F-1/A 1 a2201692zf-1a.htm F-1/A

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As filed with the Securities and Exchange Commission on January 27, 2011

Registration No. 333-166793

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



Amendment No. 9
to
Form F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



Velti plc
(Exact name of registrant as specified in its charter)

Not Applicable
(Translation of Registrant's name into English)

Jersey
(State or other jurisdiction
of incorporation or organization)
  7372
(Primary Standard Industrial
Classification Code Number)
  Not Applicable
(I.R.S. Employer
Identification Number)

First Floor, 28-32 Pembroke Street Upper
Dublin 2, Republic of Ireland
Attn: Alex Moukas, Chief Executive Officer
353 (0) 1234 2676
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)



Velti USA, Inc.
150 California Street
San Francisco, California 94111
Attn: Sally J. Rau, Chief Administrative Officer and General Counsel
(415) 315-3400
(Name, address, including zip code and telephone number,
including area code, of agent for service)



Copies to:

Peter M. Astiz
Edward H. Batts
DLA Piper LLP (US)
2000 University Avenue
East Palo Alto, California 94303
(650) 833-2000
  Marc D. Jaffe
Wesley C. Holmes
Latham & Watkins LLP
885 Third Avenue
New York, New York 10022
(212) 906-1200

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

If any of the securities being registered on this Form are offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, please check the following box.    o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.


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The information in this preliminary prospectus is not complete and may be changed. We and the selling shareholders may not sell the securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This preliminary prospectus is not an invitation or offer to sell these securities and is not soliciting an invitation or offer to buy these securities in any jurisdiction where the offer or sale is not permitted or to any person or entity to whom it is unlawful to make that offer or sale.

SUBJECT TO COMPLETION, DATED JANUARY 27, 2011

Preliminary Prospectus

12,518,008 Ordinary Shares

GRAPHIC

We are offering 11,092,300 of our ordinary shares, and the selling shareholders are offering an additional 1,425,708 ordinary shares. We expect the initial public offering price will be between $9.00 and $11.00 per ordinary share. We have applied for listing of our ordinary shares on The NASDAQ Global Market under the symbol "VELT." Prior to this offering our ordinary shares have traded, and immediately subsequent to this offering will continue to trade, on the AIM market of the London Stock Exchange under the symbol "VEL."

Investing in our ordinary shares involves risk. See "Risk Factors" beginning on page 11.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.


 
  PER SHARE   TOTAL  

Public Offering Price

  $     $    

Underwriting Discount and Commissions(1)

  $     $    

Proceeds, Before Expenses, to Velti plc

  $     $    

Proceeds, Before Expenses, to Selling Shareholders

  $     $    

(1)
See "Underwriting" beginning on page 163 for disclosure regarding compensation payable to the underwriters by the company.

Delivery of the ordinary shares is expected to be made on or about               , 2011. We and the selling shareholders have granted the underwriters an option for a period of 30 days to purchase an additional 1,407,700 and 470,000 of our ordinary shares, respectively, to cover over-allotments. If the underwriters exercise the option in full, the total underwriting discounts and commissions payable by us and the selling shareholders will be $               and the total proceeds to us and the selling shareholders, before expenses, will be $               .

Jefferies

Needham & Company, LLC                  RBC Capital Markets

Canaccord Genuity                  ThinkEquity LLC

Prospectus dated               , 2011


LOGO


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Prospectus Summary  

  1

Risk Factors  

  11

Forward-Looking Statements and Market Data  

  36

Use of Proceeds  

  37

Dividend Policy  

  39

Capitalization  

  40

Dilution  

  41

Selected Historical Consolidated Financial Data  

  43

Unaudited Pro Forma Condensed Consolidated Financial Information  

  45

Management's Discussion and Analysis of Financial Condition and Results of Operations  

  47

Business  

  84

Executive Officers and Directors  

  105

Principal and Selling Shareholders  

  127

Related Party Transactions  

  130

Description of Share Capital  

  133

Comparison of Jersey Law and Delaware Law  

  140

Our Ordinary Shares and Trading in the United States and United Kingdom  

  144

Shares Eligible for Future Sale  

  151

Taxation  

  153

Cautionary Statement on the Enforceability of Civil Liabilities  

  162

Underwriting  

  163

Expenses Related to this Offering  

  170

Legal Matters  

  170

Experts  

  170

Where You Can Find Additional Information  

  170

Index to Financial Statements  

  F-1

Until 25 days after the date of this prospectus, all dealers that buy, sell, or trade the ordinary shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

We and the selling shareholders have not, and the underwriters have not, authorized anyone to give any information or to make any representations other than those contained in this prospectus. Do not rely upon any information or representations made outside of this prospectus.

Persons outside the U.S. who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of the securities and the distribution of the prospectus outside the U.S.

Under the laws of the Bailiwick of Jersey, only holders of ordinary shares in uncertificated form in CREST (an electronic clearing system in the U.K.) or legal owners of shares in certificated form may be recorded in our share register as legal shareholders. The underwriters have designated that Cede & Co., as nominee for the Depository Trust Company, or DTC, will hold the ordinary shares sold in this offering in certificated form on behalf of and as nominee for investors who purchase beneficial interests in ordinary shares through this offering. We and DTC have no contractual relationship. Investors who purchase the ordinary shares (although recorded as owners within the DTC system) are legally considered holders only of beneficial interests in those shares and will have no direct rights against us. Each ordinary share reflected within the DTC system will represent evidence of beneficial ownership of one certificated ordinary share held by Cede & Co. The


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ordinary shares reflected within the DTC system will be freely transferable with delivery and settlement through the DTC system.

Our ordinary shares included in this offering will be issued in certificated form and beneficial interests in the ordinary shares as reflected in the DTC system will be traded on The NASDAQ Global Market. References in this prospectus to the ordinary shares being listed or traded on The NASDAQ Global Market shall mean the beneficial interests in the ordinary shares held by Cede & Co. Investors may, through their broker, elect to withdraw their ordinary shares from the DTC system, receive a share certificate and be listed as legal shareholders of Velti, subject to customary fees. Please see "Our Ordinary Shares and Trading in the United States and the United Kingdom."

Investors who purchase beneficial interests in the ordinary shares in this offering must look solely to their participating brokerage in the Depository Trust Company system for payment of dividends, the exercise of voting rights attaching to the ordinary shares and for all other rights arising with respect to the ordinary shares.


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Prospectus Summary

This summary highlights information contained in this prospectus. It does not contain all of the information that you should consider in making your investment decision. Before investing in our ordinary shares, you should read this entire prospectus carefully, including the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and related notes, for a more complete understanding of our business and this offering. Except as otherwise required by the context, references to "Velti," "Company," "we," "us" and "our" are to Velti plc and its subsidiaries.

All references to "U.S. dollars" or "$" are to the legal currency of the United States; all references to "£" or "pound sterling" or "pence" or "p" are to the legal currency of the United Kingdom and "€" or "euro" are to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the treaty establishing the European Community, as amended.

Overview

We are a leading global provider of mobile marketing and advertising technology that enable brands, advertising agencies, mobile operators and media companies to implement highly targeted, interactive and measurable campaigns by communicating with and engaging consumers via their mobile devices. Our platform allows our customers to use mobile media, together with traditional media, such as television, print, radio and outdoor advertising, to reach targeted consumers, engage consumers through the mobile Internet and applications and through the integration of a variety of software tools and complex devices into a single user interface, allow our customers to convert consumers into their customers and continue to actively manage the relationship through the mobile channel. For the nine months ended September 30, 2010, over 600 brands, advertising agencies, mobile operators and media companies, including 13 of the 20 largest mobile operators worldwide based on number of subscribers, used our platform to conduct over 1,500 campaigns. We have the ability to conduct campaigns in over 30 countries and reach more than 2.5 billion global consumers. We have run campaigns for brands, advertising agencies, mobile operators and media companies such as AT&T, Vodafone, Johnson & Johnson and McCann Erickson.

We believe our integrated, easy-to-use, end-to-end platform is the most extensive mobile marketing and advertising campaign management platform in the industry. Our platform enables brands, advertising agencies, mobile operators and media companies to plan, execute, monitor and measure mobile marketing and advertising campaigns in real time throughout the campaign lifecycle. We generate revenue from our software as a service (SaaS) model, from licensing our software to customers and from providing managed services to customers.

Velti mGage provides a one-stop-shop where our customers may plan marketing and advertising campaigns. They also can select advertising inventory, manage media buys, create mobile applications, design websites, build mobile CRM campaigns and track performance across their entire campaign in real-time. In addition, our proprietary databases and analytics platforms, including those we have acquired recently, are able to process, analyze and optimize more than 1.3 billion new data facts daily.

Our total revenue has grown to $90.0 million for the year ended December 31, 2009, a year over year increase of 45% from $62.0 million for the year ended December 31, 2008, and a year over year increase of 278%, from $16.4 million for the year ended December 31, 2007. For the nine months ended September 30, 2010, our total revenue was $58.8 million, an increase of $34.6 million, or 143%, compared to the same period in 2009.

On September 30, 2010, we acquired Mobclix, Inc., a California-based targeted mobile ad exchange and open marketplace for mobile developers, advertisers, ad networks and agencies to manage ad inventory and increase campaign performance. We acquired 23 new employees in California in connection with this acquisition.

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The Industry and its Challenges

The marketing and advertising industry is in a period of transition. Brands, which we refer to as businesses that sell products and services, and advertising agencies, mobile operators and media companies all need to reach and engage consumers more cost effectively. Historically, however, these participants have struggled to meet their marketing and advertising objectives using traditional, non-measureable, impression-based media. Mobile marketing and advertising campaigns provide the ability to reach broad, global audiences cost effectively, using interactive, targeted, measurable campaigns that combine brand building with direct and measurable consumer response. Mobile media enables brands, advertising agencies, mobile operators and media companies to interact with consumers virtually anytime, anywhere and, as a result, brands, advertising agencies, mobile operators and media companies are increasingly turning to mobile media to address their marketing and advertising objectives.

According to ABI Research, worldwide mobile marketing and advertising spending is expected to increase from $1.64 billion in 2007 to nearly $29.0 billion in 2014. We believe this industry growth is attributable to a number of factors including the continued growth in the number of wireless data subscribers globally, the proliferation of smartphones and advanced wireless networks, and the increased usage of mobile applications, content and services. In addition, mobile marketing and advertising offers certain unique benefits to brands, advertising agencies, mobile operators and media companies looking to target, measure and engage consumers. These benefits include the ability to reach and target consumers, engage and retain consumers, measure the entire consumer engagement process, and, in combination with traditional media, integrate, measure and optimize the engagement.

Notwithstanding the market opportunity and the benefits provided by mobile marketing and advertising, brands, advertising agencies, mobile operators and media companies face significant challenges in executing global, comprehensive and cost effective mobile marketing and advertising campaigns, including the following:

    a diversity of industry participants, including advertising networks and publishers, which makes it difficult for brands, advertising agencies, mobile operators and media companies to efficiently and effectively manage and engage in mobile media campaigns and therefore incorporate mobile media as a significant part of their marketing and advertising budgets;

    a multitude of mobile operators and devices, as well as the proliferation of rich and interactive online content, which increases the technical complexity for brands, advertising agencies, mobile operators and media companies seeking to implement global mobile marketing and advertising strategies;

    difficulty in measuring mobile campaign performance; and

    consumer data protection and regulatory requirements, which increase the complexity and cost of large scale, multi-national, mobile marketing and advertising campaigns.

As a result of these challenges, we believe that brands, advertising agencies, mobile operators and media companies are frustrated by the limitations of existing traditional solutions, and are seeking to implement more precisely targeted, interactive and measurable marketing and advertising campaigns from an integrated end-to-end campaign platform that can leverage the unique capabilities of interactive digital media, and in particular mobile media.

The Velti Solution

Our proprietary Velti mGage platform allows our customers to conduct highly targeted and measurable campaigns and addresses many of the current challenges with mobile marketing and advertising by delivering the following benefits:

    interacting with and managing multiple operator platforms, multiple standards, and support of thousands of types of mobile devices, enabling the integration, comparison and analysis of user activity data from different mobile operators;

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    allowing brands, advertising agencies, mobile operators and media companies to integrate the benefits of mobile media interactivity into traditional, passive media including television, print, radio and outdoor advertising in order to enhance the tracking and measurability of traditional media;

    enabling enhanced measurement and analysis of marketing campaign effectiveness with end-to-end tracking and reporting of consumer behavior in response to marketing campaigns, across media platforms;

    optimizing marketing and advertising campaigns as a result of deep operating expertise and breadth of customer data; and

    automating the marketing process by allowing our customers to design and implement global mobile marketing and advertising campaigns with minimal technical expertise leveraging our easy-to-use, drag-and-drop interface, as well as our 70 step-by-step, automated mobile marketing campaign creation templates.

Our Strategy

Our objective is to be the leading provider of mobile marketing and advertising solutions globally across multiple media types and channels. The principal elements of our strategy are to:

    capitalize upon existing customer relationships and acquire new customers as our market expands;

    deepen existing, and add new, advertising agency relationships;

    grow revenue and enhance profitability by emphasizing the marketing portion of mobile campaigns;

    enhance our platform by addressing technology shifts in mobile devices and computing;

    extend our leadership position by continuing to invest in our platform;

    encourage the use of our platform by third parties; and

    continue global expansion and pursue strategic partnerships and acquisitions.

Risk Factors

Our business is subject to numerous risks, as more fully described in the section entitled "Risk Factors" immediately following this prospectus summary. These risks include, but are not limited to, the following:

    because of our revenue recognition policies, revenue may not be recognized in the period in which we contract with a customer, and downturns or upturns in revenue may be reflected in our operating results in future periods rather than in the period in which the costs are incurred;

    we have in the past and may in the future experience deficiencies, including material weaknesses, in our internal control over financial reporting, and our business may be adversely affected if we do not remediate these material weaknesses or if we have other weaknesses in our internal control over financial reporting;

    we may not achieve the expected benefits of our acquisitions;

    our sales efforts require significant time and effort and could hinder our ability to expand our customer base and increase revenue;

    we may not be able to enhance our mobile marketing and advertising platform to keep pace with technological and market developments, or to remain competitive against potential new entrants in our markets;

    we do not have multi-year agreements with many of our customers and may be unable to retain key customers, attract new customers or replace departing customers with customers that can provide comparable revenue; and

    the gathering, transmission, storage and sharing or use of personal information could give rise to liabilities or additional costs of operation as a result of governmental regulation, legal requirements or differing views of personal privacy rights.

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Corporate Structure

We revised our corporate structure during 2009, and Velti plc is now a company incorporated under the laws of the Bailiwick of Jersey, the Channel Islands. Our business was first organized in 2000 with the incorporation of Velti S.A., a company organized under the laws of Greece. On April 20, 2006, Velti plc, a company formed in England and Wales under the Companies Act 1985 on September 2, 2005, acquired all of the issued share capital of Velti S.A. As a result, Velti plc (England and Wales) became the holding company of our various subsidiaries.

On May 3, 2006, Velti plc was first admitted and trading commenced in our ordinary shares on the Alternative Investment Market of the London Stock Exchange, or AIM. In connection with the initial public offering and placement of ordinary shares, 10,000,000 new ordinary shares were issued at a placing price of £1.00 per share, for gross proceeds of approximately £10.0 million. In October 2007, Velti plc issued 3,580,000 additional new ordinary shares at £2.10 per share in a public offering, for gross proceeds of approximately £7.5 million. In October 2009, Velti plc issued 1,820,000 additional ordinary shares at a price of £1.60 per share, for gross proceeds of approximately £2.9 million. On December 18, 2009, Velti plc completed a scheme of arrangement under the laws of England and Wales whereby Velti plc, a company incorporated under the laws of Jersey, the Channel Islands and tax resident in the Republic of Ireland, became our ultimate parent company. The ordinary shares of our new Jersey-incorporated parent were admitted for trading on AIM on December 18, 2009.

On May 8, 2009, we completed the acquisition of Ad Infuse, Inc., a leader in personalized mobile advertising based in San Francisco, California. On October 9, 2009, Ad Infuse changed its name to Velti USA, Inc. We subsequently acquired Media Cannon, Inc. in June 2010, and Mobclix, Inc. in September 2010, both California-based companies that are part of our operations in San Francisco, California.

Corporate Information

Our principal executive office is located at First Floor, 28-32 Pembroke Street Upper, Dublin 2, Republic of Ireland and our telephone number is +353 (0)1 234 2676. Our registered address in the Bailiwick of Jersey, Channel Islands, is 22 Grenville Street, St Helier, Jersey JE4 8PX. Our agent for service of process in the U.S. is Velti USA, Inc., 150 California Street, San Francisco, California 94111.

Investors should contact us for any inquiries through the address and telephone number of our principal executive offices. Our corporate website address is www.velti.com. We do not incorporate the information on our website into this prospectus and you should not consider any information on, or that can be accessed through, our website as part of this prospectus.

"Velti" is a registered trademark with the European Union. Our unregistered trademarks include "Velti mGage." All other trademarks, tradenames and service marks appearing in this prospectus are the property of their respective owners.

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The Offering

Ordinary shares offered by us

  11,092,300 shares

Ordinary shares offered by the selling shareholders

 

  1,425,708 shares

Ordinary shares to be outstanding immediately after this offering

 

49,393,092 shares

Selling Shareholders

See "Principal and Selling Shareholders" for information on the selling shareholders in this offering.

Over-allotment Option

We and the selling shareholders have granted to the underwriters an option, which is exercisable within 30 days from the date of this prospectus, to purchase up to 1,407,700 and 470,000 additional ordinary shares, respectively.

Use of Proceeds

We expect the net proceeds to us from this offering will be approximately $97.7 million, after deducting the underwriting discount and the estimated offering expenses, assuming an initial offering price of $10.00 per ordinary share. We intend to use a portion of the net proceeds from this offering for repayment of outstanding indebtedness in the approximate amount of $53.5 million, approximately $14.6 million to fund a portion of the purchase price and operating expenses of Mobclix, Inc., our newly-acquired subsidiary, and the remainder for working capital and general corporate purposes, including funding our strategic plan for additional global expansion and making further investments in our technology solutions. We may also use a portion of the net proceeds to acquire other businesses, products or technologies. Pending these uses, we intend to invest our net proceeds from this offering primarily in short-term bank deposits or in interest-bearing, investment grade securities. We will not receive any proceeds from the sale of ordinary shares by the selling shareholders. See "Use of Proceeds" for additional information.

Risk Factors

Investment in our ordinary shares involves a high degree of risk. You should read and consider the information set forth under the heading "Risk Factors" beginning on page 11 and all other information included in this prospectus before deciding to invest in our ordinary shares.

Lock-up Agreements

Our directors and executive officers and other key employees have agreed with the underwriters not to sell, transfer or dispose of any of our ordinary shares for a period of 180 days after the date of this prospectus. See "Underwriting" for additional information.

Proposed NASDAQ Global Market symbol

We have applied for the quotation of our ordinary shares on The NASDAQ Global Market under the symbol "VELT."

Share Registrar and Transfer Agent

We have retained Computershare to serve as our share registrar (also known in the U.S. as our transfer agent). Computershare may be reached at 1 (781) 575-4238.

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The number of our ordinary shares that will be issued and outstanding immediately after this offering is based on 38,300,792 ordinary shares outstanding as of December 31, 2010, and excludes:

    3,492,820 ordinary shares issuable upon the exercise of share options outstanding at a weighted average exercise price of £3.33; and

    2,043,645 ordinary shares issuable pursuant to deferred share awards subject to vesting restrictions.

As of June 30, 2010, we had exceeded the aggregate authorized number of shares available for grant under our equity incentive plans by 1,618,053 shares. On July 30, 2010, our shareholders approved an increase in the aggregate authorized number of shares available for grant under equity incentive plans and immediately thereafter we had 598,038 shares available for grant. As of December 31, 2010, we had 208,653 shares available for grant under our share incentive plans.

Except as otherwise indicated, all information in this prospectus assumes no exercise of the underwriters' over-allotment option.

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Summary Historical Consolidated Financial Data

We present below our summary historical consolidated financial data. The summary consolidated income statement data for the nine months ended September 30, 2010 and 2009, and for the fiscal years ended December 31, 2009, 2008 and 2007, and the summary consolidated balance sheet data as of December 31, 2009, have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The historical results presented below are not necessarily indicative of the financial results we will achieve in future periods. You should read this information together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited consolidated financial statements and related notes, each included elsewhere in this prospectus.


 
  Nine Months Ended September 30,   Year Ended December 31,  
 
  2010   2009   2009   2008   2007  
 
  (unaudited)
   
   
   
 
 
  (in thousands)
 
Revenue:                                
  Software as a service (SaaS) revenue   $ 36,348   $ 11,491   $ 30,965   $ 40,926   $ 11,031  
  License and software revenue     14,304     6,427     45,811     14,638     2,712  
  Managed services revenue     8,130     6,248     13,189     6,468     2,651  
                       
    Total revenue     58,782     24,166     89,965     62,032     16,394  
Costs and expenses:                                
  Third-party costs     18,080     10,980     27,620     32,860     2,437  
  Datacenter and direct project costs     4,370     3,117     4,908     8,660     2,863  
  General and administrative expenses     15,162     10,413     17,387     6,660     4,075  
  Sales and marketing expenses     17,131     10,991     15,919     8,245     5,812  
  Research and development expenses     4,639     2,585     3,484     1,884     1,662  
  Depreciation and amortization     8,096     7,180     9,394     4,231     3,013  
                       
    Total cost and expenses     67,478     45,266     78,712     62,540     19,862  
                       
Income (loss) from operations     (8,696 )   (21,100 )   11,253     (508 )   (3,468 )
  Interest expense, net     (5,193 )   (1,319 )   (2,370 )   (1,155 )   (338 )
  Gain (loss) from foreign currency transactions     (1,052 )   (433 )   14     (1,665 )   (154 )
  Other expenses                 (495 )    
                       
Income (loss) before income taxes, equity method investments and non-controlling interest     (14,941 )   (22,852 )   8,897     (3,823 )   (3,960 )
  Income tax (expense) benefit     (670 )   1,053     (410 )   26     198  
  Loss from equity method investments     (2,107 )   (1,449 )   (2,223 )   (2,456 )   (656 )
                       
Net income (loss)     (17,718 )   (23,248 )   6,264     (6,253 )   (4,418 )
  Loss attributable to non-controlling interest     (60 )   (14 )   (191 )   (123 )   (224 )
                       
Net income (loss) attributable to Velti   $ (17,658 ) $ (23,234 ) $ 6,455   $ (6,130 ) $ (4,194 )
                       
Net income (loss) per share attributable to Velti(1):                                
  Basic   $ (0.47 ) $ (0.67 ) $ 0.18   $ (0.18 ) $ (0.14 )
                       
  Diluted   $ (0.47 ) $ (0.67 ) $ 0.17   $ (0.18 ) $ (0.14 )
                       
Weighted average shares outstanding for use in computing:                                
  Basic net income (loss) per share     37,792     34,629     35,367     33,478     29,751  
                       
 
Diluted net income (loss) per share

 

 

37,792

 

 

34,629

 

 

37,627

 

 

33,478

 

 

29,751

 
                       
Pro forma net income (loss) per share attributable to Velti(1) (unaudited):                                
  Basic   $ (0.25 )       $ 0.19              
                             
  Diluted   $ (0.25 )       $ 0.18              
                             
Weighted average shares outstanding for use in computing (unaudited):                                
  Pro forma basic net income (loss) per share     48,884           46,459              
                             
  Pro forma diluted net income (loss) per share     48,884           48,719              
                             

(1)
See Note 19 to notes to consolidated financial statements included on page F-55 and page F-56 of this prospectus for an explanation of the method used to calculate basic and diluted net income (loss) per share and pro forma basic and diluted net income (loss) per share.

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  September 30, 2010  
 
  Actual   Pro Forma(2)  
 
  (unaudited)
 
 
  (in thousands)
 

Selected consolidated balance sheets data:

             

Cash and cash equivalents

  $ 18,787     63,033  

Working capital

    (8,833 )(3)   87,244  

Total assets

    181,978     226,224  

Total debt

    66,104     13,601  

Total Velti shareholders' equity

    34,873     131,622  

Total shareholders' equity

    35,078     131,827  

(2)
Pro forma reflects (i) the issuance of 11,092,300 ordinary shares offered by us hereby assuming an initial public offering price of $10.00 per ordinary share, after deducting underwriting discounts, commissions and estimated offering expenses payable by us and (ii) the application of proceeds from this offering to repay $53.5 million of our outstanding indebtedness. A $1.00 increase (decrease) in the assumed initial public offering price of $10.00 per ordinary share would increase (decrease) each of as adjusted cash and cash equivalents, working capital, total assets, total Velti shareholders' equity, and total shareholders' equity by $10.3 million, assuming the number of ordinary shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us. An increase (decrease) of 1.0 million in the number of ordinary shares offered by us would increase pro forma cash and cash equivalents, working capital, total assets, total Velti shareholders' equity and total shareholders' equity by approximately $9.3 million.

