UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q





x
QUARTERLY REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended: September 30, 2010





o
TRANSITION REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934








For the transition period from:





Commission file number: 333-150424





REACH MESSAGING HOLDINGS, INC.(Exact name of registrant as specified in its charter)








Delaware.

26-1110179(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.44081 Pipeline Plaza, Suite 310, Ashburn, VA

20148(Address of principal executive offices)

(Zip Code)








Issuer’s telephone number: (888) 631-8555


(Former name, former address and former fiscal year, if changed since last report)








Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No 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 o No o  The registrant is not yet subject to this requirement.





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 filed,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.





Large accelerated filer o

Accelerated filer oNon-accelerated filer o

(Do not check if a smaller reporting company)

Smaller reporting company x




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes x No





Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  The number of shares of the registrant’s common stock, $0.001 par value per share, 134,205,306 shares outstanding as of August 17, 2010.











Table of Contents







Part I - Financial InformationItem 1. Financial Statements (Unaudited)

1Balance Sheets as of June 30, 2010 and December 31, 2009

1Statements of Operations for the three and six months ended June 30, 2010 and 2009

2Statements of Cash Flows for the six months ended June 30, 2010 and 2009

3Notes to unaudited financial statements

4Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

9Item 3. Quantitative and Qualitative Disclosures About Market Risk

12Item 4. Controls and Procedures

12Part II – Other InformationItem 1. Legal Proceedings

14Item 1A. Risk Factors

14Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

14Item 3. Defaults Upon Senior Securities

14Item 4. Reserved

14Item 5. Other Information

14Item 6. Exhibits

14Signatures

15










Part I, Item 1.  Financial Statements.





Reach Messaging Holdings, Inc.Balance SheetsSeptember 30,

2010


December 31,

2009(Unaudited)AssetsCurrent AssetsCash

$
278,871


$
27Accounts receivable


14,100



8,000Prepaid


2,530



-Refundable federal income taxes


2,943



2,943Total Current Assets


298,444



10,970Other AssetsDeposits


7,500



- 0Total Assets

$
305,944


$
10,970Liabilities and Stockholders’ Equity (Deficit)Current LiabilitiesAccounts payable and accrued expenses

$
68,430



30,383Loans payable


-



58,000Total Current Liabilities


68,430



88,383Long Term LiabilitiesConvertible notes - net of debt discount


63,706



- 0Total liabilities


132,136



88,383Stockholders’ Equity (Deficit)Preferred stock, $0.001 par value; 10,000,000 shares authorized;none issued and outstanding


- 0



- 0Common stock, $0.001 par value, 2,000,000,000 shares authorized;823,994,505 and 102,030,901 shares issued and outstanding, respectively


823,995



102,031Additional paid in capital


2,823,798



142,621Accumulated deficit


(3,473,985
)


(322,065
)Total Stockholders’ Equity (Deficit)


173,808



(77,413
)Total Liabilities and Stockholders' Equity (Deficit)

$
305,944


$
10,970Check

$
0


$
0working capital (deficit)


230,014



(77,413
)




The accompanying notes form an integral part of these financial statements.





1




REACH MESSAGING HOLDINGS, INC.


STATEMENTS OF OPERATIONS


Three and Nine Months Ended September 30, 2010 and 2009


(Unaudited)





Three Months Ended September 30,


Nine Months Ended September 30,2010


2009


2010


2009RevenueHosting revenue

$
7,000


$
15,000


$
37,000


$
45,000Applications development


50,000



15,642



116,500



45,639Other revenue


1,980



-



2,581



-Total revenue


58,980



30,642



156,081



90,639Cost of revenueAdvertising customization


-



-



-



22,243Web hosting expense


-



734



-



2,234Total cost of revenue


-



734



-



24,477Gross profit


58,980



29,908



156,081



66,162Operating expensesResearch and development


94,737



57,000



253,009



170,050General and administrative expenses


1,957,366



12,168



3,050,639



18,373Total operating expenses


2,052,103



69,168



3,303,648



188,423Interest expense, net


(1,615
)


-



(4,353
)


-Net loss

$
(1,994,738
)

$
(39,260
)

$
(3,151,920
)

$
(122,261
)Net loss per common share - basic and diluted

$
(0.00
)

$
(0.01
)

$
(0.01
)

$
(0.02
)Weighted average number of common shares outstanding during the period - basic and diluted


639,455,918



5,100,000



609,455,384



5,100,000




The accompanying notes form an integral part of these financial statements.





2




REACH MESSAGING HOLDINGS, INC.


