S-1/A 1 singletouchs1a1newpeltz.htm SINGLE TOUCH SYSTEMS S-1 AMENDMENT 1, 07.23.13 singletouchs1a1newpeltz.htm


As filed with the Securities and Exchange Commission on July 30 , 2013
Registration No. 333-186490
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Amendment No. 1 to
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933

SINGLE TOUCH SYSTEMS INC.
(Exact name of Registrant as specified in its charter)

Delaware
 
7389
 
13-4122844
(State or other jurisdiction of
incorporation or organization)
 
(Primary Standard Industrial
Classification Code Number)
 
(I.R.S. Employer
Identification Number)
100 Town Square Place, Suite 204
Jersey City, NJ 07310
(201) 275-0555
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

James L. Orsini
Chief Executive Officer
Single Touch Systems Inc.
100 Town Square Place, Suite 204
Jersey City, NJ 07310
(201) 275-0555
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copy to:
Gregory Sichenzia, Esq.
Marcelle S. Balcombe, Esq.
Sichenzia Ross Friedman Ference, Esq.
61 Broadway, 32nd Floor
New York, NY 10022
(212) 930-9700

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: x
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
 
 
 
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer ¨
 
Accelerated filer ¨
 
Non-accelerated filer ¨
 
Smaller reporting company x
       
(Do not check if a smaller reporting company)
   
 
 
 
 
 
 
 
 
 
 
 


 
 
ii

 
 
 
 
 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion, Dated July 30 , 2013
 
PROSPECTUS
 
SINGLE TOUCH SYSTEMS INC.
 
5,750,000 Shares
Common Stock
 
This prospectus relates to an aggregate of up to 5,750,000 shares of our common stock, which may be resold from time to time by the selling stockholder identified in this prospectus. The shares are held as of the date of this prospectus by Anthony Macaluso, our Executive Chairman, who has granted to the selling stockholder options to purchase such shares from him at a fixed price per share, as consideration for and pursuant to a consulting arrangement with the selling stockholder. The consulting arrangement included registration rights. The selling stockholder may sell common stock from time to time in the open market (at the prevailing market price) or in negotiated transactions.
 
You should read this prospectus and any prospectus supplement carefully before you invest. We will not receive any proceeds from the sale of the shares by the selling stockholder. Anthony Macaluso will receive the exercise price of the associated options, if the selling stockholder exercises the options.
 
We have several outstanding and pending registration statements for the resale of our common stock by various selling stockholders. There are as of the date of this Prospectus 38,527,642 total shares available for resale under four currently-effective resale registration statements (1,380,000 of those 38,527,642 are currently outstanding shares, 7,856,000 underlie currently outstanding convertible promissory notes and the other 8,631,000 shares underlie currently outstanding warrants.)
 
Our common stock is traded on the OTC Bulletin Board under the symbol “SITO”. On July 29 , 2013, the reported closing sale price of our common stock was $0.60 per share.
 
 
Investing in our common stock involves a high degree of risk. See Risk Factors” beginning on page 3 for certain risks you should consider before purchasing any shares.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
The date of this prospectus is July 30 , 2013
 
 
 
 
 
 


 
 
TABLE OF CONTENTS
 

This prospectus is part of a registration statement that we filed with the Securities and Exchange Commission. You should rely only on the information contained in this prospectus or to which we have referred you. We have not authorized anyone to provide you with information or to make any representation on behalf of Single Touch Systems Inc. that is different from that contained in this prospectus. You should not rely on any unauthorized information or representation. This prospectus is an offer to sell only the securities offered by this prospectus under circumstances and in jurisdictions where it is lawful to do so. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the date of delivery of this prospectus or of any sales of these securities. Our business, financial condition, results of operations and prospects may have changed since the date of this prospectus. This prospectus may be used only in jurisdictions where it is legal to sell these securities.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements contained or incorporated by reference in this prospectus are “forward-looking statements.” These statements are based on the current expectations, forecasts, and assumptions of our management and are subject to various risks and uncertainties that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements. Forward-looking statements are sometimes identified by language such as “believes,” “anticipates,” “estimates,” “expects,” “plans,” “intends,” “projects,” “future” and similar expressions and may also include references to plans, strategies, objectives, and anticipated future performance as well as other statements that are not strictly historical in nature. The risks, uncertainties, and other factors that could cause our actual results to differ materially from those expressed or implied in this prospectus include, but are not limited to, those noted under the caption “Risk Factors” beginning on page 3 of this prospectus. Readers should carefully review this information as well the risks and other uncertainties described in other filings we may make after the date of this prospectus with the Securities and Exchange Commission.

Readers are cautioned not to place undue reliance on forward-looking statements. They reflect opinions, assumptions, and estimates only as of the date they were made, and we undertake no obligation to publicly update or revise any forward-looking statements in this prospectus, whether as a result of new information, future events or circumstances, or otherwise.
 


 
 
PROSPECTUS SUMMARY

This summary highlights the information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all of the information that you should consider before buying shares of our common stock. You should read the entire prospectus and any prospectus supplements carefully, especially the sections entitled “Caution Regarding Forward-Looking Statements,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” together with our financial statements and the related notes included elsewhere in this prospectus and in any prospectus supplements related hereto, before deciding to purchase shares of our common stock.

Single Touch Systems Inc. is an innovative mobile media solutions provider serving retailers, advertisers and brands. Through patented technologies and a modular, adaptable platform, our multi-channel messaging gateway enables marketers to reach consumers on all types of connected devices, with information that engages interest, drives transactions and strengthens relationships and loyalty.

Our solution is designed to drive return on investment for high-volume clients and/or customized branded advertisers. Our platform and tools are designed to enable large brands or anyone with substantial reach to utilize the mobile device as a new means to communicate. Communication might be in the form of a reminder message, a coupon, an advertisement or a voice call. Regardless of the form, our platform can drive value and cost savings for companies large and small, and we provide the ability to drive contextually relevant advertising messages to the right audience.

We have expanded our relationship with AT&T Services, Inc., through which we retain 11 client relationships representing nearly all of our reported revenue in the fiscal years ended in 2011 and 2012. The bulk of that revenue comes from notifications sent on behalf of 4 separate Walmart corporate programs. These programs and related services continue to develop nationwide, and we continue to experience increasing activity in these programs that have caused our AT&T revenues to grow.

For a more complete description of our business, please see  “Business,” beginning on page 13.

All of the shares covered by this prospectus are being offered for resale by the selling stockholder named in this prospectus. We will not receive any proceeds from any sale of the shares.

An investment in our common stock is speculative and involves substantial risks. You should read the “Risk Factors” section of this prospectus for a discussion of certain factors to consider carefully before deciding to invest in shares of our common stock.

Corporate information

Our principal executive offices are located at 100 Town Square Place, Suite 204, Jersey City, NJ 07310 and our telephone number is (201) 275-0555. Our website is www.singletouch.net. The contents of our website are not incorporated by reference into this prospectus.
 
 


 
 
Summary of the Offering
 
Shares of common stock offered by us
 
None.
     
Shares of common stock offered by the Selling Stockholder
 
5,750,000 shares
     
Use of proceeds
 
We will not receive any proceeds from the sale of common stock covered by this prospectus. If the warrants overlying certain of such shares of common stock are exercised for cash, Anthony Macaluso, personally, we would receive such exercise-price cash proceeds.
     
Risk Factors
 
An investment in our common stock is speculative and involves substantial risks. You should read the “Risk Factors” section of this prospectus for a discussion of certain factors to consider carefully before deciding to invest in shares of our common stock.
     
Plan of Distribution
 
The shares of common stock covered by this prospectus may be sold by the selling stockholder in the manner described under “Plan of Distribution.”
     
OTC Bulletin Board Symbol
 
“SITO”

 
 
 
 
 

 

 

 
 
RISK FACTORS

Your investment in our common stock involves a high degree of risk.  You should consider the risks described below and the other information contained in this prospectus carefully before deciding to invest in our common stock.  If any of the following risks actually occur, our business, financial condition and operating results could be harmed.  As a result, the trading price of our common stock could decline, and you could lose a part or all of your investment.
 
RISKS RELATED TO OUR BUSINESS
 
We currently rely on brand owners, and especially Walmart, to use our programs to satisfy their communication needs and thereby to generate our revenues from wireless carriers indirectly.  The loss of or a change in any of these significant relationships could materially reduce our revenues.
 
Both our present and our future depend heavily on our relationship with Walmart.  We must retain our current business there and expand the relationship into augmented programs, both for its own sake and as a reference point for possible similar business with other retailers and brand owners.  Our relationship with Walmart is subject to risk based on factors such as performance, reliability, pricing, competition, alternate technological solutions and changes in interpersonal relationships.
 
Our marketing and sales efforts are significantly impacted by our relationship with AT&T. We have direct to user marketing efforts but currently our primary revenue growth has been through our cooperative marketing with AT&T.
 
We have had and continue to develop our relationship with AT&T as exemplified by the relations we have with their client Walmart. We have cultivated and intend to work to continue to develop new products and relations with AT&T clients through coordinated marketing efforts with AT&T. This relationship has been beneficial but can be limiting as related to our independent marketing efforts as we believe we need to be careful to not conflict with the business interests of AT&T or its major clients. Should AT&T choose to promote another vendor’s products and services over our own, our current and future business could be negatively impacted. In addition, AT&T has significant influence over the pricing for many of its suppliers, including us.  We work cooperatively with AT&T to provide competitive pricing to the end users but AT&T ultimately has the final contracting authority with their clients who benefit from our products and services.
 
We have a history of losses.  Excluding extraordinary non-cash items, we have never been profitable.
 
Our operations have not been profitable on a GAAP, cash flow, or Adjusted EBITDA basis.  We will be unable to achieve profitability unless we experience substantial revenue growth.  We may never be able to achieve or maintain profitability.
 
We may not be able to effectively protect or monetize our patents.
 
We own a portfolio of patents related to mobile search, commerce, advertising and streaming media, which to date we have not monetized other than by using some of them in the course of our own operations.  To monetize some or all of them by sale would require access to potential buyers, which may be difficult for a smaller company such as us to obtain, and would also require completion of a buyer’s due diligence investigation into the strength of the patents, demonstration to the buyer that owning such patents would have defensive or offensive value to it, and negotiation of the price and other terms of transaction documents.
 
To monetize some or all of the patents by licensing would require similar steps.  In addition, we may not be able to monetize our patents as against companies who use our patented inventions unless they respect our ability to enforce our patents against them if they were not to agree to licenses.
 
 
 
 
We are currently suing Zoove Corporation for patent infringement, but to continue to prosecute the Zoove action, and/or additional patent infringement actions, would require us to incur substantial legal fees and costs.  The outcome of litigation is never certain, and the amount of damages that might be awarded to us under any judgment is also uncertain; and even if a judgment is obtained it would be subject to appeal and to the uncertainties of collection.
 
In addition, companies whose actual or planned activities are blocked by our patents could attempt to develop technological work-arounds in order to avoid compensating us.
 
There can be no assurance that we will be able to effectively protect or monetize our patents, or that we will be able to obtain a return equal to the fair intrinsic value of the patents.  The effort to obtain monetization could entail significant expenses and also opportunity costs, as our executive Chairman Anthony Macaluso devotes a substantial portion of his business efforts to our protection and monetization program.
 
We currently rely on wireless carriers, and especially AT&T, to market and distribute our products and services and to generate our revenues.  The loss of or a change in any of these significant carrier relationships could cause us to lose access to their subscribers and thus materially reduce our revenues.
 
Our future success is highly dependent upon maintaining successful relationships with wireless carriers.  A significant portion of our revenue has always been derived from a very limited number of carriers, and currently nearly all of our revenues are paid to us through AT&T Services, Inc.  We expect that we will continue to generate a substantial majority of our revenues through distribution relationships with a limited number of carriers for the foreseeable future.  Our failure to maintain our relationships with these carriers would materially reduce our revenues and thus harm our business, operating results and financial condition.
 