 
  Nine Months Ended September 30,   Year Ended December 31,  
 
  2010   2009   2009   2008   2007  
 
  (in thousands)
 

Other Financial Data (unaudited):

                               

Adjusted Revenue(4)

  $ 58,782   $ 24,166   $ 89,965   $ 49,521   $ 16,394  

Adjusted EBITDA(5)

  $ 4,727   $ (10,035 ) $ 24,727   $ 5,754   $ 895  

(3)
As of September 30, 2010, our current liabilities exceeded our current assets by approximately $8.8 million. Accordingly, we had negative working capital. We are focusing on improving cash generated from operations. In addition, since September 30, 2010, we have raised $9.2 million in debt financing in order to provide us sufficient working capital to operate our business as well as to fund the acquisitions that we have undertaken.

(4)
During 2008 we entered into contracts with two customers, the provisions of which required us to recognize as revenue certain revenue generated from fees for media and other advertising production costs acquired on behalf of each customer for its mobile marketing and advertising campaigns in the aggregate amount of approximately $12.5 million, and separately charge the same amount of third party costs incurred to third party costs in our costs and expenses. We define adjusted revenue as revenue excluding the $12.5 million pass-through costs. No other differences between revenue and adjusted revenue in other periods are presented.

Set forth below is a reconciliation of Revenue to Adjusted Revenue:

 
  Nine Months Ended September 30,   Year Ended December 31,  
 
  2010   2009   2009   2008   2007  
 
  (in thousands)
 

Revenue

  $ 58,782   $ 24,166   $ 89,965   $ 62,032   $ 16,394  

Gross reported revenue

                (12,511 )    

Adjusted revenue

  $ 58,782   $ 24,166   $ 89,965   $ 49,521   $ 16,394  

(5)
We present Adjusted EBITDA as a supplemental measure of our performance. We define Adjusted EBITDA as net income (loss) plus (i) income tax expense (benefit), (ii) interest expense, (iii) loss in equity method investments, (iv) foreign exchange gains (losses), (v) depreciation and amortization, (vi) non-cash share-based compensation, and (vii) non-recurring expenses, which are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

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      We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted EBITDA to evaluate the effectiveness of our business strategies.

Adjusted EBITDA has limitations as an analytical tool. Some of these limitations are:

    Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

    Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

    Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our outstanding debt;

    non-cash compensation is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as an expense when evaluating our ongoing operating performance for a particular period;

    Adjusted EBITDA does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and

    other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only supplementally.

Set forth below is a reconciliation of Adjusted EBITDA to net income (loss) before non-controlling interest, the most comparable GAAP measure:


 
  Nine Months Ended September 30,   Year Ended December 31,  
 
  2010   2009   2009   2008   2007  
 
   
   
  (unaudited)
   
   
 
 
  (in thousands)
 

Net income (loss)

  $ (17,718 ) $ (23,248 ) $ 6,264   $ (6,253 ) $ (4,418 )

Adjustments:

                               
 

Income tax (benefit) expense

    670     (1,053 )   410     (26 )   (198 )
 

Interest expense, net

    5,193     1,319     2,370     1,155     338  
 

Loss from equity method investments

    2,107     1,449     2,223     2,456     656  
 

Foreign exchange (gains) losses

    1,052     433     (14 )   1,665     154  
 

Depreciation and amortization

    8,096     7,180     9,394     4,231     3,013  
 

Non-cash share-based compensation

    5,327     1,685     1,292     2,031     1,350  
 

Non-recurring expenses(1)

        2,200     2,788     495      
                       

Adjusted EBITDA

  $ 4,727   $ (10,035 ) $ 24,727   $ 5,754   $ 895  
                       

(1)
Non-recurring expenses in 2009 included G&A expenses with respect to our redomiciliation exercise and professional fees associated with our consideration of corporate opportunities. Non-recurring expenses in 2008 represented our accrued litigation settlement. We did not adjust for non-recurring expenses in 2007 or the nine months ended September 30, 2010.

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Summary Unaudited Pro Forma Condensed Consolidated Financial Data

On May 8, 2009, we completed the acquisition of Ad Infuse, Inc., a personalized mobile advertising company based in San Francisco, California. We paid an aggregate of approximately $3.6 million for Ad Infuse, which had revenue of $1.3 million in 2008. After the acquisition, Ad Infuse became our wholly-owned subsidiary. The following summary unaudited pro forma condensed consolidated financial data has been derived by the application of pro forma adjustments to our historical consolidated financial statements and the historical financial statements of Ad Infuse for the year ended December 31, 2009. The unaudited pro forma condensed consolidated income statement data gives effect to the acquisition of Ad Infuse as if it had been completed on January 1, 2009. The financial results of Ad Infuse from the date of acquisition through December 31, 2009 were consolidated and included in Velti plc's audited consolidated financial statements for the year ended December 31, 2009.

The unaudited pro forma financial information is for illustrative purposes only and is not necessarily indicative of the results of operations that would have been realized if the acquisition had been completed on the dates indicated, nor is it indicative of our future operating results. The unaudited pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable. You should not rely on the unaudited pro forma income statement for the year ended December 31, 2009 as being indicative of the historical results of operations that would have been achieved had the business combination been consummated as of January 1, 2009. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with our historical consolidated financial statements and accompanying notes, the historical financial statements of Ad Infuse and the accompanying notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," each included elsewhere in this prospectus.


 
  Year Ended
December 31, 2009
 
 
  (in thousands, except
per share amounts)

 

Revenue

  $ 90,451  

Income from operations

    8,932  

Net income

    3,928  

Net income attributable to Velti

    4,119  

Basic earnings per share attributable to Velti(1)

  $ 0.12  

Diluted earnings per share attributable to Velti(1)

  $ 0.11  


(1)
See Note 19 to notes to consolidated financial statements included on page F-55 and F-56 of this prospectus for an explanation of the method used to calculate basic and diluted earnings per share and pro forma earnings per share.

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Risk Factors

Investing in our ordinary shares involves a high degree of risk. You should carefully consider the risks described below, which we believe are the material risks of our business, our industry and this offering, before making an investment decision. If any of the following risks actually occurs, our business, financial condition and operating results could be harmed. In that case, the trading price of the beneficial interests in our ordinary shares, and the underlying ordinary shares, could decline and you might lose all or part of your investment in our ordinary shares. In assessing these risks, you should also refer to the other information contained in this prospectus, including our consolidated financial statements and the related notes thereto.

Risks Related to Our Business

Because of our revenue recognition policies, revenue may not be recognized in the period in which we contract with a customer, and downturns or upturns in sales may not be reflected in our operating results until future periods.

Our SaaS revenue consists of usage-based fees recognized ratably over the period of the agreement and performance-based fees recognized as the transaction is completed, specific quantitative goals are met or a performance milestone is achieved. As a result, we may be unable to rapidly increase our revenue through additional sales in any period, as revenue for performance-based fees will only be recognized if and when quantitative goals are met or a milestone is achieved. Revenue from our managed service arrangements is recognized either as the services are rendered for our time and material contracts or, for fixed price contracts, ratably over the term of the contract when accepted by the customer. Our license and software revenue is recognized when the license is delivered and on a percentage of completion basis for our services to customize and implement a specific software solution.

Because of these accounting policies, revenue generated during any period may result from agreements entered into during a previous period. A reduction in sales in any period therefore may not significantly reduce our revenue for that period, but could negatively affect revenue in future periods. In particular, if such a reduction were to occur in our fourth quarter, it may be more difficult for us to significantly increase our customer sales in time to reduce the impact in future periods, as we have historically entered into a significant portion of our new, or expanded the scope of existing, customer agreements during the fourth quarter. In addition, since operating costs are generally recognized as incurred, we may be unable to quickly adjust our cost structure to match the impact of the reduction in revenue in future periods. Accordingly, the effect of significant downturns in our sales may not be fully reflected in our results of operations until future periods.

We have in the past and may in the future experience deficiencies, including material weaknesses, in our internal control over financial reporting. Our business and our share price may be adversely affected if we do not remediate these material weaknesses or if we have other weaknesses in our internal controls.

With respect to fiscal years 2009, 2008 and 2007, we identified control deficiencies, including several material weaknesses, in our internal control over financial reporting. Two of these material weaknesses related to our period end financial statement close process resulting from controls over the use of spreadsheets and controls over analysis of significant estimates. As a result of these material weaknesses, together with deficiencies in our treasury management processes, in the six months ended June 30, 2010 we identified gaps in our internal control over financial reporting resulting in changes to our financial results as originally disclosed in our press release issued on September 30, 2010. In our press release, our balance sheets incorrectly understated by $3.0 million our current portion of long-term debt and short-term financing, accumulated deficit and accumulated other comprehensive income (loss). In addition, our consolidated statements of operations did not include $2.8 million in net losses attributable to gain (loss)

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from foreign currency transactions, resulting in a change to our income (loss) before income taxes, investment in associates and non-controlling interests, net income (loss) and net income (loss) per share.

The other two material weaknesses related to our revenue recognition process and cover financial management review of key revenue arrangements in order to determine proper accounting treatment and knowledge of our finance staff regarding accounting standards governing revenue recognition. In addition, we noted a significant deficiency in the administration of our employee equity awards relating to the documentation and administration of our equity awards. We are in the process of remediating each of these weaknesses.

We have taken steps to remediate these material weaknesses as follows:

    during the fourth quarter of 2009 and in 2010, we recruited and hired additional accounting staff with technical expertise to ensure the proper application of accounting principles generally accepted in the United States, or U.S. GAAP, in the area of revenue recognition, including a new, U.S.-based chief financial officer and a new, U.S.-based global controller, and expect to continue to expand our finance and administrative staff globally and to enhance our enterprise resource planning systems;

    we are implementing revised policies and procedures and enhancing our review of complex revenue transactions to ensure consistent application of U.S. GAAP and enhanced internal control over financial reporting;

    we are implementing new cash management and treasury processes and procedures;

    we are increasing the level of review of journal entries and tightening controls over our approval processes; and

    we are increasing the level of preparation and review of our financial statements, and in connection therewith, we are implementing additional control procedures as part of our quarter and year-end close processes as well as adding resources in connection with our review of key financial estimates, including accounts receivable, allowance for doubtful accounts, share-based compensation expense, indebtedness and treasury processes and tax estimates.

In addition, we are revising our administrative procedures relating to our equity awards granting practices.

The weaknesses identified in fiscal 2008 and 2007 resulted in part from our restatement of our consolidated balance sheets as of December 31, 2008 and 2007 and the related consolidated statements of income for the years ended December 31, 2008 and 2007 as prepared in accordance with International Financial Reporting Standards or IFRS. These restatements reflect adjustments to revenue, the deferral of government grant income, and share-based compensation, in accordance with applicable accounting guidance under IFRS. While we have made efforts to improve our accounting policies and procedures, we may experience additional deficiencies and additional weaknesses may be identified, or there may be a recurrence of the weakness in the six months ended June 30, 2010 identified above. If material weaknesses or deficiencies in our internal controls exist and go undetected, our financial statements could contain material misstatements that, when discovered in the future could cause us to fail to meet our future reporting obligations and cause the price of our ordinary shares to decline.

Acquisitions or investments may be unsuccessful and may divert our management's attention and consume significant resources.

We have made several investments and acquisitions in recent years, including the acquisition of Ad Infuse, Inc. in May 2009, Media Cannon, Inc. in June 2010 and Mobclix, Inc. in September 2010. We intend to evaluate additional acquisitions or make investments in other businesses, or acquire individual products and technologies. Any future acquisition or investment may require us to use significant amounts of cash, issue potentially dilutive equity securities or incur debt. In addition, acquisitions involve numerous risks, any of which could harm our business, including:

    difficulties in integrating the operations, technologies, services and personnel of acquired businesses;

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    cultural challenges associated with integrating employees from the acquired company into our organization;

    ineffectiveness or incompatibility of acquired technologies or services;

    additional financing required to make contingent payments;

    potential loss of key employees of acquired businesses;

    inability to maintain the key business relationships and the reputations of acquired businesses;

    diversion of management's attention from other business concerns;

    inability to maintain our standards, controls, procedures and policies, which could affect our ability to receive an unqualified attestation from our independent accountants regarding management's required assessment of the effectiveness of our internal control structure and procedures for financial reporting;

    litigation for activities of the acquired company, including claims from terminated employees, customers, former shareholders or other third parties;

    in the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address the particular economic, currency, political and regulatory risks associated with specific countries;

    failure to successfully further develop the acquired technology; and

    increased fixed costs.

We may fail to realize some or all of the anticipated benefits of our acquisitions which may adversely affect our financial performance and the value of our ordinary shares.

On September 30, 2010, we completed the acquisition of Mobclix, Inc. following our acquisition in June 2010 of Media Cannon, Inc. and of Ad Infuse, Inc. in May 2009. We continue to integrate these acquired companies into our existing operations. These integrations have required and will continue to require significant efforts, including the coordination of future product development and sales and marketing efforts, as well as resources and management's time and efforts. The success of each of these acquisitions will depend, in part, on our ability to realize the anticipated benefits from combining their products and services into ours, and expanding our customer base by increasing the products and services we can provide to our existing and new customers as well as to the customers of the acquired companies. We also must retain key employees from the acquired companies, as well as retain and motivate our existing executives and other key employees. If we are not able to successfully combine the acquired businesses with our existing operations and integrate our respective operations, technologies and personnel within the anticipated time frame, or at all, the anticipated benefits of the acquisitions may not be realized fully or at all or may take longer to realize than expected and the value of our ordinary shares may be adversely affected. It is possible that the integration process could result in the loss of key employees and other senior management, result in the disruption of our business or adversely affect our ability to maintain relationships with customers, suppliers, distributors and other third parties, or to otherwise achieve the anticipated benefits of each acquisition.

Our days sales outstanding, or DSOs, may fluctuate significantly from quarter to quarter. Deterioration in DSOs results in a delay in the cash flows we generate from our customers, which could have a material adverse impact on our financial condition and the results of our operations.

The mobile advertising and marketing industry has historically been subject to seasonal fluctuations in demand, with a significant amount of the activity occurring in the second half of the year. In addition, a significant amount of our business is conducted in emerging markets. Typically payment terms in these regions are longer than payment terms in our other markets. These emerging markets have under-developed legal systems for securing debt and enforcing collection of debt. While we qualify customers that we do business with, their financial positions may change adversely over the longer time period given for payment.

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The effect of the seasonality in our business and the longer payment terms, combined with differences in the timing of invoicing and revenue recognition, has in the past and may in the future result in an increase in our DSOs, such as the recent increase in DSOs in the quarter ended September 30, 2010. Any increase in our DSOs could have a material adverse impact on our cash flows and working capital, as well as on our financial condition and the results of our operations.

Our sales efforts require significant time and effort and could hinder our ability to expand our customer base and increase revenue.

Attracting new customers requires substantial time and expense and we cannot assure that we will be successful in establishing new relationships, or maintaining or advancing our current relationships. For example, it may be difficult to identify, engage and market to customers who do not currently perform mobile marketing or advertising or are unfamiliar with our current services or platform. Further, many of our customers typically require input from one or more internal levels of approval. As a result, during our sales effort, we must identify multiple people involved in the purchasing decision and devote a sufficient amount of time to presenting our products and services to those individuals. The newness and complexity of our services, including our software as a service model, often requires us to spend substantial time and effort assisting potential customers in evaluating our products and services including providing demonstrations and benchmarking against other available technologies. This process can be costly and time consuming. We expect that our sales process will become less burdensome as our products and services become more widely known and used. However, if this change does not occur, we will not be able to expand our sales effort as quickly as anticipated and our sales will be adversely affected.

We may not be able to enhance our mobile marketing and advertising platform to keep pace with technological and market developments, or to remain competitive against potential new entrants in our markets.

The market for mobile marketing and advertising services is emerging and is characterized by rapid technological change, evolving industry standards, frequent new product introductions and short product life cycles. Our new platform, Velti mGage, or future solutions we may offer, may not be acceptable to marketers and advertisers. To keep pace with technological developments, satisfy increasing customer requirements and achieve acceptance of our marketing and advertising campaigns, we will need to enhance our current mobile marketing solutions and continue to develop and introduce on a timely basis new, innovative mobile marketing services offering compatibility, enhanced features and functionality on a timely basis at competitive prices. Our inability, for technological or other reasons, to enhance, develop, introduce and deliver compelling mobile marketing services in a timely manner, or at all, in response to changing market conditions, technologies or customer expectations could have a material adverse effect on our operating results or could result in our mobile marketing and advertising platform becoming obsolete. Our ability to compete successfully will depend in large measure on our ability to maintain a technically skilled development and engineering staff and to adapt to technological changes and advances in the industry, including providing for the continued compatibility of our mobile marketing and advertising platform with evolving industry standards and protocols. In addition, as we believe the mobile marketing market is likely to grow substantially, other companies which are larger and have significantly more capital to invest than us may emerge as competitors. For example, in May 2010, Google, Inc. acquired Admob, Inc. Similarly, in January 2010, Apple, Inc. acquired Quattro Wireless, Inc. New entrants could seek to gain market share by introducing new technology or reducing pricing. This may make it more difficult for us to sell our products and services, and could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses or the loss of market share or expected market share, any of which may significantly harm our business, operating results and financial condition.

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We do not have multi-year agreements with many of our customers and may be unable to retain key customers, attract new customers or replace departing customers with customers that can provide comparable revenue.

Our success requires us to maintain and expand our current, and develop new, customer relationships. Most of our contracts with our customers do not obligate them to long-term purchasing of our services. We cannot assure you that our customers will continue to use our products and services or that we will be able to replace, in a timely or effective manner, departing customers with new customers that generate comparable revenue. Further, we cannot assure you that we will continue to generate consistent amounts of revenue over time. For the nine months ended September 30, 2010, two of our customers collectively accounted for 30% of our total revenue, although one of these customers represents multiple contracts with multiple subsidiaries under common control of an ultimate parent entity, and the second represents a contract for a campaign that ran from October 2009 through April 2010. See the disclosure of customer concentration on page 55 for further information. If a major customer represents a significant portion of our business, the decision by such customer to materially reduce or to cease purchasing our products and services may cause our revenue to be adversely affected. Additionally, we expect that a limited number of customers may continue to account for a significant portion of our business, and the loss of, or material reduction in, their use of our products or services could decrease our revenue and adversely affect our business. Further, our failure to develop and sustain long-term relationships with our customers in general will likely materially affect our operating results.

Our customer contracts lack uniformity and often are complex, which subjects us to business and other risks.

Our customers include some of the largest wireless carriers which have substantial purchasing power and negotiating leverage. As a result, we typically negotiate contracts on a customer-by-customer basis and our contracts lack uniformity and are often complex. If we are unable to effectively negotiate, enforce and account and bill in an accurate and timely manner for contracts with our key customers, our business and operating results may be adversely affected. In addition, we could be unable to timely recognize revenue from contracts that are not managed effectively and this would further adversely impact our financial results.

We have contractual indemnification obligations to some of our customers. If we are required to fulfill our indemnification obligations relating to third party content or operating systems that we provide to our customers, we intend to seek indemnification from our suppliers, vendors and content providers to the full extent of their responsibility. Even if the agreement with such supplier, vendor or content provider contains an indemnity provision, it may not cover a particular claim or type of claim or may be limited in amount or scope. As a result, we may not have sufficient indemnification from third parties to cover fully the amounts or types of claims that might be made against us. Any significant indemnification obligation to our customers could have a material adverse effect on our business, operating results and financial condition.

The global nature of our business subjects us to additional costs and risks that can adversely affect our operating results.

We have offices in 8 countries and we derive a substantial majority of our revenue from, and have a significant portion of our operations, outside of the U.S. Compliance with international and U.S. laws and regulations that apply to our international operations increases our cost of doing business. These laws and regulations include U.S. laws such as the Foreign Corrupt Practices Act, and local laws which also prohibit corrupt payments to governmental officials, data privacy requirements, labor relations laws, tax laws, anti-competition regulations, import and trade restrictions and export requirements. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or our employees, and prohibitions on the conduct of our business. Any such violations could result in prohibitions on our ability to offer our products and services in one or more countries, could delay or prevent potential acquisitions and

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could also materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, our business and our operating results. Our success depends, in part, on our ability to anticipate these risks and manage these difficulties. We monitor our international operations and investigate allegations of improprieties relating to transactions and the way in which such transactions are recorded. Where circumstances warrant, we provide information and report our findings to government authorities, but no assurance can be given that action will not be taken by such authorities.

We are also subject to a variety of other risks and challenges in managing an organization operating in various countries, including those related to:

    challenges caused by distance, language and cultural differences;

    general economic conditions in each country or region;

    fluctuations in currency exchange rates;

    regulatory changes;

    political unrest, terrorism and the potential for other hostilities;

    public health risks, particularly in areas in which we have significant operations;

    longer payment cycles and difficulties in collecting accounts receivable;

    overlapping tax regimes;

    our ability to repatriate funds held by our international subsidiaries at favorable tax rates;

    difficulties in transferring funds from certain countries; and

    reduced protection for intellectual property rights in some countries.

If we are unable to manage the foregoing international aspects of our business, our operating results and overall business will be significantly and adversely affected.

Our services are provided on mobile communications networks that are owned and operated by third parties who we do not control and the failure of any of these networks would adversely affect our ability to deliver our services to our customers.

Our mobile marketing and advertising platform is dependent on the reliability of mobile operators who maintain sophisticated and complex mobile networks. Such mobile networks have historically, and particularly in recent years, been subject to both rapid growth and technological change. If the network of a mobile operator with which we are integrated should fail, including because of new technology incompatibility, the degradation of network performance under the strain of too many mobile consumers using it, or a general failure from natural disaster or political or regulatory shut-down, we will not be able provide our services to our customers through such mobile network. This in turn, would impair our reputation and business, potentially resulting in a material, adverse effect on our financial results.

If our mobile marketing and advertising services platform does not scale as anticipated, our business will be harmed.

We must be able to continue to scale to support potential ongoing substantial increases in the number of users in our actual commercial environment, and maintain a stable service infrastructure and reliable service delivery for our mobile marketing and advertising campaigns. In addition, we must continue to expand our service infrastructure to handle growth in customers and usage. If our mobile marketing and advertising platform, Velti mGage, does not efficiently and effectively scale to support and manage a substantial increase in the number of users while maintaining a high level of performance, the quality of our services could decline and our business will be seriously harmed. In addition, if we are unable to secure data center space with appropriate power, cooling and bandwidth capacity, we may not be able to efficiently and effectively scale our business to manage the addition of new customers and overall mobile marketing campaigns.

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The success of our business depends, in part, on wireless carriers continuing to accept our customers' messages for delivery to their subscriber base.

We depend on wireless carriers to deliver our customers' messages to their subscriber base. Wireless carriers often impose standards of conduct or practice that significantly exceed current legal requirements and potentially classify our messages as "spam," even where we do not agree with that conclusion. In addition, the wireless carriers use technical and other measures to attempt to block non-compliant senders from transmitting messages to their customers; for example, wireless carriers block short codes or Internet Protocol addresses associated with those senders. There can be no guarantee that we, or short codes registered to us, will not be blocked or blacklisted or that we will be able to successfully remove ourselves from those lists. Although our services typically require customers to opt-in to a campaign, minimizing the risk that our customers' messages will be characterized as spam, blocking of this type could interfere with our ability to market products and services of our customers and communicate with end users and could undermine the effectiveness of our customers' marketing campaigns. To date we have not experienced any material blocking of our messages by wireless carriers, but any such blocking could have an adverse effect on our business and results of operations.

We depend on third party providers for a reliable Internet infrastructure and the failure of these third parties, or the Internet in general, for any reason would significantly impair our ability to conduct our business.

We outsource all of our data center facility management to third parties who host the actual servers and provide power and security in multiple data centers in each geographic location. These third party facilities require uninterrupted access to the Internet. If the operation of our servers is interrupted for any reason, including natural disaster, financial insolvency of a third party provider, or malicious electronic intrusion into the data center, our business would be significantly damaged. As has occurred with many Internet-based businesses, on occasion in the past, we have been subject to "denial-of-service" attacks in which unknown individuals bombarded our computer servers with requests for data, thereby degrading the servers' performance. While we have historically been successful in relatively quickly identifying and neutralizing these attacks, we cannot be certain that we will be able to do so in the future. If either a third party facility failed, or our ability to access the Internet was interfered with because of the failure of Internet equipment in general or we become subject to malicious attacks of computer intruders, our business and operating results will be materially adversely affected.

Several of our larger customers require us to maintain specified levels of service commitments and failure to meet these levels would both adversely impact our customer relationship as well as our overall business.

Many of our customers require us to contractually commit to maintain specified levels of customer service under agreements commonly referred to as service level agreements. In particular, because of the importance that mobile consumers in general attach to the reliability of a mobile network, mobile operators are especially known for their rigorous service level requirements. We are a rapidly growing company and, although to date we have not experienced any significant interruption of service, if we were to be unable to meet our contractually committed service level obligations, we would both be subject to fees, penalties, civil liability as well as adverse reputational consequences. To date we have not had to pay any material penalties for failure to meet service level commitments. We recognize these penalties, if and when incurred, as a reduction to revenue. These in turn would materially harm our business.

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Some of our programs are partially supported by government grants, which may be reduced, withdrawn, delayed or reclaimed.