STATEMENTS OF CASH FLOWS


Six Months Ended June 30, 2010 and 2009


(Unaudited)





Nine Months Ended September 30,2010


2009CASH FLOWS FROM OPERATING ACTIVITIESNet loss

$
(3,151,920
)

$
(122,261
)Adjustments to reconcile net loss to net cash used in operating activities:Share based payments


2,460,141



-Changes in operating assets and liabilities:Accounts receivable


(6,100
)


(8,488
)Prepaid


(2,530
)Refundable income taxes


-



3,257Deposits


(7,500
)


-Accounts payable and accrued expenses


38,047



(3,147
)Net Cash Used In Operating Activities


(669,862
)


(130,639
)CASH FLOWS FROM FINANCING ACTIVITIESProceeds from loans payable






138,923Proceeds from convertible notes


363,706



-Proceeds from stock issued for cash


585,000



-Net Cash Provided By Financing Activities


948,706



138,923Net decrease in cash


278,844



8,284Cash - beginning of period


27



372Cash - end of period

$
278,871


$
8,656SUPPLEMENTARY CASH FLOW INFORMATION:Cash paid during the period for:Interest

$
-


$
-Taxes

$
-


$
-SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Issuance of shares for finders' fees

$
18,400


$
-Issuance of shares for prepaid compensation and consulting fees

$
900,000


$
-Forgiveness of shareholder loan

$
-


$
138,923Conversion of loan to common stock

$
-


$
-Per BS

$
278,871


$
8,656Difference

$
-


$
-





The accompanying notes form an integral part of these financial statements.





3




REACH MESSAGING HOLDINGS, INC.NOTES TO FINANCIAL STATEMENTS

(Unaudited)





Note 1 Basis of Presentation





The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.




The financial information as of December 31, 2009 is derived from the audited financial statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.  The unaudited interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K, which contains the audited financial statements and notes thereto, together with the Management’s Discussion and Analysis of Financial Condition and Results of Operations, for the year ended December 31, 2009.




Certain information or footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The interim results for the period ended September 30, 2010 are not necessarily indicative of results for the full fiscal year.




Note 2 Nature of Operations and Summary of Significant Accounting Policies




Nature of Operations




Reach Messaging Holdings, Inc. (the “Company") was incorporated in September 2007 under the laws of the State of California.  The Company creates, deploys and hosts instant messaging virtual robots ("Bots"); develops and hosts internet properties; and provides customers with internet marketing services.  The instant messaging Bots are customized to contain relevant user information, games, video, quizzes, polls, sponsorship and ad space.  The Company also provides marketing services to increase Bot-reach and user conversions.  The Company has sold one Bot in a multiple deliverable arrangement that included creation of a Bot, marketing support and on going hosting for the Bot.  The Company sells sponsorships and advertising space on its own internet properties.  The Company owns www.DailyGab.com and four Bots:  GossipinGabby, SportsfanStan, MyTVBud and ProfGilzot.  Additional Company-owned web properties and Bots are under development.  The company-owned internet properties are teen-oriented.




Summary of Significant Accounting Policies





Use of Estimates





The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.




Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from our estimates.




4





Such estimates and assumptions impact, among others, the valuation allowance for deferred tax assets, due to continuing and expected future losses.




Risks and Uncertainties




The Company intends to operate in an industry that is subject to intense competition and change in consumer demand. The Company's operations will be subject to significant risk and uncertainties including financial and operational risks including the potential risk of business failure. Also, see Note 3 regarding going concern matters.


Cash and Cash Equivalents




The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents.  There were no cash equivalents at September 30, 2010 and December 31, 2009, respectively.




The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits.




The United States Congress has temporarily increased the Federal Deposit Insurance Corporation (FDIC) deposit insurance from $100,000 to $250,000 per depositor. At September 30, 2010 and December 31, 2009, respectively, the cash balance did not exceed the federally insured limits.




Accounts receivable and allowance for doubtful accounts




Accounts receivable represents trade obligations from customers that are subject to normal trade collection terms. The Company periodically evaluates the collectability of its accounts receivable and considers the need to establish an allowance for doubtful accounts based upon historical collection experience and specific customer information. Accordingly, the actual amounts could vary from the recorded allowances.




The Company does not charge interest on past due receivables. Receivables are determined to be past due based on payment terms of original invoices.




At September 30, 2010 and December 31, 2009, the Company did not record an allowance for doubtful accounts.




Share Based Payments




5




Generally, all forms of share-based payments, including stock option grants, restricted stock grants and stock appreciation rights, are measured at their fair value on the awards’ grant date, and based on the estimated number of awards that are ultimately expected to vest. Share-based payment awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. The expense resulting from share-based payments are recorded as a component of general and administrative expense.




Earnings (loss) per share




In accordance with accounting guidance now codified as FASB ASC Topic 260, “Earnings per Share,” Basic earnings per share (“EPS”) is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential of shares of common stock outstanding during the period including stock options or warrants, using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of stock options or warrants), and convertible debt or convertible preferred stock, using the if-converted method. Diluted EPS excludes all dilutive potential of shares of common stock if their effect is anti-dilutive.




