Attached files

file filename
EX-32.1 - EXHIBIT321 - Troika Media Group, Inc.exhibit321.htm
EX-31.1 - EXHIBIT311 - Troika Media Group, Inc.exhibit311.htm
EX-21.1 - EXHIBIT211 - Troika Media Group, Inc.exhibit211.htm
EX-14.1 - EXHIBIT141 - Troika Media Group, Inc.exhibit141.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended:  December 31, 2015

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 000-26213

M2 nGage Group, Inc.
(Exact name of registrant as specified in its charter)

Nevada
83-0401552
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)

433 Hackensack Avenue 6th Floor, Continental Place, Hackensack, NJ 07601
(Address of principal executive offices)

(201) 968-9797
(Registrant's telephone number)

Securities registered under Section 12(b) of the Act:
None

Securities registered under Section 12(g) of the Act:

Common Stock, $.001 par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   YES   NO 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   YES    NO 

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     NO  

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     NO  

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   
 
 
 
 

 
 
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule12b-2 of the Exchange Act.

Large accelerated filer   
Accelerated filer                       ☒
Non-accelerated filer     
Smaller reporting company     ☐

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

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant based upon the closing sale price of $2.00 for the common stock on June 30, 2015, the last business day of the registrant's most recently completed second quarter, as reported on other OTC markets, was approximately $165,109,778.  This market capitalization was a result of the Company's March 27, 2015 merger described herein.  The Company was a smaller reporting Company at December 31, 2015.
 
As of August 18, 2016, the registrant's had 136,019,348 issued and outstanding shares of common stock.

Documents incorporated by reference:  None.



 
 
 

 
 
 

 
M2 nGage Group, Inc.
 
 
TABLE OF CONTENTS

 
 
 
Page
 
 
 
 
 
 
3
 
 
 
 
Item 1.
 
4
 
 
 
 
Item 1A.
 
14
 
 
 
 
Item 1B.
 
33
 
 
 
 
Item 2.
 
33
 
 
 
 
Item 3.
 
34
 
 
 
 
Item 4.
 
39

 
 
40
 
 
 
 
Item 5.
 
40
 
 
 
 
Item 6.
 
41
 
 
 
 
Item 7.
 
41
 
 
 
 
Item 7A.
 
46
 
 
 
 
Item 8.
 
47
 
 
 
 
Item 9.
 
92
 
 
 
 
Item 9A.
 
92
 
 
 
 
Item 9B.
 
92
 
 
 
 
 
 
93
 
 
 
 
Item 10.
 
93
 
 
 
 
Item 11.
 
97
 
 
 
 
Item 12.
 
101
 
 
 
 
Item 13.
 
103
 
 
 
 
Item 14.
 
107
 
 
 
 
 
 
109
 
 
 
 
Item 15.
 
109
 
 
 
 
 
 
113
 
 



 
 
 
 
PART I 
FORWARD LOOKING STATEMENTS

Statements contained in this Report include "forward‑looking statements" within the meaning of such term in Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward‑looking statements involve known and unknown risks, uncertainties and other factors which could cause actual financial or operating results, performances or achievements expressed or implied by the forward‑looking statements not to occur or be realized.  Statements regarding future events, developments, the Company's future performance, as well as management's expectations, beliefs, intentions, plans, estimates or projections relating to the future are forward-looking statements within the meaning of these laws. We develop forward-looking statements by combining currently available information with our beliefs and assumptions. These statements relate to future events, including our future performance, and management's expectations, beliefs, intentions, plans or projections relating to the future and some of these statements can be identified by the use of forward-looking terminology such as "believes," "expects," "anticipates," "estimates," "projects," "intends," "seeks," "future," "continue," "contemplate," "would," "will," "may," "should," and the negative or other variations of those terms or comparable terminology or by discussion of strategy, plans, opportunities or intentions. As a result, actual results, performance or achievements may vary materially from those anticipated by the forward-looking statements. These statements include, among others:

·
statements concerning the benefits that we expect will result from our business activities and results of operation that we contemplate or have completed, such as increased revenues; and
·
statements of our expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts.

Among the factors that could cause actual results, performance or achievements to differ materially from those indicated by such forward-looking statements are:

·
our ability to continue to raise funds until such time, if ever, we generate profits;
·
our ability to implement our business strategies and future plans of operations;
·
expectations regarding the size of our market;
·
our expectation regarding the future market demand for our services;
·
our ability to achieve sustained profitability;
·
any future claims made by or against Robert DePalo, one of our principal shareholders or his affiliates, that concern the Company;
·
the establishment, development and maintenance of relationships with telecommunications carriers, vendors and customers;
·
compliance with applicable laws and regulatory changes;
·
our ability to identify, attract and retain qualified personnel and the loss of key personnel;
·
general economic conditions in the United States, as well as the economic conditions affecting the industry in which we operate;
·
maintaining our intellectual property rights and litigation involving intellectual property rights;
·
our ability to anticipate and adapt to a developing market(s) and to technological changes; acceptance by customers of any new products;
·
a competitive environment characterized by numerous, well-established and well-capitalized competitors;
·
the ability to develop and upgrade our technology and information systems; and
·
our ability to provide superior customer service.
·
consequences from the sale of substantially all of the assets of Signal Share Infrastructure, Inc. (the former operations of M2 nGage Group, Inc. (formerly Roomlinx, Inc.)) in a foreclosure sale:
 
 
 

 
 
Because forward-looking statements are subject to assumptions and uncertainties, actual results, performance or achievements may differ materially from those expressed or implied by such forward-looking statements. Stockholders are cautioned not to place undue reliance on such statements, which speak only as of the date such statements are made. Except to the extent required by applicable law or regulation, M2 nGage, Inc. undertakes no obligation to revise or update any forward-looking statement, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.
ITEM 1.  DESCRIPTION OF BUSINESS
Background
M2 nGage Group, Inc. (formerly Roomlinx, Inc.) (the "Company", "Roomlinx" or "M2 Group") was formed in 1998 under the laws of the State of Nevada.  On March 27, 2015, the Company entered into and completed (the "Closing") a Subsidiary Merger Agreement (the "SMA") by and among the Company, Signal Point Holdings Corp. ("SPHC"), SignalShare Infrastructure, Inc. ("SSI") and RMLX Merger Corp.  Upon the terms and conditions of the SMA, the Company's wholly-owned subsidiary RMLX Merger Corp., a Delaware corporation, was merged with and into SPHC, with SPHC and its operating subsidiaries surviving as a wholly-owned subsidiary of the Company (the "Subsidiary Merger").  The existing business of Roomlinx was transferred into a newly-formed, wholly-owned subsidiary named SignalShare Infrastructure Inc.  In connection with the Subsidiary Merger, the Company's President and Chief Executive Officer, Michael S. Wasik, resigned from all positions with the parent Company and was named President and Chief Executive Officer of SSI.  As a result of the Subsidiary Merger, the shareholders of SPHC, a privately-owned Delaware corporation, received an aggregate of approximately 85% of the Fully Diluted (as defined therein) common stock of the Company.  The merger consideration was determined by the Company, after a thorough review of prospective acquisitions, the benefits of the proposed transaction, including access to capital, increased market opportunities and reach, perceived synergies, efficiencies and other financial considerations, as well as a strategic growth plan contemplated by management of the combined entity.
On May 11, 2016, SSI, a wholly-owned subsidiary of the Company completed the Foreclosure Sale of substantially all assets of SSI (other than certain excluded agreements) pursuant to Article 9 of the Uniform Commercial Code.  SSI, which held the operations of the Company prior to the Subsidiary Merger, terminated all of its employees and ceased operations.
On October 1, 2010, the Company acquired 100% of the membership interests of Canadian Communications, LLC and its wholly owned subsidiaries, Cardinal Connect, LLC, a non-operating entity, Cardinal Broadband, LLC, and Cardinal Hospitality, Ltd, entity.  The acquisition of Canadian Communications, LLC also included a 50% joint venture interest in Arista Communications, LLC. 

Cardinal Broadband, LLC was formed in 2005 as a Colorado Limited Liability Company.  Pursuant to the acquisition of Canadian Communications, LLC on October 1, 2010, the Company became the 100% member of Cardinal Broadband, LLC.  Subsequent to the acquisition, Cardinal Broadband became a division of the Company.

SPHC and Subsidiary Business
SPHC is a digital technology, media, communications holding company that, through its various subsidiaries, provides integrated solutions including high density Wi-Fi for sports stadiums, concert and festival venues and convention centers. These integrated solutions not only provide the full design and installation of the Wi-Fi networks, but also through the use of software, works with the venues on selling advertising and sponsorship opportunities on those networks. SPHC through its subsidiaries also provides broadband (wireless and wired) and Voice over Internet Protocol (VoIP) services to corporate customers primarily in the New York tri-state area.
SPHC was formed on October 3, 2012, pursuant to a reorganization when it acquired 100% of the issued and outstanding common stock and became the parent company of Signal Point Corp., a New York corporation ("SP Corp.") and M2 nGage Communications, Inc. (formerly Signal Point Telecommunications Corp.), a New York corporation ("SPTC" or "M2 Communications")).  On September 27, 2012, SP Corp. acquired the assets and assumed certain liabilities of Wave2Wave Communications, Inc. and its subsidiaries ("W2W") in a Section 363 Asset Sale under the Bankruptcy Code.  The portion of these assets that were associated with the W2W entity were transferred to SPTC by SP Corp., while those that were associated with other business lines remained with SP Corp. and subsequently the stock of SPTC and SP Corp. was acquired by SPHC in a corporate restructuring.  SP Corp. expanded certain assets acquired in the W2W Acquisition while either reducing or eliminating other unprofitable assets.  SP Corp. is no longer an operating subsidiary.  M2 Communications is the subsidiary that provides broadband, VoIP services and Wi-Fi to corporate customers and all references to these services refer to M2 Communications.
 
 
 
 
In January 2013, SPHC acquired SignalShare LLC ("SSLLC"), a Delaware limited liability company and diversified its products and services.  SignalShare provides high density Wi-Fi solutions for sports stadiums, concert and festival venues and convention centers.
On December 9, 2014, SPHC and its wholly-owned subsidiary, M2 nGage, Inc. (formerly SignalShare Software Development Corp.) ("SSSD" or M2 nGage") and Incubite, Inc. ("Incubite") and its members entered into an Agreement and Plan of Reorganization whereby Incubite exchanged the assets of Incubite for interest in SPHC that were distributed to the Incubite Members. M2 nGage is a software development company and provides Wi-Fi related services as part of its media offering to its customers provides data analytics for the networks they monitor allowing advertisers to better target their advertisement placements and providing additional revenue opportunities for M2 nGage.
The M2 Communications and M2 nGage subsidiaries of SPHC were transferred to a new holding company, Digital Media Acquisition Group Corp. (DMAG), and that entity now the 100% shareholder of both subsidiaries. The Company is the sole owner of DMAG.
Rebranding

On July 28, 2016, we changed the name of the Company to M2 nGage Group, Inc.  Moreover, the names of the operating subsidiaries were changed to reflect the new branding of the Company.  We believe that this streamlined branding will allow for better name recognition, as well as helping cross-sell our various services. As part of the rebranding process, services that where formerly offered by M2 Communications (e.g., Wi-Fi services) will be transitioned to M2 nGage.
M2 nGage Group, Inc., has the following two operating divisions:

·
M2 nGage Communications, Inc. (formerly known as Signal Point Telecommunications Corp.), is our Broadband Voice & Data division, and
·
M2 nGage, Inc. (formerly known as SignalShare Software Development Corp and Signal Point Media Corp.), is our Wi-Fi networking division.

Through its subsidiaries, M2 Group, provides the following services:

·
Wi-Fi networking;
·
Wi-Fi for events, parks and venues
·
Wi-Fi network engineering
·
Wi-Fi temporary and permanent installations
·
Wi-Fi for concerts and corporate events
·
Wi-Fi offloading for cellular carriers
·
Wi-Fi for hotels and convention centers

·
Enterprise Broadband
·
Voice and Data services for small to mid-sized businesses in the Northeast and Midwest United States;
·
Wireless Point-to-Point and Multi Point connections
·
Professional IT services
·
Backhaul aggregation services
 
 
 
 
 
 

 
·
Media
·
Mobile & WiFi applications for guest and fan engagement experiences
·
Marketing Data Analytics & Reporting
·
Media Content for events and hospitality customers
·
Sponsorship partnerships and advertising opportunities.

Business Strategy

We continue to execute on all aspects of our business, including our Wi-Fi networking, digital technology and media business serving the sports, entertainment and convention center market and our business where we provide broadband, VoIP services, and value added hospitality services to the commercial market. We have found that truly successful businesses find ways of taking fixed assets and generating multiple revenue opportunities over those fixed, preferably on a contractual monthly recurring revenue model, thereby improving profitability.

Our communications business stems from the assets we purchased in 2012. Our goal is to provide our business customers with their basic broadband and VoIP services, and then as a trusted vendor to these customers, to provide them with additional value added services. Since we are paying for the infrastructure required to provide these services with the revenues generated from these customers, each additional valued added service we provide allows us to generate an increased profit margin and maximizing the infrastructure already in place.

In the same fashion of generating additional revenue from our customers utilizing the common infrastructure we already have in place to provide our basic services, we also utilize that same infrastructure to provide services for third parties. As an example, AT&T provides many of the Parks in the New York City and surrounding boroughs with free Wi-Fi service. M2 Communications is the company that set up the Wi-Fi in the parks for AT&T and is providing the broadband for these parks, utilizing antennas on the roofs of nearby buildings where we are already providing services to the business tenants of those buildings. Here again, we are generating additional revenue utilizing a fixed asset we already have in place, intended to increase our profit margin.

We consider our digital technology, media and Wi-Fi business to be our high growth business. The business started as a provider of High Density Wi-Fi networks for large audiences. Without disclosing proprietary technology we deploy, what we have figured out is a way to provide a high quality of service in extremely densely populated stadiums, arenas and convention centers.

We have taken steps over the past year to take this business and transform it into not only an installation revenue business, but a business that generates monthly recurring revenues. The way we have done this is two-fold:

First, is by adding a maintenance component to our service offerings so not only do we get installation revenue but the venues will pay us on a monthly basis for a maintenance fee for the network;

Second, and more importantly, we have taken advantage of access to the wireless network by collecting all of the data analytics of what happens on the network and utilizing these analytics to sell advertising sponsorship opportunities through our Fan/Guest nGage media products.  M2 nGage is the branding we use for our data analytics and sponsorship software platform. We have tested both the technology and our ability to sell these sponsorship opportunities and we were extremely pleased with the results. This has given us the confidence to now go to existing customers, as well as all of the new stadiums and venues we are working with, and offer our advertising sponsorship services whereby we jointly sell with the venue and we have a revenue sharing agreement alongside our network installation agreement. In theory, we are acting as a partner to the teams, providing the teams and venues with a vehicle for a Return on Investment (ROI) to pay for their capital expense building their WiFi networks.  Our software platform also serves as a Fan Engagement portal that allows the team to connect with the fans before, during and after the game, and we are working on plans to expand those fan engagement opportunities to the many fans not attending the games in-stadium, which is something teams have told us they are looking for but have not found the way to do.

The value of these networks really starts to shine when you look at how many potential eyeballs or users we have for the networks we install.
 
 
 
 
 
 

 
 
 
Through this unique approach of combining network infrastructure installation with media sales, we have started to gain momentum in the market and are building brand awareness.

We continue to aggressively push new sales and installation opportunities, and are in discussions with NHL teams, NBA teams, NFL teams, and several NCAA teams and convention centers.  No assurance can be given, however, that we will conclude any of these potential contracts.

Another area we continue to focus on is our music festival and corporate events business. This utilizes the same technology we use in the large stadiums and arenas, but whereas those are permanent installations, theses music and corporate events are installed as temporary installations. What we do is build the temporary Wi-Fi networks capable of handling high density performance, and then again plan to sell sponsorship and advertising packages in conjunction with the event owners based on the data analytics that we collect.

Business Segments

 DMAG operating subsidiaries are organized into three primary business units: (1) Wi-Fi; (2) enterprise broadband services, including voice, data and wireless / IT support; and (3) media content/data analytics and advertising, all of which together provides a comprehensive solution for business and media partners.

Wi-Fi Networking

DMAG's subsidiaries provide a wide variety of wireless offerings catering to specific vertical markets.  The various Wi-Fi services provided include the following:
 
Wi-Fi for Stadiums – We have installed Wi-Fi networks in major stadiums and arenas where high-density connectivity for massive audiences has been an issue. We are one of the few companies to have solved that problem. Once the networks are installed, we will have long-term contracts for maintenance of the network; data analytics of transactions processed on the networks and offers various media content services which will be described below.
 
Wi-Fi Network Engineering – We provide installation services for enterprise corporate clients through M2 Communications.  One such example is the rollout for AT&T of Wi-Fi networks in the New York City Public Parks, for which AT&T paid M2 Communications  an initial fee and is continuing to pay a monthly recurring fee for the broadband connectivity. Existing and previous customers also include IBM, Google, NBC and Viacom.
 
Wi-Fi for Events - We offer Wi-Fi based services for special events, such as concerts, music festivals, corporate gatherings and sporting events.  The Company is paid by the organizers for the installation and maintenance of the network before and during the event, and for an additional fee provides analytical data to the customers, showing consumer trends. Our executive and sales team members have previously serviced and generated sales from customers including Austin City Limits, Live Nation, AEG, and iHeart Radio.
 
Wi-Fi Offloading - M2 Communications leverages the wireless tower rights it currently has on the roofs of buildings in New York City in order to start building out our Wi-Fi Network.  M2 Communications currently has many rooftop rights on buildings in New York and as funding and opportunity allows, has plans to acquire more. The concept is not to offer Wi-Fi services under M2 Communications' brand, but to offer access to the network to the major wireless cellular carriers. This access will allow the carriers to have their customers offload the data traffic onto M2 Communications' network, which in turn frees up the carriers network for more voice calls.  With access to the rooftop locations on these buildings pursuant to various building services Agreements ("BSA"), the Company provides transmitters, wireless equipment and telecommunications transmission facilities necessary to service customers and providers.  Our transmitters are programmed with the ability to accept transmissions from carrier networks, like AT&T, and those carrier customers are allowed access to our network.  These transmissions are then carried on dedicated high capacity telecommunications circuits to the desired destinations.  M2 Communications has successfully completed a pilot with AT&T in New York City for this service and has signed a definitive Wi-Fi roaming agreement, as well as other services.  M2 Communications believes that it is the first and only company to have a signed carrier offloading agreement with AT&T.
 
M2 Communications intends to carry forward preliminary discussions with other major U.S. based cellular carriers to run similar trials in others cities as well. The potential revenue for this business is difficult to project as it is relying on the millions of customers the carriers have in any one market at any given time.
 
 
 
 

 
 
 
Enterprise Broadband

Enterprise Voice and Data - We offer Enterprise Corporate customers a complete package of integrated products that includes wired and wireless broadband Internet access services, VoIP telephone services, data and email hosting, point-to point connections, collocation services, VPNs, and web hosting. Existing customers include Rolex, Versace, Christian Louboutin, New Jersey Sports and Exposition Authority (NJSEA), amongst many others.

Media Content / Analytics

Data Analytics - through the millions of potential users on our various networks, we accumulate consumer data analytics which can be monetized with owners, sponsors and major consumer brands.  Based on existing events, DMAG has access to certain user data from over 30 million potential visitors over our networks.
 
 Media Content - DMAG, through its subsidiaries is able to provide improved and cutting edge fan engagement for all of its venues, as well as VIP hospitality guests, which will create marketing opportunities. This includes working with venues and owners on advertising sponsorship opportunities, as well as providing specific target market media content.  In 2016 M2 nGage has started to roll this out and revenues are minimal at this time.

Market Opportunity
 
 We seek to capitalize on the convergence of wireless, broadband, and content-based service models. Growth in new applications in wireless voice and multimedia services, increasing demand for high quality mobile voice and high definition video entertainment services, and the desire of cellular carriers to efficiently manage valuable spectrum, drive the underlying demand for our wireless broadband products and systems. It is widely accepted that existing networks and technologies cannot fulfill this demand.

DMAG Historical Business

The various businesses that DMAG acquired have provided communication services to small to mid-sized businesses in the Northeast and Midwest United States with a complete package of integrated products that includes wired and wireless broadband Internet access services, Voice over Internet Protocol, or VoIP, data, email hosting, point-to point connections, managed network services, collocation, virtual private networks, or VPNs, web hosting, Wi-Fi and wireless internet.  These subsidiaries have successfully implemented and sold fixed wireless broadband solutions in the Northeast United States since our inception. Following SPHC's acquisition of the assets of Wave2Wave through the Section 363 auction, M2 Communications is selling services to businesses primarily through a direct sales force, channel partners and telemarketing. While M2 Communications markets these services to many customer segments, it focuses on selling to customers in multi-tenant office buildings (in-building) and to remote locations (stand-alone buildings).  It currently has active Building Service Agreements, or BSAs, with building owners throughout New York, New Jersey, Connecticut, and Chicago. Under these BSAs, it either pays the building owners monthly rent or a revenue share to allow it to sell throughout their buildings. The term of these BSAs are typically multi-year in length, with automatic renewals. M2 Communications has found that revenue share agreements give the building owners an incentive to promote our services to new tenants, and will help it increase penetration rates in terms of the number of tenants per building. It also helps with the securing of roof top rights for our Wi-Fi network. This legacy now helps M2 Communications differentiates itself from its competition and creates a mutually beneficial relationship between it, the building owners and tenants.
 
