0001415889-13-002006.txt : 20131009 0001415889-13-002006.hdr.sgml : 20131009 20131009171652 ACCESSION NUMBER: 0001415889-13-002006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 25 CONFORMED PERIOD OF REPORT: 20130831 FILED AS OF DATE: 20131009 DATE AS OF CHANGE: 20131009 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HIPCRICKET, INC. CENTRAL INDEX KEY: 0001137204 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 582604254 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-57818 FILM NUMBER: 131143874 BUSINESS ADDRESS: STREET 1: 4400 CARILLON POINT CITY: KIRKLAND STATE: WA ZIP: 98033 BUSINESS PHONE: 858-423-5433 MAIL ADDRESS: STREET 1: 4400 CARILLON POINT CITY: KIRKLAND STATE: WA ZIP: 98033 FORMER COMPANY: FORMER CONFORMED NAME: Augme Technologies, Inc. DATE OF NAME CHANGE: 20100401 FORMER COMPANY: FORMER CONFORMED NAME: MODAVOX INC DATE OF NAME CHANGE: 20051018 FORMER COMPANY: FORMER CONFORMED NAME: SURFNET MEDIA GROUP INC DATE OF NAME CHANGE: 20030827 10-Q 1 hipcricket10q_aug312013.htm FORM 10-Q hipcricket10q_aug312013.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2013

OR

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

Commission File Number 333-57818

HIPCRICKET, INC.
(Exact name of registrant as specified in its charter)

DELAWARE
 
20-0122076
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
4400 CARILLON POINT
KIRKLAND, WA  98033
(Address of principal executive offices)
(Zip Code)

(855) 423-5433
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X]  No [  ]
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period than the registrant was required to submit and post such files).  Yes [X]  No [  ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer,” and “large 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)
   
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [  ]  No [X]
 
As of October 7, 2013 the issuer has 154,477,359 shares of common stock, par value $.0001, issued and outstanding.
 


 

 
 
TABLE OF CONTENTS

PART I
FINANCIAL INFORMATION
 
     
Item 1.
 
     
 
1
 
2
 
3
 
4
 
5
     
Item 2.
17
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
     
Item 4.
22
     
PART II
OTHER INFORMATION
 
     
Item 1.
23
     
Item 1A.
23
     
Item 6.
24
     
 

HIPCRICKET, INC.
CONSOLIDATED BALANCE SHEETS
 
   
August 31, 2013
       
   
(unaudited)
   
February 28, 2013
 
ASSETS
 
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 360,206     $ 4,352,691  
Restricted cash
    214,570       214,455  
Accounts receivable, net
    5,791,896       5,707,019  
Prepaid expenses and other current assets
    505,765       772,029  
Total current assets
    6,872,437       11,046,194  
                 
Intangible assets held for sale
    3,500,000       3,500,000  
Property and equipment, net
    71,430       82,737  
Goodwill
    35,060,183       35,060,183  
Intangible assets, net
    23,598,414       25,812,037  
Deposits
    261,122       238,011  
                 
TOTAL ASSETS
  $ 69,363,586     $ 75,739,162  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
CURRENT LIABILITIES:
               
Accounts payable
  $ 5,137,789     $ 4,812,086  
Accrued liabilities
    1,761,991       2,614,365  
Deferred revenue
    599,696       851,847  
Line of credit
    1,669,377       -  
Total current liabilities
    9,168,853       8,278,298  
                 
LONG TERM LIABILITIES:
               
Deferred income tax liability, net
    3,517,652       3,517,652  
Accrued liabilities
    48,083       82,002  
                 
TOTAL LIABILITIES
    12,734,588       11,877,952  
                 
Commitments and contingencies
               
                 
STOCKHOLDERS' EQUITY:
               
Common stock, $.0001 par value; 250,000,000 shares authorized; 130,248,049 and 129,554,226 shares issued and outstanding, respectively.
    13,025       12,955  
Additional paid-in capital
    177,398,976       175,241,799  
Accumulated deficit
    (120,783,003 )     (111,393,544 )
Total stockholders' equity
    56,628,998       63,861,210  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 69,363,586     $ 75,739,162  
 
See accompanying notes to the consolidated financial statements.
HIPCRICKET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
   
Three Months Ended
   
Six Months Ended
 
   
August 31,
   
August 31,
 
   
2013
   
2012
   
2013
   
2012
 
         
(Restated)
         
(Restated)
 
                         
REVENUE
  $ 7,592,735     $ 6,189,220     $ 13,458,299     $ 11,267,571  
                                 
COST OF REVENUES
    3,381,299       2,474,292       5,983,802       4,410,237  
                                 
OPERATING EXPENSES:
                               
Selling and marketing
    2,824,362       3,911,686       6,161,495       7,504,223  
Technology and development
    1,370,120       1,833,318       3,358,349       4,010,140  
General and administrative
    2,099,201       3,541,298       4,776,113       6,983,305  
Depreciation and amortization
    1,278,120       1,589,005       2,553,310       3,083,686  
Total operating expenses
    7,571,803       10,875,307       16,849,267       21,581,354  
                                 
LOSS FROM OPERATIONS
    (3,360,367 )     (7,160,379 )     (9,374,770 )     (14,724,020 )
                                 
OTHER INCOME (EXPENSE):
                               
Interest income (expense), net
    (13,888 )     224       (14,689 )     2,869  
Acquisition related contingent consideration
    -       4,860,557       -       4,860,557  
NET LOSS BEFORE INCOME TAXES
    (3,374,255 )     (2,299,598 )     (9,389,459 )     (9,860,594 )
                                 
Income tax benefit
    -       -       -       2,618,723  
                                 
NET LOSS
  $ (3,374,255 )   $ (2,299,598 )   $ (9,389,459 )   $ (7,241,871 )
                                 
NET LOSS PER SHARE - Basic and diluted
  $ (0.03 )   $ (0.02 )   $ (0.07 )   $ (0.08 )
                                 
WEIGHTED AVERAGE SHARES OUTSTANDING
                               
Basic and diluted
    130,164,694       96,317,373       129,880,120       95,403,523  
 
See accompanying notes to the consolidated financial statements.
 
-2-

 
HIPCRICKET, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED AUGUST 31, 2013
(UNAUDITED)
 
   
Common Stock
                   
   
Shares
   
Amount
   
Paid-in Capital
   
Accumulated Deficit
   
Stockholders' Equity
 
Balances, February 28, 2013
    129,554,226     $ 12,955     $ 175,241,799     $ (111,393,544 )   $ 63,861,210  
                                         
Common stock issued for cash for:
                                       
Stock with warrant subscription, fees
                    4,865               4,865  
Option/Warrant exercise
    10,000       1       2,499               2,500  
Common stock issued for:
                                       
Board of Director fees
    133,823       14       50,653               50,667  
Advisory services
    550,000       55       220,445               220,500  
Employee share-based compensation
                    1,563,264               1,563,264  
Warrant expense
                    315,451               315,451  
Net loss
                            (9,389,459 )     (9,389,459 )
Balances, August 31, 2013
    130,248,049     $ 13,025     $ 177,398,976     $ (120,783,003 )   $ 56,628,998  

See accompanying notes to the consolidated financial statements.
HIPCRICKET, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
   
Six Months Ended
 
   
August 31,
 
   
2013
   
2012
 
         
(Restated)
 
CASH FLOW FROM OPERATING ACTIVITIES:
           
Net loss
  $ (9,389,459 )   $ (7,241,871 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
    2,553,310       3,083,686  
Bad debt expense
    22,720       38,219  
Common stock issued for services
    271,167       625,000  
Deferred income tax benefits
    -       (2,618,723 )
Loss on sale or disposal of fixed assets
    895       -  
Share-based compensation expense
    1,878,715       2,926,257  
Acquisition related contingent obligation adjustment
    -       (4,860,557 )
Changes in operating assets and liabilities:
               
Accounts receivable
    (107,597 )     (1,071,634 )
Prepaid expenses and other current assets
    266,264       (178,541 )
Interest on restricted cash
    (115 )     -  
Deposits
    (23,111 )     98,693  
Accounts payable and accrued liabilities
    (521,806 )     2,352,642  
Deferred revenue
    (252,151 )     (180,513 )
Long-term liabilities
    (33,919 )     (33,111 )
NET CASH USED IN OPERATING ACTIVITIES
    (5,335,087 )     (7,060,453 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Cash paid for purchase of patents
    (43,540 )     (688,435 )
Cash paid for patent defense costs
    (231,068 )     (2,253,813 )
Cash paid for acquisition related contingent consideration
    -       (2,000,000 )
Cash paid for long-term investment
    (54,667 )     (200,000 )
NET CASH USED IN INVESTING ACTVITIES:
    (329,275 )     (5,142,248 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds received from line of credit
    1,669,377       -  
Proceeds received from the exercise of stock options and warrants, net
    2,500       1,249,660  
NET CASH PROVIDED BY FINANCING ACTIVITEIS
    1,671,877       1,249,660  
                 
NET CHANGE IN CASH AND CASH EQUIVALENTS
    (3,992,485 )     (10,953,041 )
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    4,352,691       11,428,825  
CASH AND CASH EQUIVALENTS, END OF PERIOD
  $ 360,206     $ 475,784  
                 
SUPPLEMENTAL CASH FLOW INFORMATION:
               
Interest paid
  $ 14,804     $ -  
Income taxes paid
    76,887       -  
Non-cash investing activity:
               
Stock issued for asset purchase
    -       3,813,953  
 
See accompanying notes to the consolidated financial statements.
 
HIPCRICKET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 ORGANIZATION AND BASIS OF PRESENTATION

The accompanying unaudited interim financial statements of Hipcricket, Inc. (“Hipcricket,” the “Company,” “we,” or “us”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in our Annual Report on Form 10-K filed with the SEC on May 24, 2013.

In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the fiscal year ended February 28, 2013 included in our Annual Report on Form 10-K have been omitted.

Description of Business

On August 23, 2013, we changed our company name from Augme Technologies, Inc. to Hipcricket, Inc. Hipcricket®, Augme®, Augme Technologies™, AD LIFE® (“AD LIFE”), AD SERVE®, A+®, Boombox® and the Company logos are trademarks of Hipcricket, Inc.

We provide a customer engagement platform that empowers brands, agencies and media properties to engage customers, drive loyalty and increase sales via mobile. Our proprietary AD LIFE mobile marketing technology platform (the “Platform”) allows marketers, brands, and agencies to plan, create, test, deploy, and track mobile marketing programs across every mobile channel. Through the use of Consumer Response Tags such as 2D codes, UPC codes, short message service (“SMS”), and image recognition, our Platform facilitates consumer brand interaction and the ability to track and analyze campaign results. Using our own patented device-detection and proprietary mobile content adaptation software, AD LIFE solves the mobile marketing industry problem of disparate operating systems, device types, and on-screen mobile content rendering. We also provide business-to-consumer utilities including national mobile couponing solutions, strategic mobile healthcare tools, custom mobile application development and consumer data tracking and analytics. Our products serve advertisers and ad agencies in many vertical markets, including automotive, retail, consumer products, food and beverage, media and broadcast, pharmaceutical and restaurant brands.

The mobile marketing and advertising landscape, while in its early stages, is highly competitive. Many of the landscape’s significant players are focused on delivering point solutions targeting a specific segment of the mobile marketing and/or advertising landscape.  We differ from the competition by offering complete, end-to-end mobile advertising and marketing solutions delivered through our AD LIFE Platform.

Our advanced, comprehensive, and fully integrated Platform drives revenue primarily through license fees, marketing campaign fees, and fees associated with certain add-on promotional applications in the Platform. Additional revenue is generated by platform administration and professional service fees related to the mobilization of client content and implementation of marketing campaigns through the Platform.

Our portfolio of patents covers technical processes and methods that are believed to be a foundational component of behavioral targeting — the automatic provision of customized content to individuals based on information such as past web activity, personal preferences, geography, or demographic data. We own 19 U.S. patents, and on a selected basis we are pursuing additional patents that generally relate to targeting, analytics, advanced mobile marketing, customized content delivery, and mobile and networked marketing technology.

We operate under one reportable segment and are headquartered in Kirkland, Washington. Additionally, we maintain a presence in New York, Atlanta, Miami, Dallas, Chicago, San Francisco and Los Angeles.

 
Liquidity

As of August 31, 2013 and February 28, 2013, we had accumulated deficits of $120.8 million and $111.4 million, respectively. We are subject to the risks and challenges associated with companies at a similar stage of development including dependence on key individuals, successful development and marketing of our products and services, integration of recent business combinations, competition from alternative products and services and larger companies with greater financial, technical management and marketing resources. Further, we may require additional financing to execute our key business strategies and fund operations. Those funds may not be readily available or may not be on terms that are favorable to us. Certain financing terms could be dilutive to existing shareholders or could result in significant interest or other costs, or require us to license or relinquish certain intellectual property rights.

We operate in the mobile marketing industry and, accordingly, can be affected by a variety of factors. For example, we believe that any of the following factors could have a significant negative effect on our future financial position, results of operations and cash flows: unanticipated fluctuations in quarterly operating results, adverse changes in our relationship with significant customers or failure to secure contracts with other customers, intense competition, failure to attract and retain key personnel, failure to protect  intellectual property, decrease in the migration trends from traditional advertising methods to digital and mobile media and the inability to manage growth.

In September 2012, we adopted a restructuring plan which includes reducing the number of employees, slowing the pace of investments in our intellectual property (“IP”) portfolio and minimizing variable expenses. We are restructuring overall corporate overhead expenses in order to focus our business around our mobile marketing and advertising technology and services. We have implemented measures specifically designed to reduce our cash used in operations. Consistent with this plan, we have settled a majority of our patent litigation cases, while protecting the value of our IP assets, to reduce our ongoing legal costs, downsized our Tucson division which was primarily involved with development and monetization of our IP, streamlined personnel and variable costs, and solidified the management team by appointing new personnel with extensive experience in the mobile marketing and advertising space to lead our sales and engineering teams. We intend to continue to minimize cash spend and identify additional cost savings opportunities while carefully investing our resources and protecting our strategic assets to strengthen our position in the mobile marketing and mobile advertising industry.

During the quarter ended May 31, 2013, we secured an accounts receivable credit facility from Silicon Valley Bank (“SVB”) to help fund our working capital needs. The revolving loan facility has a two-year term and allows us to borrow up to $5.0 million based upon a formula equal to 90% of eligible accounts receivable, decreasing to 80% of eligible accounts receivable after January 31, 2014. The facility is secured by substantially all of our assets other than our intellectual property. Amounts drawn under the facility accrue annual interest at the prime rate plus 0.75% during a Streamline Period, as defined in the loan and security agreement, and at the prime rate plus 1.25% when a Streamline Period is not in effect. We are required to deliver periodic reports to SVB regarding our ability to meet certain financial and other covenants contained in the loan agreement. In late July we delivered the report to SVB indicating that as of June 30, 2013, we had breached our minimum tangible net worth covenant and began discussions of a forbearance agreement with SVB. We are in negotiations with SVB to obtain a waiver of the covenant default. The terms of such waiver may include modification of certain loan terms, including expanding the collateral on the facility to include our intellectual property. As of the August 31, 2013, we had drawn $1.7 million from this line of credit and had approximately $1.7 million available based on our outstanding accounts receivable as of that date. See Note 9 below for additional information about the credit facility.

On October 4, 2013, we closed a $9.6 million financing transaction with 13 investors, each of which is an “accredited investor” within the meaning of the Securities Act of 1933 (the “Securities Act”). The investors purchased units of our securities at $0.40 per unit. Each unit consisted of one share of our common stock and a warrant to purchase 0.3 shares of our common stock. An aggregate of 23,875,000 shares of our common stock and warrants to purchase up to 7,162,500 shares of our common stock were purchased in the financing. The warrants have a five year term and an exercise price of $0.60 per share. In connection with the financing, we also entered into a registration rights agreement with each investor pursuant to which we will file, and cause to become effective with the SEC, a registration statement covering the resale of all of the shares of common stock and shares of common stock underlying the warrants sold in the financing.

 
In the future, we may need to raise additional cash through equity or debt financings, and/or sell all or part of our patent portfolio, while retaining the rights to use the patents in our technology. There is no certainty that we will have the ability to raise additional funds through debt or equity financings under terms acceptable to us or that we will have the ability to sell all or part of the patent portfolio. If sources of capital are unavailable, or are available only on a limited basis or under unacceptable terms, then we could be required to substantially reduce or discontinue our investments in new customers and new products; reduce selling, marketing, general and administrative costs related to our continuing operations; or limit the scope of our continuing operations. Due to the nature of our operations and financial commitments we may not have the discretion to reduce operations in an orderly manner to a more sustainable level without impacting future operations.

As of the filing of our Annual Report on Form 10-K for the fiscal year ended February 28, 2013, we no longer met the minimum $75 million public float requirement for use of Form S-3 registration for primary sales of our common stock and therefore are limited in our ability to issue the remaining $41.4 million remaining on our existing Form S-3 and/or to file new shelf registration statements on Form S-3. Until such time as we satisfy the $75 million public float and other requirements for use of Form S-3 registration, we will be required to use a registration statement on Form S-1 to register securities with the SEC, including to register the resale of the common shares issued in our October 2013 financing, or issue such securities in a private placement, which could increase the cost of raising capital.
 
Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported in the financial statements. We regularly evaluate estimates and judgments based on historical experience and other relevant facts and circumstances. Actual results could differ from those estimates. Significant estimates relate to fair value of assets acquired and liabilities assumed in business combinations, acquisition related contingent consideration, allowances for tax assets, the use of the Black-Scholes pricing model for valuing stock option and common stock warrant issuances, estimates of future cash flows used to evaluate impairment of long-lived assets, revenues earned from percentage of completion contracts and the period in which revenues should be recorded.
 
Reclassifications

Certain reclassifications have been made to prior periods to conform to current reporting. The presentation of our Consolidated Statements of Operations has been adjusted for the reclassification of operating expenses to be presented in the following categories: sales and marketing, technology and development, general and administrative and depreciation and amortization.  The operating expenses for the three and six months ended August 31, 2012 have been reclassified accordingly.
 
Summary of Significant Accounting Policies

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the SEC. The same accounting policies are followed for preparing the quarterly and annual financial information unless otherwise disclosed.

NOTE 2 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

In this Quarterly Report on Form 10-Q, we are reporting quarterly data for our fiscal quarter ended August 31, 2013, and in some cases providing the comparative data from the same quarter a year ago. As described in our Annual Report on Form 10-K for the fiscal year ended February 28, 2013 filed with the SEC on May 24, 2013, and summarized below, we restated the financial statements for certain quarterly and year-to-date periods, including the quarter ended August 31, 2012. All comparative data for the quarter ended August 31, 2012 is as restated.

Description of Restatement

In connection with our financial close process for our fiscal year 2013 financial statements, we concluded that the accounting for our acquisition of Hipcricket, Inc. (“Hipcricket subsidiary”) and JAGTAG, Inc. (“JAGTAG”), both of which occurred during fiscal year 2012, and of GEOS Communications IP Holdings, Inc. (“GEOS”), which occurred during the first quarter of fiscal 2013, was incorrect because deferred income tax liabilities arising from the acquisition accounting were not properly recorded for the differences between the book and tax basis of the acquired assets. The corresponding reduction to the deferred income tax asset valuation allowance was also not properly recognized. The Hipcricket subsidiary and JAGTAG transactions were structured as non-taxable transactions to the acquired companies’ shareholders and therefore considered mergers according to the provisions of IRS Code Section 368(a)(1)(c). To correct the errors related to the Hipcricket subsidiary and JAGTAG transactions, we recorded an increase to goodwill of $13.5 million, an increase to deferred tax liability of $13.5 million, which resulted in a corresponding reduction to the deferred income tax asset valuation allowance of $10.0 million and an increase to income tax benefits of $10.0 million for the quarter ended August 31, 2011 and fiscal year ended February 29, 2012. To correct the errors related to the GEOS transaction, we recorded an increase to the identified intangible asset category of patents of $2.6 million, an increase to deferred income tax liability of $2.6 million, and a corresponding reduction to the deferred income tax asset valuation allowance of $2.6 million and an increase to income tax benefits of $2.6 million for the quarter ended May 31, 2012. As a result of our previously completed impairment analysis performed during the quarter ended November 30, 2012 on certain identified intangibles, we recognized additional impairment expense of $2.6 million to write off the increased value resulting from the adjustments for the GEOS transaction.

We assessed the impact of the errors relating to the Hipcricket subsidiary and JAGTAG transactions on our interim goodwill impairment analysis that was performed as of November 30, 2012. As a result of the increase in the carrying amount of goodwill resulting from the restatement, in our updated interim impairment assessment step one recoverability test we concluded that the carrying value of the reporting unit that included goodwill exceeded its fair value, resulting in an indication of impairment. Therefore we were required to perform the step two analysis to calculate the impairment. We determined the implied goodwill was less than the carrying value and we recognized an impairment write down of goodwill of $25.9 million for the period ended November 30, 2012 and the year ended February 28, 2013, to reduce the carrying value of goodwill to $35.1 million.