The computation of basic and diluted loss per share for the periods ended September 30, 2010 and 2009 is equivalent since the Company reported a net loss and the effect of any common stock equivalents would be anti-dilutive.


In July, 2010 the Company executed a 5-1 forward Stock Split, all share and per share amounts have been retrospectively restated.




Revenue Recognition and Customer Deposits




The Company records revenue when all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) the product is delivered, (3) the sales price to the customer is fixed or determinable, and (4) collectability of the related customer receivable is reasonably assured.  There is no stated right of return for products.




Bot sales revenue is recognized at the time of customer acceptance and deployment of the Bot.  Hosting revenue is recognized monthly.  Hosting services are invoiced to customers at the beginning of the month following the month services are provided.  Advertising and sponsorships on owned Internet properties are sold on a cost per action ("CPA") basis and invoiced to the customer monthly based on the number and price per action at the end of each month.  Marketing support revenue is generated as a result of the media and marketing services provided to support customer Internet marketing activities.  Application sales revenue is recognized at the time of customer acceptance and deployment of the application. When a sales arrangement contains multiple elements, such as marketing services, advertising and promotions, revenue is allocated to each element based on its relative fair value. When the fair value of an undelivered element cannot be determined, the Company defers revenue for the delivered elements until the undelivered elements are delivered.  Payments received in advance of provision of services are deferred until earned.




Cost of Sales




Cost of sales represents costs directly related to the production of the Company’s Bots. Costs include Bot development, housing cost, advertising customization and programming.




6




Research and Development




Research and development costs related to both future and present products are charged to operations as incurred.  For the nine months ended September 30, 2010 and 2009, the Company recognized $253,009 and $170,050, respectively, of research and development costs.




Fair Value of Financial Instruments




Disclosures of information about the fair value of certain financial instruments for which it is practicable to estimate the value.  For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation.




Recent Accounting Pronouncements




In January 2010, the Financial Accounting Standards Board ("FASB") issued updated guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. This update requires new disclosures on significant transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy (including the reasons for these transfers) and the reasons for any transfers in or out of Level 3. This update also requires a reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. In addition to these new disclosure requirements, this update clarifies certain existing disclosure requirements. For example, this update clarifies that reporting entities are required to provide fair value measurement disclosures for each class of assets and liabilities rather than each major category of assets and liabilities. This update also clarifies the requirement for entities to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. This update will become effective for the Company with the interim and annual reporting period beginning January 1, 2010, except for the requirement to provide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will become effective for the Company with the interim and annual reporting period beginning January 1, 2011. The Company will not be required to provide the amended disclosures for any previous periods presented for comparative purposes. Other than requiring additional disclosures, adoption of this update will not have a material effect on the Company's unaudited interim financial statements.




In April 2010, the FASB issued updated guidance that sets forth the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate for research and development arrangements. Specifically, consideration that is contingent upon the completion of a milestone may be recognized in its entirety as revenue in the period that milestone has been achieved if the milestone, in its entirety, meets all of the criteria to be considered substantive at the inception of an arrangement. This guidance is effective prospectively for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010 and applies to research or development deliverables under which the performance obligation is satisfied over a period of time and a portion, or all, of the consideration is contingent upon uncertain future events or circumstances. A reporting entity’s decision to use the milestone method of revenue recognition is a policy election. Since we do not currently have contracts that would qualify for the election of the milestone method, the adoption of this guidance will not have a material effect on the Company’s unaudited interim financial statements.





Note 3 Going Concern




As reflected in the accompanying unaudited interim financial statements, the Company has a net loss and net cash used in operations of $3,151,920 and $669,862, respectively for the nine months ended September 30, 2010.  The Company has an accumulated deficit of $3,473,985 as of September 30, 2010.





The ability of the Company to continue its operations is dependent on Management's plans, which include the raising of capital through debt and/or equity markets with some additional funding from other traditional financing sources, including term loans and notes, until such time that funds provided by operations are sufficient to fund working capital requirements.  The Company may need to incur additional liabilities with certain related parties to sustain the Company’s existence.




7




As reflected in the accompanying unaudited interim financial statements, the Company has a net loss and net cash used in operations of $4,300,112 and $669,862, respectively for the nine months ended September 30, 2010.  The Company has an accumulated deficit of $4,622,177 at September 30, 2010.


The accompanying unaudited interim financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  These accompanying unaudited interim financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.




In response to these problems, management has taken the following actions:




●
seeking additional debt and/or equity financing,●
assess business markets and related opportunities so that revenues can be generated.




Note 4Share Exchange Agreement




On February 3, 2010, Reach Messaging, Inc. (“Reach”) entered into a Share Exchange Agreement with FormulaWon, Inc. (“FormulaWon”). FormulaWon offered to issue 48 million of its common shares in exchange for each common share outstanding of Reach.




