes pricing model adjusted for a blockage discount, warrants issued during the six months ended June 30, 2012 were valued at approximately $350,000 (see Note 7).   The fair value of warrants issued since inception of the Credit Agreement is approximately $2,760,000 which is being amortized to earnings as additional interest expense over the term of the related indebtedness, accordingly additional interest expense of $161,108 and $63,366 was recorded for the six month periods ended June 30, 2012 and 2011, respectively.  The unamortized balance of these deferred costs was $1,339,836 and $1,150,777 at June 30, 2012 and December 31, 2011, respectively.  Borrowings outstanding are reported net of the deferred financing costs associated with these borrowings.




Future minimum payments under the line of credit are as follows:




Twelve Months

Ended June 30,

Minimum Payments2014

$
340,0002015


124,0002016


1,942,0002017


2,770,000$
5,176,000




6.     Commitments and Contingencies




Operating Leases:     On April 10, 2012 the Company executed a lease agreement for new office space with an effective date of May 1, 2012.  Terms of the lease establish a base rent per square foot plus operating expenses throughout the term of the lease which expires September 30, 2015, and which includes the lessor waiving several months of base rent and pre-defined annual escalation of the base rent per square foot.  At June 30, 2012, the Company has a deferred rent liability of $75,952 included in other liabilities (current and non-current) as of June 30, 2012.  The Company’s future minimum lease payments are as follows: $106,189 for the twelve months ended June 30, 2013; $145,961 for the twelve months ended June 30, 2014; $151,210 for the twelve months ended June 30, 2015; and $38,021 for the twelve months ended June 30, 2016.




Capital Lease Obligations:  The Company has capital lease arrangements related to the acquisition of software.  These arrangements are collateralized by the software and expire at varying dates through September 2015 with future minimum lease payments as follows:  $38,618 for the twelve months ended June 30, 2013; $12,109 for the twelve months ended June 30, 2014; $13,210 for the twelve months ended June 30, 2015; and $1,101 for the twelve months ended June 30, 2016.




7.     Equity




Preferred Stock:   The Company has authorized 5,000,000 preferred shares with a $0.20 par value, of which 720,000 shares have been designated as Class A Preferred Stock.  The Class A Preferred stock has a liquidation preference of $0.20 per share and is entitled to receive cumulative annual dividends at the rate of 9%, payable in either cash or additional shares of Class A Preferred Stock, at the option of the Company.  As of June 30, 2012 and 2011, there were 720,000 shares of Class A Preferred Stock issued and outstanding.  Class A dividends accumulated and unpaid as of June 30, 2012, were $178,680; these dividends have not been declared by the board of directors and therefore are not included in accrued expenses.




Common Stock:   The Company has authorized 200,000,000 shares of $0.001 par value common stock.  As of June 30, 2012 and December 31, 2011, there were 6,402,136 and 5,118,877 shares of common stock issued and outstanding, respectively.




9




On May 4, 2012, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain investors (collectively, the “Investors”), pursuant to which the Investors purchased Units from the Company for a purchase price of $2.50 per Unit.  Each Unit consisted of (x) one share of common stock of the Company and (y) a warrant to purchase one-half share of common stock at an exercise price of $3.75 per share, subject to adjustment as provided in the warrant.  The Company sold and issued an aggregate of 1,200,000 shares of common stock to the Investors and issued warrants to the Investors for the purchase of an additional 600,000 shares of common stock.  Subsequently on June 20, 2012, the Company sold and issued an additional 80,000 shares of common stock and 40,000 warrants to certain other investors pursuant to an amendment to the SPA.  In the aggregate, the Company received net proceeds of $2,993,311 (gross proceeds of $3,200,000 less $206,689 of offering expenses) from these transactions.  Proceeds from such transactions will be used for general corporate and working capital purposes including deployment of the Company’s iTV applications under a Master Service Agreement with Hyatt Corporation announced on March 13, 2012.




Management reviewed the accounting treatment for the warrants issued under the SPA and determined the warrants met the applicable requirement under ASC 815-40-25 for equity classification.  Accordingly, these warrants are classified within shareholders’ equity as of June 30, 2012.  Under the terms of a Registration Rights Agreement (“RRA”) between the Company and the Investors in conjunction with the SPA, the Company filed a Form S-1 Registration Statement with the SEC on June 18, 2012, for the purpose of registering under the Securities Act the shares of common stock issued pursuant to the SPA and the shares of common stock to be issued upon exercise of the warrants issued pursuant to the SPA.  Such registration statement has not yet been declared effective by the SEC.  The Registration Rights Agreement obligates the Company to pay liquidated damages to the Investors should the Form S-1 not be declared effective by the SEC by September 4, 2012.  Liquidated damages under the RRA are limited to 1% of the SPA proceeds ($32,000) for each month the Form S-1 is not declared effective by the SEC up to a maximum of six months.
  On June 19, 2012, employees of the Company executed cashless exercises of an aggregate of 6,000 vested stock options in accordance with the Company’s Stock Option Plan.  The exercise prices on the options were between $1.00 and $1.70 and the market price on the date of exercise was $2.40 resulting in an issuance of 3,259 shares of the Company’s common stock.


Warrants:




During the six months ended June 30, 2012, 250,000 warrants were granted pursuant to the clauses in the Cenfin Credit Agreement.  The warrants were issued at an exercise price of $2.00, vested immediately, and expire 3 years from the date of grant.