Typically, carrier agreements have a term of one or two years with automatic renewal provisions upon expiration of the initial term, absent a contrary notice from either party.  In addition, some carrier agreements, including our key agreement with AT&T Services, Inc., provide that the carrier can terminate the agreement early and, in some instances, at any time without cause, which could give them the ability to renegotiate economic or other terms.
 
Many factors outside our control could impair our ability to generate revenues through a given carrier, including the following:
 
the carrier’s preference for our competitors’ products and services rather than ours;
the carrier’s decision to discontinue the sale of some or all of our products and services;
the carrier’s decision to offer similar products and services to its subscribers without charge or at reduced prices;
the carrier’s decision to restrict or alter subscription or other terms for downloading our products and services;
a failure of the carrier’s merchandising, provisioning or billing systems;
the carrier’s decision to offer its own competing products and services;
the carrier’s decision to transition to different platforms and revenue models; and
consolidation among carriers.

If any of our carriers decides not to market or distribute our products and services or decides to terminate, not renew or modify the terms of its agreement with us or if there is consolidation among carriers generally, we may be unable to replace the affected agreement with acceptable alternatives, causing us to lose access to that carrier’s subscribers and the revenues they afford us, which could materially harm our business, operating results and financial condition.
 
 
 
 
We may need to raise additional capital to meet our business requirements in the future and such capital raising may be costly or difficult to obtain and could dilute current stockholders’ ownership interests.
 
We may need to raise additional capital in the future, which may not be available on reasonable terms or at all.  Our present cash flow from operations is insufficient to achieve our business plan.  We may need to raise additional funds through public or private debt or equity financings to meet various objectives including, but not limited to:
 
pursuing growth opportunities, including more rapid expansion;
protecting our intellectual property from infringement;
acquiring complementary businesses;
making capital improvements to improve our infrastructure;
hiring and/or incentivizing qualified management and key employees;
developing new services, programming or products;
responding to competitive pressures; and
maintaining compliance with applicable laws.

As a result of the recent economic recession, and the continuing economic uncertainty, it has been difficult for companies, particularly smaller ones, to obtain equity or debt financing.
 
Any additional capital raised through the sale of equity or equity-backed securities may dilute current stockholders’ ownership percentages and could also result in a decrease in the fair market value of our equity securities.  The terms of those securities issued by us in future capital transactions may be more favorable to new investors, and may include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect.
 
Debt securities, on the other hand, are senior to common stock, might contain onerous restrictive covenants, and must be repaid when they mature; and if we do not profitably use the money raised, we may not have enough cash on hand to repay the debt upon maturity without impairing our operations.
 
If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rights to our technologies or our services, or grant licenses on terms that are not favorable to us.
 
Furthermore, any additional debt or equity or other financing that we may need may not be available on terms favorable to us, or at all.  If we are unable to obtain required additional capital, we may have to curtail our growth plans or cut back on existing business and, further, we may not be able to continue operating if we do not generate sufficient revenues from operations needed to stay in business.
 
We may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs.  We may also be required to recognize non-cash expenses in connection with certain securities we issue, such as convertible notes and warrants, which may adversely impact our reported financial results.
 
We may not be able to manage our growth effectively.
 
Our strategy envisions growing our business.  There can be no assurance that such growth will occur, either to the extent our strategy envisions or at all.  Even if we do grow, if we fail to manage our growth effectively our financial results could be adversely affected.  Growth may place a strain on our management systems and resources.  We must continue to refine and expand our business development capabilities, our systems and processes and our access to financing sources.  As we grow, we must continue to hire, train, supervise and manage new employees.  We cannot assure you that we will be able to:
 
meet our capital needs;
implement, improve and expand our operational, financial, management information, risk management and other systems effectively or efficiently or in a timely manner;
allocate our human resources optimally;
identify, hire, train, motivate and retain qualified managers and employees;
 
 
 
 
develop the management skills of our managers and supervisors; or
evolve a corporate culture that is conducive to success.
 
If we are unable to manage our growth and our operations our financial results could be adversely affected.
 
If we fail to maintain an effective system of internal control over financial reporting and other business practices, and of Board-level oversight, we may not be able to report our financial results accurately or prevent and detect fraud and other improprieties.  Consequently, investors could lose confidence in our financial reporting, and this may decrease the trading price of our stock.
 
We must maintain effective internal controls to provide reliable financial reports and to prevent and detect fraud and other improprieties.  We are responsible to review and assess our internal controls and implement additional controls when improvement is needed.  Failure to implement any required changes to our internal controls or any others that we identify as necessary to maintain an effective system of internal controls 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 market price of our stock.
 
Because we are relatively small, our internal control procedures may not be fully mature. We have limited internal personnel to implement procedures and must scale our procedures to be compatible with our resources. We also rely on outside professionals including accountants and attorneys to support our control procedures.
 
Also, and in any event, Sarbanes-Oxley Act requirements regarding internal control over financial reporting, and other internal controls over business practices, are costly to implement and maintain, and such costs are relatively more burdensome for smaller companies such as us than for larger companies.
 
Until fiscal 2012 we did not have an Audit Committee, a Compensation Committee or a Governance and Nominating Committee, composed of independent directors.  Accordingly, these Committees’ oversight procedures and issues familiarity may not yet be fully mature.
 
We have undergone a management transition and have two centers of management authority.
 
Until May 16, 2011, Anthony Macaluso served as our Chief Executive Officer, President and Chief Financial Officer.  On that date, James Orsini started his employment with us and took on those titles, with Anthony Macaluso remaining employed as our executive Chairman and serving as our Chief Innovation Officer.  On September 26, 2011 we employed John Quinn as our Chief Financial Officer.  We have also recruited and hired other senior staff.  We have moved our executive headquarters from Encinitas, California, to Jersey City, New Jersey, although Mr. Macaluso remains based in California.  Such a management transition subjects us to a number of risks, including risks pertaining to coordination of responsibilities and tasks, creation of new management systems and processes, differences in management style, effects on corporate culture, and the need for transfer of historical knowledge.  In addition, because both Mr. Macaluso and Mr. Orsini have substantial authority in our affairs, our operations will be adversely affected if they do not work together harmoniously, do not efficiently allocate responsibilities between themselves, or do not implement and abide by effective controls.
 
Our management ranks are thin, and losing or failing to add key personnel could adversely affect our business.
 
Our future performance depends substantially on the continued service of our senior management and other key personnel, including personnel which we need to hire.  In particular, our success depends upon the continued efforts of our management personnel, Anthony Macaluso, our executive Chairman and Chief Innovation Officer; James Orsini, our President and Chief Executive Officer; John Quinn, our Chief Financial Officer, and other members of the senior management team.  We need to identify and hire additional senior managers to perform key tasks and roles.  We do not have key man life insurance on any of our personnel.
 
 
 
 
Lack of remaining available authorized common stock may hamper our ability to meet future corporate needs.
 
We have a small amount of remaining authorized common stock. Of our 200,000,000 authorized shares of common stock, as of March 31, 2013 there were 132,945,480 shares outstanding, 55,462,675 shares reserved for issuance upon exercise of outstanding stock options and warrants, and 9,960,000 shares reserved for issuance upon conversion of outstanding convertible debt.  Because we cannot issue or commit common shares that would exceed the authorized 200,000,000-share threshold, we may be limited in our ability to, among other things, raise cash by selling equity or equity-linked securities, use common stock as currency for acquisitions, use common stock or stock options to recruit new officers and employees and incentivize and compensate new and existing officers and employees, and use common stock or stock options to resolve claims.  Even when stock options and warrants expire or convertible debt is repaid, we expect to continue issue new shares, options, warrants or convertible debt in the ordinary course of business. As a result, we expect to continue to have limited available shares until such time as we are able to increase our authorized share limit or significantly reduce the number of outstanding shares through a reverse split or some other appropriate action.  We cannot increase the 200,000,000-share limit except by amending our certificate of incorporation, which would require approval by holders of a majority of our outstanding shares.  There is no assurance that such stockholders approval could be obtained.
 
We are subject to competition.  And, if technological conditions change, our competitors may be better able to react than we are.
 
We have many actual and potential competitors, many of whom may have more financial, personnel, intellectual property, development and/or reputational resources than we do.  If we and our business do not grow larger, we will not be able to enjoy the brand power and economies of scale that many of our competitors do.  In addition, it is likely that our industry will be subject to rapid and profound technological changes.  Our competitors may have more ability to react to such changes than we do.
 
We may be unable to develop and introduce in a timely way new products or services.
 
The planned timing and introduction of new products and services are subject to risks and uncertainties.  Unexpected technical, operational, deployment, distribution or other problems could delay or prevent the introduction of new products and services, which could result in a loss of, or delay in, revenues.
 
We may experience unexpected expenses or delays in service enhancements if we are unable to license third-party technology on commercially reasonable terms.
 
We rely, to an extent, on technology that we license from third parties, and may find a need to license additional technology in the future.  These third-party technology licenses might not continue to be available to us on commercially reasonable terms or at all.  If we are unable to obtain or maintain these licenses on favorable terms, or at all, we could experience delays in completing and developing our products and services.
 
We may not be able to adequately safeguard our intellectual property rights from unauthorized use, and we may become subject to claims that we infringe on others’ intellectual property rights.
 
We rely on a combination of patents, trade secrets, copyrights, trademarks, and other intellectual property laws, nondisclosure agreements and other arrangements with employees, actual and prospective customers and actual or prospective capital providers and their agents and advisors, and other protective measures to preserve our proprietary rights.  These measures afford only limited protection and may not preclude competitors from developing products or services similar or superior to ours.  Moreover, the laws of certain foreign countries do not protect intellectual property rights to the same extent as the laws of the United States.
 
Although we implement protective measures and intend to defend our proprietary rights, these efforts may not be successful.  From time to time, we may litigate within the United States or abroad to enforce our issued or licensed patents, to protect our trade secrets and know-how or to determine the enforceability, scope and validity of our proprietary rights and the proprietary rights of others.  Enforcing or defending our proprietary rights can involve complex factual and legal questions and could be expensive, would require management’s attention and might not bring us timely or effective relief.
 
 
 
 
Furthermore, third parties may assert that our products or processes infringe their intellectual property rights.  Although there are no pending or threatened intellectual property lawsuits against us, we may face litigation or infringement claims in the future.  Infringement claims could result in substantial judgments, and could result in substantial costs and diversion of our resources even if we ultimately prevail.  A third party claiming infringement may also obtain an injunction or other equitable relief, which could effectively block our use of allegedly infringing items.  Although we may seek licenses from third parties covering intellectual property that we are allegedly infringing, we may not be able to obtain any such licenses on acceptable terms and conditions, if at all.
 
Applicable rules, including those contained in and issued under the Sarbanes-Oxley Act of 2002, may be burdensome to us and/or make it difficult for us to retain or attract qualified officers and directors, which could adversely affect the management of our business.
 
We may be unable to attract and retain those qualified officers, directors and members of board committees required to provide for our effective management because of the rules and regulations that govern publicly-held companies.  The enactment of the Sarbanes-Oxley Act of 2002 has resulted in the issuance of a series of 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 national securities exchanges.  (Our securities are not currently listed on any national securities exchange.)  The perceived increased personal risk associated with these recent changes may deter qualified individuals from accepting roles as directors and executive officers.
 
Further, some of these recent 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 common stock on any national securities exchange (assuming we elect to seek and are successful in obtaining such listing) could be adversely affected.
 
We have a history of related-party transactions.
 
Throughout our history we have engaged in related-party transactions with our directors and officers, including our executive Chairman Anthony Macaluso. In all related-party transactions, there is a risk that even if the Company personnel on the other side of the table from the related party are striving to ensure that the terms of the transaction are arms-length, the related party’s influence may be such that the transaction terms could be viewed as favorable to that related-party. We established committees comprised of independent directors in our most recent fiscal year to review proposed related-party transactions, but even such committees and procedures may be susceptible to the influences inherent to these types of transactions. Our financial statements and other disclosure in this prospectus provide specific information about our prior related-party transactions. We may engage in additional related-party transactions in the future.
 