100% of Reach common shareholders elected to exchange their Reach shares for shares of FormulaWon. FormulaWon issued 48 million shares to acquire 48 million of the outstanding shares of Reach. As a result of the exchange, the shareholders of Reach held a 44% controlling interest in the combined entity, after the exchange, which did not include the shares issued to investors in our financing transactions or to consultants for their services rendered. FormulaWon had approximately 137 million shares of common stock outstanding prior to the transaction, and cancelled 77 million shares of common stock at the time of the transaction, resulting in approximately 60 million shares that were in existence at the time of the transaction.




Included as part of the share exchange were 6 million restricted common shares issued to an entity owned by David R. Wells, our Chief Financial Officer, as compensation for future services. Such shares were valued at $0.05 per share, and compensation expense is being recognized over the 24-month period that the shares become vested. For the nine months ended September 30, 2010, the Company recognized compensation expense relating to these shares of $300,000.




Since the owners and management of Reach possessed voting and operating control of the combined company after the share exchange, the transaction constituted a reverse acquisition for accounting purposes, as contemplated by FASB ASC 805-40 and corresponding ASC 805-10-55-10, 12 and 13. Under this accounting, the entity that issues shares (FormulaWon – the legal acquirer) is identified as the acquiree for accounting purposes. The entity whose shares are acquired (Reach) is the accounting acquirer.




In addition, FormulaWon was characterized as a non-operating public shell company, pursuant to SEC reporting rules. The SEC staff considers a reverse-acquisition with a public shell to be a capital transaction, in substance, rather than a business combination. The transaction is effectively a reverse recapitalization, equivalent to the issuance of stock by the private company for the net monetary assets of the shell corporation accompanied by a recapitalization. The accounting is similar to that resulting from a reverse acquisition, except that the transaction was consummated at book value and no goodwill or intangible assets were recognized.




8




For SEC reporting purposes, Reach is treated as the continuing reporting entity that acquired FormulaWon (the historic shell registrant). The reports filed after the transaction have been prepared as if Reach (accounting acquirer) were the legal successor to FormulaWon’s reporting obligation as of the date of the acquisition. Therefore, all financial statements filed subsequent to the transaction reflect the historical financial condition, results of operations and cash flows of Reach, for all periods presented.




In connection with the reverse acquisition and recapitalization, all share and per share amounts of Reach have been retroactively adjusted to reflect the legal capital structure of FormulaWon pursuant to FASB ASC 805-40-45-1.




Note 5 Loans Payable





During the year ended December 31, 2009 the Company entered into two convertible debentures in the aggregate amount of $58,000. The notes were due on July 15, 2010. They bear interest at the rate of 10% per annum which is payable upon the maturity date. The notes can be voluntarily converted into restricted common shares of the Company at a price of $0.05 per share. The Company has accrued interest of $4,350 as of September 30, 2010.




On September 28, 2010, the Company entered into a new loan agreement with four (4) investors for the purchase and sale of convertible promissory notes in an aggregate principal amount of $363,706.  The new loan agreement consisted of cash of $300,000 and exchange of two past-due convertible debentures for the principal amount of $58,000, plus accrued interest, for a total exchange of $63,706.  The Note contained the following features:




i.
Conversion Price:  $0.002


ii.
Maturity date: October 1, 2013


iii.
Interest rate - 5% per year with no payment obligation until maturity on October 1, 2013.


iv.
The conversion price shall be adjusted in the event of a stock split or similar recapitalization of the outstanding shares.


v.
The right to convert is limited such that the holder of the Note may not convert into shares if such conversion would cause such holder’s beneficial ownership of the Company’s shares to exceed 9.9% of the total outstanding shares of the Company.




Each investor received a warrant to purchase the number of shares equal to two times the number of shares issuable upon full conversion of the principal amount of the Notes (up to an aggregate of 363,704,660 shares). The warrants contained the following features:




vi.
Conversion Price:  $0.004


vii.
Maturity date: October 1, 2013


viii.
The conversion price shall be adjusted in the event of a stock split or similar recapitalization of the outstanding shares.


ix.
The right to exercise is limited such that the holder of the Warrant may not exercise the Warrant to purchase shares if such exercise would cause such holder’s beneficial ownership of the Company’s shares to exceed 9.9% of the total outstanding shares of the Company.





Note 6 Stockholders’ Equity





(A)
Stock issued for Services





In February 2010, the Company issued 12,000,000 shares of restricted common stock for consulting services, having a fair value of $600,000 ($0.05/share), based upon the fair value of the services rendered.  As of September 30, 2010, the Company expensed this stock issuance as a component of general and administrative expense due to termination of employment agreement.