Accordingly, the financial statements for the year ended February 29, 2012 and unaudited quarterly and year-to-date periods ended August 31, 2011, November 30, 2011, February 29, 2012, May 31, 2012, August 31, 2012 and November 30, 2012 were restated in our Annual Report on Form 10-K for the fiscal year ended February 28, 2013, from amounts previously reported. Net loss, basic and diluted net loss per share, accumulated deficit, and shareholders’ equity were also affected by the restatements. These adjustments are carried forward in subsequent periods. The corrections had no impact on total revenue, operating expense, or operating cash flows.

The following table summarizes the corrections by financial statement line item for the three and six months ended August 31, 2012:
 
   
As of and for the Three
   
As of and for the Six
 
   
Months ended August 31, 2012
   
Months ended August 31, 2012
 
   
(unaudited)
   
(unaudited)
 
   
As previously reported
   
Restatement adjustments
   
As restated
   
As previously reported
   
Restatement adjustments
   
As restated
 
Balance Sheet
                                   
Goodwill
  $ 47,484,708     $ 13,494,475     $ 60,979,183     $ 47,484,708     $ 13,494,475     $ 60,979,183  
Intangible assets, net
    40,583,291       2,618,723       43,202,014       40,583,291       2,618,723       43,202,014  
Total assets
    94,624,813       16,113,198       110,738,011       94,624,813       16,113,198       110,738,011  
Deferred income tax liability
    -       3,517,652       3,517,652       -       3,517,652       3,517,652  
Total liabilities
    18,515,584       3,517,652       22,033,236       18,515,584       3,517,652       22,033,236  
Accumulated deficit
    (82,393,665 )     12,595,546       (69,798,119 )     (82,393,665 )     12,595,546       (69,798,119 )
Total stockholders' equity
    76,109,229       12,595,546       88,704,775       76,109,229       12,595,546       88,704,775  
Total liabilities and stockholders' equity
    94,624,813       16,113,198       110,738,011       94,624,813       16,113,198       110,738,011  
Statement of Cash Flows
                                               
Net loss
    (2,299,598 )     -       (2,299,598 )     (9,860,594 )     2,618,723       (7,241,871 )
Deferred income tax benefit
    -       -       -       -       (2,618,723 )     (2,618,723 )
Statement of Stockholders' Equity
                                               
Accumulated deficit
    (82,393,665 )     12,595,546       (69,798,119 )     (82,393,665 )     12,595,546       (69,798,119 )
Stockholders' equity
    76,109,229       12,595,546       88,704,775       76,109,229       12,595,546       88,704,775  
Statement of Operations
                                               
Net loss
    (2,299,598 )     -       (2,299,598 )     (9,860,594 )     2,618,723       (7,241,871 )
Basic and diluted net loss per share
  $ (0.02 )   $ -     $ (0.02 )   $ (0.10 )   $ 0.02     $ (0.08 )
 
NOTE 3 — STOCKHOLDERS’ EQUITY

During the six months ended August 31, 2013, we issued approximately 133,800 shares of common stock to our independent directors for payment of fees pursuant to the Board of Director’s compensation plan, 50,000 shares to a consultant for services, and 500,000 shares to legal counsel for services.

NOTE 4 — SHARE-BASED PAYMENTS

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date based on the estimated fair value of the award. We use the Black-Scholes option pricing model to estimate the fair value of stock options and warrants. The determination of the fair value of stock-based awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the expected term of the awards, actual and projected employee stock option exercise behaviors, a risk-free interest rate and any expected dividends.

Stock Option Exchange

On August 29, 2013, we completed a stock option exchange program. Subject to the terms of our exchange offer filed on August 2, 2013, eligible participants tendered, and we exchanged, 5,460,424 options for 1,261,710 new options affecting 73 employees and 2 independent directors. The new options have an exercise price of $0.42, which was the closing price of our common stock on August 29, 2013. The new options were granted with the same vesting proportions as the tendered options. Of the 1,261,710 new option granted, 846,516, or 67%, were vested on the grant date and 415,194 or 33% will vest over the remaining vesting periods of the original options. The tender offer did not result in the acceleration of vesting of any options. The new options have the same expiration dates as the options exchanged.

We are required to compare the fair value of the options immediately before and after modification and recognize additional compensation expense to the extent the new options have greater value than the exchanged options they replaced. The fair value of the stock options tendered for exchange and the replacement stock options was estimated on August 29, 2013 using the Black-Scholes option-pricing model with the following assumptions:
 
   
Pre-modification
   
Post-modification
 
Weighted-average exercise price
  $ 2.40     $ 0.42  
Expected term (in years)
    3.00       2.00  
Weighted-average volatility
    70 %     70 %
Risk-free rate
    0.79 %     0.39 %
Expected dividends
    0 %     0 %
 
The total fair value of the new options issued to each participant in the exchange did not exceed the fair value of the original options outstanding just prior to the exchange. As such, no compensation expense was recognized as a result of the stock option exchange offer.

OPTIONS:

The estimated fair values of our stock option awards were determined using the following weighted average assumptions:
 
   
Three Months Ended
   
Six Months Ended
 
   
August 31,
   
August 31,
 
   
2013
   
2012
   
2013
   
2012
 
Expected dividends
    0 %     0 %     0 %     0 %
Expected term (in years)
    3.50       3.50       3.50       3.50  
Weighted-average volatility
    70 %     60 %     70 %     60 %
Risk-free rate
    0.51 %     0.41 %     0.51 %     0.45 %
 
 
The effect on our results of operations of option expense for the three and six months ended August 31, 2013 and 2012 was as follows:
 
   
Three Months Ended
   
Six Months Ended
 
   
August 31,
   
August 31,
 
   
2013
   
2012
   
2013
   
2012
 
Selling and marketing
  $ 252,765     $ 467,893     $ 591,131     $ 1,027,637  
Technology and development
    137,342       342,226       508,905       609,970  
General and administrative
    158,527       443,606       463,228       854,584  
Total stock option expense
  $ 548,634     $ 1,253,725     $ 1,563,264     $ 2,492,191  
 
We maintain stock incentive plans for our employees. The 2010 Stock Incentive Plan provides for the grant to employees, officers, directors and consultants of incentive stock options, non-qualified stock options, restricted shares, and other stock based awards to purchase up to an aggregate of 15.0 million shares of our common stock. We have approximately 7.9 million stock options and restricted shares outstanding under this plan as of August 31, 2013.

We have also issued non-qualified stock options to consultants and vendors for services provided, as well as to directors and employees, including officers.

The summary of activity for our stock options is presented below:
   
Number of options
   
Weighted Average Exercise Price
   
Average Remaining Contractual Term
(In Years)
 
                   
Options outstanding at February 28, 2013
    17,373,932     $ 2.00       2.99  
Granted
    2,600,635       0.41          
Exercised
    -       -          
Cancelled or expired
    (5,710,424 )     2.46          
Forfeited
    (2,567,830 )     2.19          
Options outstanding at August 31, 2013
    11,696,313     $ 1.38       2.39  
                         
Options vested and expected to vest at August 31, 2013
    11,409,124     $ 1.41       2.34  
Options exercisable at August 31, 2013
    9,781,617     $ 1.55       2.00  
 
As of August 31, 2013, there was $1.9 million of unrecognized share-based payment expense related to options, which is expected to be recognized over a weighted average period of approximately 2.3 years.

The aggregate intrinsic value of the exercisable options at August 31, 2013 was approximately $31,000. The aggregate intrinsic value was calculated based on the positive differences between the market value of our common stock on August 31, 2013 of $0.39 per share and the exercise prices of the exercisable options.

The exercise prices of options outstanding at August 31, 2013 ranged from $0.25 to $3.90.  The weighted average fair value of options granted was $0.41 per option share for the three months ended August 31, 2013.

WARRANTS:

The fair values of our stock warrant awards issued during the three and six months ended August 31, 2013 and 2012, respectively, were estimated using the following weighted average assumptions:
 
   
Three Months Ended
   
Six Months Ended
 
   
August 31,
   
August 31,
 
   
2013
   
2012
   
2013
   
2012
 
Expected dividends
    0 %     0 %     0 %     0 %
Expected term (in years)
    5.00       3.00       5.00       3.00  
Weighted-average volatility
    70 %     60 %     70 %     60 %
Risk-free rate
    1.62 %     0.38 %     1.62 %     0.38 %
 
The warrant expense for the three and six months ended August 31, 2013 and 2012 is as follows, and is included in general and administrative expense:
 
   
Three Months Ended
 
Six Months Ended
 
   
August 31,
 
August 31,
 
   
2013
   
2012
   
2013
   
2012
 
Total warrant expense
  $ 278,179     $ 261,905     $ 315,450     $ 434,066  
 
The summary of activity for our warrants is presented below:
 
   
Number of Warrants
   
Weighted Average Exercise Price
   
Average Remaining Contractual Term (In Years)
 
                   
Warrants outstanding at February 28, 2013
    19,171,104     $ 1.32       3.53  
Granted
    875,000       0.70          
Exercised
    -       -          
Forfeited and expired
    (181,250 )     1.24          
Warrants outstanding at August 31, 2013
    19,864,854     $ 1.30       3.05  
                         
Warrants vested and expected to vest at August 31, 2013
    19,864,854     $ 1.30       3.05  
Warrants exercisable at August 31, 2013
    18,931,523     $ 1.31       2.99  
 
The exercisable warrants as of August 31, 2013 had no aggregate intrinsic value because the market value of our common stock on August 31, 2013 of $0.37 per share was lower than the exercise prices of the exercisable warrants. The exercise prices of warrants outstanding at August 31, 2013 ranged from $0.39 to $4.00.  

As of August 31, 2013, there was approximately $116,000 of unrecognized share-based payment expense related to warrants, which is expected to be recognized over a weighted average period of approximately 2.2 years.

NOTE 5 — NET LOSS PER SHARE

Basic net loss per share is based on the weighted average number of common shares outstanding. Diluted net loss per share is based on the weighted average number of common shares and common share equivalents outstanding. Common share equivalents included in the computation represent shares issuable upon assumed exercise of outstanding stock options and warrants except when the effect of their inclusion would be anti-dilutive. As of August 31, 2013 and 2012, there were potentially dilutive securities consisting of options exercisable to purchase 9.8 million and 3.2 million shares of common stock, respectively, and warrants exercisable to purchase 18.9 million and 3.7 million shares of our common stock, respectively. As the inclusion of these outstanding stock options and warrants would be anti-dilutive, they were excluded from the computation of loss per share.  Accordingly, basic net loss per share and diluted net loss per share are identical for each of the periods presented in the accompanying statements of operations.

NOTE 6 — ACQUISITIONS

Acquisition of GEOS IP Assets: On May 24, 2012, we acquired all of the common stock and all of the preferred stock of GEOS Communications IP Holdings, Inc. pursuant to the Stock Purchase Agreement between Augme and GEOS and other parties. By acquiring the GEOS stock, we acquired five U.S. patents covering Voice over Internet Protocol (“VoIP”) and other mobility inventions. The patents allow us to expand our mobile marketing and mobile advertising technology offerings to include adaptive voice technologies for any mobile environment, VoIP-enabled mobile marketing and advertising, VoIP-enabled e-commerce and VoIP-enabled services and support features within our AD LIFE Platform.

We determined that the GEOS assets acquired did not constitute a business as defined under ASC Topic 805 on the basis that the GEOS assets were not an integrated set of activities or assets that were capable of being conducted or managed in a manner that would provide economic benefits or return to us. As a result, we accounted for this acquisition as an asset purchase. The total consideration paid has been allocated to the intangible assets acquired based upon their relative fair values at the date of acquisition.

 
The fair value of the consideration given for the acquisition of the GEOS stock was $4.2 million, which included $355,000 in cash and $3.8 million in our common stock (1,860,465 shares at a price of $2.05 per share). We are indemnified against certain losses resulting from breaches of any representation, warranty, covenant or agreement of GEOS. In order to secure payment of any loss, the approximate 1.9 million shares of our common stock were held for the benefit of the sellers in escrow for a period of up to 14 months following the closing date of the acquisition. In July 2013, the shares were released from escrow.

As described in Note 2, we recorded an increase to the carrying value of the patents on our balance sheet of $2.6 million to correct errors related to the income tax provision impacts of differences between the book and tax basis of the acquired assets, and a corresponding income tax benefit on our consolidated statement of operations, due to the reduction in the deferred income tax asset valuation allowance during the quarter ended May 31, 2012.

Acquisition of Hipcricket, Inc. Assets

On August 25, 2011, Augme completed its acquisition of the business and substantially all of the assets of Hipcricket, Inc. pursuant to the Amended and Restated Asset Purchase Agreement dated August 25, 2011 between Augme and Hipcricket. The acquisition provides us with expanded mobile marketing solutions for consumer brands, agencies, pharmaceutical/health, and media companies. We accounted for the acquisition as a business combination. The results of Hipcricket’s operations have been included in our financial statements since the date of the acquisition.

The estimated fair value of the acquisition consideration was $62.8 million, which included $3.0 million in cash, $35.5 million in our common stock (11,457,359 shares at a price of $3.10), a $1.0 million promissory note, which was subsequently paid off in cash, and $2.0 million of seller tax liabilities, which was paid during the quarter ended May 31, 2012. In addition, the transaction called for a twelve-month earn-out payment to Hipcricket shareholders and employees, which if achieved was estimated to be no less than $15.0 million and as high as $27.5 million. The amount of contingent consideration was based on the amount of revenue recognized in the earn-out period and could be paid in our common stock or a combination of common stock and cash at our discretion, provided that the transaction remained a tax-free reorganization. The contingent consideration recorded at the time of the acquisition was $23.3 million plus the seller tax liabilities of $2.0 million, resulting in an aggregate liability on the transaction date of $25.2 million. The tax liability of $2.0 million was paid during the quarter ended May 31, 2012.

The earn-out period ended on August 25, 2012, which was the measurement date of the contingent consideration obligation. The earn-out payment was calculated to be $22.0 million and we recognized a gain of $2.0 million from the reduction of the liability of the actual consideration due, compared to management’s previous estimates. The gain is included within other income on the statements of operations for the three and six months ended August 31, 2012.

As partial satisfaction of the contingent consideration payments, we paid approximately 50% of the outstanding obligation using shares of our common stock. We issued a total of 5.5 million shares of our common stock as payment of approximately $11.0 million in contingent consideration to the former Hipcricket stockholders. The number of common shares issued was calculated using a $2.00 per share “floor” price, as defined in the agreement. The market price of our common stock on August 25, 2012 was $1.48.  The difference between the $2.00 floor price used to calculate the number of shares to be issued, and the actual price of $1.48 on the measurement date, resulted in a reduction of the estimated consideration payment of $2.9 million, which is included in other income on the statements of operations for the three and six months ended August 31, 2012.

On November 2, 2012 we issued 3.7 million shares of common stock, net of tax withholding, for substantially all of the remaining contingent consideration obligation.  The difference between the $2.00 floor price and the actual price of $0.65 on the date the shares were issued resulted in a reduction of the estimated contingent consideration payment of $7.3 million, which was included in other income on the statements of operations for the three and six months ended November 30, 2012.

 
NOTE 7 — INTANGIBLE ASSETS

The following table presents the gross carrying value of the components of intangible assets and accumulated amortization:
 
         
As of August 31, 2013
 
   
Weighted Average Amortization Period (In months)
   
Carrying Amount, net of impairment write downs
   
Accumulated Amortization
   
Net Carrying Value
 
 Indefinite Lived Intangible:
                       
 Trade name
 
Indefinite
    $ 8,700,000     $ -     $ 8,700,000  
                               
 Definite Lived Intangible:
                             
 Patent litigation
    84       4,269,973       1,516,346       2,753,627  
 Patents
    120       717,846       87,183       630,663  
 Acquired technology
    60       7,270,000       3,192,750       4,077,250  
 Customer relationships
    60-72       12,850,000       5,413,126       7,436,874  
 Software
    36       2,095,705       2,095,705       -  
 Non-compete agreements
    36       212,000       212,000       -  
 Trade names
    24       44,000       44,000       -  
 Total intangibles
          $ 36,159,524     $ 12,561,110     $ 23,598,414  
 
         
As of February 28, 2013
 
   
Weighted Average Amortization Period (In months)
   
Carrying Amount, net of impairment write downs
   
Accumulated Amortization
   
Transfer to Held for Sale
   
Net Carrying Value
 
 Indefinite Lived Intangible:
                             
 Trade name
 
Indefinite
    $ 8,700,000     $ -     $ -     $ 8,700,000  
                                       
 Definite Lived Intangible:
                                     
 Patent litigation
    84       4,038,904       1,060,109       -       2,978,795  
 Patents
    120       4,174,306       51,356       3,500,000       622,950  
 Acquired technology
    60       7,270,000       2,465,750       -       4,804,250  
 Customer relationships
    60-72       12,850,000       4,143,958       -       8,706,042  
 Software
    36       2,095,705       2,095,705       -       -  
 Non-compete agreements
    36       212,000       212,000       -       -  
 Trade names
    24       44,000       44,000       -       -  
 Total intangibles
          $ 39,384,915     $ 10,072,878     $ 3,500,000     $ 25,812,037  
 
Intangible assets relate to patent filing and patent protection litigation costs as well as customer relationships, trade names and technology obtained in past acquisitions. With the exception of the Hipcricket trade name carried at $8.7 million, the intangible assets have finite lives and, as such, are subject to amortization.  Amortization of intangible assets was $1.2 million and $2.4 million, for the three and six months ended August 31, 2013, respectively.

Amortization in future fiscal periods is expected to be as follows:
 
Remainder of 2014
  $ 2,176,229  
2015
    5,101,399  
2016
    4,642,676  
2017
    2,369,316  
2018
    217,014  
Thereafter
    391,780  
Total
  $ 14,898,414  
 
 
NOTE 8 — CONTINGENCIES

Litigation

In the normal course of business, we may become involved in various legal proceedings.  Except as stated below, we know of no pending or threatened legal proceeding to which we are or will be a party that, if successful, might result in a material adverse change in our business, properties or financial condition.

Litigation Update

Augme Technologies, Inc. v. Yahoo! Inc., Civil Action No. 3:09-cv-05386-JCS, a patent infringement lawsuit pending in the U.S. District Court for the Northern District of California since November 16, 2009. On December 21, 2010, Yahoo! filed a first amended answer to Augme’s complaint, in which Yahoo! asserted its own counterclaim against Augme alleging infringement of, inter alia, U.S. Patent Nos. 7,640,320 (“‘320 patent”) and 7,512,622 (“‘622 patent”). On August 21, 2012, the parties stipulated to dismissal of Yahoo’s claim for infringement of the ‘622 patent with prejudice.

This case is a patent infringement lawsuit brought by Augme against Yahoo, Inc. Yahoo has also counterclaimed for patent infringement. In this case, Augme is seeking monetary relief for patent infringement damage and injunctive relief against future infringement. A summary of the case is set forth below.

With respect to Augme’s claims of patent infringement, on June 11, 2012, Yahoo! renewed its Motion for Summary Judgment of non-infringement. The Court heard argument on the summary judgment issues on July 20, 2012. On August 8, 2012, the Court granted Yahoo!’s Motion for Summary Judgment of non-infringement, dismissing Augme’s patent claims against Yahoo! and declining to address Augme’s previously filed Motion for Partial Summary Judgment of validity. Based on the Court’s summary judgment order, Augme moved for Entry of Judgment under Rule 54(b). Yahoo! opposed Augme’s motion in light of the pending counterclaim for infringement of the ‘320 patent. Nonetheless, Augme’s motion was granted by the Court on October 29, 2012, and final judgment was entered shortly thereafter on November 15, 2012.  On December 12, 2012, Augme filed a Notice of Appeal as to the judgment as to the Augme patent. The appeal was docketed by the Federal Circuit on December 19, 2012.
 
With respect to Yahoo!’s counterclaim regarding infringement of the ‘320 patent, the parties agreed to and filed a stipulation of infringement of this patent on December 13, 2012, under the Court’s claim construction ruling of January 3, 2012.  The parties also stipulated to entry of judgment under Rule 54(b) and 28 U.S.C. § 1292(c)(2), which permits the entry of judgment in patent cases “which … [are] final except for an accounting.” The parties also requested that the Court stay the remainder of the case pending Augme’s appeal to the Federal Circuit Court of Appeals. The Court signed such an order on December 13, 2012, and entered it the next day.

On January 11, 2013, Augme filed with the district court a Notice of Appeal to the Federal Circuit Court of Appeals as to Yahoo!’s ‘320 patent judgment. The second appeal was docketed by the Federal Circuit on February 6, 2013 and consolidated with the prior appeal (now Lead Appeal No. 13-1121). Augme tendered its principal brief to the Federal Circuit on May 7, 2013. Augme filed its Reply Brief on September 6, 2013, and the parties subsequently filed a Joint Appendix on September 13, 2013. Both consolidated appeals remain pending before the Federal Circuit.