RISKS RELATED TO OUR INDUSTRY
 
Demand for the services we provide is not yet well established.
 
Brand owners who are potential users of the services we provide must weigh their decisions in the light of limited budgets for marketing and notification, the inertia of dealing with well established providers of well established traditional modalities for marketing and notification, lack of experience with services such as ours and the perception (whether or not well founded) of technological risk and not-fully-demonstrated cost-effectiveness of our services.  There are indications that the market among major brand owners for services such as ours may be in an early stage of development.
 
 
 
 
System or network failures could reduce our sales, increase costs or result in a loss of end users of our products and services.
 
Any failure of, or technical problem with, carriers’, third parties’ or billing systems, delivery or information systems, or communications networks could result in the inability of end users to receive communications or download our products, prevent the completion of a billing transaction, or interfere with access to some aspects of our products.  If any of these systems fails or if there is an interruption in the supply of power, an earthquake, superstorm, fire, flood or other natural disaster, or an act of war or terrorism, end users might be unable to access our offerings.  For example, from time to time, our carriers have experienced failures with their billing and delivery systems and communication networks, including gateway failures that reduced the provisioning capacity of their branded e-commerce system.  Any failure of, or technical problem with, the carriers’, other third parties’ or our systems could cause us to lose end users or revenues or incur substantial repair costs and distract management from operating our business, or persuade retailers or brand owners that solutions utilizing our programs are not sufficiently reliable.  This, in turn, could harm our business, operating results and financial condition.
 
Our business depends on the growth and maintenance of wireless communications infrastructure.
 
Our success will depend on the continued growth and maintenance of wireless communications infrastructure in the United States and internationally.  This includes deployment and maintenance of reliable next-generation digital networks with the speed, data capacity and security necessary to provide reliable wireless communications services.  We have no control over this.
 
RISKS RELATED TO OUR COMMON STOCK
 
Our common stock is not traded on any national securities exchange.
 
Our common stock is currently quoted on the OTC Bulletin Board, which may increase price quotation volatility and could limit the liquidity of the common stock, all of which may adversely affect the market price of the common stock and our ability to raise additional capital.
 
Trading in our stock has been modest, so investors may not be able to sell as much stock as they want at prevailing prices.  Moreover, modest volume can increase stock price volatility.
 
The average daily trading volume in our common stock for the twelve-month period ended September 30, 2012 was approximately 61,000 shares.  If modest trading in our stock continues, it may be difficult for investors to sell or buy substantial quantities of shares in the public market at any given time at prevailing prices.  Moreover, the market price for shares of our common stock may be made more volatile because of the relatively low volume of trading in our common stock.  When trading volume is low, significant price movement can be caused by the trading in a relatively small number of shares.
 
Applicable SEC rules governing the trading of “penny stocks” limits the trading and liquidity of the common stock which may affect the trading price of the common stock.
 
Our common stock is currently quoted on the OTC Bulletin Board, and trades below $5.00 per share, and we have less than $2,000,000 of net tangible assets; therefore, the common stock is currently considered a “penny stock” and so is subject to SEC rules and regulations which impose limitations upon the manner in which such shares may be publicly traded.  These regulations require the delivery, before any transaction involving a penny stock, of a disclosure explaining the penny stock market and the associated risks; and certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability determination regarding such a purchaser and receive such purchaser’s written agreement to a transaction before sale.  In addition, margin regulations prevent low-priced stocks such as ours from being used as collateral for brokers’ margin loans to investors.  These regulations have the effect of limiting the trading activity of the common stock and reducing the liquidity of an investment in our common stock.  In addition, many institutional investors, as a matter of policy, do not invest in stocks which are not traded on a national securities exchange and/or which trade for less than $5.00 per share (or some lower price point).
 
 
 
 
Securities analysts may not initiate coverage or continue to cover our common stock, and this may have a negative impact on its market price.
 
Common stock prices are often significantly influenced by the research and reports that securities analysts publish about companies and their business.  We do not have any control over these analysts.  There is no guarantee that securities analysts will cover our common stock.  If securities analysts do not cover our common stock, the lack of research coverage may adversely affect its market price.  If we are covered by securities analysts and our stock is downgraded, our stock price will likely decline.  If one or more of these analysts ceases to cover us or fails to publish regular reports on us, we can lose visibility in the financial markets, which can cause our stock price or trading volume to decline.
 
The price of our common stock has been and may continue to be volatile, which could lead to losses by investors and costly securities litigation.
 
The trading price of our common stock has been and is likely to continue to be volatile and could fluctuate in response to factors such as:
 
actual or anticipated monetizations of our patents;
actual or anticipated variations in our operating results (including whether we have achieved our key business targets and/or earnings estimates) and prospects;
announcements of technological innovations by us or our competitors;
announcements by us or our competitors of significant acquisitions, business wins, strategic partnerships, joint ventures or capital commitments;
additions or departures of key personnel;
introduction of new services by us or our competitors;
sales of our common stock or other securities in the open market (particularly if overall trading volume is not high);
general market conditions and broader political and economic conditions; and
other events or factors, many of which are beyond our control.

The stock market has experienced significant price and volume fluctuations, which have often been unrelated to the operating performance of companies, and in particular the market prices of stock in smaller companies and technology companies have been highly volatile.  The market price of our common stock at any particular time may not remain the market price in the future.  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 that 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.
 
We do not expect any cash dividends to be paid on our common stock in the foreseeable future.
 
We have never declared or paid a cash dividend on our common stock, and we do not anticipate such a declaration or payment for the foreseeable future.  We expect to use any future earnings, as well as any capital that may be raised in the future, to fund business growth.  Consequently, a stockholder’s only opportunity to achieve a return on investment would be for the price of our common stock to appreciate and that stockholder to sell his or her shares at a profit.  We cannot assure stockholders of a positive return on their investment when they sell their shares, nor can we assure that stockholders will not lose the entire amount of their investment.
 
You may experience dilution of your ownership interests because of the future issuance of additional shares of our common stock and our preferred stock.
 
We have aggressively issued common stock and other equity-based securities in support of our business objectives and initiatives.  In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders.  We are currently authorized to issue an aggregate of 205,000,000 shares of capital stock consisting of 200,000,000 shares of common stock and 5,000,000 shares of preferred stock with preferences and rights to be determined by our Board of Directors.  As of March 31, 2013 , there were 132,945,480 shares outstanding, 55,462,675 shares reserved for issuance upon exercise of outstanding stock
 
 
 
 
options and warrants, and 9,960,000 shares reserved for issuance upon conversion of outstanding convertible debt. The holders of such options, warrants, and convertible securities can be expected to exercise (convert) them at a time when our common stock is trading at a price higher than the exercise (conversion) price of these outstanding options, warrants, and convertible securities.  If these options or warrants to purchase our common stock are exercised, convertible debt is converted or other equity interests are granted under our 2008, 2009 or 2010 stock plans, or under other plans or agreements adopted in the future, such equity interests will have a dilutive effect on your ownership of common stock.  We may also issue additional shares of our common stock or other securities that are convertible into or exercisable for 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.  Such securities may be issued at below-market prices or, in any event, prices that are significantly lower than the price at which you may have paid for your shares.  The future issuance of any such securities may create downward pressure on, or dampen any upward trend in, the trading price of our common stock.
 
We are controlled by our executive Chairman/major stockholder Anthony Macaluso.
 
Anthony Macaluso, our executive Chairman, beneficially owns approximately 22.6% of our outstanding common stock, on a Rule 13d-3 basis, as of March 31, 2013 .  Such concentrated control of the Company may adversely affect the price of our common stock.  Because of his high percentage of beneficial ownership, and his positions as an officer and director, Mr. Macaluso may be able to control matters requiring the vote of stockholders, including the election of our Board of Directors and certain other significant corporate actions.  This control could delay, defer or prevent others from initiating a potential merger, takeover or other change in our control, even if these actions would benefit our other stockholders and us.  This control could adversely affect the voting and other rights of our stockholders and could depress the market price of our common stock.  Actions which Mr. Macaluso determines to be in his best interest might not be in your (or even our) best interest.  If you acquire common stock, you may have no effective voice in the management of the Company.
 
Our certificate of incorporation, bylaws and Delaware law contain provisions that could have the effect of deterring or delaying changes in incumbent management, proxy contests or changes in control.
 
Anti-takeover provisions of our certificate of incorporation, bylaws and Delaware law may have the effect of deterring or delaying attempts by our stockholders to remove or replace management, engage in proxy contests and/or effect changes in control.  The provisions of our charter documents include:
 
the inability of stockholders to call special meetings of stockholders;
the ability of our board of directors to amend our bylaws without stockholder approval; and
the ability of our board of directors to issue up to 5,000,000 shares of preferred stock without stockholder approval upon the terms and conditions and with the rights, privileges and preferences as our board of directors may determine.
 
 
In addition, as a Delaware corporation, we are subject to Delaware law, including Section 203 of the Delaware General Corporation Law.  In general, Section 203 prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder unless certain specific requirements are met as set forth in Section 203.  These provisions, alone or together, could have the effect of deterring or delaying changes in incumbent management, proxy contests or changes in control.  We think Section 203 does not currently apply to us, but in the future it might apply to us.
 
Even though we are not a California corporation, our common stock could still be subject to a number of key provisions of the California General Corporation Law.
 
Under Section 2115 of the California General Corporation Law, or CGCL, non-listed corporations not organized under California law may still be subject to a number of key provisions of the CGCL.  This determination is based on whether the corporation has specific significant business contacts with California and if more than 50% of its voting securities are held of record by persons having addresses in California.  Under Section 2115, we could be subject to certain provisions of the CGCL.  Among the more important provisions are those relating to the election and removal of directors, cumulative voting, standards of liability and indemnification of directors, distributions, dividends and repurchases of shares, shareholder meetings, approval of certain corporate transactions, dissenters’ rights, and inspection of corporate records.  We have not determined whether or not we are, or will be, subject to such CGCL requirements.
 

 
 
USE OF PROCEEDS

We will not receive any proceeds from the sales, if any, of the common stock covered by this prospectus. All net proceeds from the sale of the common stock covered by this prospectus will go to the selling stockholder. See “Selling Stockholder” and “Plan of Distribution” described below. If the warrants overlying certain of such shares are exercised for cash, we would receive such exercise-price cash proceeds, which we would intend to use for general working capital purposes.

Market Information

Our common stock is quoted on the OTC Bulletin Board under the symbol “SITO”. The following table sets forth, for the fiscal quarters indicated, the high and low closing sale prices per share of our common stock. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. The Closing Sale price of our common stock on July 29 , 2013 was $0.60 .

Quarter Ended
 
High
   
Low
 
                 
March 31, 2013     0.95       0.60  
December 31, 2012
   
0.65
     
0.25
 
September 30, 2012
   
0.34
     
0.17
 
June 30, 2012
   
0.31
     
0.19
 
March 31, 2012
   
0.37
     
0.23
 
December 31, 2011
   
0.33
     
0.20
 
September 30, 2011
   
0.56
     
0.26
 
June 30, 2011
   
0.75
     
0.45
 
March 31, 2011
   
0.83
     
0.49
 
December 31, 2010
   
1.05
     
0.73
 

Holders

As of March 31, 2013 , there were approximately 244 record holders of our common stock. This does not include the holders of approximately 82 un-exchanged stock certificates or the additional holders of our common stock who held their shares in street name as of that date.

Dividends

We have never paid or declared any cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future but rather intend to retain future earnings, if any, for reinvestment in our future business. Any future determination to pay cash dividends will be in compliance with our contractual obligations and otherwise at the discretion of the board of directors and based upon our financial condition, results of operations, capital requirements and such other factors as the board of directors deems relevant.
 
 

 
 
BUSINESS
General

Single Touch Systems Inc. is an innovative mobile media solutions provider serving retailers, advertisers and brands. Through patented technologies and a modular, adaptable platform, our multi-channel messaging gateway enables marketers to reach consumers on all types of connected devices, with information that engages interest, drives transactions and strengthens relationships and loyalty.