We have received two separate grants from European Union programs administered by the Government of Greece in order to aid our technology development efforts, and have been approved for a third grant. One of these grants was for a total of approximately $4.5 million that has been paid in full to us. The other grant is for a total of approximately $8.5 million, of which we have received to date one-half of the total grant amount. In 2009, we applied for a third grant and received acceptance of eligibility for up to an additional $12.0 million over four years. Under the terms of these grants, we are required to list these grants under a separate, specific reserve account on our balance sheets that we maintain for our Greek subsidiary under generally accepted accounting principles in Greece. If we fail to maintain this accounting treatment for five years following the final disbursement by the Greek government under each respective grant, we will be required to refund the entire amount of such grant. If we fail to maintain this accounting treatment between the fifth and tenth anniversaries of receiving the final disbursement under each grant, we will be required to pay a tax penalty. We have to date been in compliance with this requirement and do not anticipate being unable to remain in compliance for the duration of the requirement. However, in the event that we are unable to remain in compliance, a payment of refund or tax penalty would adversely affect our operating results. Further, were the Government of Greece to abrogate its commitment to provide the final disbursement of funds for the second grant, our development efforts and ability to meet our timing expectations for new marketing and advertising services would be adversely affected.

We have established two joint ventures and have made a significant investment in a third party, over each of which we have limited control and which may limit our growth in important markets for our services.

In July 2007, we established a joint venture called Ansible Mobile, LLC, or Ansible, with The Interpublic Group of Companies, Inc., or IPG, a publicly-traded multi-national advertising firm whereby we owned one-half of the membership interest in Ansible. We reached an agreement with IPG to terminate Ansible effective as of July 1, 2010. As a result, we have entered into new agreements with certain of IPG's individual operating agencies, and continue to pursue discussions regarding direct relationships with other IPG operating agencies. The termination had no material financial impact on our results of operations for the nine months ended September 30, 2010. In future periods, as a result of this termination, we will no longer incur our share of the losses incurred by Ansible, which historically represented losses to us of on average approximately $1.5 million per year.

In January 2009, we established a mobile marketing joint venture with HT Media, India's second largest media group, called HT Mobile Solutions. We own 35% of the equity of HT Mobile Solutions. HT Mobile Solutions has a right of first refusal with respect to our entering into any other business agreement with any third party in India through November 2011.

In April 2008, we purchased shares of Series A Preferred Stock as well as a note convertible into, and warrants to purchase, shares of Series A Preferred Stock of the parent company of a Chinese mobile marketing firm called Cellphone Ads Serving E-Exchange, or CASEE. We have converted the note and own 33% of the outstanding equity of the parent company. We have the option to increase our interest in the parent company to 50% on a fully-diluted basis following the exercise of the warrants.

HT Mobile Solutions, our India joint venture, offers our technology and expertise to brands and advertising agencies in India, enabling us to expand our customer reach. Our investment in CASEE provides us local implementation services and entry to doing business in China. These strategic relationships, however, involve inherent risk and uncertainty and we may be unable to effectively influence operations of either entity, or of our other wholly-owned investments. There can be no assurance CASEE, HT Mobile Solutions or any of our other non-wholly owned subsidiaries with whom we do business will continue their relationships with us in the future or that we will be able to pursue our strategies with respect to our non wholly-owned subsidiaries, associates and joint ventures and the markets in which they operate. Furthermore, our joint

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ventures and strategic partners may (i) have economic or business interests or goals that are inconsistent with ours; (ii) take actions contrary to our policies or objectives; (iii) undergo a change of control; (iv) experience financial and other difficulties; or (v) be unable or unwilling to fulfill their obligations under the joint ventures, which may affect our financial conditions or results of operations.

We will need to manage the allocation of our business between our strategic investments and the other portions of our business. With respect to HT Mobile Solutions, we are contractually prevented from pursuing any separate business in India, and thus, any disagreement among the parties could reduce our ability to penetrate this market. If we fail to effectively manage and influence our strategic partnerships and joint ventures, our forecasts for growth in significant markets for our services would be materially hampered and our revenue and profits would be materially adversely affected.

Failure to adequately manage our growth may seriously harm our business.

We operate in an emerging technology market and have experienced, and may continue to experience, significant growth in our business. If we do not effectively manage our growth, the quality of our products and services may suffer, which could negatively affect our brand and operating results. Our growth has placed, and is expected to continue to place, a significant strain on our managerial, administrative, operational and financial resources and our infrastructure. Our future success will depend, in part, upon the ability of our senior management to manage growth effectively. This will require us to, among other things:

    implement additional management information systems;

    further develop our operating, administrative, legal, financial and accounting systems and controls;

    hire additional personnel;

    develop additional levels of management within our company;

    locate additional office space in various countries; and

    maintain close coordination among our engineering, operations, legal, finance, sales and marketing and customer service and support organizations.

Moreover, as our sales increase, we may be required to concurrently deploy our services infrastructure at multiple additional locations or provide increased levels of customization. As a result, we may lack the resources to deploy our services on a timely and cost-effective basis. Failure to accomplish any of these requirements would seriously harm our ability to deliver our mobile marketing and advertising platform in a timely fashion, fulfill existing customer commitments or attract and retain new customers.

We may be required to reduce our prices to compete successfully, or we may incur increased or unexpected costs, which could have a material adverse effect on our operating results and financial condition.

The intensely competitive market in which we conduct our business may require us to reduce our prices, which could negatively impact our operating results. Our market is highly fragmented with numerous companies providing one or more competitive offerings to our marketing and advertising platform. New entrants seeking to gain market share by introducing new technology, products or services may make it more difficult for us to sell our products and services, and could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses or the loss of market share or expected market share, any of which may significantly harm our business, operating results and financial condition.

Moreover, we may experience cost increases or unexpected costs which may also negatively impact our operating results, including increased or unexpected costs related to:

    the implementation of new data centers and expansion of existing data centers, as well as increased data center rent, hosting and bandwidth costs;

    the replacement of aging equipment;

    acquiring key technologies to support or expand our mobile marketing services solution; and

    acquiring new technologies to comply with newly implemented regulations.

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Any unanticipated costs associated with the foregoing items would have a material adverse effect on our business, operating results and financial condition.

Mergers or other strategic transactions by our competitors or mobile operator partners could weaken our competitive position or reduce our revenue.

If two or more of our competitors were to merge or partner, the change in the competitive landscape could adversely affect our ability to compete effectively. In addition, consolidation could result in new, larger entrants in the market. For example, in May 2010, Google, Inc. acquired Admob, Inc. Similarly, in January 2010, Apple, Inc. acquired Quattro Wireless, Inc. Although neither Admob or Quattro Wireless directly compete with us, the transactions are indicative of the level of interest among potential acquirers in the mobile marketing and advertising industry. Our direct competitors may also establish or strengthen co-operative relationships with their mobile operator partners, sales channel partners or other parties with whom we have strategic relationships, thereby limiting our ability to promote our products and services. Disruptions in our business caused by these events could reduce revenue and adversely affect our business, operating results and financial condition.

The mobile advertising or marketing market may deteriorate or develop more slowly than expected, any of which could harm our business.

If the market for mobile marketing and advertising deteriorates, or develops more slowly than we expect, our business could suffer. Our future success is highly dependent on an increase in the use of mobile communications, the commitment of advertisers and marketers to mobile communications as an advertising and marketing medium, the willingness of our potential clients to outsource their mobile advertising and marketing needs, and our ability to sell our services to advertising agencies and brands. The mobile advertising and marketing market is relatively new and rapidly evolving. As a result, future demand and market acceptance for mobile marketing and advertising is uncertain. Many of our current or potential clients have little or no experience using mobile communications for advertising or marketing purposes and have allocated only a limited portion of their advertising or marketing budgets to mobile communications advertising or marketing, and there is no certainty that they will continue to allocate more funds in the future, if any. Also, we must compete with traditional advertising media, including television, print, radio and outdoor advertising, for a share of our clients' total advertising budgets.

Businesses, including current and potential clients, may find mobile advertising or marketing to be less effective than traditional advertising media or marketing methods or other technologies for promoting their products and services, and therefore the market for mobile marketing and advertising may deteriorate or develop more slowly than expected. These challenges could significantly undermine the commercial viability of mobile advertising and seriously harm our business, operating results and financial condition.

Our earnings may be adversely affected by fluctuations in foreign currency values.

The majority of the value of our revenue transactions is conducted using the euro, while the remaining is conducted using the U.S. dollar and currencies of other countries, and we incur costs in euro, British pound sterling, the U.S. dollar and other local currencies. Changes in the relative value of major currencies, particularly the U.S. dollar, euro and British pound sterling, can significantly affect revenue and our operating results. In 2009, approximately 75% of our revenue was payable in euros and as of September 30, 2010, approximately 72% of our revenue was payable in euros, although we expect this concentration to decrease over time. This will likely result in euros comprising a smaller percentage of our revenue by the end of 2010 as we continue to increase sales to customers in geographies outside of Europe, with revenue payable in U.S. dollars or other currencies, as well as increase the number of contracts with European customers with revenue payable in U.S. dollars. As a majority of our costs and expenses are incurred in euros, any devaluation of the euro will positively impact our financial statements as reported in U.S. dollars, and any decline in the value of the dollar compared to the euro will result in

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foreign currency translation costs incurred by us. Unless the euro materially fluctuates, however, we do not expect fluctuations of the euro to have a material adverse effect on our results of operations or financial condition and the recent devaluation of the euro has not materially adversely impacted our financial results. Our foreign currency transaction gains and losses are charged against earnings in the period incurred. We currently do not enter into foreign exchange forward contracts to hedge certain transactions in major currencies and even if we wished to do so in the future, we may not be able, or it may not be cost-effective, to enter into contracts to hedge our foreign currency exposure.

Our geographically dispersed and historically rapidly growing business involves inherently complex accounting which if we fail to manage efficiently could adversely impact our financial reporting and business.

Since our inception, we have operated campaigns in over 30 countries and we have offices in 8 countries. We must maintain internal accounting systems to quickly and accurately track our financial performance, including our complex revenue transactions. Further, because of the rapid growth of our company, many of our employees who work in the finance function have joined us only relatively recently. If we are unable to efficiently manage our accounting systems, our financial results could be materially misstated which in turn would impact both our financial reporting as well as have adverse reputational effects on our business.

We depend on the services of key personnel to implement our strategy. If we lose the services of our key personnel or are unable to attract and retain other qualified personnel, we may be unable to implement our strategy.

We believe that the future success of our business depends on the services of a number of key management and operating personnel, including Alex Moukas, our chief executive officer, Chris Kaskavelis, our chief operating officer, Sally J. Rau, our chief administrative officer, general counsel and corporate secretary, Menelaos Scouloudis, our chief commercial officer, and Wilson W. Cheung, our chief financial officer. We have at-will employment relationships with all of our management and other employees, and we do not maintain any key-person life insurance policies. Some of these key employees have strong relationships with our customers and our business may be harmed if these employees leave us. The loss of members of our key management and certain other members of our operating personnel could materially adversely affect our business, operating results and financial condition.

In addition, our ability to manage our growth depends, in part, on our ability to identify, hire and retain additional qualified employees, including a technically skilled development and engineering staff. We face intense competition for qualified individuals from numerous technology, marketing and mobile software and service companies. Competition for qualified personnel is particularly intense in many of the large, international metropolitan markets in which we have offices, including for example, London, New York and San Francisco. We require a mix of highly talented engineers as well as individuals in sales and support who are familiar with the marketing and advertising industry. In addition, new hires in sales positions require significant training and may, in some cases, take more than a year before they achieve full productivity. Our recent sales force hires and planned hires may not become as productive as we would like, and we may be unable to hire sufficient numbers of qualified individuals in the future in the markets where we do business. Further, given the rapid pace of our expansion to date, we may be unable to attract and retain suitably qualified individuals who are capable of meeting our growing, creative, operational and managerial requirements, or may be required to pay increased compensation in order to do so. If we are unsuccessful in attracting and retaining these key personnel, our ability to operate our business effectively would be negatively impacted and our business, operating results and financial condition would be adversely affected.

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We may need to raise additional capital to grow our business, and we may not be able to raise capital on terms acceptable to us or at all.

The operation of our business and our efforts to grow our business further will require significant cash outlays and commitments. We intend to use a portion of the proceeds that we raise through this equity offering to repay all of our outstanding debt. Without including the expected proceeds from this equity offering, we believe that our existing working capital and borrowings available under our loan agreements will be sufficient to fund our working capital requirements, capital expenditures and operations for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and it is possible that we could utilize our available financial resources sooner than we currently expect. The timing and amount of our cash needs may vary significantly depending on numerous factors, including but not limited to:

    market acceptance of our mobile marketing and advertising services;

    the need to adapt to changing technologies and technical requirements;

    the need to adapt to changing regulations requiring changes to our processes or platform; and

    the existence of opportunities for expansion.

If our existing working capital, borrowings available under our existing loan agreements and the net proceeds from this offering are not sufficient to meet our cash requirements, we will need to seek additional capital, potentially through debt, or other equity financings, to fund our growth. We may not be able to raise cash on terms acceptable to us or at all. Financings, if available, may be on terms that are dilutive to our shareholders, and the prices at which new investors would be willing to purchase our securities may be lower than the current price of our ordinary shares. The holders of new securities may also receive rights, preferences or privileges that are senior to those of existing holders of our ordinary shares. If new sources of financing are required but are insufficient or unavailable, we would be required to modify our growth and operating plans to the extent of available funding, which could harm our ability to grow our business.

We may not be able to continue to grow through acquisitions of, or investments in, other companies.

Our business has expanded, in part, as a result of acquisitions or investments in other companies. We may continue to acquire or make investments in other complementary businesses, products, services or technologies as a means to grow our business. We cannot assure you that we will be able to identify other suitable acquisitions or investment candidates. Even if we do identify suitable candidates, we cannot assure you that we will be able to make other acquisitions or investments on commercially acceptable terms, if at all. Even if we agree to purchase a company, technology or other assets, we cannot assure you that we will be successful in consummating the purchase. If we are unable to continue to expand through acquisitions, our revenue may decline or fail to grow.

Charges to earnings resulting from acquisitions may adversely affect our operating results.

For any business combination that we consummate, we will recognize the identifiable assets acquired, the liabilities assumed and any non-controlling interest in acquired companies generally at their acquisition date fair values and, in each case, separately from goodwill. Goodwill as of the acquisition date is measured as the excess amount of consideration transferred, which is also generally measured at fair value, and the net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed. Our estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain. Goodwill is tested for impairment on an annual basis and whenever there is an indication that goodwill may be impaired, relying on a number of factors including operating results, business plans and future cash flows. Impairment occurs when the carrying amount of a cash generating unit including the goodwill, exceeds the estimated recoverable amount of the cash generating unit. The recoverable amount of a cash generating unit is the higher of its fair value less cost to sell and its value-in-use. Value-in-use is the present value of future cash flows expected to be derived from the cash generating unit, based upon a

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discount rate estimated by management. After we complete an acquisition, the following factors could result in material charges and adversely affect our business, operating results and financial condition and may adversely affect our cash flows:

    costs incurred to combine the operations of companies we acquire, such as employee retention; redeployment or relocation expenses;

    impairment of goodwill or intangible assets;

    amortization of intangible assets acquired;

    a reduction in the useful lives of intangible assets acquired;

    identification of assumed contingent liabilities after the measurement period (generally up to one year from the acquisition date) has ended;

    charges to our operating results to eliminate certain duplicative pre-merger activities, to restructure our operations or to reduce our cost structure;

    charges to our operating results due to changes in deferred tax asset valuation allowances and liabilities related to uncertain tax positions after the measurement period has ended;

    charges to our operating results resulting from expenses incurred to effect the acquisition; and

    charges to our operating results due to the expensing of certain equity awards assumed in an acquisition.

Substantially all of these costs will be accounted for as expenses that will decrease our net income and earnings per share for the periods in which those costs are incurred. Charges to our operating results in any given period could differ substantially from other periods based on the timing and size of our future acquisitions and the extent of integration activities.

Our business involves the use, transmission and storage of confidential information, and the failure to properly safeguard such information could result in significant reputational harm and monetary damages.

Our business activities involve the use, transmission and storage of confidential information. We believe that we take reasonable steps to protect the security, integrity and confidentiality of the information we collect and store, but there is no guarantee that inadvertent or unauthorized disclosure will not occur or that third parties will not gain unauthorized access to this information despite our efforts. If such unauthorized disclosure or access does occur, we may be required, under existing and proposed laws, to notify persons whose information was disclosed or accessed. We may also be subject to claims of breach of contract for such disclosure, investigation and penalties by regulatory authorities and potential claims by persons whose information was disclosed. The unauthorized disclosure of information may result in the termination of one or more of our commercial relationships and/or a reduction in customer confidence and usage of our services, which would have a material adverse effect on our business, operating results and financial condition.

Activities of our customers could damage our reputation or give rise to legal claims against us.

Our customers' promotion of their products and services may not comply with federal, state and local laws, including, but not limited to, laws and regulations relating to mobile communications. Failure of our customers to comply with federal, state or local laws or our policies could damage our reputation and adversely affect our business, operating results or financial condition. We cannot predict whether our role in facilitating our customers' marketing activities would expose us to liability under these laws. Any claims made against us could be costly and time-consuming to defend. If we are exposed to this kind of liability, we could be required to pay substantial fines or penalties, redesign our business methods, discontinue some of our services or otherwise expend resources to avoid liability.

We may be held liable to third parties for content in the advertising we deliver on behalf of our customers if the music, artwork, text or other content involved violates the copyright, trademark or other intellectual

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property rights of such third parties or if the content is defamatory, deceptive or otherwise violates applicable laws or regulations. Any claims or counterclaims could be time consuming, result in costly litigation or divert management's attention.

We operate in an industry with extensive intellectual property litigation. Claims of infringement against us may cause our business, financial condition and operating results to suffer.

Our success depends, in part, upon us and our customers not infringing upon intellectual property rights owned by others and being able to resolve claims of intellectual property infringement without major financial expenditures or adverse consequences. The mobile telecommunications industry generally is characterized by extensive intellectual property litigation. Although our technology is relatively new and our industry is rapidly evolving, many participants that own, or claim to own, intellectual property historically have aggressively asserted their rights. For example, we recently received a letter on behalf of one of our customers notifying us that the customer had received a letter from a third party which alleged that certain of our customer's applications infringed the patent rights of the third party. In turn, our customer has alleged that we are obligated to indemnify our customer relating to this matter as the claim allegedly relates to services that we provide to the customer. We are currently investigating the related issues in order to determine how we wish to respond to the matter. We cannot determine with certainty whether this or any other existing or future third party intellectual property rights would require us to alter our technologies, obtain licenses or cease certain activities.

Future litigation may be necessary to defend ourselves or our customers by determining the scope, enforceability and validity of third party proprietary rights or to establish our proprietary rights. Some of our competitors have substantially greater resources than we do and are able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time than we could. In addition, patent holding companies that focus solely on extracting royalties and settlements by enforcing patent rights may target us. Regardless of whether claims that we are infringing patents or other intellectual property rights have any merit, these claims are time-consuming and costly to evaluate and defend and could:

    adversely affect our relationships with our current or future customers;

    cause delays or stoppages in providing our mobile marketing services;

    divert management's attention and resources;

    require technology changes to our platform that would cause us to incur substantial cost;

    subject us to significant liabilities;

    require us to enter into royalty or licensing agreements on unfavorable terms; and

    require us to cease certain activities.

In addition to liability for monetary damages against us, which may be trebled and may include attorneys' fees, or, in certain circumstances, our customers, we may be prohibited from developing, commercializing or continuing to provide certain of our mobile marketing services unless we obtain licenses from the holders of the patents or other intellectual property rights. We cannot assure you that we will be able to obtain any such licenses on commercially favorable terms, or at all. If we do not obtain such licenses, our business, operating results and financial condition could be materially adversely affected and we could, for example, be required to cease offering or materially alter our mobile marketing services in some markets.

If we are unable to protect our intellectual property and proprietary rights, our competitive position and our business could be harmed.

We rely primarily on a combination of patent laws, trademark laws, copyright laws, trade secrets, confidentiality procedures and contractual provisions to protect our proprietary technology. As of September 30, 2010, we did not have any issued patents but have 16 pending U.S. patent applications and three pending foreign patent applications on file. We are also in the process of filing additional corresponding foreign applications pursuant to the Patent Cooperation Treaty for our pending patent

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applications. However, any future patents that may issue may not survive a legal challenge to their scope, validity or enforceability, or provide significant protection for us. The failure of our patents, or our reliance upon copyright and trade secret laws to adequately protect our technology might make it easier for our competitors to offer similar products or technologies. In addition, patents may not issue from any of our current or any future applications.

Monitoring unauthorized use of our intellectual property is difficult and costly. Our efforts to protect our proprietary rights may not be adequate to prevent misappropriation of our intellectual property. Further, we may not be able to detect unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. Our competitors may also independently develop similar technology. In addition, the laws of many countries, including countries where we conduct business such as China and India, do not protect our proprietary rights to as great an extent as do the laws of European countries and the U.S. Further, the laws in the U.S. and elsewhere change rapidly, and any future changes could adversely affect us and our intellectual property. Any failure by us to meaningfully protect our intellectual property could result in competitors offering products that incorporate our most technologically advanced features, which could seriously reduce demand for our mobile marketing services. In addition, we may in the future need to initiate infringement claims or litigation. Litigation, whether we are a plaintiff or a defendant, can be expensive, time-consuming and may divert the efforts of our technical staff and managerial personnel, which could harm our business, whether or not such litigation results in a determination favorable to us. In addition, litigation is inherently uncertain, and thus we may not be able to stop our competitors from infringing upon our intellectual property rights.

Software and components that we incorporate into our mobile marketing services may contain errors or defects, which could have an adverse effect on our business.

We use a combination of custom and third party software, including open source software, in building our mobile marketing and advertising platform. Although we test certain software before incorporating it into our platform, we cannot guarantee that all of the third party technology that we incorporate will not contain errors, defects or bugs. We have recently launched Velti mGage, a new integrated platform, and we cannot guarantee it is free from errors, defects or bugs. If errors or defects occur in products and services that we utilize in our mobile marketing and advertising platform, it could result in damage to our reputation, lost revenue and diverted development resources.

Our use of open source software could limit our ability to provide our platform to our customers.

We have incorporated open source software into our platform. Although we closely monitor our use of open source software, the terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to provide our platform to our customers. In that event, we could be required to seek licenses from third parties in order to continue offering our platform, to re-engineer our platform or discontinue use of portions of the functionality provided by our platform, any of which could have a material adverse effect on our business, operating results or financial condition.

We use data centers to deliver our platform and services. Any disruption of service at these facilities could harm our business.

We host our services and serve all of our customers from seven data center facilities located around the world, including two in the U.K., and one in each of California, Texas, Greece, India and China. We do not control the operations at these third party facilities. All of these facilities are vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, terrorist attacks, power losses, telecommunications failures and similar events. They also could be subject to break-ins, computer viruses, denial of service attacks, sabotage, intentional acts of vandalism and other misconduct. The occurrence of a natural disaster

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or an act of terrorism, a decision to close the third party facilities without adequate notice or other unanticipated problems could result in lengthy interruptions in our services. Although we maintain off-site tape backups of our customers' data, we do not currently operate or maintain a backup data center for any of our services, which increases our vulnerability to interruptions or delays in our service. Interruptions in our services might harm our reputation, reduce our revenue, cause us to incur financial penalties, subject us to potential liability and cause customers to terminate their contracts.

We may have exposure to greater than anticipated tax liabilities.

Our future income taxes could be adversely affected by earnings being lower than anticipated in jurisdictions where we have lower statutory tax rates and higher than anticipated in jurisdictions where we have higher statutory tax rates, by changes in the valuation of our deferred tax assets and liabilities or changes in tax laws, regulations, accounting principles or interpretations thereof. For example, the Bailiwick of Jersey, our jurisdiction of organization, is currently conducting a review of its corporate tax regime in light of suggestions of some European Union member states that Jersey's corporate tax regime may be in conflict with the spirit of the European Union Code of Conduct on Business Taxation. While it is anticipated that any change in the Jersey corporate tax regime would not affect us due to our tax residency in Ireland, we cannot assure you that we would not be impacted by changes in Jersey tax laws and that such changes would not materially impact our effective tax rates. In addition, there is a risk that amounts paid or received under arrangements between our various international subsidiaries in the past and/or the future could be deemed for transfer tax purposes to be lower or higher than we previously recognized or expected to recognize. Our determination of our tax liability is always subject to review by applicable tax authorities. Any adverse outcome of such a review could have a negative effect on our operating results and financial condition. In addition, the determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment, and there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made.

Continuing unfavorable global economic conditions could have a material adverse effect on our business, operating results and financial condition.

The crisis in the financial and credit markets in the U.S., Europe and Asia has led to a global economic slowdown, with the economies of the U.S. and Europe showing significant signs of weakness. If the U.S., European or Asian economies weaken further or fail to improve, our customers may reduce or postpone their marketing and advertising spending significantly, which would materially adversely affect our business, operating results and financial condition.

Several credit rating agencies in recent months have downgraded the credit rating of Greek government debt, prompting additional investor concerns with respect to macro-economic issues. Were the Greek economy to be impacted by an economic crisis similar to those experienced in, for example, Iceland or Dubai, the ability of our business to have access to an efficient banking and financial system may be impaired. In addition, our ability to continue to receive grants under the EU programs administered by the Government of Greece to aid our technology development efforts could be jeopardized, which could materially adversely affect our business, operating results and financial condition.

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Risks Related to the Mobile Communications Industry

Changes in the wireless communications industry may adversely affect our business.

The wireless communications industry may experience significant growth and change which could adversely affect our business. Technologies such as 4G mobile broadband, Wi-Fi, worldwide interoperability for microwave access, or WiMAX, and voice over Internet protocol, or VOIP, are challenging existing wireless communication technologies. We believe we will be able to adapt to future technologies changes; however, in order to do so, we may require significant additional investment in order to keep pace with such technological innovation. This could have an adverse effect on our business, operating results and financial condition.

Changes in government regulation of the wireless communications industry may adversely affect our business.

Depending on the products and services that they offer, mobile data service providers are or may be subject to regulations and laws applicable to providers of mobile, Internet and VOIP services both domestically and internationally. In addition, the application of existing domestic and international laws and regulations relating to issues such as user privacy and data protection, defamation, pricing, advertising, taxation, gambling, sweepstakes, promotions, billing, real estate, consumer protection, accessibility, content regulation, quality of services, telecommunications, mobile, television and intellectual property ownership and infringement to wireless industry providers and platforms in many instances is unclear or unsettled. Further, the application to us of existing laws regulating or requiring licenses for certain businesses of our advertisers can be unclear.

It is possible that a number of laws and regulations may be adopted in the countries where we operate that may be inconsistent and that could restrict the wireless communications industry, including laws and regulations regarding lawful interception of personal data, taxation, content suitability, content marketing and advertising, copyright, distribution and antitrust. Furthermore, the growth and development of the market for electronic storage of personal information may prompt calls for more stringent consumer protection laws that may impose additional burdens, including costs on companies such as ours that store personal information. We anticipate that regulation of our industry will increase and that we will be required to devote legal and other resources to address this regulation. Changes in current laws or regulations or the imposition of new laws and regulations regarding the media and wireless communications industries may lessen the growth of wireless communications services and may materially reduce our ability to increase or maintain sales of our mobile marketing services. We may incur substantial liabilities for expenses necessary to investigate or defend such litigation or to comply with these laws and regulations, as well as potential substantial penalties for any failure to comply. Compliance with these laws and regulations may also cause us to change or limit our business practices in a manner adverse to our business.

We could be adversely affected if domestic or international legislation or regulations are expanded to require changes in our business practices or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect our business. For example, the USA PATRIOT Act provides certain rights to U.S. law enforcement authorities to obtain personal information in the control of U.S. persons and entities without notifying the affected individuals. If we are required to allocate significant resources to modify our mobile marketing and advertising platform to enable enhanced legal interception of the personal information that we transmit and store, our business, operating results and financial condition may be adversely affected. The U.S. Congress, the Federal Communications Commission and the Federal Trade Commission are presently examining the role of legislation, regulations and/or industry codes of conduct in controlling, or perhaps limiting, the collection and use of data. Changes in these standards could require us or our customers to adapt our business practices. Because many of the proposed laws or regulations are in early stages, we cannot yet determine the impact that these regulations may have on our business over time. We cannot assure you our practice with respect to these matters will be found sufficient to protect us from liability or adverse publicity in this area.

In addition, because various foreign jurisdictions have different laws and regulations concerning the storage and transmission of personal information, we may face unknown requirements that pose compliance challenges in new international markets that we seek to enter. Such variation could subject us to costs, liabilities or negative publicity that could impair our ability to expand our operations into some countries and therefore limit our future growth.

A number of studies have examined the health effects of mobile device use, and the results of some of the studies have been interpreted as evidence that mobile device use causes adverse health effects. The establishment of a link between the use of mobile devices and health problems, or any media reports suggesting such a link, could increase government regulation of, and reduce demand for, mobile devices and, accordingly, the demand for our mobile marketing services, which could harm our business, operating results and financial condition.

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The gathering, transmission, storage and sharing or use of personal information could give rise to liabilities or additional costs of operation as a result of governmental regulation, legal requirements, civil actions or differing views of personal privacy rights.

We transmit and store a large volume of personal information in the course of providing our services. Federal, state and international laws and regulations govern the collection, use, retention, sharing and security of data that we receive from our customers and their users. Any failure, or perceived failure, by us to comply with U.S. federal, state, or international privacy or consumer protection-related laws, regulations or industry self-regulatory principles could result in proceedings or actions against us by governmental entities or others, which could potentially have an adverse effect on our business, operating results and financial condition. Additionally, we may also be contractually liable to indemnify and hold harmless our customers from the costs or consequences of inadvertent or unauthorized disclosure of their customers' personal data which we store or handle as part of providing our services.

The interpretation and application of privacy, data protection and data retention laws and regulations are currently unsettled in the U.S. and internationally, particularly with regard to location-based services, use of customer data to target advertisements and communication with consumers via mobile devices. Such laws may be interpreted and applied inconsistently from country to country and inconsistently with our current data protection policies and practices. Complying with these varying international requirements could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business, operating results or financial condition.

As privacy and data protection have become more sensitive issues, we may also become exposed to potential liabilities as a result of differing views on the privacy of personal information. These and other privacy concerns, including security breaches, could adversely impact our business, operating results and financial condition.

In the U.S., we have voluntarily agreed to comply with wireless carrier technological and other requirements for access to their customers' mobile devices, and also trade association guidelines and codes of conduct addressing the provision of location-based services, delivery of promotional content to mobile devices and tracking of users or devices for the purpose of delivering targeted advertising. We could be adversely affected by changes to these requirements, guidelines and codes, including in ways that are inconsistent with our practices or in conflict with the rules or guidelines in other jurisdictions.

Risks Related to the Offering and Our Ordinary Shares

There has been no prior public market in the U.S. for our ordinary shares, the trading price of our ordinary shares is likely to be volatile, and you might not be able to sell your shares at or above the initial public offering price.

There has been no public market in the U.S. for our ordinary shares prior to this offering. Since 2006, our ordinary shares have been listed for trading on AIM. The per share price of our ordinary shares on AIM has been highly volatile. For example the highest price that our ordinary shares traded in the quarter ended December 31, 2010 was £6.16 and the lowest price was £4.675. Investors who purchase our ordinary shares in this offering may not be able to sell their ordinary shares at or above the initial public offering price. Market prices for companies similar to us experience significant price and volume fluctuations.

An active or liquid U.S. market in our ordinary shares may not develop upon completion of this offering or, if it does develop, it may not be sustainable. The initial public offering price for our ordinary shares will be determined through negotiations with the underwriters, and the negotiated price may not be indicative of the market price of the ordinary shares after the offering. This initial public offering price will vary from the market price of our ordinary shares after the offering. As a result of these and other factors, you may be unable to resell your ordinary shares at or above the initial public offering price.

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The following factors, in addition to other risks described in this prospectus, may have a significant effect on the market price of our ordinary shares:

    variations in our operating results;

    actual or anticipated changes in the estimates of our operating results or changes in stock market analyst recommendations regarding our ordinary shares, other comparable companies or our industry generally;

    macro-economic conditions in the numerous countries in which we do business;

    foreign currency exchange fluctuations and the denominations in which we conduct business and hold our cash reserves;

    market conditions in our industry, the industries of our customers and the economy as a whole;

    actual or expected changes in our growth rates or our competitors' growth rates;

    changes in the market valuation of similar companies;

    trading volume of our ordinary shares;

    sales of our ordinary shares by us or our shareholders; and

    adoption or modification of regulations, policies, procedures or programs applicable to our business.

In addition, if the market for technology stocks or the stock market in general experiences loss of investor confidence, the trading price of our ordinary shares could decline for reasons unrelated to our business, financial condition or operating results. The trading price of our ordinary shares might also decline in reaction to events that affect other companies in our industry, even if these events do not directly affect us. Each of these factors, among others, could harm the value of your investment in our ordinary shares. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management's attention and resources, which could materially and adversely affect our business, operating results and financial condition.

Beneficial holders of ordinary shares through the Depository Trust Company will not be legal shareholders of Velti and therefore will have no direct rights as shareholders and must act through their participating broker to exercise those rights. As a result of this restriction, we are unable to comply with NASDAQ's Direct Registration Program.

Under the laws of Jersey, only holders of ordinary shares in the U.K.'s CREST electronic system or holders of shares in certificated form may be recorded in our share register as legal shareholders. The underwriters have designated that Cede & Co., as nominee for the Depository Trust Company, or DTC, will hold the ordinary shares in this offering on behalf of, and as nominee for, investors who purchase ordinary shares. Velti and DTC have no contractual relationship. Investors who purchase the ordinary shares (although recorded as owners within the DTC system) are legally considered holders of beneficial interests in those shares only and will have no direct rights against Velti. Investors who purchase ordinary shares in this offering must look solely to their participating brokerage in the DTC system for payment of dividends, the exercise of voting rights attaching to the ordinary shares and for all other rights arising with respect to the ordinary shares.

Under our Articles of Association, the minimum notice period required to convene a general meeting is 14 full days. When a general meeting is convened, you may not receive sufficient notice of a shareholders' meeting to permit you to withdraw your ordinary shares from the DTC system to allow you to directly cast your vote with respect to any specific matter. In addition, a participating DTC brokerage firm may not be able to send voting instructions to you or carry out your voting instructions in a timely manner. We cannot assure you that you will receive voting materials in time to ensure that you can instruct your participating DTC brokerage, or its designee, to vote your shares. As a result, you may not be able to exercise your right

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to vote and you may lack recourse if your ordinary shares are not voted as you requested. In addition, if you hold your shares indirectly through the DTC system, you will not be able to call a shareholder meeting.

As a result of Jersey law restrictions described above, we are unable to comply with NASDAQ's Direct Registration Program requirements. NASDAQ Listing Rule 5210(c) requires that all securities listed on NASDAQ (except securities which are book-entry only) must be eligible for a Direct Registration Program operated by a clearing agency registered under Section 17A of the Exchange Act; provided, however, that a foreign private issuer may follow its home country practice in lieu of this requirement if prohibited from complying by a law or regulation in its home country. As noted above, we are unable to comply with this requirement, and will follow our home country requirements providing that only holders of ordinary shares in the CREST electronic system or holders of shares in certificated form will be recorded in our share register.

Future equity issuances or sales of our ordinary shares in the public market could cause our share price to decline.

If we issue equity securities in the future or if our shareholders sell a substantial number of our ordinary shares in the public market after this offering, or if there is a perception that these sales or issuances might occur, the market price of our ordinary shares could decline. Based on the number of ordinary shares outstanding as of December 31, 2010, upon the closing of this offering, and assuming no outstanding options are exercised prior to the closing of this offering, we will have 49,393,092 ordinary shares outstanding. All of the ordinary shares sold in this offering, both the 11,092,300 ordinary shares issued directly by us and the 1,425,708 ordinary shares that were previously issued and are being sold by selling shareholders, will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended, or the Securities Act, except for any shares purchased by our affiliates as such term is defined in Rule 144 under the Securities Act. The remaining 36,875,084 million ordinary shares owned by our existing shareholders will be restricted securities within the meaning of Rule 144 under the Securities Act but will be eligible for resale subject to applicable volume, manner of sale, holding period and other limitations of Rule 144. Upon listing of our ordinary shares for trading on The NASDAQ Global Market, shareholders who are not "affiliates" as such term is defined under Rule 144 and who have held their ordinary shares for more than one year may trade their ordinary shares on The NASDAQ Global Market. We, our officers, directors and certain key employees have entered into "lock-up" agreements with the underwriters that provide, subject to specified exceptions, that neither we nor they will sell any shares or engage in any hedging transactions for 180 days after the date of this prospectus. Following the expiration of the lock-up period, all of these ordinary shares will be eligible for future sale, subject to the applicable volume, manner of sale, holding period and other limitations of Rule 144. Jefferies & Company, Inc. may, in its sole discretion, release all or some portion of the shares subject to lock-up agreements prior to the expiration of the lock-up period. See "Shares Eligible for Future Sale" for a discussion of the ordinary shares that may be sold into the public market in the future.

Prior to the consummation of this offering, we intend to file a registration statement on Form S-8 under the Securities Act to register our ordinary shares for issuance under our share incentive plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements, if applicable, described above.

In addition, we may issue ordinary shares, or other securities, from time to time as consideration for future acquisitions and investments. In the event any such acquisition or investment is significant, the number of ordinary shares, or the number or aggregate principal amount, as the case may be, of other securities that we may issue may in turn be significant, causing further downward pressure on our share price.

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Upon the completion of this offering, our ordinary shares will for a time be listed on two separate stock markets and investors seeking to take advantage of price differences between such markets may create unexpected volatility in our share price; in addition, investors may not be able to easily move shares for trading between such markets.

Our ordinary shares are already listed and traded on AIM and will now be additionally listed and traded on The NASDAQ Global Market. However, our shareholders have approved a resolution authorizing us to delist our ordinary shares from AIM at any time after 90 days following the completion of this offering. While our shares are traded on both markets, price levels for our ordinary shares could fluctuate significantly on either market, independent of our share price on the other market. Investors could seek to sell or buy our shares to take advantage of any price differences between the two markets through a practice referred to as arbitrage. Any arbitrage activity could create unexpected volatility in both our share prices on either exchange and the volumes of shares available for trading on either exchange. In addition, holders of shares in either jurisdiction will not be immediately able to transfer such shares for trading on the other market without effecting necessary procedures with our transfer agent. This could result in time delays and additional cost for our shareholders. Shareholders on AIM may seek to sell their shares on NASDAQ as the date for our delisting on AIM draws near, causing the trading price of our ordinary shares on NASDAQ to decline. If we are unable to continue to meet the regulatory requirements for listing on NASDAQ, we may lose our listing on NASDAQ, which could further impair the liquidity of our shares.

Our executive officers, directors and principal shareholders will continue to have substantial control over us after this offering and will be able to exercise significant influence over matters subject to shareholder approval.

Our executive officers and directors, together with their respective affiliates, beneficially owned approximately 31% of our outstanding shares as of December 31, 2010, and we expect that upon completion of this offering, that same group will beneficially own at least 22.9% of the combined total of our outstanding ordinary shares, on a fully-diluted basis, assuming no exercise of the underwriters' over-allotment option. Accordingly, these shareholders, if they act together, will be able to exercise influence over all matters requiring shareholder approval, including the election of directors and approval of corporate transactions, such as a merger or other sale of our company or its assets, for the foreseeable future. This concentration of ownership could have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material adverse effect on the market value of our ordinary shares. For information regarding the ownership of our outstanding ordinary shares by our executive officers and directors and their affiliates, please see the section entitled "Principal and Selling Shareholders."

As a new investor, you will experience substantial dilution as a result of this offering.

The public offering price per ordinary share will be substantially higher than the net tangible book value per ordinary share prior to the offering. Consequently, if you purchase ordinary shares in this offering at an assumed public offering price of $10.00, you will incur immediate dilution of $8.87 per ordinary share as of September 30, 2010. For further information regarding the dilution of our ordinary shares, please see the section entitled "Dilution." In addition, you may experience further dilution to the extent that additional shares are issued upon exercise of outstanding options. This dilution is due in large part to the fact that our earlier investors paid substantially less than the assumed initial public offering price when they purchased their ordinary shares. In addition, if the underwriters exercise their over-allotment option, you will experience additional dilution.

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Our ordinary shares are issued under the laws of Jersey, which may not provide the level of legal certainty and transparency afforded by incorporation in a U.S. state.

We are organized under the laws of the Bailiwick of Jersey, a British crown dependency that is an island located off the coast of Normandy, France. Jersey is not a member of the EU. Jersey legislation regarding companies is largely based on English corporate law principles. A further summary of applicable Jersey company law is contained in this prospectus. However, there can be no assurance that Jersey law will not change in the future or that it will serve to protect investors in a similar fashion afforded under corporate law principles in the U.S., which could adversely affect the rights of investors.

A change in our tax residence could have a negative effect on our future profitability.

Although we are organized under the laws of Jersey, our directors seek to ensure that our affairs are conducted in such a manner that we are resident in Ireland for Irish and Jersey tax purposes. It is possible that in the future, whether as a result of a change in law or the practice of any relevant tax authority or as a result of any change in the conduct of our affairs following a review by our directors or for any other reason, we could become, or be regarded as having become, a resident in a jurisdiction other than Ireland. Should we cease to be an Irish tax resident, we may be subject to a charge to Irish capital gains tax on our assets and to unexpected tax charges in other jurisdictions on our income or net profit. Similarly, if the tax residency of any of our subsidiaries were to change from their current jurisdiction for any of the reasons listed above, we may be subject to a charge to local capital gains tax on the assets.

We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

We are a "foreign private issuer," as such term is defined in Rule 405 under the Securities Act, and therefore, we are not required to comply with all the periodic disclosure and current reporting requirements of the U.S. Securities Exchange Act of 1934, as amended, and related rules and regulations. Under Rule 405, the determination of foreign private issuer status is made annually on the last business day of an issuer's most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on June 30, 2011.

In the future, we would lose our foreign private issuer status if a majority of our shareholders and a majority of our directors or management are U.S. citizens or residents. If we were to lose our foreign private issuer status, we would have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders would become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. We would also be required to file periodic reports and registration statements on U.S. domestic issuer forms with the U.S. Securities and Exchange Commission, or SEC, which are more detailed and extensive than the forms available to a foreign private issuer. As a result, the regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher. We may also be required to modify certain of our policies to comply with good governance practices associated with U.S. domestic issuers. Such conversion and modifications will involve additional costs.

U.S. Holders of our ordinary shares could be subject to material adverse tax consequences if we are considered a Passive Foreign Investment Company (or PFIC) for U.S. federal income tax purposes.

There is a risk that we will be classified as a PFIC for U.S. federal income tax purposes. Our status as a PFIC could result in a reduction in the after-tax return to U.S. Holders of our ordinary shares and may cause a reduction in the value of such shares. For U.S. federal income tax purposes, "U.S. Holders" include individuals and various entities. For information on the U.S. federal tax implications on U.S. Holders, see the section entitled "Taxation." A corporation is classified as a PFIC for any taxable year in which (i) at least 75% of our gross income is passive income or (ii) at least 50% of the average value of all our assets

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produces or are held for the production of passive income. For this purpose, passive income includes dividends, interest, royalties and rents that are not derived in the active conduct of a trade or business. Based on the projected composition of our income and valuation of our assets, we do not believe we were a PFIC in 2009 or in 2010, and we do not expect to become a PFIC in the foreseeable future, although there can be no assurance in this regard. The U.S. Internal Revenue Service or a U.S. court could determine that we are a PFIC in any of these years. If we were classified as a PFIC, U.S. Holders of our ordinary shares could be subject to greater U.S. income tax liability than might otherwise apply, imposition of U.S. income tax in advance of when tax would otherwise apply and detailed tax filing requirements that would not otherwise apply. The PFIC rules are complex and a U.S. holder of our ordinary shares is urged to consult its own tax advisors regarding the possible application of the PFIC rules to it in its particular circumstances.

U.S. shareholders may not be able to enforce civil liabilities against us.

A number of our directors and executive officers and a number of directors of each of our subsidiaries are not residents of the U.S., and all or a substantial portion of the assets of such persons are located outside the U.S. As a result, it may not be possible for investors to effect service of process within the U.S. upon such persons or to enforce against them judgments obtained in U.S. courts predicated upon the civil liability provisions of the federal securities laws of the U.S. We have been advised by our Jersey solicitors that there is doubt as to the enforceability in Jersey of original actions, or in actions for enforcement of judgments of U.S. courts, of civil liabilities to the extent predicated upon the federal and state securities laws of the U.S.

Our management will have broad discretion over the use and investment of the net proceeds we receive in this offering and might not apply the proceeds in ways that increase the value of your investment.

Our management will have broad discretion over the use and investment of the net proceeds from this offering, and you will be relying on the judgment of our management regarding the application of these net proceeds. Our management intends to use the net proceeds from this offering to repay all of our outstanding indebtedness and to use the remaining net proceeds for general corporate purposes and working capital, including funding our strategic plan for global expansion and making further investments in our technology solutions. We may also use a portion of the net proceeds to acquire other businesses, products or technologies. We do not, however, have any agreements or commitments for any specific acquisitions. Pending these uses, we intend to invest the net proceeds in short-term bank deposits or invest them in interest-bearing, investment grade securities. Our management might not be able to yield a significant return, if any, on any investment of these net proceeds. You will not have the opportunity to influence our decisions on how the net proceeds from this offering are used.

If securities or industry analysts do not publish research or publish unfavorable or inaccurate research about our business, our share price and trading volume could decline.

The trading market for our ordinary shares will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. We may be unable to sustain coverage by well-regarded securities and industry analysts. If either none or only a limited number of securities or industry analysts maintain coverage of our company, or if these securities or industry analysts are not widely respected within the general investment community, the trading price for our ordinary shares would be negatively impacted. In the event we obtain securities or industry analyst coverage, if one or more of the analysts who cover us downgrade our ordinary shares or publish inaccurate or unfavorable research about our business, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our ordinary shares could decrease, which might cause our share price and trading volume to decline.

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We will incur significant increased costs as a result of operating as a company whose shares are publicly traded in the U.S., and our management will be required to devote substantial time to new compliance initiatives.

As a company whose shares will be publicly traded in the U.S., we will incur significant legal, accounting and other expenses that we did not previously incur. In addition, the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act, and the rules of the SEC and The NASDAQ Global Market, have imposed various requirements on public companies including requiring establishment and maintenance of effective disclosure and financial controls. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage.

If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired and investors' views of us could be harmed.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, beginning with our annual report on Form 20-F for the fiscal year ending December 31, 2012. Our compliance with Section 404 of the Sarbanes-Oxley Act will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit function, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our ordinary shares could decline and we could be subject to sanctions or investigations by NASDAQ, the SEC, or other regulatory authorities, which would require additional financial and management resources.

Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. We expect that we will need to continue to improve existing, and implement new operational and financial systems, procedures and controls to manage our business effectively. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting is effective and to obtain an unqualified report on internal controls from our auditors as required under Section 404 of the Sarbanes-Oxley Act. Moreover, we cannot be certain that these measures would ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. Even if we were to conclude, and our auditors were to concur, that our internal control over financial reporting provided reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. This, in turn, could have an adverse impact on trading prices for our ordinary shares, and could adversely affect our ability to access the capital markets.

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We have never declared or paid dividends on our shares and we do not anticipate paying dividends in the foreseeable future.

We have never declared or paid cash dividends on our shares. We currently intend to retain all available funds and any future earnings to support the operation of and to finance the growth and development of our business. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to compliance with applicable laws and covenants under current or future credit facilities, which may restrict or limit our ability to pay dividends, and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant. We do not anticipate paying any cash dividends on our ordinary shares in the foreseeable future. As a result, a return on your investment will only occur if our share price appreciates.

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Forward-Looking Statements and Market Data

This prospectus, including the sections entitled "Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," contains forward-looking statements that reflect our current expectations and views of future events. These forward-looking statements can be identified by words or phrases such as "may," "will," "expect," "should," "anticipate," "aim," "estimate," "intend," "plan," "believe," "is/are likely to" or other similar expressions. These forward-looking statements include, among other things, statements relating to our goals and strategies, our competitive strengths, our expectations and targets for our results of operations, our business prospects and our expansion strategy. We have based these forward-looking statements largely on current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Although we believe that we have a reasonable basis for each forward-looking statement contained in this prospectus, we caution you that these statements are based on our projections of the future that are subject to known and unknown risks and uncertainties and other factors that may cause our actual results, level of activity or performance expressed or implied by these forward-looking statements, to differ.

The forward-looking statements included in the prospectus are subject to risks, uncertainties and assumptions about our company. Our actual results of operations may differ materially from the forward-looking statements as a result of risk factors described under "Risk Factors" and elsewhere in this prospectus, including, among other things, our ability to:

    manage evolving pricing models in our business, which are primarily based on software as a service;

    keep pace with technological developments and compete against potential new entrants, who may be much larger and better funded;

    resolve the material weaknesses in our internal control over financial reporting;

    achieve the anticipated benefits of our acquisitions;

    continue our global business while expanding into new geographic regions;

    benefit from expected growth in general in the market for mobile marketing and advertising services;

    retain existing customers and attract new ones;

    protect our intellectual property rights; and

    comply with new and modified regulations in the jurisdictions in which we conduct business.

These risks are not exhaustive. Other sections of this prospectus include additional factors that could adversely impact our business and financial performance. Moreover, we operate in an evolving environment and new risk factors emerge from time to time. It is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statement.

You should not rely upon forward-looking statements as predictions of future events. Unless required by law, we undertake no obligation to update or revise any forward-looking statements to reflect new information or future events or otherwise.

Market data and industry statistics used throughout this prospectus are based on independent industry publications and other publicly available information. We believe these sources of information are reliable and that the information fairly and reasonably characterizes our industry. Although we take responsibility for compiling and extracting the data, we have not independently verified this information.

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Use of Proceeds

We estimate that the net proceeds to us from this offering, after deducting underwriting discounts, commissions, and the estimated offering expenses payable by us, will be approximately $97.7 million, assuming an initial offering price of $10.00 per ordinary share. We will not receive any proceeds from the sale of ordinary shares by the selling shareholders.

A $1.00 increase (decrease) in the assumed initial public offering price of $10.00 per ordinary share, would increase (decrease) the net proceeds from this offering by $10.3 million, assuming no exercise of the underwriters' over-allotment option and no other change to the number of ordinary shares offered as set forth on the cover page of this prospectus. An increase (decrease) of 1.0 million in the number of ordinary shares offered by us would increase (decrease) the net proceeds to us by $9.3 million. If the underwriters' over-allotment option is exercised in full, we estimate we will receive net proceeds of $110.8 million.

We intend to use a portion of the net proceeds from this offering to repay certain short-term financings and long-term debt, totaling $53.5 million.

Short-term financings:


Lender
  Total Facility   Amount Outstanding as of
September 30, 2010
  Loan Term   Interest Rate
 
  (in thousands)
(unaudited)

   
   

Thor Luxembourg

 
$

3,740
 
$

3,740
 

May 31, 2011

 

8.5% per annum

Thor Luxembourg

    5,000     5,000   April 30, 2011   10% per annum

Unicredit Hypo-und Vereinsbank AG

    5,440     3,808   June 30, 2011   3 month Euribor + 3.5%

HSBC Bank plc

    1,088       Weekly renewal   1 week Euribor + 2.75%

Alpha Bank

    2,720     2,588   *   3 month Euribor + 3.8%

EFG — Eurobank Ergasias

    1,496     686   *   8.50%

Emporiki Bank

    1,360     907   *   3 month Euribor + 4%

National Bank of Greece

    680     163   *   6 month Euribor + 3%

National Bank of Greece

    68     68   *   6 month Euribor + 4%

Bank of Cyprus

    816     833   *   8.35%

Piraeus Bank of Cyprus

    75       *   2.5%

Piraeus Bank

    95     98   *   7.9%

Hellenic Bank

    476     156   *   6 month Euribor + 3%

ATE Bank

    3,808     3,606   *   3 month Euribor + 3.5%

HBDIC

    20     31   *   6.00%

Bulbank

    139     139   *   11.75%

Probank

    748     258   April 30, 2011   3 month Euribor + 5%

Proton Bank

    4,352     4,112   *   3 month Euribor + 5.5%

Thor Luxembourg

    10,000     10,000   April 30, 2011   0% to June 30, 2010; 2.5% per month thereafter, up to a maximum of 15% per annum

Individual Lenders

    4,416     4,416   February 18, 2010 to July 31, 2011   3 month Euribor + 1% to 20% per annum
                 

  $ 46,537   $ 40,609        
                 

*
This is a revolving or working capital credit facility that is typically renewable annually.

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Long-term debts:


Lender
  Total Facility   Amount Outstanding as of
September 30, 2010
  Loan Term   Interest Rate
 
  (in thousands)
(unaudited)

   
   

Thor Luxembourg

 
$

10,000
 
$

10,000
 

September 30, 2011

 

15% per annum

HSBC Bank plc

    2,040     2,040   February 28, 2011   3 month Euribor + 3%

EFG — Eurobank Ergasias

    408     408   April 1, 2013   6 month Euribor + 2%

Black Sea Trade and Development Bank

    20,402     13,601   September 2015 and October 2015   3 month Euribor + 6%

Western Technology Investment

    442     442   July 1, 2012 and October 1, 2012   14.5%
                 

  $ 33,292   $ 26,491        
                 

Of the outstanding short-term financings and long-term debt described above that will be repaid with the proceeds of this offering, the facilities with Thor Luxembourg S.à.r.l, the term loans with Piraeus Bank and the revolving or working capital facilities identified in the tables above include proceeds that were incurred by us in the 12 months ended December 31, 2009 or during the nine months ended September 30, 2010. During 2009, our proceeds from borrowings and debt financings were approximately $33.7 million, and our repayment of borrowings was approximately $10.0 million. In addition, during the nine months ended September 30, 2010, we continued to repay and draw down on our revolving and working capital facilities identified in the table above, and generated proceeds from borrowings and debt financings during the period of $28.9 million and repaid borrowings in the amount of $3.6 million. All of the proceeds from our borrowings and debt financings were used for working capital and development of our technology platform. In August 2010 we entered into a new term loan facility of €15.0 million (approximately $21.5 million), which we do not expect to repay from the proceeds of this offering.

On September 30, 2010, we acquired Mobclix, Inc., a California-based targeted mobile ad exchange and paid approximately $1.1 million and issued 150,220 shares to the former stockholders and certain creditors of Mobclix, Inc. at closing to fund the upfront purchase price and acquired liabilities of Mobclix. In addition, we have agreed to pay a deferred purchase price of $8.5 million no later than March 1, 2011. In connection with this acquisition, we have agreed to provide working capital support to Mobclix of $5.0 million through the period ended December 31, 2011 as well as $0.7 million in additional employee bonuses. We expect to fund each of these from the proceeds of this offering. For further information concerning our Mobclix acquisition see Note 7 to notes to consolidated financial statements.

We intend to use the remaining net proceeds for general corporate purposes and working capital including funding our strategic plan for global expansion and making further investments in our technology solutions, including our recently introduced Velti mGage platform. We may also use a portion of the net proceeds from the offering to acquire other businesses, products or technologies. We do not, however, have commitments for any specific acquisitions at this time.

The foregoing represents our current intentions with respect to the use and allocation of the net proceeds of this offering based upon our present plans and business conditions, but our management will have significant flexibility and discretion in applying the net proceeds. The occurrence of unforeseen events or changed business conditions could result in the application of the net proceeds of this offering in a manner other than as described above. Pending our use of the net proceeds as described above, we intend to invest the net proceeds in short-term bank deposits or invest them in interest-bearing, investment grade securities.

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Dividend Policy

We have never declared or paid any dividends, nor do we have any present plan to pay any dividends on our ordinary shares in the foreseeable future. We currently intend to retain our available funds and any future earnings to operate and expand our business.

Our board of directors has complete discretion as to whether we will distribute dividends in the future, subject to restrictions under Jersey law. Any payment of dividends would be subject to the Companies (Jersey) Law 1991, as amended, which requires that all dividends be approved by our board of directors. Moreover, under Jersey law, we may pay dividends on our shares only after our board of directors has determined that we are able to pay our debts as they become due and will continue to be able to do so for a 12 month period, determined in accordance with the Companies (Jersey) Law 1991, as amended and pursuant to applicable accounting regulations. See "Description of Share Capital."

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Capitalization

The following table sets forth our current portion of long-term debt and capitalization as of September 30, 2010:

    on an actual basis; and

    on a pro forma basis, to reflect (i) the issuance of 11,092,300 ordinary shares offered hereby assuming an initial public offering price of $10.00 per ordinary share, after deducting underwriting discounts, commissions and estimated offering expenses payable by us, and (ii) the application of proceeds from this offering to repay $53.5 million of our outstanding indebtedness.

You should read this table together with our combined financial statements and the related notes and the information under "Management's Discussion and Analysis of Financial Condition and Results of Operations."


 
  As of September 30, 2010  
 
  Actual   Pro Forma(2)  
 
  (unaudited)
 
 
  (in thousands, except
per share amounts)

 

Current portion of long-term debt and short-term financings

  $ 51,831      
             

Long-term debt

 
$

14,273
 
$

13,601
 
             
 

Share capital(1)

   
3,396
   
4,267
 
 

Additional paid-in capital

    49,573     146,447  
 

Accumulated deficit

    (21,347 )   (22,343 )
 

Accumulated other comprehensive income (loss)

    3,251     3,251  
           

Total Velti shareholders' equity

    34,873     131,622  

  Non-controlling interests

    205     205  
           
 

Total shareholders' equity

    35,078     131,827  
           

Total capitalization

  $ 49,351   $ 145,428  
           

(1)
Ordinary shares, £0.05 nominal (par) value, 100,000,000 shares authorized, 38,291,653 shares issued and outstanding actual; and 49,383,953 issued and outstanding pro forma.

(2)
A $1.00 increase (decrease) in the assumed initial public offering price of $10.00 per ordinary share would increase (decrease) each of pro forma additional paid-in capital, total Velti shareholders' equity, total shareholders' equity and total capitalization by $10.3 million, assuming the number of ordinary shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us. An increase (decrease) of 1.0 million in the number of ordinary shares offered by us would increase pro forma share capital and additional paid-in capital, total Velti shareholders' equity, total shareholders' equity and total capitalization by approximately $9.3 million.

The number of our ordinary shares that will be issued and outstanding immediately after this offering is based on 38,291,653 ordinary shares outstanding as of September 30, 2010, and excludes:

    3,481,635 ordinary shares issuable upon the exercise of share options outstanding at a weighted average exercise price of £3.30; and

    2,085,310 ordinary shares issuable pursuant to deferred share awards subject to vesting restrictions.

As of June 30, 2010, we had exceeded the aggregate authorized number of shares available for grant under our equity incentive plans by 1,618,053 shares. On July 30, 2010, our shareholders approved an increase in the aggregate authorized number of shares available for grant under equity incentive plans and immediately thereafter we had 598,038 shares available for grant. As of December 31, 2010, we had 208,653 shares available for grant under our share incentive plans.

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Dilution

If you invest in our ordinary shares, your ownership interest will be diluted for each ordinary share you purchase to the extent of the difference between the initial public offering price per ordinary share and our net tangible book value per ordinary share after this offering.

Our historical net tangible book value as of September 30, 2010 was $(32.5) million, or $(0.85) per ordinary share. Net tangible book value per ordinary share represents the amount of total tangible assets minus the amount of total liabilities, divided by the total number of ordinary shares outstanding. Dilution is determined by subtracting net tangible book value per ordinary share from the assumed initial public offering price per ordinary share.

After giving effect to the issuance and sale of 11,092,300 ordinary shares offered in this offering at an assumed initial public offering price of $10.00 per ordinary share, and after deducting underwriting discounts, commissions and estimated offering expenses payable by us, our adjusted net tangible book value would have been $1.13 per ordinary share as of September 30, 2010. This represents an immediate increase in net tangible book value of $1.98 per ordinary share to existing shareholders and an immediate dilution in net tangible book value of $8.87 per ordinary share to investors in this offering, as illustrated in the following table.


Assumed initial public offering price per ordinary share

        $ 10.00  
             
 

Historical net tangible book value per ordinary share as of September 30, 2010

  $ (0.85 )      
 

Increase in net tangible book value per ordinary share attributable to this offering

    1.98        
             

Adjusted net tangible book value per ordinary share after giving effect to this offering

          1.13  
             

Dilution per ordinary share to investors in this offering

        $ 8.87  
             

A $1.00 increase (decrease) in the assumed initial public offering price of $10.00 per ordinary share would increase (decrease) our adjusted net tangible book value after giving effect to the offering by $10.3 million, or approximately $0.21 per ordinary share, and the dilution per ordinary share to investors in this offering by approximately $0.79 per ordinary share, assuming no change to the number of ordinary shares offered by us as set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and other expenses of the offering. An increase (decrease) of 1.0 million in the number of ordinary shares offered by us would increase (decrease) our adjusted net tangible book value after giving effect to the offering by $9.3 million, or approximately $0.15 per ordinary share, and the dilution per ordinary share to investors in this offering by approximately $(0.15) per ordinary share. The adjusted information discussed above is illustrative only. Our net tangible book value following the completion of the offering is subject to adjustment based on the actual initial public offering price of our ordinary shares and other terms of this offering determined at pricing.

If the underwriters exercise their over-allotment option in full in this offering, our adjusted net tangible book value per ordinary share will be $1.33 representing an immediate increase in net tangible book value per share attributable to this offering of $2.18 per share to our existing investors and an immediate dilution per share to new investors in this offering of $8.67 per ordinary share. The following table summarizes, on a pro forma basis, the differences as of September 30, 2010 between our existing shareholders and the new investors with respect to the number of ordinary shares purchased from us, the total consideration paid and the average price per ordinary share paid. The total number of our ordinary shares does not include any ordinary shares issuable pursuant to the exercise of the over-allotment option granted to the underwriters.

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  Ordinary Shares
Purchased
  Total
Consideration
   
 
 
  Average
Price Per
Ordinary
Share
 
 
  Number   Percent   Amount   Percent  

Existing shareholders

    38,291,653     78 % $ 43,507,000     31 % $ 1.14  

New investors

    11,092,300     22 % $ 97,744,505     69 % $ 8.81  
                         
 

Total

    49,383,953     100 % $ 141,251,505     100 % $ 2.86  
                         

A $1.00 increase (decrease) in the assumed initial public offering price of $10 per ordinary share would increase (decrease) total consideration paid by new investors, total consideration paid by all shareholders and the average price per ordinary share paid by all shareholders by $10.3 million, $10.3 million and $0.21, respectively, assuming no change in the number of ordinary shares sold by us as set forth on the cover page of this prospectus and without deducting underwriting discounts and commissions and other expenses at the offering. An increase (decrease) of 1.0 million ordinary shares offered by us would increase (decrease) the total consideration paid to us by new investors and total consideration paid to us by all shareholders by $9.3 million. If the underwriters exercise their over-allotment option in full, our existing shareholders would own approximately 75% and our new investors would own approximately 25% of the total number of shares of our ordinary shares on an as-converted basis outstanding after this offering.

The table above excludes, as of September 30, 2010:

    3,481,635 ordinary shares issuable upon the exercise of share options outstanding at a weighted average exercise price of £3.30; and

    2,085,310 ordinary shares issuable pursuant to deferred share awards subject to vesting restrictions.

As of June 30, 2010, we had exceeded the aggregate authorized number of shares available for grant under our equity incentive plans by 1,618,053 shares. On July 30, 2010, our shareholders approved an increase in the aggregate authorized number of shares available for grant under equity incentive plans and immediately thereafter we had 598,038 shares available for grant. As of December 31, 2010, we had 208,653 shares available for grant under our share incentive plans.

If all of these options had been exercised on September 30, 2010, our net tangible book value would have been approximately $(14.3) million, or $(0.33) per ordinary share, and the dilution in net tangible book value to new investors would have been $8.55 per ordinary share.

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Selected Historical Consolidated Financial Data

We have derived the consolidated statement of operations data for the years ended December 31, 2009, 2008 and 2007 and the consolidated balance sheet data as of December 31, 2009 and 2008 from our audited consolidated financial statements, which are included elsewhere in this prospectus. We have derived the consolidated statements of operations data for the nine months ended September 30, 2010 and 2009, and for the years ended December 31, 2006 and 2005 and the balance sheet data as of September 30, 2010, December 31, 2007, 2006 and 2005 from our unaudited consolidated financial statements, which are not included in this prospectus. The unaudited information was prepared on a basis consistent with that used in preparing our audited consolidated financial statements and includes all adjustments, consisting of normal recurring adjustments, which are necessary for a fair presentation of our financial position, results of operations and cash flows for the unaudited periods.

Our historical results are not necessarily indicative of the results to be expected in any future period and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our consolidated financial statements and related notes included elsewhere in this prospectus.


 
  Nine Months Ended September 30,   Year Ended December 31,  
 
  2010   2009   2009   2008   2007   2006   2005  
 
  (unaudited)
   
   
   
  (unaudited)
 
 
  (in thousands, except per share amounts)
 
Consolidated Statements of Operations Data:                                            
Revenue   $ 58,782   $ 24,166   $ 89,965   $ 62,032   $ 16,394   $ 11,933   $ 6,080  
Costs and expenses:                                            
  Third-party costs     18,080     10,980     27,620     32,860     2,437     1,450     720  
  Datacenter and direct project costs     4,370     3,117     4,908     8,660     2,863     1,306     748  
  General and administrative expenses     15,162     10,413     17,387     6,660     4,075     1,988     1,273  
  Sales and marketing expenses     17,131     10,991     15,919     8,245     5,812     2,314     601  
  Research and development expenses     4,639     2,585     3,484     1,884     1,662     735     357  
  Depreciation and amortization     8,096     7,180     9,394     4,231     3,013     1,441     675  
                               
    Total costs and expenses     67,478     45,266     78,712     62,540     19,862     9,234     4,374  
                               
Income (loss) from operations     (8,696 )   (21,100 )   11,253     (508 )   (3,468 )   2,699     1,706  
  Interest expense, net     (5,193 )   (1,319 )   (2,370 )   (1,155 )   (338 )   (250 )   (351 )
  Income (loss) from foreign currency transactions     (1,052 )   (433 )   14     (1,665 )   (154 )   38      
  Other expenses                 (495 )            
                               
Income (loss) before income taxes, equity method investments and non-controlling interest     (14,941 )   (22,852 )   8,897     (3,823 )   (3,960 )   2,487     1,355  
  Income tax (expense) benefit     (670 )   1,053     (410 )   26     198     (458 )   (443 )
  Loss from equity method investments     (2,107 )   (1,449 )   (2,223 )   (2,456 )   (656 )   (136 )   (8 )
                               
Net income (loss)     (17,718 )   (23,248 )   6,264     (6,253 )   (4,418 )   1,893     904  
  Loss attributable to non-controlling interest     (60 )   (14 )   (191 )   (123 )   (224 )   (147 )    
                               
Net income (loss) attributable to Velti   $ (17,658 ) $ (23,234 ) $ 6,455   $ (6,130 ) $ (4,194 ) $ 2,040   $ 904  
                               
Net income (loss) per share attributable to Velti(1):                                            
  Basic   $ (0.47 ) $ (0.67 ) $ 0.18   $ (0.18 ) $ (0.14 ) $ 0.08   $ 0.05  
                               
  Diluted   $ (0.47 ) $ (0.67 ) $ 0.17   $ (0.18 ) $ (0.14 ) $ 0.08   $ 0.05  
                               
Weighted average number of shares outstanding for use in computing:                                            
  Basic net income per share(1)     37,792     34,629     35,367     33,478     29,751     25,721     19,091  
                               
  Diluted net income per share     37,792     34,629     37,627     33,478     29,751     26,480     19,091  
                               
Pro forma net income (loss) per share attributable to Velti(1) (unaudited):                                            
  Basic   $ (0.25 )       $ 0.19                          
                                         
  Diluted   $ (0.25 )       $ 0.18                          
                                         
Weighted average number of shares outstanding in computing (unaudited):                                            
  Pro forma basic net income (loss) per share     48,884           46,459                          
                                         
  Pro forma diluted net income (loss) per share     48,884           48,719                          
                                         

(1)
See Note 19 to our consolidated financial statements on page F-55 and F-56 for an explanation of the method used to calculate basic and diluted net income (loss) per share, and pro forma basic and diluted not income per share.

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  As of December 31,  
 
  As of September 30,
2010
 
 
  2009   2008   2007   2006   2005  
 
  (unaudited)
   
   
  (unaudited)     
 
 
  (in thousands)
 

Consolidated Balance Sheets Data:

                                     

Cash and cash equivalents

  $ 18,787   $ 19,655   $ 14,321   $ 16,616   $ 7,743   $ 2,922  

Working capital

    (8,833 )   22,847     6,875     23,284     12,335     1,363  

Total assets

    181,978     122,058     72,474     49,786     29,152     9,514  

Total debt

    66,104     38,861     17,420     2,505     2,416     5,184  

Total shareholders' equity

    35,078     46,936     30,179     34,135     20,540     1,143  

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Unaudited Pro Forma Condensed Consolidated
Financial Information

The following unaudited pro forma condensed consolidated financial statements give effect to our acquisition of Ad Infuse, Inc., or Ad Infuse, a leader in personalized mobile advertising based in San Francisco, California, completed on May 8, 2009. We paid an aggregate of approximately $3.6 million for Ad Infuse, which had net sales of $1.3 million in 2008. After the acquisition, Ad Infuse became a wholly-owned subsidiary of Velti plc. The acquisition was accounted for under the purchase method of accounting applying the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements, and, accordingly, the net assets acquired have been recorded at their fair values.

The unaudited pro forma condensed consolidated income statements were based on the historical audited income statements of Velti plc and Ad Infuse. The unaudited pro forma condensed consolidated income statements give effect to our acquisition of Ad Infuse as if it had been completed on January 1, 2009. Ad Infuse's statement of operations data for the year ended December 31, 2009 represented their results of operations from January 1, 2009 through May 8, 2009, the date of acquisition. The financial results of Ad Infuse from the date of acquisition through December 31, 2009 were consolidated and included in Velti plc's audited consolidated financial statements for the year ended December 31, 2009.

The unaudited pro forma financial information is for illustrative purposes only and is not necessarily indicative of the results of operations that would have been realized if the acquisition had been completed on the dates indicated, nor is it indicative of our future operating results. The unaudited pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable. You should not rely on the unaudited pro forma income statement for the year ended December 31, 2009 as being indicative of the results of operations that would have been achieved had the business combination been consummated as of January 1, 2009. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with our historical consolidated financial statements and accompanying notes, the historical audited financial statements of Ad Infuse and accompanying notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations," each included elsewhere in this prospectus. The unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only.

The pro forma adjustments primarily relate to interest income and interest expense, as well as amortization of acquired intangible assets, as if the business combination had been consummated as of January 1, 2009, assuming that the acquired intangible assets existed as of that date and the effect that the combination had on cash and debt occurred on that date. The actual consolidated results of operations may differ significantly from the pro forma amounts reflected below.

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Unaudited Pro Forma Condensed Consolidated Income Statements


 
  Year Ended December 31, 2009  
 
  Historical    
   
   
 
 
  Pro Forma
Adjustments
   
  Pro Forma
Combined
 
 
  Velti   Ad Infuse   Notes  
 
  (in thousands, except per share amounts)
 
Revenue:                              
  Software as a service (SaaS) revenue   $ 30,965   $ 486   $       $ 31,451  
  License and software revenue     45,811                 45,811  
  Managed services revenue     13,189                 13,189  
                       
    Total revenue     89,965     486             90,451  
Costs and expenses:                              
  Third-party costs     27,620     368             27,988  
  Datacenter and direct project costs     4,908                 4,908  
  General and administrative expenses     17,387     774             18,161  
  Sales and marketing expenses     15,919     505             16,424  
  Research and development expenses     3,484     797             4,281  
  Depreciation and amortization     9,394         363   c     9,757  
                       
    Total costs and expenses     78,712     2,444             81,519  
                       
Income (loss) from operations     11,253     (1,958 )   (363 )       8,932  
  Interest expense, net     (2,370 )       (15 ) a, b     (2,385 )
  Gain from foreign currency transactions     14                     14  
                       
Income (loss) before income taxes, equity method investments and non-controlling interest     8,897     (1,958 )   (378 )       6,561  
  Income tax expense     (410 )               (410 )
  Loss from equity method investments     (2,223 )               (2,223 )
                       
Net income (loss)     6,264     (1,958 )   (378 )       3,928  
  Net loss attributable to non-controlling interest     (191 )               (191 )
                       
Net income (loss) attributable to Velti   $ 6,455   $ (1,958 ) $ (378 )     $ 4,119  
                       
Basic net income per share attributable to Velti   $ 0.18                   $ 0.12  
                           
Diluted net income per share attributable to Velti   $ 0.17                   $ 0.11  
                           
Weighted average number of shares outstanding     35,367                     35,367  
                           
Weighted average number of diluted shares outstanding     37,627                     37,627  
                           

(a)
Reflects an adjustment to decrease interest income by applying the average rate of return for the respective periods assuming a decrease in cash and cash equivalents of Velti plc of approximately $1.0 million to fund the Ad Infuse acquisition.

(b)
Reflects an adjustment to increase interest expense by applying the applicable interest rate for the issuance of secured notes to stockholders of Ad Infuse in the acquisition.

(c)
Reflects an adjustment to increase amortization expense on the acquired intangible assets as discussed in Note 8 to our consolidated financial statements, net of amortization in the amount of $0.6 million already included in our consolidated statements of operations for the year ended December 31, 2009.

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Management's Discussion and Analysis of
Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section entitled "Selected Historical Consolidated Financial Data" and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and opinions. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences or cause our actual results or the timing of selected events to differ materially from those anticipated in these forward-looking statements include those set forth under "Risk Factors" and elsewhere in this prospectus.

Overview

We are a leading global provider of mobile marketing and advertising technology that enables brands, advertising agencies, mobile operators and media companies to implement highly targeted, interactive and measurable campaigns by communicating with and engaging consumers via their mobile devices. Our platform allows our customers to use mobile media, together with traditional media, such as television, print, radio and outdoor advertising, together to reach targeted consumers, engage consumers through the mobile Internet and applications, convert consumers into their customers and continue to actively manage the relationship through the mobile channel. For the nine months ended September 30, 2010, over 600 brands, advertising agencies, mobile operators and media companies, including 13 of the 20 largest mobile operators worldwide, based on number of subscribers, used our platform to conduct over 1,500 campaigns. We have the ability to conduct campaigns in over 30 countries and reach more than 2.5 billion global consumers. We have run campaigns for brands, advertising agencies, mobile operators and media companies such as AT&T, Vodafone, Johnson & Johnson and McCann Erickson.

