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: June 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.2801 Ocean Park Blvd., Suite 355

Santa Monica, California

90405(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





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 SHEETS


(Unaudited)





June 30,

2010


December 31,

2009ASSETSCurrent assetsCash

$
140,991


$
27Accounts receivable


25,000



8,000Prepaid compensation


190,000Refundable federal income taxes


2,943



2,943Total current assets


358,934



10,970Total assets

$
358,934


$
10,970LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)Current liabilitiesAccounts payable and accrued expenses

$
50,529


$
30,383Loan payable


58,000



58,000Total current liabilities


108,529



88,383Stockholders' equity (deficit)Preferred stock, $0.001 par value: authorized 10,000,000 shares; issued and outstanding: 0 and 0shares, respectively


—



—Common stock, $0.001 par value: authorized 500,000,000 shares; issued and outstanding: 132,098,901 and 102,030,901 shares, respectively


132,099



102,031Additional paid-in capital


1,597,553



142,621Accumulated deficit


(1,479,247
)


(322,065
)Total stockholders' equity (deficit)


250,405



(77,413
)Total liabilities and stockholders' equity (deficit)

$
358,934


$
10,970




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


1





REACH MESSAGING HOLDINGS, INC.


STATEMENTS OF OPERATIONS


Three and Six Months Ended June 30, 2010 and 2009


(Unaudited)


Three Months Ended June 30,


Six Months Ended June 30,2010


2009


2010


2009Revenue:Applications development

$
43,250


$
—


$
66,500


$
—Hosting revenue


15,000



30,000



30,000



30,000Lead conversion revenue


—



512



—



29,997Other revenue


—



—



601



—Total revenue


58,250



30,512



97,101



59,997Costs of Revenue:Advertising customization


—



13,536



—



22,244Web hosting expense


—



750



—



1,500Total costs of revenue


—



14,286



—



23,744Gross profit


58,250



16,226



97,101



36,253Operating Expenses:General and administrative


720,184



6,204



1,093,272



6,204Research and development


91,806



58,800



158,273



113,050Total operating expenses


811,990



65,004



1,251,545



119,254Operating Loss


(753,740
)


(48,778
)


(1,154,444
)


(83,001
)Interest expense, net


1,288



—



2,738



—Loss before income taxes


(755,028
)


(48,778
)


(1,157,182
)


(83,001
)Provision for income tax


—



—



—



—Net loss

$
(755,028
)

$
(48,778
)

$
(1,157,182
)

$
(83,001
)Net loss per common share - basic and diluted

$
(0.01
)

$
(0.00
)

$
(0.01
)

$
(0.00
)Weighted average number of common shares outstanding -basic and diluted


130,648,352



102,030,901



124,010,238



102,030,901





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)


2010


2009Cash flows from operating activitiesNet loss

$
(1,157,182
)

$
(83,001
)Adjustments to reconcile net loss to net cash provided (used) by operating activities:Share based compensation


710,000



—(Increase) decrease in:Accounts receivable


(17,000
)


(4,779
)Increase (decrease) in:Accounts payable and accrued expenses


20,146



(1,035
)Income taxes payable


—



2,456Net cash provided (used) by operating activities


(444,036
)


(86,359
)Cash flows from financing activities:Common stock issued for cash


585,000



—Due to shareholder


—



91,643Net cash provided by financing activities


585,000



91,643Net increase in cash


140,964



5,284Cash, beginning of period


27



372Cash, end of period

$
140,991


$
5,656SUPPLEMENTARY CASH FLOW INFORMATION:Income taxes paid

$
—


$
—Interest paid

$
—


$
—SUPPLEMENTARY DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:Shares issued as finders' fees

$
18,400


$
—Shares issued for prepaid compensation and consulting fees

$
900,000


$
—





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


3




REACH MESSAGING HOLDINGS, INC.NOTES TO FINANCIAL STATEMENTS

(Unaudited)





1.
Organization and Nature of Operations





Reach Messaging Holdings, Inc. (the “Company" or “Reach Messaging”) was incorporated on September 19, 2007 under the laws of the State of California.  Reach Messaging extends corporate brands through the use of mobile applications and social gaming. The Company began in the Internet Bot development business when it contracted with America Online Company (“AOL”) to build four instant messaging virtual robots (“Bot” or “Bots”) to run on their AOL Instant Messaging Network (the “AIM Network”). We have also extended our business to utilize mobile applications on the iPhone and Android.





As more fully described in Note 3, the Company entered into a Share Exchange Agreement on February 3, 2010, resulting in the retroactive adjustment of the Company’s capital structure.