Our solution is designed to drive return on investment for high-volume clients and/or customized branded advertisers. Our platform and tools are designed to enable large brands or anyone with substantial reach to utilize the mobile device as a new means to communicate. Communication might be in the form of a reminder message in voice or Short Message Service (SMS), an abbreviated dial code or a coupon, promotion, or an advertisement. Regardless of the form, our platform can drive value and cost savings for companies large and small and the ability to drive contextually relevant advertising messages to the right audience.

We maintain a website located at http://www.singletouch.net, and electronic copies of our periodic or other reports and any amendments to those reports, are available, free of charge, under the “Company” link on our website as soon as practicable after such material is filed with, or furnished to, the SEC.

Background of Industry Growth and Potential

Across the globe, the mobile channel is growing fast. People in every country are buying more and more advanced mobile devices, and business and consumers alike are using mobile phones for everyday activities like checking the weather, taking advantages of discounts, shopping or sending and receiving financial information. As mobile adoption increases, e-Business and channel strategy professionals are challenged to determine how these devices integrate with their existing sales and service channels. Rapid adoption of the mobile channel is a critical driver of the need for e-business professionals to evolve their strategy and operations to agile commerce.

According to CTIA – The Wireless Association (June 2012), there were 322 million wireless subscribers in the US, more than the entire US population. In the US alone, there were 4.59 trillion combined minutes and messages sent for the year ended June 2012.
 
Principal Products and Services
 
Messaging and Notifications – Our Short Message Service (SMS) gateway has proven to be an excellent channel for retailers to communicate with their brand loyalists on a very personal level. This is accomplished through integration with the client’s customer relationship management (CRM) database. With such integration, retailers are able to send targeted mobile coupons and transactional messages based on a shopper’s CRM profile. Targeted mobile coupons can be sent based on past purchase behaviors making the content relevant and timely to a shopper. Transactional messages can add another layer of value by sending shipping and order pick-up alerts, as well as notifications for reorders, layaway and new product releases. The foremost example of our solution running today is Walmart. Walmart pharmacy departments send individualized text and voice messages through our gateway to their customers letting them know when their prescriptions are ready for pick-up.
 
Abbreviated Dial Codes- Our abbreviated dial codes have been proven to have 10 times the recall of a common keyword-to-short-code solution. We have seen many of our clients using this as an on-ramp to mobility solutions. Walmart is currently using #wmt to make it easier for their customers to locate and download their smartphone mobile app. Forrester Research called this dial code technology one of the top 4 for CMOs to watch. We see the potential for Single Touch customers to leverage the hash tags in the social media space with the # symbol in their abbreviated dial code to enhance brand awareness.
 
 
 
 
 
 
Certain Agreements

Our business agreements consist primarily of customer agreements and carrier agreements. Customer agreements are typically agreements with companies which have sales relationships with the end users of the transacted media content or service application. These agreements typically involve a split of the fees received between the brand owner and us or a fixed fee per transaction. Carrier agreements are infrastructure in nature and establish the connection to the end user that enables us to deliver and collect payment for the transacted media content or service application.

We have expanded our relationship with AT&T Services, Inc., through which we retain 11 client relationships representing nearly all of our reported revenue in the fiscal years ended in 2011 and 2012. The bulk of that revenue comes from notifications sent on behalf of 4 separate Walmart corporate programs. These programs and related services continue to develop nationwide, and we continue to experience increasing activity in these programs that have caused our AT&T revenues to grow.

Research and Development

During the fiscal years ended September 30, 2012 and September 30, 2011 we spent $434,915 and $502,110, respectively, on software development that was capitalized. Software development costs amortized and charged to operations in fiscal 2012 and fiscal 2011 were $446,876 and $412,632, respectively.

Our research and development activities relate primarily to general coding of software and product development. These activities consist of both new products and support or improvements to existing products.

We believe that we may need to increase our current level of dedicated research and development resources by adding both hardware and engineers as our business continues to develop.

Patents and Licenses

We currently hold rights to multiple patents relating to certain aspects of accessing information on a mobile device, sending information to and between mobile devices, advertising and media streaming. We believe the ownership of such patents is an important factor in our existing and future business.
 
 

 
We regularly file patent applications to protect innovations arising from our research, development and design, and are currently pursuing multiple patent applications. Over time, we have accumulated a portfolio of issued patents primarily in the U.S. No single patent is solely responsible for protecting our systems and services. We believe the duration of our patents is adequate relative to the expected lives of our systems and services.

Some of our systems and services may include intellectual property obtained from third parties. It may be necessary in the future to seek or renew licenses relating to various aspects of our systems and services. There is no guarantee that such licenses could be obtained on reasonable terms or at all. Because of technological changes in the industries in which we compete, current extensive patent coverage, and the rapid rate of issuance of new patents, it is possible that certain components of our systems and services may unknowingly infringe existing patents or intellectual property rights of others.

Government Regulation

We provide value-added and enabling platforms for carrier-based distribution of various software and media content, as well as notifications and other communications. Applicable regulations are primarily under the Federal Communications Commission and related to the operations policies and procedures of the wireless communications carriers. Messaging and safeguarding Personal Health Information, moreover, is regulated by, among other things, the Privacy Rule of the Health Insurance Portability and Accountability Act, otherwise known as HIPAA. The wireless carriers are primarily responsible for regulatory compliance. Given the growing and dynamic evolution of digital wireless products that can be offered to consumers over a wireless communication network, regulators could impose rules, requirements and standards of conduct on third-party content and infrastructure providers such as us. We are not currently aware of any pending regulations that would materially impact our operations.

Employees

We currently have 16 full-time and no part-time employees including our chairman, our chief executive officer, our chief financial officer, 6 persons serving as programmers and technical staff operators, 5 persons in sales and marketing, 1 person in accounting and 1 administrative assistant. We expect to increase our future employee levels on an as-needed basis in connection with our expected growth.

Properties

Our executive offices are located at 100 Town Square Place, Suite 204, Jersey City, NJ 07310. We have a five-year lease for this space at a rate of $8,925 per month. The facilities comprise approximately 3500 square feet consisting entirely of administrative office space.

We have additional offices located at 2235 Encinitas Blvd., Suite 210, Encinitas, CA 92024. We have a month-to-month renewal lease for this space at a rate of $3,027 per month. The facilities comprise approximately 1900 square feet consisting entirely of administrative and software development office space.

We have additional offices located at 3310 Market Street, Suite 204, Rogers, AK 72758. We have a five-year lease for this space at a rate of $3,645 per month. The facilities comprise approximately 2100 square feet consisting entirely of sales, client service, and administrative office space.

We have additional offices located at 12301 West Explorer Drive, Suite 210, Boise, ID 83713. We have a two-year lease for this space at a rate of $1,204 per month, which has been extended on a month-to-month basis. The facilities comprise approximately 1445 square feet consisting entirely of software development office space.

Our servers are housed at CoreSite, 900 N. Alameda Street, Los Angeles, CA 90012, Paetec, 100 W. La Palma, Anaheim, CA 92801 and CoreSite, 427 North La Salle, Chicago, IL 60605.
 
 

 
 
Legal Proceedings

On February 21, 2012, we filed a complaint against Zoove Corporation in the United States District Court, Northern District of California. The complaint alleges patent infringement, in which we seek preliminary and permanent injunctive relief as well as damages resulting from Zoove’s infringement of U.S. Patent No. 7,813,716 and U.S. Patent No. 8,041,341. The Complaint has been served, and Zoove has filed an answer. We had a case management conference on June 25, 2012. We filed our Claim Construction Brief on December 20, 2012, and are currently in the claim construction period.  A claim construction hearing was held on February 20, 2013 we are awaiting a Court decision.
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following Management’s Discussion and Analysis should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this prospectus. The Management’s Discussion and Analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions.  Any statements that are not statements of historical fact are forward-looking statements.  When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements.  These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this prospectus.  Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors such as those noted under “Risk Factors” on page 3 of this prospectus.  We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this prospectus.
 
Overview
 
Single Touch Systems Inc. is an innovative mobile media solutions provider serving retailers, advertisers and brands. Through patented technologies and a modular, adaptable platform, our multi-channel messaging gateway enables marketers to reach consumers on all types of connected devices, with information that engages interest, drives transactions and strengthens relationships and loyalty.
 
Our solution is designed to drive return on investment for high-volume clients and/or customized branded advertisers. Our platform and tools are designed to enable large brands or anyone with substantial reach to utilize the mobile device as a new means to communicate. Communication might be in the form of a reminder message, a coupon, an advertisement or a voice call. Regardless of the form, our platform can drive value and cost savings for companies large and small, and we provide the ability to drive contextually relevant advertising messages to the right audience.
 
Our business has focused on leveraging our solution in the areas of messaging/notifications and Abbreviated Dial Codes. These solutions are enhanced when we deploy imbedded advertisements, sponsorship and couponing.
 
“For the first time in history with near 322 million wireless subscribers in the USA, wireless penetration exceeds the U.S. population” 1
 
 
 

1  Source: June 2012 CTIA Semi Annual Wireless Survey
 
 
 
“One billion smartphones will be shipped globally this year”2
 
“Americans now spend an average of 158 minutes every day on their smartphones and tablets”3
 
We have developed and are deploying advertisements, sponsorships and couponing within our product offerings. This development is significant in that our per-message revenue increases significantly for each message that includes an advertisement or sponsorship. We see these expanded offerings, including those not based directly on messaging volume, as important steps in our continued program to creating both consumer and advertiser demand for our mobile media platform, accessing mobile notifications, advertisements, sponsorships, coupons and commerce transactions from the mobile phone.
 
“Mobile now accounts for 12 percent of Americans’ media consumption time, triple its share in 2009”4
 
Our relationship with AT&T Services, Inc., through which we retain multiple client relationships, represents nearly all of our reported revenue in the fiscal years ended in 2011 and 2012. The bulk of that revenue comes from notifications sent on behalf of 4 separate Walmart corporate programs. These programs and related services continue to develop nationwide, and we continue to experience increasing activity in these programs that have caused our AT&T revenues to grow.
 
We have a portfolio of intellectual property relevant to our industry related to mobile search, commerce, advertising and streaming media. This portfolio represents our many years’ innovation in the wireless industry through patented technology developed by us, as well as patented technology we purchased from Microsoft and others.
 
We have law firms engaged to protect our patented technology rights against unauthorized users and infringers. We have sent letters of notification to several companies making them aware of our patent portfolio and have commenced litigation.
 
We have assigned 16 of our 18 and all of our intellectual property rights to Single Touch R&D IP, Inc a wholly owned subsidiary that will conduct all research, development, patent filings, patent maintenance and that will continue to identify, notify, and, where circumstances warrant, enforce against companies we believe may be infringing on the intellectual property protected by our growing patent portfolio under the guidance of our Executive Chairman.
 
As we expand operational activities, we may continue to experience operating losses and/or negative cash flows from operations and may be required to obtain additional financing to fund operations.
 
Throughout our history our operations have been constrained by our ability to raise funds, and our liquidity has been an ongoing issue. We have received debt and equity investments both from insiders and from private investors. We have always had negative cash flows from operations and net operating losses, although the size of the net operating losses has been magnified by a variety of non-cash accounting charges. As we expand operational activities, we may continue to experience operating losses and/or negative cash flows from operations and may be required to obtain additional financing to fund operations. There can be no assurance that we will be able obtain additional financing, if at all or upon terms that will be acceptable to us.
 
Our operating history makes predictions of future operating results difficult to ascertain. Our revenue is concentrated with a single customer. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in our stage of development. Such risks include, but are not limited to, an evolving business model and the management of growth. To address these risks we must, among other things, diversify our customer base, implement and successfully execute our business and marketing strategy, continue to develop and upgrade technology and products, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.
 
 

2
Source: Gartner report 4/4/13
3
Source: Flurry report 4/13/13
4 Source: eMarketer report 10/23/12
 
 
 
Results of Operations
 
Results of Operations for the Three Months Ended March 31, 2013 and 2012

During the three months ended March 31, 2013, the Company had an increase in revenue of approximately 16% over revenue generated during the quarter ended March 31, 2012 ($1,808,836 in 2013 compared to $1,554,823 in 2012).   The growth, all of which is organic, is attributable to continuing mobile adoption and new programs for existing and new client relationships. The Company’s net loss for the fiscal quarter ended March 31, 2013 was $1,072,289.  This is higher than the net loss incurred during the fiscal quarter ended March 31, 2012 of $655,337.  Under the metrics employed by management to evaluate the underlying business explained below, Adjusted EBITDA, that underlying loss, $442,694 for the quarter ended March 31, 2013, was $138,024 more than that for the quarter ended March 31, 2012.

We define Adjusted EBITDA as consolidated operating income before depreciation, amortization of intangible assets, stock-based compensation, and special charges.  We use Adjusted EBITDA to evaluate the underlying performance of our business, and a summary of Adjusted EBITDA, reconciling GAAP amounts (i.e., items reported in accordance with U.S. Generally Accepted Accounting Principles) to Adjusted EBITDA amounts (i.e., items included within Adjusted EBITDA as defined directly above) for the fiscal quarters ended March 31, 2013 and 2012 follows:
 
   
For the Three Months Ended March 31,
                         
                                                             
   
2013
   
2012
   
GAAP
   
Adjusted EBITDA
 
         
Adjust-
   
Adjusted
         
Adjust-
   
Adjusted
   
Change
   
Change
 
   
GAAP
   
ments
   
EBITDA
   
GAAP
   
ments
   
EBITDA
    $       %     $       %  
                                                                 
Revenue
                                                               
Wireless Applications
  $ 1,808,836           $ 1,808,836     $ 1,554,823           $ 1,554,823     $ 254,013       16 %   $ 254,013       16 %
                                                                             
Operating Expenses
                                                                           
Royalties and Application Costs
  $ 776,540           $ 776,540     $ 654,310           $ 654,310     $ 122,230       19 %   $ 122,230       19 %
Research and Development
  $ 24,050           $ 24,050     $ 16,050           $ 16,050     $ 8,000       50 %   $ 8,000       50 %
Compensation expense (including
          $ -                   $ -                                  
stock-based compensation)
  $ 635,203           $ 635,203     $ 679,961           $ 679,961     $ (44,758 )     -7 %   $ (44,758 )     -7 %
Depreciation and amortization
  $ 160,148     $ (160,148 )   $ -     $ 163,604     $ (163,604 )   $ -     $ (3,456 )     -2 %                
General and administrative (including
            $ -                     $ -                                  
stock-based compensation)
  $ 1,006,158     $ (190,421 )   $ 815,737     $ 577,778     $ (68,606 )   $ 509,172     $ 428,380       74 %   $ 306,565       60 %
    $ 2,602,099     $ (350,569 )   $ 2,251,530     $ 2,091,703     $ (232,210 )   $ 1,859,493     $ 510,396       24 %   $ 392,037       21 %
                                                                                 
Loss from Operations/Adjusted EBITDA
  $ (793,263 )   $ 350,569     $ (442,694 )   $ (536,880 )   $ 232,210     $ (304,670 )   $ (256,383 )     48 %   $ (138,024 )     45 %
 
Royalties and Application Costs represent the direct out-of-pocket costs associated with revenue. Royalties and Application Costs vary substantially in line with revenue and totaled $776,540 in 2013, compared to $654,310 in 2012, an increase of 19%.   Royalties and Application Costs as a percentage of revenue increased by 1%, from 42% to 43% from the quarter ended March 31, 2012 to that for 2013, attributable to the composition of message types.

Research and Development expense increased from $16,050 in 2012 to $24,050 in 2013 while adjusted Compensation expense decreased from $679,961 to $635,203.  The modest increase to the former reflects the variance throughout any given fiscal year of the innovation process. Similarly, reduced adjusted Compensation expense represents a more targeted focus on the expansion of our existing mobile messaging and marketing business, as well as efficiencies gained from staff and from the expanded management team now in its second year with the Company.
 
 
       
 
General and administrative expenses for the quarter ended March 31, 2013 and 2012, both on a GAAP and on an Adjusted EBITDA basis, consist of the following:
 
   
For the Three Months Ended March 31,
                         
                                                             
   
2013
   
2012
   
GAAP
   
Adjusted EBITDA
 
         
Adjust-
   
Adjusted
         
Adjust-
   
Adjusted
   
Change
   
Change
 
   
GAAP
   
ments
   
EBITDA
   
GAAP
   
ments
   
EBITDA
    $       %     $       %  
                                                                 
Professional Fees
  $ 439,859           $ 439,859     $ 181,818     $ (15,006 )   $ 166,812     $ 258,041       142 %   $ 273,047       164 %
Travel
  $ 81,044           $ 81,044     $ 80,386             $ 80,386     $ 658       1 %   $ 658       1 %
Consulting expense
  $ 323,865     $ (190,421 )   $ 133,444     $ 166,895     $ (53,600 )   $ 113,295     $ 156,970       94 %   $ 20,149       18 %
Office rent
  $ 53,820             $ 53,820     $ 53,145             $ 53,145     $ 675       1 %   $ 675       1 %
Insurance expense
  $ 46,230             $ 46,230     $ 31,894             $ 31,894     $ 14,336       45 %   $ 14,336       45 %
Equipment lease
  $ -             $ -                     $ -     $ -             $ -          
Trade shows
  $ 17,537             $ 17,537     $ 3,995             $ 3,995     $ 13,542       339 %   $ 13,542       339 %
Telephone
  $ 15,220             $ 15,220     $ 19,419             $ 19,419     $ (4,199 )     -22 %   $ (4,199 )     -22 %
Office expense
  $ 13,118             $ 13,118     $ 9,862             $ 9,862     $ 3,256       33 %   $ 3,256       33 %
Other
  $ 15,465             $ 15,465     $ 30,364             $ 30,364     $ (14,899 )     -49 %   $ (14,899 )     -49 %
Total General and Administrative Expenses
  $ 1,006,158     $ (190,421 )   $ 815,737     $ 577,778     $ (68,606 )   $ 509,172     $ 428,380       74 %   $ 306,565       60 %
 
The increase in adjusted Professional Fees, from $166,812 in 2012 to $439,859 in 2013, reflects amounts paid to external attorneys, who have been engaged to represent us in litigation and other intellectual property initiatives we have commenced and with increased efforts relating to our compliance and filings for our most recent financings and past financings.

Travel expense was relatively unchanged over the two periods, increasing only $658 while adjusted Consulting expense increased $20,149 over the two periods.  Outside counsel, management, and consultants are regularly engaged both in active intellectual property monetization efforts, as well as with the development of our existing, underlying business.   Insurance expense increased $14,336, and expenses related to Trade shows increased $13,542.   An increased Board size and composition of outside directors, together with a growing business and market capitalization, precipitated the former while the need to communicate with current and prospective holders of our securities and new business efforts led to the latter.
 
 
 

 
Results of Operations for the Six Months Ended March 31, 2013 and 2012:

Revenues increased 19%, from $3,144,496 for the six months ended March 31, 2012 to $3,756,114 for the six months ended March 31, 2013.    Net loss increased from $1,294,533 from the earlier to $3,304,444 for the later period, but the loss on an Adjusted EBITDA basis increased at a much lesser rate, $95,061.  A table summarizing Loss from Operations and Adjusted EBITDA for the two six-month periods follows:
 
   
For the Six Months Ended March 31,
                         
                                                             
   
2013
   
2012
   
GAAP
   
Adjusted EBITDA
 
         
Adjust-
   
Adjusted
         
Adjust-
   
Adjusted
   
Change
   
Change
 
   
GAAP
   
ments
   
EBITDA
   
GAAP
   
ments
   
EBITDA
    $       %     $       %  
                                                                 
Revenue
                                                               
Wireless Applications
  $ 3,756,114     $ -     $ 3,756,114     $ 3,144,496     $ -     $ 3,144,496     $ 611,618       19 %   $ 611,618       19 %
                                                                                 
Operating Expenses
                                                                               
Royalties and Application Costs
  $ 1,660,333     $ -     $ 1,660,333     $ 1,417,631     $ -     $ 1,417,631     $ 242,702       17 %   $ 242,702       17 %
Research and Development
  $ 32,756     $ -     $ 32,756     $ 53,250     $ -     $ 53,250     $ (20,494 )     -38 %   $ (20,494 )     -38 %
Compensation expense (including
                                                                         
stock-based compensation)
  $ 2,390,541     $ (1,109,720 )   $ 1,280,821     $ 1,373,784     $ (9,690 )   $ 1,364,094 *   $ 1,016,757       74 %   $ (83,273 )     -6 %
Depreciation and amortization
  $ 314,934     $ (314,934 )   $ -     $ 319,075     $ (319,075 )   $ -     $ (4,141 )     -1 %                
General and administrative (including
                                                                         
stock-based compensation)
  $ 2,073,682     $ (487,243 )   $ 1,586,439     $ 1,108,448     $ (89,753 )   $ 1,018,695 *   $ 965,234       87 %   $ 567,744       56 %
    $ 6,472,246     $ (1,911,897 )   $ 4,560,349     $ 4,272,188     $ (418,518 )   $ 3,853,670     $ 2,200,058       51 %   $ 706,679       18 %
                                                                                 
Loss from Operations/Adjusted EBITDA
  $ (2,716,132 )   $ 1,911,897     $ (804,235 )   $ (1,127,692 )   $ 418,518     $ (709,174 )   $ (1,588,440 )     141 %   $ (95,061 )     13 %
 
Royalties and Application Costs increased 17% over the two periods. The lesser rate of growth in these costs reflects operating leverage, partially fixed costs that do not increase with volume, and some vendor renegotiations.
 
Adjusted Compensation expense was reduced $83,273 (6%) over the two periods, reflecting staffing more focused on key strategic initiatives, emphasizing intellectual property monetization and management and development of new business.
 
 
 
 
 
A table of General and administrative for the two six-month periods follows:
 
   
For the Six Months Ended March 31,
                         
                                                             
   
2013
   
2012
   
GAAP
   
Adjusted EBITDA
 
         
Adjust-
   
Adjusted
         
Adjust-
   
Adjusted
   
Change
   
Change
 
   
GAAP
   
ments
   
EBITDA
   
GAAP
   
ments
   
EBITDA
    $       %     $       %  
                                                                 
Professional Fees
  $ 777,492     $ (1,894 )   $ 775,598 *   $ 348,778     $ (30,012 )   $ 318,766 *   $ 428,714       123 %   $ 456,832       143 %
Travel
  $ 248,887     $ -     $ 248,887     $ 219,227     $ -     $ 219,227     $ 29,660       14 %   $ 29,660       14 %
Consulting expense
  $ 761,344     $ (485,349 )   $ 275,995 *   $ 273,820     $ (59,741 )   $ 214,079 *   $ 487,524       178 %   $ 61,916       29 %
Office rent
  $ 107,640     $ -     $ 107,640     $ 98,436     $ -     $ 98,436     $ 9,204       9 %   $ 9,204       9 %
Insurance expense
  $ 75,199     $ -     $ 75,199     $ 60,050     $ -     $ 60,050     $ 15,149       25 %   $ 15,149       25 %
Equipment lease
  $ -     $ -     $ -     $ -     $ -     $ -     $ -             $ -          
Trade shows
  $ 18,327     $ -     $ 18,327     $ 15,995     $ -     $ 15,995     $ 2,332       15 %   $ 2,332       15 %
Telephone
  $ 27,945     $ -     $ 27,945     $ 31,029     $ -     $ 31,029     $ (3,084 )     -10 %   $ (3,084 )     -10 %
Office expense
  $ 24,837     $ -     $ 24,837     $ 17,918     $ -     $ 17,918     $ 6,919       39 %   $ 6,919       39 %
Other
  $ 32,011     $ -     $ 32,011     $ 43,195     $ -     $ 43,195     $ (11,184 )     -26 %   $ (11,184 )     -26 %
Total General and Administrative Expenses
  $ 2,073,682     $ (487,243 )   $ 1,586,439     $ 1,108,448     $ (89,753 )   $ 1,018,695     $ 965,234       87 %   $ 567,744       56 %
 
*
Adjustment represents the elimination of stock-based compensation recorded in accordance with GAAP but not considered in the calculation of Adjusted EBITDA.
 