During the six months ended June 30, 2012, 640,000 warrants were issued pursuant to clauses in the Stock Purchase Agreement dated May 4, 2012 at an exercise price of $3.75, vested immediately, and expire 3 years from the grant date.




During the six months ended June 30, 2011, 177,500 warrants were granted pursuant to the Credit Agreement.  The warrants were issued at an exercise price of $2.00, vested immediately, and expire at 3 years from the grant dates.




During the six months ended June 30, 2011, an aggregate of 62,500 warrants previously issued under the Credit Agreement were exercised.  The warrants were exercised at a strike price of $2.00 resulting in cash receipts of $125,000.




As of June 30, 2012, the Company had 1,546,550 warrants outstanding.




The following are assumptions utilized in estimation of the fair value of the warrants granted during the six month periods ended June 30, 2012 and 2011:




2012


2011Term

3 years

3 yearsExpected volatility


108% - 148
%


123% - 125
%Risk free interest rate


0.35% - 0.57
%


0.72% - 1.18
%Dividend yield


0
%


0
%




10




The following is a summary of such outstanding warrants for the six month period ended June 30, 2012:




Warrants

Shares

Underlying

Warrants


Weighted

Average

Exercise

Price


Weighted
Remaining
Contractual
Life (in years)


Aggregate Intrinsic
ValueOutstanding at January 1, 2012


726,550


$
2.21Granted and Issued


890,000



3.26Expired/Cancelled


(70,000
)


3.00Outstanding and exercisable at June 30, 2012


1,546,550


$
2.79



2.17


$
426,300




Options:   In 2004, the Company adopted a long term incentive stock option plan (the “Stock Option Plan”) which covers key employees, officers, directors and other individuals providing bona fide services to the Company. The Stock Option Plan provides for the issuance of up to 1,200,000 shares of common stock upon exercise of options which may be granted pursuant to the Stock Option Plan. As of June 30, 2012, options to purchase 958,871 shares were outstanding. The options vest as determined by the Board of Directors and are exercisable for a period of no more than 10 years.




During the six month period ended June 30, 2012, the board of directors approved the grant of an aggregate of 381,247 Incentive Stock Options and an aggregate of 238,320 Non-Qualified options.  Such options were issued at exercise prices between $2.90 and $4.00, vest at various times over three years, and expire 7 years from the grant date.  No grants were made for the six month period ended June 30, 2011.




The following are the assumptions utilized in the estimation of stock-based compensation related to the stock option grants for the six month period ended June 30, 2012:





Expected term
7 yearsExpected volatility
221% - 225%Risk free interest rate
1.10% - 1.69%Dividend yield
0%


A summary of stock option activity under the Stock Option Plan is presented below:





Weighted


RemainingNumber of


Average


Contractual


AggregateOptions

Shares


Exercise Price


Life (in years)


Intrinsic ValueOutstanding at January 1, 2012


404,194


$
2.78Issued


619,567



3.85Exercised


(6,000
)


1.33Expired/Cancelled


(58,890
)


3.82Outstanding at June 30, 2012


958,871


$
3.42



3.70


$
104,750Vested & Exercisable at June 30, 2012


342,296


$
2.70



3.56


$
104,750





The Company recorded stock-based compensation expense of $238,346 and $307,835 for the six month periods ended June 30, 2012 and 2011, respectively.  The amounts are recorded in direct costs, operations, product development and selling, general and administrative expense in the consolidated statement of operations.  The fair value of stock options that vested and became exercisable during the six months ended June 30, 2012 and 2011 was $20,124 and $182,342 respectively. At June 30, 2012, there was approximately $2,090,051 in unrecognized compensation cost related to stock options that will be recorded over a weighted average future period of approximately 3 years.




11




A summary of the activity of non-vested options under the Company’s plan for the six months ended June 30, 2012 is presented below:




Non-vested Shares Underlying Options


Weighted Average
Exercise
Price


Weighted
Average
Grant Date
Fair ValueNon-vested at January 1, 2012


63,296


$
3.68


$
2.98Granted


619,567



3.85



3.84Vested


(8,065
)


2.71



2.50Forfeited


(58,223
)


3.88



3.87Non-vested at June 30, 2012


616,575


$
3.81


$
3.77




8.      Segment Information




Financial information for our segments, as of June 30, 2012 and 2011, is as follows:




Hospitality


Residential


Corporate


TotalsThree months ended June 30, 2012Revenue

$
1,904,531


$
230,855


$
-


$
2,135,386Operating income (loss)

$
(1,226,686
)

$
(57,966
)

$
(454,326
)

$
(1,738,978
)Net income (loss)

$
(1,213,399
)

$
(57,966
)

$
(540,265
)

$
(1,811,630
)Three months ended June 30, 2011Revenue

$
1,121,785


$
237,146


$
-


$
1,358,931Operating income (loss)

$
(404,658
)

$
(15,956
)

$
(340,130
)

$
(760,744
)Net income (loss)

$
(366,544
)

$
(15,956
)

$
(375,239
)

$
(757,739
)Six months ended June 30, 2012Revenue

$
3,203,158


$
469,769


$
-


$
3,672,927Operating income (loss)

$
(1,932,633
)

$
(66,515
)

$
(684,481
)

$
(2,683,629
)Net income (loss)

$
(1,924,388
)

$
(66,515
)

$
(845,962
)