Augme Technologies, Inc. v. Millennial Media, Inc., Civil Action No. 1:12-cv-00424, a patent infringement lawsuit pending in the U.S. District Court for the District of Delaware since April 5, 2012. Augme filed a case against Millennial Media, Inc., asserting three causes of action involving alleged patent infringement related to Augme-owned United States Patent No. 7,783,721, United States Patent No. 7,269,636 and United States Patent No. 6,594,691.

This case is a patent infringement lawsuit filed by Augme against Millennial Media, Inc. As originally filed, Augme was seeking monetary relief for patent infringement damage and injunctive relief against future infringement. A summary of the current status is set forth below.

 
On May 30, 2012, Millennial Media filed a Motion to Dismiss For Failure to State a Claim Under Federal Rule of Civil Procedure 12(b)(6). Augme filed an amended complaint and an answer brief on June 18, 2012, and Millennial Media withdrew its Motion to Dismiss on June 28, 2012. A Scheduling Order was entered on September 28, 2012. The case has been set for a seven day jury trial beginning on September 15, 2014.  On March 22, 2013, the parties began settlement discussions. To facilitate those discussions, the parties filed, on April 12, 2013, a stipulation to stay further proceeding in the case which Judge Stark entered as an order on April 18, 2013.  As required by the joint stipulation, the parties filed a joint status report on July 1, 2013, stipulated that the stay be continued at least until October 1, 2013. On September 30, 2013, the parties filed a joint status report requesting that the stay be continued at least until December 1, 2013. The Court entered an Order to this effect the next day.

Augme Technologies, Inc. v. AOL, Inc. and Time Warner, Inc., Civil Action No. 1:12-cv-05439-CM (transferred from Civil Action No. 1:09-cv-04299-RWS (S.D.N.Y.)), a patent infringement and trademark infringement lawsuit pending in the U.S. District Court for the Southern District of New York (transferred from the U.S. District Court for the Central District of California) since September 10, 2008.

The case is a patent infringement case originally filed by Augme against AOL, Inc. and Time Warner, Inc. in the Central District of California and subsequently transferred to the Southern District of New York.  It also originally included a trademark infringement action against AOL, Inc. for use of the BOOMBOX trademark which has subsequently been dismissed.  In its patent infringement claim, Augme sought both monetary relief for patent infringement damages and injunctive relief against further infringement by AOL and Time Warner.  The AOL defendants and Augme agreed to settle litigation between themselves and, on February 26, 2013, the case was dismissed between those parties. The stayed case remains pending against Time Warner, Inc.  Below is a summary of the current status of this case.

On June 13, 2012, the patent infringement claims were transferred from Judge Robert Sweet to Judge Colleen McMahon.  The residual claims for trademark infringement, unfair competition and false designation of origin, which remained with Judge Sweet, were dismissed by agreement of the parties on November 19, 2012.

With regard to the patent infringement claims, Time Warner filed a Motion for Judgment on the Pleadings on September 27, 2012, and, shortly thereafter, a Motion for Rule 11 Sanctions on October 23, 2012.  On October 26, 2012, the Court sua sponte stayed the case regarding any claims related to U.S. Patent No. 7,269,636 (“‘636 patent”), pending the outcome of the ongoing reexamination of that patent by the U.S. Patent and Trademark Office.  Because the remaining patent-in-suit, U.S. Patent Nos. 6,594,691 (“‘691 patent”), is closely related to the ‘636 patent, Augme moved to stay the case in its entirety on November 5, 2012.  On December 20, 2012, Judge McMahon denied Augme’s motion to stay as to the ‘691 patent and did not disturb the preexisting stay as to the ‘636 patent.

Because of Judge McMahon’s requirement that all discovery in the case be completed by the end of February 2013 and given that discovery as to the ‘691 patent would be totally duplicative of discovery which would have to be conducted later as to the ‘636 patent, on January 7, 2013, Augme filed a covenant not to sue defendants on the ‘691 patent and a motion to dismiss the ‘691 patent from the case.  Based on the pendency of the motion to dismiss, on January 11, 2013, Magistrate Judge Gabriel Gorenstein adjourned all further discovery as to the ‘691 patent.

On January 16, 2013, Judge McMahon entered an order dismissing the ‘691 patent from the case and maintaining the stay as to the ‘636 patent. She placed the case on suspension and denied Time Warner’s pending motions without prejudice.

The AOL defendants and Augme agreed to settle the litigation as between Augme, on the one hand, and AOL, Inc. and AOL Advertising, Inc., on the other. Accordingly, on February 26, 2013, Judge McMahon entered an Order of Dismissal as to the parties, AOL, Inc. and AOL Advertising, Inc. The stayed case remains pending against Time Warner, Inc.

On July 16, 2013, the court denied Time Warner’s motion for sanctions against Augme without prejudice to renewal, pending the outcome of the USPTO reexamination.

Brandofino Communications vs. Augme Technologies, Inc. On September 27, 2011, Brandofino Communications, Inc. (“Brandofino”) filed suit against Augme and New Aug LLC in the Supreme Court of the State of New York, New York County.  The complaint alleges, inter alia, breach of contract and unjust enrichment claims arising from work Brandofino allegedly performed for Augme pursuant to a marketing agreement entered into by Brandofino and Augme.  Augme has served its Answer and set forth counterclaims for breach of contract, unfair competition, tortious interference with business relations, and violations of New York General Business Law Section 349 (relating to violations of Augme’s intellectual property rights). The Company intends to vigorously defend against Brandofino’s claim and pursue its counterclaims.

 
Shaub& Williams, L.L.P., vs. Augme Technologies, Inc., Civil Action No. 1:13-cv-01101-GBD. Augme's prior counsel, Shaub & Williams, LLP, filed a Complaint in the United States District Court for the Southern District of New York seeking recovery on a quantum meruit (value of services) basis attorney's fees in the amount of $2,249,686.25 for its prior representation of Augme in litigation. Augme filed and served (1) an Answer denying the material allegations and claims of the First Amended Complaint; (2) counterclaims for professional negligence and breach of contract. Shaub & Williams filed motions to dismiss Augme's counterclaims and to strike certain of Augme's affirmative defenses to the complaint, in addition to an early motion for summary judgment seeking to dismiss Augme's counterclaims.  The Court denied the motion for summary judgment, but at hearing October 7 on the motion to dismiss indicated that Augme's affirmative counterclaims may have insufficient factual support since Augme has not actually paid any of Shaub & Williams' bills to date.  Augme was given leave to submit a proposed amended Counterclaim by October 21 (with opposition by Shaub & Williams by November 4 and a reply allowed to Augme by November 12) and the Court will determine whether it will be allowed.  The Court indicated the affirmative defenses  are sufficient.  A further status conference has been set for January 14, 2014, at which time the Court will finalize a trial date.   In the meantime, the parties are conducting discovery on the claims and counterclaims.
 
Subpoena from the Securities and Exchange Commission

On February 26, 2013, the Company received a subpoena from the SEC that sought documents and information with respect to statements made by us between October 2010 and April 2011 in certain press releases, investor presentations and filings with the SEC. We provided responsive documents and information to the Staff in compliance with the subpoena. The SEC did not make any specific allegations of misconduct or misrepresentation by us or any of our current or former officers, directors or employees. On August 19, 2013, the Staff issued a letter to us stating that its investigation has been completed and that the Commission Staff does not intend to recommend any enforcement action by the SEC.

NOTE 9 — LINE OF CREDIT

On May 21, 2013, we entered into a loan and security agreement with Silicon Valley Bank (“SVB”).  The agreement provides for a $5.0 million asset based revolving loan facility, with availability subject to a borrowing base of 90% of our eligible accounts receivable, decreasing to 80% of eligible accounts receivable after January 31, 2014, and the satisfaction of conditions specified in the agreement. The facility expires on May 21, 2015, at which time all outstanding amounts will become due and payable.

Amounts drawn under the facility accrue interest at a floating per annum rate equal to 1.25% above the prime rate, or 0.75% above prime rate at all times when a Streamline Period is in effect. A Streamline Period commences on the first day of the month following the day that we provide SVB a written notice that, for each consecutive day in the immediately preceding fiscal quarter, we had unrestricted cash at Silicon Valley Bank plus the unused amount available under the facility in an amount above $4.0 million, subject to terms and conditions of the loan agreement. Interest is payable monthly. We also are required to pay SVB a quarterly fee equal to 0.25% per annum of the average unused portion of the facility. The facility is secured by substantially all of our assets, other than our intellectual property. Borrowings under the facility may be used for general corporate purposes, including funding working capital. As of the August 31, 2013, we had drawn $1.7 million from the line of credit and had approximately $1.7 million available based on our outstanding accounts receivable as of that date.

The loan agreement includes customary covenants, including covenants that limit or restrict our ability to, without the prior written consent of SVB, dispose of assets, change our business, have a change in control, make acquisitions, be acquired, incur indebtedness, grant liens, make investments, make distributions, repurchase stock, and enter into certain transactions with affiliates. The loan agreement also requires us to maintain a minimum tangible net worth of at least negative $1.25 million, increasing (i) at the end of each month by 50% of the proceeds of issuances of equity securities and the principal amount of any subordinated debt received during such month, (ii) at the end of each calendar quarter 50% of net income for such quarter and (iii) immediately by 1.5x the cash received by us from the sale of any intellectual property minus any realized gain or plus any realized loss associated with the sale of such intellectual property.

The loan agreement contains customary events of default that include non-payment defaults, covenant defaults, material adverse change defaults, insolvency defaults, material judgment defaults and inaccuracy of representations and warranty defaults. The occurrence of an event of default could result in the acceleration of obligations under the loan agreement, in which case we must repay all loans and related charges, fees and amounts then due and payable. At the election of SVB, upon the occurrence and during the continuance of an event of default, the interest rate will increase an additional 5.0% per annum above the rate that is otherwise applicable.

 
We are required to deliver periodic reports to SVB regarding our ability to meet certain financial and other covenants contained in the loan agreement. In late July we delivered the report to SVB indicating that as of June 30, 2013, we had breached our minimum tangible net worth covenant and began discussions of a forbearance agreement with SVB.  We are in negotiations with SVB to obtain a waiver of the covenant default. The terms of such waiver may include modification of certain loan terms, including expanding the collateral on the facility to include our intellectual property.

NOTE 10 — CONCENTRATION OF RISK

During the quarter ended August 31, 2013, three customers accounted for approximately 6.8%, 5.6%, and 5% of our revenue and no other customer accounted for over 5% of revenues.  During the quarter ended August 31, 2012 there were two customers that accounted for approximately 10% and 8% of our revenue and no other customer accounted for over 5% of revenue.

At August 31, 2013, four customers accounted for approximately 24% of accounts receivable, the largest of which accounted for 8%. At August 31, 2012, three customers accounted for 27% of accounts receivable, the largest of which accounted for approximately 11%.
 
NOTE 11 — SUBSEQUENT EVENT
 
On October 4, 2013, we closed a $9.6 million financing transaction with 13 investors, each of which is and “accredited investor” within the meaning of the Securities Act of 1933 (the “Securities Act”). The investors purchased units of our securities at $0.40 per unit. Each unit consisted of 1 share of our common stock and a warrant to purchase 0.3 shares of our common stock. An aggregate of 23,875,000 shares of our common stock and warrants to purchase up to 7,162,500 shares of our common stock were purchased in the financing. The warrants have a five year term and an exercise price of $0.60 per share.

In connection with the financing, we also entered into a registration rights agreement with each investor pursuant to which we will file, and cause to become effective with the SEC, a registration statement covering the resale of all of the shares of common stock and shares of common stock underlying the warrants sold in the financing.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis summarizes the significant factors affecting our results of operations, financial condition and liquidity position for the three months ended August 31, 2013 and 2012, and should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this filing.

FORWARD LOOKING STATEMENTS

This report contains forward-looking statements.  These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

Factors that might affect our forward-looking statements include, among other things:

●      overall economic and business conditions;
●      the demand for our products and services;
●      competitive factors in the industries in which we compete;
●      the results of our pending and future litigation;
●      the emergence of new technologies which compete with our product and service offerings;
●      our cash position and uses of cash;
●      other capital market conditions, including availability of funding sources;
●      the strength of our intellectual property portfolio; and
●      changes in government regulations related to our industry.
 
 
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” and similar expressions. These statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties.  Given these uncertainties, you should not place undue reliance on these forward-looking statements.  We discuss many of these risks in greater detail under the heading “Risk Factors” in our Annual Report on Form 10-K, in Part II, Item 1A (Risk Factors) of this Report and in other reports we file with the Securities and Exchange Commission.  As discussed in Note 2 of the Notes to Consolidated Financial Statements, our unaudited quarterly financial statements for the period ended August 31, 2012 have been restated.
 
Our forward-looking statement are based on information currently available to us and speak only as of the date of this report, or in the case of forward-looking statements incorporated herein by reference, the date of the filing that includes such statement. Unless required by law, we undertake no obligation to update or revise any forward-looking statements to reflect new information or future events or developments.  Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements.

OVERVIEW

Business Update

In September 2012, we adopted a restructuring plan which includes reducing the number of employees, slowing the pace of investments in our intellectual property (“IP”) portfolio and minimizing variable expenses. We are restructuring overall corporate overhead expenses in order to focus our business around our mobile marketing and advertising technology and services. Consistent with this plan, we have settled the majority of our patent litigation cases, while protecting the value of our IP assets, to reduce our ongoing legal costs, downsized our Tucson division which was primarily involved with development and monetization of our IP, streamlined personnel and variable costs, and solidified the management team by appointing new personnel with extensive experience in the mobile marketing and advertising space to lead our sales and engineering teams. We intend to continue to minimize cash spend and identify additional cost savings opportunities while carefully investing our resources and protecting our strategic assets to strengthen our position in the mobile marketing and mobile advertising industry.

Also consistent with our restructuring plan, we have shifted our strategy as it relates to investing in new patents. We are selectively investing in additional patents that generally relate to our core competencies of targeting, advanced mobile marketing, customized content delivery, and mobile and networked marketing technology. We believe that protecting these core competencies is a fundamental aspect of our strategy to penetrate the mobile marketing and mobile advertising markets. We are also working to find a strategic partner to monetize certain of our patents, while retaining the rights to use these patents in our technology.

During the quarter ended August 31, 2013 we continued to invest in our sales team to drive revenue and adoption of our ADLIFE platform as well as identify cost savings opportunities. On August 23, 2013, we changed the Company name from Augme Technologies, Inc. to Hipcricket, Inc. We believe the Hipcricket name provides us with broader marketplace appeal and recognition.

Business

We provide a customer engagement platform that empowers brands, agencies and media properties to engage customers, drive loyalty and increase sales via mobile. Our proprietary software-as-a-service (“SaaS”) AD LIFE Platform allows marketers, brands, and agencies to plan, create, test, deploy, and track mobile marketing programs across every mobile channel.  Through the use of Consumer Response Tags such as 2D codes, UPC codes, short messaging service (“SMS”), and image recognition, our Platform facilitates consumer brand interaction and the ability to track and analyze campaign results. Using our own patented device-detection and proprietary mobile content adaptation software, AD LIFE solves the mobile marketing industry problem of disparate operating systems, device types, and on-screen mobile content rendering. We also provide business-to-consumer utilities including national mobile couponing solutions, strategic mobile healthcare tools, custom mobile application development and consumer data tracking and analytics. Our products serve advertisers and ad agencies in many vertical markets, including automotive, retail, consumer products, food and beverage, media and broadcast, pharmaceutical and restaurant brands.

 
We have successfully completed over 250,000 mobile campaigns to date with hundreds of clients across some of the leading brands in the U.S. and have consistently maintained a customer renewal rate of over 95%.  Our products serve advertisers and ad agencies in many vertical markets, including automotive, retail, consumer products, food and beverage, media and broadcast, pharmaceutical and restaurant brands.

The mobile marketing and advertising landscape, while in its early stages, is highly competitive. Many of the landscape’s significant players are focused on delivering point solutions targeting a specific segment of the mobile marketing and/or advertising landscape. We differ from the competition by offering complete, end-to-end mobile advertising and marketing solutions delivered through our AD LIFE Platform.

Our advanced, comprehensive, and fully integrated Platform drives revenue primarily through license fees, marketing campaign fees, and fees associated with certain add-on promotional applications in the Platform.  Additional revenue is generated by platform administration and professional service fees related to the mobilization of client content and implementation of marketing campaigns through the Platform.

Our portfolio of patents covers technical processes and methods that are believed to be a foundational component of behavioral targeting — the automatic provision of customized content to individuals based on information such as past web activity, personal preferences, geography, or demographic data. We own 19 U.S. patents, and on a selected basis we are pursuing additional patents that generally relate to targeting, analytics, advanced mobile marketing, customized content delivery, and mobile and networked marketing technology.

We operate under one reportable segment and are headquartered in Kirkland, Washington.  Additionally, we maintain a presence in New York, Atlanta, Miami, Dallas, Chicago, San Francisco and Los Angeles.

Liquidity and Capital Resources

Net cash used in operating activities was $5.3 million during the six months ended August 31, 2013. Net cash used in operating activities reflects the net loss for the period, partially offset by depreciation and amortization, share-based compensation expense and changes in operating assets and liabilities. Net cash used in operating activities during the six months ended August 31, 2012 was $7.1 million, reflecting the net loss for the period, partially offset by stock option and warrant expense, depreciation and amortization and changes in operating assets and liabilities. Included in the net loss for the period was a non-cash adjustment for deferred income tax benefits of $2.6 million related to our acquisition of GEOS in May 2012.

Net cash used in investing activities was approximately $329,000 during the six months ended August 31, 2013. We used approximately $231,000 for legal actions in support of our patent enforcement, $44,000 to purchase patents, which we capitalize as intangible assets, and $55,000 for leasehold improvements.  Net cash used in investing activities was $5.1 million for the six months ended August 31, 2012. We used $2.0 million for payment of contingent consideration related to our acquisition of Hipcricket, $2.3 million for legal actions supporting our patent enforcement initiatives and $0.7 million to purchase patents. Additionally, we used cash of $0.2 million for a long-term investment. During the six months ended August 31, 2012, we paid $355,000 in cash and $3.8 million in our common stock (1,860,465 shares at a price of $2.05 per share) for the purchase of all of the common and preferred stock of GEOS.  We also we issued 5,225,039 shares of common stock as partial satisfaction of the contingent consideration obligation related to the acquisition of Hipcricket in August 2011. The fair value of the stock on the measurement date was $1.48 per share.

Net cash provided by financing activities was $1.7 million during the six months ended August 31, 2013, compared to approximately $1.2 million for the six months ended August 31, 2012. Cash provided by financing for the six months ended August 31, 2013 was primarily attributed to proceeds received from our loan facility, compared to proceeds received from the exercise of options and warrants in the comparative period a year ago.

As of August 31, 2013 and February 28, 2013, we had accumulated deficits of $120.7 million and $111.4 million, respectively. We are subject to the risks and challenges associated with companies at a similar stage of development including dependence on key individuals, successful development and marketing of our products and services, integration of recent business combinations, competition from alternative products and services and larger companies with greater financial, technical management and marketing resources. Further, we may require additional financing to execute our key business strategies and fund operations, those funds may not be readily available or may not be on terms that are favorable to us. Certain financing terms could be dilutive to existing shareholders or could result in significant interest or other costs, or require us to license or relinquish certain intellectual property rights.

 
We operate in the mobile marketing industry and, accordingly, can be affected by a variety of factors. For example, we believe that any of the following factors could have a significant negative effect on our future financial position, results of operations and cash flows: unanticipated fluctuations in quarterly operating results, adverse changes in our relationship with significant customers or failure to secure contracts with other customers, intense competition, failure to attract and retain key personnel, failure to protect  intellectual property, decrease in the migration trends from traditional advertising methods to digital and mobile media and the inability to manage growth.

In September 2012, we adopted a restructuring plan which includes reducing the number of employees, slowing the pace of investments in our intellectual property (“IP”) portfolio and minimizing variable expenses. We are restructuring overall corporate overhead expenses in order to focus our business around our mobile marketing and advertising technology and services. We have implemented measures specifically designed to reduce our cash used in operations. Consistent with this plan, we have settled the majority of our patent litigation cases, while protecting the value of our IP assets, to reduce our ongoing legal costs, downsized our Tucson division which was primarily involved with development and monetization of our IP, streamlined personnel and variable costs and solidified the management team by appointing new personnel with extensive experience in the mobile marketing and advertising space to lead our sales and engineering teams. We intend to continue to minimize cash spend and identify additional cost savings opportunities while carefully investing our resources and protecting our strategic assets to strengthen our position in the mobile marketing and mobile advertising industry.