2.
Basis of Presentation





The accompanying unaudited condensed financial statements contain all necessary adjustments and disclosures to present fairly the financial position as of June 30, 2010, results of operations for the three and six months ended June 30, 2010 and 2009, and cash flows for the six months ended June 30, 2010 and 2009. The results of operations for the three and six months ended June 30, 2010 are not necessarily indicative of the results for the full year. These financial statements should be read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K (“Form 10-K”) filed with the Securities and Exchange Commission (“SEC”) on April 15, 2010.





In preparation of our financial statements, we are required to make estimates and assumptions that affect reported amounts of assets and liabilities and related revenues and expenses. Actual results could differ from the estimates used by us.





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.





Application 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.





Accounts Receivable and Allowance for Doubtful Accounts





The Company’s accounts receivable 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.





4




Cost of Sales





Cost of sales represents costs directly related to hosting revenue.  At times, costs include advertising customization and programming.





Earnings (Loss) per Share





The Company utilizes FASB ASC 260, “Earnings per Share.” Basic earnings (loss) per share is computed by dividing earnings (loss) available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed similarly to basic earnings (loss) per share except that the denominator is increased to include additional common shares available upon the exercise of stock options, warrants or convertible debt using the treasury stock method, except for periods for which no common share equivalents are included because their effect would be anti-dilutive. For the six months ended June 30, 2010 and 2009, 1,218,000 and zero, respectively, potential dilutive securities, relating to the convertible notes payable, are excluded from the computation because they are anti-dilutive.





Recently Issued Accounting Pronouncements





In September 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-13, “Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force” (ASU 2009-13). It updates the existing multiple-element revenue arrangements guidance currently included under ASC 605-25, which originated primarily from the guidance in EITF Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (EITF 00-21). The revised guidance primarily provides two significant changes: 1) eliminates the need for objective and reliable evidence of the fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting, and 2) eliminates the residual method to allocate the arrangement consideration. In addition, the guidance also expands the disclosure requirements for revenue recognition. ASU 2009-13 will be effective for the first annual reporting period beginning on or after June 15, 2010, with early adoption permitted provided that the revised guidance is retroactively applied to the beginning of the year of adoption. The Company is currently assessing the future impact of this new accounting update to its financial statements.





In October 2009, the FASB issued ASU No. 2009-14, Software (Topic 985) – “Certain Revenue Arrangements That Include Software Elements, a Consensus of the FASB Emerging Issues Task Force,” to address concerns relating to the accounting for revenue arrangements that contain tangible products and software. It requires a vendor to use vendor-specific objective evidence of selling price to separate deliverables in a multiple-element arrangement. The update will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on January 1, 2011. We are currently evaluating the impact, if any, of adopting the update.





In April 2010, The FASB issued ASU No. 2010-17, “Revenue Recognition – Milestone Method” (Topic 605), to provide guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. The amendments in the update are effective on a prospective basis for milestones achieved for fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted.  The Company is currently assessing the future impact of this new accounting update to its financial statements.





3.
Share 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 three and six months ended June 30, 2010, the Company recognized compensation expense relating to these shares of $30,000 and $110,000, respectively.





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





5




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.





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.





4.
Prepaid Compensation





At June 30, 2010, prepaid compensation, amounting to $190,000, represents the unamortized balance of the fair value of shares issued by the Company for services to be rendered by the CFO (Note 3). For the three and six months ended June 30, 2010, the Company recognized share-based compensation of $520,909 and $710,000 in connection with this agreement and the consulting agreement described in Note 6.





5.
Notes Payable





During the year ended December 31, 2009 the Company entered into two convertible debentures in the aggregate amount of $58,000. The notes have not yet been renewed and 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 $1,450 and $2,900 for the three and six months ended June 30, 2010, respectively.





6.
Stockholders' Equity





Common Stock


The Company is authorized to issue 500,000,000 shares of common stock, $0.001 par value per share. During the six months ended June 30, 2010, the Company issued the following shares of common stock, in addition to those associated with the recapitalization described in Note 3:





·
In February, 2010, the Company completed the sale of 7,300,000 shares of restricted common stock at a price of $0.05 per share in return for $365,000 in cash, to six accredited investors. The Company paid a total of $18,400 in finders’ fees in the form of 368,000 shares of restricted common stock in connection with these sales.




·
In February, 2010, the Company issued 12,000,000 shares of restricted common stock for consulting services, valued at $600,000. Tthe value of the shares issued was recorded as an expense for the six months ended June 30, 2010.




·
In April, 2010, the Company completed the sale of 4,400,000 shares of restricted common stock at a price of $0.05 per share in return for $220,000 in cash to one accredited investor. The Company did not pay any finders’ fees in connection with this sale.




Preferred Stock


The Company is authorized to issue up to 10,000,000 shares of preferred stock, $0.001 par value per share. As of June 30, 2010 and December 31, 2009, there were no preferred shares issued or outstanding.