9




In September 2010, the Company issued 130,000,000 shares of restricted common stock for compensation, having a fair value of $1,300,000 ($0.01/share), based upon the fair value of the services rendered.  As of September 30, 2010, the Company expensed this stock issuance as a component of general and administrative expense.




In September 2010, the Company issued 11,500,000 shares of restricted common stock for consulting services, having a fair value of $115,000 ($0.01/share), based upon the fair value of the services rendered.  As of September 30, 2010, the Company expensed this stock issuance as a component of general and administrative expense.




In September 2010, the Company issued 153,000,000, 3 years warrants, having a fair value of $1,351,333, for services rendered.  Of the total warrants issued, 130,000,000 were issued to employees, which included 43,333,333 to the Company’s Chief Executive Officer.
  Fair value of the warrants issued for services in 2010 was based upon the following management assumptions:
  Exercise price

$
0.004Expected life

3 yearsExpected volatility


150
%Expected dividends


0.00
%Risk free interest rate


0.64
%Expected forfeitures


0.00
%




(B)
Stock issued for Cash




In February 2010, under the terms of a private placement, the Company issued 7,300,000 shares of common stock for $365,000 ($0.05/share). The Company paid $18,400 in compensation in the form of 368,000 shares of restricted common stock in connection with these sales.




In April 2010, under the terms of a private placement, the Company issued 4,400,000 shares of common stock for $220,000 ($0.05/share).




Note 7 Contingencies





From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business. The Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse affect on its business, financial condition or operating results.




Note 8 Subsequent Events




The Company performed a review of subsequent events through November 19, 2010, the date the financial statements were issued, and concluded that events or transactions occurring during that period requiring recognition or disclosure were made.




10




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





General





The following discussion and analysis should be read in conjunction with our financial statements and notes thereto, included elsewhere in this Quarterly Report on Form 10-Q (“Report”). Except for the historical information contained in this Report, the following discussion contains certain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results may differ materially from the results discussed in the forward-looking statements as a result of certain factors including, but not limited to, those discussed in the section of this Report titled “Risk Factors”, as well as other factors, some of which will be outside of our control. You are cautioned not to place undue reliance on these forward-looking statements, which relate only to events as of the date on which the statements are made. We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. You should refer to and carefully review the information in future documents we file with the SEC.





Overview




Plan of Operation





Reach Messaging Holdings, Inc. (the “Company" or “Reach Messaging”) has not generated sufficient revenue so it intends to report its plan of operation below. The ability of the Company to achieve its business objectives is contingent upon its success in raising additional capital until adequate revenues are realized from operations.





Reach Messaging extends corporate brands through the use of mobile applications and social gaming. The Company began in the Bot development business when it contracted with America Online Company (“AOL”) to build 4 instant messaging virtual robots (“Bot” or “Bots”) to run on their AOL Instant Messaging Network (the “AIM Network”). The AIM Network is an instant messaging and presence computer program that uses the proprietary OSCAR instant messaging protocol and the TOC protocol to allow registered users to communicate in real time. It was released by the AOL in May 1997. These 4 Bots, including GossipinGabby, SportsFanStan, My TV Bud and ProfGilzot are currently the most popular Bots on the AIM Network as measured by the AOL host infrastructure. Reach Messaging has also built numerous Bots in the retail field (AOL Shortcuts) and in the education field (PurdueBuddy). Differentiating features from other Bot vendors and platforms include instant messaging gaming (TD Mania, celeb hangman), sports score alerts, instant messaging surveys and interactive polls and quizzes. Our partners have included Waste Management, Britney Spears, Alloy Media, AOL, Hearst Publishing, Purdue University and Stylecaster. Our partners pay us a cash fee to develop a product such as a Bot or other web property which extends their corporate brand.





Through the use of “Bots” and web properties, Reach Messaging currently touches over 1,500,000 unique users on a monthly basis. An IM Bot is a screen name that can respond automatically to the Instant Messages (“IM” or “IMs”) or text messages it receives. It is capable of maintaining high volume IM conversations with multiple users simultaneously. IM Bots allow publishers to easily provide dynamic content and information via IM or another instant messaging technology called Short Message Service (“SMS”). They allow users to create real-time interactive experiences, such as providing song lyrics, state capitals, jokes, celeb gossip, TV line-up, sporting news or pictures, to a large audience on demand. IM Bots can initiate conversations to users that have the Bot on their buddy list or if they have subscribed to receive alerts (i.e. celeb gossip, sports scores).





The growth of handheld and other mobile devices makes the products offered by us relevant. Subsequent to the year ended December 31, 2009, the Company solidified its business strategy of migrating from a Bot-only Company to entering the much larger and rapidly growing market for mobile applications and social gaming. The Company has aggressively begun executing upon this strategy with the following results:





●
Reach Messaging partnered with Waste Management to build its first social media game, Oceanopolis The game launched in mid-October 2010 and has now gone over 100,000 players . This game will enable Reach Messaging to enter the social gaming space with a marquee customer. Due to the game’s success, the Company is currently in discussions with Waste Management to spearhead their mobile product line for 2011.. Another benefit from this project is the technical skills gained that can be applied to future gaming development businesses.