M2 Communications leverages the wireless towers it currently has on the roofs of buildings in New York City in order to start building out our Wi-Fi network.  M2 Communications plans to acquire more rights to use buildings roofs providing that the funds and opportunity is available and prudent.  The concept is not to offer Wi-Fi services under M2 Communications' brand, but to offer access to the network to the major wireless cellular carriers. This access will allow the carriers to have their customers offload the data traffic onto M2 Communications' network, which in turn frees up the carriers network for more voice calls.  M2 Communications has successfully completed a pilot with AT&T in New York City for this service and has signed a definitive Wi-Fi roaming agreement, as well as other services.
 
 
 
 
 
 
 

 


M2 Communications is also doing Wi-Fi rollouts and maintenance for third parties through its IT services business. One such example is the build out in 2012/2013 for AT&T of Wi-Fi networks in various New York public parks. It was paid for the rollout by AT&T, and is paid a monthly recurring fee from them for the broadband connectivity. The M2 Communications and M2 nGage subsidiaries of SPHC were transferred to a new holding company, Digital Media Acquisition Group Corp. (DMAG), and DMAG is the 100% shareholder of both subsidiaries. The Company is the sole owner of DMAG.

 
SignalShare Operations

SignalShare was created to meet the demand for mobile Wi-Fi access as users increase their integration of digital technology into their daily lives.  The proliferation of Wi-Fi enabled mobile devices has dramatically grown and will continue to expand.  Signal Share offered new products and services designed to provide permanent and temporary Wi-Fi and data collection and analysis for live sporting and entertainment events. Signal Share provided all of the technology, infrastructure and resources necessary to construct a broadband wireless network for an event. Regardless of the location, event type or duration, Signal Share connected fans in a whole new way.

On July 5, 2016, SignalShare, LLC filed for bankruptcy voluntarily pursuant to Chapter 7 of the Bankruptcy Code.  The case was filed in the U.S. Bankruptcy Court, District of New Jersey and is captioned case no. 16-23003.
Arista Communications, LLC
 
Arista Communications, LLC is a joint venture between Cardinal Broadband and Wiens Real Estate Ventures, LLC, with each entity having a 50% membership interest.  Wiens is the developer of the Arista residential/retail/office development in Broomfield, Colorado.  The joint venture was formed to provide telecommunication services to the Arista community.  Arista Communications provides telephone, television, and internet connectivity to the residents and businesses of the Arista development, including the 1st Bank Center, an 8,000-seat music and sports venue. The Company owned a 50% membership interest in Arista Communications through its Cardinal Broadband division.  Cardinal Broadband manages the operations of Arista Communications.  The financial statements of Arista Communications, LLC are consolidated with the Company in accordance with ASC Topic 810, Consolidation. The Company's interest in Arista Communications, LLC were sold as part of the Cardinal Broadband sale agreement effective May 1, 2016.

SignalShare Infrastructure

SignalShare Infrastructure ("SSI") conducted the existing business operations of Roomlinx following the merger with SPHC.  On May 11, 2016, SSI completed the Foreclosure Sale of substantially all assets of SSI (other than certain excluded agreements) pursuant to Article 9 of the Uniform Commercial Code.  SSI terminated all of its employees and ceased operations.  The Foreclosure Sale resulted from SSI's inability to pay $3,622,275 of indebtedness to SSI's senior lender, Cenfin, LLC.  The winning bid was made by Single Digits, Inc., an unaffiliated New Hampshire corporation and accepted by Cenfin. There was no relationship between SSI or its affiliates and Single Digits prior to the transaction. The consideration was $700,000 plus SSI's cash on hand at Closing less $207,106.72, such amount representing 75% of deposits received by SSI prior to closing for future installations for which work had not been substantially completed for Hyatt (see below).  The amount of accounts receivables included in the transferred assets was approximately $440,000 as of May 9, 2016.

The primary business of SSI focused on providing in-room media, entertainment, and HD television programming solutions along with wired networking solutions and Wireless Fidelity networking solutions, also known as Wi-Fi, for high speed Internet access to hotels, resorts, and time share properties. The Company also provided both wired and wireless Internet access, HD satellite television service, and telephone service both Plain Old Telephone Service ("POTS") and Voice over Internet Protocol ("VOIP"), to residential and business customers.

On May 3, 2016 at 10:00 A.M. (Local Time) Cenfin, the senior secured lender of SSI, sold all right, title and interest in substantially all personal property of SSI to the highest qualified bidder at a public auction pursuant to Article 9 of the Uniform Commercial Code.  The auction took place at the offices of DLA Piper LLP, 203 N. LaSalle Street, Chicago, Illinois 60601.  There was one bidder and the transaction closed on May 11, 2016 and all employees of SSI were terminated  and the operations of SSI ceased
 
Hyatt Master Services Agreement
 
On March 12, 2012, the Company and Hyatt Corporation ("Hyatt") entered into a Master Services and Equipment Purchase Agreement (the "MSA") pursuant to which SSI agreed to provide in-room media and entertainment solutions, including its proprietary Interactive TV (or iTV) platform, high speed internet, free-to-guest, on-demand programming and related support services, to Hyatt-owned, managed or franchised hotels that are located in the United States, Canada and the Caribbean.  Under the MSA, Hyatt will use its commercially reasonable efforts to cause its managed hotels to order the installation of the Company's iTV product in a minimum number of rooms in Hyatt hotels within certain time frames.
 
On November 16, 2015, SSI entered into a Settlement, Mutual Release, and Indemnification Agreement (the "Settlement Agreement") with Hyatt which had claimed that the Company had breached the MSA and various Hotel Services and Equipment Purchase Agreements (the "HSAs").  Pursuant to the terms of the Settlement Agreement, the parties terminated various HSAs and SSI agreed to sell and assign iTV services for the remainder of the amended HSAs to third party providers and to provide Transition Services (as defined) for up to ninety (90) days after an HSA is terminated.  All of such administrative costs for such services are capped at $250,000 and shall be deducted from the deposits currently on hand with SSI, for which Hyatt had demanded repayment.
 
 
 
 
 
 
 
 
 
The parties agreed to extend the terms of the amended HSAs for an additional thirty-six (36) months from the date of expiration to provide High Speed Internet Access ("HSIA"), subject to approval of the owners of hotel properties.  After payment of the above-described administrative costs not to exceed $250,000, the remainder of the $966,036 of deposits owed by SSI shall be applied toward a 15% credit for any hotel HSIA installations after November 16, 2015 until the deposits re exhausted.  SSI was granted the right to bid upon any new WiFi installations and upgrades of any hotel convention center business, subject to Hyatt's right to accept or reject SSI's bid at Hyatt's sole discretion.  Pursuant to the above described foreclosure sale, of SSI's operations, including the MSA, were sold to a non-affiliated third party.

Residential Media and Communications
 
We provide residential and business customers telecommunication services including telephone, satellite television, and wired and wireless internet access. Telephone service is provided through traditional, analog "twisted pair" lines, as well as digital "VoIP".  Analog phone service is typically provided via an interconnection agreement with CenturyLink, Inc., which allows the Company to resell CenturyLink service through their wholesale and retail accounts with CenturyLink.  VoIP service is provided at properties where the Company maintains a broadband internet service to the end customer, allowing the Company to provide digital phone service (VoIP) over the same lines as their internet service.
 
Television service is typically provided via the Company's agreements with DISH Network and DirecTV.  Most television service is provided via a head-end distribution system, or an L-Band digital distribution system.   Television service is offered in high definition whenever possible.

Internet service is provided via both wired and wireless network design. The Company provisions and manages broadband access to the residential customers through both wholesale and resale methods.  Wholesale methods exist when the Company owns and controls the internet circuit and resale methods exist when the Company uses an affiliated third party to provide the internet circuit.

We generate revenue through:

●    Network design and installation services
●    Delivery of telephone service (billed monthly)
●    Delivery of Internet service (billed monthly)
●    Delivery of television service (billed by the satellite provider with monthly commissions paid to the Company)
 
Many of our existing and potential competitors may have greater financial, technical, marketing and distribution resources than we do. Additionally, many of these companies may have greater name recognition and more established relationships with our target customers.
 
Product Development
 
We seek to continually enhance the features and performance of our existing products and services. In addition, we are continuing to evaluate new products to meet our customers' expectations of ongoing innovation and enhancements.
 
Our ability to meet our customers' expectations depends on a number of factors, including our ability to identify and respond to emerging technological trends in our target markets, develop and maintain competitive products, enhance our existing products by adding features and functionality that differentiate them from those of our competitors and offering products on a timely basis and at competitive prices. Consequently, we have made, and we intend to continue to make, investments in product development.
 
Patents and Trademarks

We own the registered trademarks of "SuiteSpeed®," "SmartRoom®," and "Roomlinx®." We also have proprietary processes and other trade secrets that we utilize in our business.
 
 
 
 
 
 
 
 
Customer Support Systems

We provide live support from our call centers 24 hours a day, seven days per week, and 365 days a year. Support representatives are specifically trained to enable them to offer customers customized support depending on the product or service at issue. We utilize industry standard coaching and employee development and training programs to help achieve high quality customer interactions. As such, most callers will reach a live representative in less than one minute and, when they do; trained agents work to address any concerns or issues on that very first call into the support system. Customer care operations strive to ensure first call resolutions are over 80% for customer issues and those issues escalated to a higher level are handled quickly by senior engineers.  Customer care centers cater to the diverse needs and preferences of its customers.
 
Network Architecture and Deployment

We offer an integrated voice and data network as an advanced and secure network, sophisticated voice and data applications, as well as outstanding, reliability, redundancy, and security. The diversity and resiliency of our network are designed to insulate customers from network failures by providing diverse network access points in each market and multiple private peering arrangements.  All of this is supported by power backup and a self-healing high capacity fiber optic backbone. We are able to manage and control the entire network: equipment, points of presence, and fiber optic backbone—providing customers with reliability, high availability service, and security. We believe that such network deployment strategies will allow it to enter new markets rapidly and to offer customers flexible technological solutions tailored to their specific needs.
 
Our network was built from the ground up by professionals with many years of combined engineering and design experience in voice and data technologies. This network infrastructure and operations support systems enable it to control the types of services that it offers, how these services are packaged and how they are integrated to serve customers. Through the installation of IP routers at its switch sites, we deploy packet-based technology to augment its traditional circuit-switching technology. Its customer-specific voice and data solutions are driven by customer preferences and priorities, as it strives to provide industry-leading packet delivery, latency, and backbone availability over its core IP network, enabling rapid, secure, and accurate transmissions. By providing the latest in IP technologies, we seek to maintain an advanced architecture that supports converged technologies. This allows it to deliver cutting-edge products, features and services to customers efficiently over a single, next-generation network—including unified messaging, IP video and trunking, presence management, and online feature management—allowing customers to combine voice and data services to increase efficiency and reduce costs.

We rely on various equipment vendors and integration partners to provide us with equipment and services to offer our services. We anticipate that these vendors have adequate supply and technology to meet our deployment and institutional needs.  Moreover, SignalShare Software Development Corp. has its own development team associated with its products.

Network Operations Command Center (NOCC).

 We provide pro-active, real-time monitoring to protect customer services. Our Network Operations Command Center (NOCC) in Hackensack, New Jersey provides 24/7/365 surveillance of its network elements to support our customers' services. The NOCC is equipped with proactive monitoring tools to ensure quick identification and resolution of network issues. In addition to this constant surveillance of individual network elements, we will perform routine equipment audits to ensure reliability. The network is highly sectionalized, with remote access to all devices that allows us to communicate with devices such as modems and routers to speed detection and repair.  We employ the latest telecommunications standards to ensure that we maintain the low mean-time-to-repair performance. In addition, it adheres to stringent "maintenance window" schedules, where repairs are done overnight to minimize or eliminate any impact on its customers. The NOCC provides advanced, "always-on" monitoring for latency, jitter, utilization and packet loss in real time. Customer Premise Equipment, local loops and backbone elements are constantly under surveillance with proactive monitoring systems for fast failure detection and recovery. Because of these capabilities, many problems are identified and rectified before customers are even aware there is an issue. Our highly trained staff is provided with the right tools, training and state-of-the-art equipment to maintain network reliability and keep the network and its customers up and running.

Stringent Security Regulations.

 We meet the most demanding security standards and regulations to safeguard customers' critical data and processes against disruption, and provide privacy protection.  For example, M2 Communications complies with the FCC's stringent Customer Network Proprietary Information, or CPNI, standards that safeguard customer proprietary information and prevent "data mining."
 
 
 
 
 

 
Competition

 The primary competitors in the marketplace include hardware manufacturers of access points and switches, Incumbent Local Exchange Carriers, or ILECs, such as Verizon and AT&T, and other national and international providers such as Level 3 Communications, LLC, XO Communications and Cogent Communications, Inc. Additionally; regional and local providers such as Broadview Networks, Inc. and Paetec/Windstream, GuestTek and Sonifi also compete in some of our market offerings. Although many are much larger organizations, they may be less apt to handle the small to mid-size market that is SPHC's focus. The Company believes that it is able to compete effectively in the marketplace by solution oriented sales, personal and prompt client support and services, and competitive pricing. It further believes that its technology and offerings are well positioned to compete in this marketplace, provide a superior experience for end users, and provide for the most efficient use of network resources. While there are other companies offering such services, M2 Communications is one of a limited number of companies that has the ability to offer combined Wi-Fi services, broadband service and Media & Content services to major corporations, consumer brands and sporting owners.
 
Regulatory Obligations

 As a telecommunications carrier and under the FCC's recently adopted broadband rules, SPHC and its affiliates offering regulated services are subject to a variety of miscellaneous regulations at the federal and state level that can have cost or operational implications. The regulations, for instance, require the filing of periodic revenue and service quality reports, the provision of services to customers with hearing or speech disabilities and associated funding of telecommunications relay services, protection of Customer Proprietary Network Information (CPNI), the capability to associate a physical address with a calling party's telephone number (E-911) and cooperation with law enforcement officials engaged in lawful investigations. The FCC's stringent CPNI, standards safeguard customer proprietary information, including the services selected and call records, and prevent "data mining" by requiring customer authentication before disclosing CPNI which significantly curtails "data mining."  Moreover, the CPNI rules require yearly certifications of compliance and immediate reports to the FCC and the Federal Bureau of Investigation in situations where CPNI is disclosed in violation of the rules. SPHC is required to file quarterly and yearly reports with the Universal Service Administration Company ("USAC") disclosing its telecommunications revenues.  These filings are used for certain public interest assessments, e.g., USF and TRS, which support universal service and programs for persons with certain disabilities.  The FCC has jurisdiction over the management and licensing of the electromagnetic spectrum for all commercial users. The FCC routinely reviews its spectrum policies and may change its position on spectrum use and allocations from time to time. We believe that the FCC is committed to allocating spectrum to support wireless broadband deployment throughout the United States and will continue to modify its regulations to foster such deployment, which will help us implement our existing and future business plans. SPHC primarily uses unlicensed spectrum in order to provide its Wi-Fi services and the Company must comply with equipment and transmission standards associated with use of the spectrum in order to avoid interference.  Noncompliance with these and other provisions can result in administrative fines and penalties.

 
In 2015, the FCC reversed its previous rulings that Internet services are interstate information services that are not subject to regulation as a telecommunications service under federal law or to state or local utility regulation. The FCC determined that broadband providers are common carriers subject to FCC regulation similar to telephone providers, but decided to forbear much of the more onerous regulations applicable to telephone providers.  Accordingly, our broadband Internet services are, therefore, not subject to many of the regulatory requirements imposed on wireless and wireline telecommunications service providers. For example, we are not currently required to contribute a percentage of gross revenues from our Internet access services to the universal service funds used to support local telephone service and advanced telecommunications services for schools, libraries and rural health care facilities. Our wireless broadband Internet services are, however, subject to a number of federal regulatory requirements, including the Communications Assistance for Law Enforcement Act ("CALEA") requirement that high-speed Internet service providers implement certain network capabilities to assist law enforcement in conducting surveillance of persons suspected of criminal activity and the FCC's CPNI rules.

With respect to services based on customer analytics raises privacy concerns that can impact state and federal law pertaining to personal information and data protection depending on if the data is personally identifiable or non-personally identifiable.  Monitoring of programs to insure that personally identifiable information is not disclosed will be necessary to insure the company does not violate state and federal law.  Moreover, data collection associated with minors may impose differing and more stringent obligations on our use of such data.  Our terms of service with customers and users will require proper disclosure of our uses of the information in order to obtain proper consent from users and customers in order to avoid privacy concerns and potential consumer protection law violations.
 
 
 
 
 
 

 
Intellectual Property

 To protect its proprietary rights, we rely on a combination of trademark, copyright, patent, trade secret and other intellectual property laws, employment, confidentiality and invention assignment agreements with its employees and contractors, and confidentiality agreements and protective contractual provisions with our partners, licensees and other third parties.

 Trademarks. As of December 31, 2015, SPHC maintained the following trademarks:  "SignalPoint Communications" and "SignalPoint". Roomlinx, Inc. maintains the following trademarks:  "Roomlinx" and "SmartRoom."

 Copyrights.  SPHC has not registered any copyrights. All works of original authorship fixed in a tangible form that may exist are unregistered.

 Patents.  We maintain one patent for "Communications System and Call Forwarding Management" Patent No. US 8,036,362 B1.  The Company's M2 nGage subsidiary has filed one provisional patent for "A One-Tap Operation on Mobile Device Touchscreens to Instantly Send a New Text Message Chosen From a User-Customizable Set of Phrases Displayed in a Keyboard-like Grid."

 Other Materials.  From time to time, employees will report on potential intellectual property opportunities for the company. These opportunities may include new product and service offerings, and potential proprietary information association with such services which may warrant application for formal IP protection. Regarding potential patentable material, personnel will conduct interviews with the inventors, may perform initial prior art searches, and if a determination is made that the proprietary material is valuable enough to the company to warrant patent protection, such applications will be made with the assistance of third-party patent counsel with support of our own in-house counsel. In addition, the company will also seek to maintain certain intellectual property and proprietary know-how as trade secrets, and generally require our partners to execute non-disclosure agreements prior to any substantive discussions or disclosures of our technology.
 
We rely and expect to continue to rely on a combination of confidentiality and license agreements with our employees, consultants, and third parties with whom we have relationships, as well as trademark, copyright, patent, trade secret, and domain name protection laws, as applicable, to protect our intellectual proprietary rights. We have filed various applications for protection of certain aspects of our intellectual property, and we currently hold a number of trademarks.

Employees

 As of August 25, 2016, we had approximately 33 employees companywide; however, the number of employees may increase or decrease as we deem fit. None of our employees is subject to a collective bargaining agreement or an employment agreement.
 
 
 
 
 
 
 
 
 

 

 
ITEM 1A.  RISK FACTORS
 
An investment in our Company is very speculative and involves a very high degree of risk.  Accordingly, investors should carefully consider the following risk factors, as well as other information set forth in this report, in making an investment decision with respect to our securities. We have sought to identify what we believe to be all material risks and uncertainties to our business and ownership of our common stock, but we cannot predict whether, or to what extent, any of such risks or uncertainties may be realized nor can we guarantee that we have identified all possible risks and uncertainties that might arise.  Additional risks and uncertainties that we do not currently know about or that we currently believe are immaterial may also harm our business operations. If any of these risks or uncertainties occurs, it could have a material adverse effect on our business.

Risks Relating to Our Business

We have a history of losses from operations which may continue, and which may harm our ability to obtain financing and continue our operations.
 
The Company's financial statements reflect that it has incurred significant losses since inception, including net losses of $81,479,644 and $11,996,546 for the years ended December 31, 2015, and 2014, respectively.  The Company expects to continue to have losses and negative cash flow for the foreseeable future and it is possible we may never reach profitability.  Therefore, there is a significant risk that public investors may lose all or some of their investment.

Our independent auditors have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.

The audit report of our independent auditors dated August 29, 2016 on our consolidated financial statements for the year ended December 31, 2015 included an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern.  Our auditors' doubts are based on our recurring net loss of $81.5 million, and negative cash generated from operating activities of $4.6 million for the year ended December 31, 2015 and our negative working capital of $30.0 million as of December 31, 2015.  Our ability to continue as a going concern will be determined by our ability to improve our business profitability, our ability to generate sufficient cash flow from our operations and our ability to obtain additional funding in the short term to meet our operating needs and the current portion of our required obligation payments for the next twelve months from the date of this report.  Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Our Subsidiary Merger with Signal Point caused some disruption of our business, has diluted our stockholders and may harm our business, financial condition or operating results.
 