7.
Income Taxes





At December 31, 2009, the Company had net operating loss (“NOL”) carry–forwards for federal income tax purposes of $322,065 that may be offset against future taxable income through December 31, 2029. No tax benefit has been reported with respect to these NOL carry-forwards in the accompanying financial statements because the Company does not believe that it is more likely





6





than not that it will realize its net deferred tax assets of $128,293 at June 30, 2010 and December 31, 2009.  Accordingly, the potential tax benefits of the NOL carry-forwards are fully reserved.





Refundable federal income taxes of $2,943 as of June 30, 2010 and December 31, 2009, resulted from tax payments based on initial tax returns.  Tax payments are expected to be refunded based on amended tax returns.





Deferred tax assets consist primarily of the tax effect of NOL carry-forwards.  The Company has provided a full valuation allowance on the deferred tax assets because of the uncertainty regarding its realizability.





8.
Research and development costs





Research and development costs related to both future and present products are charged to operations as incurred.  For the three months ended June 30, 2010 and 2009, the Company recognized $91,806 and $58,800, respectively, of research and development costs. For the six months ended June 30, 2010 and 2009, research and development costs amounted to $158,273 and $113,050, respectively.





9.
Going Concern





The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.  As reflected in the accompanying financial statements, the Company had an accumulated deficit of $1,479,247 as of June 30, 2010, and a net loss of  $1,157,182 for the six months ended June 30, 2010.  These conditions raise substantial doubt about its ability to continue as a going concern.





While the Company is attempting to produce sufficient sales, the Company's cash position may not be sufficient to support the Company's daily operations.  While the Company believes in the viability of its strategy to produce sales volume and in its ability to raise additional funds, there can be no assurances to that effect.  The ability of the Company to continue as a going concern is dependent upon the Company's ability to further implement its business plan and generate sufficient revenues.  The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.  Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern.





The accompanying 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 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.





10.
Commitments and 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.





Employment Agreements





The Company entered into an employment agreement with Shane Gau on February 3, 2010 to become its Chief Executive Officer. The Company agreed to pay to Mr. Gau a salary of $180,000 per year. Mr. Gau will be eligible to receive a performance bonus of up to 50% of his annual compensation, which, if earned, will be paid one-half in cash and one-half in shares of the Company’s common stock. The performance bonus will be paid upon the executive achieving certain objectives during the 2010 fiscal year. This compensation can be accrued based on our cash demands, and our available cash balances as payment of wages and bonuses come due.





The Company entered into an employment agreement with David R. Wells on February 3, 2010 to become its Chief Financial Officer. The Company agreed to pay Mr. Wells at the rate of $160,000 per year but as Mr. Wells will not be devoting full-time to this position initially, he will be paid on a pro-rata basis based on estimated hours worked for a certain period, as determined by the Chief Executive Officer.  Mr. Wells will be eligible to receive a performance bonus of up to 30% of his annual compensation, which, if earned, will be paid one-half in cash and one-half in shares of the Company’s common stock. The performance bonus will be





7





paid upon the executive achieving certain objectives during the 2010 fiscal year. This compensation can be accrued based on our cash demands, and our available cash balances as payment of wages and bonuses come due.





If either Mr. Gau or Mr. Wells are terminated without cause, they will each be entitled to receive six months of severance pay, including benefits.





11.
Subsequent events





Forward Stock Split (5 to 1)


Subsequent to the period ending June 30, 2010 The majority stockholders of the Company approved a forward split of the outstanding shares of the Company’s common stock (the “Forward Split”) such that every one (1) issued and outstanding share of common stock will be automatically split into five (5) shares of common stock.  The Forward Split shall take place on such date as may be determined by the Board of Directors.





In addition, and in connection with the Forward Split, the stockholders authorized an amendment to the Company’s Certificate of Incorporation implementing the Forward Split and increasing the number of authorized shares of common stock from 500,000,000 to 2,000,000,000 (the “Amendment”).  The Amendment will be filed in connection with implementing the Forward Split on such date as may be determined by the Board of Directors.


8


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. The game is similar in development to other very popular Facebook games, such as, Cafe World, Farmville, Fishville, etc. This game will enable Reach Messaging to enter the social gaming space with a marquee customer. The Company hopes to gain additional contracts with Waste Management. Another benefit from this project is the technical skills gained that can be applied to future gaming development businesses.





●
Reach Messaging partnered with Hearst Media to build their Espin property mobile application. The transaction is expected to provide a revenue share based on advertising revenue and registrations generated. The goal of this partnership is for Reach Messaging to secure new orders to develop Bots, games and other applications for the rest of their well-known brands including Cosmogirl, Seventeen, Teen, and others.