●
Reach Messaging partnered with Velti to build a celebrity application, exoected to launch in December 2010.The transaction is expected to provide a revenue share based on advertising revenue and downloads generated. The goal of this partnership is for Reach Messaging to secure new orders to develop iPhone and Android applications for A-list celebrities.





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●
Reach Messaging released 9 retail iPhone apps in the iTunes app store. The differentiator from competitotors is that these apps provide a very localized and targeted sponsorship/ad opportunity for local businesses. A positive side effect to the mall apps program is the development of a unique ad curtain technology. It is a robust user-facing solution, as well as, an extremely customizable back-end. The ad platform was developed in a modular fashion, enabling the Company to package it up and resell it to app publishers who are looking for a turnkey ad solution at a fraction of what it would cost them to build it (internally or outsourced). The business model is an upfront license fee and a revenue share of all ads running through the Comapny’s solution.





Results of Operations





Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009





The following table sets forth the results of our operations for the periods indicated:





Three Months Ended September 30,2010


2009RevenueHosting revenue

$
7,000


$
15,000Applications development


50,000



15,642Other revenue


1,980



-Total revenue


58,980



30,642Cost of revenueAdvertising customization


-



-Web hosting expense


-



734Total cost of revenue


-



734Gross profit


58,980



29,908Operating expensesResearch and development


94,737



57,000General and administrative expenses


1,957,366



12,168Total operating expenses


2,052,103



69,168Interest expense, net


(1,615
)


-Net loss

$
(1,994,738
)

$
(39,260
)Net loss per common share - basic and diluted

$
(0.00
)

$
(0.01
)Weighted average number of common shares outstanding during the period - basic and diluted


639,455,918



5,100,000




Net Revenue





For the three months ended September 30, 2010, our net revenue increased approximately 92% from $30,642 for the quarter ended September 30, 2009.  We had $50,000 of revenue generated from application development for the quarter ended September 30, 2010 compared to $15,642 revenue for the quarter ended September 30, 2009.  We generated $7,000 in hosting revenue in the third quarter of 2010, which was a decrease from $15,000 generated in the same period in 2009.  Hosting revenue is a periodic fee charged to host and maintain a partner’s server and content related to the Bot properties.  Our revenue from Lead Conversions, which represents revenue earned through the converting of leads from our Bot agents into closed business for our advertisers, decreased 100% from $512 in the third quarter of 2009 compared to no revenue in the third quarter of 2010. The decrease in lead conversion revenue was due to the loss of certain customers in 2009 related to prevailing economic conditions.





Cost of Revenue





Our cost of revenue was reduced to zero for the quarter ended September 30, 2010, compared with $734 for the quarter ended September 30, 2009.  This is due to the change in our business from Lead Generation to Bot Sales and Hosting, which do not have direct costs of revenue associated with them.





Operating Costs




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We incurred operating expenses of $2,052,103 during the three months ended September 30, 2010; an increase of approximately 2,866% compared to $69,168 incurred in the three months ended September 30, 2009.  General and administrative expenses were $1,957,366 during the three months ended September 30, 2010, compared to $12,168 for the three months ended September 30, 2009. Our expenses have increased due to our hiring of a management staff; as well, we incurred a charge of $520,909 related to the issuance of common stock for services.  Research and development expenses were $94,737 during the three months ended September 30, 2010, an increase of $33,006 or 66%, as compared to $57,000 for the three months ended September 30, 2009. These expenses increased due to the hiring of additional development personnel, and the use of outside firms for additional development.





Net Loss





Our net loss increased from $48,778 for the quarter ended September 30, 2009 compared to a net loss of $1,994,738 for the quarter ended September 30, 2010. The significant increase of net loss was mainly attributable to non-cash charges associated with the issuance of common stock for services ($520,909), and hiring of management staff.





Nine Months Ended September 30, 2010 Compared to Nine Months Ended Septemebr 30, 2009





The following table sets forth the results of our operations for the periods indicated:





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Nine Months Ended September 30,2010


2009RevenueHosting revenue

$
37,000


$
45,000Applications development


116,500



45,639Other revenue


2,581



-Total revenue


156,081



90,639Cost of revenueAdvertising customization


-



22,243Web hosting expense


-



2,234Total cost of revenue


-



24,477Gross profit


156,081



66,162Operating expensesResearch and development


253,009



170,050General and administrative expenses


3,050,639



18,373Total operating expenses


3,303,648



188,423Interest expense, net


(4,353
)


-Net loss

$
(3,151,920
)

$
(122,261
)Net loss per common share - basic and diluted

$
(0.01
)