Our March 2015 subsidiary merger with SPHC (the "Subsidiary Merger") has and could subject us to a number of risks, including, but not limited to:  the consideration for the Subsidiary Merger and share issuance to our secured lender resulted in substantial dilution to our existing stockholders;  the acquired company or technologies has not improved market position as planned; and personnel of the acquired company, as the combined operations have placed significant demands on the Company's management, technical, financial and other resources; key personnel and customers of the acquired company may terminate their relationships with the acquired company as a result of the acquisition; we may experience additional financial and accounting challenges and complexities in areas such as tax planning and financial reporting; we may assume or be held liable for risks and liabilities as a result of our acquisition, some of which we may not have been able to discover during our due diligence or adequately adjust for in our acquisition arrangements; our ongoing business and management's attention may be disrupted or diverted by transition or integration issues and the complexity of managing geographically or culturally diverse enterprises; we may incur one-time write-offs or restructuring charges in connection with the acquisition; and we may acquire goodwill and other intangible assets that are subject to amortization or impairment tests, which could result in future charges to earnings.
 
 
 
 
 
 
 
 
We cannot assure you that we will successfully integrate all of our business.  In addition, we cannot assure you that, our continued business will achieve sales levels, profitability, efficiencies or synergies that justify acquisition or that the acquisition will result in increased earnings for us in any future period.  These factors could have a material adverse effect on our business, financial condition, prospects and operating results.

We Have Only a Limited Operating History, Which Makes It Difficult to Evaluate an Investment in Our Common Stock.

We have only a limited operating history upon which our business, financial condition and operating results may be evaluated. We face a number of risks encountered by early stage technology companies that participate in new technology markets, including our ability to:
 
 
Maintain our engineering and support organizations, as well as our distribution channels;
 
Negotiate and maintain favorable rates with our vendors;
 
Retain and expand our customer base at profitable rates;
 
Recoup our expenses associated with the wireless devices we resell to subscribers;
 
Manage expanding operations, including our ability to expand our systems if our subscriber base grows substantially;
 
Attract and retain management and technical personnel;
 
Find adequate sources of financing; and
 
Anticipate and respond to market competition and changes in technologies as they develop and become available.
 
We may not be successful in addressing or mitigating these risks and uncertainties, and if we are not successful our business could be significantly and adversely affected.

Both our management and our independent registered public accounting firm have identified material weaknesses in our internal control over financial reporting. If we are unable to correct these weaknesses, our ability to accurately and timely report our financial results or prevent fraud may be adversely affected, and investor confidence and the market price of our shares may be adversely impacted.

The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, adopted rules requiring every public company to include a management report on such company's internal control over financial reporting in its annual report, which contains management's assessment of the effectiveness of the company's internal control over financial reporting. In addition, if in future years, we were to meet certain market capitalization and other benchmarks, our independent registered public accounting firm would also report on the effectiveness of our internal control over financial reporting.  As of December 31, 2015, our management concluded that our internal control over our financial reporting was not as effective as they can be.
 
In connection with their audit of our consolidated financial statements for the year ended December 31, 2015, our management and our independent registered public accounting firm identified and communicated to us material weaknesses in our internal control over financial reporting as defined in the standards established by the U.S. Public Company Accounting Oversight Board ("PCAOB") that there is reasonable possibility that a material misstatement in our annual or interim consolidated financial statements would not be prevented or detected on a timely basis by our internal controls. The material weaknesses identified by our independent auditors include lack of adequate resources and experience within the accounting and finance department to ensure timely identification, resolution and recording of accounting matters.
 
Although we have adopted a remediation plan to improve our internal control over financial reporting, the plan may not be sufficient to overcome these material weaknesses. We will continue to implement measures to remedy these material weaknesses as well as other deficiencies identified by our independent auditors and us in order to meet the deadline and requirements imposed by Section 404 of the Sarbanes-Oxley Act. If we fail to timely achieve and maintain the adequacy of our internal controls, we may not be able to conclude that we have effective internal control over financial reporting. Moreover, effective internal control over financial reporting is necessary for us to produce reliable financial reports and is important to help prevent fraud. As a result, our failure to achieve and maintain effective internal control over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the market price of our shares.
 
 
 
 
 
 
 

 

Risks Related to DMAG, SPHC and their Affiliates Business and Industry
 
Our market is extremely competitive and we face intense competition from other providers of communications services that have significantly greater resources.
 
The market for broadband and VoIP related services is highly competitive and we compete with several companies within each of our markets. We face competition from several different sources including wireless carriers, incumbent local exchange carriers, cable operators and Internet service providers. Many of these operators have substantially greater resources and greater brand recognition than we have. Further, there is no guarantee that they will not enter the wireless Internet connectivity market and compete directly with us for our subscriber base, which could have a material adverse effect on our future operations.

Our current or future competitors may provide services comparable or superior to those provided by us, or at lower prices, or adapt more quickly to evolving industry trends or changing market requirements.
 
Many providers of communications services have competitive advantages over our operations, including substantially greater financial, personnel and other resources, better access to capital, brand name recognition and long-standing relationships with customers. These resources place us at a competitive disadvantage in our markets and may limit our ability to expand into new markets. Because of their greater financial resources, some of our competitors can also better afford to reduce prices for their services and engage in aggressive promotional activities. Such tactics could have a negative impact on our business. For example, some of our competitors have adopted pricing plans such that the rates that they charge are not always substantially higher, and in some cases are lower, than the rates that we will charge for similar services. Due to these and other competitive pricing pressures, we currently expect average monthly revenue per customer location to remain relatively flat or decline in the foreseeable future. Any of the foregoing factors could require us to reduce our prices to remain competitive or cause us to lose customers, resulting in a decrease in its revenue.
 
We rely on third-party equipment vendors and integration partners. If we are unable to enter into agreements or arrangements with such equipment vendors or integration partners or if the equipment provided or services performed by such equipment vendors or integration partners do not perform as expected, this could impair our ability to offload our Wi- Fi network.

We rely on various equipment vendors and integration partners to provide us with equipment and services.  M2 Communications entered into a Unilateral Wi-Fi Roaming Agreement with AT&T in New York City to offer AT&T access to M2 Communications' network to have AT&T customers offload the data traffic to M2 Communications' network. This, in turn, frees up the carrier network for more voice calls. We cannot be certain that we will be able to rollout our Wi-Fi network in this manner or that it will be attractive to other carriers.  The failure to do so may have a material adverse effect on our business and operating results. This could negatively impact our business strategy.

The "Wholesale or "Neutral Host" model may require capital expenditures without having agreements from customers.
 
Our ability to profitably capture mobile wireless data users in each building is predicated on being able to secure sufficient "wholesale" revenue from wireless carriers who wish to off-load bandwidth from their "out-of-building" networks. We will have to scout locations and enter into wholesale agreements with significant wireless carriers in addition to AT&T to make the wholesale model work. It is likely that we will have to expend substantial capital to deploy our in-building wireless networks before we have additional commitments from wireless carriers to purchase its wholesale services.
 
 
 
 
 
 
 
 
The long distance telecommunications industry is highly competitive which may adversely affect our performance.
 
The long distance telecommunications industry, including VoIP, is intensely competitive and is significantly influenced by the marketing and pricing decisions of the larger industry participants. With recent developments in technology, the industry has relatively limited barriers to entry with numerous entities competing for the same customers. Customers frequently change long distance providers in response to the offering of lower rates or promotional incentives by competitors. Generally, our customers will be able to switch carriers at any time to other VoIP providers or traditional long distance telephone companies. We believe that competition in all of our markets is likely to increase. In each of our targeted regions, we will compete primarily on the basis of price (particularly with respect to our sales to other carriers), and also on the basis of customer service and our ability to provide a variety of telecommunications products and services. There can be no assurance that we will be able to compete successfully in the future.
 
Many of our competitors are significantly larger, have substantially greater financial, technical and marketing resources and larger networks than us and a broader portfolio of services, control transmission lines and have strong name recognition and loyalty, long-standing relationships with our target customers, and economies of scale which can result in a lower cost structure for transmission and related costs. These competitors include, among others, AT&T, Verizon Business, Sprint and Verizon. We will also compete with numerous other long distance providers, some of which focus their efforts on the same customers targeted by us. Increased competition in the United States as a result of the foregoing, and other competitive developments could have an adverse effect on our future business, results of operations, prospects and financial condition.
  
Our relationships with vendors, suppliers and customers are material to our operations and many of our contracts with such entities are out of term and in renewal terms.
 
We contract with many vendors, suppliers and customers that account for significant portions of our revenues or infrastructure. Many of the contracts we acquired upon our acquisition in bankruptcy of Wave2Wave Communications ("W2W") were "out of term" (i.e., the original term of the contract had expired) when we assumed them and are in renewal terms (i.e., the contract is extended for some period of time depending on its terms) or "evergreen" (i.e., the terms of the former agreement continue while the parties renegotiate the agreement) while the parties negotiate replacement terms. Termination or renegotiation requests associated with these agreements may come at any time and negotiations, especially in the case of complex agreements, such as telecommunications interconnection agreements, can be extended. Any disruptions experienced by these vendors, suppliers and customers as a result of these negotiations or the sudden termination of an agreement may affect our ability to deliver products or services and impact our revenues and could have an adverse effect on our business.

If third-party vendors fail to deliver equipment or deploy our in-building network, we may be unable to execute our business strategy.
 
Our success will depend on third parties that we do not control to deliver equipment and deploy our in-building network. We rely on other companies to lease or sell to us telecommunications equipment, computer hardware and software, networking equipment and related services that are critical to the maintenance and operation of our network. We cannot be certain that third parties will be successful in their development and deployment efforts. Even if these parties are successful, the delivery and deployment process could be lengthy and subject to delays. If these delays occur, we will be unable to deploy our network for carrier offloading in a timely manner, negatively impacting our business plan and our prospects and results could be harmed.
 
We do not carry substantial inventories of our products and cannot be assured that we will be able to lease the products and services that we need on a timely basis, or in sufficient quantities. If we are unable to obtain critical services and products in the quantities required by us and on a timely basis, our business, financial condition and results of operations may be materially adversely affected.
 
 
 
 
 
 
 
 
We depend on third-party providers whom we do not control to install our integrated access devices at customer locations. We must maintain relationships with efficient installation service providers in current cities and identify similar providers as we will enter new markets in order to maintain quality in our operations.
 
The installation of integrated access devices at customer locations is an essential step that will enable our customers to obtain our services. We outsource the installation of integrated access devices to a number of different installation vendors in each market. We must insure that these vendors adhere to the timelines and quality that we require to provide our customers with a positive installation experience. In addition, we must obtain these installation services at reasonable prices. If we are unable to continue maintaining a sufficient number of installation vendors in our markets who provide high quality service at reasonable prices to us, we may have to use our own employees to perform installations of integrated access devices. We may not be able to manage such installations effectively using our own employees with the quality we desire and at reasonable costs.
 
We depend on local telephone companies for the installation and maintenance of our customers' access lines and other network elements and facilities.
 
Our customers' access lines are sometimes installed and maintained by local telephone companies in each of our markets.  If the local telephone company does not perform the installation properly or in a timely manner, our customers could experience disruption in service and delays in obtaining our services. We expect to experience routine delays in the installation of access lines by the local telephone companies to our customers in each of our markets, although these delays are not expected to result in any material impact to our ability to compete and add customers in our markets. Any work stoppage action by employees of a local telephone company that provides our services in one of our markets could result in substantial delays in activating new customers' lines and could materially harm our future operations. Furthermore, we are also dependent on traditional local telephone companies for access to their collocation facilities and we utilize certain of their network elements. Failure of these elements or damage to a local telephone company's collocation facility would cause disruptions in our service.

System disruptions could cause delays or interruptions of our service, which could cause us to lose customers or incur additional expenses.
 
Our success depends on our ability to provide reliable service. Although our network service is designed to minimize the possibility of service disruptions or other outages, our service may be disrupted by problems on its system, such as malfunctions in its software or other facilities, overloading of its network and problems with the systems of competitors with which we interconnect, such as physical damage to telephone lines and power surges and outages. Any significant disruption in its network could cause it to lose customers and incur additional expenses.
 
We depend on key personnel and our ability to hire and retain sufficient numbers of qualified personnel.
 
We rely heavily on the expertise, experience and continued services of Aaron Dobrinsky, our Chairman of the Board, Christopher Broderick, our Chief Operating Officer, Andrew Bressman, Managing Director and Head of Corporate Development, as well as other key employees.  Although Messrs. Broderick and Bressman are employed under employment contracts, the loss of any of their services and the inability to replace any of them and/or attract or retain other key individuals, could materially adversely affect us.  If any of the three persons or other key executive employees were to leave, we could face substantial difficulty in hiring a qualified successor and could experience a loss in productivity while any success obtains the necessary training and experience.  We do not have key man life insurance policies on our management.
 
Our resources may not be sufficient to manage our intended growth; failure to properly manage potential growth would be detrimental to our business.
 
We may fail to adequately manage our intended future growth. Our initial administrative, financial and operational functions come from existing operations. Any growth in our operations will place a significant strain on our resources, and increase demands on our management and on our operational and administrative systems, controls and other resources. We cannot assure you that our existing personnel, systems, procedures or controls will be adequate to support our operations in the future or that we will be able to successfully implement appropriate measures consistent with our growth strategy. As part of this growth, we may have to implement new operational and financial systems, procedures and controls to expand, train and manage our employee base, and maintain close coordination among our staff. We cannot guarantee that we will be able to do so.
 
 
 
 
 
 
 
 
In addition to our merger with SPHC, to the extent we acquire any business entity, we will also need to integrate and assimilate new operations, technologies and personnel. If we are unable to manage growth effectively, such as if our sales and marketing efforts exceed our capacity to install, maintain and service our products or if new employees are unable to achieve performance levels, our business, operating results and financial condition could be materially adversely affected. As with all expanding businesses, the potential exists that growth will occur rapidly. If we are unable to effectively manage this growth, our business and operating results could suffer. Anticipated growth in future operations may place a significant strain on management systems and resources. In addition, the integration of new personnel will continue to result in some disruption to ongoing operations. The ability to effectively manage growth in a rapidly evolving market requires effective planning and management processes. We will need to continue to improve operational, financial and managerial controls, reporting systems and procedures, and will need to continue to expand, train and manage our work force.
 
We must keep up with rapid technology change and evolving industry standards in order to be successful. Our competitors may be better positioned than we are to adapt to rapid changes in technology, and we could lose customers.
 
The markets for our services are characterized by rapidly changing technology and evolving industry standards. Any products or processes that we develop may become obsolete or uneconomical before we recover any expenses incurred in connection with their development. Our future success will depend, in part, on our ability to effectively identify and implement leading technologies, develop technical expertise and influence and respond to emerging industry standards and other technology changes.
 
All this must be accomplished in a timely and cost-effective manner. We may not be successful in effectively identifying or implementing new technologies, developing new services or enhancing our existing services in a timely fashion. Some of our competitors, including the local telephone companies, have a much longer operating history, more experience in making upgrades to their networks and greater financial resources than we will have. We cannot assure you that we will obtain access to new technologies as quickly or on the same terms as our competitors, or that we will be able to apply new technologies to our existing networks without incurring significant costs or at all. In addition, responding to demand for new technologies would require us to increase our capital expenditures, which may require additional financing in order to fund. Further, our   competitors, in particular the larger incumbent providers, enjoy greater economies of scale in regard to equipment acquisition and vendor relationships. As a result of those factors, we could lose customers and our financial results could be harmed. If we fail to identify and implement new technologies or services, our business, financial condition and results of operations could be materially adversely affected.
 
Difficult conditions in the global capital markets and the economy generally may materially adversely affect our business and results of operations, and we do not expect these conditions to improve in the near future.
 
Our results of operations can be materially affected by conditions in the global capital markets and the economy generally, both in the U.S. and elsewhere around the world. Stresses experienced by global capital markets over the last few years have resulted in continuing concerns over inflation, energy costs, geopolitical issues, the availability and cost of credit, the U.S. mortgage market, uncertain real estate markets, increased volatility and diminished expectations for the economy. These factors, combined with volatile oil prices, high unemployment levels and any decline in business and consumer confidence may have an adverse effect on our business.
 
We must maintain adequate processes and systems for collecting our accounts receivable, or if we are otherwise unable to collect material amounts of our accounts receivables our cash flow and profitability will be negatively affected.

The communications industry has experienced difficulties in the recent past in collecting accounts receivable from telecommunications providers due to the complexity involved in billing and the uncertainty with regard to certain regulatory matters. If we do not maintain adequate processes and systems for collecting our accounts receivable, our cash flow and profitability will be negatively affected.
 
 
 
 

 
 
 
We face considerable uncertainty in the estimation of revenues, related costs of services and their subsequent settlement.
 
Our revenues and the related cost of sales will often be earned and incurred with the same group of carriers who can be our vendors, suppliers and customers simultaneously. These revenues and their related costs may be based on estimated amounts accrued for pending disputes with other carriers, the contractual rates charged by our service providers, as well as sometimes contentious interpretations of existing tariffs and regulations. Subsequent adjustments to these estimates may occur after the bills are received/tendered for the actual costs incurred and revenues earned, and these adjustments can often be material to our future operating results. Industry practice is to routinely dispute charges that a company such as ours believes have been billed in error or incorrectly; these disputed balances are recorded in accounts payable in its consolidated balance sheets. Some of these disputed amounts are normally granted by providers in the form of credits subsequent to the periods in which they were incurred. In some cases we expect to enter into settlements with customers and issue credits against outstanding amounts owed in return for long-term agreements. These credits can be material to our results and will be charged directly against revenues in periods subsequent to where the revenues/costs of services were initially measured. Judgment is required in estimating the ultimate outcome of the dispute resolution process, as well as any other amounts that may be incurred to conclude the negotiations. Actual results can differ from estimates, and such differences could be material.
 
Intellectual property infringement claims are common in the industry and, should such claims be made against us, and if we do not prevail, our business, financial condition and operating results could be harmed.
 
Patent positions in the telecommunications industry are uncertain and involve complex legal, scientific and factual questions and often conflicting claims. The industry has in the past been characterized by a substantial amount of litigation and related administrative proceedings regarding patents and intellectual property rights. In addition, established companies have used litigation against emerging growth companies and new technologies as a means of gaining a competitive advantage. Third parties may claim we are infringing their patents, copyrights, trademarks or other intellectual property and may go to court to attempt to stop us from engaging in our ongoing operations and activities. These lawsuits can be expensive to defend and conduct and may divert the time and attention of management.

If a third-party successfully asserts an infringement claim against us, a court could order us to cease the infringing activity.

The court could also order us to pay damages for the infringement, which could be substantial. Any order or damage award could harm our business, financial condition and operating results.

In addition, we may be required to participate in interference proceedings in the United States Patent and Trademark Office to determine the relative priorities of our inventions and third parties' inventions. An adverse outcome in an interference proceeding could require us to cease using the technology or to license rights from prevailing third parties.

If we were unable to obtain any necessary license following an adverse determination in litigation or in interference or other administrative proceedings, we would have to redesign our products to avoid infringing a third-party's patent and could temporarily or permanently have to discontinue manufacturing and selling the infringing products. If this were to occur, it would negatively impact future sales and could harm our business, financial condition and operating results.
 
Our business activities require additional financing that might not be obtainable on acceptable terms, if at all, which could have a material adverse effect on our financial condition, liquidity and our ability to operate going forward.
 
We need to raise additional capital from equity or debt sources in order to meet our working capital and capital expenditure requirements, as well as other potential cash needs to finance future growth, including the deployment of our network for Wi-Fi offloading by carriers and the expansion of service within existing markets and to new markets, which can be capital intensive.  As a result of the deterioration of the equity markets, in general, and the decline in our stock price, we have had difficulty in raising money during 2015 and into 2016.
 
 
 
 
 
 
 
 
The actual amount of capital required to fund our operations and development may vary materially from our estimates. In order to obtain additional funding in the future, we may have to sell assets, seek debt financing, or obtain additional equity capital. In addition, any indebtedness we incur in the future could subject us to restrictive covenants limiting our flexibility in planning for, or reacting to changes in, our business as described above. If we raise funds by selling more stock, your ownership in us will be diluted, and we may grant future investors preferred rights superior to those of the Common Stock that you own. If we are unable to obtain additional capital when needed, we will have to delay, modify or abandon some of our expansion plans, including, but not limited to, the deployment of our network for Wi-Fi offloading by carriers. This could slow our growth, negatively affect our ability to compete in our industry and adversely affect our financial condition.

Our operational support systems and business processes may not be adequate to effectively manage our growth.
 
Our continued success depends on the scalability of our systems and processes. We cannot be certain that our systems and processes are adequate to support ongoing growth in customers. Failure to manage our future growth effectively could harm our quality of service and customer relationships, which could increase our customer churn, result in higher operating costs, write-offs or other accounting charges, and otherwise materially harm our financial condition and results of operations.
 
We may not be able to continue to grow our customer base at prior rates, which would result in a decrease in the rate of revenue growth.
 
Future growth in our existing markets may be more difficult than prior growth, due to increased or more effective competition in the future, difficulties in scaling our business systems and processes, or difficulty in maintaining sufficient numbers of qualified market management personnel, sales personnel and qualified integrated access device installation service providers to obtain and support additional customers. Failure to continue to grow our customer base at prior rates would result in a corresponding decrease in the rate of its revenue growth.
 
Our systems may experience security breaches which could negatively impact our business.
 