Adjusted General and administrative expense increased $567,744 (56%) over the two periods. An increase in professional fees of  $456,832, or 143%, represented the large majority of this and is comprised of legal fees for intellectual property monetization efforts and registering all recent offerings and keeping current registrations for all prior ones.   The rise in adjusted Consulting expense of $61,916, or 29%, was related to capital markets outreach programs.
 
 
 
 
Years Ended September 30, 2012 and 2011
 
During the fiscal year ended September 30, 2012, the Company had an increase in revenue of approximately 39% over revenue generated during the previous fiscal year ($6,346,919 in 2012 compared to $4,579,862 in 2011).  The growth, all of which is organic, is attributable to continuing consumer  adoption of our programs from existing client relationships. The Company’s net loss for the fiscal year ended September 30, 2012 was $3,255,186.  This is lower than the net loss incurred during the fiscal year ended September 30, 2011 of $7,985,163. Under the metrics employed by management to evaluate the underlying business explained below, Adjusted EBITDA, that underlying loss was reduced by $507,464 from the fiscal year ended September 30, 2011 to the fiscal year ended September 30, 2012.
 
We define Adjusted EBITDA as consolidated operating income before depreciation, amortization of intangible assets, stock-based compensation, and special charges.  We use Adjusted EBITDA to evaluate the underlying performance of our business, and a summary of Adjusted EBITDA, reconciling GAAP amounts (i.e., items reported in accordance with U.S. Generally Accepted Accounting Principles) to Adjusted EBITDA amounts (i.e., items included within Adjusted EBITDA as defined directly above) for the fiscal years ended September 30, 2012 and 2011 follows:
 
   
For the Year Ended September 30,
                         
                                                             
   
2012
   
2011
   
GAAP
   
Adjusted EBITDA
 
         
Adjust-
   
Adjusted
         
Adjust-
   
Adjusted
   
Change
   
Change
 
   
GAAP
   
ments
   
EBITDA
   
GAAP
   
ments
   
EBITDA
    $       %     $       %  
                                                                 
Revenue
                                                               
Wireless Applications
  $ 6,346,919     $ -     $ 6,346,919     $ 4,579,862     $ -     $ 4,579,862     $ 1,767,057       39 %   $ 1,767,057       39 %
                                                                                 
Operating Expenses
                                                                               
Royalties and Application Costs
  $ 2,907,110     $ -     $ 2,907,110     $ 2,543,885     $ -     $ 2,543,885     $ 363,225       14 %   $ 363,225       14 %
Research and Development
  $ 84,658     $ -     $ 84,658     $ 78,860     $ -     $ 78,860     $ 5,798       7 %   $ 5,798       7 %
Compensation expense (including
                                                                         
    stock-based compensation)
  $ 3,044,430     $ (365,422 )   $ 2,679,008     $ 5,468,643     $ (3,634,268 )   $ 1,834,375 *   $ (2,424,213 )     -44 %   $ 844,633       46 %
Depreciation and amortization
  $ 690,293     $ (690,293 )   $ -     $ 633,535     $ (633,535 )   $ -     $ 56,758       9 %                
General and administrative (including
                                                                         
    stock-based compensation)
  $ 2,386,694     $ (137,169 )   $ 2,249,525     $ 3,161,751     $ (958,163 )   $ 2,203,588     $ (775,057 )     -25 %   $ 45,937       2 %
    $ 9,113,185     $ (1,192,884 )   $ 7,920,301     $ 11,886,674     $ (5,225,966 )   $ 6,660,708     $ (2,773,489 )     -23 %   $ 1,259,593       19 %
                                                                                 
Loss from Operations/Adjusted EBITDA
  $ (2,766,266 )   $ 1,192,884     $ (1,573,382 )   $ (7,306,812 )   $ 5,225,966     $ (2,080,846 )   $ 4,540,546       -62 %   $ 507,464       -24 %
 
 
Royalties and Application Costs represent the direct out-of-pocket costs associated with revenue. Royalties and Application Costs vary substantially in line with revenue and totaled $2,907,110 in 2012, compared to $2,543,885 in 2011, an increase of 14%.  Because a portion of Royalties and Application Costs are fixed and all such costs are being monitored and reduced wherever possible, net margin continues to increase.
 
 
 
 
Research and Development expenses grew from $78,860 in 2011 to $84,658 in 2012, and adjusted Compensation expense grew from $1,834,375 to $2,679,008.  The former reflects the growing investment in technologies that we anticipate will generate revenues for years to come while the latter reflects the increased headcount necessary to support our expanding business while concurrently relying less on outside consultants.  
 
General and Administrative expenses for the fiscal year ended September 30, 2012 and 2011, both on a GAAP and on an Adjusted EBITDA basis, consist of the following:
 
   
For the Year Ended September 30,
                         
                                                             
   
2012
   
2011
   
GAAP
   
Adjusted EBITDA
 
         
Adjust-
   
Adjusted
         
Adjust-
   
Adjusted
   
Change
   
Change
 
   
GAAP
   
ments
   
EBITDA
   
GAAP
   
ments
   
EBITDA
   
$
   
%
   
$
   
%
 
                                                             
Professional Fees
  $ 779,541     $ (47,450 )   $ 732,091 *   $ 821,022     $ (58,050 )   $ 762,972 *   $ (41,481 )     -5 %   $ (30,881 )     -4 %
Travel
  $ 499,576     $ -     $ 499,576     $ 322,951     $ -     $ 322,951     $ 176,625       55 %   $ 176,625       55 %
Consulting expense
  $ 565,349     $ (89,719 )   $ 475,630 *   $ 1,448,613     $ (900,113 )   $ 548,500 *   $ (883,264 )     -61 %   $ (72,870 )     -13 %
Office rent
  $ 205,639     $ -     $ 205,639     $ 121,681     $ -     $ 121,681     $ 83,958       69 %   $ 83,958       69 %
Insurance expense
  $ 120,236     $ -     $ 120,236     $ 83,953     $ -     $ 83,953     $ 36,283       43 %   $ 36,283       43 %
Equipment lease
  $ -     $ -     $ -     $ 45,000     $ -     $ 45,000     $ (45,000 )     -100 %   $ (45,000 )     -100 %
Trade shows
  $ 21,213     $ -     $ 21,213     $ 78,324     $ -     $ 78,324     $ (57,111 )     -73 %   $ (57,111 )     -73 %
Telephone
  $ 61,729     $ -     $ 61,729     $ 38,820     $ -     $ 38,820     $ 22,909       59 %   $ 22,909       59 %
Office expense
  $ 31,356     $ -     $ 31,356     $ 7,949     $ -     $ 7,949     $ 23,407       294 %   $ 23,407       294 %
Other
  $ 102,055     $ -     $ 102,055     $ 193,438     $ -     $ 193,438     $ (91,383 )     -47 %   $ (91,383 )     -47 %
Total General and Administrative Expenses
  $ 2,386,694     $ (137,169 )   $ 2,249,525     $ 3,161,751     $ (958,163 )   $ 2,203,588     $ (775,057 )     -25 %   $ 45,937       2 %
                                                                                 
* Adjustments for each of these items represents the elimination of stock-based compensation included within the GAAP expense amount to arrive at the Adjusted EBITDA amount.
 

 
The diminution in adjusted Professional Fees, from $762,972 in 2011 to $732,091 in 2012, reflects management performing services previously outsourced.  Professional Fees include amounts paid to external attorneys, and Professional Fees have been reduced during this latter fiscal year, notwithstanding the commencement during that fiscal year of two litigations against defendants that the Company contends infringed on its intellectual property. The same is true for the $72,870 diminution to adjusted Consulting expense over the two periods.  Travel has increased $176,625 over the two periods, resulting from increased new business efforts, increased investor outreach, the hosting of an annual general meeting in August 2012, the addition of the New Jersey office, and travel between our four offices, a footprint now covering all of the Continental U.S.  Office rent has increased due to the opening of the New Jersey office at the very end of the fiscal year ended September 30, 2011, and Insurance expense has increased $36,283 over the two periods due largely to revenue growth and additional necessary coverage.
 
 
 
 
Liquidity and Capital Resources

At March 31, 2013, we had total assets of $5,695,475 and total liabilities of $5,446,138. As of September 30, 2012, we had total assets of $5,569,755 and total liabilities of $4,661,117. The increase in assets is largely due to the increase in Prepaid expenses of $698,314, mostly due to a non-monetary payment by our Executive Chairman as contribution to capital and a Software license expenditure of $755,000, a settlement with our Executive Chairman for our Anywhere platform since September 30, 2012.  Cash has decreased $1,233,357 due roughly in equal measure to the underlying loss for the six-month period and the Anywhere settlement.

The increase in liabilities ($805,021) in the six months since September 30, 2012 is largely due to the increase in Accounts payable ($310,390) with the balance attributable to our Convertible debenture issuances and redemptions.   The increase in Accounts Payable is largely related to our intellectual property monetization efforts.  During the fiscal half year ended March 31, 2013 cash used in operating activities totaled $749,731. The most notable adjustment, when reconciling Net loss to Net cash used in operating activities, was the $1,596,963 non-cash charge for Stock-based compensation, which reduced Net loss for GAAP purposes but which we exclude from the calculation of Adjusted EBITDA.
 
Cash used in investing activities for the six months ended March 31, 2013 totaled $875,651, of which $201,998 represented the capitalized internal costs of our software development, $72,356 represented capitalized legal fees incurred in the process of applying for various patents on our technology, $1,297 represented purchases of physical equipment, and $600,000 was part of the Anywhere settlement. We continue to invest in physical and intellectual property that will separate us from competitors and allow us to continue to expand our mobile communications/advertising offering, and with the Anywhere payment and settlement all parties that might otherwise have made related claims are foreclosed from doing so.

Cash provided from financing activities for the six months ended March 31, 2013 amounted to $392,025.  The Company received $688,000 through the issuance of the final tranche of convertible debt and related warrants of its $3,000,000 most recent private placement and paid $48,475 in cash relating to that placement. The Company also received $40,000 from share issuances.  We paid the final $87,500 remaining on our patent purchase obligation and repaid $200,000 of principal, together with $20,000 of interest, to the one note holder from our first $2,000,000 private placement.  This note holder converted its note at a time when the conversion price ($0.50 per share) was less than our stock price, and all other such note holders from that placement have either converted such notes into shares or elected to amend and extend their notes.   We had an overall net decrease in cash for the period of $1,233,357; the cash balance at the beginning of the current fiscal year was $2,157,707 while the cash balance at the end of this six-month period was $924,350.

During the six months ended March 31, 2012 cash used in operating activities totaled $1,115,893.  Accounts receivable increased by $201,254 while Accounts payable decreased $249,816 during that earlier period.

Cash used in investing activities during the six months ended March 31, 2012 totaled $307,250, of which $207,068 represented the capitalized internal costs of our software development, $29,370 represented equipment purchases, and $70,812 represented capitalized legal fees incurred in the process of applying for various patents on our technology.

Cash provided by financing activities amounted to $1,952,500 in that earlier six-month period ended March 31, 2012.  The Company received $1,500,000 from unrelated parties and $500,000 from a director for the first $2,000,000 private placement. The Company also received $40,000 from share issuances and paid $87,500 on a prior patent purchase obligation.  We had an overall net increase in cash for the earlier six-month period of $529,357; the cash balance at the beginning of the earlier fiscal year was $523,801 while the cash balance at the end of the period was $1,053,158.