We believe our integrated, easy-to-use, end-to-end software platform is the most extensive mobile marketing and advertising campaign management platform in the industry. Our platform further enables brands, advertising agencies, mobile operators and media companies to plan, execute, monitor and measure mobile marketing and advertising campaigns in real time throughout the campaign lifecycle. We generate revenue from our software-as-a-service (SaaS) model, from licensing our software to customers and from providing managed services to customers.

Velti mGage provides a one-stop-shop where our customers may plan marketing and advertising campaigns. They also can select advertising inventory, manage media buys, create mobile applications, design websites, build mobile CRM campaigns and track performance across their entire campaign in real-time. In addition, our proprietary databases and analytics platforms, including those we have acquired recently, are able to process, analyze and optimize more than 1.3 billion new data facts daily.

Our total revenue has grown to $90.0 million for the year ended December 31, 2009, an increase of 45% from $62.0 million for the year ended December 31, 2008, and an increase of 278%, from $16.4 million for the year ended December 31, 2007. For the nine months ended September 30, 2010, our total revenue was $58.8 million, an increase of $34.6 million, or 143%, compared to the same period in 2009.

We have been able to grow our business by expanding our sales and marketing activities in order to respond to the opportunities presented by the emergence of the mobile device as a principal interactive channel for brands, advertising agencies, mobile operators and media companies to reach consumers. In addition, the growth in mobile marketing and advertising is further driven by the continued growth of wireless data subscribers, the proliferation of mobile devices, smartphones and advanced wireless networks, and the increased usage of mobile content, applications and services. Smartphones offer access to features previously available only on PCs, such as Internet browsing, email and social networking, and accordingly

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are gaining importance as a separate platform. Increasingly, brands and advertising agencies are recognizing the unique benefits of the mobile channel and they are seeking to maximize its potential by integrating mobile media within their overall advertising and marketing campaigns. Our platform allows our customers to focus on campaign strategy, creativity and media efficiency without having to worry about the complexity of implementing mobile marketing and advertising campaigns globally.

We believe that our continued growth depends upon our ability to maintain our technology leadership as well as our ability to maintain existing, and develop new relationships with brands, advertising agencies, mobile operators and media companies in both developed and emerging markets. In addition, we expect our growth to be dependent upon the increased adoption of our Velti mGage platform. We continue to invest in infrastructure required to manage our growth, expand our customer base globally and increase our presence in new markets, resulting in capital expenditures of $20.0 million, $16.9 million and $8.5 million during the years ended December 31, 2009, 2008 and 2007, respectively, and $15.7 million for the nine months ended September 30, 2010.

Although our growth historically has been driven by revenue from our mobile operator customers, it is increasingly being driven by our advertising agency and brand customers. We expect that this trend will continue as we focus our marketing efforts on greater penetration of advertising agencies and directly with brand customers and as our customers increase their reliance on mobile marketing and advertising as part of their overall marketing and advertising strategy. We have also grown our business through geographic expansion, and expect to continue to enter into new markets in order to both support our current and prospective customers and to expand our business.

Our business, as is typical of companies in our industry, is seasonal. This is primarily due to relatively heavy traditional marketing and advertising spending occuring during the holiday season in part because brands, advertising agencies, mobile operators and media companies often close out annual budgets towards the end of a given year. Seasonal trends have historically contributed to, and we anticipate will continue to contribute to fluctuations in our quarterly results, including fluctuations in sequential revenue growth rates.

Much of our business is in emerging markets where payment terms on amounts due to us may be longer than on our contracts with customers in other markets. Our days sales outstanding deteriorated during 2009 by increasing from 65 days to 131 days before improving to 77 days by the end of June 2010. Days sales outstanding has declined in the nine months ended September 30, 2010 to 110 days. The deterioration in days sales outstanding in the nine months ended September 30, 2010 is primarily due to outstanding amounts from five customers in the approximate aggregate amount of $5.9 million, the majority of which we have collected subsequent to September 30, 2010. The remaining amount due is from customers with whom we have a history of payment and expect to collect fully. We have not historically incurred bad debt expense, none of our significant customers have historically failed to pay amounts due to us, and we do not believe that any of the customers contributing to our increased accounts receivable aging will fail to pay us in full. Accordingly, we have not determined that any slow-paying customers will require an allowance for bad debt against accounts receivable. In addition, our trade receivables balance increased from $24.4 million in June 30, 2010 to $38.2 million (excluding the impact of newly acquired Mobclix) in September 30, 2010 due to the timing of completing our campaigns and billing of our customers. As a result, our DSOs increased during the third quarter of 2010. However, we expect our DSOs to improve by the end of 2010 due to the increase in our fourth quarter collection efforts.

We generate revenue from mobile marketing campaigns conducted on behalf of customers in various countries that are often structured to ensure a minimum level of revenues to the customer or reimbursement of the costs of such campaigns before revenues are shared among the customer and us.

During the nine months ended September 30, 2010 we continued to repay and draw down on our revolving and working capital facilities and generated proceeds from borrowings and debt financings during the period

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of $28.9 million and repaid borrowings in the amount of $3.6 million. We also funded the acquisition of Media Cannon during this period, and incurred additional expenses related to our initial public offering.

However, the impact of our days sales outstanding has contributed to a decline in our cash flow and an adverse impact on our working capital during the nine months ended September 30, 2010, causing us to seek third party debt financing to help fund working capital requirements. Our working capital was also impacted by the repayment of debt during the nine months ended September 30, 2010 in the amount of $3.6 million, the acquisition of Media Cannon in June 2010 and of Mobclix in October 2010, combined with the costs of our initial public offering. We believe that following the application of the net proceeds of this offering and the repayment of outstanding indebtedness, however, together with the growth of revenues, our working capital will improve and we will have sufficient working capital to fund our requirements.

In 2009, we continued to increase revenue for licenses and software, compared to 2008. In 2010, as we have increasingly focused our efforts on selling our flexible pricing model, we have seen an increase in our SaaS revenue and a deceleration in the growth of our license revenue. Our SaaS revenue for the nine months ended September 30, 2010 increased to $36.3 million, an increase of $24.9 million, or 216%, over the same period of 2009, while our license and software revenue increased to $14.3 million, an increase of $7.9 million, or 123% over the same period in the prior year. We expect that our SaaS revenue will continue to increase both in absolute dollars and as a percentage of total revenue as our customers seek more flexible pricing models that better address their marketing and advertising needs, and we are therefore able to derive increased transactions-based and performance-based SaaS revenue.

In addition, our financial results for 2009 and the first nine months of 2010 reflect a combination of:

    continued investment in our global footprint, which resulted in customer growth in China, India, the U.S. and Europe through our local operations, joint ventures, and equity method investments;

    the impact of our enhanced sales, marketing and business development operations, which has led to revenue growth; during the first nine months of 2010 we continued to gain new customer wins and create increased sales pipeline opportunities, and, as a result, over 600 brands, advertising agencies, mobile operators and media companies, including 13 of the 20 largest mobile operators worldwide, based on number of subscribers, used our software platform to conduct over 1,500 campaigns; and

    continued roll-out of enhanced versions of our Velti mGage platform, unifying mobile media planning, mobile advertising, mobile marketing and mobile CRM functionality.

Acquisitions and Equity Method Investments

We have enhanced and grown our business and customer base globally through acquisitions and equity method investments in complimentary products, technologies and businesses, including the following:

    In September 2010, we acquired Mobclix, Inc., a California-based targeted mobile ad exchange and open marketplace for mobile developers, advertisers, ad networks and agencies to manage ad inventory and increase campaign performance. As a result of this acquisition, we acquired 23 new employees in California.

    In June 2010, we acquired Media Cannon, Inc., a California-based developer of mobile advertising tools and technology with 9 employees, providing us with an expanded customer base and proprietary solutions that enable a richer mobile advertising and mobile Internet user experience, as well as a series of mobile marketing "post click" interactions.

    In May 2009, we acquired Ad Infuse, Inc., a California-based developer of mobile ad serving and routing technology platforms with 20 employees. This brought us significant customer contracts in the U.S., as well as experienced management, marketing, engineering and other personnel, markedly increasing our presence in the U.S. We have fully integrated Ad Infuse's technology, which enables brands, advertising agencies, mobile operators and media companies to place ads on multiple networks and manage them in real time, into our Velti mGage platform.

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    In January 2009, we formed HT Mobile Solutions with HT Media, India's second largest media group and owner of the Hindustan Times. We own a 35% interest in the joint venture. HT Mobile Solutions launched its first campaign in June 2009, and services large mobile operators, brands and advertising agencies, as well as smaller regional companies, in India. Our investment in the joint venture, together with its use of our technology platform, provides us access to customers in India, as well as local implementation and sales support.

    In April 2008, we purchased shares of Series A Preferred Stock as well as a note convertible into, and warrants to purchase, shares of Series A Preferred Stock of the parent company of a Chinese mobile advertising exchange called Cellphone Ads Serving E-Exchange, or CASEE, which creates an online marketplace for content publishers by serving highly targeted and personalized advertisements via the mobile Internet to consumers in China. To date, we have converted the note and own 33% of the outstanding equity of the parent company. We have the option to increase our interest in the parent company to 50% on a fully-diluted basis following the exercise of the warrants. Our investment in CASEE allows us to service our customers in China, providing local implementation and sales support.

    In July 2007, we formed Ansible Mobile LLC, or Ansible, as a joint venture with The Interpublic Group of Companies, Inc., or IPG, a publicly-traded multi-national advertising firm, pursuant to which we and IPG each owned one-half of Ansible. We reached an agreement with IPG to terminate Ansible effective as of July 1, 2010. As a result, we have entered into new agreements with certain of IPG's individual operating agencies, and continue to pursue discussions regarding direct relationships with other IPG operating agencies. The termination had no material financial impact on our results of operations for the nine months ended September 30, 2010. In future periods, as a result of this termination, we will no longer incur our share of the losses incurred by Ansible, which historically represented losses to us of on average approximately $1.5 million per year.

    In March 2007, we acquired M-Telecom Limited in Bulgaria, which provided us with a distribution channel in that country, and in December 2006, we acquired Digital Rum S.A., a Greek company whose technology enables organizations to extend secure communication services to mass market mobile devices.

Corporate History

Velti plc is incorporated under the laws of the Bailiwick of Jersey, the Channel Islands. Our business was first organized in 2000 with the incorporation of Velti S.A., a company organized under the laws of Greece. Velti plc was formed on September 2, 2005 under the laws of England and Wales under the Companies Act 1985 as Brightmanner plc. On March 9, 2006, Brightmanner plc changed its name to Velti plc and on April 20, 2006, Velti plc acquired all of the issued share capital of Velti S.A. As a result, Velti plc (England and Wales), became the holding company of our various subsidiaries.

On May 3, 2006, Velti plc was first admitted and trading commenced in its ordinary shares on the Alternative Investment Market of the London Stock Exchange, or AIM. In connection with the initial public offering and placement of ordinary shares, 10,000,000 new ordinary shares, nominal (par) value £0.05 per share, were issued at a placing price of £1.00 per share, for gross proceeds of £10.0 million. In October 2007, Velti plc issued 3,580,000 additional ordinary shares at a price of £2.10 per share, for gross proceeds of approximately £7.5 million. In October 2009, Velti plc issued 1,820,000 additional ordinary shares at a price of £1.60 per share, for gross proceeds of approximately £2.9 million. On December 18, 2009, we completed a scheme of arrangement under the laws of England and Wales whereby Velti plc, a company incoporated under the laws of Jersey, the Channel Islands, and tax resident in the Republic of Ireland, became our ultimate parent company. The ordinary shares of our new Jersey-incorporated parent were admitted for trading on AIM on December 18, 2009, and all outstanding shares of our Velti plc (England and Wales) were exchanged for shares of our Jersey-incorporated parent, Velti plc.

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Components of Results of Operations

Beginning with the year ended December 31, 2009, we changed the preparation of our financial statements from being in accordance with international financial reporting standards, or IFRS, as adopted by the EU to being in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. Accordingly, all prior period financial statements have been retrospectively adjusted to reflect the changes and disclosures required under U.S. GAAP. Please refer to Note 2 to the notes to consolidated financial statements for additional discussion of the change in basis of presentation.

Revenue

We derive our revenue from customers who use our platform to create, execute and measure mobile marketing and advertising campaigns. Our contracts predominantly range from one to three years, or for the duration of a mobile marketing or advertising campaign. Our platform is based upon a modular, distributed architecture, allowing our customers to use the whole or any part of the functionality of the platform, depending upon the needs of each campaign. Our fees vary by contract, depending upon a number of factors, including the scope of the services that we provide to the campaign, and the range of Velti mGage functionality deployed by the customer. For our engagements with brands, our contracts may be directly with the brand, or with an advertising agency who manages the mobile marketing or advertising campaign on a brand's behalf.

We generate revenue as follows:

        •    Software as a Service (SaaS) Revenue: Fees from customers who subscribe to our hosted mobile marketing and advertising platform, generally referred to as "usage-based" services, and fees from customers who utilize our software solutions to measure the progress of their transaction-based mobile marketing and advertising campaigns, generally referred to as "performance-based" services.

        Our SaaS revenue includes both usage-based fees and performance-based fees. Usage-based fees include subscription fees for use of individual software modules and our automated mobile marketing campaign creation templates, and fees charged for access to our software platform. Performance-based fees are variable fees based on specified metrics, typically relating to the number of transactions performed or number of text messages generated during the campaign multiplied by the cost per transaction or response in accordance with the terms of the related contract. Representative metrics our customers can use to measure the success of their campaigns include, but are not limited to: growth in their customer base; increased revenue in the aggregate or per-consumer; number of transactions, such as the number of messages carried, the number of coupons redeemed, or the total number of ad impressions delivered; reduced consumer churn; or consumer response, such as joining a community site or reward program.

        •    License and Software Revenue: Fees from customers who license our mobile marketing and advertising platform provided on a perpetual license and fees for customized software solutions delivered to and installed on the customers' server, including fees to customize the platform for use with different media used by the customer in a campaign.

        •    Managed Services Revenue: Fees charged to customers for professional services related to the implementation, execution and monitoring of customized mobile marketing and advertising solutions.

        The fees associated with our managed services revenue are typically paid over a fixed period corresponding with the duration of the campaign or the consumer acquisition and retention program. An initial, one-time setup fee may also be charged for the development of mobile marketing and advertising campaigns, applications or CRM programs and services.

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In addition to the fees described above, we may also charge fees to procure third party mobile and integrated advertising services, such as content, media booking and direct booking across multiple mobile advertising networks on behalf of our customers.

Due to the nature of the services that we provide, our customer contracts may include service level requirements that may require us to pay financial penalties if we fail to meet the required service levels. We recognize any such penalties, when incurred, as a reduction to revenue.

Costs and Expenses

We classify our costs and expenses into six categories: third-party, datacenter and direct project, general and administrative, sales and marketing, research and development and depreciation and amortization. We charge share-based compensation expense resulting from the amortization of the fair value of deferred share and share option grants to each employee's principal functional area. We allocate certain facility-related and other common expenses such as rent, office and information technology to functional areas based on headcount.

Third Party Costs.    Our third party costs are fees that we pay to third parties to secure advertising space or content, or to obtain media inventory for the placement of advertising and media messaging services, as well as fees paid to third parties for creative development and other services in connection with the creation and execution of marketing and advertising campaigns. Third party costs also include the costs of certain content, media, or advertising that we acquire for a campaign, and costs associated with incentives and promotional items, provided to consumers in order to participate in the campaigns as well as certain computer hardware or software that we might acquire for a customer. Third party costs also include costs paid to third parties for technology and local integration that is not performed by our personnel and primarily relate to our SaaS revenue. We incur third party costs in advance of the revenue recognized on the campaigns to which such costs relate.

Datacenter and Direct Project Costs.    Datacenter and direct project costs consist primarily of personnel and outsourcing costs for operating our datacenters, which host our Velti mGage platform on behalf of our customers. Additional expenses include costs directly attributable to a specific campaign as well as allocated facility rents, power, bandwidth capacity, IT maintenance and support. In addition, direct project costs include personnel costs to customize our software solutions for specific customer contracts.

General and Administrative Expenses.    Our general and administrative, or G&A, expenses primarily consist of personnel costs for our executive, finance and accounting, legal, human resource and information technology personnel. Additional G&A expenses include consulting and professional fees and other corporate and travel expenses. We expect that our G&A expenses will increase in absolute dollars as we grow our company, add personnel and build the necessary infrastructure to support our growth. In addition, G&A expenses are expected to increase as a result of the public offering in the U.S. and the cost of filing the required reports with the SEC, increased audit fees, increased directors' and officers' insurance costs, legal fees and other costs of a U.S. public company, including the costs to comply with the Sarbanes-Oxley Act and related regulations.

Sales and Marketing Expenses.    Our sales and marketing expenses primarily consist of salaries and related costs for personnel engaged in sales and sales support functions, customer services and support, as well as marketing and promotional expenditures. Marketing and promotional expenditures include the direct costs attributable to our sales and marketing activities, such as conference and seminar hosting and attendance, travel, entertainment and advertising expenses. In order to continue to grow our business, we expect to continue to commit resources to our sales and marketing efforts, and accordingly, we expect that our selling expenses will increase in future periods as we continue to expand our sales force in order to add new customers, expand our relationship with existing customers and expand our global operations. While

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sales and marketing expenses will increase in absolute dollars, we expect the percentage of revenue to decline as we grow revenue.

Research and Development.    Research and development expenses consist primarily of personnel-related expenses including payroll expenses, share-based compensation and engineering costs related principally to the design of our new products and services.

Depreciation and Amortization.    Depreciation and amortization expenses consist primarily of depreciation on computer hardware and leasehold improvements in our datacenters, amortization of purchased intangibles and of our capitalized software development costs and amortization of purchased intangibles, offset by allocation of government grant income.

Interest Income

Interest income consists of interest we earn on our cash and cash equivalents.

Interest Expense

Interest expense includes interest we incur as a result of our borrowings and factoring obligations. For a description of our borrowing and factoring obligations see Note 11 to notes to consolidated financial statements. Assuming that we receive the maximum gross proceeds available under this offering, we intend to repay outstanding indebtedness in the amount of $53.5 million.

Gain (Loss) from Foreign Currency Transactions

The financial statements of our foreign subsidiaries have been translated into U.S. dollars from their local currencies by translating all assets and liabilities at year-end exchange rates. Income statement items are translated at an average exchange rate for the year. Translation adjustments are not included in determining net income (loss), but are accumulated and reported as a component of invested equity as accumulated other comprehensive income. Realized and unrealized gains and losses which result from foreign currency transactions are included in determining net income (loss), except for intercompany foreign currency transactions that are of a long-term investment nature, for which changes due to exchange rate fluctuations are accumulated and reported as a component of invested equity as accumulated other comprehensive income.

We changed our presentation currency from euro to U.S. dollars for the reporting period beginning January 1, 2009. Consequently, we have provided all data for 2009 and 2010 in U.S. dollars and comparative information for prior years has been retranslated into U.S. dollars. For a discussion of our foreign currency transactions and the translation of our financial statements, see Note 3 to notes to consolidated financial statements.

As some of our assets, liabilities and transactions are denominated in euro, British pounds sterling, Russian rouble, Bulgarian lev, Ukrainian hyrvnia, Indian rupee, and Chinese yuan, the rate of exchange between the U.S. dollar and other foreign currencies continues to impact our financial results. Fluctuations in the exchange rates between the U.S. dollar and other functional currencies of entities consolidated within our consolidated financial statements may affect our reported earnings or losses and the book value of our shareholders' equity as expressed in U.S. dollars, and consequently may affect the market price of our ordinary shares. We do not hedge our foreign currency transactions, which are primarily accounts receivable and accounts payable.

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Other Expenses

Other expenses consists of our share of the settlement costs of a legal proceeding in connection with certain transactions conducted by Ansible.

Loss from Equity Method Investments

Our equity method investments include all investments in entities over which we have significant influence, but not control, generally including a beneficial interest of between 20% and 50% of the voting rights. Our share of our equity method investments' post acquisition profits or losses is recognized in the consolidated statement of operations. For a discussion of our equity method investments see Note 10 to notes to consolidated financial statements.

Income Tax Expense

As a result of our redomiciliation to Jersey in December 2009, we are now tax resident in Ireland. We are subject to tax in jurisdictions or countries in which we conduct business, including the U.K., Greece, Cyprus, Bulgaria, and the U.S. Earnings are subject to local country income tax and may be subject to current income tax in other jurisdictions.

Our deferred income tax assets represent temporary differences between the financial statement carrying amount and the tax basis of existing assets and liabilities that will result in deductible amounts in future years, including net operating loss carry forwards. Based on estimates, the carrying value of our net deferred tax assets assumes that it is more likely than not that we will be able to generate sufficient future taxable income in certain tax jurisdictions. Our judgments regarding future profitability may change due to future market conditions, changes in U.K. or international tax laws and other factors.

Geographic Revenue Concentration

We conduct our business primarily in three geographical areas: Europe, Americas, and Asia/Africa. The following table provides revenue by geographical area. Revenue from customers for whom we provide services in multiple locations is allocated according to the location of the respective customer's domicile. Revenue from customers for whom we provide services in a single or very few related locations is allocated according to the location of the respective customer's place of operations.


 
  Nine Months Ended
September 30,
  Year Ended December 31,  
 
  2010   2009   2009   2008   2007  
 
  (unaudited)
   
   
   
 
 
  (in thousands)
 

Revenue:

                               

Europe:

                               
 

United Kingdom

  $ 18,959   $ 1,862   $ 14,655   $ 7,370   $ 3,682  
 

Russia

    9,044     4,393     8,621     20,566      
 

Greece

    7,273     4,373     8,384     4,514     3,090  
 

All other European countries

    13,445     7,036     36,441     22,787     9,067  
                       
   

Total Europe

  $ 48,721   $ 17,664   $ 68,101   $ 55,237   $ 15,839  
                       

Americas

    1,483     2,130     4,049     1,586     555  

Asia/Africa

    8,578     4,372     17,815     5,209      
                       
   

Total revenue

  $ 58,782   $ 24,166   $ 89,965   $ 62,032   $ 16,394  
                       

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We expect to continue to expand outside of Europe and anticipate that our geographic revenue concentration in Europe as a whole will decrease as a percentage of our total revenue. During 2008 we entered into contracts with two customers in Russia, the provisions of which required us to recognize as SaaS revenue certain revenue generated from fees for media and other advertising production acquired on behalf of the customer, resulting in an increase in revenue in Russia in the amount of approximately $12.5 million. Also, since we accounted for our investment in Ansible prior to its termination under the equity method, Ansible's financial results prior to its termination as of July 1, 2010 are not consolidated with ours and therefore are not reflected in revenue allocated to the Americas.

Please see Note 13 to notes to consolidated financial statements for a discussion of the geographic concentration of our pre-tax income (loss). For the majority of 2009, our country of domicile was the U.K.; certain costs associated with our parent company, including legal and financing costs attributable to group activities, are allocated to the country of domicile, resulting in a disproportion between revenue generated in the U.K. and the geographic concentration of pre-tax income (loss) attributable to the U.K. Although our country of domicile is Jersey beginning in 2010, this disproportionate relationship has continued in the first nine months of 2010, and we expect it to continue for the balance of 2010. We expect costs associated with being a U.S. public company, as well as certain costs associated with our geographic expansion that are for the benefit of the group, will continue to be allocated to our parent company.

Customer Concentration

Two customers collectively accounted for 30% of our total revenue for the nine months ended September 30, 2010. One of our customers accounted for 11% of our total revenue for the nine months ended September 30, 2009. One customer accounted for 15% of our total revenue for the year ended December 31, 2009.

Of the two customers who accounted for 30% of our total revenue for the nine months ended September 30, 2010 one represents multiple contracts with multiple subsidiaries under common control of an ultimate parent entity. This group of companies accounted for 20% of total revenue, with no single contract accounting for more than 10% of total revenue. The second entity accounted for 10% of total revenue. However, this contract was for campaigns that ran from October 2009 through April 2010, the revenues under which were all recognized in the nine months ended September 30, 2010. Any additional services provided to this customer will be pursuant to separate contracts. For most of our contracts, each contract either represents services for a particular campaign that is expected to last for a stated period, generally less than one year, or is a statement of standard terms and conditions that do not include pricing, volume or similar information. Information specific to each campaign under these terms and conditions are typically agreed by the parties pursuant to specific separate statements of work entered into in connection with each campaign.

Two customers accounted for 29% of our total revenue in aggregate for the year ended December 31, 2008. For the years ended December 31, 2007, no customer accounted for more than 10% of our total revenue.

Critical Accounting Policies and Significant Judgments and Estimates

Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates.

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The following discussion addresses our critical accounting policies and reflects those areas that require more significant judgments and use of estimates and assumptions in the preparation of our consolidated financial statements. See Note 3 to notes to consolidated financial statements included elsewhere in this prospectus provides for additional information about these critical accounting policies.

Revenue Recognition

We account for our SaaS revenue, license and software revenue and managed services revenue in accordance with Accounting Standards Codification (ASC) Topic 605 — Revenue Recognition and ASC Topic 985-605 — Certain Revenue Arrangements that Include Software Elements. We recognize revenue when all of the following conditions are satisfied: (i) there is persuasive evidence of an arrangement; (ii) the service has been rendered or delivery has occurred; (iii) the fee to be paid by the customer is fixed or determinable; and (iv) collectability of the fee is reasonably assured.