Despite the implementation of network security including firewalls, encryption for the radio frequency signal and user authentication measures, the core of our infrastructure is vulnerable to computer viruses, break-ins and similar disruptive problems. Computer viruses or other problems caused by third parties could lead to significant interruptions or delays in service to customers. We may face liability associated with such breaches and may lose potential customers. While we will attempt to reduce the risk of such losses through warranty disclaimers and liability limitation clauses in our license agreements and by maintaining product liability insurance, there can be no assurances that such measures will be effective in limiting our liability for such damages or avoiding government sanctions.
 
The wireless portion of our Wi-Fi network operates in the unlicensed frequency band, which means other operators can operate in the same frequency and there is a risk of interference with our wireless signal.
 
Because we operate our in-building Wi-Fi network in unlicensed spectrum, other devices are allowed to operate in the same frequency band in the same geographic areas in which we operate. Users of unlicensed spectrum are not entitled to protection from other users of that spectrum. Therefore, use of unlicensed spectrum is inherently subject to interference from third parties. While several precautions have been taken to avoid interference, there is no guarantee that we will not experience interference on the wireless portion of our network. If we experience interference, it could cause customers to be dissatisfied with our wireless services, resulting in customers cancelling this portion of services or cancelling all of our services. This could greatly impair our ability to retain and or generate new customers in any building that has interference issues.
 
As a result of the Wave2Wave Acquisition, we have substantial senior indebtedness which may require us to seek additional financing, minimize capital expenditures, or seek to refinance some or all of our debt.

As a result of the Wave2Wave acquisition, the principal amount of SPHC's indebtedness to the senior lenders thereunder totaled approximately $15,328,397 at the end of 2012. (Both Senior Lenders are affiliates of Robert DePalo, currently the Company's principal stockholder.)  In a 2012 exchange and redemption offering to Brookville and Veritas holders by SPHC, such holders accepted 6,156,213 shares of Common Stock, at a then valuation of $1.20 per share, in exchange for a portion of their respective Brookville and Veritas debt holdings.  In 2014, the Company issued an additional 2,581,657 shares of Common Stock in exchange for the cancellation of $3,872,489 of debt held by Brookville and Veritas. The 2012 exchange and redemption transaction resulted in a reduction of approximately $7,388,603 in the total amount of principal and accrued interest on SPHC indebtedness to the Senior Lenders, and the shares of Common Stock issued to the exchanging holders of the Senior Lenders were contributed to SPHC's treasury by Mr. DePalo from his personal holdings.
 
 
 
 

 
 
 
Despite such reduction, SPHC's outstanding senior indebtedness, which carries a weighted annual interest rate of 14%, was approximately $2,488,000 plus interest as of December 31, 2015, of which no additional principal indebtedness had been paid as of August 11, 2016.  Such indebtedness, which is substantial in relation to our size, has adversely affected the Company's financial position, and limit our available cash and the Company's access to additional capital.  As a result of the Subsidiary Merger, the Company currently needs to obtain additional financing to repay this and other outstanding indebtedness.  From time to time, we have been unable to obtain additional financing, and have been declared in default in the repayment of such debt, which has had a material adverse effect on our financial position, results of operations and related cash flows.

The level of SPHC's indebtedness has had important consequences, including:
 
●     a substantial portion of our cash flow from operations has been dedicated to debt service and has not been available for other purposes;
 
●     limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
 
●     limiting our ability to obtain financing for working capital, capital expenditures and general corporate purposes, including acquisitions, and may impede our ability to secure favorable terms;
 
●     making us more vulnerable to economic and industry downturns which may limit our ability to withstand competitive pressures;
 
●     placing us at a competitive disadvantage to our competitors with less indebtedness;
 
●     limiting our ability to fund working capital, capital expenditures, and other general corporate purposes; and
 
●     reducing our flexibility in responding to changing business and economic conditions.
 
The terms of our Senior Lenders' credit facilities contain restrictions and limitations that have significantly impacted our ability to operate our business.
 
SPHC is required to maintain compliance with certain financial covenants and our credit facilities contain certain restrictions and limitations that have significantly limited our ability to operate our business. In the absence of any required waiver or consent, these restrictions may limit its ability to:
 
●     incur or guarantee additional indebtedness;
 
●     create liens on our assets;
 
●     make investments;
 
●     engage in mergers and acquisitions;
 
●     redeem capital stock
 
●     make capital expenditures;
 
●     sell any of our assets;
 
 
 
 
 
 
 
 
●     maintain certain leverage ratios on a quarterly basis; and
 
●     declare any dividends.
 
Therefore, we have needed to seek permission from our Senior Lenders in order to engage in some corporate and commercial actions that we believe were in the best interest of our business, and a denial of permission has made it difficult for us to successfully execute our business strategy and effectively compete with companies that are not similarly restricted. Our Senior Lenders' interests have been different, at times, from our interests or our stockholders' interests, and we cannot guarantee that we will be able to obtain our Senior Lenders' permission when needed.
 
Our ability to comply with the covenants and restrictions contained in our credit facilities may be affected by economic, financial and industry conditions and other factors beyond our control. Any default under our credit facilities, which is not waived by the required lenders could substantially decrease the value of your investment. If we are unable to repay indebtedness, our Senior Lenders and any new facilities could proceed against the collateral securing that indebtedness. This could have serious consequences to our financial condition and results of operations and could cause us to become bankrupt or need to scale back our operations. Our ability to comply with these covenants in future periods will also depend substantially on the value of our assets, our success at keeping our costs low and our ability to successfully implement our overall business strategy.
 
We are highly leveraged and may incur substantial additional debt, which could adversely affect our financial health and our ability to obtain financing in the future, react to changes in our business and make debt service payments.  If we increase the amount of our indebtedness in the future, our high level of indebtedness could have important consequences to stockholders.
 
Highly leveraged companies are significantly more vulnerable to unanticipated downturns and setbacks, whether directly related to their business or flowing from a general economic or industry condition, and therefore are more vulnerable to a business failure or bankruptcy.

We May Incur Additional Liabilities as a Result of the Foreclosure Sale of our SSI Operations.

On May 11, 2016, SSI completed the foreclosure sale under Article 9 of the UCC of substantially all of its assets, which consisted of the operations of Roomlinx prior to the Subsidiary Merger.

The sale resulted from SSI's inability to pay approximately $3.6 million of indebtedness to SSI's senior lender.  While the Company intends to have SSI liquidated under Chapter 7 of the Bankruptcy Code, there can be no assurance SSI and/or the Company will not incur additional liabilities.

We May Acquire or Make Investments in Companies or Technologies That Could Cause Loss of Value to Our Stockholders and Disruption of Our Business.
 
Subject to our capital constraints, we intend to continue to explore opportunities to acquire companies or technologies in the future.  Entering into an acquisition entails many risks, any of which could adversely affect our business, including:
 
 
Failure to integrate the acquired assets and/or companies with our current business;
 
The price we pay may exceed the value we eventually realize;
 
Loss of share value to our existing stockholders as a result of issuing equity securities as part or all of the purchase price;
 
Potential loss of key employees from either our current business or the acquired business;
 
Entering into markets in which we have little or no prior experience;
 
Diversion of management's attention from other business concerns;
 
Assumption of unanticipated liabilities related to the acquired assets; and
 
The business or technologies we acquire or in which we invest may have limited operating histories, may require substantial working capital, and may be subject to many of the same risks we are.
 
 
 
 
 
 
 
 
We Have Limited Resources and We May be Unable to Effectively Support Our Operations.
 
We must continue to develop and expand our systems and operations in order to remain competitive. We expect this to place strain on our managerial, operational and financial resources. We may be unable to develop and expand our systems and operations for one or more of the following reasons:
 
 
We may not be able to retain at reasonable compensation rates qualified engineers and other employees necessary to expand our capacity on a timely basis;
 
We may not be able to dedicate the capital necessary to effectively develop and expand our systems and operations; and
 
We may not be able to expand our customer service, billing and other related support systems.
 
If we cannot manage our operations effectively, our business and operating results will suffer.  Moreover, even if we are successful in obtaining new customers for our products and services, we may encounter difficulty in, or be unable to, obtaining adequate resources, including financial and human, to roll-out our products and services to such customers.

Our Business Could be Harmed if we are Unable to Protect our Proprietary Technology.

We rely primarily on a combination of trade secrets, copyright and trademark laws and confidentiality procedures to protect our technology. Despite these precautions, unauthorized third parties may infringe, copy, or reverse engineer portions of our technology. In the absence of significant patent protection, we may be vulnerable to competitors who attempt to copy our products, processes or technology, which could harm our business.

Our Business Prospects Depend in Part on Our Ability to Maintain and Improve Our Services as Well as to Develop New Services.
 
We believe that our business prospects depend in part on our ability to maintain and improve our current services and to develop new services. Our services will have to achieve market acceptance, maintain technological competitiveness and meet an expanding range of customer requirements. We may experience difficulties that could delay or prevent the successful development, introduction or marketing of new services and service enhancements. Additionally, our new services and service enhancements may not achieve market acceptance.

Our Management and Operational Systems Might Be Inadequate to Handle Our Potential Growth.

We may experience growth that could place a significant strain upon our management and operational systems and resources.  Failure to manage our growth effectively could have a material adverse effect upon our business, results of operations and financial condition.  Our ability to compete effectively and to manage future growth will require us to continue to improve our operational systems, organization and financial and management controls, reporting systems and procedures.  We may fail to make these improvements effectively.  Additionally, our efforts to make these improvements may divert the focus of our personnel.  We must integrate our key executives into a cohesive management team to expand our business.  If new hires perform poorly, or if we are unsuccessful in hiring, training and integrating these new employees, or if we are not successful in retaining our existing employees, our business may be harmed.  To manage the growth we will need to increase our operational and financial systems, procedures and controls.  Our current and planned personnel, systems, procedures and controls may not be adequate to support our future operations.  We may not be able to effectively manage such growth, and failure to do so could have a material adverse effect on our business, financial condition and results of operations.
 
If We Do Not Respond Effectively and on A Timely Basis to Rapid Technological Change, Our Business Could Suffer.
 
Our industry is characterized by rapidly changing technologies, industry standards, customer needs and competition, as well as by frequent new product and service introductions. Our services are integrated with the computer systems of our customers. We must respond to technological changes affecting both our customers and suppliers. We may not be successful in developing and marketing, on a timely and cost-effective basis, new services that respond to technological changes, evolving industry standards or changing customer requirements. Our success will depend, in part, on our ability to accomplish all of the following in a timely and cost-effective manner:
 
 
Effectively using and integrating new technologies;
 
Continuing to develop our technical expertise;
 
Enhancing our engineering and system design services;
 
Developing services that meet changing customer needs;
 
Advertising and marketing our services; and
 
Influencing and responding to emerging industry standards and other changes.
 
 
 
 

 
 
 
We Depend on Retaining Key Personnel. The Loss of Our Key Employees Could Materially Adversely Affect Our Business.
 
Due to the technical nature of our services and the dynamic market in which we compete, our performance depends in part on our retaining key employees. Competitors and others may attempt to recruit our employees. A major part of our compensation to our key employees is in the form of stock option grants. A prolonged depression in our stock price could make it difficult for us to retain our employees and recruit additional qualified personnel.

Our Data Systems Could Fail or Their Security Could Be Compromised, and We Will Increasingly Be Handling Personal Data Requiring Our Compliance With a Variety of Regulations.

Our business operations depend on the reliability of sophisticated data systems. Any failure of these systems, or any breach of our systems' security measures, could adversely affect our operations, at least until our data can be restored and/or the breaches remediated. We have, to a limited extent, begun to serve as a conduit for personal information to third-party credit processors, service partners and others, and it is likely we will do so more regularly. The handling of such personal information requires we comply with a variety of federal, state and industry requirements governing the use and protection of such information, including, but not limited to, FCC consumer proprietary network information regulations, FTC consumer protection regulations, and Payment Card Industry ("PCI") data security standards and, for the Healthcare division, the requirements of the Health Insurance Portability and Accountability Act ("HIPAA") and regulations thereunder. While we believe we have taken the steps necessary to assure compliance with all applicable regulations and have made necessary changes to our data systems, any failure of these systems or any breach of the security of these systems could adversely affect our operations and expose us to increased cost, liability for lost personal information and increased regulatory obligations.

An Interruption in the Supply of Products and Services That We Obtain From Third Parties Could Cause a Decline in Sales of Our Services.

In designing, developing and supporting our services, we rely on many third party providers. These suppliers may experience difficulty in supplying us products or services sufficient to meet our needs or they may terminate or fail to renew contracts for supplying us these products or services on terms we find acceptable. If our liquidity deteriorates, our vendors may tighten our credit, making it more difficult for us to obtain suppliers on terms satisfactory to us. Any significant interruption in the supply of any of these products or services could cause a decline in sales of our services, unless and until we are able to replace the functionality provided by these products and services. We also depend on third parties to deliver and support reliable products, enhance their current products, develop new products on a timely and cost-effective basis and respond to emerging industry standards and other technological changes.
 
We Operate in a Very Competitive Industry, Which May Negatively Impact Our Prices for Our Services or Cause Us to Lose Business Opportunities.
 
The market for our services is becoming increasingly competitive. Our competitors may use the same products and services in competition with us. With time and capital, it would be possible for competitors to replicate our services and offer similar services at a lower price. We expect that we will compete primarily on the basis of the functionality, breadth, quality and price of our services. Our current and potential competitors include:
 
 
Other wireless high speed internet access providers, such as SDSN, Guest-Tek Wayport, Greentree, Core Communications and Stay Online;
 
Other viable network carriers, such as SBC, Comcast, Sprint and COX Communications; and
 
Other internal information technology departments of large companies.
 
Many of our existing and potential competitors have substantially greater financial, technical, marketing and distribution resources than we do. Additionally, many of these companies have greater name recognition and more established relationships with our target customers. Furthermore, these competitors may be able to adopt more aggressive pricing policies and offer customers more attractive terms than we can. In addition, we have established strategic relationships with many of our potential competitors. In the event such companies decide to compete directly with us, such relationships would likely be terminated, which could have a material adverse effect on our business and reduce our market share or force us to lower prices to unprofitable levels.
 
 
 
 
 
 
 
We May be Sued by Third Parties For Infringement of Their Proprietary Rights and We May Incur Substantial Defense Costs and Possibly Substantial Royalty Obligations or Lose The Right to Use Technology Important To Our Business.
 
Any intellectual property claims, with or without merit, could be time consuming and expensive to litigate or settle and could divert management attention from administering our business. A third party asserting infringement claims against us or our customers with respect to our current or future products may materially adversely affect us by, for example, causing us to enter into costly royalty arrangements or forcing us to incur settlement or litigation costs.

We may be subject to claims that DMAG, SPHC and its employees or our employees may have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of former employers or competitors.  Litigation may be necessary to defend against these claims.  Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.   If we fail in defending such claims, in addition to paying money claims, we may lose valuable intellectual property rights or personnel.  A loss of key research personnel or their work product could hamper or prevent our ability to commercialize certain products, which could severely harm our business.

Our Quarterly Operating Results are Subject to Significant Fluctuations and, As A Result, Period-To-Period Comparisons of Our Results of Operations are Not Necessarily Meaningful.
 
 
The success of our brand building and marketing campaigns;
 
Price competition from potential competitors;
 
The amount and timing of operating costs and capital expenditures relating to establishing the Company's business operations;
 
The demand for and market acceptance of our products and services;
 
Changes in the mix of services sold by our competitors;
 
Technical difficulties or network downtime affecting communications generally;
 
The ability to meet any increased technological demands of our customers; and
 
Economic conditions specific to our industry.
 
Therefore, our operating results for any particular quarter may differ materially from our expectations or those of security analysts and securities traders and may not be indicative of future operating results. The failure to meet expectations may cause the price of our common stock to decline. Since we are susceptible to these fluctuations, the market price of our common stock may be volatile, which can result in significant losses for investors who purchase our common stock prior to a significant decline in our stock price.

Covenants under our Credit Facilities may restrict our future operations and adverse consequences could result in the event of non-compliance

Our credit facilities, including those of SPHC also contain other customary covenants, including covenants that require us to meet specified financial ratios and financial tests. We may not be able to comply with these covenants in the future. Our failure to comply with these covenants may result in the declaration of an event of default and cause us to be unable to borrow under our credit facilities and debt instruments. In addition to preventing additional borrowings under these agreements, an event of default, if not cured or waived, may result in the acceleration of the maturity of indebtedness outstanding under these agreements, which would require us to pay all amounts outstanding.  If an event of default occurs, we may not be able to cure it within any applicable cure period, if at all.  If the  maturity  of our  indebtedness  is accelerated,  we  may  not  have  sufficient  funds  available  for repayment or we may not have the ability to borrow or obtain sufficient funds to replace the accelerated indebtedness on terms acceptable to us or at all.
 
Many of our Key Functions Are Concentrated in a Single Location, and a Natural Disaster or Act of Terrorism Could Seriously Impact Our Ability to Operate.

Our IT systems, production, inventory control systems, executive offices and finance/accounting functions, among others, are primarily centralized in our Broomfield, Colorado facility. A natural disaster, such as a tornado, could seriously disrupt our ability to continue or resume normal operations for some period of time.  Similarly, an act of terrorism could disrupt our facility.  While we have certain business continuity plans in place, no assurances can be given as to how quickly we would be able to resume operations and how long it may take to return to normal operations. We may experience business interruptions and could incur substantial losses beyond what may be covered by applicable insurance policies, and may experience a loss of customers, vendors and employees during the recovery period.
 
 
 
 
 

 
 
 
We rely on third-party vendors for information systems. If these vendors discontinue support for our systems or fail to maintain quality in future software releases, we could sustain a negative impact on the quality of our services to customers, the development of new services and features, and the quality of information needed to manage our business.

We have agreements with vendors that provide for the development and operation of back office systems such as ordering, provisioning and billing systems. We also rely on vendors to provide the systems for monitoring the performance and condition of our network. The failure of those vendors to perform their services in a timely and effective manner at acceptable costs could materially harm our growth and our ability to monitor costs, bill customers, and provision customer orders, maintain the network and achieve operating efficiencies. Such a failure could also negatively impact our ability to retain existing customers or to attract new customers.

Regulatory Risks
 
We are subject to complex and sometimes unpredictable government regulations. Changes to such regulations could have a material adverse impact on our business operations or, if we fail to comply with these regulations, we could incur significant fines and penalties.
 
There are now in effect, or pending, at the federal and state levels of government, numerous regulatory programs and proposals of general application to the industry, Internet providers and competitive carriers, many of which have or may have important effects on the operations of the Company and/or its affiliates in many areas, including licensing, tax, regulatory compliance, fees, charges and interconnection rights and obligations.  The number and scope of such programs and proposals are significant. Some examples of these matters include state investigation of access charges, the FCC's review of intercarrier compensation charges, special access charges and Universal Service Fund assessments.
Our broadband Internet access services are subject to various attempts to impose so-called "net neutrality" rules, some of which were affirmed and others vacated on appeal by the U.S. District Court for the District of Columbia in early 2014. Proponents of these rules want to limit the ways that a broadband Internet access service provider can structure business arrangements and manage its network. Some of these parties have urged the FCC to "reclassify" broadband Internet access service as a "telecommunications service" under Title II of the Communications Act, thus subjecting these services to traditional utility-style regulation which the FCC did on February 26, 2015, releasing the order on March 12, 2015 (See Report and Order on Remand, Declaratory Ruling, and Order, Protecting and Promoting the Open Internet, GN Docket No. 14-28, FCC 15-24 (rel. Mar. 12, 2015).  The order classifies broadband internet as a "telecommunications" service subject to common carrier regulation under Title II of the Communications Act of 1934, as amended.

The scope of the rules and potential litigation is uncertain and implementing rules are being appealed in the courts (See United States Telecom Association, No. 15-1063 (D.C. Cir.). The further regulation of broadband, wireless, and our other activities and any related court decisions could restrict our ability to compete in the marketplace and limit the return we can expect to achieve on past and future investments in our networks.   The FCC's net neutrality rules could limit our flexibility in managing our broadband networks and delivering broadband services, and could have an adverse effect on certain of our business operations and restrict our ability to compete in the marketplace. The new rules would also require enhanced disclosure in our terms and conditions to the extent such new disclosures are required. Finally, end users may bring action at the FCC if they feel a provider has breached the rules or the FCC may institute an enforcement action upon its own motion.
 
We are unable to predict what additional federal or state legislation or regulatory initiatives may be enacted in the future regarding our business or the telecommunications industry in general. Federal or state governments may impose additional restrictions or adopt interpretations of existing laws that could have a material adverse effect on us. If we fail to comply with any existing or future regulations, restrictions or interpretations, we could incur significant fines and penalties, including, but not limited to, loss of license or suspension of operating authority.
 
Regulatory decisions could materially increase our costs of leasing last-mile facilities.

In order to reach our end user customers, we will often lease lines from incumbent carriers, who will also be our competitors. The extent to which the incumbent carrier must provide these facilities to us at low rates is dependent on federal and state regulatory actions. To date, we are still able to lease these facilities at low rates in most of our intended markets.
 