9





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 EndedJune 30,


June 30,2010


2009Net revenue

$
58,250


$
30,512Cost of revenue


-



(14,286
)Gross profit


58,250



16,226Total operating costs


811,990



65,004Operating Loss


(753,740
)


(48,778
)Provision for  income tax


-



-Interest Expense


1,288



-Net loss


(755,028
)


(48,778
)Net loss per common share – basic and diluted


(0.01
)


0.00Weighted average number of common shares outstanding


130,648,352



102,030,901





Net Revenue





For the three months ended June 30, 2010, our net revenue increased approximately 91% from $30,512 for the quarter ended June 30, 2009.  We had $43,250 of revenue generated from application development for the quarter ended June 30, 2010 compared to no revenue for the quarter ended June 30, 2009.  We generated $15,000 in hosting revenue in the second quarter of 2010, which was a decrease from $30,000 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 second quarter of 2009 compared to no revenue in the second 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 June 30, 2010, compared with $14,286 for the quarter ended June 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 $811,990 during the three months ended June 30, 2010; an increase of approximately 1,149% compared to $65,004 incurred in the three months ended June 30, 2009.  General and administrative expenses were $720,184 during the three months ended June 30, 2010, compared to $6,204 for the three months ended June 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 $91,806 during the three months ended June 30, 2010, an increase of $33,006 or 56%, as compared to $58,800 for the three months ended June 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 June 30, 2009 compared to a net loss of $755,028 for the quarter ended June 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.





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





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




10





Six Months EndedJune 30,


June 30,2010


2009Net revenue

$
97,101


$
59,997Cost of revenue


-



(23,744
)Gross profit


97,101



36,253Total operating costs


1,251,545



119,254Operating Loss


(1,154,444
)


(83,001
)Provision for  income tax


-



-Interest Expense


2,738



-Net loss


(1,157,182
)


(83,001
)Net loss per common share – basic and diluted


0.01



0.00Weighted average number of common shares outstanding


124,010,238



102,030,901





Net Revenue





For the six months ended June 30, 2010, our net revenue increased approximately 62% from $59,997 for the six months ended June 30, 2009.  We had $66,500 of revenue generated from application development for the six months ended June 30, 2010 compared to no revenue for the same period in 2009.  We generated $30,000 in hosting revenue in the first six months of 2010, the same amount 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.  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 $29,997 in the first six months of 2009 compared to no revenue in the comparable period in 2010. The decrease in lead conversion revenue was due to the loss of certain customers in 2009 related to prevailing economic conditions. We also generated $601 in other revenue in the first six 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 six months ended June 30, 2010, compared with $23,744 for the six months ended June 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 $1,251,545 during the six months ended June 30, 2010; an increase of approximately 949% compared to $119,254 incurred in the six months ended June 30, 2009.  General and administrative expenses were $1,093,272 during the six months ended June 30, 2010, compared to $6,204 for the six months ended June 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 $710,000 related to the issuance of common stock for services.  Research and development expenses were $158,273 during the six months ended June 30, 2010, an increase of $45,223 or approximately 40%, as compared to $113,050 for the six months ended June 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 $83,001 for the six months ended June 30, 2009 compared to a net loss of $1,157,182 for the six months ended June 30, 2010. The significant increase of net loss was mainly attributable to non-cash charges associated with the issuance of common stock for services ($710,000), and costs associated with merger, which were approximately $60,000.





Liquidity and Capital Resources





The Company had cash and cash equivalents of $140,991 and $27 and at June 30, 2010 and December 31, 2009, respectively.





Operating Activities





During the six months ended June 30, 2010, the Company used $444,036 of cash in operating activities.  The net loss of $1,157,182 was offset by a non-cash charge for compensation expense of $710,000 and a $20,146 increase in accounts payable and accrued expenses. Cash used in operating activities included an increase of $17,000 in accounts receivable. During the six months ended June 30, 2009, the Company used $86,359 of cash in operating activities.  The net loss for the period of $83,001 was offset by $2,456 relating to income taxes payable.  Cash used in operating activities included $4,779 for accounts receivable and  $1,035 for accounts payable and accrued expenses.




11




Investing Activities





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





Financing Activities





For the six months ended June 30, 2010, $585,000 was generated from the issuance of common stock for cash compared to $91,643 in cash provided by financing activities for the six month period ended June 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.





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.




12




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 June 30, 2010, the Company has not made any changes to internal control over financial reporting.


13


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.





None.





Part II, Item 3. Defaults Upon Senior Securities





None.





Part II, Item 4.  Reserved








Part II, Item 5.  Other Information.





Not applicable.





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)10.4

Employment Agreement dated February 3, 2010 with David R. Wells (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.





14




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.August 23, 2010
By:
/s/ Shane GauShane GauChief Executive Officer





August 23, 2010
By:
/s/ David R. WellsDavid R. WellsChief Financial Officer