During the quarter ended May 31, 2013, we secured an accounts receivable credit facility from Silicon Valley Bank (“SVB”) to help fund our working capital needs. The revolving loan credit facility has a two-year term and allows us to borrow up to $5.0 million based upon a formula equal to 90% of eligible accounts receivable, decreasing to 80% of eligible accounts receivable after January 31, 2014. The facility is secured by substantially all of our assets other than our intellectual property. Amounts drawn under the facility accrue annual interest at the prime rate plus 0.75% during a Streamline Period, as defined in the loan and security agreement, and at the prime rate plus 1.25% when a Streamline Period is not in effect. We are required to deliver periodic reports to SVB regarding our ability to meet certain financial and other covenants contained in the loan agreement. In late July we delivered the report to SVB indicating that as of June 30, 2013, we had breached our minimum tangible net worth covenant and began discussions of a forbearance agreement with SVB. We are in negotiations with SVB to obtain a waiver of the covenant default. The terms of such waiver may include modification of certain loan terms, including expanding the collateral on the facility to include our intellectual property. As of the August 31, 2013, we had drawn $1.7 million from this line of credit and had approximately $1.7 million available based on our outstanding accounts receivable as of that date.

On October 4, 2013, we closed a $9.6 million financing transaction with 13 investors, each of which is an “accredited investor” within the meaning of the Securities Act of 1933 (the “Securities Act”). The investors purchased units of our securities at $0.40 per unit. Each unit consisted of 1 share of our common stock and a warrant to purchase 0.3 shares of our common stock. An aggregate of 23,875,000 shares of our common stock and warrants to purchase up to 7,162,500 shares of our common stock were purchased in the financing. The warrants have a five year term and an exercise price of $0.60 per share. In connection with the financing, we also entered into a registration rights agreement with each investor pursuant to which we will file, and cause to become effective with the SEC, a registration statement covering the resale of all of the shares of common stock and shares of common stock underlying the warrants sold in the financing.

In the future, we may need to raise additional cash through equity or debt financings, and/or sell all or part of our patent portfolio, while retaining the rights to use the patents in our technology. There is no certainty that we will have the ability to raise additional funds through debt or equity financings under terms acceptable to us or that we will have the ability to sell all or part of the patent portfolio. If sources of capital are unavailable, or are available only on a limited basis or under unacceptable terms, then we could be required to substantially reduce or discontinue our investments in new customers and new products; reduce selling, marketing, general and administrative costs related to our continuing operations; or limit the scope of our continuing operations.  Due to the nature of our operations and financial commitments we may not have the discretion to reduce operations in an orderly manner to a more sustainable level without impacting future operations.

 
As of the filing of our Annual Report on Form 10-K for the fiscal year ended February 28, 2013, we no longer met the minimum $75 million public float requirement for use of Form S-3 registration for primary sales of our shares and therefore are limited in our ability to issue the remaining $41.4 million remaining on our existing Form S-3 and/or to file new shelf registration statements on Form S-3. Until such time as we satisfy the $75 million public float and other requirements for use of Form S-3 registration, we will be required to use a registration statement on Form S-1 to register securities with the SEC, including to register the resale of the common shares issued in our October 2013 financing, or issue such securities in a private placement, which could increase the cost of raising capital. If we need to raise additional capital, we do not believe that the unavailability of Form S-3 registration will be a significant limiting factor.

Critical Accounting Policies

Our critical accounting policies, as described in our Annual Report on Form 10-K for the fiscal year ended February 28, 2013, relate to capitalized legal patent costs, income taxes, business combinations, fair value measurements, goodwill, intangible assets, share-based payments, revenue recognition, and research and development costs. There have been no material changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K.

Results of Operations

The discussion below is not necessarily indicative of the results which may be expected for any subsequent periods and pertains only to the results of operations for the three months ended August 31, 2013 and 2012. Our prospects should be considered in light of the risks, expenses and difficulties that we may encounter. We may not be successful in addressing these risk and difficulties. As discussed in Note 2 to the Notes to Consolidated Financial Statements, our financial statements for the unaudited quarterly period ended August 31, 2012 has been restated to reflect increases to the value of our intangible assets and income tax benefits associated with the acquisition of GEOS in May 2012.  Net loss was also affected by the restatement. The corrections had no impact on total revenue or operating expense. Comparative data for the quarter ended August 31, 2012 is as restated.

COMPARISON OF THREE MONTHS ENDED AUGUST 31, 2013 TO THREE MONTHS ENDED AUGUST 31, 2012

Revenue

Revenues are generated through providing access to our SaaS mobile marketing platforms and services through term license fees, support fees and mobile marketing and advertising campaigns. Through our platform we deliver campaigns and other mobile marketing services using SMS, multimedia messaging service (“MMS”), quick response (“QR”) codes, Geo-fencing, Mobile Web, Mobile Apps, and analytics.  We also provide professional services and extensive integration into customer CRM systems using application programming interfaces (“APIs”).  The revenues from these multiple elements of a contract are generally recognized over the term of the contract. For the quarter ended August 31, 2013, revenues were $7.6 million compared with $6.2 million in the quarter ended August 31, 2012, an increase of approximately 23%. We continue to experience higher demand for our AD LIFE Platform.  During the quarter ended August 31, 2013, approximately 18% of our revenue was generated by three customers.

Cost of Revenue

Cost of revenue includes the costs of hosting, short codes and mobile ad inventory.  For the quarter ended August 31, 2013, cost of revenue increased 37% to $3.4 million from $2.5 million in the quarter ended August 31, 2012, as a result of higher revenue and a shift in business toward a greater percentage of sales from mobile advertising which carries a greater cost of sales.  
 
Operating Expenses
 
Operating expenses consist of sales and marketing, technology and development, general and administrative and depreciation and amortization expenses. Salaries and personnel costs are the most significant component of the sales and marketing, technology and development and general and administrative expense categories. We include stock-based compensation expense in connection with the grant of stock options and warrants in the applicable operating expense category based on the respective equity award recipient’s function. For the quarter ended August 31, 2013 operating expenses decreased a total of $3.3 million. The decrease was primarily attributed to lower staffing levels in the second quarter of fiscal 2014 compared to the same quarter a year ago, resulting from the implementation of our restructuring plan adopted in September 2012.

 
Sales and marketing expense. Sales and marketing expense consists primarily of salaries and personnel costs for our sales and marketing employees, including stock-based compensation, commissions and bonuses. Additional expenses include marketing programs, consulting, travel and other related overhead. Sales and marketing expense decreased $1.1 million, or 28%, to $2.8 million at August 31, 2013 compared to $3.9 million at August 31, 2012.  The decrease in sales and marketing expense is related to lower payroll costs associated with reduced staffing levels in sales support and client services compared to the prior year.
 
Technology and development expense. Technology and development expense consists primarily of salaries and personnel costs for development employees, including stock-based compensation and bonuses. Additional expenses include costs related to the development, quality assurance and testing of new technology and enhancement of existing technology, consulting, travel and other related overhead. We experienced a $0.5 million decrease, or 25%, in these expenses to $1.4 million at August 31, 2013 compared to $1.8 million at August 31, 2012. The decrease is primarily related to lower personnel costs associated with reduced staffing levels compared to the prior year.

General and administrative expense. General and administrative expense consists primarily of salaries and personnel costs for product, operations, developer support, business development, administration, finance and accounting, legal, information systems and human resources employees, including stock-based compensation and bonuses. Additional expenses include consulting and professional fees, travel, insurance and other corporate expenses. General and administrative expense decreased $1.4 million, or 41%, to $2.1 million at August 31, 2013 compared to $3.5 million at August 31, 2012.   The decrease is primarily a result of lower personnel costs from headcount reductions, including the downsizing of our patent development and enforcement efforts, which included eliminating our Tucson office, as well as reducing redundancies from the acquisition of Hipcricket.

Depreciation and amortization expense. Depreciation and amortization expense of $1.3 million for the quarter ended August 31, 2013 decreased by $0.3 million from $1.6 million for the quarter ended August 31, 2012.  This decrease is related to amortization of fewer intangible assets compared to the prior year.

Income Tax Benefit

We did not recognize any income tax benefits during the three and six months ended August 31, 2013, compared to $0 and $2.6 million during the three and six months ended August 31, 2012, respectively. As a result of our acquisition of GEOS in May 2012 we recognized $2.6 million in income tax benefits associated with the reduction of our valuation allowance against the net deferred tax asset. The reduction of our valuation allowance resulted from the recognition of certain deferred income tax liabilities arising from the acquisition.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.  Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has concluded that, as of August 31, 2013, our disclosure controls and procedures are ineffective due to insufficient technical accounting resources to identify, address and review complex accounting and financial reporting matters, including accounting for business combinations and the preparation and review of the income tax provision and related income tax financial statement disclosures.

Management has been actively engaged in the planning for, and implementation of, remediation efforts since material weaknesses were initially discovered and reported in our Form 10-Q for the interim period ended November 30, 2011 and as included in the Form 10-K for the fiscal year ended February 28, 2013. During fiscal year 2013 and continuing into the first quarter of fiscal 2014, we implemented changes in control process and added additional resources which we believe will continue to improve internal controls and remediate the control deficiencies in our financial reporting. Management implemented a more formalized process for the preparation and review of financial statement reconciliations and review, establishing appropriate accounting policies and procedures related to complex and unusual transactions, expanded staffing and engaged additional third parties to provide ongoing technical advice. Management believes the measures described above will remediate the material weakness that existed as of February 28, 2013, and strengthen our internal control over financial reporting. Management is committed to continuous improvement of the Company’s internal control processes and will continue to diligently review the Company’s financial reporting controls and procedures. As management continues to evaluate and work to improve internal control over financial reporting, we may take additional measures to address control deficiencies.

 
Despite the existence of the material weaknesses, we believe that our consolidated financial statements contained in this Form 10-Q fairly present our financial position, results of operations and cash flows as of and for the periods presented in all material respects.

Changes in Internal Control over Financial Reporting

Except as discussed above, there have been no material changes in our internal control over financial reporting that occurred during the quarter ended August 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are involved in legal proceedings that are described in Note 8, Contingencies, of Notes to the Consolidated Financial Statements included in this report which information is incorporated by reference into this item.

ITEM 1A. RISK FACTORS

Our Annual Report on Form 10-K for the year ended February 28, 2013, filed with the SEC on May 24, 2013, contains a detailed discussion of certain risk factors that could materially adversely affect our business, operating results and/or financial condition. In addition to other information contained in this report, you should carefully consider the potential risks or uncertainties that we have identified in Part I. Item 1A. (Risk Factors) in our Form 10-K. Other than as set forth in our Form 10-Q for the quarter ended May 31, 2013, filed with the SEC on July 10, 2013, there have not been any material changes to the risk factors set forth in our Annual Report on Form 10-K. These risk factors are not the only ones affecting our company. Additional risks and uncertainties not currently deemed to be material also may materially or adversely affect our business, financial condition or results of operations.

 
ITEM 6. EXHIBITS

Exhibit
Number
 
Document
3.1
 
Certificate of Incorporation, as amended*
3.2
 
Restated Bylaws, as amended (1)
10.1
 
Amended Offer Letter of John Devlin dated July 5, 2013. + (2)
10.2
 
Amended Offer Letter of Donald Stout dated July 5, 2013. + (2)
10.3
 
Amended Offer Letter of Todd Wilson dated July 5, 2013. + (2)
10.4
 
Amended Employment Agreement between the Company and Ivan Braiker dated July 5, 2013. + (2)
10.5
 
Restated Hipcricket, Inc. 2010 Incentive Stock Option Plan, as amended.*
10.6
 
Employment Agreement between the Company and Douglas Stovall dated June 17, 2013. + (3)
10.7
 
Indemnification Agreement dated June 17, 2013 between the Company and Douglas Stovall. + (3)
10.8
 
Letter dated June 17, 2013 to Michael Brochu regarding appointment to the Board of Directors. + (3)
10.9
 
Indemnification Agreement dated June 17, 2013 between the Company and Michael Brochu. + (3)
10.10
 
Warrant for Purchase of Common Stock issued to Michael Brochu on June 17, 2013. + (3)
10.11
 
Amended Consulting Agreement with Trove Capital Partners LLC dated August 29, 2013. +*
10.12
 
Securities Purchase Agreement dated October 3, 2013 between the Company and the purchasers indentified in the signatures pages thereto. (4)
10.13
 
Registrations Rights Agreement dated October 4, 2013 between the Company and the purchasers indentified in the signatures pages thereto. (4)
10.14   Form of Investor Warrant dated October 4, 2013. (4)
10.15
 
Lease Agreement between the Company and Talon Portfolio Services, LLC.*
31.1
 
Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(a) and Section 302 of the Sarbanes Oxley Act of 2002.*
31.2
 
Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(a) and Section 302 of the Sarbanes Oxley Act of 2002.*
32.1
 
Certification of Chief Executive Officer and Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(a) and Section 906 of the Sarbanes Oxley Act of 2002.*
101.INS
 
XBRL Instance Document.*
101.SCH
 
XBRL Taxonomy Extension Schema Document.*
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.*
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.*
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document.*
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.*
____________________
+Management contract or compensatory plan or arrangement.
*Filed herewith.
 
(1)  Incorporated herein by reference to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 26, 2013.
(2) Incorporated herein by reference to the registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on July 10, 2013.
(3)  Incorporated herein by reference to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 21, 2013.
(4) Incorporated herein by reference to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 8, 2013.

 

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
HIPCRICKET, INC.
 
 
(Registrant)
 
     
Date: October 9, 2013
By:
/s/ Ivan E. Braiker
 
   
Ivan E. Braiker
 
   
Chief Executive Officer
 
       
       
 
By:
/s/ Thomas J. Virgin
 
   
Thomas J. Virgin
 
   
Chief Financial Officer
 
EX-3.1 2 amendedcertofinc.htm CERTIFICATE OF INCORPORATION, AS AMENDED amendedcertofinc.htm
Exhibit 3.1

Delaware
The First State

I, JEFFREY W. BULLOCK, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED ARE TRUE AND CORRECT COPIES OF ALL DOCUMENTS FILED FROM AND INCLUDING THE RESTATED CERTIFICATE OR A MERGER WITH A RESTATED CERTIFICATE ATTACHED OF "HIPCRICKET, INC." AS RECEIVED AND FILED IN THIS OFFICE. THE FOLLOWING DOCUMENTS HAVE BEEN CERTIFIED:

RESTATED CERTIFICATE, FILED THE NINTH DAY OF MAY, A.D. 2005, AT 3:23 O'CLOCK P.M.

CERTIFICATE OF AMENDMENT, CHANGING ITS NAME FROM "SURFNET MEDIA GROUP, INC. "TO "MODAVOX, INC. ", FILED THE EIGHTH DAY OF SEPTEMBER, A.D. 2005, AT 5:26 O'CLOCK P.M.

CERTIFICATE OF DESIGNATION, FILED THE TWENTY-EIGHTH DAY OF FEBRUARY, A.D. 2006, AT 4:32 O'CLOCK P.M.

CERTIFICATE OF DESIGNATION, FILED THE TWENTY-EIGHTH DAY OF FEBRUARY, A.D. 2006, AT 4:33 O'CLOCK P.M.

CERTIFICATE OF AMENDMENT, CHANGING ITS NAME FROM "MODAVOX, INC. " TO "AUGME TECHNOLOGIES, INC. ", FILED THE TWELFTH DAY OF FEBRUARY, A.D. 2010, AT 4:07 O'CLOCK P.M.

CERTIFICATE OF AMENDMENT, FILED THE TWENTY-EIGHTH DAY OF JUNE, A.D. 2011, AT 12:08 O'CLOCK P.M.

CERTIFICATE OF CHANGE OF REGISTERED AGENT, FILED THE TWENTY-SEVENTH DAY OF MARCH, A.D. 2012, AT 5:11 O'CLOCK P.M.

AND I DO HEREBY FURTHER CERTIFY THAT THE EFFECTIVE DATE OF THE AFORESAID CERTIFICATE OF CHANGE OF REGISTERED AGENT IS THE TWENTY-EIGHTH DAY OF MARCH, A.D. 2012.

CERTIFICATE OF AMENDMENT, CHANGING ITS NAME FROM "AUGME TECHNOLOGIES, INC." TO "HIPCRICKET, INC.", FILED THE SIXTEENTH DAY OF AUGUST, A.D. 2013, AT 5:42 O'CLOCK P.M.

AND I DO HEREBY FURTHER CERTIFY THAT THE EFFECTIVE DATE OF THE AFORESAID CERTIFICATE OF AMENDMENT IS THE TWENTY-THIRD DAY OF AUGUST, A.D. 2013, AT 5 O'CLOCK P.M.

/s/ Jeffrey W. Bullock
Jeffrey W. Bullock, Secretary of State

AUTHENTICATION: 0724640
DATE:  09-10-13

 
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AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
SURFNET MEDIA GROUP, INC

SURFNET MEDIA GROUP, INC, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies that:

A. The name of this Corporation is SURFNET MEDIA GROUP, INC.

B The date of filing of this Corporation's original Certificate of Incorporation with the Secretary of State of Delaware was March 10, 2000 under the name llde Corporation.

C. Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware ("GCL''), this Restated Certificate of Incorporation restates, integrates and amends the provisions of the Corporation's Amended and Restated Certificate of!nco1poration as follows:

ARTICLE ONE

The name of this Corporation is SURFNET MEDIA GROUP, INC

ARTICLE TWO

The address of the Corporation's registered office in the State of Delaware is 3500 South DuPont Highway, Dover, County of Kent, Delaware 19901. The name of its registered agent at such address is Incorporating Services, Ltd.

ARTICLE THREE

The purpose of this Corporation is to et1gage in any lawful act or activity for which corporations may be organized under the GCL.

ARTICLE FOUR

This Corporation is authorized to issue two classes of shares to be designated, respectively, Common Stock and Preferred Stock The total number of shares of Common Stock that this corporation is authorized to issue is 100,000,000, with a par value of $0.0001, and the total number of shares of Preferred stock which this corporation is authorized to issue is 25,000,000, with a par value of $0.0001.

The Preferred Stock may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board of Directors (authority to do so being hereby expressly vested in the Board). The Board of Directors is further authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and, to fix the number of shares of any such series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors is authorized, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares then outstanding) the number of shares of any such series subsequent to the issue of shares of that series, to determine the designation of any series, and to fix the number of shares of any series.

ARTICLE FIVE

The Corporation is to have perpetual existence.

 
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ARTICLE SIX

Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide. Advance notice of stockholder nominations for the election of directors and of any other business to be brought before any meeting of the stockholders shall be given in the manner provided in the Bylaws.

ARTICLE SEVEN

The management of the business and the conduct of the affairs of the Corporation shall be vested in its Board of Directors. The number of directors which shall constitute the whole Board of Directors shall be determined by resolution of the Board of Directors.

The Board of Directors shall be divided into three classes designated as Class I, Class II, and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. At the first annual meeting of stockholders following the date hereof, the term of office of the Class I directors shall expire, and Class I directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the date hereof, the term of office of the Class II directors shall expire, and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders following the date hereof, the term of office of the Class III directors shall expire, and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting.

Notwithstanding the foregoing provisions of this ARTICLE, each director shall serve until his or her successor is duly elected and qualified or until his or her death, resignation, or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

Any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal, or other causes shall be filled by either (i) the affirmative vote of the holders of a majority of the voting power of the then-outstanding shares of voting stock of the Corporation entitled to vote generally in the election of directors (the "Voting Stock") voting together as a single class; or (ii) by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such newly created directorship shall be filled by the stockholders, be filled only by the affirmative vote of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified.

The affirmative vote of sixty-six and two-thirds percent (66-2/3%) of the voting power of the then outstanding shares of Voting Stock, voting together as a single class, shall be required for the adoption, amendment or repeal of the following sections of the Corporation's Bylaws by the stockholders of the Corporation: 2.2 (Annual Meeting) and 2.3 (Special Meeting).

No action shall be taken by the stockholders of the Corporation except at an annual or special meeting of the stockholders called in accordance with the Bylaws.

Any director, or the entire Board of Directors, may be removed from office at any time (i) with cause by the affirmative vote of the holders of at least a majority of the voting power of all of the then-outstanding shares of the Voting Stock, voting together as a single class; or (ii) without cause by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the Voting Stock.

 
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ARTICLE EIGHT

To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers, employees and agents (and any other persons to which Delaware law permits the Corporation to provide indemnification) through Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the GCL, subject only to limits created by applicable Delaware law (statutory or non-statutory), with respect to action for breach of duty to the Corporation, its stockholders, and others.

No director of the Corporation shall be personally liable to the Corporation or any stockholder for monetary damages for breach of fiduciary duty as a director, except for any matter in respect of which such director shall be liable under Section 174 of the GCL or any amendment thereto or shall be liable by reason that, in addition to any and all other requirements for such liability, such director (I) shall have breached the director's duty of loyalty to the Corporation or its stockholders, (2) shall have acted in manner involving intentional misconduct or a knowing violation of law or, in failing to act, shall have acted in a manner involving intentional misconduct or a knowing violation of law, or (3) shall have derived an improper personal benefit. If the GCL is hereafter amended to authorize the further elimination or limitation of the liability of a director, the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the GCL, as so amended.