 
 
 
 
 

 
Incumbent carriers are, however, allowed to escape this requirement in discrete geographic areas, typically in major urban centers, where there is substantial competitive deployment of facilities by other carriers. Additionally, incumbent carriers have been employing a statutorily authorized process called regulatory forbearance in an effort to lift these requirements over much larger areas. To the extent that the incumbents are successful in these actions in markets where we will operate, our costs of obtaining these facilities could materially increase, adversely affecting our profit margins.
 
The FCC is reexamining its policies towards VoIP and telecommunications in general and changes in regulation could subject us to additional fees or increase the competition it faces.
 
Voice over Internet Protocol, or VoIP, can be used to carry user-to-user voice communications over dial-up or broadband service. The FCC has ruled that some VoIP arrangements are not regulated as telecommunications services, but that a conventional telephone service that uses Internet protocol in its backbone is a telecommunications service. The FCC has initiated a proceeding to review the regulatory status of VoIP services and the possible application of various regulatory requirements, including the payment of access charges, which are not required at the present time. Expanded use of VoIP technology could reduce the access revenues received by local exchange carriers like us, while carriers dispute its charges during the FCC's review of the issue. We cannot predict whether or when VoIP providers may be required to pay or be entitled to receive access charges, or the extent to which users will substitute VoIP calls for traditional wireline communications. Furthermore, if, as planned in our business strategy, we carry wireless carrier originated voice traffic over the Wi-Fi network, this traffic may be considered interconnected VoIP traffic under the FCC's rules and may be subject to separate regulatory requirements for us and the wireless carriers.

Judicial review and FCC decisions pursuant to the Federal Telecommunications Act of 1996 may adversely affect our business.
 
The Telecommunications Act of 1996 provides for significant changes and increased competition in the telecommunications industry. This federal statute and its related regulations remain subject to judicial review and additional rulemakings of the FCC, thus making it difficult to predict what effect the legislation will have on us, our operations and our competitors. In addition to reviewing intercarrier compensation and access to last mile facilities, the FCC is also reviewing applying more common carrier regulation to internet services.  Depending on the classifications and reach of such regulations, if implemented, it may create burdens to competition or increase compliance costs.

Risks Relating to Our Common Stock
 
All of the shares to be issued and outstanding after the consummation of the Subsidiary Merger are restricted and not freely transferrable.

Upon completion of the Subsidiary Merger, only a very small portion of the shares of Common Stock issued and outstanding following the Reverse Split have the same status of registered and publicly tradable securities.  In addition, all of the restricted Dividend Shares (9.4% of the fully diluted shares) Cenfin shares (5.2% of fully diluted shares) and the shares issued to SPHC shareholders (85.4% of fully diluted shares) were subject to a nine (9) month lock-up, which expired at December 31, 2015.  The holders of such shares continue to be subject to restrictions and limitations on transfer, and will be required to comply with the provisions of the Securities Act and SEC rules concerning registration requirements and/or exemptions from such requirements prior to seeking to dispose of such shares.

Even if an active public market for our securities develops, it is not possible to predict the extent, liquidity and duration of any public trading market for our shares.

The size and nature of the trading market for our securities post-merger has been sporadic and subject to fluctuations.  As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations of the price of the Company's Common Stock. There can be no assurance that a more active market for the Company's Common Stock will develop, or if one should develop, there is no assurance that it will be sustained. This severely limits the liquidity of our Common Stock, and has had a material adverse effect on the market price of  the Company's Common Stock and on our ability to raise additional capital.

The ability of any such market to provide liquidity for the holders of such shares and to establish a reasonable and rational pricing mechanism, will likely depend on many variables. These may include general economic conditions, public evaluation of the business model being utilized by such successor entity, the revenues, earnings and growth potential of such entity, the reputation of its management, the general state of the U.S. telecommunications industry, the impact of competition and regulation, and the like.
 
 
 

 
 
Limitation of Liability and Indemnification of Officers and Directors

Our officers and directors are required to exercise good faith and high integrity in the management of our affairs. Our Articles of Incorporation provides, however, that our officers and directors shall have no personal liability to us or our stockholders for damages for any breach of duty owed to us or our stockholders, unless they breached their duty of loyalty, did not act in good faith, knowingly violated a law, or received an improper personal benefit.  Our Articles of Incorporation and By-Laws also provide for the indemnification by us of our officers and directors against any losses or liabilities they may incur by reason of their serving in such capacities, provided that they do not breach their duty of loyalty, act in good faith, do not knowingly violate a law, and do not received an improper personal benefit. Additionally, we have entered into individual  Indemnification Agreements with each of our directors and officers to implement with more specificity the indemnification provisions provided by the Company's By-Laws and provide, among other things, that to the fullest extent permitted by applicable law, the Company will indemnify such director or officer against any and all losses, expenses and liabilities arising out of such director's or officer's service as a director or officer of the Company, as the case may be. The Indemnification Agreements also contain detailed provisions concerning expense advancement and reimbursement.
 
In addition, pursuant to the terms of the Subsidiary Merger, the Company assumed the Consulting Agreements of Robert DePalo and SAB Management LLC (the "Consultants").  Their consulting agreements each provide that in the event of any litigation, investigation or other matter naming Robert DePalo, SAB Management LLC or Andrew Bressman (Managing Member of SAB Management), the Company will pay 100% of legal fees to lawyers of their choice.  Moreover, the settlement agreement between Brookville, Veritas, Allied and certain SPHC Subsidiaries provides for indemnification of Mr. DePalo.  See Item 3.  "Legal Proceedings - Recent Events Concerning Our Principal Shareholder, Robert DePalo."
 
Insofar as indemnification for liabilities under the Securities Act may be permitted to directors, officers or persons controlling us under the above provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
 
Resale of Shares Could Adversely Affect the Market Price of Our Common Stock and Our Ability to Raise Additional Equity Capital
 
If our stockholders sell substantial amounts of our common stock in the public market, including shares issuable upon the effectiveness of a registration statement, upon the expiration of any statutory holding period under Rule 144, any lock-up agreement or shares issued upon the exercise of outstanding  options, warrants or restricted stock awards, it could create a circumstance  commonly  referred to as an "overhang" and, in anticipation of which, the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
In general, a non-affiliated person who has held restricted shares for a period of six months, under Rule 144, may sell into the market our common stock all of their shares, subject to the Company being current in its periodic reports filed with the SEC. An affiliate may sell an amount equal to the greater of 1% of the outstanding shares 136,019,348 as of August 11, 2016 or the average weekly number of shares sold in the last four weeks prior to such sale. Such sales may be repeated once every three months, and any of the restricted shares may be sold by a non-affiliate without any restriction after they have been held one year.

Further Issuances of Equity Securities May Be Dilutive to Current Stockholders.

We are required to seek additional capital. This capital funding could involve one or more types of equity securities, including convertible debt, common or convertible preferred stock and warrants to acquire common or preferred stock.  We are currently seeking funds via convertible preferred stock and warrants.  Such equity securities could be issued at or below the then-prevailing market price for our common stock.  We may also issue additional shares of our Common Stock or other securities that are convertible into or exercisable for our Common Stock in connection with hiring or retaining employees, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of Common Stock may create downward pressure on the trading price of our Common Stock.  Any issuance of additional shares of our common stock will be dilutive to existing stockholders and could adversely affect the market price of our common stock.
 
 
 
 
 

 
Articles of Incorporation Grants the Board of Directors the Power to Designate and Issue Additional Shares of Preferred Stock.
 
Our Articles of Incorporation grants our Board of Directors authority to, without any action by our stockholders, designate and issue, from our authorized capital, shares in such classes or series as it deems appropriate and establish the rights, preferences, and privileges of such shares, including dividends, liquidation and voting rights. The rights of holders of classes or series of preferred stock that may be issued could be superior to the rights of the common stock offered hereby. Our board of directors' ability to designate and issue shares could impede or deter an unsolicited tender offer or takeover proposal. Further, the issuance of additional shares having preferential rights could adversely affect other rights appurtenant to the shares of common stock offered hereby. Any such issuances will dilute the percentage of ownership interest of our stockholders and may dilute our book value.
 
Limited Market Due To Penny Stock Related to SPHC Capital Structure.  See "Risks" below.

Our stock differs from many stocks, in that it is considered a penny stock. The SEC has adopted a number of rules to regulate penny stocks. These rules include, but are not limited to, Rules 3a5l-l, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6 and 15g-7 under the Exchange Act. Because our securities probably constitute penny stock within the meaning of the rules, the rules would apply to our securities and us. The rules may further affect the ability of owners of our stock to sell their securities in any market that may develop for them. There may be a limited market for penny stocks, due to the regulatory burdens on broker-dealers. The market among dealers may not be active. Investors in penny stock often are unable to sell stock back to the dealer that sold them the stock. The mark-ups or commissions charged by the broker-dealers may be greater than any profit a seller may make. Because of large dealer spreads, investors may be unable to sell the stock immediately back to the dealer at the same price the dealer sold the stock to the investor. In some cases, the stock may fall quickly in value. Investors may be unable to reap any profit from any sale of the stock, if they can sell it at all.

Stockholders should be aware that, according to the Securities and Exchange Commission Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. These patterns include: control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; "boiler room" practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons; excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.
 
Furthermore, the penny stock designation may adversely affect the development of any public market for our shares of common stock or, if such a market develops, its continuation. Broker-dealers are required to personally determine whether an investment in penny stock is suitable for customers. Penny stocks are securities (i) with a price of less than five dollars ($5.00) per share; (ii) that are not traded on a "recognized" national exchange; and (iii) of an issuer with net tangible assets less than $2,000,000 (if the issuer has been in continuous operation for at least three years) or $5,000,000 (if in continuous operation for less than three years), or with average annual revenues of less than $6,000,000 for the last three years. Section 15(g) of the Exchange Act and Rule 15g-2 of the SEC require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor's account. Potential investors in our common stock are urged to obtain and read such disclosure carefully before purchasing any shares that are deemed to be penny stock. Rule 15g-9 of the SEC requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor.

This procedure requires the broker-dealer to (i) obtain from the investor information concerning his financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor's financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for the Company's stockholders to resell their shares to third parties or to otherwise dispose of them.

We do not anticipate paying cash dividends on our Common Stock, and accordingly, shareholders must rely on stock appreciation for any return on their investment.
 
We have not declared or paid any cash dividend on our Common Stock and do not currently intend to do so for the foreseeable future. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Therefore, the success of an investment in shares of our Common Stock will depend upon any future appreciation in their value. There is no guarantee that shares of our Common Stock will appreciate in value or even maintain the price at which our shareholders have purchased their shares.
 
 
 
 
 
 
 
Sarbanes-Oxley and Federal Securities Laws Reporting Requirements Can Be Expensive
 
As a public reporting company, we are subject to the Sarbanes-Oxley Act of 2002, as well as the information and reporting requirements of the Exchange Act and other federal securities laws. The costs of compliance with the Sarbanes-Oxley Act and of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC, and furnishing audited reports to stockholders, are significant and may increase in the future.  See Risk Factors - "Both our Management and our independent registered public accounting firm have identified material weaknesses in our internal control over financial reporting.  If we are unable to correct these weaknesses, our ability to accurately and timely report our financial results or prevent fraud may be adversely affected, and investor confidence and the market price of our shares may be adversely impacted."
 
The trading price of the Common Stock may become volatile, which could lead to losses by investors and costly securities litigation.

The trading price of the Common Stock is likely to be highly volatile and could fluctuate in response to factors such as:
 
●   actual or anticipated variations in our operating results;
●   announcements of developments by us or our competitors;
●   regulatory actions regarding our products;
●   announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
●   adoption of new accounting standards affecting our industry;
●   additions or departures of key personnel;
●   introduction of new products by us or our competitors;
●   sales of our Common Stock or other securities in the open market; and
●   other events or factors, many of which are beyond our control.

The stock market is subject to significant price and volume fluctuations. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been initiated against such a company.

Litigation initiated against us, whether or not successful, could result in substantial costs and diversion of our management's attention and resources, which could harm our business and financial condition.

Insiders will continue to have substantial control over the Company, which could delay or prevent a change in corporate control or result in the entrenchment of management or our board of directors.
 
As of August 24, 2016 Robert DePalo, together with any affiliates and related persons, beneficially owns, in the aggregate, approximately 43,260,969 (32%) shares of our 136,019,348 outstanding shares of common stock.  As a result, Mr. DePalo may have the ability to influence the outcome of matters submitted to our shareholders for approval, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets.  Mr. DePalo may have the ability to influence the management and affairs of the Company in the foreseeable future.  The foregoing could have the effect of:
 
●     delaying, deferring or preventing a change in control;
●     entrenching or changing our management or our Board of Directors;
●     impeding a merger, consolidation, takeover or other potential transaction affecting our business or the control of our Company.

In October 2015 and April 2016, the Company entered into various Debt and Preferred Stock Restructuring Documents with Robert Depalo and affiliated entities as set forth in Item 13.  "Certain Relationships and Related Transaction and Director Independence."  Pursuant to these agreements, the Company agreed (subject to shareholder approval not yet obtained) to amend its charter and other relevant documents to provide for certain restrictions which would provide Mr. DePalo with further control over various matters.
 
 
 
 
 
 
 
Risks Related to Capital Structure

Because the Subsidiary Merger may be characterized as a "reverse merger," we may not be able to attract the attention of brokerage firms.
 
The Subsidiary Merger may be characterized as a "reverse merger." Accordingly, additional risks may exist as a result of such characterization. For example, securities analysts of brokerage firms may not provide coverage of us since there is little incentive to brokerage firms to recommend the purchase of our Common Stock. No assurance can be given that brokerage firms will want to conduct any secondary offerings on our behalf in the future.

We cannot provide assurance that we will be able to maintain the status of a public reporting company.
 
While M2 Group is currently a public reporting company, the continuation of such status will depend on various factors such as continuous and timely filing of audited consolidated financial statements and other required periodic reports with the SEC, satisfying the internal control and assessment requirements of the Sarbanes-Oxley Act of 2002, and instituting and monitoring procedures to control the unauthorized use of company information and prevent inside trading violations.
 
Applicable regulatory requirements may make it difficult for us to retain or attract qualified officers and directors, which could adversely affect the management of its business and its ability to obtain or retain listing of our Common Stock.
 
We may be unable to attract and retain those qualified officers, directors and members of board committees required to provide for effective management because of the rules and regulations that govern publicly held companies, including, but not limited to, certifications by principal executive officers. The enactment of the Sarbanes-Oxley Act has resulted in the issuance of a series of related rules and regulations and the strengthening of existing rules and regulations by the SEC, as well as the adoption of new and more stringent rules by the stock exchanges. The perceived increased personal risk associated with these changes may deter qualified individuals from accepting roles as directors and executive officers.
 
Further, some of these changes heighten the requirements for board or committee membership, particularly with respect to an individual's independence from the corporation and level of experience in finance and accounting matters. We may have difficulty attracting and retaining directors with the requisite qualifications. If we are unable to attract and retain qualified officers and directors, the management of our business and our ability to obtain or retain listing of our shares of Common Stock on any stock exchange (assuming we elect to seek and are successful in obtaining such listing) could be adversely affected.
 
We have been assessing our internal controls and believe that they require improvements. If we fail to implement changes to our internal controls or any others that we identify as necessary to maintain an effective system of internal controls, it could harm our operating results and cause investors to lose confidence in our reported financial information. Any such loss of confidence would have a negative effect on the trading price of our stock.

Provisions of our charter, bylaws, and Nevada law may make an acquisition of us or a change in our management more difficult.
Certain provisions of our certificate of incorporation and Bylaws that are in effect could discourage, delay or prevent a merger, acquisition or other change in control that shareholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions also could limit the price that investors might be willing to pay in the future for shares of our common stock. Shareholders who wish to participate in these transactions may not have the opportunity to do so.
 
 
 
 
 

 
Furthermore, these provisions could prevent or frustrate attempts by our shareholders to replace or remove our management. These provisions:

●     allow the authorized number of directors to be changed only by resolution of our board of directors;
●     authorize our board of directors to issue without shareholder approval blank check preferred stock that, if issued, could operate as a "poison pill" to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that is not approved by our board of directors;
●     establish advance notice requirements for shareholder nominations to our board of directors or for shareholder proposals that can be acted on at shareholder meetings;
●     authorize the Board of Directors to amend the By-laws;
●     limit who may call shareholder meetings; and
●     require the approval of the holders of a majority of the outstanding shares of our capital stock entitled to vote in order to amend certain provisions of our certificate of incorporation.
Section 78.438 of the NRS prohibits a publicly held Nevada corporation from engaging in a business combination with an interested stockholder, generally a person that together with its affiliates owns or within the last two years has owned 10% of voting stock, for a period of two years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner, or falls within certain exemptions under the NRS.  As a result of these provisions in our charter documents under Nevada law, the price investors may be willing to pay in the future for shares of our common stock may be limited.

In addition, because SPHC is incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may, unless certain criteria are met, prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a prescribed period of time.

We do not anticipate paying cash dividends on our Common Stock, and accordingly, shareholders must rely on stock appreciation for any return on their investment.
 
We have not declared or paid any cash dividend on our Common Stock and do not currently intend to do so for the foreseeable future. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Therefore, the success of an investment in shares of our Common Stock will depend upon any future appreciation in their value. There is no guarantee that shares of our Common Stock will appreciate in value or even maintain the price at which our shareholders have purchased their shares.
 
ITEM 1B. UNRESOLVED STAFF COMMENTS

None

ITEM 2. PROPERTIES

 The Company leases approximately 10,885 square-feet of office space at 433 Hackensack Avenue Hackensack, New Jersey 07601; and a small meeting office in New York. The Company does not own any real estate and believes its existing facilities are suitable and adequate for the business conducted therein, appropriately used and have sufficient capacity for their intended purpose.
 
 
 
 
 

 
 
Co-Location Space

In addition to the Hackensack office described above, M2 Group leases several co-location sites throughout the region.  These sites are leased to provide secure locations for mission-critical equipment within its network.  These sites allow it to locate network switching, server and storage equipment in secure, geographically diverse sites, and interconnect to a variety of telecommunications and other network service provider(s) with a minimum of cost and complexity. These sites include: 111 8th Avenue in NYC, 21 Harborview, Stamford, CT,  111 Pavonia, Jersey City, NJ and 111 North Canal, Chicago, ILL.  These serve as primary POPs, "point of presence," and are the anchor locations for the geographically redundant network architecture. All of these locations are equipped with high levels of physical security including 24 hours per day, seven days per week, guard services. These locations are also equipped with redundant power facilities including generators and/or back up battery power systems to guard against any type of power related outages. The cooling systems in these facilities are continuously maintained to avoid any type of heat related issues with network switching equipment. Signal Point provides most of the technical and facilities support to co-locations at these building by dispatching technicians when necessary.  However, in certain key locations, Signal Point will also deploy "remote hands", or contract services to other telecommunications technicians to provide emergency technical or facilities related support.

ITEM 3. LEGAL PROCEEDINGS
 
The Company is subject to the various legal proceedings and claims discussed below as well as certain other non-material legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business.

El Dorado Offices 2, LP

The Company received notice that El Dorado Offices 2, LP ("Landlord") had filed suit against the Company and SignalShare Infrastructure, Inc. associated with amounts due under a terminated office space lease and an associated promissory note.  The Landlord seeks approximately $326,000, plus costs, associated with the failure to repay the promissory note.  The Company was served with the complaint on November 24, 2015 and answered the Complaint.
 
On June 1, 2016, the Company settled this matter for a total payment of $125,000, payable in installments ending in October of 2016. Subsequently, the Company completed the Foreclosure Sale of substantially all assets of SSI, and these amounts are included in the liabilities of discontinued operations.

CLC Networks and Skada

The Company is in receipt of a District Court Civil Summons, dated May 29, 2012, in the matter of "CLC Networks, Inc. and Skada Capital, LLC v. Roomlinx, Inc.", commenced in the District Court of Boulder County, Colorado (the "Action").  The plaintiffs in the Action claimed that the Company owed them certain unpaid sales commissions, including with respect to Hyatt Corporation in connection with that certain Master Services and Equipment Purchase Agreement, as described above under Business.  The Company and the plaintiffs executed a settlement agreement in February 2014 for $106,528 to be paid in 19 even monthly installments commencing March of 2014.  As of December 31, 2015 the Company had paid its liability in full. Subsequently, the Company completed the Foreclosure Sale of substantially all assets of SSI, and these amounts are included in the liabilities of discontinued operations.

SignalShare payroll tax matter

SignalShare LLC is in default of its payment obligations for payroll taxes to the IRS for the first and second quarter of 2015. The amount of trust fund taxes, including penalties and interest, is approximately $673,888. The IRS has also placed liens on SignalShare, LLC and attempted to levy certain of its receivables.  The IRS has also indicated that it intends to pursue responsible persons for the amounts due.  As a result of this matter, the Company has moved SignalShare's payroll process to its corporate offices in order to strengthen the controls over the payroll functions. As a result of the SSI bankruptcy, these amounts are included as part of the liabilities of discontinued operations.
 
 
 
 

 
 
SignalShare Office Lease
 
SignalShare received notice on October 1, 2015 that its lease with Aerial Realty Corp. for office space in Morrisville, NC was being terminated due to non-payment and that the office's locks were changed.  The Landlord expressed its intention to avail itself of all remedies under the lease including the collection of waived rent (equal to $21,875), attorney's fees, brokerage fees and any other amounts due under the Lease which was under term until March 31, 2020 and approximating total cost of $287,000. The Company is reviewing its options and the Landlord's claims and cannot determine the ultimate outcome at this time. As a result of the SignalShare bankruptcy, these amounts are included in the liabilities of discontinued operations.

TIG
 
The Company received a letter from Technology Integration Group ("TIG") demanding payment of approximately $2,430,000 with respect to inventory and services that the Company purchased from TIG.  TIG subsequently filed an action in California State Court (Case No. 37-2012-00046436-CU-BC-NC (the "Action").  On September 23, 2014, the Company entered into a Settlement Agreement and Mutual General Release with TIG.  The Settlement Agreement was conditioned on the SPHC merger taking place.  On March 24, 2015, the Company, Michael S. Wasik, Anthony DiPaolo and SSI entered into the Settlement Agreement and Mutual General Release with PC Specialists Inc. (d/b/a TIG), replacing the agreement signed in the fourth quarter of 2014.  As of March 23, 2015, the Company owed TIG $3,003,267, consisting of $2,064,223 for equipment purchased and stored, $879,998 of interest on such amount and $59,046 of attorneys' fees and costs.  Under the Settlement Agreement, the Company agreed to pay a settlement amount of $1,919,239, of which $400,000 was paid by SPHC upon the closing of the SMA.  As a result, the Company, Wasik and DiPaolo were released from the Action and TIG consented to the transfer of rights and obligations under the Settlement Agreement to SSI with no recourse to the Company or SPHC. On April 5, 2016, counsel for TIG approached the Company regarding payment deficiencies under the settlement agreement and threatened further legal action.    As of December 31, 2015 the Company had the entire liability due TIG recorded in accounts payable. Subsequently, the Company completed the Foreclosure Sale of substantially all assets of SSI, and these amounts are included as part of the liabilities of discontinued operations.

ScanSource

The Company received a District Court Civil Summons, dated August 23, 2013, in the matter of "ScanSource v. Roomlinx, Inc.", commenced in the District Court of Greenville County, South Carolina.  The plaintiffs in such action claimed that the Company owed them approximately $473,000 with respect to inventory purchased by the Company. The amount is recorded in accounts payable in the accompanying consolidated balance sheets as of December 31, 2015 and December 31, 2014.   On March 31, 2015, the Company and ScanSource entered into a settlement agreement with respect to such action in which SSI agreed to pay ScanSource a total of $471,000 plus interest as follows: (a) payment of $100,000 on or before June 1, 2015, (b) beginning June 1, 2015, interest accruing on the outstanding balance of 12% per annum until the balance is paid in full, (c) beginning July 1, 2015 and continuing for 12 months thereafter, payment of $8,000 per month, and (d) following the initial 12 month payment schedule set forth in (b), payment of $316,715 in 24 monthly payments according to an amortization schedule agreed to by the Company and ScanSource.  Subsequently, the Company completed the Foreclosure Sale of substantially all assets of SSI, and these amounts are included in the liabilities of discontinued operations.

WFG

The Company is in receipt of a letter dated November 10, 2014 on behalf of Wi-Fi Guys, LLC ("WFG") demanding payment from the Company for amounts relating to development and software services in the amount of $297,000.  The Company evaluated all of its options, including legal options, with respect to the validity of the WFG letter and the alleged grounds for demanding payment and formally responded in a letter dated December 1, 2014 in which the Company denied WFG's claims and additionally made separate counter-claims against WFG. Subsequently, the Company completed the Foreclosure Sale of substantially all assets of SSI, and these amounts are included in the liabilities of discontinued operations. 
 
AGC

The Company is in receipt of a letter dated April 10, 2015 on behalf of America's Growth Capital, LLC d/b/a AGC Partners ("AGC") demanding payment from the Company for amounts relating to the occurrence of a strategic transaction between the Company and Signal Point Holdings Corp in the amount of $300,000.  The Company has evaluated all of its options, including legal options, with respect to the validity of the AGC letter and the alleged grounds for demanding payment and formally responded in a letter dated April 16, 2015 in which the Company denied AGC's claims. Subsequently, the Company completed the Foreclosure Sale of substantially all assets of SSI, and these amounts are included as part of the discontinued operations.
 
 
 
 
 
 

 
NFS AND RELATED MATTERS

On January 28, 2016, NFS Leasing, Inc. ("NFS") filed suit against SignalShare, LLC and Signal Point Holdings Corp. ("SPHC"), wholly-owned subsidiaries of the Company, for non-payment of amounts due under certain agreements with NFS and two employees of SignalShare, LLC.  NFS seeks $7,828,597, plus interest and attorneys' fees, from SignalShare, LLC and seeks enforcement of certain guarantees of the debt by SPHC and named officers of SignalShare, LLC.  In July 2015, SignalShare, LLC converted certain equipment leases from NFS into a secured Term Loan.  The Note evidencing the loans is secured by a subordinated security interest in the assets of SignalShare and SPHC and is guaranteed by SPHC.  NFS has also sought to include subsidiaries of the Company in the litigation, including DMAG.   Pursuant to an Intercreditor, Modification and Settlement Agreement, dated as of November 13, 2015 by and among NFS, SPHC, SignalShare LLC and the Company's senior lenders, such Intercreditor agreement excluded any security interest in the parent company, Roomlinx, Inc. or of the subsidiaries of SPHC, which are M2 nGage, M2 Communications, SPC and SSI.  Thus, NFS' suit and claims reside solely in SignalShare LLC and SPHC, but none of the assets (other than SignalShare LLC) of SPHC.  The case was filed in the U.S. District Court for the District of Massachusetts (Civ Action No. 16-10130). SPHC and SignalShare answered the complaint and are in the process of litigating the matter.  SignalShare LLC and SPHC intend to vigorously defend the matter.
 
Notwithstanding the foregoing, NFS amended its complaint and added the new subsidiary of the Company, Digital Media Acquisition Group Corp. ("DMAG"), to the case.  It also filed a motion for a preliminary injunction to prevent the corporate restructuring resulting from the Brookville/Veritas/Allied court actions.  On June 15, 2016, NFS withdrew its request for injunctive relief regarding DMAG and was granted an injunction regarding SignalShare, LLC. to prevent the company from making certain payments and required certain information regarding SignalShare. The Company believes the new amended claims are without merit, is opposing such actions and has filed motions to dismiss the claim as it relates to DMAG. The companies will vigorously defend these matters if the parties are unable to resolve the dispute. As a result of the SignalShare bankruptcy filing, the case related to SignalShare is stayed.  On the same day, Joseph Costanzo, a former employee of SignalShare and a codefendant in the litigation, filed a cross claim against SignalShare and SPHC and related parties ("SPHC Parties") alleging that he was induced by SignalShare and the SPHC Parties into entering certain agreements related to NFS.  Any disputes between Costanzo, the SPHC Parties and SignalShare were settled pursuant to a settlement agreement executed between the parties.  Pursuant to the terms of the Settlement Agreement, the parties mutually released each other from any claims and SPHC agreed to pay Joseph Costanzo $92,000 over a period of a year associated with amounts due.

Hyatt
 
The Company received a request for indemnification from Hyatt Corporation ("Hyatt") dated July 3, 2013 in connection with a case brought in US Federal Court in California by Ameranth, Inc., against, among others, Hyatt.  In connection with such case, the plaintiffs have identified the Company's e-concierge software as allegedly infringing Ameranth's patents.  The Company licenses the e-concierge software from a third party and accordingly has made a corresponding indemnification request to such third party.  The Company believes that any such claim may also be covered by the Company's liability insurance coverage and accordingly the Company does not expect that this matter will result in any material liability to the Company.

On March 12, 2012, the Company and Hyatt Corporation ("Hyatt") entered into a Master Services and Equipment Purchase Agreement (the "MSA") pursuant to which the Company has agreed to provide in-room media and entertainment solutions, including its proprietary Interactive TV (or iTV) platform, high speed internet, free-to-guest, on-demand programming and related support services, to Hyatt-owned, managed or franchised hotels that are located in the United States, Canada and the Caribbean.  Under the MSA, Hyatt will use its commercially reasonable efforts to cause its managed hotels to order the installation of the Company's iTV product in a minimum number of rooms in Hyatt hotels within certain time frames.
 
In December 2012, the Company and Hyatt mutually agreed to suspend certain Hyatt obligations under the MSA that had not been met; including the suspension of the obligations of Hyatt to cause a certain number of rooms in both Hyatt owned and managed properties to place orders for the Company's iTV products within certain time frames. At the time of the December 2012 suspension of these Hyatt obligations, the Company had installed certain services and products in approximately 19,000 rooms (including approximately 9,000 installs of its iTV product) in Hyatt hotels.  During the year ended December 31, 2013, the Company completed the installation of approximately 1,000 additional rooms.  As of December 31, 2015 and December 31, 2014, deposits received on statements of work for Hyatt properties are recorded as customer deposits in the consolidated balance sheets in the amounts of approximately $1,262,000.
 
 
 
 
 
 
 
 
In connection with the Merger Agreement, the Company and Hyatt entered into a Waiver and Consent Agreement dated as of March 11, 2014 (the "Hyatt Consent Agreement"), pursuant to which Hyatt provided its conditional consent and approval to the transactions contemplated by the Merger Agreement and any assignment of the Company's assets contemplated thereunder, including the assignment to SSI of the Company's right, title and interest under the MSA and under the Hotel Services & Equipment Purchase Agreements (the "HSAs") entered into by the Company with individual hotel owner entities.

On September 29, 2014, the Company received a letter from Hyatt (the "September 29th Letter") notifying the Company that Hyatt is terminating the HSAs with respect to the following five hotels in which the Company has yet to install any equipment or provide any services – the Hyatt Regency Indianapolis, the Hyatt Regency Greenwich, the Grand Hyatt New York City, the Hyatt Regency Coconut Point and the Hyatt Regency Lake Tahoe (collectively, the "Hotels"). Hyatt's September 29th Letter does not affect any Hyatt hotels under the MSA currently being serviced by the Company.  Hyatt's termination of the HSAs is based on alleged noncompliance by the Company and SSI with certain provisions of the Hyatt Consent Agreement. The Company evaluated the validity of the Hyatt Letter and the alleged grounds for terminating the HSAs for the Hotels, and believes such grounds are without merit.

Hyatt's September 29th Letter also requested repayment of deposits in the aggregate amount of $966,000 paid to the Company by the Hotels in connection with the HSAs.  A second letter dated November 14, 2014 (the "November 14th Letter") received by the Company from Hyatt demanded repayment of such deposits by November 21, 2014.  Upon evaluating the validity of Hyatt's November 14th Letter and again determining that Hyatt's grounds for terminating the HSA and demanding the return of the aforementioned deposits are without merit, the Company formally responded in a letter to Hyatt dated March 3, 2015 wherein the Company denied Hyatt's claims.  The Company subsequently received a third letter from Hyatt dated March 26, 2015 (the "March 26th Letter") in which Hyatt again demanded the repayment of the aforementioned deposits.  The Company has evaluated the validity of the March 26th Letter and the alleged grounds for terminating the HSAs for the Hotels, and believes such grounds are without merit. The Company has not made any such repayment to Hyatt. On May 4, 2015, the Company received a letter from Hyatt alleging that the Hyatt Consent Agreement did not apply to the merger between Signal Point Holdings Corporation and the Company and further contends that such merger triggered Hyatt's right to terminate the MSA.  The Company believes Hyatt's arguments and conclusion are without merit.
 
The Parties began negotiations to rectify the disputes between them and entered into a Settlement Agreement on November 17, 2015 providing for the orderly termination of iTV services at Hyatt locations.  The Settlement Agreement also provided for the extension of high speed internet services for 36 months in retained Hyatt locations and gave the Company the right to bid on all future Wi-Fi installations at hotels and business center locations. The Settlement Agreement also provided that the deposit would be used to fund transitional services and future installation costs. Finally, the Settlement Agreement provided for mutual releases.  See Note 18 "Commitments and Contingencies"  in the accompanying consolidated financial statements.

Wincomm v. SignalShare.

SignalShare, LLC. received a demand letter from counsel for Winncom Technologies, Inc. demanding payment due under a note previously issued by SignalShare.  The demand seeks payment of the $10,000 outstanding payment.  The demand further states that if the payment is not made, Winncomm will seek payment on the entire note amount, $837,589, and threatens legal action.  SignalShare has contacted Winncom's counsel and will seek to settle the matter amicably.  SignalShare intends to settle the matter but has not provided WinnComm with a settlement offer as of this date. As a result of the SignalShare bankruptcy, these amounts are included in the liabilities of discontinued operations.
 
Network Cabling V. SignalShare.
 
On February 19, 2016, Network Cabling sued SignalShare, LLC. seeking $47,755 in damages for failure to pay amounts due.  As a result of the SignalShare bankruptcy, these amounts will now be handled as part of the liabilities of discontinued operations.

See also "Legal Proceedings Concerning Our Principal Shareholder, Robert DePalo.
 
 
 
 
 
 

 
 
Cenfin Corporate Guaranty

On November 19, 2015, SignalShare Infrastructure, Inc. ("SSI") and the Company entered into a Guaranty and Payment Agreement with Cenfin LLC, a senior lender of the Company, whereby the M2 Communications borrowed $150,000 from SSI in exchange for an unsecured guaranty of the debt of SSI up to $1,500,000 until the $150,000 will be paid back to SSI.  The Company believes its obligations, if any, under the Guaranty were satisfied and no amount is due. Subsequently, the Company completed the Foreclosure Sale of substantially all assets of SSI, and these amounts are included as part of the liabilities of discontinued operations.

Cenfin Default

On September 30, 2015, Roomlinx and its subsidiary SSI received a notice of default under the Amended and Restricted Revolving Credit and Surety Agreement with Cenfin LLC dated March 24, 2014 (the "Credit Agreement").  SSI was unable to pay the amounts due to  Cenfin, LLC and the parties agreed to allow Cenfin to foreclose under Agreement.  This relates to approximately $3,622,275 of indebtedness including approximately $308,772 of accrued interest incurred by SSI which holds Roomlinx's operations prior to the Company's March 27, 2015 acquisition of Signal Point Holdings Corp.  On May 11, 2016 SSI completed the foreclosure sale of substantially all assets of SSI to a non-affiliated third party at a public auction pursuant to Article 9 of the Uniform Commercial Code, and these amounts are included as part of the liabilities of discontinued operations.  The auction took place at the offices of DLA Piper LLP, 203 N. LaSalle Street, Chicago, Illinois 60601.  There was one bidder and the transaction closed on May 11, 2016 and all employees of SSI were terminated and the operations of SSI ceased.
 
Cardinal Broadband, LLC. Sale:

The Company is in the process of selling its Cardinal Broadband, LLC subsidiary for approximately $375,000.  In accordance with applicable settlement agreement and lender documentation, the proceeds of the sale have been pledged to Cenfin, LLC, a senior debt holder of SSI without any offset.  The transaction closed effective May 1, 2016 and all assets of Cardinal, including its interest in Arista Communications, LLC., have been sold.

IT Hospitality Solutions LLC. v, SignalShare, LLC. And Signal Point Telecommunications Corp.

On February 16, 2016, SignalShare, LLC ("SSLLC") and Signal Point Telecommunications Corp. ("M2 Communications") were served with a complaint filed in Iredell County, North Carolina by IT Hospitality Solutions LLC, a former contractor of SSLLC, seeking damages for breach of contract from SSLLC and M2 Communications.  The companies are reviewing the merit of the complaint and seek to vigorously defend the matter.

Other than the foregoing, no material legal proceedings to which the Company (or any officer or director of the Company, or any affiliate or owner of record or beneficially of more than five percent of the Common Stock, to management's knowledge) is party to or to which the property of the Company is subject is pending, and no such material proceeding is known by management of the Company to be contemplated.

Legal Proceedings Concerning Our Principal Shareholder, Robert DePalo

Robert DePalo currently owns approximately 31% of the issued and outstanding common stock of M2 Group.  In connection with the SMA described in Item 1 above, Mr. DePalo resigned as a director, officer and/or employee of SPHC (and any subsidiaries thereof), as of March 27, 2015.  As a result, Mr. DePalo has not been and will not be involved in the day to day management of the Company or any of its subsidiaries.  On May 20, 2015, the New York County District Attorney charged Robert DePalo with various offenses relating to foreign investors. Simultaneously, the SEC commenced an action against Mr. DePalo (et al.) in the Southern District of New York based on the same facts alleged by the New York District Attorney.  A copy of the complaint can be found on the SEC's website, www.sec.gov.   The Company takes seriously the New York County District Attorney and SEC actions and will monitor these actions very closely.
 
 
 
 

 
 
 
The Company has no knowledge and cannot provide any further details regarding these proceedings against Mr. Depalo.  The actions described therein have no relation to the Company or its wholly-owned subsidiaries, SPHC, SSI or DMAG.  However, pursuant to the terms of Mr. DePalo's consulting agreement, the Company is obligated to pay 100% of Mr. DePalo's legal fees whether or not related to the agreement.

On February 24, 2016, Brookville Special Purpose Fund, LLC. ("Brookville"), Veritas High Yield Fund LLC ("Veritas") and Allied International Fund, Inc. ("Allied") (collectively the "Plaintiffs") filed suit in separate actions in the U.S. District Court for the Southern District of New York against Signal Point Holdings Corp., Signal Point Software Development Corp. and Signal Point Telecommunications Corp. ("Defendants") seeking foreclosure on the secured loans with the Defendants and the imposition of a temporary restraining order.  On April 7, 2016, the parties entered into a settlement agreement in lieu of foreclosure upon the following terms:

-   The Defendants affirmed the amounts owed under the secured loans
-   The Defendants made payments to cure the defaults related to Brookville and Veritas and entered into a payment arrangement to cure the arrears related to Allied.
-   Plaintiffs agreed to forbear from foreclosure provided the Defendants entered into a Restructuring, Omnibus Pledge, Security and Intercreditor Agreement which provides for, among other things, the transfer of 100% of the shares of Signal Point Telecommunications Corp. and SignalShare Software Development Corp. to a new holding company under Roomlinx, Inc.
-   The Defendants agreed to meet with the Plaintiffs weekly to discuss operations and other matters.
-   The Defendants agreed to provide notice to Plaintiffs of certain expenses over $25,000.
-   The Defendants reduced the compensation of certain members of the management team.
-   The Parties agreed to mutual releases.
-   The Defendants agreed to indemnify the Plaintiffs for certain claims.

The settlement agreement was filed with the court and, in accordance with its terms, the Plaintiffs ceased foreclosure proceedings.  On April 11, 2016, a Court Order was entered before J. Vernon S. Broderick in the U.S. District Court SDNY, detailing that in lieu of foreclosure proceedings, the Company will transfer the excluded entities into a new holding company with all equity of such entity pledged to Brookville, Veritas and Allied, as well as perfecting  liens against all of the assets.  In exchange for the forbearance of the foreclosure on the assets of the Debtors, the Company agreed to transfer the subsidiaries of SPHC (specifically, M2 Communications and M2 nGage), with the exception of SignalShare LLC and Signal Point Corp., to "NEWCO," a new subsidiary of the Company, so that the subsidiaries of SPHC will become subsidiaries of NEWCO.  The Debtors granted the Secured Parties a lien on the assets of the Debtors and pledged the securities of NEWCO, M2 Communications and M2 nGage to the Secured Parties (collectively, the "Collateral"). NEWCO was formed as Digital Media Acquisition Group Corp. ("DMAG") and the shares of M2 Communications and M2 nGage were transferred to DMAG and the senior secured creditors received stock pledges in the shares of M2 Communications and M2 nGage owned by DMAG as required by the terms of the Settlement Agreement and the relevant loan documents.

Please refer to Section 13 "Certain Relationships and Related Transactions and Director Independence for a description of the relationship of the Plaintiffs to Mr. DePalo.

ITEM 4.  MINE SAFETY DISCLOSURES
 
Not applicable.
 
 
 
 
 
 
 
PART II
 
ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
SYMBOL
 
TIME PERIOD
 
LOW
 
HIGH
                 
MTWO
 
April 1, - June 30, 2016
 
 0.27
 
 0.38
   
January 1, - March 31, 2016
 
 0.21
 
 0.39
                 
   
January 1 - March 31, 2015
 
$
 3.00
 
$
10.20
   
April 1 - June 30, 2015
 
$
 1.90
 
$
  5.50
   
July 1 - September 30, 2015
 
$
 0.85
 
$
  2.00
   
October 1 - December 31, 2015
 
$
 0.21
 
$
  1.75
                 
 
 
January 1, - March 31, 2014
 
$
  5.40
 
$
24.00
 
 
April 1, - June 30, 2014
 
$
12.00
 
$
18.00
 
 
July 1, - September 30, 2014
 
$
  7.20
 
$
16.80
 
 
October 1, - December 31, 2014
 
$
  2.40
 
$
  8.40
 
 
 
 
 
 
 
 
 
RMLXP
 
April 1 - June 30, 2016
 
$
  0.10
 
$
  0.11
   
January 1 - March 31, 2016
 
$
  0.10
 
$
  0.16
                 
   
January 1 - March 31, 2015
 
$
  0.17
 
$
  0.18
   
April 1 - June 30, 2015
 
$
  0.20
 
$
  0.18
   
July 1 - September 30, 2015
 
$
  0.22
 
$
  0.18
   
October 1, - December 31, 2015
 
$
 0.20
 
$
 0.16
                 
 
 
January 1, - March 31, 2014
 
$
  6.00
 
$
  8.40
 
 
April 1, - June 30, 2014
 
$
12.60
 
$
15.60
 
 
July 1, - September 30, 2014
 
$
12.60
 
$
14.40
 
 
October 1, -December 31, 2014
 
$
10.20
 
$
14.40
 
The closing bid for the Company's Common Stock on the OTC Pink Limited on August 24, 2016 was $0.26.  As of August 11, 2016, 136,019,348 shares of Common Stock were issued and outstanding (giving retroactive effect to the 1 for 60 reverse stock split and subsequent dividend) which were held of record by approximately 400 stockholders.  As of August 11, 2016, 720,000 shares of Class A Preferred Stock were issued and outstanding which were held of record by a single shareholder although we believe that an estimated 40 beneficial shareholders own Class A Preferred Stock.  As of August 11, 2016, 2,495,000 shares of Series B Preferred Stock were issued and outstanding which were held of record by 17 shareholders.
 
Dividends
 
The Company has not paid any cash dividends on its stock. Dividends may not be paid on the common stock while there are accrued but unpaid dividends on the Class A Preferred Stock, which bears a 9% cumulative dividend. As of December 31, 2015 accumulated but unpaid Class A Preferred Stock dividends aggregated $224,040. Payments must come from funds legally available for dividend payments.  It is the current intention of the Company to retain any earnings in the foreseeable future to finance the growth and development of its business and not pay dividends on the common stock.
 
 
 
 
 
 
 
Issuer Purchases of Equity Securities
 
During 2015, the Company did not repurchase any shares of its common or preferred stock.
 
Recent Sales of Unregistered Securities
 
The following sales of unregistered securities occurred during the year ended December 31, 2015, which were not previously reported:

On April 24, 2015, the Company issued 12,603,473 shares of common stock as dividends to its existing shareholders.  The dividend shares are restricted and could not be transferred without the prior written consent of the Company prior to December 31, 2015.  The dividend shares are exempt from registration under the Securities Act of 1933, as amended (the "Securities Act") as not involving a "sale" as such term is defined in Section 2(a)(3) of the Securities Act.

On July 30, 2015, the Company issued 61,927 restricted shares to Alan J. Werksman TTEE UTD 2/8/96 in settlement of a claim.  The issuance was exempt from registration pursuant to Section 4(a)(2) under the Securities Act.  The Company relied upon the representations and warranties made by Alan Werksman in the settlement agreement.

There were no placement agents or underwriters involved in the above transactions and no sales commissions were paid.

ITEM 6.  SELECTED FINANCIAL DATA
 
Not required.
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and analysis should be read together with our consolidated financial statements, the accompanying notes to these financial statements, and the other financial information that appears elsewhere in this Annual Report on Form 10-K or our SEC filings.

CRITICAL ACCOUNTING POLICIES
 
Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting policies generally accepted in the United States. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and liabilities. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, the allowance for doubtful accounts, property, plant and equipment valuation and goodwill impairment. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of the Company's consolidated financial statements.
 
Accounts Receivable and Allowance for Doubtful Accounts - The Company extends credit to certain customers in the normal course of business, based upon credit evaluations, primarily with 30 – 60 day terms. The Company's reserve requirements are based on the best facts available to the Company and are reevaluated and adjusted as additional information is received.  The Company's reserves are also based on amounts determined by using percentages applied to certain aged receivable categories. These percentages are determined by a variety of factors including, but not limited to, current economic trends, historical payment and bad debt write-off experience. Accounts are written off when they are deemed uncollectible.

Revenue Recognition – M2 Communications derives the majority of its revenue from monthly recurring fees and usage-based fees that are generated principally by sales of its network, carrier and subscription services.
 
 
 
 
 
 

 

 

Monthly recurring fees include the fees billed by M2 Communication's network and carrier services customers for lines in service and additional features on those lines. M2 Communication primarily bills monthly recurring fees in advance, and recognizes the fees in the period in which the service is provided.

Usage-based fees consist of fees billed by M2 Communication's network and carrier services customers for each call made. These fees are billed in arrears and recognized in the period in which the service is provided.

Subscriber fees include monthly recurring fees billed by M2 Communication's end-user subscribers for lines in service, additional features on those lines, and usage-based per-call and per-minute fees. Subscriber fees also consist of provision of access to data, wireless, and VoIP services. These fees are billed in advance for monthly recurring items and in arrears for usage-based items, and revenues are recognized in the period in which service is provided.
 
Deferred Revenue and Customer Prepayments - M2 Communication bills customers in advance for certain of its telecommunications services. If the customer makes payment before the service is rendered to the customer, M2 Communication records the payment in a liability account entitled customer prepayments and recognizes the revenue related to the communications services when the customer receives and utilizes that service, at which time the earnings process is complete.
 
RESULTS OF OPERATIONS

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

Revenues

Our revenues for the years ended December 31, 2015 and 2014 were approximately $10.6 million and $11.3 million, respectively, a decrease of approximately $0.7 million or 6.1%. This decrease primarily relates to a change in the mix of customer services to slightly lower priced products and the loss of some broadband customers due to extremely competitive pricing in the Company's largest market.

Cost of Sales
 
For the years ended December 31, 2015 and 2014, the cost of sales, excluding depreciation and amortization expenses, which is included in selling, general and administrative expense, were approximately $6.9 million and $8.1 million, respectively; a decrease of approximately $1.2 million or 13.9%, for the year ended December 31, 2015. The decrease reflects a reduction in Broadband and VoIP costs due to less volume plus cost savings due to continued efforts in removing redundancies and excess costs.

Selling, General and Administrative Expense

Total selling, general and administrative expense for the year ended December 31, 2015 and 2014 (excluding non-cash stock based compensation of approximately $21.6 million and $1.9 million in the years ended December 31, 2015 and 2014, respectively) was approximately $7.5 million and $8.5 million, respectively. The net decrease of approximately $1.0 million, or a decrease of approximately 11.8% between the periods reflects cost related to ongoing cost containment efforts.
 
Operating Loss
 
Our operating loss increased to approximately $25.4 million for the year ended December 31, 2015 (included non-cash stock based compensation of approximately $21.6 million) compared to approximately $7.2 million (included non-cash stock based compensation of approximately $1.9 million) for the year ended December 31, 2014, for an increase of approximately $18.2 million. This increase is primarily attributable to an increase in non-cash stock based compensation of approximately $19.7 million offset by the resulting improvement in gross margin and cost controls as discussed above.
 
Non-Operating

Interest expense increased from approximately $0.9 million for the year ended December 31, 2014, to approximately $1.0 million for the year ended December 31, 2015. This increase in interest expense was primarily attributable to the additional interest related to conversion of preferred stock to a note during 2015 and additional financing cost related to managing existing debt.
 
 
 
 

 
 

For the years ended December 31, 2015 and 2014, the Company recognized other expense, net of approximately $15,000 and $98,000, respectively as included in other (expenses) income in the accompanying consolidated statements of operations.

Discontinued Operations

Discontinued operations are the result of the bankruptcy of SignalShare, the Article 9 sale of the assets of SSI and the sale of Cardinal Broadband in the first half of 2016 and the termination of our wholesale telecom business unit in September 2013, resulting in a loss on discontinued operations of approximately $55.1 million (including impairment of goodwill of approximately $46.9) and $3.8 million for years ended December 31, 2015 and 2014, respectively.

Net Loss

For the years ended December 31, 2015 and 2014, the Company experienced net losses attributable to common shareholders of approximately $81.7 million and $12.6 million, respectively, a net increase of approximately $69.0 million. This increase includes impairment of good will included in discontinued operations of approximately $46.9 million and additional stock based compensation recorded in 2015 of approximately $21.6 million. Net loss attributable to common shareholders increased by approximately $2.4 million with exclusion of the goodwill impairment and stock based compensation, which is primarily attributable to the increased payroll costs associated with the addition of software developers to help support our live-fi product, an increase in interest expense and the decrease in operating margins between the years as described above.

Related Party Transactions

CenFin LLC

Since June 5, 2009, the Company has maintained a Revolving Credit, Security and Warrant Purchase Agreement (the "Credit Agreement") with Cenfin LLC ("Cenfin"), an entity principally owned by significant shareholders of the Company (see Note 6 to the Consolidated Financial Statements).  On March 24, 2015, in connection with the closing of the Subsidiary Merger, the Company entered into an amended and restated Revolving Credit and Security Agreement with Cenfin (the "Revolver").  Cenfin consented to the transfer of all of the Company's assets to SSI in consideration of (i) payment of $750,000 to CenFin reducing the balance owed to $3,962,000; and (ii) 7,061,295 shares of M2 Group common stock (5.07% of M2 Group's fully diluted shares).  In addition, all subsequent payments are adjusted based on a pro-ration of the accelerated payment.  The revolving loan is secured by the assets of SSI, but not secured by those of M2 Group (except to the extent not assigned to SSI) and not secured by any assets of SPHC, DMAG or their subsidiaries.  Under a Stock Pledge Agreement, dated as of March 24, 2015, the Company pledged to Cenfin all equity interests of SSI and Cardinal Broadband LLC.  Interest is accrued at the Federal Funds Rate plus 5% per annum, payable quarterly, with a default rate of 13% per annum.  The loan is repayable during the period ending March 15, 2017.  The Revolver provides that CenFin, at its discretion, may lend up to an aggregate of $10,000,000.  The Revolver contains covenants and restrictions customary for a facility of this size.

During the year ended December 31, 2015, the Company made interest payments to Cenfin of $61,431 and principal payments of $573,447.  Amounts outstanding under the Credit Agreement were $3,240,160 plus accrued interest of $160,931 as of December 31, 2015.
On June 30, 2015, the Company entered into the First Amendment (the "First Amendment) to the Amended and Restated Revolving Credit Agreement, dated as of June 30, 2015 (the "Credit Agreement"), by and among the Company, SSI and Cenfin. The material terms of the First Amendment provided that Cenfin would be entitled to 33% of the gross proceeds raised in any equity or debt financing activities by either the Company or SSI, not including operational leases, for so long as there is any outstanding balance under the Credit Agreement for which only SSI is obligated (the "Cenfin Equity Payment Obligation").  In consideration of the First Amendment, the Company and SSI released Cenfin from all claims related to the loan documents.
On October 7, 2015, in settlement of a non-payment default, the Company and SSI entered into a Forbearance Agreement with Cenfin upon the following terms:
 
●     The interest rate on each Revolving Loan (as defined) was increased to the Federal Funds Rate plus 13%, from 5%.
 
 
 
 
●     Subject to compliance by the Company and SSI with the terms and conditions of the Second Amendment and the Loan Agreement, Cenfin agreed to forebear from exercising its rights and remedies against SSI with respect to the default for non-payment on September 29, 2015 until the earlier of November 7, 2015 or a Forbearance Default (as defined) occurs (the "Forbearance Period").  SSI also agreed during the Forbearance Period not to make any payments to creditors or lenders of SSI without Cenfin's prior written consent, except for contractual payments, in the ordinary course of business to vendors of SSI.
●     M2 Group (formerly Roomlinx) agreed during the Forbearance Period not to make any payments to any of the creditors or lenders of the Company (other than NFS Leasing) without first giving Cenfin two (2) business days prior written notice, except for contractual payments to vendors in the ordinary course of business.

On November 19, 2015, the Company entered into a Guaranty and Payment Agreement pursuant to which the Company Guaranteed a $150,000 intercompany loan from SSI to the Company and an additional installment payment of $75,000 was made to Cenfin.  Until such time as the $150,000 is repaid to SSI, the Company guaranteed up to $1,500,000 of SSI debt to Cenfin.
 
On May 11, 2016, completed the Foreclosure Sale of substantially all assets of SSI (other than certain excluded agreements) pursuant to Article 9 of the Uniform Commercial Code.  SSI terminated all of its employees and ceased operations.  The Foreclosure Sale resulted from SSI's inability to pay approximately $3,622,275 of indebtedness to SSI's senior lender, Cenfin, LLC.  The winning bid was made by Single Digits, Inc., an unaffiliated New Hampshire corporation and accepted by Cenfin. There was no relationship between SSI or its affiliates and Single Digits prior to the transaction. The consideration was $700,000 plus SSI's cash on hand at Closing less $207,106.72, such amount representing 75% of deposits received by SSI prior to closing for future installations for which work had not been substantially completed for Hyatt.  The amount of accounts receivables included in the transferred assets was approximately $440,000 as of May 9, 2016.
 
NFS Leasing, Inc.

On July 31, 2015, certain wholly owned subsidiaries of the Company identified below entered into the following agreements in connection with the conversion of certain equipment leases into secured loans (collectively referenced as the "NFS Loan Documents"):
 
·
Lease Schedule Termination and Loan Agreement (the "Termination Agreement"), by and between SignalShare, LLC ("SignalShare") and NFS Leasing, Inc. ("NFS");
·
Security Agreement by and between Signal Point Holdings Corp. ("SPHC") and NFS;
·
Promissory Note issued by SignalShare to NFS in the principal amount of $4,946,212 (the "Note");
·
Corporate Guaranty Agreement by and between SPHC and NFS; and
·
First Amendment to the Security Agreement by and between SignalShare and NFS.

The NFS Loan Documents provided that amounts owed by SignalShare to NFS pursuant to certain equipment leases would be converted into secured debt as evidenced by the Note.  The Note provides for SignalShare to make seventy-five consecutive weekly payments of $71,207 with a final payment of $18,887 due upon maturity of the Note on December 19, 2016 (the "Maturity Date"). The Note is secured by subordinated security interests in all of the assets of SignalShare and SPHC.  The Note is also guaranteed by SPHC.  In addition to the payment obligations under the Note, the Termination Agreement provides that SignalShare will make concurrent weekly payments of $28,793 for payments due pursuant to the Master Equipment Lease Number: 2013-218 dated as of March 11, 2013 through the Maturity Date.

In connection with the NFS Loan Documents, the Company issued NFS a Warrant to purchase 1,111,111 shares of Common Stock at an exercise price of $1.80 per share with an exercise period of five years (the "Warrant").
 
On September 22, 2015, NFS notified SignalShare of a default for non-payment. On September 28, 2015 NFS withdrew the default. In exchange for withdrawing the default, NFS, SignalShare and SPHC agreed that unless NFS, on or before Friday, October 2, 2015, is in receipt of payment in the amount of $389,416 or alternatively, if a forbearance arrangement satisfactory to NFS were not executed between the parties by the close of business (5:00 P.M.) on that day,  NFS would be entitled to renew its Notice of Default to SignalShare and SPHC (with respect to its guaranty), in which event SignalShare and SPHC each would waive all applicable cure periods with respect to such default.
 
On October 2, 2015, NFS gave notice of default to SignalShare and SPHC and stated that NFS would seek payment from SignalShare under the Note and from SPHC under the Corporate Guaranty Agreement given to NFS by SPHC as security for the converted SignalShare loans.   The parties negotiated a settlement upon the following material terms:
 
●     SignalShare shall pay NFS via wire transfer the sum of $150,000 within one business day of its receipt of the final payment from one of its customers, which is expected to be received on or about October 30, 2015.
 
 
 
 
●     SignalShare shall pay NFS the amount of $28,793 via wire transfer on each Monday, commencing October 12, 2015 through Monday November 16, 2015, under the Master Lease. SignalShare has made its first three payments under these terms on October 12, 19 and 26, 2015.
●     SignalShare shall, on or before October 23, 2015, cause UCC termination statements to be filed by each of Brookville and Veritas.
●     On or before November 16, 2015, if SignalShare and SPHC close a bridge loan funding, or any other similar funding event, NFS will receive a $500,000 payment which NFS will apply against the outstanding Term Note in accordance with the provisions of the Note.
●     Upon NFS' receipt of the aforementioned $500,000 payment, NFS, in its sole discretion, may choose to restructure the remaining balance of the Note. In such event the $28,793 weekly Master Lease payments will remain in effect until the leases are paid in full.
●     SignalShare shall, make a payment to NFS in the amount of $20,000 on or before December 1, 2015 as reimbursement of NFS's attorneys' fees and other expenses.
●     SignalShare shall pay the past due Personal Property tax of $50,217 owed to NFS on or before December 15, 2015.
●     One million shares of the Company's common stock will be issued to NFS upon, and subject to, NFS' execution of an Investment Intent Letter agreed to by the Company confirming that the shares are being acquired only for lawful investment purposes under applicable law.
In the event SignalShare or SPHC fails to timely pay to NFS any amounts set forth above, or otherwise fails to timely perform any other obligation set forth above, NFS shall have the right to immediately, upon e-mail notice to SignalShare reinstate the default, with no cure rights.
On November 18, 2015, NFS gave notice of Default to SignalShare and simultaneously gave notice to SPHC that NFS would be seeking payment under the SignalShare note pursuant to the corporate guarantee given NFS by SPHC as security for the converted SignalShare loans.  The parties entered in negotiations in order to remove the default and restructure the obligations.  On November 19, 2015, the parties agreed to restructure the loan and make certain payments to NFS.  The parties formalized the agreement which modified the negotiated settlement resulting from the October 2, 2015 default as follows:

·
The $150,000 payment from the impending customer payment was increased to $250,000.
·
The Company's agreed to share information with NFS and provide status updates.
·
The payment dates associated with NFS' attorneys' fees and tax obligations were extended.
·
SignalShare agreed to pay NFS 20% of any upfront initial Wi-Fi installation payment received.
·
Effective 2/2/2016, the note monthly payment will be effective at a rate of $150,000 a month.
·
Upon receipt of an additional $2,000,000 in funding, the term note will be re-amortized to a monthly payment of $250,000 until the note is repaid.

See Item 3 "Legal Proceedings" regarding the current lawsuit brought by NFS. Subsequently, SignalShare filed for bankruptcy, and these amounts are included in the liabilities of discontinued operations.

LIQUIDITY & CAPITAL RESOURCES

As of December 31, 2015, the Company had approximately $36,000 in cash and cash equivalents.  Working capital at December 31, 2015 was a deficit of approximately ($30.0) million as compared to approximately ($9.3) million at December 31, 2014.  The increase in working capital deficit of approximately $20.7 million is primarily due to (i) a reduction in cash approximating $1.5 million, (ii) the additional working capital deficit resulted from the reverse merger of approximately $6.5 million, (iii) an increase in current maturities of debt related to the Company's various existing and new borrowings of approximately $10.8 million, and (iv) increase in deferred revenue of approximately $2.6 million.  The remaining increase in working capital deficit of approximately $2.5 million is the net change in the working capital assets and liabilities.
 
 
 
 
 
 
 
 
Operating Activities

Net cash used in operating activities was approximately $4.6 million and $10.2 million for the years ended December 31, 2015 and 2014, respectively.  The decrease in cash used in operations of $5.6 million was primarily attributable to insufficient funds to pay off past due liabilities and the management of accounts payable during 2015.

Investing Activities

Net cash provided by investing activities was approximately $0.8 million for the year ended December 31, 2015 compared to net cash used in investing activities of approximately $0.2 for the year ended December 31, 2014.  Net cash provided by investing activities of approximately $0.8 million for the year ended December 31, 2015 was the cash acquired upon the reverse merger effective March 27, 2015.

Financing Activities

Net cash provided by financing activities was approximately $2.2 million and $11.9 million for the years ended December 31, 2015 and 2014, respectively. In 2015 the majority of cash provided by was from funds received related to issuance of common stock of approximately $1.6 million, various notes of approximately $1.5 million, and contributed capital received from a principal shareholder of approximately $615,000, offset by repayment of related party debt of approximately $0.8 million, payment of dividends to Series A Preferred Stock shareholder of $175,000 and repayments of debt related to discontinued operations of approximately $588,000. In 2014, the majority of the net cash provided by was from the proceed of the sale by the former Chief Executive Officer of the Company and principal shareholder, of shares of his personal Common Stock holdings with net proceeds of approximately $7.8 million paid to the Company and net proceeds received primarily related to capital leases of approximately $5.5 million offset by the net repayment of related party note of  approximately $644,000 and the payment of dividends to Series A Preferred Stock shareholder of $625,000 .

Contractual Obligations
 
We have operating lease commitments, note payable commitments, and a line of credit commitment. The following table summarizes these commitments at December 31, 2015:

Years ended
 
Line of
   
Note
   
Capital/Finance
   
Operating
   
Minimum
 
December 31,
 
Credit
   
Payable
   
Leases
   
Leases
   
Payments
 
   
(Discontinued
operations)
   
(Continuing and Discontinued operations)
   
(Discontinued
operations)
   
(Continuing and Discontinued operations)
   
(Continuing and Discontinued operations)
 
                     
(b)
       
2016
 
$
3,240,160
   
$
8,191,905
(a)
 
$
2,580,700
   
$
412,589
   
$
17,082,504
 
2017
   
-
     
281,680
     
-
     
339,434
     
621,114
 
2018
   
-
     
305,056
     
-
     
346,567
     
651,623
 
2019
   
-
     
330,375
     
-
     
157,348
     
487,723
 
2020
   
-
     
357,796
     
-
     
15,216
     
373,012
 
Thereafter
   
-
     
523,678
     
-
     
-
     
523,678
 
   
$
3,240,160
   
$
9,990,490
   
$
2,580,700
   
$
1,271,154
   
$
17,082,504
 
 
(a)
Included $4,943,782 related to discontinued operations
(b)
Includes $134,564, $55,972, $57,658, $59,384 and $15,216 related to discontinued operations for 2016, 2017, 2018, 2019 and 2020, respectively
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
We are exposed to market risks, primarily changes in U.S. and LIBOR interest rates and risk from potential changes in the U.S./Canadian currency exchange rates as they relate to our services and purchases for our Canadian customers.
 