Over the next twelve months we believe that existing capital and anticipated funds from operations may be sufficient to sustain our current level of operations.  Inasmuch as the Company is pursuing the monetization of its intellectual property, which plans are subject to change, additional external financing relating to such efforts will be required. In addition, increased acceleration in our organic business and/or other economic influences might also necessitate other financing. There can be no assurance that we will be able obtain additional financing, if at all or upon terms that will be acceptable to us. There can, moreover, be no assurance of when, if ever, our operations become profitable.
 
 
 

Off-Balance Sheet Arrangements
 
We have no off-balance sheet arrangements or financing activities with special purpose entities. 
 
Critical Accounting Policies and Estimates
 
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.  We have identified the following accounting policies that we believe are key to an understanding of ours financial statements.  These are important accounting policies that require management’s most difficult, subjective judgments.
 
Revenue Recognition
 
Revenue is recognized in accordance with Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements, as revised by SAB No. 104. As such, the Company recognizes revenue when persuasive evidence of an arrangement exists, title transfer has occurred, the price is fixed or readily determinable and collectability is probable. Sales are recorded net of sales discounts.
 
Non-monetary Consideration Issued for Services
 
We value all services rendered in exchange for our common stock at the quoted price of the shares issued at date of issuance or at the fair value of the services rendered, whichever is more readily determinable. All other services provided in exchange for other non-monetary consideration are valued at either the fair value of the services received or the fair value of the consideration relinquished, whichever is more readily determinable.
 
Our accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of ASC Topic 505-50, “Equity Based Payments to Non Employees.” The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. In accordance with ASC Topic 505, an asset acquired in exchange for the issuance of fully vested, non-forfeitable equity instruments should not be presented or classified as an offset to equity on the grantor’s balance sheet once the equity instrument is granted for accounting purposes. Accordingly, we record the fair value of non-forfeitable common stock issued for future consulting services as prepaid services in our consolidated balance sheet.
 
Conventional Convertible Debt
 
When the convertible feature of the conventional convertible debt provides for a rate of conversion that is below market value at issuance, this feature is characterized as a beneficial conversion feature (“BCF”). We record a BCF as a debt discount pursuant to ASC Topic 470-20, “Debt with Conversion and Other Options.” In those circumstances, the convertible debt will be recorded net of the discount related to the BCF. We amortize the discount to interest expense (if the debt is due to an unrelated party) or equity (if the debt is due to a related party) over the life of the debt using the effective interest method.
 
 
 
 
 
Software Development Costs
 
We account for our software development costs in accordance with ASC Topic 985-20, “Cost of Software to be Sold, Leased, or Otherwise Marketed.” Under ASC Topic 985-20, we expense software development costs as incurred until we determine that the software is technologically feasible. Once we determine that the software is technologically feasible, we amortize the costs capitalized over the expected useful life of the software.
 
Fair Value Measurement
 
The Company complies with the provisions of ASC No. 820-10 (ASC 820-10), “Fair Value Measurements and Disclosures.”  ASC 820-10 relates to financial assets and financial liabilities. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (GAAP), and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions.
 
ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820-10 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions that are developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820-10 are described below:
 
Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.
 
Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
 
Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
 
 
 
 
 
 
 
 
 
 
MANAGEMENT
 
Directors and Executive Officers

The following persons are our executive officers and directors, and hold the offices set forth opposite their names.

Name
 
Age
 
Position
Anthony Macaluso
 
50
 
Executive Chairman and Director
James Orsini
 
49
 
Chief Executive Officer, President and Director
John Quinn
 
49
 
Chief Financial Officer
Stuart R. Levine
 
65
 
Director
Stephen D. Baksa
 
67
 
Director
Jonathan E. Sandelman
 
54
 
Director
James L. Nelson   63   Director

Our Board of Directors consists of six members. Only our independent, non-executive directors receive any cash remuneration for acting as such. All directors may, however be reimbursed their expenses, if any, for attendance at meetings of the Board of Directors.

No family relationships exist between any of our present directors and officers.

The following is a brief account of the business experience during the past five years of each of our directors and executive officers:

Anthony Macaluso became our President, Chief Executive Officer, Chairman, and principal shareholder upon the closing of the acquisition of Single Touch Interactive, Inc. in 2008. He founded Interactive in 2002, and from that time to May 2011, had primary responsibilities for our operations and business. He continues as a working Executive Chairman and Chief Innovation Officer.

James Orsini joined us on May 16, 2011 as our Chief Executive Officer, President and Chief Financial Officer, and as a Director. From February 2006 to May 2011, Mr. Orsini served as Executive Vice President and Director of Finance and Operations at Saatchi & Saatchi New York, a marketing/advertising agency unit of Publicis Groupe S.A. Mr. Orsini received a Bachelor of Science in Business Administration degree from Seton Hall University, magna cum laude (1985), and is a Certified Public Accountant.

John Quinn joined us on September 26, 2011 as our Chief Financial Officer. Mr. Quinn was most recently Principal of ParenteBeard, LLC, an accounting and consulting firm. He was responsible for starting and was co-head of the Transaction Advisory Services group, which focused on M&A advisory and international tax consulting. Prior to joining ParenteBeard in 2010, Mr. Quinn was the New York based Chief Financial Officer of Financial Dynamics, a financial communications and investor relations consultancy. During his six-year tenure, Mr. Quinn was instrumental in converting an investor relations services provider into a full-service multinational and overseeing the sale and integration of Financial Dynamics to FTI Consulting, Inc. From 1997-2004 Mr. Quinn was a partner at Scarpati Quinn & Hennessey, LLP, where he was a key contributor to the rapid growth of the accounting firm into an advisory, consulting and international tax service provider. For the eight years prior, he was senior manager of M&A and tax at Saatchi & Saatchi, the global advertising and marketing giant. Mr. Quinn began his career as a senior associate at KPMG in 1986. Mr. Quinn holds a MBA in international finance from Columbia University’s Business School (1995) and graduated with a B.S. in accounting from the State University of New York (1986). He is a Certified Public Accountant.
 
Stuart R. Levine became a director of ours on August 8, 2011. Mr. Levine is the founder, Chairman and Chief Executive Officer of Stuart Levine and Associates LLC, an international management consulting and leadership development company. From 1992 to 1996 he was Chief Executive Officer of Dale Carnegie & Associates, Inc, a provider of leadership, communication and sales skills training. In 2011 and 2012, Mr. Levine was recognized by the National Association of Corporate Directors as one of the top 100 most influential people in governance within the United States. Mr. Levine serves as a director of Broadridge Financial Solutions, Inc., a provider of investor communications, securities processing, and clearing and outsourcing solutions, where he serves as Chair of the Governance and Nominating Committee. He is Lead Director of J. D’Addario & Company, Inc., a private manufacturer
 
 
 
 
of musical instrument accessories. He also serves on the board of North Shore-Long Island Jewish Health System. In addition, Mr. Levine is the bestselling author of “The Leader in You” (Simon & Schuster 2004), “The Six Fundamentals of Success” (Doubleday 2004) and “Cut to the Chase” (Doubleday 2007). Mr. Levine is the former Lead Director of Gentiva Health Services, Inc., a provider of home healthcare services, where he served from 2000 to 2009. He also served as a director of European American Bank from 1995 to 2001 and The Olsten Corporation, a provider of staffing solutions, from 1994 to 2000. Mr. Levine is a former Chairman of Dowling College, as well as a former Member of the New York State Assembly.

Specific experience, qualifications, attributes or skills:
 
Operating and management experience, including as chief executive officer of a global client services business
 
Public company directorship and committee experience
 
Frequent panel chair and participant in director education programs sponsored by the NACD
 
Independent of the Company

Stephen D. Baksa became a director of ours on November 1, 2011. Mr. Baksa was a General Partner at The Vertical Group from 1989 through 2010, a private equity and venture capital firm focused on the fields of medical technology and biotechnology. He is currently employed at The Vertical Group as an advisor/consultant. For more than 30 years The Vertical Group has been an early stage investor and major shareholder of some of the medical technology industry’s most successful companies. Before Mr. Baksa joined The Vertical Group, he was co-founder of Paddington Partners, a firm engaged in special situation investing focused on public health care equities. Mr. Baksa holds an M.B.A. from The Rutgers School of Business (1969) and a B.A. in Economics from Gettysburg College (1967).

Jonathan E. Sandelman became a director of ours on December 10, 2012. Mr. Sandelman is the Chief Executive Officer, Founder, and Chief Investment Officer at Sandelman Partners, LP. He founded the firm on July 1, 2005. Mr. Sandelman is the President and Director at NMS Services Inc., NMS Services (Cayman) Inc., and BAC Services Inc. He was the President of the New York Office at Banc of America Securities LLC. Mr. Sandelman joined the firm in 1998 as the Head of Equity Financial Products and took charge of the equity department in 2002. He headed the firm's debt and equities business before becoming the President, a post that Mr. Sandelman held until October 20, 2004. He was the Deputy Head of Global Equities, Member of the Risk Management Committee, Member of the Compensation Committee, and Managing Director of Equity Derivatives at Salomon Brothers. Mr. Sandelman was a Director of Do Something and Impact Web Enterprises, Inc. He holds a Bachelor of Arts and a Juris Doctor from Yeshiva University-Cardozo Law School.
 
James L. Nelson became a director of ours on May 1, 2013. Mr. Nelson has served as a director of Icahn Enterprises G.P., Inc. since June 2001. Since April 2008, Mr. Nelson served as a director and Chairman of the Audit Committee of Cequel Communications, an owner and operator of a large cable television system until November 2012. Since April 2010, Mr. Nelson has served as a director of Take-Two Interactive Software, Inc., a publisher, developer, and distributor of video games and video game peripherals. Since June 2011, Mr. Nelson has served a director of Voltari Inc. (formerly Motricity, Inc.), a mobile data solutions provider, and he has served as its Chairman of the Board since January 2012. Since December 2003, Mr. Nelson has served as a director of American Entertainment Properties Corp. From May 2005 until November 15, 2007, Mr. Nelson served as a director of Atlantic Coast Entertainment Holdings LLC. From 1986 until 2009, Mr. Nelson was Chairman and Chief Executive Officer of Eaglescliff Corporation, a specialty investment banking, consulting and wealth management company. From March 1998 through 2003, Mr. Nelson was Chairman and Chief Executive Officer of Orbit Aviation, Inc. From August 1995 until July 1999, Mr. Nelson was Chairman and Chief Executive Officer and Co-Chairman of Orbitex Management, Inc., a financial service company in the fund management sector. From August 1995 until March 2001, he was a director of Orbitex Financial Services Group. From April 2003 until April 2010, Mr. Nelson served as a director and Chairman of the Audit Committee of Viskase Companies, Inc. From January 2008 through June 2008, Mr. Nelson served as a director of Shuffle Master, Inc. From March 2008 until February 2010, Mr. Nelson served as a director and on the Audit Committee of Pacific Energy Resources Ltd., an energy producer. Mr. Nelson brings to his service as a director his significant experience and leadership roles serving as Chief Executive Officer, Director and Chairman of the Audit Committee of various companies as discussed above, which led to the Board’s conclusion that Mr. Nelson is qualified to serve as a director of the Company.
 

 
 
Executive Compensation

The following table sets forth information concerning the total compensation paid or accrued by us during the two fiscal years ended September 30, 2012 to:

 
all individuals who served as our chief executive officer, chief financial officer or acted in a similar capacity for us at any time during the fiscal year ended September 30, 2012 and
 
all individuals who served as executive officers of ours at any time during the fiscal year ended September 30, 2012 and received annual compensation during the fiscal year ended September 30, 2012 in excess of $100,000.
 