Software as a service revenue generated from our "usage-based" services, including subscription fees for use of individual software modules and our automated mobile marketing campaign creation templates, and fees charged for access to our technology platform, are recognized ratably over the period of the agreement as the fees are earned.

For our variable performance-based fees, we recognize revenue when the transaction is completed, the specific quantitative goals are met or the milestone is achieved. For the majority of our contracts, we act as the principal and contract directly with suppliers for purchase of media and other third party production costs, and are responsible for payment of such costs as the primary obligor. We recognize the revenue generated on fees charged for such third party costs using the gross method. We recognize revenue at the gross amount billed when revenue is earned for services rendered and record the associated fees we pay as third party costs in the period such costs are incurred.

Revenue related to perpetual licensing arrangements is recognized upon the delivery of the license. Fees charged to customize our software solution are recognized using the completed contract or the percentage-of-completion method according to ASC 605-35, Revenue Recognition — Construction-Type and Production-Type Contracts, based on the ratio of costs incurred to the estimated total costs at completion.

Managed services revenue, when sold with software and support offerings, is accounted for separately when these services (i) have value to the customer on a standalone basis, (ii) are not essential to the functionality of the software and (iii) there is objective and reliable evidence of fair value of each deliverable. When accounted for separately, revenue is recognized as the services are rendered for time and material contracts, and ratably over the term of the contract when accepted by the customer for fixed price contracts. For revenue arrangements with multiple deliverables, such as an arrangement that includes license, support and professional services, we allocate the total amount the customer will pay to the separate units of accounting based on their relative fair values, as determined by the price of the undelivered items when sold separately.

The timing of revenue recognition in each case depends upon a variety of factors, including the specific terms of each arrangement and the nature of our deliverables and obligations, and the existence of evidence to support recognition of our revenue as of the reporting date. For contracts with extended payment terms for which we have not established a successful pattern of collection history, we recognize revenue when all of the criteria are met and when the fees under the contract are due and payable.

In the event that we have incurred costs associated with a specific revenue arrangement prior to the execution of the related contract, those costs are expensed as incurred.

Fees are recognized as revenue when all revenue recognition criteria have been met. Fees that have been invoiced are recorded in trade receivables and fees that have not been invoiced as of the reporting date but on which all revenue recognition criteria are met are accrued and reported as accrued contract receivables on the balance sheets and recognized as revenue in the period when the fees are earned.

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We present revenue net of value-added tax, sales tax, excise tax and other similar assessments.

Government Grants

We have in the past received government grants from programs sponsored by the EU and administered by the Government of Greece, that are designed to aid technology development efforts. In 2006, we received a grant administered by the Ministry of Development of Greece for approximately $4.5 million for the development and roll-out of mobile value-added services and various e-commerce related services. In 2007, we received a grant administered by the Ministry of Finance of Greece for approximately $8.5 million for the development and roll-out of broadband value-added services. In 2009, we applied for a grant administered by the Ministry of Development and have been notified that we are eligible to receive funding of up to $12.0 million over four years. Each grant provides income in the form of reimbursement for a portion of the costs incurred in the development of technology subject to the terms of the grant. We recognize income from government grants when there is reasonable assurance that the grant will be received and we are able to comply with all of the conditions of the grant imposed by the Government of Greece. We account for government grants using the net method of accounting and recognize the proportionate income from the grant as an offset to costs and expenses in the period when we recognize the associated costs that are reimbursed by the grant, allocated among depreciation and amortization and direct project costs, according to the allocation made of the capitalized software costs reimbursed by the grant.

Intangible Assets

Intangible assets that we acquire or develop are carried at historical cost less accumulated amortization and impairment loss, if any.

Acquired Intangible Assets.    Intangible assets acquired through business combinations are reported at allocated purchase cost less accumulated amortization and accumulated impairment loss, if any. Amortization is expensed on a straight-line basis over the estimated economic lives of the assets acquired. The estimated economic life of the acquired asset is initially determined at the date of acquisition and reviewed at each annual reporting date, with the effect of any changes in estimates being accounted for on a prospective basis.

Currently, our acquired intangible assets consist of customer relationships and developed technology. Customer relationships are estimated to provide benefits over five years and developed technology acquired is estimated to provide benefits over four years.

Software Development Costs.    Software development costs consist primarily of internal salaries and consulting fees for developing software platforms for sale to or use by customers in mobile marketing and advertising campaigns. We capitalize costs related to the development of our software products, as all of our products are to be used as an integral part of a product or process to be sold or leased. Such software is primarily related to our Velti mGage platform, including underlying support systems.

We capitalize costs related to software developed for new products and significant enhancements of existing products once technological feasibility has been reached and all research and development for the components of the product have been completed. Such costs are amortized on a straight-line basis over the estimated useful life of the related product, not to exceed three years, commencing with the date the product becomes available for general release to our customers. The achievement of technological feasibility and the estimate of a products' economic life require management's judgment. Any changes in key assumptions, market conditions or other circumstances could result in an impairment of the capitalized asset and a charge to our operating results.

Amortization expenses associated with our software development costs are recorded in costs and expenses under depreciation and amortization within the accompanying consolidated statements of operations.

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Computer Software.    Computer software costs generally represent costs incurred to purchase software programs and packages that are used to develop and ultimately deliver our platforms sold to customers. Generally, costs associated with maintaining computer software programs are expensed as incurred. Purchase costs that are directly associated with the development of identifiable software products that have reached technological feasibility at the date of purchase are capitalized. We capitalize the cost of software licenses that are complementary to or enhance the functionality of our existing technology platform and amortize such costs over the shorter of the contract term or the useful life of the license, but not to exceed five years.

Licenses.    We acquire know-how, intellectual property, and technical expertise generally through licensing arrangements with development partners. We capitalize the cost of the know-how and intellectual property licenses when the in-license expertise compliments and/or enhances our existing technology platform. Software licenses are amortized over the shorter of the contract term of the license agreement or the useful life of the license but not to exceed five years.

Valuation of Long-lived and Intangible Assets

We periodically evaluate events or changes in circumstances that indicate the carrying amount of our long-lived and intangible assets may not be recoverable or that the useful lives of the assets may no longer be appropriate. Factors which could trigger an impairment review or a change in the remaining useful life of our long-lived and intangible assets include significant underperformance relative to historical or projected future operating results, significant changes in our use of the assets or in our business strategy, loss of or changes in customer relationships and significant negative industry or economic trends. When indications of impairment arise for a particular asset or group of assets, we assess the future recoverability of the carrying value of the asset (or asset group) based on an undiscounted cash flow analysis. If carrying value exceeds projected, net, undiscounted cash flows, an additional analysis is performed to determine the fair value of the asset (or asset group), typically a discounted cash flow analysis, based on an income and/or cost approach, and an impairment charge is recorded for the excess of carrying value over fair value.

The process of assessing potential impairment of our long-lived and intangible assets is highly subjective and requires significant judgment. An estimate of future undiscounted cash flow can be affected by many assumptions, requiring that management make significant judgments in arriving at these estimates. Although there are inherent uncertainties in this assessment process, the estimates and assumptions we use to estimate future cash flows including sales volumes, pricing, and market penetration are consistent with our internal planning. Significant future changes in these estimates or their related assumptions could result in an impairment charge related to individual or groups of these assets.

Share-Based Compensation Expense

We measure and recognize share-based compensation expense related to share-based transactions, including employee and director equity awards, in the financial statements based on fair value. We use the Black-Scholes valuation model to calculate the grant date fair value of share options and deferred share awards, using various assumptions. We recognize compensation expense over the service period of the award using the "graded vesting attribution method" which allocates expense on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards.

We account for equity instruments issued to non-employees as expense at their fair value over the related service period and periodically revalue the equity instruments as they vest, using a fair value approach. The value of equity instruments issued for consideration other than employee services is determined on the earlier of (i) the date on which there first exists a firm commitment for performance by the provider of goods or services, or (ii) on the date performance is complete, using the Black-Scholes valuation model.

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We have historically granted deferred share awards to our employees, having begun doing so in 2006. We have also awarded fully vested ordinary shares as remuneration to our non-executive directors in lieu of cash compensation. Deferred share awards granted in 2009 and prior years are subject to vesting based upon achievement of performance metrics as well as a minimum service period, and vest on the second anniversary of the date of grant. Deferred share awards granted in 2010 are subject to time-based vesting, typically at the rate of 25% per year on the anniversary of the date of grant.

Under the terms of our share incentive plans, shares are issued to a participant when the deferred share award vests in accordance with any vesting schedule specified in the award agreement following receipt by us of payment of the aggregate nominal (par) value of £0.05 per ordinary share. The deferred share award recipient is responsible for payment of this par value and of all applicable taxes payable on the award. In 2009, we began granting share options to our employees and consultants in addition to deferred share awards. All of our share options have an exercise price equal to the fair value of our ordinary shares on the date of grant, based on the closing price of our ordinary shares on AIM on the day immediately preceding the date of the grant or, if the applicable date is not a trading day, the last trading day immediately preceding the applicable date, and typically vest over four years at the rate of 25% per year on the anniversary of the date of grant.

The fair value of deferred share awards is determined using the fair value of our ordinary shares on the date of grant. Compensation expense is recognized for deferred share awards on a straight-line basis over the service period. The fair value on the date of grant approximates market value on date of grant as the exercise price equals the nominal (par) value of £0.05 per ordinary share. The expected life of a deferred share award is estimated based on the contractual term of the award. The weighted average grant-date fair value was £1.54, £1.61 and £1.21 per deferred share award for the year ended December 31, 2009, 2008 and 2007, respectively, and £4.20 and £1.54 per deferred share award for the nine months ended September 30, 2010 and 2009, respectively. The deferred share awards outstanding as of December 31, 2009, 2008 and 2007, and as of September 30, 2010 and 2009, had a weighted average exercise price of £0.05 which represents the nominal (par) value of each ordinary share.

For share options, as we do not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior, we estimate the expected term of options granted by taking the average of the vesting term and the contractual term of the share options, referred to as the simplified method. We use a blended volatility estimate consisting of our own share volatility based on our trading history on AIM and the average volatility of similar companies in the technology industry. The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected term of the share option. Expected dividends during the expected term of the award is based on our dividend policy, of which none had been declared and no dividends are expected to be declared during the expected term.

We estimated the fair value of each share option granted using the Black-Scholes option-pricing method using the following assumptions for the periods presented in the table below:


 
  Nine Months Ended September 30,   Year Ended December 31,  
Share Options Valuation Assumptions
  2010   2009   2009   2008   2007  
 
  (unaudited)
   
   
   
 

Expected volatility

    60 %   61 %   61 %        

Expected life in years

    6.25     6.25     6.25          

Risk free interest rate

    2.5 %   4.0     4.0 %        

Expected dividends

                     

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Because our ordinary shares are publicly traded on AIM, our board of directors has determined the fair value of our ordinary shares on the date of grant based on the closing price of our ordinary shares on the date of grant as quoted on AIM.

The aggregate estimated grant date fair value of our share awards was approximately $2.5 million for deferred share awards and $1.2 million for share options granted in 2009, $2.3 million for deferred share awards granted in 2008, and $1.3 million for deferred share awards granted in 2007. The aggregate grant date fair value of our share awards was approximately $6.9 million for deferred share awards and $10.3 million for share options granted for the nine months ended September 30, 2010. For the years ended December 31, 2009, 2008 and 2007, and the nine months ended September 30, 2010 and 2009, we recognized total share-based compensation expense under equity incentive awards made to our employees (but excluding expense associated with awards to our non-executive directors) and allocated such expense among our operating expenses as follows (in thousands):


 
  Nine Months Ended September 30,   Year Ended December 31,  
 
  2010   2009   2009   2008   2007  
 
  (unaudited)
   
   
   
 

Datacenter and direct project costs

  $ 356   $ 148   $ 146   $ 177   $ 104  

General and administrative expenses

    1,733     450     329     653     462  

Sales and marketing expenses

    2,552     844     473     734     454  

Research and development expenses

    686     243     186     212     123  
                       

  $ 5,327   $ 1,685   $ 1,134   $ 1,776   $ 1,143  
                       

As of December 31, 2009, 2008 and 2007, and as of September 30, 2010, there was $2.0 million, $1.7 million, $1.1 million, and $6.2 million, respectively, of total unrecognized compensation expense related to deferred share awards awarded under our share incentive plans. This unrecognized compensation expense as of September 30, 2010 is expected to be recognized over a weighted average period of 1.89 years. As of September 30, 2010, there was approximately $8.7 million of total unrecognized compensation cost related to share options expected to be recognized over a period of 3.15 years.

Our outstanding share options as of September 30, 2010 had a weighted average exercise price of £3.30 per share.

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The following table reflects all deferred share awards and share options granted subsequent to December 31, 2009 through the date of this filing:


Type of Grant
  Grant Date   Reason For Grant   Shares
Underlying
Grants
  Exercise
Price Per
Share
(in £)
  Grant Date
Fair
Value
Per Share
(in £)
  Total
share-based
compensation
expense
(in US$)
  Timing of Expense
Recognition
Share options   January 4, 2010   Award to employee     8,000     £2.04     £1.19   $ 11,849   January 4, 2010—January 3, 2014
Share options   January 7, 2010   Award to employee     100,000     £2.42     £1.41     173,555   January 7, 2010—January 6, 2014
Share options   January 26, 2010   Awards to employees     28,000     £2.90     £1.69     58,955   January 26, 2010—January 25, 2014
Share options   February 2, 2010   Award to employee     15,000     £2.95     £1.72     31,846   February 2, 2010—February 1, 2014
Deferred share awards   May 13, 2010   Awards to non-employee directors     100,394     £0.05     £3.30     485,671   (2)
Deferred share awards   May 13, 2010   Awards to employees     768,617     £0.05     £4.12     3,854,284   July 30, 2010—May 12, 2014
Deferred share awards   May 13, 2010   Awards to non-employee consultants and advisors     28,500     £0.05     (1)     (1)   July 30, 2010—May 12, 2014
Share options   May 13, 2010   Awards to employees     1,653,426     £3.35     £1.95     4,604,612   May 13, 2010—May 12, 2014
Share options   May 13, 2010   Awards to employees     493,625     £3.35     £2.63     1,576,542   July 30, 2010—May 12, 2014
Share options   May 13, 2010   Awards to non-employee consultants     3,500     £3.35     (1)     (1)   July 30, 2010—May 12, 2014
Share options   May 13, 2010   Awards to employees     286,000     £3.35     £2.51     1,089,829   (2)
Share options   May 13, 2010   Award to non-employee consultant     2,500     £3.35     (1)     (1)   (2)
Deferred share awards   May 27, 2010   Awards to employees     12,250     £0.05     £4.12     61,437   July 30, 2010—May 26, 2014
Share options   May 27, 2010   Awards to employees     19,250     £4.67     £2.32     54,387   July 30, 2010—May 26, 2014
Deferred share awards   June 1, 2010   Awards to employees     25,464     £0.05     £4.12     127,709   July 30, 2010—May 31, 2014
Share options   June 1, 2010   Awards to employees     27,036     £4.70     £2.32     76,187   July 30, 2010—May 31, 2014
Deferred share awards   June 30, 2010   Awards to employees     68,700     £0.05     £4.12     344,549   July 30, 2010—June 29, 2014
Deferred share award   June 30, 2010   Award to employee     5,848     £0.05     £4.12     37,861   July 30, 2010
Deferred share award   June 30, 2010   Award to non-employee consultant     6,400     £0.05     (1)     (1)   July 30, 2010
Share options   June 30, 2010   Awards to employees     37,750     £4.14     £2.44     111,795   July 30, 2010—June 29, 2014
Share options   June 30, 2010   Award to employee     2,500     £4.14     £1.92     6,782   (2)
Share options*   September 12, 2010   Awards to employees     220,000     £6.14     £3.58     1,170,212   September 12, 2010—September 11, 2014
Deferred share awards*   September 12, 2010   Awards to employees     86,900     £0.05     £6.09     763,176   September 12, 2010—September 11, 2014
Share options*   September 12, 2010   Awards to employees     90,000     £6.14     £2.81     372,151   (2)
Deferred share awards*   September 12, 2010   Award to non-employee advisor     5,000     £0.05     (1)     (1)   September 12, 2010—September 11, 2012
Deferred share awards*   September 12, 2010   Award to non-employee consultant     25,000     £0.05     (1)     (1)   September 12, 2010
Share options*   September 12, 2010   Award to non-employee consultant     10,000     £6.14     (1)     (1)   September 12, 2010—September 11, 2014
Deferred share awards*   October 30, 2010   Awards to employees     17,350     £0.05     £5.86     126,039   October 30, 2010—October 29, 2014
Share options*   October 30, 2010   Awards to employees     5,000     £5.91     £3.44     21,321   October 30, 2010—October 29, 2014
Deferred share awards*   October 30, 2010   Award to non-employee consultant     2,500     £0.05     (1)     (1)   October 30, 2010—August 31, 2014
Share options*   October 30, 2010   Award to non-employee consultant     7,500     £5.91     (1)     (1)   October 30, 2014—August 31, 2014
Deferred share awards*   November 30, 2010   Awards to employees     37,125     £0.05     £5.02     224,329   November 30, 2010—November 29, 2014
Share options*   November 30, 2010   Awards to employees     19,000     £5.07     £2.84     64,912   November 30, 2010—November 29, 2014
Deferred share awards*   December 30, 2010   Awards to employees     6,850     £0.05     £4.88     40,035   December 30, 2010—December 29, 2014
Share options*   December 30, 2010   Awards to employees     7,500     £4.93     £2.76     24,790   December 30, 2010—December 29, 2014
Deferred share awards*   December 30, 2010   Awards to non-employee advisor     10,000     £0.05     (1)     (1)   December 30, 2010—December 29, 2012


(1)
We account for share options and deferred share awards issued to non-employees in accordance with the provisions of ASC 505-50, Equity-Based Payment to Non-Employees, using a fair value approach. The fair value of awards to non-employees is subject to re-measurement over the vesting period at each reporting date based upon the share price at that time.

(2)
Shares vest in full on the one year anniversary of the date of grant provided that we have completed a public offering of our ordinary shares in the United States and listed our ordinary shares for trading on the NASDAQ Global Market or similar exchange prior to the date of vesting.

*
These awards are unuadited.

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Goodwill

Goodwill is generated when the consideration paid for an acquisition exceeds the fair value of net assets acquired. We assess impairment of goodwill annually or whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. We have selected December 31 as the date to perform the annual impairment testing of goodwill. We primarily use the market approach to calculate the fair value of our reporting unit. An estimate of the fair value can be affected by many assumptions, requiring management to make significant judgments in arriving at these estimates, including the expected operational performance of our business in the future, market conditions and other factors. Although there are inherent uncertainties in this assessment process, the estimates and assumptions we use to estimate future cash flows including sales volumes, pricing, market penetration and discount rates, are consistent with our internal planning. If these estimates of fair value or the related assumptions change in the future, we may be required to record impairment of goodwill. We perform a two-step test to assess our goodwill for impairment. The first step requires that we compare the estimated fair value of a reporting unit against the carrying value. If the estimated fair value of the reporting unit is less than the carrying value, then a more detailed assessment is performed comparing the fair value of the reporting unit to the fair value of the assets and liabilities plus the goodwill carrying value of the reporting unit. If the fair value of the reporting unit is less than the fair value of its assets and liabilities plus goodwill, then an impairment charge is recognized to reduce the carrying value of goodwill by the difference.

We operate in one reporting unit and the fair value of the company approximates the fair value of the reporting unit where goodwill resides. Accordingly, we have determined that no goodwill impairment charge was necessary for the years ended December 31, 2009, 2008 and 2007, or the nine months ended September 30, 2010 or 2009.

Income Tax Expense

As a result of our redomiciliation to Jersey in December 2009, we are now tax resident in Ireland. We are subject to tax in tax jurisdictions or countries in which we conduct business, including the U.K., Greece, Cyprus, Bulgaria, and the U.S. Earnings from our activities are subject to local country income tax and may be subject to current U.K. income tax.

As of September 30, 2010, we had net operating loss carryforwards in the U.K. and other foreign geographies of $58.1 million that begin to expire in 2011. As of September 30, 2010, we had net deferred tax assets of $2.4 million, after applying a valuation allowance of $7.5 million. Our net deferred tax assets consist primarily of net operating losses. We assessed the need for a valuation allowance on the deferred tax assets by evaluating both positive and negative evidence that may exist. Any adjustment to the deferred tax asset valuation allowance would be recorded in the income statement of the periods that the adjustment is determined to be required. We will continue to assess annually the need for a valuation allowance by tax jurisdiction. An adjustment to the deferred tax valuation allowance was recorded in 2009 for the amount of deferred tax assets that management determined would unlikely be utilized in the future.

We recorded an income tax expense of $410,000 on a worldwide pre-tax income of $6.7 million for the year ended December 31, 2009. We recorded an income tax benefit of $26,000 on a worldwide pre-tax loss of $6.3 million for the year ended December 31, 2008. We recorded an income tax benefit of $198,000 on a worldwide pre-tax loss of $4.6 million for the year ended December 31, 2007.

Beginning in 2007, we adopted the authoritative accounting guidance prescribing a threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance also provides for de-recognition of tax benefits, classification on the balance sheets, interest and penalties, accounting in interim periods, disclosure and transition. The guidance utilizes a two-step approach for evaluating uncertain tax positions. Step one, Recognition, requires a company to determine if the weight of available evidence indicates that a tax

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position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if any. If a tax position is not considered "more likely than not" to be sustained then no benefits of the position are to be recognized. Step two, Measurement, is based on the largest amount of benefit, which is more likely than not to be realized on ultimate settlement. As of December 31, 2009, we had $5.7 million of gross unrecognized tax benefits. As of December 31, 2009, we cannot make a reasonably reliable estimate of the period in which these liabilities may be settled with the respective tax authorities.

Effective January 1, 2007, we adopted the accounting guidance on uncertainties in income tax. There was no cumulative effect of adoption to the opening balance of the retained earnings.

Equity Method Investments

Our equity method investments includes all investments in entities over which we have significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Our equity method investments are accounted for using the equity method of accounting and are initially recognized at cost. Our share of the equity method investments' post acquisition profits or losses is recognized in the consolidated statement of operations, and our share of post-acquisition movements in reserves is recognized in reserves. The cumulative post acquisition movements are recorded against the carrying amount of the investment. When our share of losses in an equity method investment equals or exceeds our interest in the equity method investment including any other unsecured receivables, we will not recognize further losses unless we have incurred obligations or made payments on behalf of the equity method investment.

Unrealized gains on transactions between us and our equity method investments are eliminated to the extent of our interest in the equity method investment. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of equity method investees have been changed where necessary to ensure consistency with the policies adopted by us.

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Results of Operations

Comparison of Nine Months Ended September 30, 2010 and 2009

The following table sets forth our consolidated results of operations for the nine months ended September 30, 2010 and 2009:


 
  Nine Months Ended September 30,  
 
  2010   2009  
 
  (in thousands)
 
 
  (unaudited)
 

Revenue:

             
 

Software as a service (SaaS) revenue

  $ 36,348   $ 11,491  
 

License and software revenue

    14,304     6,427  
 

Managed services revenue

    8,130     6,248  
           
   

Total revenue

    58,782     24,166  

Costs and expenses:

             
 

Third-party costs

    18,080     10,980  
 

Datacenter and direct project costs

    4,370     3,117  
 

General and administrative expenses

    15,162     10,413  
 

Sales and marketing expenses

    17,131     10,991  
 

Research and development expenses

    4,639     2,585  
 

Depreciation and amortization

    8,096     7,180  
           
   

Total costs and expenses

    67,478     45,266  
           

Loss from operations

    (8,696 )   (21,100 )
 

Interest income

    78     47  
 

Interest expense

    (5,271 )   (1,366 )
 

Loss from foreign currency transactions

    (1,052 )   (433 )
           

Loss before income taxes, equity method investments and non-controlling interest

    (14,941 )   (22,852 )
           
 

Income tax (expense) benefit

    (670 )   1,053  
 

Loss from equity method investments

    (2,107 )   (1,449 )
           

Net loss

    (17,718 )   (23,248 )
 

Net loss attributable to non-controlling interest

    (60 )   (14 )
           

Net loss attributable to Velti

  $ (17,658 ) $ (23,234 )
           

Revenue

Our total revenue for the nine months ended September 30, 2010 increased by $34.6 million, or 143%, compared to the same period in 2009. This increase was primarily the result of growth in the number of campaigns from existing customers, the addition of new customers and revenue generated from the acquisition of Ad Infuse in May 2009. For the first nine months of 2010, our revenue from existing customers was $47.0 million and from new customers was $11.8 million, compared to $13.2 million and $11.0 million, respectively, for the same period in 2009. During this period we generated revenue of $1.5 million in the Americas, primarily resulting from the expansion of our U.S. operations following the acquisition of Ad Infuse.