Each person who was or is made a party or is threatened to be made a party to or is in any way involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), including any appeal therefrom, by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or a direct or indirect subsidiary of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another entity or enterprise, or was a director or officer of a foreign or domestic corporation which was a predecessor corporation of the Corporation or of another entity or enterprise at the request of such predecessor corporation, shall be indemnified and held harmless by the Corporation, and the Corporation shall advance all expenses incurred by any such person in defense of any such proceeding prior to its final determination, to the fullest extent authorized by the GCL. In any proceeding against the Corporation to enforce these rights, such person shall be presumed to be entitled to indemnification and the Corporation shall have the burden of proving that such person has not met the standards of conduct for permissible indemnification set forth in the GCL. The rights to indemnification and advancement of expenses conferred by this ARTICLE EIGHT shall be presumed to have been relied upon by the directors and officers of the Corporation in serving or continuing to serve the Corporation and shall be enforceable as contract rights. Said rights shall not be exclusive of any other rights to which those seeking indemnification may otherwise be entitled. The Corporation may, upon written demand presented by a director or officer of the Corporation or of a direct or indirect subsidiary of the Corporation, or by a person serving at the request of the Corporation as a director or officer of another entity or enterprise, enter into contracts to provide such persons with specified rights to indemnification, which contracts may confer rights and protections to the maximum extent permitted by the GCL, as amended and in effect from time to time.

If a claim under this ARTICLE EIGHT is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expenses of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce the right to be advanced expenses incurred in defending any proceeding prior to its final disposition where the required undertaking, if any, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the GCL for the Corporation to indemnify the claimant for the amount claimed, but the claimant shall be presumed to be entitled to indemnification and the Corporation shall have the burden of proving that the claimant has not met the standards of conduct for permissible indemnification set forth in the GCL.

If the GCL is hereafter amended to permit the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment, the indemnification rights conferred by this ARTICLE EIGHT shall be broadened to the fullest extent permitted by the GCL, as so amended.

 
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Neither any amendment nor repeal of this ARTICLE EIGHT, nor the adoption of any provision of the Corporation's Certificate of Incorporation inconsistent with this ARTICLE EIGHT, shall eliminate or reduce the effect of this ARTICLE EIGHT, in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this ARTICLE EIGHT, would accrue or arise, prior to such amendment, repeal, or adoption of an inconsistent provision.

ARTICLE NINE

Notwithstanding any other provisions of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the Voting Stock required by law, this Certificate of Incorporation or any rights of designation of Preferred Stock conferred on the Board of Directors pursuant to ARTICLE FOUR, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then outstanding shares of the Voting Stock, voting together as a single class, shall be required to alter, amend or repeal ARTICLE SEVEN or this ARTICLE NINE.

ARTICLE TEN

The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, except as provided in ARTICLE NINE of this Certificate, and all rights conferred upon the stockholders herein are granted subject to this right.

ARTICLE ELEVEN

In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the Corporation. In addition, the Bylaws may be amended by the affirmative vote of holders of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of voting stock of the Corporation entitled to vote at an election of directors.

ARTICLE TWELVE

Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. Special meetings of the stockholders, for any purpose or purposes, may only be called by the Board of Directors of the Corporation and the Chairman (or Chief Executive Officer if there is no Chairman) of the Corporation. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.

ARTICLE THIRTEEN

Advance written notice of new business and stockholder nominations for the election of directors shall be given in the manner and to the extent provided in the Bylaws of the Corporation.

ARTICLE FOURTEEN

Stockholders shall not be entitled to cumulative voting rights for the election of directors.

IN WITNESS WHEREOF, SurfNet Media Group, Inc. has caused this Amended and Restated Certificate of Incorporation to be signed by Robert Arkin, its Chairman and Chief Executive Officer, and attested by Eric Schedeler, its President and Secretary, this 6th day of May, 2005.

SURFNET MEDIA GROUP, INC.

Robert Arkin
Chairman and Chief Executive Officer

 
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ATTESTED:

/s/ Eric Schedeler
Eric Schedeler
President and Secretary

The foregoing amendment and restatement has been duly adopted by the Corporation's Board of Directors in accordance with the applicable provisions of Sections 242 and 245 of the GCL.

The foregoing amendment and restatement was approved by the holders of the requisite number of shares of the Corporation in accordance with Section 228 of the GCL.

IN WITNESS WHEREOF, SurfNet Media Group, Inc. has caused this Amended and Restated Certificate of Incorporation to be signed by Robert Arkin, its Chairman and Chief Executive Officer, and attested by Eric Schedeler, its President and Secretary, this 6th day of May, 2005.

SURFNET MEDIA GROUP, INC.

Robert Arkin
Chairman and Chief Executive Officer

ATTESTED:

/s/ Eric Schedeler
Eric Schedeler
President and Secretary

 
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CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
SURFNET MEDIA GROUP, INC.

Pursuant to Section 242 of the General Corporation
Law of the State of Delaware

The undersigned, pursuant to the provision of the General Corporation Law of the State of Delaware, do hereby certify and set forth as follows:

FIRST: The name of the corporation is SURFNET MEDIA GROUP, INC.

SECOND: The Amended and Restated Certificate of Incorporation of the Corporation was filed with the Secretary of State of Delaware on May 9, 2005.

THIRD: The Amended and Restated Corporation Article One of the Certificate of Incorporation, relating to the name of the corporation is amended to read as follows:

"The name of this corporation is MODAVOX, INC."

FOURTH: The amendment effected herein was authorized by the affirmative vote of the holders of a majority of the outstanding shares entitled to vote thereon at a meeting of shareholders pursuant to Section 242 of the General Corporation Law of the State of Delaware.

FIFTH: The capital of the corporation will not be reduced under or by reason of this amendment.

IN WITNESS WHEREOF, I have signed this instrument on the 8th day of September, 2005.

By:  /s/ Robert Arkin
Robert Arkin
Chairman and Chief Executive Officer

 
-7-

 
 
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK OF MODAVOX, INC.

MODAVOX, INC., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY THAT:

Pursuant to authority conferred upon the Board of Directors (the "Board") by the Amended and Restated Certificate of lncorporation of the Corporation, as amended (the "Certificate of Incorporation") and pursuant to the provisions of the Delaware General Corporation Law, the Board, pursuant to a unanimous written consent effective as of February 27, 2006, adopted the following resolution providing for the designations, preferences and relative, participating, optional and other rights, and the qualifications, limitations and restrictions, of the Series A Convertible Preferred Stock:

WHEREAS, the Certificate of Incorporation provides for two classes of shares known as common stock, $0.0001 par value per share (the "Common Stock"}, and preferred stock, $0.0001 par value per share (the "Preferred Stock"); and

WHEREAS, the Board is authorized by the Certificate of Incorporation to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in such series and to fix the designations, preferences and rights of the shares of each such series and the qualifications, limitations and restrictions thereof.

NOW, THEREFORE, BE IT RESOLVED, that the Board deems it advisable to, and hereby does, designate a Series A Convertible Preferred Stock and fixes and determines the preferences, rights, qualifications, limitations and restrictions relating to the Series A Convertible Preferred Stock as follows:

1. Definitions. For purposes of this Certificate of Designation, the following terms shall have the following meanings:

(a) "Closing Price(s)" means, for any security as of any date, the greater of (i) the closing ask price and closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg Financial Markets or a comparable reporting service of national reputation selected by the Corporation and reasonably acceptable to holders of a majority of the then outstanding shares of Series A Stock if Bloomberg Financial Markets is not then reporting Closing Prices of such security (collectively, “Bloomberg”), or (ii) the last reported closing sale price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg or a comparable reporting service of national reputation selected by the Corporation and reasonably acceptable to holders of a majority of the then outstanding shares of Series A Stock if Bloomberg Financial Markets is not then reporting closing sale prices of such security.

(b) "Conversion Date" means, for any conversion of the Series A Stock into Common Stock, the date specified in the notice of conversion in the form attached hereto (the "Notice of Conversion"), so long as the copy of the Notice of Conversion is faxed (or delivered by other means resulting in notice) to the Corporation before 11:59 p.m., Arizona time, on the Conversion Date indicated in the Notice of Conversion. If the Notice of Conversion is not so faxed or otherwise delivered before such time, then the Conversion Date shall be the date the holder faxes or otherwise delivers the Notice of Conversion to the Corporation.

(c) "Conversion Price" means Fixed Conversion Price or the Variable Conversion Price, as the case may be, in effect as of such date and subject to adjustment as provided herein.

(d) "Fixed Conversion Price" means US twenty-five cents ($0.25) per share, and shall be the sole conversion price in effect until one (1) year after the issuance date

 
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(e) "First Conversion Date" means the earliest of (i) the 360th day following the Issuance Date or (ii) the date that the Corporation receives net cash proceeds of any equity of quasi-equity (e.g. preferred or convertible preferred stock) financing exceeding five hundred thousand dollars ($500,000) that allows the Corporation to redeem all or a portion of the Series A Stock.

(e) "Issuance Date" means the date of the closing under the Agreement and Plan of Reorganization by and among the Corporation and Kino Interactive Group, LLC with respect to the initial issuance of the Series A Stock (the "Agreement and Plan of Reorganization").

(f) "Variable Conversion Price" means the average of the Closing Prices for the Common Stock during the twenty (20) consecutive trading days immediately preceding such date of determination but at no time less than US US twenty-five cents ($0.25) per share being the minimum conversion price and at no time more than US one dollar ($1.00) per share being the maximum conversion price. There will be no Variable Conversion Price until the First Conversion Date has passed.

2. Designation. The shares of such series of Preferred Stock shall be designated "Series A Convertible Preferred Stock" (the "Series A Stock").

3. Authorized Number. The authorized nwnber of shares constituting the Series A Stock shall be two million (2,000,000).

4.  Liquidation.

(a) Liquidation Procedure. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of shares of Series A Stock shall be entitled, before any distribution or payment is made upon any junior securities, to be paid an amount equal to US twenty-five cents ($0.25) per share of Series A Stock, representing the liquidation preference per share of the Series A Stock (as adjusted for any combinations, divisions or similar recapitalizations affecting the shares of Series A Stock) (the "Liquidation Payments"). If upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the assets to be distributed among the holders of shares of Series A Stock and securities pari passu with the Series A Stock ("Parity Securities") shall be insufficient to permit payment in full to the holders of shares of Series A Stock and any Parity
Securities of the distributions to which they are entitled, then the holders of all such securities shall share ratably in such distribution of assets in accordance with the amount which would be payable on such distribution if the amounts to which the holders of outstanding shares of Series A Stock and Parity Securities are entitled were paid in full. A consolidation or merger of the Corporation with or into any other corporation or corporations or other entity (other than a merger in which the Corporation is the survivor and the stockholders of the Corporation prior to such merger own more than a majority of the voting securities of the Corporation following such merger), a transaction or a series of related transactions in which the stockholders of the Corporation transfer a majority of the voting securities of the Corporation to any person or a sale, lease or transfer of all or substantially all of the assets of the Corporation shall be deemed to be a liquidation, dissolution, or winding up of the Corporation as those terms are used in this Section 4; provided, however, that no such consolidation, merger, transaction or series of related transactions that is approved by a vote pursuant to Section 6 hereof shall be deemed to be a liquidation, dissolution or winding up of the Corporation. The Corporation shall provide to holders of shares of Series A Stock thirty (30) days' prior written notice of any such sale, conveyance, exchange, transfer, consolidation or merger.

(b) Remaining Assets. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after the holders of shares of Series A Stock shall have been paid in full the Liquidation Payments, the remaining assets of the Corporation may be distributed ratably per share in order of preference to the holders of junior securities in accordance with their respective terms.

(c) Notice of Liquidation. Written notice of a liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, stating a payment date, the amount of the Liquidation Payments and the place where said Liquidation Payments shall be payable, shall be given by mail, postage prepaid, not less than thirty (30) days prior to the payment date stated therein, to each holder of record of shares of Series A Stock at his post office addresses as shown by the records of the Corporation.

 
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(d) Fractional Shares. The Liquidation Payments with respect to each outstanding fractional share of Series A Stock shall be equal to a ratably proportionate amount of the Liquidation Payments with respect to each outstanding share of Series A Stock.

5. Conversion. The holders of shares of Series A Stock shall have the following conversion rights:

(a) Conversion. Subject to the limitations set forth below, each share of the Series A Stock shall be convertible at any time after the First Conversion Date in whole but not in part, unless previously redeemed, at the option of the holder of record thereof, into the number of fully paid and nonassessable shares of Common Stock equal to the quotient obtained by dividing (i) the quotient obtained by dividing (A) the aggregate Liquidation Payments of the shares of Series A Stock being converted by (B) the Conversion Price by (ii) four (4), upon surrender to the Corporation or its transfer agent of the certificate or certificates representing the Series A Stock to be converted, as provided below, or if the holder notifies the Corporation or its transfer agent that such certificate or certificates have been lost, stolen or destroyed, upon the execution and delivery of an agreement satisfactory to the Corporation to indemnify the Corporation from any losses incurred by it in connection therewith. The conversion rights herein provided shall be apportioned ratably among the holders of the Series A Stock in proportion to the number of shares of Series A Stock owned by such holders.

(b) Converted Shares. Any shares of Series A Stock which have been converted shall be cancelled and all dividends on converted shares of Series A Stock shall cease to accrue and the certificates representing shares of Series A Stock so converted shall represent the right to receive such number of shares of Common Stock into which such shares of Series A Stock are convertible. The Board shall at all times, so long as any shares of Series A Stock remain outstanding, reserve a sufficient number of authorized but unissued shares of Common Stock to be issued in satisfaction of the conversion rights and privileges aforesaid.

(c) Mechanics of Conversion. In the case of a conversion, before any holder of Series A Stock shall be entitled to convert the same into shares of Common Stock, it shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or its transfer agent for the Series A Stock, and shall give written notice to the Corporation of the election to convert the same and shall state therein the name or names in which the certificate of certificates for shares of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter and in any case within ten (I0) business days of the Corporation's receipt of the notice of conversion, issue and deliver at such office to such holder of Series A Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid; provided that such holder or nominee(s), as the case may be, shall be deemed to be the owner of record of such Common Stock as of the date that written notice is given to the Corporation of such holder's properly completed and executed election to convert and the surrender of the certificates representing the Series A Stock being converted, duly endorsed, at the office of the Corporation or its transfer agent (or an indemnification agreement as set forth in Section S(a) hereof in case such certificates have been lost, stolen or destroyed). A certificate or certificates will be issued for the remaining shares of Series A Stock in any case in which fewer than all of the shares of Series A Stock represented by a certificate are converted.

(d) Issue Taxes. The Corporation shall pay all issue taxes, if any, incurred in respect of the issue of shares of Common Stock on conversion. If a holder of shares surrendered for conversion specifies that the shares of Common Stock to be issued on conversion are to be issued in a name or names other than the name or names in which such surrendered shares stand, then the Corporation shall not be required to pay any transfer or other taxes incurred by reason of the issuance of such shares of Common Stock to the name of another, and if the appropriate transfer taxes shall not have been paid to the Corporation or the transfer agent for the Series A Stock at the time of surrender of the shares involved, the shares of Common Stock issued upon conversion thereof may be registered in the name or names in which the surrendered shares were registered, despite the instructions to the contrary.

(e) Valid Issuance. All shares of Common Stock which may be issued in connection with the conversion provisions set forth herein will, upon issuance by the Corporation, be validly issued, fully paid and nonassessable, free from preemptive rights and free from all taxes, liens or charges with respect thereto created or imposed by the Corporation.

 
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6. Adjustment of Conversion Price. The number and kind of securities issuable upon the conversion of the Series A Stock and the Conversion Price shall be subject to adjustment from time to time in accordance with the following provisions:

(a) Reorganization, Reclassification. In the event of a reorganization, share exchange, sale, conveyance, or reclassification, in a transaction or series of related transactions, including where there is a shift in more than fifty percent (50%) of the voting power of the Corporation ("Change of Control") other than a change in par value, or from par value to no par value, or from no par value to par value or a transaction described in Section 6(b) below, each share of Series A Stock shall, after such reorganization, share exchange or reclassification, be convertible at the option of the holder into the kind and number of shares of stock and/or other securities, cash or other property which the holder of such share of Series A Stock would have been entitled to receive if the holder had held the Common Stock issuable upon conversion of such share of Series A Stock immediately prior to such reorganization, share exchange or reclassification.

(b) Consolidation, Merger. In the event of a merger or consolidation to which the Corporation is a party which results in a Change of Control, each share of Series A Stock shall, after such merger or consolidation, be convertible at the option of the holder into the kind and number of shares of stock and/or other securities, cash or other property which the holder of such share of Series A Stock would have been entitled to receive if the holder had held the Common Stock issuable upon conversion of such share of Series A Stock immediately prior to such consolidation or merger.

7. Voting Rights. The holders of the Series A Stock shall have the same voting rights as the holders of the Common Stock. In addition, the holders of shares of Series A Stock shall vote as a separate class on all matters adversely affecting the Series A Stock. The authorization or issuance of additional Common Stock, or other securities having liquidation, dividend, voting or other rights junior to the Series A shall not be deemed to adversely affect the Series A Stock. In addition to the other voting rights of the holders of the Series A Stock specified herein, for so long as any shares of Series A Stock are outstanding, the Corporation will not, and it will cause its subsidiaries not to, without the affirmative vote, or the written consent pursuant to the Delaware Business Corporation Act, of the holders of a majority of the outstanding shares of Series A Stock to amend, waive or repeal any provisions of, or add any provision to, (i) this Certificate or (ii) any provision of the Certificate of Incorporation or Bylaws of the Corporation or any other certificate of designation filed with the Secretary of State of Delaware by the Corporation in a manner that would adversely effect or impair the rights of the holders of the Series A Stock.

8. Dividends.

The holders of the Series A Stock shall not be entitled to receive payment of cash dividends on shares thereof.

9.  Redemption or Retirement of Preferred Stock.

(a) The Corporation shall have the right at any time to purchase all or any part of its Series A Stock issued and outstanding by paying to the respective holders thereof the sum of twenty-five cents ($0.25) for each share of such stock redeemed.

(b) Notwithstanding Section 9(c) below, the Corporation shall apply toward the purchase or redemption of the Series A Stock as herein provided any funds it has paid as license fees to Kino Communications, L.L.C., an Arizona limited liability company, under that certain License Agreement dated as of December 5, 2005.

(c) The Corporation may apply toward the purchase or redemption of the Series A Stock as herein provided any part of its surplus funds or an amount of its stated capital which shall not be greater than the stated capital represented by the shares purchased or redeemed, but under no circumstances shall the Corporation apply any other funds or any further part of its stated capital toward the purchase or redemption of such stock. The purchase or redemption of any such stock shall not be made where the effect of any such purchase or redemption and application of stated capital thereto shall be to reduce the net assets of the Corporation below the stated capital remaining after giving effect to the cancellation of such shares, or if the Corporation is insolvent or would thereby be made insolvent, or where the effect of any such purchase or redemption and application of stated capital thereto shall be to conflict with, or constitute a breach or default under any provision of any agreement, contract, commitment or instrument to which the Corporation is a party.

 
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(d) The Board of Directors of the Corporation shall have full power and discretion to select from the outstanding Preferred Stock of the Corporation particular shares for redemption or purchase, and its proceedings in this connection shall not be subject to attack except for actual and intentional fraud. In all instances, the Board shall have complete authority to determine upon and take the necessary proceedings fully to effect the purchase or redemption of the shares selected for redemption, and the cancellation of the certificates representing such shares. Upon the completion of such proceedings, the rights of holders of the shares of such Preferred Stock which have been redeemed and called in shall in all respects cease, except that such holders, in the case of Section 9(c) above, shall be entitled to receive the redemption price for their respective shares.

(e) Whenever any shares such preferred stock of the Corporation are purchased or redeemed as herein authorized, the Corporation may, by resolution of its Board of Directors, retire such shares, and thereupon this Corporation shall, in connection with the retirement of such shares, cause to be filed a certificate of reduction of stated capital.

10. Future Preferred Stock Issues. The Corporation may issue one or more additional Series of Preferred Stock without the consent of the holders of the Series A Stock, provided, however, that the rights and preferences of such subsequent series of preferred stock as to liquidation, dividends, voting, redemption, and registration rights shall not be superior (but may be pari passu) to those of the Series A Stock.

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Designations as of this 27th day of February, 2006, and affirms that this Certificate of Designations is his act and deed and that the statements contained herein are true under penalties of perjury.

MODAVOX, INC.

By:  /s/ Robert D. Arkin
Robert D. Arkin
Chairman
 
 
-12-

 
 
NOTICE OF CONVERSION

(To be Executed by the Registered Holder
in order to Convert the Series A Preferred Stock)

The undersigned hereby irrevocably elects to convert ______ shares of Series A Preferred Stock (the "Conversion"), represented by stock certificate Nos(s). ______ (the "Preferred Stock Certificates"), into shares of common stock ("Common Stock") of Modavox, Incorporated (the "Corporation") according to the conditions of the Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock (the "Certificate of Designation"), as of the date written below. If securities are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. No fee will be charged to the holder for any conversion, except for transfer taxes, if any. A copy of each Preferred Stock Certificate is attached hereto (or evidence of loss, theft or destruction thereof).

The Corporation shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee (which is ______ with OTC through its Deposit Withdrawal Agent Commission System ("DTC Transfer").

The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable to the undersigned upon conversion of the Series A Preferred Stock shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the "Act"), or pursuant to an exemption from registration under the Act.