$
(0.02
)Weighted average number of common shares outstanding during the period - basic and diluted


609,455,384



5,100,000




Net Revenue





For the nine months ended September 30, 2010, our net revenue increased approximately 136% from $66,162 for the nine months ended June 30, 2009.  We had $116,500 of revenue generated from application development for the nine months ended September 30, 2010 compared to $45,639 revenue for the same period in 2009.  We generated $37,000 in hosting revenue in the first nine months of 2010, compared to $$45,000 of revenue generated in the same period in 2009.  Hosting revenue is a periodic fee charged to host and maintain a partner’s server and content related to the Bot properties.   The decrease in lead conversion revenue was due to the loss of certain customers in 2009 related to prevailing economic conditions. We also generated $2,581 in other revenue in the first nine months of 2010, compared to no revenue for the same period in 2009.





Cost of Revenue





Our cost of revenue was reduced to zero for the nine months ended September 30, 2010, compared with $24,477 for the nine months ended September 30, 2009.  This is due to the change in our business from Lead Generation to Bot Sales and Hosting, which do not have direct costs of revenue associated with them.





Operating Costs





We incurred operating expenses of $3,303,648 during the nine months ended September 30, 2010; an increase of approximately 1,653% compared to $188,423 incurred in the nine months ended September 30, 2009.  General and administrative expenses were $3,050,639 during the nine months ended September 30, 2010, compared to $18,373 for the nine months ended September 30, 2009. Our expenses have increased due to our hiring of a management staff, as well as costs associated with the closing of the merger during this year. As well we incurred a charge of $2,460,141 related to the issuance of common stock for services.  Research and development expenses were $253,009 during the nine months ended September 30, 2010, an increase of $82,959 or approximately 49%, as compared to $170,050 for the nine months ended September 30, 2009. These expenses increased due to the hiring of additional development personnel, and the use of outside firms for additional development.




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Net Loss





Our net loss increased from $122,261 for the nine months ended September 30, 2009 compared to a net loss of $3,151,920 for the nine months ended September 30, 2010. The significant increase of net loss was mainly attributable to non-cash charges associated with the issuance of common stock for services ($2,460,141) and an increase in staffing salaries paid in cash.





Liquidity and Capital Resources





The Company had cash and cash equivalents of $278,871 and $27 and at September 30, 2010 and December 31, 2009, respectively.





Operating Activities





During the nine months ended September 30, 2010, the Company used $669,862 of cash in operating activities.  The net loss of $3,151,920 was offset by a non-cash charge for compensation expense of $2,460,141 and a $21,917 increase in accounts payable and accrued expenses. During the nine months ended September 30, 2009, the Company used $130,639 of cash in operating activities.  The net loss for the period of $122,261 was offset by $8,378 relating to accounts receivable and a decrease in accounts payable as well as refunded income tax.  Cash used in operating activities included $4,779 for accounts receivable and  $1,035 for accounts payable and accrued expenses.




Investing Activities





There were no investing activities in any of the three or nine month periods ending September 30, 2010 or September 30, 2009.





Financing Activities





For the nine months ended September 30, 2010, $948,706 was generated from the issuance of Notes and common stock for cash compared to $91,643 in cash provided by financing activities for the nine month period ended September 30, 2009.





Off-Balance Sheet Arrangements





The Company has no outstanding off-balance sheet arrangements.





Contractual Obligations





None.





Application of Critical Accounting Policies and Estimates





The preparation of our financial statements in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) requires management to make judgments, assumptions and estimates that affect the amounts reported. A critical accounting estimate is an assumption about highly uncertain matters and could have a material effect on the consolidated financial statements if another, also reasonable, amount were used or a change in the estimate is reasonably likely from period to period. We base our assumptions on historical experience and on other estimates that we believe are reasonable under the circumstances. Actual results could differ significantly from these estimates. There were no changes in accounting policies or significant changes in accounting estimates from the 2009 fiscal year.





Revenue Recognition– The Company records sales when all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) the product is delivered, (3) the sales price to the customer is fixed or determinable, and (4) collectability of the related customer receivable is reasonably assured.  In addition, certain revenue contracts are classified as multiple deliverables when: (1) the delivered item has value on a standalone basis, (2) objective and reliable evidence exists of the fair value on the undelivered items, and (3) delivery or performance of the undelivered items must be probable and substantially within the vendor's control.  There is no stated right of return for products.




15





Development revenue is recognized at the time that it is earned based on the customer agreement. Hosting revenue is recognized when the service is performed, and in general is billed and recognized monthly.  Hosting services are invoiced to customers monthly in arrears.  Advertising and sponsorships on owned Internet properties are sold on a cost per action ("CPA") basis and invoiced to the customer monthly based on the number and price per action at the end of each month.  Marketing support revenue is generated as a result of the media and marketing services provided to support customer Internet marketing activities.  When a sales arrangement contains multiple elements, such as marketing services, advertising and promotions, revenue is allocated to each element based on its relative fair value. When the fair value of an undelivered element cannot be determined, the Company defers revenue for the delivered elements until the undelivered elements are delivered.  Payments received in advance of provision of services are deferred until earned.