In connection with our proposed public offering in the United States, we have converted from reporting our financial results under IFRS to reporting our financial results in accordance with U.S. GAAP. We have also for the first time reviewed our historic results on a quarterly basis, having previously determined and

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reported our financial results on a half and full year basis only. Following these exercises, in our U.S. GAAP results, we determined that a portion of the revenue generated in 2008 should be recognized in 2009, and a portion of the revenue generated in the first six months ending June 30, 2009 should be recognized in the second half of 2009.

First, we determined that approximately $18.4 million of our revenue should be recognized in the second half of 2009, rather than the first half of 2009, and primarily in the fourth quarter. Although we delivered the licenses and services associated with this revenue in the first half of 2009, we had not yet finalized contract negotiations and as a result were not able to recognize revenue until these contracts had been fully executed.

Second, included in the $58.8 million of revenue for the nine months ended September 30, 2010 is $3.0 million of revenue that required recognition in the first half of 2010 rather than the second half of 2009, related to a customer agreement for a perpetual software license. For this same customer, included in the $24.2 million of revenue in the nine months ended September 30, 2009 is $4.3 million of revenue that required recognition in 2009 rather than 2008. We also recognized revenue in 2009 in the approximate amount of $11.9 million relating to contracts commenced but not finalized in 2008. Approximately $5.0 million of this $11.9 million was recognized in the first half of 2009.

In 2010, we have placed more focus on executing our final contracts in the same quarter that we begin delivery of our services or licenses. Consequently, in 2010, we did not, as we did in 2009, defer any significant revenue from the first half to the second half of the year.

Our SaaS revenue in 2009 was not affected by the changes in our revenue recognition. The increase in our SaaS revenue was primarily the result of multiple large-scale mobile marketing campaigns where we generated significant performance-based SaaS fees based upon our achievement of certain performance metrics.

Third-Party Costs

Third-party costs for the nine months ended September 30, 2010 increased by $7.1 million, or 65%, compared to the same period in 2009 as a result of an increase in the number of campaigns with incentives and promotional costs. For the first nine months of 2010, we conducted 24 campaigns with incentives and promotional costs, compared to 5 such campaigns for the same period of 2009.

Datacenter and Direct Project Costs

Datacenter and direct project costs for the nine months ended September 30, 2010 increased by $1.3 million, or 40%, compared to the same period in 2009, due to the increase in number of campaigns conducted in the first nine months of 2010.

General and Administrative Expenses

General and administrative, or G&A, expenses for the nine months ended September 30, 2010 increased by $4.7 million, or 46%, compared to the same period in 2009. Of this increase, $2.6 million was related to our increase in G&A personnel worldwide and to additional expenses associated with our expansion in the U.S. In addition, we incurred approximately $1.2 million of additional compensation expense resulting from equity awards to our employees during the nine months ended September 30, 2010.

Sales and Marketing Expenses

Sales and marketing expenses for the nine months ended September 30, 2010 increased by $6.1 million, or 56%, compared to the same period in 2009. Of this increase, $3.6 million was related to additional consultancy expenses, professional fees, pre-sale marketing expenses and travel expenses incurred in connection with the expansion of our global operations and the development of new markets, as well as additional sales and marketing expenses associated with our U.S. expansion. We incurred an additional

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$1.8 million in compensation expense resulting from equity awards to our employees during the nine months ended September 30, 2010.

Research and Development Expenses

Research and development expenses for the nine months ended September 30, 2010 increased by $2.1 million, or 79%, compared to the same period in 2009. This increase was primarily due to a change in resource allocation as we assigned engineers from other internal business functions to our technology, innovation and product development groups.

Depreciation and Amortization

Depreciation and amortization expenses for the nine months ended September 30, 2010 increased by $0.9 million, or 13%, as compared to the same period in 2009. This increase was primarily due to higher capitalized software development costs related to the development of our our mGage platform, as well as an increase in other amortized intangibles from our acquisitions.

Interest Expense

Interest expense for the nine months ended September 30, 2010 increased by $3.9 million, or 286%, compared to the same period in 2009. This increase in interest expense was primarily due to an increase in our borrowings and factoring of additional receivables. For a description of our borrowing and factoring obligations see Note 11 to notes to consolidated financial statements. We intend to repay $53.5 million of our outstanding long-term debt and short-term financings with a portion of the proceeds of this offering. We do not expect to repay from the proceeds of this offering additional indebtedness that we incurred in August 2010 in the amount of €15.0 million (approximately $21.5 million).

Gain (loss) from Foreign Currency Transactions

Gain (loss) from foreign currency transactions, a non-cash item, for the nine months ended September 30, 2010 increased by $0.6 million, as compared to the same period in 2009. The loss from foreign currency transactions was primarily due to foreign exchange translation adjustments on loans denominated in US Dollars. These were partially offset by gains from foreign currency transactions on intercompany loans that resulted from changes in exchange rates in Russian roubles and Ukrainian hryvnia. Our intercompany loans are loans that we made to subsidiaries in euros to fund costs and expenses incurred in local currencies.

Income Tax Expense

We recorded an income tax expense of $670,000 on a worldwide pre-tax loss of $17.0 million for the nine months ended September 30, 2010 compared to an income tax benefit of $1.1 million on a world-wide pre-tax loss of $24.3 million for the same period in 2009.

Loss from Equity Method Investments

Our share of loss from equity method investments for the nine months ended September 30, 2010 increased by $658,000, or 45%, compared to the same period in 2009. This increase in our share of loss from equity method investments was primarily due to our share of the operating losses generated by Ansible, which was shared with IPG, and the operating losses generated by CASEE during 2010. For a discussion of our equity method investments, see Note 10 to notes to consolidated financial statements.

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Comparison of Years Ended December 31, 2009 and 2008

The following table sets forth our consolidated results of operations for the years ended December 31, 2009 and 2008:


 
  Year Ended December 31,  
 
  2009   2008  
 
  (in thousands)
 

Revenue:

             
 

Software as a service (SaaS) revenue

  $ 30,965   $ 40,926  
 

License and software revenue

    45,811     14,638  
 

Managed services revenue

    13,189     6,468  
           
   

Total revenue

    89,965     62,032  

Costs and expenses:

             
 

Third-party costs

    27,620     32,860  
 

Datacenter and direct project costs

    4,908     8,660  
 

General and administrative expenses

    17,387     6,660  
 

Sales and marketing expenses

    15,919     8,245  
 

Research and development expenses

    3,484     1,884  
 

Depreciation and amortization

    9,394     4,231  
           
   

Total costs and expenses

    78,712     62,540  
           

Income (loss) from operations

    11,253     (508 )
 

Interest income

    50     149  
 

Interest expense

    (2,420 )   (1,304 )
 

Gain (loss) from foreign currency transactions

    14     (1,665 )
 

Other expenses

        (495 )
           

Income (loss) before income taxes, equity method investments and non-controlling interest

    8,897     (3,823 )
           
 

Income tax (expense) benefit

    (410 )   26  
 

Loss from equity method investments

    (2,223 )   (2,456 )
           

Net income (loss)

    6,264     (6,253 )
 

Net income (loss) attributable to non-controlling interest

    (191 )   (123 )
           

Net income (loss) attributable to Velti

  $ 6,455   $ (6,130 )
           

Revenue

Our total revenue for the year ended December 31, 2009 increased by $27.9 million, or 45%, compared to the same period in 2008. This increase was the result of continued increase in revenue from campaigns for our existing customers, growth in revenue from new customers and revenue generated from our acquisition of Ad Infuse in May 2009. For the year ended December 31, 2009, revenue from existing customers was $46.2 million and from new customers was $43.8 million. During this period we generated revenue of $4.0 million from the Americas, primarily resulting from the expansion of our U.S. operations following the acquisition of Ad Infuse, compared to revenue of $1.6 million in the Americas in 2008.

We also recognized revenue in 2009 in the approximate amount of $11.9 million relating to contracts commenced but not finalized in 2008. Taking advantage of the investments in sales and marketing made in the prior year, we significantly grew our relationships with mobile operators over the period, with increased use of our solutions by local subsidiaries of mobile operators. In addition, the increase in scope of services

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we offer on our technology platform allowed us to expand our relationships with existing customers, including enhanced relationships with brands and media companies. Although our license and software revenue increased significantly from $14.6 million in 2008 to $45.8 million in 2009 as a result of our expansion of our sales channels, we expect our software as a service (SaaS) revenue to be our highest growth revenue component in the next few years.

Included in the $58.8 million of revenue for the nine months ended September 30, 2010 is $3.0 million of revenue that required recognition in the first half of 2010 rather than the second half of 2009, related to a customer agreement with respect to a perpetual software license. For this same customer, included in the $24.2 million of revenue in the nine months ended September 30, 2009 is $4.3 million of revenue that required recognition in 2009 rather than 2008.

During 2008 we entered into contracts with two customers, the provisions of which required us to recognize as SaaS revenue certain revenue generated from fees for media and other advertising production costs acquired on behalf of each customer for its mobile marketing and advertising campaigns in the amount of approximately $12.5 million, and separately charge the same amount of costs incurred to third-party costs. Had we not recognized the additional SaaS revenue on these contracts in 2008, our revenue would have increased from 2008 to 2009 by $40.4 million, or 82%. During 2008, revenue from existing customers was $22.0 million, and from new customers was $40.0 million, including this $12.5 million.

Third-Party Costs

Third-party costs for the year ended December 31, 2009 decreased by $5.2 million, or 16%, compared to the same period in 2008. Third-party costs as a percentage of revenue for the year ended December 31, 2009 decreased to 31% compared to 53% in 2008 (41% if adjusted for the additional SaaS revenue generated from the agreements with two customers described above). This improvement in third-party costs as a percentage of revenue was primarily due to two factors. First, on several contracts for which we commenced providing services and accordingly recognized costs in 2008, we did not complete negotiation of all terms of the contracts until 2009. As a result, we did not meet all of the criteria required to recognize the revenue generated under such contracts until 2009 but had incurred costs related to the underlying campaigns in 2008, resulting in lower third party costs as a percentage of revenue in 2009. Second, our contracts are increasing in scope and we are thereby achieving economies of scale on larger and longer-term contracts, particularly those with our mobile operator customers.

Datacenter and Direct Project Costs

Datacenter and direct project costs for the year ended December 31, 2009 decreased by $3.8 million, or 43%, compared to the same period in 2008. As we have continued to expand our business with existing customers, we have gained experience with these customers and therefore can more easily and effectively optimize campaigns. We also continue to standardize our technology platform, including increasing the number of templates we make available to our customers. This enables us to generate additional revenue through the provision of technology solutions that are less dependent on personnel-intensive managed services and as a result reduces our labor-related internal costs.

General and Administrative Expenses

General and administrative, or G&A, expenses for the year ended December 31, 2009 increased by $10.7 million, or 161%, compared to the same period in 2008. Of this increase in 2009, $2.8 million was related to expenses incurred in connection with our recent re-domiciliation to Jersey and professional fees associated with various corporate opportunities that we considered during the period, and $2.3 million was related to additional G&A expenses associated with our U.S. office expansion, including our acquisition of Ad Infuse. We also incurred an additional $1.5 million related to an increase in personnel-related G&A

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costs. Additionally we incurred an additional $1.5 million in professional fees and incurred costs for additional administrative personnel to support new offices that we opened during the period.

Sales and Marketing Expenses

Sales and marketing expenses for the year ended December 31, 2009 increased by $7.7 million, or 93%, compared to the same period in 2008. Of this increase in 2009, $3.0 million was related to additional consultancy, professional fees and traveling expenses incurred as we increased our global operations and the number of jurisdictions in which we provide services to customers, and $1.1 million was related to additional sales and marketing expenses associated with our U.S. office expansion, including our acquisition of Ad Infuse and appointment of our vice president of global marketing. We incurred an additional $1.2 million in payroll related expenses. Finally, we incurred approximately $900,000 in pre-sales marketing expenses relating to new campaigns for one of our customers.

Research and Development Expenses

Research and development expenses for the year ended December 31, 2009 increased by $1.6 million, or 85%, as compared to the same period in 2008. This increase is primarily due to higher payroll-related expenses as we assigned more engineers to the technology, innovation and product development groups.

Depreciation and Amortization

Depreciation and amortization expenses for the year ended December 31, 2009 increased by $5.2 million, or 122%, as compared to the same period in 2008. This increase is primarily due to our incremental capitalized software development costs and other amortized intangibles as a result of our acquisition of Ad Infuse in 2009.

Interest Income

Interest income for the year ended December 31, 2009 decreased by $99,000, or 66%, compared to the same period in 2008. This decrease in interest income was primarily due to lower yields from our cash and investment portfolio and a lower cash and investment balance maintained during 2009 compared to the prior year.

Interest Expense

Interest expense for the year ended December 31, 2009 increased by $1.1 million, or 86%, compared to the same period in 2008. This increase in interest expense was primarily due to an increase in our borrowings and factoring of additional receivables. For a description of our borrowing and factoring obligations see Note 11 to notes to consolidated financial statements. We intend to repay $53.5 million of our outstanding long-term debt and short-term financings with a portion of the proceeds from this offering.

Gain (loss) from Foreign Currency Transactions

Gain from foreign currency transactions, a non-cash item, for the year ended December 31, 2009 increased by $1.7 million, or 101%, as compared to the same period in 2008. This increase in gain from foreign currency transactions was primarily due to foreign exchange transaction adjustments on intercompany loans for changes in exchange rates in British pound sterling, Russian roubles and Ukrainian hryvnia. Losses occurred during December 2008 when all three currencies depreciated significantly against the euro. Our intercompany loans are loans that we made to subsidiaries in euro to fund costs and expenses incurred in local currencies.

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Income Tax Expense

We recorded an income tax expense of $410,000 on a worldwide pre-tax income of $6.7 million for the year ended December 31, 2009, which was mainly due to current taxes payable in foreign jurisdictions, tax reserves and valuation allowance. We recorded an income tax benefit of $26,000 on a worldwide pre-tax loss of $6.3 million for the year ended December 31, 2008.

Loss from Equity Method Investments

Our share of loss from equity method investments for the year ended December 31, 2009 decreased by $233,000, or 9%, compared to the same period in 2008. This decrease in our share of loss from equity method investments was primarily due to our share of the operating losses generated by Ansible and CASEE during 2009. For a discussion of our equity method investments, see Note 10 to notes to consolidated financial statements.

Results of Operations

Comparison of Years Ended December 31, 2008 and 2007

The following table sets forth our consolidated results of operations for the years ended December 31, 2008 and 2007:


 
  Year Ended December 31,  
 
  2008   2007  
 
  (in thousands)
 

Revenue:

             
 

Software as a service (SaaS) revenue

  $ 40,926   $ 11,031  
 

License and software revenue

    14,638     2,712  
 

Managed services revenue

    6,468     2,651  
           
   

Total revenue

    62,032     16,394  

Costs and expenses:

             
 

Third-party costs

    32,860     2,437  
 

Datacenter and direct project costs

    8,660     2,863  
 

General and administrative expenses

    6,660     4,075  
 

Sales and marketing expenses

    8,245     5,812  
 

Research and development expenses

    1,884     1,662  
 

Depreciation and amortization

    4,231     3,013  
           
   

Total costs and expenses

    62,540     19,862  
           

Loss from operations

    (508 )   (3,468 )
 

Interest income

    149     186  
 

Interest expense

    (1,304 )   (524 )
 

Loss from foreign currency transactions

    (1,665 )   (154 )
 

Other expenses

    (495 )    
           

Loss before income taxes, equity method investments and non-controlling interest

    (3,823 )   (3,960 )
           
 

Income tax benefit

    26     198  
 

Loss from equity method investments

    (2,456 )   (656 )
           

Net loss

    (6,253 )   (4,418 )
 

Net loss attributable to non-controlling interest

    (123 )   (224 )
           

Net loss attributable to Velti

  $ (6,130 ) $ (4,194 )
           

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Revenue

Our total revenue for the year ended December 31, 2008 increased by $45.6 million, or 278%, compared to the same period in 2007. This increase was primarily the result of growth in the number of campaigns from existing customers, particularly our mobile operator customers and growth in business from new customers, including expansion of our business from existing and new customers in new geographic locations globally. During 2008 we entered into contracts with two customers, the provisions of which required us to recognize as revenue certain revenue generated from fees for media and other advertising production costs acquired on behalf of each customer for its mobile marketing and advertising campaigns in the aggregate amount of approximately $12.5 million, and separately charge the same amount of costs incurred to third-party costs. Had we been able to recognize the net revenue on these contracts, our revenue would have increased from 2007 to 2008 by $33.1 million, or 202%. During 2008, revenue from existing customers was $22.0 million, and from new customers was $40.0 million, including this $12.5 million. We had no license revenue prior to 2008.

This increase in total revenue, excluding the impact of the inclusion of the gross revenue on the two contracts described above, was driven by increased sales to existing and new customers as a result of our expanded sales team and our increased commitment to marketing activities, together with the additional revenue we were able to generate as a result of our continued standardization of products such as additional step-by-step, automated mobile marketing campaign creation templates, allowing us to further automate the marketing process and creating sales opportunities among customers with minimal technical expertise. In 2008, our revenue increased particularly from global mobile operators and secondarily from contracts with brands and advertising agencies in the financial services, retail, technology, and packaged goods industries. We also increased revenue from existing customers and generated new contracts with customers for the first time in the Middle East, South-East Asia and Latin America.

In connection with our proposed public offering in the United States, we have converted from reporting our financial results under IFRS to reporting our financial results in accordance with U.S. GAAP. We have also for the first time reviewed our historical results on a quarterly basis, having previously determined and reported our financial results on a half and full year basis only. Following these exercises, in our U.S. GAAP results, we determined that $5.9 million of the revenue generated in 2007 should be recognized in 2008 as we had not finalized contract negotiations and as a result were not able to recognize revenue until these contracts had been fully executed. We also recognized revenue in 2009 in the approximate amount of $11.9 million relating to contracts commenced, but not finalized, in 2008. Additionally, included in 2009 revenue is $4.3 million of revenue that required recognition in 2009 rather than 2008 related to a customer agreement with respect to a perpetual software license.

Third-Party Costs

Third-party costs for the year ended December 31, 2008 increased by $30.4 million, or 1,248%, compared to the same period in 2007. This increase in third-party costs represent our continued increase in revenue from campaigns for our existing customers, particularly our mobile operator customers, and growth in business from new customers, including expansion of our business from existing and new customers in new geographic locations globally. During 2008, we entered into contracts with two customers, the provisions of which required us to recognize as revenue certain revenue generated from fees for media and other advertising production costs acquired on behalf of each customer for its mobile marketing and advertising campaigns in the aggregate amount of approximately $12.5 million, and separately charge the same amount of costs incurred to third-party costs. Had we been able to recognize net revenue on these contracts, our third-party costs would have increased by $17.9 million, or 735%.

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Datacenter and Direct Project Costs

Datacenter and direct project costs for the year ended December 31, 2008 increased by $5.8 million, or 202%, compared to the same period in 2007. During 2008, we continued to expand our business and invested in expanding our datacenters globally. We also expanded our business with existing customers, and accordingly we allocated more internal resources to manage our campaigns. As we continue to increase the functionality provided by our technology platform, we are able to create, manage and monitor new types of mobile marketing and advertising campaigns through technology rather than managed services, and accordingly expect our datacenter and direct project costs to decrease as a percentage of revenue in future periods.

General and Administrative Expenses

G&A expenses for the year ended December 31, 2008 increased by $2.6 million, or 63%, as compared to the same period in 2007. This increase in G&A expenses was primarily due to an approximately $700,000 increase in back office administrative personnel and personnel related costs, including human resources, finance and information technology employees in support of our expanded operations worldwide. We increased our G&A headcount over the period from 32 to 63 employees. In addition, we incurred approximately $200,000 in additional travel expenses to support our increased global operations and customer relationships, approximately $700,000 in additional professional fees and approximately $300,000 in additional information technology and facilities related costs for new offices, and expanded our presence in many of our existing offices.

Sales and Marketing Expenses

Sales and marketing expenses for the year ended December 31, 2008 increased by $2.4 million, or 42%, as compared to the same period in 2007. This increase in our sales and marketing expenses was primarily the result of our expansion of our sales and marketing organization in order to grow our business globally. We incurred approximately $700,000 and more than doubled the number of our sales and marketing personnel, increasing headcount from 33 to 68, or 106%, over the period, with new sales and marketing employees joining us worldwide, including the U.K., the U.S., Europe, Middle East and Asia. In addition, we spent approximately $700,000 and increased our commitment of additional resources to our pre-sales efforts to increase awareness of the services that we offer by participating in additional industry events and conferences. Finally, we incurred approximately $500,000 in pre-sales marketing expenses relating to new campaigns for one of our customers.

Research and Development Expenses

Research and development expenses for the year ended December 31, 2008 increased by approximately $200,000, or 13%, as compared to the same period in 2007. This increase is primarily due to higher payroll-related expenses as we assigned more engineers to the product development and innovation groups.

Depreciation and Amortization

Depreciation and amortization expenses for the year ended December 31, 2008 increased by $1.2 million, or 40%, as compared to the same period in 2007. This increase is primarily due to our incremental capitalized software development costs.

Interest Income

Interest income for the year ended December 31, 2008 decreased by $37,000, or 20%, compared to the same period in 2007. This decrease in interest income was primarily due to lower yields generated from our cash and investment portfolio and a lower cash and investment balance maintained during 2008 compared to the prior year.

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Interest Expense

Our interest expense is primarily due to our long-term borrowing arrangements. Interest expense for the year ended December 31, 2008 increased by $780,000, or 149%, compared to the same period in 2007. This increase in interest expense was primarily due to an increase in our long-term debt and short-term financings. For a description of our long-term debt and short-term financings see Note 11 to notes to consolidated financial statements. We intend to repay $53.5 million of our long-term debt and short-term financings with a portion of the proceeds from this offering.

Loss from Foreign Currency Transactions

Loss from foreign currency transactions, a non-cash item, for the year ended December 31, 2008 increased by $1.5 million as compared to the same period in 2007. This increase in loss from foreign currency transactions was primarily due to foreign exchange translation adjustments on intercompany loans for changes in exchange rates in British pound sterling, Russian roubles and Ukrainian hryvnia. The majority of the losses occurred during December 2008 when all three currencies depreciated significantly against the euro. Our intercompany loans are loans that we made in euro to subsidiaries to fund costs and expenses incurred in local currencies.

Other Expenses

Other expenses in 2008 consisted of $495,000 related to our share of the settlement of a legal proceeding in connection with certain transactions conducted by Ansible, our joint venture with IPG.

Income Tax Benefit

We recorded an income tax benefit of $26,000 on a worldwide pre-tax loss of $6.3 million for the year ended December 31, 2008. We recorded an income tax benefit of $198,000 on a worldwide pre-tax loss of $4.6 million for the year ended December 31, 2007.

Loss from Equity Method Investments

Our share of loss from equity method investments for the year ended December 31, 2008 increased by $1.8 million, or 274%, compared to the same period in 2007. This increase in our share of loss from equity method investments was primarily due to the net operating loss incurred by Ansible, which was shared with IPG. For a discussion of our equity method investments see Note 10 to notes to consolidated financial statements.

Selected Quarterly Results of Operation

The following table sets forth our selected unaudited consolidated quarterly income statement for the seven quarters ended September 30, 2010. You should read the following information in conjunction with our audited financial statements and related notes thereto included elsewhere in this prospectus. We have prepared the selected unaudited consolidated quarterly financial information on the same basis as our audited consolidated financial statements included in this prospectus, and reflect all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of this data. Our financial results for the seven quarters ended September 30, 2010 may not be indicative of our financial results for any future quarterly periods.

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  For the Three Months Ended  
 
  Sep 30,
2010
  Jun 30,
2010
  Mar 31,
2010
  Dec 31,
2009
  Sep 30,
2009
  Jun 30,
2009
  Mar 31,
2009
 
 
  (unaudited, in thousands)
 

Selected quarterly statement of operations data:

                                           

Revenue

                                           
 

Software as a service (SaaS) revenue

  $ 14,987   $ 13,788   $ 7,573   $ 19,474   $ 7,046   $ 2,072   $ 2,373  
 

License and software revenue

    3,883     5,540     4,881     39,384     405     5,974     48  
 

Managed services revenue

    1,752     2,601     3,777     6,941     2,615     1,916     1,717  
                               

Total revenue

    20,622     21,929     16,231     65,799     10,066     9,962     4,138  

Costs and expenses:

                                           
 

Third-party costs

    4,997     9,059     4,024     16,640     7,521     2,154     1,305  
 

Datacenter and direct project costs

    1,570     1,467     1,333     1,791     1,167     1,293     657  
 

General and administrative expenses

    5,882     3,909     5,371     6,974     4,437     2,858     3,118  
 

Sales and marketing expenses

    6,179     6,263     4,689     4,928     4,481     3,245     3,265  
 

Research and development expenses

    1,656     1,701     1,282     899     1,052     813     720  
 

Depreciation and amortization

    2,843     2,684     2,569     2,214     2,847     2,237     2,096  
                               
   

Total costs and expenses

    23,127     25,083     19,268     33,446     21,505     12,600     11,161  
                               

Income (loss) from operations

    (2,505 )   (3,154 )   (3,037 )   32,353     (11,439 )   (2,638 )   (7,023 )
 

Interest expense, net

    (2,826 )   (1,305 )   (1,062 )   (1,051 )   (575 )