In lieu of receiving the shares of Common Stock issuable pursuant to this Notice of Conversion by way of OTC Transfer, the undersigned hereby requests that the Corporation issue and deliver to the undersigned physical certificates representing such shares of Common Stock.

Date of Conversion:  ____________

Applicable Conversion Price:  ____________

Number of Shares of Common Stock to be Issued:  ____________

Signature:  ____________

Name:  ____________

Address:  ____________

 
-13-

 
 
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES B CONVERTIBLE PREFERRED STOCK OF MODAVOX, INC.

MODAVOX, INC., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY THAT:

Pursuant to authority conferred upon the Board of Directors (the "Board") by the Amended and Restated Certificate of Incorporation of the Corporation, as amended (the "Certificate of Incorporation") and pursuant to the provisions of the Delaware General Corporation Law, the Board, pursuant to a unanimous written consent effective as of February 27, 2006, adopted the following resolution providing for the designations, preferences and relative, participating, optional and other rights, and the qualifications, limitations and restrictions, of the Series B Convertible Preferred Stock:

WHEREAS, the Certificate of Incorporation provides for two classes of shares known as common stock, $0.0001 par value per share (the "Common Stock"}, and preferred stock, $0.0001 par value per share (the "Preferred Stock"); and

WHEREAS, the Board is authorized by the Certificate of Incorporation to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in such Series Bnd to fix the designations, preferences and rights of the shares of each such Series Bnd the qualifications, limitations and restrictions thereof.

NOW, THEREFORE, BE IT RESOLVED, that the Board deems it advisable to, and hereby does, designate a Series B Convertible Preferred Stock and fixes and determines the preferences, rights, qualifications, limitations and restrictions relating to the Series B Convertible Preferred Stock as follows:

1. Definitions. For purposes of this Certificate of Designation, the following terms shall have the following meanings:

(a) "Closing Price(s)" means, for any security as of any date, the greater of (i) the closing ask price and closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg Financial Markets or a comparable reporting service of national reputation selected by the Corporation and reasonably acceptable to holders of a majority of the then outstanding shares of Series B Stock if Bloomberg Financial Markets is not then reporting Closing Prices of such security (collectively, “Bloomberg”), or (ii) the last reported closing sale price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg or a comparable reporting service of national reputation selected by the Corporation and reasonably acceptable to holders of a majority of the then outstanding shares of Series B Stock if Bloomberg Financial Markets is not then reporting closing sale prices of such security.

(b) "Conversion Date" means, for any conversion of the Series B Stock into Common Stock, the date specified in the notice of conversion in the form attached hereto (the "Notice of Conversion"), so long as the copy of the Notice of Conversion is faxed (or delivered by other means resulting in notice) to the Corporation before 11:59 p.m., Arizona time, on the Conversion Date indicated in the Notice of Conversion. Ifthe Notice
of Conversion is not so faxed or otherwise delivered before such time, then the Conversion Date shall be the date the holder faxes or otherwise delivers the Notice of Conversion to the Corporation.

(c) "Conversion Price" means Fixed Conversion Price or the Variable Conversion Price, as the case may be, in effect as of such date and subject to adjustment as provided herein.

(d) "Fixed Conversion Price" means US twenty-five cents ($0.25) per share, and shall be the sole conversion price in effect until one (I) year after the issuance date.

 
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(e) "First Conversion Date" means the earliest of(i) the 360th day following the Issuance Date or (ii) the date that the Corporation receives net cash proceeds of any equity of quasi-equity (e.g. preferred or convertible preferred stock) financing exceeding two million dollars ($2,000,000) that allows the Corporation to redeem all or a portion of the Series B Stock.

(e) "Issuance Date" means the date of the closing under the Agreement and Plan of Reorganization by and among the Corporation and Kino Interactive Group, LLC with respect to the initial issuance of the Series B Stock (the "Agreement and Plan of Reorganization").

(f) "Variable Conversion Price" means the average of the Closing Prices for the Common Stock during the twenty (20) consecutive trading days immediately preceding such date of determination but at no time Jess than US US twenty-five cents ($0.25) per share being the minimum conversion price and at no time more than US one dollar ($1.00) per share being the maximum conversion price. There will be no Variable Conversion Price until the First Conversion Date has passed.

2. Designation. The shares of such series of Preferred Stock shall be designated "Series B Convertible Preferred Stock" (the "Series B Stock").

3. Authorized Number. The authorized number of shares constituting the Series B Stock shall be two million (2,000,000).

4.  Liquidation.

(a) Liquidation Procedure. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of shares of Series B Stock shall be entitled, before any distribution or payment is made upon any junior securities, to be paid an amount equal to US twenty-five cents ($0.25) per share of Series B Stock, representing the liquidation preference per share of the Series B Stock (as adjusted for any combinations, divisions or similar recapitalizations affecting the shares of Series B Stock) (the "Liquidation Pavments"). If upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the assets to be distributed among the holders of shares of Series B Stock and securities pari passu with the Series B Stock ("Parity Securities") shall be insufficient to permit payment in full to the holders of shares of Series B Stock and any Parity Securities of the distributions to which they are entitled, then the holders of all such securities shall share ratably in such distribution of assets in accordance with the amount which would be payable on such distribution if the amounts to which the holders of outstanding shares of Series B Stock and Parity Securities are entitled were paid in full. A consolidation or merger of the Corporation with or into any other corporation or corporations or other entity (other than a merger in which the Corporation is the survivor and the stockholders of the Corporation prior to such merger own more than a majority of the voting securities of the Corporation following such merger), a transaction or a series ofrelated transactions in which the stockholders of the Corporation transfer a majority of the voting securities of the Corporation to any person or a sale, lease or transfer of all or substantially all of the assets of the Corporation shall be deemed to be a liquidation, dissolution, or winding up of the Corporation as those terms are used in this Section 4; provided, however, that no such consolidation, merger, transaction or series of related transactions that is approved by a vote pursuant to Section 6 hereof shall be deemed to be a liquidation, dissolution or winding up of the Corporation. The Corporation shall provide to holders of shares of Series B Stock thirty (30) days' prior written notice of any such sale, conveyance, exchange, transfer, consolidation or merger.

(b) Remaining Assets. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after the holders of shares of Series B Stock shall have been paid in full the Liquidation Payments, the remaining assets of the Corporation may be distributed ratably per share in order of preference to the holders of junior securities in accordance with their respective terms.

(c) Notice of Liquidation. Written notice of a liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, stating a payment date, the amount of the Liquidation Payments and the place where said Liquidation Payments shall be payable, shall be given by mail, postage prepaid, not less than thirty (30) days prior to the payment date stated therein, to each holder of record of shares of Series B Stock at his post office addresses as shown by the records of the Corporation.

 
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(d) Fractional Shares. The Liquidation Payments with respect to each outstanding fractional share of Series B Stock shall be equal to a ratably proportionate amount of the Liquidation Payments with respect to each outstanding share of Series B Stock.

5. Conversion. The holders of shares of Series B Stock shall have the following conversion rights:

(a) Conversion. Subject to the limitations set forth below, each share of the Series B Stock shall be convertible at any time after the First Conversion Date in whole but not in part, unless previously redeemed, at the option of the holder of record thereof, into the number of fully paid and nonassessable shares of Common Stock equal to the quotient obtained by dividing (i) the quotient obtained by dividing (A) the aggregate Liquidation Payments of the shares of Series B Stock being converted by (B) the Conversion Price by (ii) four (4), upon surrender to the Corporation or its transfer agent of the certificate or certificates representing the Series B Stock to be converted, as provided below, or if the holder notifies the Corporation or its transfer agent that such certificate or certificates have been lost, stolen or destroyed, upon the execution and delivery of an agreement satisfactory to the Corporation to indemnify the Corporation from any losses incurred by it in connection therewith. The conversion rights herein provided shall be apportioned ratably among the holders of the Series B Stock in proportion to the number of shares of Series B Stock owned by such holders.

(b) Converted Shares. Any shares of Series B Stock which have been converted shall be cancelled and all dividends on converted shares of Series B Stock shall cease to accrue and the certificates representing shares of Series B Stock so converted shall represent the right to receive such number of shares of Common Stock into which such shares of Series B Stock are convertible. The Board shall at all times, so long as any shares of Series B Stock remain outstanding, reserve a sufficient number of authorized but unissued shares of Common Stock to be issued in satisfaction of the conversion rights and privileges aforesaid.

(c) Mechanics a/Conversion. In the case ofa conversion, before any holder of Series B Stock shall be entitled to convert the same into shares of Common Stock, it shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or its transfer agent for the Series B Stock, and shall give written notice to the Corporation of the election to convert the same and shall state therein the name or names in which the certificate of certificates for shares of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter and in any case within ten (I0) business days of the Corporation's receipt of the notice of conversion, issue and deliver at such office to such holder of Series B Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid; provided that such holder or nominee( s), as the case may be, shall be deemed to be the owner of record of such Common Stock as of the date that written notice is given to the Corporation of such holder's properly completed and executed election to convert and the surrender of the certificates representing the Series B Stock being converted, duly endorsed, at the office of the Corporation or its transfer agent (or an indemnification agreement as set forth in Section 5(a) hereof in case such certificates have been lost, stolen or destroyed). A certificate or certificates will be issued for the remaining shares of Series B Stock in any case in which fewer than all of the shares of Series B Stock represented by a certificate are converted.

(d) Issue Taxes. The Corporation shall pay all issue taxes, if any, incurred in respect of the issue of shares of Common Stock on conversion. If a holder of shares surrendered for conversion specifies that the shares of Common Stock to be issued on conversion are to be issued in a name or names other than the name or names in which such surrendered shares stand, then the Corporation shall not be required to pay any transfer or other taxes incurred by reason of the issuance of such shares of Common Stock to the name of another, and if the appropriate transfer taxes shall not have been paid to the Corporation or the transfer agent for the Series B Stock at the time of surrender of the shares involved, the shares of Common Stock issued upon conversion thereof may be registered in the name or names in which the surrendered shares were registered, despite the instructions to the contrary.

(e) Valid Issuance. All shares of Common Stock which may be issued in connection with the conversion provisions set forth herein will, upon issuance by the Corporation, be validly issued, fully paid and nonassessable, free from preemptive rights and free from all taxes, liens or charges with respect thereto created or imposed by the Corporation.

 
-16-

 
 
6. Adjustment of Conversion Price. The number and kind of securities issuable upon the conversion of the Series B Stock and the Conversion Price shall be subject to adjustment from time to time in accordance with the following provisions:

(a) Reorganization, Reclassification. In the event of a reorganization, share exchange, sale, conveyance, or reclassification, in a transaction or series of related transactions, including where there is a shift in more than fifty percent (50%) of the voting power of the Corporation ("Change of Control") other than a change in par value, or from par value to no par value, or from no par value to par value or a transaction described in Section 6(b) below, each share of Series B Stock shall, after such reorganization, share exchange or reclassification, be convertible at the option of the holder into the kind and number of shares of stock and/or other securities, cash or other property which the holder of such share of Series B Stock would have been entitled to receive if the holder had held the Common Stock issuable upon conversion of such share of Series B Stock immediately prior to such reorganization, share exchange or reclassification.

(b) Consolidation, Merger. In the event of a merger or consolidation to which the Corporation is a party which results in a Change of Control, each share of Series B Stock shall, after such merger or consolidation, be convertible at the option of the holder into the kind and number of shares of stock and/or other securities, cash or other property which the holder of such share of Series B Stock would have been entitled to receive if the holder had held the Common Stock issuable upon conversion of such share of Series B Stock immediately prior to such consolidation or merger.

7. Voting Rights. The holders of the Series B Stock shall have the same voting rights as the holders of the Common Stock. In addition, the holders of shares of Series B Stock shall vote as a separate class on all matters adversely affecting the Series B Stock. The authorization or issuance of additional Common Stock, or other securities having liquidation, dividend, voting or other rights junior to the Series B shall not be deemed to adversely affect the Series B Stock. In addition to the other voting rights of the holders of the Series B Stock specified herein, for so long as any shares of Series B Stock are outstanding, the Corporation will not, and it will cause its subsidiaries not to, without the affirmative vote, or the written consent pursuant to the Delaware Business Corporation Act, of the holders of a majority of the outstanding shares of Series B Stock to amend, waive or repeal any provisions of, or add any provision to, (i) this Certificate or (ii) any provision of the Certificate of Incorporation or Bylaws of the Corporation or any other certificate of designation filed with the Secretary of State of Delaware by the Corporation in a manner that would adversely effect or impair the rights of the holders of the Series B Stock.

8.  Dividends.

The holders of the Series B Stock shall not be entitled to receive payment of cash dividends on shares thereof.

9.  Redemption or Retirement of Preferred Stock.

(a) The Corporation shall have the right at any time to purchase all or any part of its Series B Stock issued and outstanding by paying to the respective holders thereof the sum of twenty-five cents ($0.25) for each share of such stock redeemed.

(b) Notwithstanding Section 9(c) below, the Corporation shall apply toward the purchase or redemption of the Series B Stock as herein provided any funds it has paid as license fees to Kino Communications, L.L.C., an Arizona limited liability company, under that certain License Agreement dated as of December 5, 2005.

(c) The Corporation may apply toward the purchase or redemption of the Series B Stock as herein provided any part of its surplus funds or an amount of its stated capital which shall not be greater than the stated capital represented by the shares purchased or redeemed, but under no circumstances shall the Corporation apply any other funds or any further part of its stated capital toward the purchase or redemption of such stock. The purchase or redemption of any such stock shall not be made where the effect of any such purchase or redemption and application of stated capital thereto shall be to reduce the net assets of the Corporation below the stated capital remaining after giving effect to the cancellation of such shares, or if the Corporation is insolvent or would thereby be made insolvent, or where the effect of any such purchase or redemption and application of stated capital thereto shall be to conflict with, or constitute a breach or default under any provision of any agreement, contract, commitment or instrument to which the Corporation is a party.

 
-17-

 
 
(d) The Board of Directors of the Corporation shall have full power and discretion to select from the outstanding Preferred Stock of the Corporation particular shares for redemption or purchase, and its proceedings in this connection shall not be subject to attack except for actual and intentional fraud. In all instances, the Board shall have complete authority to determine upon and take the necessary proceedings fully to effect the purchase or redemption of the shares selected for redemption, and the cancellation of the certificates representing such shares. Upon the completion of such proceedings, the rights of holders of the shares of such Preferred Stock which have been redeemed and called in shall in all respects cease, except that such holders, in the case of Section 9(c) above, shall be entitled to receive the redemption price for their respective shares.

(e) Whenever any shares such preferred stock of the Corporation are purchased or redeemed as herein authorized, the Corporation may, by resolution of its Board of Directors, retire such shares, and thereupon this Corporation shall, in connection with the retirement of such shares, cause to be filed a certificate of reduction of stated capital.

10. Future Preferred Stock Issues. The Corporation may issue one or more additional Series of Preferred Stock without the consent of the holders of the Series B Stock, provided, however, that the rights and preferences of such subsequent series of preferred stock as to liquidation, dividends, voting, redemption, and registration rights shall not be superior (but may be pari passu) to those of the Series B Stock.

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Designations as of this 27th day of February, 2006, and affirms that this Certificate of Designations is his act and deed and that the statements contained herein are true under penalties of perjury.

MODAVOX, INC.

By:  /s/ Robert D. Arkin
Robert D. Arkin
Chairman

 
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NOTICE OF CONVERSION

(To be Executed by the Registered Holder
in order to Convert the Series B Preferred Stock)

The undersigned hereby irrevocably elects to convert __________ shares of Series B Preferred Stock (the “Conversion”), represented by stock certificate Nos(s). __________ (the “Preferred Stock Certificates”), into shares of common stock (“Common Stock”) of Modavox, Incorporated (the “Corporation”) according to the conditions of the Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock (the "Certificate of Designation"), as of the date written below. If securities are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. No fee will be charged to the holder for any conversion, except for transfer taxes, if any. A copy of each Preferred Stock Certificate is attached hereto (or evidence of loss, theft or destruction thereof).

The Corporation shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee (which is------- with DTC through its Deposit Withdrawal Agent Commission System ("DTC Transfer").

The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable to the undersigned upon conversion of the Series B Preferred Stock shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the "Act"), or pursuant to an exemption from registration under the Act.

In lieu of receiving the shares of Common Stock issuable pursuant to this Notice of Conversion by way of DTC Transfer, the undersigned hereby requests that the Corporation issue and deliver to the undersigned physical certificates representing such shares of Common Stock.

Date of Conversion:  ____________________

Applicable Conversion Price:  ____________________

Number of Shares of Common Stock to be Issued: ____________________

Signature:  ____________________

Name: ____________________

Address: ____________________

 
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STATE OF DELAWARE CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION

The corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware does hereby certify:

FIRST: That at a meeting of the Board of Directors of Modavox, Inc. resolutions were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration 1bcreof. The resolution setting forth the proposed amendment is as follows:

RESOLVED, that the Certificate of Incorporation of this corporation be amended by changing the Article thereof numbered "Article One" so that, as amended, said Article shall be and read as follows:

Augme Technologies, Inc,

SECOND: That thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of said corporation was duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment.

THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, said corporation has caused this certificate to be signed this 11th day of February, 2010.

By:  /s/ James A. Lawson
Title:  Chief Legal Officer
Name:  James A. Lawson
Print or Type

 
-20-

 
 
STATE OF DELAWARE

CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
AUGME TECHNOLOGIES, INC.

The undersigned, Paul R. Arena, hereby certifies that:

1. He is the Chief Executive Officer of Augme Technologies, Inc., a Delaware corporation (the "Corporation"), and is duly authorized by a unanimous written consent of the Board of Directors of the Corporation to execute this instrument.

2. This Certificate of Amendment of the Certificate of Incorporation was duly approved by the Corporation's Board of Directors, in accordance with the applicable provisions of Sections 141 and 242 of the General Corporation Law of the State of Delaware, and duly adopted by written consent of the holders of a majority of the outstanding shares of com1non stock of the Corporation, in accordance with the applicable provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware.

3. The first paragraph of ARTICLE FOUR of the Certificate of Incorporation is hereby amended to read in full as follows:

“This Corporation is authorized to issue two classes of shares to be designated, respectively, Common Stock and Preferred Stock. The total number of shares of Common Stock that this corporation is authorized to issue is 250,000,000, with a par value of $0.0001, and the total number of shares of Preferred Stock that this corporation is authorized to issue is 25,000,000, with a par value of $0.0001.”

4. This Certificate of Amendment is effective immediately upon filing.

IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment of the Certificate of Incorporation to be executed this 28th day of June 2011.

AUGME TECHNOLOGIES, INC.

By:  /s/ Paul R. Arena
Paul R. Arena
Chief Executive Officer

 
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STATE OF DELAWARE CERTIFICATE OF CHANGE OF REGISTERED AGENT
AND/OR REGISTERED OFFICE

 
The Board of Directors of Augme Technologies, Inc. a Delaware Corporation, on this 26th day of March. A.D. 2012, do hereby resolve and order that the location of the Registered Office of this Corporation within this State be, and the same hereby is 1209 Orange Street, in the City of Wilmington, County of New Castle, Zip Code 19801.

The name of the Registered Agent therein and in charge thereof upon whom process against this Corporation may be served, is The Corporation Trust Company.

The Corporation does hereby certify that the foregoing is a true copy of a resolution adopted by the Board of Directors at a meeting held as herein stated.

IN WITNESS WHEREOF, said Corporation has caused this certificate to be signed by an authorized officer, the 26th day of March, A.D., 2012.

By:  /s/ Tom Virgin
Name:  Tom Virgin
Title:  CFO

 
-22-

 
 
CERTIFICATE of AMENDMENT
of
AMENDED AND RESTATED CERTIFICATE of INCORPORATION of
AUGME TECHNOLOGIES, INC.

Pursuant to §242 of the General Corporation Law of the State of Delaware

Augme Technologies, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies and sets forth as follows:

FIRST: That at a meeting of the Board of Directors of Augme Technologies, Inc. resolutions were duly adopted setting forth a proposed amendment of the Amended and Restated Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows:

RESOLVED: that the Certificate of Incorporation of this corporation be amended by changing Article One so that, as amended, it shall be and read as follows:

"The name of this Corporation is Hipcricket, Inc."

SECOND: That thereafter, pursuant to resolution of its Board of Directors, the annual meeting of the stockholders of said corporation was duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, at which meeting the necessary number of shares as required by statute were voted in favor of the amendment.

THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

FOURTH: That said amendment is to be effective at 5:00 p.m., Eastern Time, on August 23, 2013.

IN WITNESS WHEREOF, said corporation has caused this Certificate to be signed this 15th day of August, 2013.

Augme Technologies, Inc.