Summary Compensation Table
 
Position
 
Year
   
Salary ($)
   
Bonus ($)
   
Stock Awards ($)
   
Option Awards ($)
   
Total ($)
 
                                                 
Anthony Macaluso
       Executive Chairman
   
2012
2011
     
385,000
322,582
     
0
0
     
0
2,700,000
     
142,237
205,182
     
527,237
3,227,764
 
                                                 
James Orsini
Chief Executive Officer
   
2012
2011
     
385,000
144,375
     
0
25,000
     
0
260,000
     
138,600
0
     
523,610
429,375
 
                                                 
John Quinn
Chief Financial Officer
   
2012
2011
     
225,000
4,327
     
0
0
     
0
30,000
     
17,375
0
     
242,385
34,327
 
                                                 
Note: The table above includes only the value of options that vested during the periods indicated. The listed executives may have also received unvested options that may vest in a future period. See “Outstanding Equity Awards at Fiscal Year-End” below.
 

Employment Agreements and Benefits

Other than health insurance, we do not currently provide any employee benefit or retirement programs. Our officers’ salaries are determined by the Board of Directors. Officers and employees may receive bonuses from time to time in the form of cash or equity at the sole discretion of the Board of Directors.

We have no plans in place and have never maintained any plans that provide for the payment of retirement benefits or benefits that will be paid primarily following retirement including, but not limited to, tax qualified deferred benefit plans, supplemental executive retirement plans, tax-qualified deferred contribution plans and nonqualified deferred contribution plans.

Anthony Macaluso - On June 3, 2011, we entered into an employment letter agreement with Anthony Macaluso, as our executive Chairman, effective as of June 1, 2011. The agreement is for a three-year term, with successive two-year renewals unless either party elects against renewal. Mr. Macaluso is entitled to a $385,000 annual salary, subject to possible increases. Mr. Macaluso can also receive discretionary cash bonuses. We also agreed in the employment letter agreement to grant Mr. Macaluso certain stock options under our 2010 Stock Plan.

In full satisfaction of all obligations under the employment letter agreement to grant stock options to Mr. Macaluso, and after taking account of certain remissions, we granted Mr. Macaluso on June 1, 2011 a total of 4,500,000 stock options under our 2010 Stock Plan, with 1,500,000 of the options (at an exercise price of $0.65 per share) vesting on May 16, 2012, 1,500,000 of the options (at an exercise price of $0.90 per share) vesting on May 16, 2013 and 1,500,000 of the options (at an exercise price of $0.90 per share) vesting on May 16, 2014.
 
 

 
If Mr. Macaluso is terminated without cause or due to disability, or if he resigns for good reason (all as defined in the employment letter agreement) or if we elect not to renew his employment term, then upon giving us a release he shall be entitled to one year of salary continuation and one year of COBRA premiums payments. Also, if we are acquired or if he is terminated without cause or if he resigns for good reason (all as defined in the employment letter agreement) during Mr. Macaluso’s employment, all his unvested stock options would immediately vest.

In addition, if we terminate Mr. Macaluso’s employment without cause or due to disability or if he resigns for good reason, he would be entitled to exercise any of the 4,500,000 stock options until three years after the termination date (or, if earlier, the expiration of the options).

Mr. Macaluso participated in the November 2012 program where we modified the terms of stock options granted to certain employees, officers, directors, and active third party service providers. As a result 3,000,000 options exercisable at $0.90 per share granted pursuant to his employment agreement were reduced to 2,550,000 options exercisable at $0.469 per share. Additional options granted in 2010 were reduced from 50,000 options exercisable at $1.375 per share to 40,000 exercisable at $0.469 per share and 1,200,000 options exercisable at $0.90 per share to 1,020,000 exercisable at $0.469 per share.

On December 6, 2012, for extraordinary service to the Company to date for work related to Single Touch Interactive R&D IP, Inc., we granted options to Mr. Macaluso to purchase 2,099,400 shares of our common stock at a price of $0.469 per share. The options immediately vested and expire on December 1, 2017.

James Orsini- On March 10, 2011, we entered into an employment letter agreement with James Orsini, who began employment as our Chief Executive Officer, President and Chief Financial Officer on May 16, 2011. The agreement (as amended on May 16, 2011) is for a three-year term, with successive two-year renewals unless either party elects against renewal. Mr. Orsini is entitled to a $385,000 annual salary, subject to possible increases. Mr. Orsini can also receive discretionary cash bonuses, and after three months of employment he was entitled to and did receive a $25,000 payment in respect of certain expenses. In addition, the agreement called for us to grant to him (and we accordingly did grant to him) 4,500,000 stock options under our 2010 Stock Plan; with one-third (with an exercise price of $0.63 per share) vesting on the first anniversary of his employment start date, one-third (with an exercise price of $0.90 per share) vesting on the second anniversary of his employment start date, and one-third (with an exercise price of $0.90 per share) vesting on the third anniversary of his employment start date. Vesting of his stock options shall accelerate if we experience a change in majority control. Mr. Orsini agreed not to compete with us during his employment and for two years thereafter.

If we terminate Mr. Orsini’s employment without cause or for disability or if he resigns for good reason (as those terms are defined in the agreement), or if we elect not to enter into a renewal term of the employment letter agreement, he will receive one year of salary continuation and one year of COBRA premium payments. In addition, if we terminate Mr. Orsini’s employment without cause or if he resigns for good reason, he would be entitled to exercise any of the 4,500,000 stock options which had vested as of the termination date, until three years after the termination date (or, if earlier, the expiration of the options).

If we experience a change in majority control (as defined in the agreement) during Mr. Orsini’s employment, all his unvested stock options would immediately vest.

Mr. Orsini participated in the November 2012 program where we modified the terms of stock options granted to certain employees, officers, directors, and active third party service providers. As a result 3,000,000 options exercisable at $0.90 per share granted pursuant to his employment agreement were reduced to 2,550,000 options exercisable at $0.469 per share.

John Quinn - On September 26, 2011, we entered into an employment letter agreement with John Quinn, as our Chief Financial Officer, effective as of September 26, 2011. Pursuant to the agreement we pay Mr. Quinn an annual salary of $225,000. The Agreement also calls for successive one-year renewals unless either party elects against renewal. Mr. Quinn can also receive discretionary cash bonuses.
 
 

 
We also agreed to grant Mr. Quinn 100,000 shares of our common stock under our 2009 Employee and Consultant Stock Plan, subject to the following restriction: all of such shares would have been forfeited to us if Mr. Quinn’s employment with us ceased for any reason; such restrictions and risk of forfeiture cliff-lapsed on December 25, 2011.

We also agreed to grant Mr. Quinn a total of 1,500,000 upfront stock options under our 2008 Stock Option Plan with 500,000 of the options (at an exercise price of $0.65 per share) vesting after one year of service, 500,000 of the options (at an exercise price of $0.90 per share) vesting after two years of service and 500,000 of the options (at an exercise price of $0.90 per share) vesting after three years of service.

Under the Agreement, if Mr. Quinn is terminated without cause or due to his disability, or if he resigns for good reason (all as defined in the Agreement) or if we elect not to renew his employment term, then upon giving us a release he shall be entitled to six months of salary continuation and six months of COBRA premiums payments. Also, vesting of his stock options shall accelerate if Mr. Quinn is terminated without cause or if he resigns for good reason, or if we are acquired.

Mr. Quinn participated in the November 2012 program where we modified the terms of stock options granted to certain employees, officers, directors, and active third party service providers. As a result 1,000,000 options exercisable at $0.90 per share granted pursuant to his employment agreement were reduced to 850,000 options exercisable at $0.469 per share.
 
 
 
 
 
 
 
 




Outstanding Equity Awards
 
The following table reflects information for our executive officers named in the Summary Compensation Table, effective September 30, 2012.

Outstanding Equity Awards at Fiscal Year-End

Name
 
Number of securities
underlying unexercised
options exercisable (#)
 
Number of securities
underlying unexercised
options unexercisable (#)
 
Option exercise
price($)
 
Option expiration
date
Anthony Macaluso
 
50,000
1,200,000
 
-
-
 
1.38
0.90
 
7/28/2013
12/9/2013
   
750,000
1,500,000
-
-
 
-
-
1,500,000
1,500,000
 
0.65
0.65
0.90
0.90
 
6/1/2016
6/1/2016
6/1/2016
6/1/2016
                 
James Orsini
 
1,500,000
-
 
-
1,500,000
 
0.63
0.90
 
5/16/2016
5/16/2016
   
-
 
1,500,000
 
0.90
 
5/16/2016
                 
John Quinn
 
500,000
-
-
 
-
500,000
500,000
 
0.65
0.90
0.90
 
9/26/2016
9/26/2016
9/26/2016
                 
_____________
Note: The table above does not reflect modifications to outstanding options made subsequent to the year ended September 30, 2012. See “Employment Agreements and Benefits” above and "Certain Relationships and Related Transactions, and Director Independence - Outstanding Current Service Provider High-Exercise-Price Plan Options" below.




 
 
Equity Compensation Plan Information
 
The following table reflects information for equity compensation plans and arrangements for any and all directors, officers, employees and/or consultants through September 30, 2012.

Equity Compensation Plan Information
 
   
Number of
securities
to be issued
upon exercise of
outstanding options,
warrants and rights (a)
 
Weighted-
average exercise
price of
outstanding
options,
warrants and
rights (b)
   
Number of
securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a)) (c)
 
Equity compensation plans
approved by security holders
 
7,255,000
 
$
0.78
     
1,545,000
 
Equity compensation plans
not approved by security holders
 
26,930,000
 
$
0.77
     
168,750
 
Total
 
34,185,000
 
$
0.77
     
1,713,750
 

In April 2008 our Board of Directors and stockholders adopted the 2008 Stock Option Plan (the “2008 Plan”) to provide participating employees, non-employee directors, consultants and advisors with an additional incentive to promote our success. The maximum number of shares of common stock which may be issued pursuant to options and awards granted under the 2008 Plan is 8,800,000. The 2008 Plan is currently administered by our Board of Directors but may be subsequently administered by a Compensation Committee designated by our Board of Directors. The 2008 Plan authorizes the grant to 2008 Plan participants of non-qualified stock options, incentive stock options, restricted stock awards, and stock appreciation rights. No option shall be exercisable more than 10 years after the date of grant. Upon separation from service, no further vesting of options can occur, and vested options will expire unless exercised within a year after separation, except as provided in individual employment agreements. No option granted under the 2008 Plan is transferable by the individual or entity to whom it was granted otherwise than by will or laws of decent and distribution, and, during the lifetime of such individual, is not exercisable by any other person, but only by him.

In December 2009 our Board of Directors adopted the 2009 Employee and Consultant Stock Plan (“2009 Plan”) to provide common stock grants to selected employees, non-employee directors, consultants and advisors. The total number of shares subject to the 2009 Plan is 2,000,000. The 2009 Plan is administered by our Board of Directors.

In December 2010 our Board of Directors adopted the 2010 Stock Plan (“2010 Plan”) to provide common stock option grants to selected employees, non-employee directors, consultants and advisors. In June 2011, the Board increased the total number of shares subject to the 2010 Plan to 25,000,000. The 2010 Plan is administered by our Board of Directors.

A total of 2,975,000 of the shares shown as underlying in the “Equity compensation plans not approved by security holders” row consists of 1,000,000 shares underlying warrants which we originally granted to Pharmacy Management Group, LLC in June 2011 as compensation for consulting services and 1,975,000 remaining shares underlying a warrant which we originally granted to Peltz Capital Management, LLC in October 2008 as compensation for consulting services. These 2,975,000 warrants are not granted under any of the plans noted above and included for the purposes of this table only. There were 32,210,000 options outstanding at September 30, 2012.
 

 
 
Director Compensation

On August 8, 2011, the Company appointed Stuart R. Levine to serve on its Board of Directors. Pursuant to the appointment letter agreement with him dated August 8, 2011 (the “Levine Agreement”), the Company will pay Mr. Levine an annual cash stipend of $20,000 (in quarterly increments). The Company also granted Mr. Levine 200,000 stock options under the Company’s 2010 Stock Plan exercisable at $0.331 per share, which fully vested on August 8, 2012. Such stock options will remain exercisable until the earlier of the scheduled expi