 
 
 
 
 
 
Foreign exchange gain / (loss)
 
Transactions denominated in a foreign currency give rise to a gain (loss) which is included in selling, general and administrative expenses in the consolidated statements of operations and comprehensive loss.  For the years ended December 31, 2015 and 2014, transaction losses were not material.
Translation of Financial Results
 
Because we translate a portion of our financial results from Canadian dollars to U.S. dollars, fluctuations in the value of the Canadian dollar directly effect our reported consolidated results.  We do not hedge against the possible impact of this risk.  A ten percent adverse change in the foreign currency exchange rate would not have a significant impact on our consolidated results of operations and comprehensive loss or financial position.
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
 
M2 nGage Group, Inc. and Subsidiaries
(Formerly Roomlinx, Inc. and Subsidiaries)
 
Index to Consolidated Financial Statements
For the Years Ended December 31, 2015 and 2014
 
 
 

 
- 47 -

 
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
M2 nGage Group, Inc. and Subsidiaries
 
We have audited the accompanying consolidated balance sheets of M2 nGage Group, Inc. (Formerly Roomlinx, Inc.) and Subsidiaries (the "Company") as of December 31, 2015 and 2014 and the related consolidated statements of operations and comprehensive loss, changes in deficit and cash flows for each of the two years in the period ended December 31, 2015. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of M2 nGage Group, Inc. and Subsidiaries as of December 31, 2015 and 2014, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2015, in conformity with generally accepted accounting principles.
 
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the accompanying consolidated financial statements, the Company has incurred recurring net losses, used cash in operating activities, and had negative working capital, which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 

 
/s/  RBSM LLP
 
August 29, 2016
New York, New York


 

 
 

 


M2 nGage Group, Inc. and Subsidiaries
(Formerly Roomlinx, Inc. and Subsidiaries)
Consolidated Balance Sheets
As of December 31, 2015 and 2014
 
 
           
             
             
             
   
2015
   
2014
 
             
Assets
           
Current assets
           
Cash
 
$
35,570
   
$
1,584,541
 
Accounts receivable, net
   
232,388
     
314,941
 
Prepaid expenses and deferred cost
   
237,493
     
180,268
 
Deferred finance fees - current
   
208,858
     
-
 
Other current assets
   
45,613
     
62,173
 
Current assets of discontinued operations
   
9,565,096
     
3,133,351
 
Total current assets
   
10,325,018
     
5,275,274
 
Property, equipment and software, net
   
61,516
     
10,828
 
Intangible assets, net
   
2,004,166
     
2,104,167
 
Security deposits
   
684,179
     
775,341
 
Other assets
   
-
     
20,575
 
Other assets of discontinued operations
   
-
     
5,800,450
 
Total Assets
 
$
13,074,879
   
$
13,986,635
 
                 
Liabilities and Deficit
               
Current liabilities
               
Accounts payable
 
$
5,159,171
   
$
4,310,346
 
Current maturities of notes payable, related party
   
3,160,622
     
832,030
 
Accrued expenses
   
1,455,098
     
864,368
 
Note payable and other obligations, current portion
   
87,500
     
-
 
Deferred revenue and customer prepayments
   
825,859
     
756,052
 
Other current liabilities
   
702,283
     
-
 
Current liabilities of discontinued operations
   
28,892,528
     
7,803,134
 
Total current liabilities
   
40,283,061
     
14,565,930
 
Non-current liabilities
               
Long-term portion of notes payable, related party
   
1,798,585
     
2,067,601
 
Nonconvertible Series A prefered stock, related party
   
-
     
10
 
Other liabilities of discontinued operations
   
-
     
5,040,948
 
Total non-current liabilities
   
1,798,585
     
7,108,559
 
Total liabilities
   
42,081,646
     
21,674,489
 
Commitments and contingencies
   
-
     
-
 
                 
Deficit
               
M2 nGage Group, Inc. stockholders' deficit
               
Preferred stock, par value $0.20 per share, 5,000,000 shares authorized:
               
Class A - 720,000  and nil shares authorized, issued and outstanding
(liquidation preference of $144,000 and $0 at December 31, 2015 and 2014, respectively)
   
144,000
     
-
 
Preferred stock, par value $0.01 per share, 10,000,000 shares authorized and nil and 1,010
shares designated and outstanding at December 31, 2015 and 2014, respectively:
 
Series A preferred stock, par value $0.01 per share, 1,000 shares designated, nil
and 1,000 shares issued and outstanding at December 31, 2015 and 2014, respectively
   
-
     
-
 
Series B preferred stock, par value $0.01 per share, 10 shares designated, nil and 10 shares
issued and outstanding at December 31, 2015 and 2014, respectively
   
-
     
-
 
Common stock, par value $0.001 per share, 400,000,000 shares authorized, 136,019,348
and 115,282,137 shares issued and outstanding at December 31, 2015, and 2014, respectively
   
136,018
     
115,282
 
Additional paid-in capital
   
105,353,800
     
45,179,249
 
Accumulated deficit
   
(134,629,262
)
   
(52,982,385
)
Accumulated other comprehensive loss
   
(3,556
)
   
-
 
Total M2 nGage Group, Inc. stockholders' deficit
   
(28,999,000
)
   
(7,687,854
)
Non-controlling interest - discontinued operations
   
(7,767
)
   
-
 
Total deficit
   
(29,006,767
)
   
(7,687,854
)
Total Liabilities and Deficit
 
$
13,074,879
   
$
13,986,635
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 



 
M2 nGage Group, Inc. and Subsidiaries
(Formerly Roomlinx, Inc. and Subsidiaries)
Consolidated Statements of Operations and Comprehensive Loss
For the years ended December 31, 2015 and 2014
             
   
2015
   
2014
 
                 
Revenues
 
$
10,610,520
   
$
11,294,276
 
Cost of sales, excluding depreciation and amortization which is included in selling, general and administrative expense
   
6,933,066
     
8,053,486
 
Gross margin
   
3,677,454
     
3,240,790
 
Operating Expenses
               
Selling, general and administrative expense
   
29,070,604
     
10,417,592
 
Total operating Expenses
   
29,070,604
     
10,417,592
 
Operating loss
   
(25,393,150
)
   
(7,176,802
)
Other expense
               
Interest expense, net
   
(982,252
)
   
(896,298
)
Other (expense) income, net
   
(14,776
)
   
(97,686
)
Total other expense
   
(997,028
)
   
(993,984
)
Loss from continuing operations before income taxes
   
(26,390,178
)
   
(8,170,786
)
Income tax expense (benefit)
   
-
     
-
 
Loss from continuing operations
   
(26,390,178
)
   
(8,170,786
)
Loss from discontinued operations, net of tax
   
(55,089,466
)
   
(3,825,760
)
Net loss
   
(81,479,644
)
   
(11,996,546
)
Less:  Net loss attributable to non-controlling interest - discontinued operations
   
7,767
     
-
 
Net loss attributable to M2 nGage Group, Inc.
   
(81,471,877
)
   
(11,996,546
)
Less: Dividends on preferred stock
    (175,000 )     (600,000 )
Net loss attributable to M2 nGage Group, Inc. common shareholders
  $ (81,646,877 )   $ (12,596,546 )
               
Other comprehensive loss
               
Net loss
  $ (81,479,644 )   $ (11,996,546 )
Currency translation loss
   
(3,556
)
   
-
 
Comprehensive losss
    (81,483,200 )     (11,996,546 )
Comprehensive loss attributable to non-controlling - discontinued operations     (11,323 )     -  
Comprehensive loss attributable to M2 nGage Group, Inc. common shareholders
 
$
(81,471,877
)
 
$
(11,996,546
)
                 
Loss per share
               
Basic and diluted loss per common share from
               
Continuing operations, attributable to M2 nGage Group, Inc. commons shareholders
 
$
(0.20
)
 
$
(0.08
)
Discontinued operations, attributable to M2 nGage Group, Inc. commons shareholders
   
(0.42
)
   
(0.03
)
Net loss attributable to M2 nGage Group, Inc. common shareholders
 
$
(0.62
)
 
$
(0.11
)
Weighted average number of common shares outstanding
               
Basic and diluted
   
130,771,837
     
113,136,711
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 

 
 
 
M2 nGage Group, Inc. and Subsidiaries
(Formerly Roomlinx, Inc. and Subsidiaries)
Consolidated Statements of Changes in Deficit
For the years ended December 31, 2015 and 2014
 
                                                                           
                                                                               
                                                                         
                                                              Accumulated    
Non-Contolling
       
   
Class A
   
Series A
   
Series B
               
Additional
         
 other
   
Interest -
       
   
Preferred Stock
   
Preferred Stock
   
Preferred Stock
   
Common Stock
   
Paid-in
   
Accumulated
   
Comprehensive
   
Discontinued
   
Total
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
   
loss
   
Operations
   
Deficit
 
                                                                               
Balance at December 31, 2013, as adjusted for reverse stock split and recapitalization
   
-
   
$
-
     
1,000
   
$
-
     
10
   
$
-
     
109,156,213
   
$
109,157
   
$
26,701,156
   
$
(40,385,839
)
 
$
-
   
$
-
   
$
(13,575,526
)
Contributed capital from a principal shareholder
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
7,826,753
     
-
     
-
     
-
     
7,826,753
 
Issuance of common stock for conversion of the Robert DePalo Special Opportunity Fund, related party
   
-
     
-
     
-
     
-
     
-
     
-
     
2,544,268
     
2,544
     
3,050,577
     
-
     
-
     
-
     
3,053,121
 
Issuance of common stock for conversion of the Brookville Special Purpose Fund, related party
   
-
     
-
     
-
     
-
     
-
     
-
     
2,065,606
     
2,065
     
3,096,351
     
-
     
-
     
-
     
3,098,416
 
Issuance of common stock for conversion of the Veritas High Yield Fund, related party
   
-
     
-
     
-
     
-
     
-
     
-
     
516,050
     
516
     
773,557
     
-
     
-
     
-
     
774,073
 
Common stock issued in connection with the acquisition of Incubite
   
-
     
-
     
-
     
-
     
-
     
-
     
1,000,000
     
1,000
     
1,799,000
     
-
     
-
     
-
     
1,800,000
 
Stock based compensation
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
1,931,855
     
-
     
-
     
-
     
1,931,855
 
Preferred stock dividends
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(600,000
)
   
-
     
-
     
(600,000
)
Net loss for the period
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(11,996,546
)
   
-
     
-
     
(11,996,546
)
Balance at December 31, 2014
   
-
     
-
     
1,000
     
-
     
10
     
-
     
115,282,137
     
115,282
     
45,179,249
     
(52,982,385
)
   
-
     
-
     
(7,687,854
)
Shares retained by Roomlinx' shareholders in connection with the shares exchange merger transaction
   
720,000
     
144,000
     
-
     
-
     
-
     
-
     
19,758,619
     
19,758
     
35,545,756
     
-
     
-
     
-
     
35,709,514
 
Preferred stock dividends of Series A
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(175,000
)
   
-
     
-
     
(175,000
)
Buyback and cancellation of Series A Preferred Stock
   
-
     
-
     
(1,000
)
   
-
     
-
     
-
     
-
     
-
     
(2,100,042
)
   
-
     
-
     
-
     
(2,100,042
)
Cancellation of Series B Preferred Stock
   
-
     
-
     
-
     
-
     
(10
)
   
-
     
-
     
-
     
10
     
-
     
-
     
-
     
10
 
Sale of common stock
   
-
     
-
     
-
     
-
     
-
     
-
     
916,665
     
916
     
1,631,043
     
-
     
-
     
-
     
1,631,959
 
Shares issued related to settlement
   
-
     
-
     
-
     
-
     
-
     
-
     
61,927
     
62
     
111,407
     
-
     
-
     
-
     
111,469
 
Contributed capital from a shareholder
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
615,004
     
-
     
-
     
-
     
615,004
 
Stock based compensation
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
21,596,317
     
-
     
-
     
-
     
21,596,317
 
Warrants issued to lenders
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
2,419,539
     
-
     
-
     
-
     
2,419,539
 
Warrants issued for marketing servies
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
355,517
     
-
     
-
     
-
     
355,517
 
Foreign currency translation loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(3,556
)
   
-
     
(3,556
)
Net loss for the period
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(81,471,877
)
   
-
     
(7,767
)
   
(81,479,644
)
Balance at December 31, 2015
   
720,000
   
$
144,000
     
-
   
$
-
     
-
   
$
-
     
136,019,348
   
$
136,018
   
$
105,353,800
   
$
(134,629,262
)
 
$
(3,556
)
 
$
(7,767
)
 
$
(29,006,767
)
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
 
 
M2 nGage Group, Inc. and Subsidiaries
(Formerly Roomlinx, Inc. and Subsidiaries)
Consolidated Statements of Cash Flows
For the years ended December 31, 2015 and 2014
 
             
   
2015
   
2014
 
Cash flow from operating activities:
           
Net loss
 
$
(81,479,644
)
 
$
(11,996,546
)
Adjustment to reconcile loss to net cash used in operating activities -
               
Depreciation and amortization
   
3,622
     
49,472
 
Amortization of debt discount and deferred financing costs
   
457,325
     
175,408
 
Amortization of intangible asset
   
100,000
     
100,000
 
Bad debt expense, net of recovery
   
59,440
     
101,680
 
Stock based compensation
   
21,596,317
     
1,931,855
 
Non-cash expenses
   
15,469
     
-
 
Stock issued for settlement expense
   
111,469
         
Loss from discontinued operations 
   
55,089,466
     
3,825,760
 
Changes in operating assets and liabilities:
               
Decrease (Increase) in accounts receivable
   
23,113
     
(131,365
)
Increase in prepaid expenses and other current assets
   
(40,665
)
   
(1,150
)
Increase in other assets
   
(643,211
)
   
(33,466
)
Increase in accounts payable and accrued expenses
   
1,360,290
     
400,609
 
Increase in deferred revenue and customer prepayments
   
69,807
     
301,476
 
Cash used in discontinued operations, net
   
(1,324,000
)
   
(4,930,509
)
Net cash used in operating activities
   
(4,601,202
)
   
(10,206,776
)
Cash flows from investing activities
               
Purchase of machinery and equipment
   
-
     
(8,990
)
Cash provided by (used) in investing activities of discontinued operations, net
   
812,756
     
(169,255
)
Net cash provided by (used in) investing activities
   
812,756
     
(178,245
)
Cash flows from financing activities
               
Proceeds from issuance of common Stock
   
1,631,959
     
-
 
Contributed capital from principal Shareholder
   
615,004
     
7,826,753
 
Payment of related party loans
   
(790,980
)
   
(78,044
)
Proceeds from notes payable - related party, net
   
760,000
     
(644,220
)
Proceeds of notes payable, net
   
789,783
     
-
 
Proceeds from (repayment of) capital lease transactions, net
   
-
     
(17,643
)
Payment of Series A preferred stock dividend
   
(175,000
)
   
(625,000
)
Cash used in financing activities of discontinued operations, net
   
(587,735
)
   
5,472,630
 
Net cash provided by financing activities
   
2,243,031
     
11,934,476
 
Effect of foreign exchange fluctuation in cash
   
(3,556
)
   
-
 
Net  (decrease) increase  in cash
   
(1,548,971
)
   
1,549,455
 
Cash, beginning of period
   
1,584,541
     
35,086
 
Cash, end of period
 
$
35,570
   
$
1,584,541
 
                 
Supplementary disclosure of cash flow information
               
Cash paid during the period for -
               
Interest
 
$
1,338,638
   
$
866,763
 
Income taxes
 
$
-
   
$
-
 
                 
Supplemental disclosure or non-cash investing and financing activities:
               
Common stock issued in connection with the merger
 
$
35,565,514
   
$
-
 
Common stock issued in connection with the acquisition of Incubite
 
$
-
   
$
1,800,000
 
Fixed assets purchased under capital lease obligation
 
$
59,925
   
$
88,000
 
Equipment purchased under financed lease payable for resale
 
$
-
   
$
33,551
 
Repayment of capital leases payable made directly by customer
 
$
166,320
   
$
190,697
 
Conversion of the Robert DePalo Special Opportunity Fund debt into equity
 
$
-
   
$
3,053,121
 
Conversion of the Brookville Special Purpose fund debt into equity
 
$
-
   
$
3,098,416
 
Conversion of the Veritas High Yield Fund debt into equity
 
$
-
   
$
774,073
 
Software development capitalized cost against accounts payable balance
 
$
33,858
   
$
42,820
 
Equipment purchased against accounts payable balance
 
$
10,636
   
$
-
 
Accounts receivable and capital lease obligation for finance transactions
 
$
-
   
$
215,670
 
Equipment purchased for resale and deferred costs incurred against accounts payable balance
 
$
1,947,102
   
$
953,730
 
Class A preferred stock assumed in connection with the reverse acquisition
 
$
144,000
   
$
-
 
Repayment of notes payable made directly by customer
 
$
995,753
   
$
466,866
 
Warrants issued to lenders
 
$
2,419,539
   
$
-
 
Warrants issued for marketing services
 
$
355,517
   
$
-
 
Software development costs reclassified into fixed assets
 
$
483,276
   
$
-
 
Buyback and termination of preferred stock series A and B
 
$
2,100,032
   
$
-
 
Capital leases converted to as notes payable
 
$
4,946,213
   
$
-
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
 
 
 
M2 nGage Group, Inc. and Subsidiaries
(Formerly Roomlinx, Inc. and Subsidiaries)
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
 

1.   Organization

Description of Business – M2 nGage Group, Inc. (formerly Roomlinx, Inc.)  (the "Company", "RMLX' or "M2 Group" or the "Registrant") was incorporated under the laws of the state of Nevada.  The Company, through its subsidiaries, provides high speed wired and wireless broadband services to customers located throughout the United States, turnkey services including all technology, infrastructure and expertise necessary to construct both temporary and permanent broadband wireless networks at large event forums, such as stadiums and concert venues and sells, installs, and services in-room media and entertainment solutions for hotels, resorts, and time share properties; including its proprietary Interactive TV platform, internet, and free to guest and video on demand programming.  The Company also sells, installs and services telephone, internet, and television services for residential consumers.  The Company develops software and integrates hardware to facilitate the distribution of Hollywood, adult, and specialty content, business applications, national and local advertising, and concierge services.  The Company also sells, installs and services hardware for wired networking solutions and wireless fidelity networking solutions, also known as Wi-Fi, for high-speed internet access to hotels, resorts, and time share locations. The Company installs and creates services that address the productivity and communications needs of hotel, resort and time share guests, as well as residential consumers. The Company may utilize third party contractors to install such hardware and software.

Merger - On March 14, 2014, the Company entered into an Agreement and Plan of Merger ("Merger Agreement") with Signal Point Holdings Corp. ("SPHC" or "Holdings") and Roomlinx Merger Corp., a wholly-owned subsidiary of the Company ("Merger Subsidiary" or "RMLX Merger Corp.").  On February 10, 2015, the Company and SPHC terminated the Merger Agreement due to unexpected delays in meeting the closing conditions by the then extended termination date almost one year after the original agreement was entered into.  On March 27, 2015, the Company and SPHC agreed upon new terms for the transaction and simultaneously signed and completed the Subsidiary Merger Agreement (the "SMA") described in Note 13.  Upon the terms and subject to the conditions set forth in the SMA, RMLX Merger Corp. was merged with and into SPHC, a provider of domestic and international telecommunications services, with SPHC continuing as the surviving entity in the merger as a wholly-owned subsidiary of the Company (the "Subsidiary Merger").  The existing business of the Company was transferred into a newly-formed, wholly-owned subsidiary named SignalShare Infrastructure, Inc. ("SSI").  See Note 13 for additional information. 

SPHC is comprised of its wholly owned subsidiaries; M2 nGage Communications, Inc. (formerly Signal Point Telecommunication Corp) ("M2 Communications" or "SPTC"), M2 nGage, Inc. (formerly SignalShare Software Development Corp.) ("M2 nGage" or "SignalShare Software"), SignalShare LLC ("SignalShare") and Signal Point Corp. ("SPC") (see "discontinued operations" Note 6 related to SignalShare and SPC)

SignalShare Infrastructure, Inc. ("SSI") is comprised of its wholly owned subsidiaries Canadian Communications LLC ("CCL"), Cardinal Connect, LLC ("Connect"), Cardinal Broadband, LLC ("CBL"), and Arista Communications, LLC ("Arista"), a 50% owned subsidiary controlled by SSI and Cardinal Hospitality, Ltd. ("CHL") (see "discontinued operations" Note 6).
 
On