By:  /s/ Ivan Braiker
Name:  Ivan Braiker
Title:  Chief Executive Officer
EX-10.5 3 stockincentiveplan2010.htm RESTATED HIPCRICKET, INC. 2010 INCENTIVE STOCK OPTION PLAN, AS AMENDED stockincentiveplan2010.htm
Exhibit 10.5
HIPCRICKET, INC.
2010 INCENTIVE STOCK OPTION PLAN, as Amended
(restated as of August 23, 2013)
 
1.  PURPOSE OF PLAN
 
The purpose of the Hipcricket, Inc. 2010 Incentive Stock Plan (the “Plan”) is to advance the interests of Hipcricket, Inc. (the “Company”) and its shareholders by enabling the Company and its Subsidiaries to attract and retain persons of ability to perform services for the Company and its Subsidiaries by providing an incentive to such individuals through equity participation in the Company and by rewarding such individuals who contribute to the achievement by the Company of its economic objectives.
 
2.  DEFINITIONS
 
The following terms will have the meanings set forth below, unless the context clearly otherwise requires:
 
2.1 “Board” means the Board of Directors of the Company.
 
2.2“Broker Exercise Notice” means a written notice pursuant to which a Participant, upon exercise of an Option, irrevocably instructs a broker or dealer to sell a sufficient number of shares or loan a sufficient amount of money to pay all or a portion of the exercise price of the Option and/or any related withholding tax obligations and remit such sums to the Company and directs the Company to deliver stock certificates to be issued upon such exercise directly to such broker or dealer.
 
2.3 “Change in Control” means an event described in Section 11.1 of the Plan.
 
2.3 “Code” means the Internal Revenue Code of 1986, as amended.
 
2.5“Committee” means the group of individuals administering the Plan, as provided in Section 3 of the Plan.
 
2.6“Common Stock” means the common stock of the Company, no par value per share, or the number and kind of shares of stock or other securities into which such Common Stock may be changed in accordance with Section 4.5 of the Plan.
 
2.7 “Company” means Hipcricket, Inc., a Delaware corporation.
 
2.8 “Disability" means the disability of the Participant such as would entitle the Participant to receive disability income benefits pursuant to the long-term disability plan of the Company or Subsidiary then covering the Participant or, if no such plan exists or is applicable to the Participant, the permanent and total disability of the Participant within the meaning of Section 22(e)(3) of the Code.
 
2.9 “Eligible Recipients” means all employees of the Company or any Subsidiary and any non-employee directors, consultants and independent contractors of the Company or any Subsidiary. An Incentive Award may be granted to an employee, in connection with hiring, retention or otherwise, prior to the date the employee first performs services for the Company or the Subsidiaries, provided that such Incentive Award shall not become vested prior to the date the employee first performs such services.
 
2.10 “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 
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2.11 “Fair Market Value" means, with respect to the Common Stock, as of any date (or, if no shares were traded or quoted on such date, as of the next preceding date on which there was such a trade or quote) (a) the mean between the reported high and low sale prices of the Common Stock it‘ the Common Stock is listed, admitted to unlisted trading privileges or reported on any national securities exchange or on the Nasdaq National Market; (b) if the Common Stock is not so listed, admitted to unlisted trading privileges or reported on any national securities exchange or on the Nasdaq National Market, the closing bid price as reported by the Nasdaq SmalICap Market, OTC Bulletin Board or the National Quotation Bureau, Inc. or other comparable service; or (c) it‘ the Common Stock Is not so listed or reported, such price as the Committee determines in good faith in the exercise of its reasonable discretion. If determined by the Committee, such determination will be final, conclusive and binding for all purposes and on all persons, including, without limitation, the Company, the shareholders of the Company, the Participants and their respective successors-in-interest. No member of the Committee will be liable for any determination regarding the fair market value of the Common Stock that is made in good faith.
 
2.12 “Incentive Award” means an Option, Restricted Stock Award or Stock Bonus granted to an Eligible Recipient pursuant to the Plan.
 
2.13 “Incentive Stock Option" means a right to purchase Common Stock granted to an Eligible Recipient pursuant to Section 6 of the Plan that qualifies as an “incentive stock option” within the meaning of Section 422 of the Code.
 
2.14 “Non-Statutory Stock Option” means a right to purchase Common Stock granted to an Eligible Recipient pursuant to Section 6 of the Plan that does not qualify as an Incentive Stock Option.
 
2.15 “Option” means an Incentive Stock Option or a Non-Statutory Stock Option.
 
2.16 “Participant” means an Eligible Recipient who receives one or more Incentive Awards under the Plan.
 
2.17 “Previously Acquired Shares” means shares of Common Stock that are already owned by the Participant or, with respect to any Incentive Award, that are to be issued upon the grant, exercise or vesting of such Incentive Award.
 
2.18 “Restricted Stock Award” means an award of Common Stock granted to an Eligible Recipient pursuant to Section 7 of the Plan that is subject to the restrictions on transferability and the risk of forfeiture imposed by the provisions of such Section 7.
 
2.19 “Retirement” means termination of employment of service pursuant to and in accordance with the regular (or, if approved by the Board of purposes of the Plan, early) retirement/pension plan or practice of the Company or Subsidiary then covering the Participant, provided that if the Participant is not covered by any such plan or practice, the Participant will be deemed to be covered by the Company’s plan or practice for purposes of this determination.
 
2.20 “Securities Act” means the Securities Act of 1933, as amended.
 
2.21 “Stock Bonus” means an award of Common Stock granted to an Eligible Recipient pursuant to Section 8 of the Plan.
 
2.22 “Subsidiary” means any entity that is directly or indirectly controlled by the Company or any entity in which the Company has significant equity interest, as determined by the Committee.
 
2.23“Tax Date” means the date any withholding tax obligation arises under the Code for a Participant with respect to an Incentive Award.
 
 
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3.  PLAN ADMINISTRATION
 
3.1 The Committee. The Plan will be administered by the Board or by a committee of the Board. So long as the Company has a class of its equity securities registered under Section 12 of the Exchange Act, any committee administering the Plan will consist solely of two or more members of the Board who are “non-employee directors” within the meaning of Rule 16b-3 under the Exchange Act and, if the Board so determined in its sole discretion, who are “outside directors” within the meaning of Section 162 (m) of the Code. Such a committee, if established, will act by majority approval of the members (including written consent of a majority of the members), and a majority of the members of such a committee will constitute a quorum. As used in the Plan, “Committee” will refer to the Board or to such a committee, if established. To the extent consistent with corporate law, the Committee may delegate to any officers of the Company the duties, power and authority of the Committee under the Plan pursuant to such conditions or limitations as the Committee may establish; provided, however, that only the Committee may exercise such duties, power and authority with respect to Eligible Recipients who are subject to Section 16 of the Exchange Act. The committee may exercise its duties, power and authority under the Plan in its sole and absolute discretion without the consent of any Participant or other party, unless the Plan specifically provides otherwise. Each determination, interpretation or other action made or taken by the Committee pursuant to the provisions of the Plan will be conclusive and binding for all purposes and on all persons, and no member of the Committee will be liable for any action or determination made in good faith with respect to the Plan or any Incentive Award granted under the Plan.
 
3.2  Authority of the Committee
 
(a) In accordance with the subject to the provisions of the Plan, the Committee will have the authority to determine all provisions of Incentive Awards as the Committee may deem necessary or desirable and as consistent with the terms of the Plan, including, without limitation, the following: (i) the Eligible Recipients to be selected as Participants; (ii) the nature and extent of the Incentive Awards to be made to each Participant including the number of shares of Common Stock to be subject to each Incentive Award, any exercise price, the manner in which Incentive Awards will vest or become exercisable and whether Incentive Awards will be granted in tandem with other Incentive Award; (iii) the time or times when Incentive Awards will be granted; (iv) the duration of each Incentive Award; and (v) the restrictions and other conditions to which the payment or vesting of Incentive Awards may be subject. In addition, the Committee will have the authority under the Plan in its sole discretion to pay the economic value of any Incentive Award in the form of cash, Common Stock or any combination of both.
 
(b) The Committee will have the authority under the Plan to amend or modify the terms of any outstanding Incentive Award in any manner, including, without limitation, the authority to modify the number of shares or other terms and conditions of an Incentive Award, extend the term of an Incentive Award, accelerate the exercisability or vesting or otherwise terminate any restrictions relating to an Incentive Award, accept the surrender of any outstanding Incentive Award or, to the extent not previously exercised or vested, authorize the grant of new Incentive Awards in substitution for surrendered Incentive Awards’ provided, however that the amended or modified terms are permitted by the Plan as then in effect and that any Participant adversely affected by such amended or modified terms has consented to such amendment or modification. No amendment or modification to an Incentive Award, however, whether pursuant to the Section 3.2 or any other provisions of the Plan, will be deemed to be a regrant of such Incentive Award for purposes of this Plan.
 
 
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(c) In the event of (i) any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, extraordinary dividend or divestiture (including a spin-off) or any other change in corporate structure or shares, (ii) any purchase, acquisition, sale or disposition of a significant amount of assets or a significant business, (iii) any change in accounting principles or practices, or (iv) any other similar change, in each case with respect to the Company or any other entity whose performance is relevant to the grant or vesting of an Incentive Award, the Committee (or, if the Company is not the surviving corporation) may, without the consent of any affected Participant, amend or modify the vesting criteria of any outstanding Incentive Award that is based in whole or in part on the financial performance of the Company (or any Subsidiary or division thereof) or such other entity so as equitably to reflect such event, with the desired result that the criteria for evaluating such financial performance of the Company or such other entity will be substantially the same (in the sole discretion of the Committee of the board of directors of the surviving corporation) following such event as prior to such event; provided; that the amended terms are permitted by the Plan as then in effect.
 
4.  SHARES AVAILABLE FOR ISSUANCE
 
4.1 Maximum Number of Shares Available. Subject to adjustment as provided in Section 4.5 of the Plan, the maximum number of shares of Common Stock that will be available for issuance under the Plan will be fifteen million (15,000,000) shares of Common Stock.
 
4.2 Accounting for Incentive Awards. Shares of Common Stock that are issued under the Plan or that are subject to outstanding Incentive Awards will be applied to reduce the maximum number of shares of Common Stock remaining available for issuance under the Plan. Any shares of Common Stock that are subject to an Incentive Award that lapses, expires, is forfeited or for any reason is terminated unexercised or unvested and any shares of Common Stock that are subject to an Incentive Award that is settled or paid in cash or any form other than shares of Common Stock, or used to satisfy the applicable tax withholding obligation will automatically again become available for issuance under the Plan. Any shares of Common Stock that constitute the forfeited portion of a Restricted Stock Award, however, will not become available for further issuance under the Plan.
 
4.3 General Restrictions. Delivery of shares of Common Stock or other amounts under the Plan shall be subject to the following:
 
(a) Notwithstanding any other provision of the Plan, the Company shall have no liability to deliver any shares of Common Stock under the Plan or make any other distribution of benefits under the Plan unless such delivery or distribution would comply with all applicable laws (including, without limitation, the requirements of the Securities Act), and the applicable requirements of any securities exchange or similar entity.
 
(b) To the extent that the Plan provides for issuance of stock certifies to reflect the issuance of shares of Common Stock, the issuance may be reflected on a non-certified basis, to the extent not prohibited by applicable law or the applicable rules of any securities exchange or similar entity.
 
4.4 Shares of Common Stock Issued Pursuant of Incentive Stock Option. Subject to Section 4.5, the maximum number of shares of Common Stock that may be issued by Options intended to be Incentive Stock Options pursuant to the Plan shall be the same as the total amount reserved for issuance under the Plan as described in Section 4.1.

4.5 Adjustments to Shares and Incentive Awards. In the event of any reorganization, merger, consolidation, recapitalization, reclassification, stock dividend, stock split of shares, right offerings, divestiture or extraordinary dividend (including a spin-off) or any other change in the corporate structure or shares of the Company, the Committee (or, if the Company is not the surviving corporation) will make appropriate adjustment (which determination will be conclusive) as to the number and kind of securities or other property (including cash) available for issuance or payment under the Plan and, in order to prevent dilution or enlargement of the rights of Participants, (a) the number and kind of securities or other property (including cash) to outstanding Options, and (b) the exercise price of outstanding Options.
 
5.  PARTICIPATION
 
Participation in the Plan will be those Eligible Recipients who, in the judgment of the Committee, have contributed, are contributing or are expected to contribute to the achievement of economic objectives of the Company or its Subsidiaries. Eligible Recipients may be granted from time to time one or more Incentive Awards, singly or in combination or in tandem with other Incentive Awards, as may be determined by the Committee in its sole discretion. Incentive Awards will be deemed to be granted as of the date specified in the grant resolution of the Committee, which date will be the date of any related agreement with the Participant.
 
 
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6.  GRANT OPTIONS
 
6.1 Grant. An Eligible Recipient may be granted one or more Options under the Plan, and such Options will be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion. The Committee may designate whether an Option is to be considered an Incentive Stock Option or a Non-Statutory Stock Option. To the extent that any Incentive Stock Option granted under the Plan ceases for any reason to qualify as an “incentive stock option” for purposes of Section 422 of the Code, such Incentive Stock Option will continue to be outstanding for purposes of the Plan but will thereafter be deemed to be a Non-Statutory Stock Option.
 
6.2 Exercise Price. The per share price to be paid by a Participant upon exercise of an Option will be determined by the Committee in its discretion at the time of the Option grant, provided that price will not be less than 100% of the Fair Market Value of one share of Common Stock on the date of grant with respect to an Incentive Stock Option (110% of the Fair Market Value if, at the time the Incentive Stock Option is granted, the Participant owns, directly or indirectly, more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company).
 
6.3 Exercisability and Duration. An Option will become exercisable at such times and in such installments as may be determined by the Committee in its sole discretion at the time of grant; however; that no Option may be exercisable after 10 years from its date of grant or, in the case of an Eligible Participant who owns, directly or indirectly (as determined pursuant to Section 424 (d) of the Code), more than 10% of the combined voting power of all classes of stock of the Company or any subsidiary or parent corporation of the Company (within the meaning of Sections 424(f) and 424(e), respectively, of the Code), five years from its date of grant. Notwithstanding the foregoing, each Option granted to a participant shall vest at a rate of at least 20% per year over 5 years from the date the Option is granted.
 
6.4 Payment of Exercise Price. The total purchase price of the shares to be purchased upon exercise of an Option will be paid entirely in cash (including check, bank draft or money order); however, that the Committee, in its sole discretion and upon terms and conditions established by the Committee, may allow such payments to be made, in whole or in part, by tender of a Broker Exercise Notice, Previously Acquired Shares, by tender of a promissory note (on terms acceptable to the Committee in its sole discretion and only if such promissory note is not forbidden by Section 13(k) of the Securities Exchange Act of 1934) or by a combination of such methods.

 
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6.5 Manor of Exercise. An Option may be exercised by a Participant in whole or in part from time to time, subject to the conditions contained in the Plan and in the agreement evidencing such Option, by delivery in person, by facsimile or electronic transmission or through the mail of written notice of exercise to the Company (Attention: Chief Executive Officer) at its office at 43 West 24th Street, Suite 11B, New York, New York 10010 (or such other office as the Company may designate), and by paying in full the total exercise price for the shares of Common Stock to be purchased in accordance with Section 6.4 of the Plan.
 
6.6 Aggregate Limitation of Common Stock Subject to Incentive Stock Options. To the extent that the aggregate Fait Market Value (determined as of the date an Incentive Stock Option is granted) of the shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year (under the Plan and any other incentive stock option plans of the Company, any subsidiary or any parent corporation of the Company (within the meaning of Sections 424(f) 424(e), respectively, of the Code)) exceeds $100,000 (or such other amount as may be prescribed by the Code from time to time), excess Incentive Stock Options shall be treated as Non-Statutory Stock Options. The determination shall be made by taking Incentive Stock Options into account in the order in which they are granted. If such excess only applies to a portion of an Incentive Stock Option, the Committee, in its discretion, may designate which shares shall be treated as shares to be acquired upon exercise of an Incentive Stock Option.
 
 6.7 Options to Purchase Stock of Acquired Companies. After any reorganization, merger or consolidation involving the Company or a subsidiary of the Company, the Committee may grant Options in substitution of options issued under a plan of another party to the reorganization, merger or consolidation, where such party’s stock may no longer be outstanding following such transaction pursuant to Section 424(a) of the Code, the Committee shall have sole discretion to determine all terms and conditions of Options issued under this Section 6.7, including, but not limited to, exercise price and expiration date.
 
7.  RESTRICTED STOCK AWARDS
 
7.1 Grant. An eligible Recipient may be granted one or more Restricted Stock Awards under the Plan, and such Restricted Stock Awards will be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion. The Committee may impose such restrictions or conditions, not inconsistent with the provisions of the Plan, to the vesting of such Restricted Stock Awards as it deems appropriate, including, without limitation, that the Participant remain in the continuous employ or service of the Company or a Subsidiary for a certain period or that the Participant or the Company (or any Subsidiary or division thereof) satisfy certain performance goals or criteria.
 
7.2 Rights as a Shareholder; Transferability. Except as provided in Sections 7.1, 7.3 and 12.3 of the Plan, a Participant will have all voting, dividend, liquidation and other rights with respect to shares of Common Stock issued to the Participant as a Restricted Stock Award under this Section 7 upon the Participant becoming the holder of record of such shares as if such Participant were a holder of record of shares of unrestricted Common Stock.
 
7.3 Dividends and Distributions. Unless the Committee determines otherwise in its sole discretion (either in the agreement evidencing the Restricted Stock Award at the time of grant or at any time after the grant of the Restricted Stock Award), any dividends or distributions (including regular quarterly cash dividends) paid with respect to shares of Common Stock subject to the unvested portion of a Restricted Stock Award will be subject to the same restrictions as the shares to which such dividends or distributions relate. In the event the Committee determines not to pay such dividends or distributions currently, the Committee will determine in its sole discretion whether any interest will be paid on such dividends or distributions.

 
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7.4 Enforcement of Restrictions. To enforce the restrictions referred to in this Section 7, the Committee may place a legend on the stock certificates referring to such restrictions and may require the Participant, until the restrictions have lapsed, to keep the stock certificates, together with duly endorsed stock powers, in the custody of the Company or its transfer agent or to maintain evidence of stock ownership, together with duly endorsed stock powers, in a certificate less book-entry stock account with the Company’s transfer agent. An
 
8.  STOCK BONUSES
 
An Eligible Recipient may be granted one or more Stock Bonuses under the Plan, and such Stock Bonuses will be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee. The Participant will have all voting, dividend, liquidation and other rights with respect to the shares of Common Stock issued to a Participant as a Stock Bonus under this Section 10 upon the Participant becoming the holder of record of such shares; provided, however, that the Committee may impose such restrictions on the assignment or transfer of a Stock Bonus as it deems appropriate.
 
9.  EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE
 
9.1 Termination Due to Death, Disability or Retirement. In the event a Participant’s employment or other service with the Company and all Subsidiaries is terminated by reason of death, Disability or Retirement:
 
(a) all outstanding Options then held by the Participant will become immediately exercisable in full and will remain exercisable for a period of one year after such termination (but in no event after the expiration date of any such Option);
 
(b) all Restricted Stock Awards then held by the Participant will become fully vested; and
 
(c) all Stock Bonuses then held by the Participant will vest and/or continue to vest in the manner determined by the Committee and set forth in the agreement evidencing such Stock Bonuses.
 
9.2 Termination for Reasons Other Than Death, Disability or Retirement.
 
(a) Subject to the second sentence of this Section 9.2(a), in the event a Participant’s employment or other service is terminated with the Company and all Subsidiaries for any reason other than death, Disability or Retirement, or a Participant is in the employ or service of a Subsidiary and the Subsidiary ceases to be a Subsidiary of the Company (unless the Participant continues in the employ or service of the Company or another Subsidiary), all rights of the Participant under the Plan and any agreements evidencing an Incentive Award will immediately terminate without notice of any kind, and no Options then held by the Participant will thereafter be exercisable, Restricted Stock Awards then held by the Participant that have not vested will be terminated and forfeited, all Stock Bonuses then held by the Participant will vest and/or continue to vest in the manner determined by the Committee and set forth in the agreement evidencing such Stock Bonuses. However, (i) if such termination is due to any reason other than termination by the Company or any Subsidiary for “cause”, all outstanding Options then held by such Participant will remain exercisable to the extent exercisable as of such termination for a period of three months after such termination (but in no event after the expiration date of any such Option), and (ii) if such termination is due to termination by the Company or any Subsidiary for “cause”, outstanding Options then held by such Participant will remain exercisable as of such termination for a period of one month after such termination (but in no event after the expiration date of any such Option).

 
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(b) For purposes of this Section 9.2, “cause” (as determined by the Committee) will be as defined in any employment or other agreement or policy applicable to the Participant or, if no such agreement or policy exists, will mean (i), fraud, misrepresentation, embezzlement or deliberate injury or attempted injury, in each case related to the Company or any Subsidiary, (ii) any unlawful or criminal activity of a serious nature, (iii) any intentional and deliberate breach of a duty or duties that, individually or in the aggregate, are material in relation to the Participant’s overall duties, or (iv) any material breach of any employment, service, or non-compete agreement entered into with the Company or any Subsidiary.
 