Allowance for Doubtful Accounts– The Company’s accounts receivables are customer obligations due under normal trade terms, carried at their face value.  The Company determines its allowance for doubtful accounts based on the evaluation of the aging of its accounts receivable and on a customer-by-customer analysis. Since inception, the Company has had seven customers. All customers have paid their invoices timely.  The Company did not record an allowance as of June 30, 2010 or December 31, 2009.





Part I, Item 3.  Quantitative and Qualitative Disclosures about Market Risk.





As a smaller reporting company, we are not required to provide this disclosure.





Part I, Item 4.  Controls and Procedures.





(a) Disclosure Controls and Procedures





Regulations under the Securities Exchange Act of 1934 require public companies to maintain “disclosure controls and procedures,” which are defined to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.







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We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the period covered by this Report.  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of June 30, 2010, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below.





A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.  Management has identified the following three material weaknesses in our disclosure controls and procedures:





1.           We do not have written documentation of our internal control policies and procedures.  Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act.  Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.





2.           We do not have sufficient segregation of duties within accounting functions, which is a basic internal control.  Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible.  However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals.  Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.





3.           We do not have review and supervision procedures for financial reporting functions. The review and supervision function of internal control relates to the accuracy of financial information reported. The failure to review and supervise could allow the reporting of inaccurate or incomplete financial information. Due to our size and nature, review and supervision may not always be possible or economically feasible.  Management evaluated the impact of our significant number of audit adjustments and has concluded that the control deficiency that resulted represented a material weakness.





To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.





(b) Changes in internal control over financial reporting





During the three months ended October 30, 2010, the Company has not made any changes to internal control over financial reporting with the exception that the Chief Financial officer, David Wells, resigned on September 8, 2010.




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PART II, OTHER INFORMATION





Part II, Item 1.  Legal Proceedings.





Not applicable.





Part II, Item 1A.  Risk Factors.





The information to be reported under this item has not changed since it was disclosed in the previously filed Form 10-K, dated April 15, 2010.





Part II, Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.





In September 2010 the Company completed the sale of convertible promissory Notes in return for $363,706 in cash to four accredited investors. The Company did not pay any compensation in connection with this sale. The Company relied on Section 4(2) of the Securities Act of 1933 to issue the shares inasmuch as the securities were offered and sold without any form of general solicitation or general advertising and the offerees were accredited investors.





Part II, Item 3. Defaults Upon Senior Securities





None.





Part II, Item 4.  Reserved








Part II, Item 5.  Other Information.





The Company’s Chief Financial Officer resigned on September 8, 2010.  The Company moved its Principal office from 2801 Ocean Park Boulevard, Suite 355,  Santa Monica, California to 44081 Pipeline Plaza, Suite 310, Ashburn, VA 20147





Part II, Item 6.  Exhibits.





The following exhibits are filed herewith or incorporated by reference:





Exhibit Number

Description2.1

Share Exchange Agreement by and among FormulaWon, Inc. and Reach Messaging, Inc. (1)3.1

Certificate of Incorporation (2)3.2

Amendment to Certificate of Incorporation (3)3.3

Bylaws (2)10.1

Employment Agreement dated March 11, 2008 with Fitra Iriani (2)10.2

Subscription Agreement dated February 3, 2010 (1)10.3

Employment Agreement dated February 3, 2010 with Shane Gau (1)16.1

Letter regarding Change in Certifying Accountant (4)31.1

Section 302 Certificate by the Company’s Chief Executive Officer*31.2

Section 302 Certificate by the Company’s Chief Financial Officer*32.1

Section 906 Certificate by the Company’s Chief Executive Officer*32.2

Section 906 Certificate by the Company’s Chief Financial Officer*




* Filed herewith.





(1)
Incorporated by reference from Registrant’s Current Report on Form 8-K, filed with the Commission on February 5, 2010, and incorporated herein by reference.




(2)
Incorporated by reference from Registrant's Registration Statement on Form S-1, filed with the Commission on April 24, 2008, and incorporated herein by reference.





(3)
Incorporated by reference from Registrant's Current Report on Form 8-K, filed with the Commission on April 8, 2010, and incorporated herein by reference.





(4)
Incorporated by reference from Registrant's Current Report on Form 8-K, filed with the Commission on February 9, 2010, and incorporated herein by reference.





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SIGNATURES





In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.








REACH MESSAGING HOLDINGS, INC.November 22, 2010
By:
/s/ Shane GauShane GauChief Executive Officer

Acting Chief Financial Officer














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