$
(2,836,865
)Six months ended June 30, 2011Revenue

$
2,321,817


$
460,286


$
-


$
2,782,103Operating income (loss)

$
(735,063
)

$
(21,812
)

$
(542,290
)

$
(1,299,165
)Net income (loss)

$
(669,494
)

$
(21,812
)

$
(605,611
)

$
(1,296,917
)Total assets as of June 30, 2012

$
6,197,470


$
231,633


$
5,103,777


$
11,532,880Financial information of geographical data by segmentUnited States


Canada


Other Foreign


TotalsThree months ended June 30, 2012Hospitality Revenue

$
1,714,511


$
146,379


$
43,641


$
1,904,531Residential Revenue


230,855



-



-



230,855Totals

$
1,945,366


$
146,379


$
43,641


$
2,135,386Three months ended June 30, 2011Hospitality Revenue

$
833,302


$
239,704


$
48,779


$
1,121,785Residential Revenue


237,146



-



-



237,146Totals

$
1,070,448


$
239,704


$
48,779


$
1,358,931Six months ended June 30, 2012Hospitality Revenue

$
2,820,642


$
304,870


$
77,646


$
3,203,158Residential Revenue


469,769



-



-



469,769Totals

$
3,290,411


$
304,870


$
77,646


$
3,672,927Six months ended June 30, 2011Hospitality Revenue

$
1,719,673


$
504,696


$
97,448


$
2,321,817Residential Revenue


460,286



-



-



460,286Totals

$
2,179,959


$
504,696


$
97,448


$
2,782,103Total assets as of June 30, 2012

$
10,882,023


$
532,698


$
118,159


$
11,532,880




12




9.      Contingent Liabilities




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 claim that the Company owes them certain unpaid sales commissions, including with respect to Hyatt Corporation in connection with that certain Master Services and Equipment Purchase Agreement, as described in the Company’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 13, 2012.  The Company believes the plaintiffs’ claims are without merit.  The Action is currently pending.




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.




10.      Subsequent Events




On July 31, 2012, the Company entered into a four year term note payable to the Federal Communications Commission (“FCC”) in the amount of $45,000, which, in addition to a $5,000 deposit that is payable by August 14, 2012, has been accrued in accrued expenses and other current liabilities on the balance sheet as of June 30, 2012.  This note is the result of two Forfeiture Orders issued by the FCC, each released on July 23, 2012 and each assessing fines in the amount of $25,000.  These Forfeiture Orders relate to 2008 violations of Cardinal Broadband, LLC, a wholly owned subsidiary of Cardinal Communications, Inc. and Canadian Communications, LLC which Roomlinx acquired in a Unit Purchase Agreement (“UPA”) on October 1, 2010.  The violations relate to (i) the failure to provide E911 service to a condominium community in Golden, Colorado for more than two months and (ii) Cardinal Communications providing the FCC with incorrect material factual information.  Management believes that the Company is fully indemnified by the sellers under the UPA for these amounts.   However the value of the indemnification is uncertain at this time and consequently no amount has been recorded for potential recovery.





Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.




The following discussion and analysis should be read in conjunction with the“Management’s Discussion and Analysis of Financial Condition and Results of Operations”section and the consolidated financial statements and related notes thereto included in our December 31, 2011 Annual Report on Form 10-K, filed with the SEC and with the unaudited interim financial statements and related notes thereto presented in this Quarterly Report on Form 10-Q, as well as our reports on Form 8-K and other SEC filings.




13





FORWARD-LOOKING STATEMENTS
 
 This report contains or incorporates forward-looking statements within the meaning of the federal securities laws that involve risks and uncertainties. We develop forward-looking statements by combining currently available information with our beliefs and assumptions. These statements relate to future events, including the Company’s future performance, and management’s expectations, beliefs, intentions, plans or projections relating to the future and some of these statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “seeks,” “future,” “continue,” “contemplate,” “would,” “will,” “may,” “should,” and the negative or other variations of those terms or comparable terminology or by discussion of strategy, plans, opportunities or intentions. As a result, actual results, performance or achievements may vary materially from those anticipated by the forward-looking statements. These statements include, among others:
 
 - Statements concerning the benefits that are expected to result from business activities and results of exploration that are contemplated or completed, such as increased revenues; and
 
 - Statements of the Company’s expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts.
 
 Among the factors that could cause actual results, performance or achievements to differ materially from those indicated by such forward-looking statements are:
 
 ●

the risk that the Company will not achieve the strategic benefits of the acquisition of Canadian Communications;
 
 ●

the volume and timing of systems sales and installations, the length of sales cycles and the installation process and the possibility that the Company’s products will not achieve or sustain market acceptance;
 
 ●

the timing, cost and success or failure of new product and service introductions, development and product upgrade releases;
 
 ●

competitive pressures including product offerings, pricing and promotional activities;
 
 ●

errors or similar problems in its products;
 
 ●

the outcome of any legal proceeding that has been or may be instituted against the Company and others;
 
 ●

the ability to attract and retain qualified personnel;
 
 ●

maintaining intellectual property rights and successful litigation involving intellectual property rights;
 
 ●

legislative, regulatory and economic developments;
 
 ●

risks related to third-party suppliers and the ability to obtain, use or successfully integrate third-party licensed technology;
 
 ●

breach of security by third parties; and
 
 ●

those factors discussed in “Risk Factors” in the Company’s periodic filings with the Securities and Exchange Commission (the “SEC”).
 
 Roomlinx makes these statements under the protection afforded by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Because forward-looking statements are subject to assumptions and uncertainties, actual results, performance or achievements may differ materially from those expressed or implied by such forward-looking statements. Stockholders are cautioned not to place undue reliance on such statements, which speak only as of the date such statements are made. Except to the extent required by applicable law or regulation, Roomlinx undertakes no obligation to revise or update any forward-looking statement, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.
 
 14
 
 GENERAL
 
 Overview
 
 Roomlinx, Inc., a Nevada corporation (“we,” “us” or the “Company”), provides four core products and services:
 
 In-room media and entertainment
 
 Roomlinx provides a suite of in-room media and entertainment products and services for hotels, resorts, and time share properties.  Products and services included within our in-room media and entertainment offering include our proprietary Interactive TV platform (“iTV”) and on-demand movies.
 
 The Company develops proprietary software and integrates hardware to facilitate the distribution of its Interactive TV platform.    With Roomlinx iTV guests will have access to a robust feature set through the HDTV such as:
 
 ●
Internet Apps including Netflix, Pandora, Hulu, YouTube, Facebook, and many more
 ●
International and U.S. television programming on demand
 ●
Click and Go TV program guide or Interactive Program Guide (dware)
 ●
Web Games
 ●
MP3 player and thumb drive access
 ●
Ability to send directions from the iTV system to a mobile device
 
 Hotel guests can also easily order room service, interact with hotel associates, make restaurant reservations, edit and print documents as well as gain direct access to local dining, shopping, nightlife, cultural events or attractions all through a dynamic user interface on the TV.  The Interactive TV platform integrates the TV and Internet experience.
 
 The Company provides proprietary software, a media console, which may include a DVD player, and numerous input jacks for the hotel guest, a proprietary wireless keyboard with built-in mouse, and a proprietary remote control with a built in mouse. The Company installs and supports these components.
 
 The Company also supplies video-on-demand services to the hospitality industry.  Roomlinx offers a full selection of video-on-demand services and technology; including first non-theatrical release Hollywood motion pictures, adult, and specialty content.
 
 Hotel customers sign long-term service agreements, where we provide the maintenance for the networks, as well as the right to provide value added services over the network.
 
 The Company generates revenue through:
 
 ●
Ongoing connectivity service and support contracts
 ●
Network design and installation services
 ●
Delivery of content and advertising
 ●
Delivery of business and entertainment applications
 ●
E-commerce
 ●
The customization of its software
 ●
Software licensing
 ●
Delivery of pay-per-view content
 ●
Sale of video-on-demand systems
 
 15
 
 Free-To-Guest Television Programming.
 
 Our hotel satellite television programming services provide for delivery and viewing of high definition and standard definition television programming for hotels, resorts, and time share properties.  The Company installs and provides services that address the entertainment and information needs of hotel guests and resort guests. We specialize in providing advanced high definition equipment for delivering digital television programming such as ESPN, HBO, Starz, and other specialty and local channels.
 
 The Company generates revenue through:
 
 ●
The design and installation of FTG systems
 ●
Delivery of television programming fees and/or commissions
 
 Customers typically pay a one-time fee for the installation of the equipment and then pay monthly programming fees for delivery of a specific TV channel lineup.
 
 Wired Networking Solutions and Wireless Fidelity Networking Solutions.
 
 We provide wired networking solutions and wireless fidelity networking solutions, also known as Wi-Fi, for high speed internet access at hotels, resorts, and timeshare locations. The Company installs and creates services that address the productivity and communications needs of hotel, resort, and timeshare guests. We specialize in providing advanced Wi-Fi wireless services such as the wireless standards known as 802.11a/b/g/n/i.
 
 Hotel customers sign long-term service agreements, where we provide the maintenance for the networks, as well as the right to provide value added services over the network.
 
 The Company generates revenue through:
 
 ●
Ongoing connectivity service and support contracts
 ●
Network design and installation services
 
 Customers typically pay a one-time fee for the installation of the network and then pay monthly maintenance fees for the upkeep and support of the network.
 
 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” lines, as well as digital voice over internet protocol (“VoIP”)  Analog phone service is typically provided via an interconnection agreement with CenturyLink, Inc. (formerly Qwest Communications), 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’s agreements with DISH Network and DirecTV.  Most television service to customers 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.
 
 The Company generates revenue through:
 
 ●
Network design and installation services
 ●
Delivery of telephone service (billed monthly)
 
 
 
 
 16
 
 ●
Delivery of Internet service  (billed monthly) ●
Delivery of television service (billed by the satellite provider with monthly commissions paid to the Company)
 ●
Management fees for the management of affiliated communication systems
 
 Trends and Business Outlook
 
 Our goal is to be the leading provider of in-room entertainment, programming, and internet connectivity to the hospitality industry.  Accordingly, we have developed a menu of product offerings that differentiate us from other market participants in terms of usability, technical innovation and breadth of offerings.  Organizationally, we are building the scale, capacity, and reach to respond to our customers’ needs quickly.  Over the past year we have taken significant steps towards these goals, and in the first quarter of 2012 we signed a master service agreement with Hyatt Corporation.  We anticipate installing up to 60,000 Hyatt hotel rooms through March 2014.  As a result, management’s focus has shifted to operations in order to execute on the Hyatt master service agreement.
 
 Where and how people communicate and access content is continuously changing, and this change has been documented by hotels when reviewing their guests’ habits.   Hotel guests are accessing content from the internet or alternative mobile sources such as laptops and smartphones.  Our Interactive TV (“iTV”) platform was developed to embrace these changing habits and allow guests easy access to their content, work files, and the internet via the in-room flat panel LCD television screen.  The majority of our business growth is the result of our development of platforms that meet the hotel guests’ expectations for accessibility to content and the value that it brings to the hotel owner.  Guest usage rates of iTV are higher at our current hotel installations than with traditional systems.  Our objective is to monetize the greater usage by guests of our iTV services as we increase our base of installed hotel rooms.  Consequently, we are investing in sales and marketing and customer support capabilities.  In addition we will continue to invest in the development and enhancement of the iTV platform as a differentiation from competitors.
 Although our results demonstrate the initial success of our efforts, general economic conditions and market uncertainty may negatively impact our financial results in future periods.  We anticipate that the rate of new orders may vary significantly from quarter to quarter.  In addition our ability to complete installations of our iTV system in a timely and efficient manner may be negatively impacted by our internal operating capabilities as we build the internal structure and capabilities necessary to meet customer demands.  Consequently, if anticipated sales and shipments in any quarter do not occur when expected, expenses and inventory levels could be disproportionately high, and our operating results for that quarter and future quarters may be adversely affected.  Further, given the lag between the incurrence of expenses in connection with sales “wins” and the resulting revenue stream, we anticipate that, while we will see organic growth that positions us for future profitability, our costs of sales and other operating expenses will exceed our revenues in the near term.  We have incurred operating losses since our inception and the financial resources available to us may not be sufficient to exploit all sales opportunities or to allow us to continue to adequately invest in the efforts described above.
 
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
 Management’s Discussion and Analysis of Financial Condition and Results of Operations discuss our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and liabilities. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, allowance for doubtful accounts and property and equipment valuation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.
 
 Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.
 
 17
 
 The Company enters into contractual arrangements to provide multiple deliverables which may include some or all of the following - systems installations and a variety of services related to high speed internet access, free-to-guest programming, video on demand, 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” 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 ASU Topic 650.
 
 The effect of application of this standard may be to defer revenue recognition for installations across the service period of the contract and to re-allocate and/or defer revenue recognition across various service arrangements.
 
 In order to promote the Interactive TV platform, Roomlinx has agreed to provide certain customers with direct sales-type lease financing to cover the cost of installation.  These transactions result in the recognition of revenue and associated costs in full upon the customer’s acceptance of the installation project and give rise to a lease receivable and unearned income.
 
 We estimate the collectability of our trade receivables. A considerable amount of judgment is required in assessing the ultimate realization of these receivables, including analysis of historical collection rates and the current credit-worthiness of significant customers.
 
 Inventory includes materials on-hand at our warehouses as well as the cost of hardware, software, and labor which has been incurred by us for installation at our customer’s property, but has not been accepted by the customer.
 
 Since inception, we have accumulated substantial net operating loss carry forwards for tax purposes.  There are statutory limitations on our ability to realize any future benefit from these potential tax assets and we are uncertain as to whether we will ever utilize the tax loss carry forwards.  Accordingly, we have recorded a valuation allowance to offset the deferred tax asset.
 
 The Company provides compensation costs for our stock option plans determined in accordance with the fair value based method to estimate the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model and provide for expense recognition over the service period, if any, of the stock option.
 
 In connection with the sale of debt or equity instruments, we may sell options or warrants to purchase our common stock. In certain circumstances, these options or warrants may be classified as derivative liabilities, rather than as equity. Additionally, the debt or equity instruments may contain embedded derivative instruments, such as conversion options, which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative instrument liability.
 
 RESULTS OF OPERATIONS
 
 On March 12, 2012, Roomlinx and Hyatt Corporation entered into a Master Services and Equipment Purchase Agreement (hereinafter the “Hyatt MSA”) pursuant to which Roomlinx 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.  Roomlinx’s iTV system may be provided in the “full option” (Interactive TV), the “mid option” (SmartTV) or the “lite option” (Video on Demand).
 
 18
 
 THREE MONTHS ENDED JUNE 30, 2012 COMPARED TO THREE MONTHS ENDED JUNE 30, 2011
 
 Revenues for the three months ended June 30, 2012 and 2011 were $2,135,386 and $1,358,931 respectively, an increase of $776,455 or 57%, resulting primarily from installation revenueassociated with the Hyatt MSA.
  Hospitality
 
 Hospitality revenue includes revenue from network and media system installations, support services, and recurring revenue from in-room media and entertainment services.  Hospitality revenue and associated direct costs were $1,904,531 and $1,888,967 for the three months ended June 30, 2012, and $1,121,785 and $774,687 for the comparable year earlier period.  The decline in hospitality margin to $15,564 from $347,098 reflects certain one-time costs associated with ramping up installation and support capabilities, including training costs, to meet demand and delivery schedules associated with the Hyatt MSA.
 United States:US hospitality revenue for the three months ended June 30, 2012 and 2011 was $1,714,511 and $833,302 respectively, an increase of $881,209 or 106%.  This increase is primarily due to increased installations, hardware sales, and recurring revenue streams of our media and entertainment products.
 
 Canada:Canadian hospitality revenue for the three months ended June 30, 2012 and 2011was $146,379 and $239,704 respectively, a decrease of $93,325 or 39%.   This revenue is primarily variable as it is dependent on hotel guest purchases of video on demand films.
 
 Other Foreign:Other foreign hospitality revenue for the three months ended June 30, 2012 and 2011 was $43,641 and $48,779, respectively, a decrease of $5,138 or 11%.
 
 Residential
 
 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.
 
 Residential revenue for the three months ended June 30, 2012 and 2011 was $230,855 and $237,146 respectively, and decrease of $6,291 or 3%.
 
 Operational Expenses
 
 Total operating expense for the three months ended June 30, 2012 and 2011 was $1,810,909 and $1,192,265 respectively; an increase of $618,644, or 52%.  This increase is primarily due to an increase of $607,755 in payroll, stock compensation, and related costs associated with hiring personnel to scale our operations for anticipated rapid growth of installation of our products pursuant to execution of the Hyatt MSA on March 12, 2012.
 
 Our operations department expense increased $347,573 to $552,367 in the three months ended June 30, 2012 compared to the same period in 2011.  This increase is primarily due to an increase of $357,651 in payroll and related expenses related to increased staffing levels to support our commitments in regards to the Hyatt MSA.
 
 Our product development department expense increased $158,021 to $315,853 in the three months ended June 30, 2012 compared to same period in 2011.  This increase is primarily due to an increase in payroll and related costs of $175,619, less a decrease of $10,887 in the cost of test equipment resulting from utilization of similar equipment at current hotel installations.
 
 Our selling, general and administrative expenses increased $96,587 to $753,816 in the three months ended June 30, 2012 compared to the same period in 2011.  This increase is attributable to an increase in payroll and related costs of $74,485, and an increase in bad debt expense of $39,998.
 
 19
 
 Depreciation expense for the three months ended June 30, 2012 and 2011 was $188,873 and $172,410 respectively, an increase of $16,463 or 10%.
 
 Our operating loss for the three months ended June 30, 2012 and 2011 was $1,738,978 and $760,744 respectively, an increase of $978,234 or 129%.  This increase is primarily attributable to personnel costs associated with the hiring of operational personnel to support the Hyatt MSA as more fully described under total operating expense.
 
 Non-Operating
 
 For the three months ended June 30, 2012 and 2011, our non-operating income was $83,257 and $75,515 respectively.  Non-operating income consists of interest income earned on lease receivables and foreign currency gains.  Our foreign currency gain was $3,365 and $7,878 for the three months ended June 30, 2012 and 2011, respectively.  This decrease is due to the fluctuations in the value of the foreign currency.
 
 Our non-operating expenses for the three months ended June 30, 2012 and 2011 were $155,909 and $72,510 respectively, an increase of $83,399.  This increase is primarily attributable to an increase in interest expense of $34,748 consistent with the increase in our line of credit and an increase in financing costs of $50,333 associated with debt discount expense on warrants issued pursuant to draws against our line of credit.
 
 For the three months ended June 30, 2012, we reported a net loss of $1,811,630, compared to a net loss of $757,739 for the three months ended June 30, 2011. As discussed above, increased personnel costs associated with the ramp up of personnel to support the Hyatt MSA was the primary factor that contributed to the increased net loss.
 
 SIX MONTHS ENDED JUNE 30, 2012 COMPARED TO SIX MONTHS ENDED JUNE 30, 2011
 
 Revenues for the six months ended June 30, 2012 and 2011 were $3,672,927 and $2,782,103 respectively, an increase of $890,824 or 32%, resulting from a 93% increase in installation revenuesprimarily related to the Hyatt MSA.
 Hospitality
 
 Hospitality revenue includes revenue from network and media system installations, support services, and recurring revenue from in-room media and entertainment services.  Hospitality revenue and associated direct costs were $3,203,158 and $2,943,911 for the six months ended June 30, 2012, and $2,321,817 and $1,581,801 for the comparable year earlier period.  The decline in hospitality margin to $259,247 from $740,016 reflects certain one-time costs associated with ramping up installation and support capabilities, including training costs, to meet demand and delivery schedules associated with the Hyatt MSA.
 
 Our Hospitality segment includes hotel and meeting rooms in the following geographic segments: United States, Canada, and Other Foreign. As of June 30, 2012 and 2011, Other Foreign included Mexico and Aruba. The products offered under our hospitality segment include the installation of, and the support and service of, high-speed internet access, interactive TV services, free to guest programming, and on-demand programming, as well as advertising and e-commerce products.
 
 United States:US hospitality revenue for the six months ended June 30, 2012 and 2011 was $2,820,642 and $1,719,673 respectively, an increase of $1,100,969 or 64%.  This increase is primarily due to increased installations, hardware sales, and recurring revenue streams of our media and entertainment products.
 
 Canada:Canadian hospitality revenue for the six months ended June 30, 2012 and 2011 was $304,870 and $504,696 respectively, a decrease of $199,826 or 40%.  This revenue is primarily variable as it is dependent on hotel guest purchases of video on demand films.
 
 Other Foreign:Other foreign hospitality revenue for the six months ended June 30, 2012 and 2011 was $77,646 and $97,448, respectively, a decrease of $19,802 or 20%.
 
 20
 
 Residential
 
 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.
 
 Residential revenue for the six months ended June 30, 2012 and 2011 was $469,769 and $460,286 respectively, an increase of $9,483 or 2%.
 
 Operational Expenses
 
 Total operating expense for the six months ended June 30, 2012 and 2011 was $3,072,723 and $2,192,716 respectively; an increase of $880,007, or 40%.  This increase is primarily due to an increase of $818,228 in payroll, stock compensation, and related costs associated with hiring personnel to scale our operations for anticipated rapid growth of installation of our products pursuant to the then ongoing negotiation and signing of the Hyatt MSA on March 12, 2012.
 
 Our operations department expense increased $554,358 to $991,130 in the six months ended June 30, 2012 compared to the same period in 2011.  This increase is primarily due to an increase of $514,415 in payroll and related expenses associated with increased staffing levels to support our commitments in regards to the Hyatt MSA.
 
 Our product development department expense increased $203,027 to $576,586 in the six months ended June 30, 2012 compared to same period in 2011.  This increase is primarily due to an increase in payroll and related costs of $219,196, less a decrease of $23,916 in the cost of test equipment resulting from utilization of similar equipment at current hotel installations.
 
 Our selling, general and administrative expenses increased $101,518 to $1,137,032 in the six months ended June 30, 2012 compared to the same period in 2011.  This increase is attributable to an increase of $53,617 in payroll and related costs; an increase of $35,709 in bad debt expense; and an increase of $18,920 in the cost of insurance.
 
 Depreciation expense for the six months ended June 30, 2012 and 2011 was $367,975 and $346,871 respectively, an increase of $21,104 or 6%.
 
 Our operating loss for the six months ended June 30, 2012 and 2011 was $2,683,629 and $1,299,165 respectively, an increase of $1,384,464 or 107%  This increase is primarily attributable to personnel costs associated with the hiring of operational personnel to support the Hyatt MSA as more fully described under total operating expense.
 
 Non-Operating
 
 For the six months ended June 30, 2012 and 2011, our non-operating income was $140,835 and $134,736 respectively.  Non-operating income is primarily attributable to $137,909 of interest income earned on lease receivables.  Our foreign currency gain was $2,926 and $2,521 for the six months ended June 30, 2012 and 2011, respectively, due to fluctuations in the value of the foreign currency.
 
 Our non-operating expenses for the six months ended June 30, 2012 and 2011 were $294,071 and $132,488 respectively, an increase of $161,583.  This increase is primarily attributable to an increase in interest expense of $68,451 consistent with the increase in our line of credit and an increase in financing costs of $97,741 associated with debt discount expense on warrants issued pursuant to draws against our line of credit.
 
 For the six months ended June 30, 2012, we reported a net loss of $2,836,865 compared to a net loss of $1,296,917 for the six months ended June 30, 2011. As discussed above, increased personnel costs associated with the ramp up of personnel to support the Hyatt MSA was the primary factor that contributed to the increased net loss.
 
 21
 
 FINANCIAL CONDITION
 
 LIQUIDITY & CAPITAL RESOURCES
 
 As of June 30, 2012 we had $2,861,965 in cash and cash equivalents.  That amount, in addition to the credit facility provided by Cenfin, LLC, is sufficient to fund operating activities, new product installations, and to continue investing in our new media and entertainment product through 2012.  Working capital at June 30, 2012 was $3,967,923, an increase of approximately $2.3 million compared to December 31, 2011.The increase primarily reflects the proceeds from the sale of equity.
 
 We minimize borrowings under the credit facility by requiring customers to pay a 50% deposit prior to commencement of installation activities.  In addition, we obtained trade credit from suppliersfor a significant portionof installation materials presently held in inventory.  Customer deposits and trade credit are significant sources of liquidity.   Should the Company be unable to obtain sufficient amounts of trade credit to finance inventory or should delays in installations result in payments under trade lines occurring sooner than deployment of the underlying inventory, borrowings under the credit facility will increase.
 Operating Activities
 
 Net cash used by operating activities was $1,766,022 and $181,539 for the six months ended June 30, 2012 and 2011, respectively.  The increase in cash used in operations of $1,584,483 was primarily attributable to the increase in net loss of $1,539,948.  Non-cash adjustments increased cash provided by operations by $162,986 while the fluctuation in changes in operating assets and liabilities decreased cash used in operations by $207,451.  This is primarily due to the timing of the customer’s acceptance of installations resulting in the expensing of inventory and the corresponding revenue recognition of deposits previously classified as deferred revenue.  Changes in significant recurring non-cash adjustments include stock based compensation and the amortization of debt discount.
 
 Investing Activities
 
 Net cash provided by investing activities was $315,278 for the six months ended June 30, 2012 compared to $324,209 used by investing activities during the same period in 2011.  The increase in cash provided by investing activities of $639,487 was primarily attributable to (i) an increase in 2011 cash receipts against leases receivable totaling $151,364, and (ii) a savings of $546,768 resulting from a reduction in equipment installation lease financing provided to customers in 2012 versus 2011.
 
 Financing Activities
 
 Net cash provided by financing activities for the six months ended June 30, 2012 and 2011 were $3,955,812 and $791,998 respectively.  The increase in cash of $3,163,814 is primarily attributable to the sale of common stock as a result of the Company having entered into a Securities Purchase Agreement on May 4, 2012 with certain investors (collectively, the “Investors”), which resulted in proceeds of $2,993,311 after transaction costs, pursuant to which the Investors purchased Units from Roomlinx for a purchase price of $2.50 per Unit, defined as one share of common stock plus a warrant to purchase one-half share of common stock at an exercise price of $3.75.  See Note 7 for further details.  Additional financing activities included an increase in advances against the Company line of credit totaling $290,000 for the same six month period in 2011.
 
 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 June 30, 2012:
 
 Twelve
months ended

Line of


Notes


Lease Obligations


MinimumJune 30,

Credit


Payable


Capital


Operating


Payments2013

$
-


$
28,868


$
38,618


$
106,189


$
173,6752014


340,000



-



12,109



145,961



498,0702015


124,000



-



13,210



151,210



288,4202016


1,942,000



-



1,101



38,021



1,981,1222017


2,770,000



-



-



-



2,770,000$
5,176,000


$
28,868


$
65,038


$
441,381


$
5,711,287
 
 22
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
 
 We are exposed to 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)
 
 Foreign currency translation resulted in a loss of $7,391 for the six months ended June 30, 2012 compared to a gain of $13,039 for the six months ended June 30, 2011. The amount of gain (loss) will vary based upon the volume of foreign currency denominated transactions and fluctuations in the value of the Canadian dollar vis-à-vis the US dollar.
 
 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 affect 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 or financial position.
 
 Item 4.  Controls and Procedures
 
 Management’s Evaluation of Disclosure Controls and Procedures
 
 As of June 30, 2012, our management, including our Chief Executive Officer and Chief Financial Officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based on their review and evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective. However, it should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
 
 Changes in Internal Control over Financial Reporting
 
 There were no changes in our internal control over financial reporting during our fiscal quarter ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 23
 
 PART II - OTHER INFORMATION
 
 24
 
 Item 1. Legal Proceedings
 
 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 claim that the Company owes them certain unpaid sales commissions, including with respect to Hyatt Corporation in connection with that certain Master Services and Equipment Purchase Agreement, as described in the Company’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 13, 2012.  The Company believes the plaintiffs’ claims are without merit.  The Action is currently pending.
 
 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.
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
 Pursuant to an exemption from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), on May 4, 2012, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain investors (collectively, the “Investors”), pursuant to which the Investors purchased Units from the Company for a purchase price of $2.50 per Unit.  Each Unit consisted of (x) one share of common stock of the Company and (y) a warrant to purchase one-half share of common stock at an exercise price of $3.75 per share, subject to adjustment as provided in the warrant.  The Company sold and issued an aggregate of 1,200,000 shares of common stock to the Investors and issued warrants to the Investors for the purchase of an additional 600,000 shares of common stock.  Subsequently on June 20, 2012, the Company sold and issued an additional 80,000 shares of common stock and 40,000 warrants to certain other investors pursuant to an amendment to the SPA.  In the aggregate, the Company received net proceeds of $2,993,311 (gross proceeds of $3,200,000 less $206,689 of offering expenses) from these transactions.  Proceeds from such transactions will be used for general corporate and working capital purposes including deployment of the Company’s iTV applications under a Master Service Agreement with Hyatt Corporation announced on March 13, 2012.
  Under the terms of a Registration Rights Agreement (“RRA”) between the Company and the Investors in conjunction with the SPA, the Company filed a Form S-1 Registration Statement with the SEC on June 18, 2012, for the purpose of registering under the Securities Act the shares of common stock issued pursuant to the SPA and the shares of common stock to be issued upon exercise of the warrants issued pursuant to the SPA.  Such registration statement has not yet been declared effective by the SEC.  The Registration Rights Agreement obligates the Company to pay liquidated damages to the Investors should the Form S-1 not be declared effective by the SEC by September 4, 2012.  Liquidated damages under the RRA are limited to 1% of the SPA proceeds ($32,000) for each month the Form S-1 is not declared effective by the SEC up to a maximum of six months.
 Item 3. Defaults Upon Senior Securities
 
 None.
  Item 4. Mine Safety Disclosures
  Not applicable.
 Item 5. Other Information
 
 None
 
 25
 
 Item 6. Exhibits
 
 10.1  Master Service and Equipment Purchase Agreement, dated March 12, 2012, by and between Hyatt Corporation and the Company incorporated by reference to Exhibit 10.1 of the registrant’s Current Report on Form 10-Q/A (Amendment No. 1) filed on July 27, 2012. *
 
 10.2  Securities Purchase Agreement, dated May 4, 2012, by and among the Company and certain Investors, incorporated by reference to Exhibit 10.1 of the registrant’s Current Report on Form 8-K filed on May 7, 2012.
 
 10.3  First Amendment to Securities Purchase Agreement, dated June 15, 2012, by and among the Company and certain Investors.**
 
 31.1  Certification of the chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 **





32.1  Certification of the chief executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **





32.2  Certification of the chief financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **








*Portions of this exhibit have been omitted pursuant to an August 6, 2012 Securities and Exchange Commission order granting registrant’s request for confidential treatment filed separately with the Securities and Exchange Commission.  Brackets surrounding asterisks in this exhibit denote the omissions.





** Filed herewith





26





Signatures





Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





Roomlinx, Inc.By:
/s/ Michael S. WasikMichael S. WasikChief Executive OfficerDate:
August 14, 2012





Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.





By:
/s/ Michael S. WasikMichael S. WasikChief Executive OfficerBy:
/s/ Anthony DiPaoloAnthony DiPaoloChief Financial OfficerDate:
August 14, 2012