9.3 Modification of Rights Upon Termination. Notwithstanding the other provisions of this Section 9, upon a Participant’s termination of employment or other service with the Company and all Subsidiaries, the Committee may, in its sole discretion (which may be exercised at any time on or after the date of grant, including following such termination), cause Options (or any part thereof) then held by such Participant to become or continue to become exercisable and/or remain exercisable following such termination of employment or service and Restricted Stock Awards and Stock Bonuses then held by such Participant to vest and/or continue to vest or become free to transfer restrictions, as the case may be, such termination of employment or service, in each case in the manner determined by the Committee; provided, however, no Option may remain exercisable beyond its expiration date.
 
9.4 Breach of Confidentiality or Non-compete Agreements. Notwithholding anything in the Plan to the contrary, in the event that a Participant materially breaches the terms of any confidentiality or non-compete agreement entered into with the Company or any Subsidiary, such breach occurs before or after termination of such Participant’s employment or other service with the Company or any Subsidiary, the Committee in its sole discretion may immediately terminate all rights of the Participant under the Plan and any agreements evidencing an Incentive Award then held by the Participant without notice of any kind.
 
9.5 Date of Termination of Employment of Other Service. Unless the Committee otherwise determined in its sole discretion, a Participant’s employment or other service will, of purposes of the Plan, be deemed to have terminated on the date recorded on the personnel or other records of the Company or the Subsidiary for which the Participant provides employment or other service, determined by the Committee in is sole discretion based upon such records.
 
10.  PAYMENT OF WITHHOLDING TAXES
 
10.1 General Rules. The Company is entitled to (a) withhold and deduct from future wages of the Participant (or from other amounts that may be due and owing to the Participant from the Company or a Subsidiary), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any and all federal, state and local withholding and employment-related tax requirements attributable to an Incentive Award, including, without limitation, the grant, exercise or vesting of, or payment of dividends with respect to, an Incentive Award or disqualifying disposition of stock received upon exercise of an Incentive Stock Option, or (b) require the Participant promptly to remit the amount of such withholding to the Company before taking any action, including issuing any shares of Common Stock, with respect to an Incentive Award.
 
10.2 Special Rules. The Committee may, in its sole discretion and upon terms and conditions establish by the Committee, permit or require a Participant to satisfy, in whole or in part, any withholding or employment-related tax obligation described in Section 10 of the Plan by electing to tender Previously Acquired Shares, a Broker Exercise Notice or a promissory note (on terms acceptable to the Committee in its sole discretion), or by a combination of such methods.

 
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11.  CHANGE IN CONTROL
 
11.1 Change in Control. For purposes of this Section 11, a “Change in Control” of the Company will mean the following:
 
(a) the sale, lease, exchange or other transfer, directly or indirectly, of substantially all of the assets of the Company (in one transaction or in a series of related transactions) to a person or entity that is not controlled by the Company;
 
(b) the approval by the shareholders of the Company of any plan or proposal for the liquidation or dissolution of the Company.
 
(c) any person becomes after the effective date of the Plan the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of (i) 20% or more, but less than 50% of the combined voting power of the Company’s outstanding securities ordinarily having the right to vote at elections of directors, unless the transaction resulting in such ownership has become approved in advance by the Incumbent Directors (as defined in Section 11.23 below), or (ii) 50% or more of the combined voting power of the Company’s outstanding securities ordinarily having the right to vote at elections of directors (regardless of any approval by the Incumbent Directors);
 
(d) a merger or consolidation to which the Company is a party if the shareholders of the Company immediately prior to effective date of such merger or consolidation have “beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act), immediately following the effective date of such merger or consolidation, of securities of the surviving corporation representing (i) more than 50% but less than 80%, of the combined voting power of the surviving corporation’s then outstanding securities ordinarily having the right to vote at elections of directors, unless such merger or consolidation has been approved in advance by the Incumbent Directors, or (ii) 50% or less of the combined voting power of the surviving corporation’s then outstanding securities ordinarily having the right to vote at elections of directors (regardless of any approval by the Incumbent Directors);
 
(e) the Incumbent Directors cease for any reason to constitute at least a majority of the Board; or
 
(f) any other exchange in control of the Company of a nature that would be required to be reported pursuant to Section 13 or 15(d) of the Exchange Act, whether or not the Company is then subject to such reporting requirements
 
11.2 Incumbent Directors. For purposes of this Section 11, “Incumbent Directors” of the Company will mean any individuals who are members of the Board on the effective date of the Plan and any individuals who subsequently becomes a member of the Board whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the Incumbent Directors (either by specific vote or by approval of the Company’s proxy statement in which such individual is named as a nominee for director without objection to such nomination).
 
11.3 Acceleration of Vesting. Without limiting the authority of the Committee under Section 3.2 and 4.5 of the Plan, if a Change in Control of the Company occurs, then, unless otherwise provided by the Committee in its sole discretion either in the agreement evidencing in Incentive Award at the time of grant or at any time after the grant of an Incentive Award, (a) all outstanding Options will become immediately exercisable in full and will remain exercisable for the remainder of their terms, regardless of whether the Participant to whom such Options have been granted remains in the employ or service of the Company or any Subsidiary; (b) all outstanding Restricted Stock Awards will become immediately fully vested and non-forfeitable; and (c) all outstanding Stock Bonuses then held by the Participant will vest and/or continue to vest in the manner determined by the Committee and set forth in the agreement evidencing such Stock Bonuses.
 
 
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11.4 Cash Payment for Options. If a Change in Control of the Company occurs, then the Committee, if approved by the Committee in its sole discretion either in an agreement evidencing an Incentive Award at the time of grant or at any time after the grant of an Incentive Award, and without the consent of any Participant effected thereby, may determine that some or all Participants holding outstanding Options will receive, with respect to some or all of the shares of Common Stock subject to such Options, as of the effective date of any such Change in Control of the Company, cash in an amount equal to the excess of the Fair Market Value of the Company over the exercise price per share of Options.
 
11.5 Limitation on Change in Control Payments. Notwithstanding anything in Section 11.3 or 11.4 of the Plan to the contrary, if, respect to a Participant, the acceleration of the vesting of an Incentive Award as provided in Section 11.3 or the payment of cash in exchange for all or part of an Incentive Award as provided in Section 11.4 (which acceleration or payment could be deemed a “payment” within the meaning of Section 280G(b)(2) of the Code), together with any other “payments” which such Participant has the right to receive from the Company or any corporation that is a member of an “affiliated group” (as defined in Section 1504(a) of the Code without regard to Section 1504(b) the Code) of which the Company is a member, would constitute a “parachute payment” (as defined in Section 280G(b)(2) of the Code), then the “payments” to such Participants pursuant to Section 11.3 or 11.4 of the Plan will be reduced to the largest amount as will result in no portion of such “payments” being subject to the excise tax imposed by Section 4999 of the Code; however, that if a Participant is subject to a separate agreement with the Company or a Subsidiary that expressly addresses the potential application of Sections 280G or 4999 of the Code (including, without limitation, that “payments” under such agreement or otherwise will be reduced, that such “payments” not be reduced or that the Participant will have the discretion to determine which “payments” will be reduced), then this Section 11.5 will not apply, and any “payments” to a Participant pursuant to Section 11.3 or 11.4 of the Plan will be treated as “payments” arising under such separate agreement.
 
12.  RIGHTS OF ELIGIBLE RECIPIENTS AND PARTICIPANTS; TRANSFERABILITY.
 
12.1 Employment of Service. Nothing in the Plan will interfere with or limit in any way the right of the Company or any Subsidiary to terminate the employment or service of any Eligible Recipient or Participant at any time, not confer upon any Eligible Recipient or Participant any right to continue in the employ or service of the Company or any Subsidiary.
 
12.1 Rights as a Shareholder. As a holder of Incentive Awards (other than Restricted Stock Awards and Stock Bonuses), a Participant will have no rights as a shareholder unless and until such Incentive Awards are exercised for, or paid in the form of, of Common Stock and the Participant becomes the holder of record of such shares. Except as otherwise provided in the Plan, adjustment will be made for dividends or distributions with respect to such Incentive Awards as to which there is a record date preceding the date the Participant becomes the holder of record of such shares, except as the Committee may determine in its discretion.
 
12.3 Restrictions on Transfer. Except as otherwise provided in this Section 12.3, a Participant’s rights and interest under the Plan may not be assigned or transferred other than by will or the laws of descent and distribution, or pursuant to the terms of a domestic relations order, as defined in Section 414(p)(1)(B) of the Code, which satisfies the requirements of Section 414(p)(1)(A) of the Code (a “qualified Domestic Relations Order”). During the lifetime of a Participant, only the Participant personally (or the Participant’s personal representative or attorney-in-fact) or the alternate payee named in a Qualified Domestic Relations Order may exercise the Participant’s rights under the Plan. The Participant’s beneficiary may exercise the Participant’s rights under the Plan. The Participant’s beneficiary may exercise a Participants rights to the extent they are exercisable under the Plan following the death of the Participant. Notwithstanding the foregoing, or any other provision of this Plan, a Participant who holds Non-Qualified Stock Options may transfer such Options to his or her spouse, ascendants, lineal descendants, or to a duly established trust for the benefit of one or more of these individuals. Options so transferred may thereafter be transferred only to the Participant who originally received the Options or to an individual or trust to whom the Participant could have initially transferred the Option pursuant to this Section 12.3. Options which are transferred pursuant to this Section 12.3 shall be exercisable by the transferee according to the same terms and conditions as applied to the Participant.
 
 
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12.4 Non-Exclusivity of the Plan. Nothing contained in the Plan is intended to modify or rescind any previously approved compensation plans or programs of the Company or create any limitations on the power or authority of the Board to adopt such additional or other compensation arrangements as the Board may deem necessary or desirable.
 
13.  SECURITIES LAW AND OTHER RESTRICITIONS
 
Notwithstanding any other provision of the Plan or any agreements entered into pursuant to the Plan, the Company will not be required to issue any shares of Common Stock under this Plan, and a Participant may not sell, assign, transfer or otherwise dispose of shares of Common Stock issued pursuant to Incentive Awards granted under the Plan, unless (a) there is in effect with respect to such shares a registration statement under the securities Act and any applicable state securities laws or an exemption from such registration under the Securities Act and applicable state securities laws, and (b) there has been obtained any other consent, approval or permit from any other regulatory body which the Committee, in its sole discretion, deems necessary or advisable. The Company may condition such issuance, sale or transfer upon the receipt of any representations or agreements from the parties involved, and the placement of any legends on certificates representing shares of Common Stock, as may be deemed necessary or advisable by the Company in order to comply with such securities law or other restrictions.
 
14.  PLAN AMENDMENT, MODIFICATION AND TERMINATION
 
The Board may suspend or terminate the Plan or any portion thereof at any time, any may amend the Plan from time to time in such respects as the Board may deem advisable in order that Incentive Awards under the Plan will conform to any change in applicable laws or regulations or in any other respect the Board may deem to be in the best interests of the Company; provided, however, that no amendments to the Plan will be effective without approval of the shareholders of the Company if shareholder approval of the amendment is then required pursuant to Section 422 of the Code or the rules of any stock exchange or quotation system on which the Common Stock is listed, including, but not limited to the over-the-counter electronic bulletin board and the Nasdaq Stock Market. No termination, suspension or amendment or the Plan may adversely affect any outstanding Incentive Award without the consent of the affected Participant; provided, however, that this sentence will not impair the right of the Committee to take whatever action it deems appropriate under Section 3.2, 4.5 ad 13 of the Plan.
 
15.  EFFECTIVE DATE AND DURATION OF THE PLAN
 
The Plan is effective as of August 12, 2010, the date it was adopted by the Board. It was approved by the shareholders on September 7, 2010. The Plan will terminate at midnight on August 11, 2020, and may be terminated prior to such time to by Board action, and no Incentive Award will be granted after such termination. Incentive Awards outstanding upon termination of the Plan may continue to be exercised, or become free of restrictions, in accordance with their terms.
 
16.  MISCELANEOUS
 
16.1 Governing Law. The validity, construction, interpretation, and effect of the Plan and any rules, regulations and actions relating to the Plan will be governed by the construed exclusively in accordance with the laws of the State of Delaware, notwithstanding the conflicts of laws principles of any jurisdictions.
 
16.2 Successors and Assigns. The Plan will be binding upon inure to the benefit of the successors and permitted assigns of the Company and the Participants.
 
16.3 Annual Report. Each year the Company will provide a copy of its Annual Report to Shareholders on Form 10-K to all Participants.
 
  Notes: Section 4.1 amended by stockholder approval on November 1, 2011, to increase shares authorized to 15,000,000.
       Company name change effective August 23, 2013.
EX-10.11 4 consultingaggreement.htm AMENDED CONSULTING AGREEMENT WITH TROVE CAPITAL PARTNERS LLC DATED AUGUST 29, 2013 consultingaggreement.htm
Exhibit 10.11
CONSULTING AGREEMENT - Amendment
 
This Amended Agreement is entered into as of August 29, 2013, by Trove Capital Partners LLC (the “Consultant”) and Hipcricket, Inc., a Delaware corporation (the “Company”).

 
1.       Scope of Services.  The Consultant shall perform as a consultant for the Company, providing, upon request by the Company's executive team, advice and consultation on business matters.  The Consultant shall be responsible for maintaining, at his own expense, a place of work, any necessary equipment and supplies, and appropriate communications facilities.
 
2.       Work for Others.  The Company recognizes and agrees that the Consultant may perform services for other persons, provided that such services do not represent a conflict of interest or a breach of the Consultant’s duties under this Agreement or Consultant's Proprietary Information and Inventions Agreement with the Company.  The Consultant specifically represents and warrants that he will not perform any services on behalf of the Company or any other person or entity that may, in any way, impair the Company’s ownership of any work product produced by the Consultant pursuant to this Agreement.
 
3.       Term of Agreement
 
(a)       Expiration Date.  This Agreement shall commence on August 1, 2013 and terminate on 30 days notice by either party.
 
(b)       Fees and Expenses.  Upon the termination of this Agreement under Subsection (a) or (c), the Consultant shall only be entitled to the accrued and earned portion of his or her fee and to reimbursement of expenses which were incurred before the termination becomes effective and which are reimbursable under Section 4(a) below.
 
(c)       Termination Upon Notice.  This Agreement may be terminated at any time by the Consultant or by the Company by giving the other party 30 days’ advance notice in writing.
 
4.       Fees and Expenses.
 
(a)  Fees.  The Company shall pay a monthly fee of $22,500 to Consultant.  As long as the consulting agreement is in effect, at the Company’s discretion, up 50% of the fee shall be payable 90 days following the end of the month.
 
(b)  Expenses.  The Company shall reimburse the Consultant monthly for reasonable expenses, subject to Hipcricket’s travel and expense policies, including (without limitation) travel expenses, incurred directly on behalf of the Company in connection with the performance of services hereunder.
 
5.       No Employee Benefits.  The Consultant shall not be eligible to participate in any of the Company’s employee benefit plans, fringe benefit programs, group insurance arrangements or similar programs.
 
6.       Independent Contractor.  Consultant is an independent contractor, not an employee of the Company.  Under this Agreement, the Company shall identify the goals to be attained and the results to be achieved, but Consultant shall be solely responsible for the manner in which the services will be performed.
 
7.       Compliance With Legal Requirements. The Company shall not provide workers’ compensation, disability insurance, Social Security or unemployment compensation coverage or any other benefit to Consultant.  The Consultant shall comply at his expense with all applicable provisions of workers’ compensation laws, unemployment compensation laws, federal Social Security law, the Fair Labor Standards Act, federal, state and local income tax laws, and all other applicable federal, state and local laws, regulations and codes relating to terms and conditions of employment required to be fulfilled by employers or independent contractors.

 
 

 
 
8.       Proprietary Information. The Consultant shall be required, as a condition of his engagement under this Agreement, to sign the Company’s Proprietary Information and Inventions Agreement, a copy of which is attached hereto as Exhibit A.
 
9.       Miscellaneous Provisions.
 
(a)       Notice.  Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. certified mail, return receipt requested and postage prepaid.  In the case of the Consultant, mailed notices shall be addressed to him or her at the home address which he most recently communicated to the Company in writing.  In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.
 
(b)       Waiver.  No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Consultant and by an authorized officer of the Company.  No waiver by either party or any breach of, or compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.
 
(c)       Whole Agreement.  No agreements, representations or understandings (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof.
 
(d)       Choice of Law.  The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Washington (other than their conflict-of-law provisions).
 
(e)       Resolution of Disputes, Fees and Costs.  The parties shall attempt to resolve by negotiation and compromise any dispute arising out of or relating to this Agreement.  Failing such compromise, any such dispute shall be settled by binding arbitration.  Venue of any such proceeding shall be in Seattle, King County, Washington.  There shall be one arbitrator agreed upon by the parties, or if the parties cannot agree on that arbitrator within twenty (20) days of the initial arbitration demand, the arbitrator shall be selected by the administrator of Judicial Dispute Resolution (“JDR”) office in Seattle.  The arbitrator shall reside in the metropolitan Seattle area.  The arbitration shall be conducted under the JDR Arbitration Rules.  The arbitrator may award injunctive relief or any other remedy available from a judge, including temporary restraining orders or injunctions or the joinder of parties or consolidation of the arbitration proceedings with any other proceedings involving common issues of law or fact or which may promote judicial economy.  Pending appointment of an arbitrator, any party to a claim or assertion may apply to a court of competent jurisdiction for such interim order or relief as may be appropriate, including temporary restraining orders or injunctions, provided that once the arbitrator is appointed, all further interim relief, including temporary restraining orders or the power to vary or dissolve any temporary order or relief granted by the court.  The arbitrator in such proceedings shall award to the substantially prevailing party reasonable attorney’s fees and costs incurred by the substantially prevailing party in conjunction with such dispute.
 
(f)       Severability.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.
 
(g)       Assignment and Successors.  Neither party shall assign any right or delegate any obligation hereunder without the other party’s written consent, and any purported assignment or delegation by a party hereto without the other party’s written consent shall be void.

 
 

 
 
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer.
 
 

 
______________            ________________
Consultant                         Date
 
HIPCRICKET, INC
 
 
By: ____________________
Its: ____________________
 
 
                        
EX-10.14 5 officelease.htm OFFICE LEASE FOR AUGME TECHNOLOGIES officelease.htm
Exhibit 10.14

LEASE AGREEMENT
BETWEEN
TALON PORTFOLIO SERVICES, LLC,
A WASHINGTON LIMITED LIABILITY COMPANY,
AS GENERAL RECEIVER FOR
W2007 SEATTLE OFFICE 110 ATRIUM PLACE REALTY, LLC,
A DELAWARE LIMITED LIABILITY COMPANY,
KING COUNTY CASE NO. 12-2-21253-8-SEA,

AS LANDLORD,

AND

AUGME TECHNOLOGIES, INC., A WASHINGTON CORPORATION,

AS TENANT,

DATED August 26, 2013


The submission of this Lease by Landlord, its broker, agent or representative, for examination or execution by Tenant, does not constitute an option or offer to lease the Premises upon the terms and conditions contained herein or a reservation of the Premises in favor of Tenant; it being intended hereby that notwithstanding the preparation of space plans and/or tenant improvements plans, etc., and/or the expenditure by Tenant of time and/or money while engaged in negotiations in anticipation of it becoming the Tenant under this Lease, or Tenant’s forbearing pursuit of other leasing opportunities, or even Tenant’s execution of this Lease and submission of same to Landlord, that this Lease shall become effective and binding upon Landlord only upon the execution hereof by Landlord and its delivery of a fully executed counterpart hereof to Tenant. No exception to the foregoing disclaimer is intended, nor shall any be implied, from expressions of Landlord’s willingness to negotiate in good faith with respect to any of the terms and conditions contained herein.
 
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BASIC LEASE INFORMATION
 
Lease Date:
August 26, 2013
 
Landlord:
TALON PORTFOLIO SERVICES, LLC, a Washington limited liability company, as General Receiver for W2007 Seattle Office 110 Atrium Place Realty, LLC, a Delaware limited liability company, King County Case No. 12-2-21253-8-SEA.  Landlord was appointed as the general receiver for the Project (as defined below) pursuant to that certain Order Appointing General Receiver issued by the Superior Court of Washington for King County on July 2, 2012 in connection with Case No. 12-2-21253-8-SEA in accordance with the provisions of Chapter 7.60 of the Revised Code of Washington.
 
Tenant:
AUGME TECHNOLOGIES, INC., a Washington corporation
 
Premises:
Suite No. 410 containing approximately 13,550 rentable square feet, on the fourth (4th) floor in the office building commonly known as 110 Atrium Place (the “Building”), and whose street address is 110 110th Avenue NE, Bellevue, Washington 98004, subject to expansion as set forth in, and in accordance with, Exhibit K attached hereto. The Premises are outlined on the floor plan(s) attached to the Lease as Exhibit A.
 
Land/Project:
The land on which the Building is located (the “Land”) is described on Exhibit B attached hereto.  The term “Project” shall collectively refer to the Building, the Land and the driveways, the Garage (as defined in Exhibit G attached hereto), and similar improvements and easements associated with the foregoing or the operation thereof.
 
Term: