unilava_10q-09302010.htm

10-Q 1 unilava_10q-09302010.htm UNILAVA FORM 10Q FOR 09-30-3010 unilava_10q-09302010.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10−Q

(Mark One)

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

For the quarterly period ended: September 30, 2010

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

For the transition period from ____________ to _____________

Commission File Number: 000-25108

UNILAVA CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Wyoming		80-0568736
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

353 Sacramento Street, Suite 1500

San Francisco, CA 94111

(Address of principal executive offices, Zip Code)

(415) 321-3490

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o

Non-accelerated filer	o	Smaller reporting company	x

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares outstanding of each of the issuer’s classes of common stock, as of November 15, 2010 is as follows:

Class of Securities		Shares Outstanding
Common stock, no par value		100,051,107

Quarterly Report on Form 10-Q

Three and Nine Months Ended September 30, 2010

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

		Page(s)
Item 1.	Financial Statements	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25

Item 4.	Controls and Procedures	25

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	26

Item 1A.	Risk Factors	26

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26

Item 3.	Defaults Upon Senior Securities	26

Item 4.	(Removed and Reserved)	26

Item 5.	Other Information	26

Item 6.	Exhibits	26

	Signatures	27

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

The accompanying consolidated balance sheet of Unilava Corporation at September 30, 2010, the consolidated statements of operations for the three and nine months ended September 30, 2010 and 2009 and the consolidated statements of cash flows for the nine months ended September 30, 2010 and 2009, have been prepared by the Company's management, in conformity with principles generally accepted in the United States of America. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.

UNILAVA CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

Financial Statements		Page(s)

	Consolidated Balance Sheets (Unaudited)	4

	Consolidated Statements of Operations and Comprehensive Income (Unaudited)	5

	Consolidated Statements of Cash Flows (Unaudited)	6

	Notes to Consolidated Financial Statements (Unaudited)	7-17

UNILAVA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2010			2009
ASSETS	(unaudited)			(audited)
CURRENT ASSETS
Cash	$	59,492		$	83,573
Accounts receivable, net		632,766			1,425,422
Other current assets		44,477			9,809

Total current assets		736,735			1,518,804

Fixed assets, net		1,883,675			2,006,561
Goodwill		1,835,873			1,835,873
Certificates of deposit		78,296			71,866
Other Assets		116,706			121,543

TOTAL ASSETS	$	4,651,285		$	5,554,647

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Bank overdrafts	$	-		$	168,312
Accounts payable and accrued expenses		2,308,130			2,027,948
Notes payable		979,200			853,700
Line of credit		1,915,000			1,958,820
Notes payable - related party		141,625			149,500

TOTAL CURRENT LIABILITIES	$	5,343,955		$	5,158,280

Deferred rent - non current		84,077			114,650
TOTAL LIABILITIES	$	5,428,032		$	5,272,930

STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, no par value 5,000,000 shares authorized; issued and outstanding 0 and 0 outstanding at September 30, 2010 and December 31, 2009, respectively.		-			-

Common stock, no par value 120,000,000 shares authorized; issued and outstanding 100,051,107 and 100,051,107 at September 30, 2010 and December 31, 2009, respectively.		1,580,894			1,580,894
Common stock payable		-			135,783
Accumulated deficit		(2,322,926	)		(1,381,729	)
Accumulated other comprehensive loss
(Cumulative translation adjustment)		(134,948	)		(178,779	)
Minority interest		100,233			125,548

TOTAL STOCKHOLDERS' EQUITY (DEFICIT)	$	(776,747	)	$	281,717
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	4,651,285		$	5,554,647

See accompanying notes to the unaudited consolidated financial statements.

UNILAVA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Revenue	$	1,263,152		$	1,793,422		$	4,123,868		$	5,619,543
Cost of revenue		571,190			1,003,516			1,813,329			3,007,457
Gross profit		691,962			789,906			2,310,539			2,612,086

Costs and Expenses
Salaries and payroll taxes		407,129			595,041			1,349,075			1,955,289
Selling, general & administrative		603,573			787,058			1,665,507			2,082,663
Depreciation and amortization		40,690			50,501			124,963			151,706
Total costs and expenses		1,051,392			1, 432,600			3,139,545			4,189,658

Loss from operations		(359,430	)		(642,694	)		(829,006	)		(1,577,572	)

Other Income (Expense)
Interest income		219			153			471			713
Other income		13,471			8			194,776			253,638
Interest expense		(118,777	)		(95,411	)		(331,886	)		(238,939	)
Other expense		6,950			-			(867	)		-
Net loss allocable to minority owner		17,079			30,136			25,315			73,436
Total other income (expense)		(81,058	)		(65,114	)		(112,191	)		88,848
Net loss	$	(440,488	)	$	(707,808	)	$	(941,197	)	$	(1,488,724	)

Comprehensive loss:
Foreign currency translation adjustment	$	(5,201	)	$	2,516		$	43,831		$	(69,489	)
Total comprehensive loss	$	(445,689	)	$	(705,292	)	$	(897,366	)	$	(1,558,213	)


Net loss per common share:
Basic	$	(0.00	)	$	(0.01	)	$	(0.01	)	$	(0.03	)
Weighted average common shares outstanding:
Basic		100,051,107			55,000,000			100,051,107			55,000,000

See accompanying notes to the unaudited consolidated financial statements.

UNILAVA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	For the Nine Months Ended
	September 30, 2010
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(941,197	)	$	(1,488,724	)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Depreciation and amortization		124,963			151,706
Change in deferred rent - non current		(30,573	)		-
Change in minority interest		(25,315	)		(73,435	)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable		792,656			536,884
Other current assets		(34,668	)		21,271
Other assets		4,837			(8,442	)
Accounts payable and accrued expenses		145,524			63,848

CASH PROVIDED BY (USED) FOR OPERATING ACTIVITIES		36,227			(796,892	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of certificates of deposit		(6,430	)		-
Acquisition of furniture and equipment		(2,077	)		(8,709	)
Repayment from notes receivable		-			(6,981	)
Proceeds for notes receivable		-			-
Cash acquired in purchase of IBFA Acquisitions		-			114,876

CASH PROVIDED BY (USED) FOR INVESTING ACTIVITIES		(8,507	)		99,186

CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft		(168,312	)		-
Proceeds from notes payable		130,000			237,200
Repayment of notes payable		-			(13,982	)
Proceeds from line of credit		-			408,609
Repayment of line of credit		(43,820	)		(15,000	)
Repayment of related party notes payable		(13,500	)		(74,381	)

CASH PROVIDED BY (USED) FOR FINANCING ACTIVITIES		(95,632	)		542,446

EFFECT OF EXCHANGE RATE CHANGES ON CASH		43,831			(7,872	)
NET DECREASE IN CASH		(24,081	)		(163,132	)
CASH, beginning of period		83,573			275,384
CASH, end of period	$	59,492		$	112,252

Interest paid	$	28,853		$	-
Taxes paid	$	-		$	-

See accompanying notes to the unaudited consolidated financial statements.

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 - Organization

Unilava Corporation, a Wyoming corporation, was formerly known as IWI Holding Limited (“IWI”), and was engaged in the international jewelry business through a US subsidiary. IWI went public via an initial public offering in 1994, and disposed of the subsidiary on December 31, 2007. On September 21, 2009, IWI entered into an Agreement pursuant to which IWI acquired all of the outstanding shares of Telava Networks, Inc., a Nevada corporation (“TelavaNV”), in exchange for 55 million shares of common stock. In addition, preferred stock of IWI which had been issued in 1994 totaling 3,644,880 shares were converted into 45 million shares of common stock. In connection with the closing of the acquisition, the TelavaNV management was appointed as the members of IWI management, the name of IWI was changed to Unilava Corporation (“Unilava or the “Company””) and the corporation was reincorporated from the British Virgin Islands to Wyoming via Articles of Continuation.

TelavaNV, a privately owned company, was incorporated in Nevada on July 23, 2003 as Local Area Yellow Pages to provide advertising and directory listings for small and medium sized businesses on its Internet website in a “Yellow Pages” format. The Company provides those services to its subscribers for a monthly fee. These services are provided primarily to small and medium sized businesses throughout the United States. On July 10, 2007, Local Area Yellow Pages amended its Articles of Incorporation to change the name of the corporation to Telava Networks, Inc. (“TelavaNV”) for the purpose of launching its network to provide the next generation fixed and mobile WiMAX broad band solutions to small and medium businesses, public safety organizations, and others in various markets through its network. TelavaNV continues its Yellow Pages operations while, at the same time, expanding its WiMAX network. Through September 30, 2010, nearly 47% of the Company’s revenues have been generated by its Yellow Pages business.

On January 19, 2006, TelavaNV formed Local Info Pages, Inc. (“LIP”), headquartered in Seoul, South Korea, as a wholly owned subsidiary of TelavaNV. LIP is one of the leading direct marketing and business service companies in Korea. LIP connects advertisers to targeted audiences through its network advertising products and services. On January 3, 2007, the Company acquired a website which brings value to the Company because of its large customer base which enables the Company to target and market its products to those customers. Another division of LIP is the second largest coupon company in South Korea which enables advertisers to directly reach consumers with branded media products, coupons and other advertisements. Many consumers depend on the Company to deliver the best values in town via direct and online coupons. For advertisers, LIP offers business advertising solutions by enabling them to sell their products and services in person, online or through the mail.

On May 17, 2006, TelavaNV formed Telava Wireless, Inc. (“Telava Wireless”) as a subsidiary for the purpose of entering the mobile WiMAX broad band solutions market. On November 6, 2006, the Company acquired 40 microwave towers in exchange for 25% of Telava Wireless.

On September 11, 2007, TelavaNV formed Telava Acquisitions, Inc. as a wholly owned subsidiary for the purpose of acquiring other related businesses.

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 2 – Going Concern

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplate continuation of the Company as a going concern. The Company has recently sustained operating losses and has an accumulated deficit of $2,322,926 at September 30, 2010. In addition, the Company has negative working capital of $4,607,220 at September 30, 2010.

The Company has and will continue to use significant capital to grow and acquire market share. These factors raise substantial doubt about the ability of the Company to continue as a going concern. In this regard, management is proposing to raise any necessary additional funds not provided by operations through loans or through sales of their common stock. There is no assurance that the Company will be successful in raising this additional capital or in achieving profitable operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.

Note 3 - Summary of Significant Accounting Policies

Basis of Presentation

The unaudited consolidated financial statements include the accounts of Unilava Corporation and its subsidiaries, Telava Networks, Inc. (100% owned), Telava Acqusitions, Inc. (100% owned), Telava Wireless, Inc. (75% owned), Telava Mobile, Inc. (80% owned), Local Info Pages, Inc. (100% owned Korea-based entity) and IBFA Acqusitions LLC (100% owned) which are 100% consolidated in the financial statements as adjusted for various minority interests. All material intercompany accounts and transactions have been eliminated. All significant intercompany transactions and balances are eliminated on consolidation.

The accompanying unaudited consolidated financial statements as of September 30, 2010 and for the three and nine month periods ended September 30, 2010 and 2009 have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. In the opinion of management, these unaudited consolidated interim financial statements include all adjustments and disclosures considered necessary to a fair statement of the results for the interim periods presented. All adjustments are of a normal recurring nature. The results of operations for the three and nine months ended September 30, 2010 are not necessarily indicative of the results for the full fiscal year ending December 31, 2010.

You should read this discussion in conjunction with the consolidated financial statements, accompanying notes and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2009.

Fair Value of Financial Instruments

Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, requires disclosing fair value to the extent practicable for financial instruments that are recognized or unrecognized in the balance sheet. Fair value of financial instruments is the amount at which the instruments could be exchanged in a current transaction between willing parties. The Company considers the carrying amounts of cash, restricted cash, revenue in excess of billings, contracts receivable, related party and other receivables, accounts payable, notes payable, related party and other payables, customer deposits, and short term loans approximate their fair values because of the short period of time between the origination of such instruments and their expected realization. The Company considers the carrying amount of long term bank loans to approximate their fair values based on the interest rates of the instruments and the current market rate of interest.

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 3 - Summary of Significant Accounting Policies (Continued)

Foreign Currency Adjustments

The financial position and results of operations of the Company’s foreign subsidiary, LIP, is measured using the foreign subsidiary’s local currency as the functional currency. Revenues and expenses of the subsidiary have been translated into U.S. dollars at average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the balance sheet date. The resulting translation gain and loss adjustments are recorded as a separate component of stockholders’ equity, unless there is a sale or complete liquidation of the underlying foreign investments.

Cash and Cash Equivalents

This includes all short-term highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less. At times cash deposits may have exceeded government insured limits.

Accounts Receivable

Accounts receivable are reported at the customers' outstanding balances less any allowance for doubtful accounts. Interest is not accrued on overdue accounts receivable. The Company evaluates receivables on a regular basis for potential reserve.

Fixed Assets

Fixed assets are stated at cost. Major renewals and improvements are charged to the asset accounts while replacements, maintenance and repairs, which do not improve or extend the lives of the respective assets, are expensed. At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to income.

The Company depreciates its fixed assets on a straight line basis at the following rates:

Microwave towers	25 years

Computer equipment	5 years

Furniture and equipment	7 years

Software	3 years

Leasehold improvements	5 years

Long-lived Assets

Accounting for the Impairment or Disposal of Long-Lived Assets requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may not be recovered. The Company assesses recoverability of the carrying value of an asset by estimating the fair value of the asset. If the fair value is less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset's carrying value and fair value. The Company has never recognized an impairment charge.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets arising from an acquisition of a business are periodically assessed for impairment rather than amortized on a straight-line basis. Accordingly, the Company annually reviews the carrying value of this goodwill and other intangible assets to determine whether impairment, as measured by fair market value, may exist. Specifically, goodwill and other intangible asset impairment is determined using a two-step process. The first step of the goodwill and other intangible asset impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount. If the fair value of a reporting unit exceeds its carrying amount, then the goodwill and other intangible assets of the reporting unit are not considered to be impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the impairment test is performed to measure the amount of impairment loss, if any. The second step of the impairment test compares the implied fair value of the reporting unit's goodwill and other intangible assets with their carrying amount. If the carrying amount of the reporting unit's goodwill and other intangible assets exceeds their implied fair value, then an impairment loss is recognized in an amount equal to that excess.

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 3 - Summary of Significant Accounting Policies (Continued)

Accounting for Share-Based Compensation

The Company accounts for all compensation related to stock using a fair value based method whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period. Stock issued for compensation is valued using the market price of the stock on the date of the related agreement.

Revenue Recognition

Telava NV and LIP: The Company’s revenue is generated by customer subscriptions of directory and advertising services. Revenue is billed and recognized monthly for services subscribed in that specific month. The Company utilizes outside billing companies to transmit billing data, much of which is forwarded to Local Exchange Carriers (“LEC’s”) that provide local telephone service.

LEC Billing: When a customer subscribes to the Company’s service, an electronic customer file is created which is the basis for the billing. The Company submits gross billings electronically to third party billing aggregators. These billing aggregators compile and format electronic customer files and forward the billing records to the appropriate LEC’s. The billing for our service flows through to monthly bills of the individual LEC customers. The LEC’s collect the Company’s billing and remit amounts to the billing aggregators, which in turn remit funds to the Company. The following are significant accounting estimates and assumptions used in the revenue recognition process with respect to these billings.

Customer refunds: The Company’s customer refund policy allows the customer to request a refund if they are not satisfied with the service within the first 30 days of the subscription. The Company accrues for refunds based on historical experience of refunds as a percentage of new billings in that 30-day period. Customer refunds are reserved and charged against gross revenue.

Non-paying customers: There are customers who may not pay the fee for our services even though the Company believes they are valid subscribers. Included in cost of services is an accrual for estimated non-paying customers that are recorded at the time of billing.

Dilution: The Company recognizes revenue during the month for which the service is provided based on net billings accepted by the billing aggregators and recognizes revenue only for accepted records. However, subsequent to this acceptance, there are instances in the LEC billing process where a customer cannot be billed due to changes in telephone numbers, telephone carriers, data synchronization issues, etc. These amounts that ultimately cannot be billed, as well as certain minor billing adjustments by the LEC’s, are commonly referred to as “dilution.” Such unbillable accounts and chargebacks are estimated at the time of billing and charged against net revenues.

Fees: Both the billing aggregator and the LEC charge processing fees. Additionally, the LEC charges fees for responding to billing inquiries by its customers, processing refunds, and other customer-related services. Such fees are estimated at the time of billing and charged to cost of services.

Revenue for billings to certain customers are billed directly by the Company and not through the LEC’s, is recognized based on estimated future collections. The Company continuously reviews this estimate for reasonableness based on its collection experience.

Telava Wireless: Leasing revenue for towers are recognized on a monthly basis based on the terms and conditions of the lease agreements.

LIP: Printing revenue for coupon books are recognized as services are performed.

Advertising Costs

The Company incurs advertising costs that are not considered direct response advertising and are expensed when incurred. For the nine months ended September 30, 2010 and 2009, the Company incurred approximately $11,812 and $3,546 in marketing and advertising expense. For the three months ended September 30, 2010 and 2009, the Company incurred approximately $8,552 and $2,445 in marketing and advertising expense.

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 3 - Summary of Significant Accounting Policies (Continued)

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on differences between financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. A valuation allowance is established against deferred tax assets that do not meet the criteria for recognition. In the event the Company were to determine that it would be able to realize deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the provision for income taxes.

The Company follows the accounting guidance which provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax provisions must meet a more-likely-than-not recognition threshold at the effective date to be recognized initially and in subsequent periods.

Also included is guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Earnings Per Common Share

The Company reports both basic and diluted earnings per share. Basic earnings per share are calculated using the weighted average number of common shares outstanding in the period. Diluted earnings per share includes potentially dilutive securities such as outstanding options and warrants using the “treasury stock” method and convertible securities using the “if-converted” method. For the nine months ended September 30, 2010 and 2009, there were no potential common equivalent shares used in the calculation of dilutive weighted average common shares outstanding as the effect would be anti-dilutive because of the net loss.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates made in connection with the accompanying financial statements include the estimate of dilution and fees associated with LEC billings and the estimated reserve for doubtful accounts receivable.

Other Comprehensive Income (Loss)

Comprehensive income/(loss) consists of net income and other gains and losses affecting stockholders’ equity that, under generally accepted accounting principles are excluded from net income. For the Company, such items consist solely of foreign currency translation gains and losses.

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 3 - Summary of Significant Accounting Policies (Continued)

Recent Accounting Pronouncements

In February 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-09 (ASU 2010-09), Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements. This amendment addresses both the interaction of the requirements of this Topic with the SEC’s reporting requirements and the intended breadth of the reissuance disclosure provision related to subsequent events (paragraph 855-10-50-4). All of the amendments in this Update are effective upon issuance of the final Update, except for the use of the issued date for conduit debt obligors. That amendment is effective for interim or annual periods ending after June 15, 2010. The Company does not expect the provisions of ASU 2010-09 to have a material effect on the financial position, results of operations or cash flows of the Company.

In January 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-06 (ASU 2010-06), Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This amendment to Topic 820 has improved disclosures about fair value measurements on the basis of input received from the users of financial statements. This is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the provisions of ASU 2010-06 to have a material effect on the financial position, results of operations or cash flows of the Company.

Concentrations of Credit Risk

The Company has maintained balances in excess of federally insured limits from time to time during the fiscal year. Management periodically reviews the adequacy and strength of the financial institutions and deems this to be an acceptable risk.

For the nine months ended September 30, 2010 and 2009, approximately 4.3% and 6.2% of the Company's net sales were made to customers outside the United States. For the three months ended September 30, 2010 and 2009, approximately 4.2% and 5.1% of the Company's net sales were made to customers outside the United States.

Note 4 – Accounts Receivable

The Company provides billing information to a third party billing company for the majority of its monthly billings. Billings submitted are “filtered” by this billing company and the LEC’s. Net accepted billings are recognized as revenue and accounts receivable. The billing company remits payments to the Company on the basis of cash ultimately received from the LEC’s by the billing company. The billing company and LEC’s charge fees for services, which are netted against the gross accounts receivable balance. The billing companies also apply holdbacks to the remittance for potentially uncollectible accounts. These dilution amounts will vary due to numerous factors and the Company may not be certain as to the actual amounts of dilution on any specific billing submittal until several months after that submittal. The Company estimates the amount of these charges and holdbacks based on historical experience and subsequent information received from the billing companies. The Company also estimates uncollectible account balances and provides an allowance for such estimates. As of September 30, 2010 and December 31, 2009, the amount reserved for uncollectible account balances is $36,889 and $48,911, respectively.

The billing companies retain certain holdbacks that may not be collected by the Company for a period extending beyond one year. The balances are charged to bad debt expense. However, when true-up balances occur with the LEC after six to eighteen months, the money received will be classified as revenue to offset current bad debt expenses.

The Company experiences significant dilution of its gross billings by the billing company. The Company negotiates collections with the billing companies on the basis of the contracted terms and historical experience. The Company’s cash flow may be affected by holdbacks, fees, and other matters, which are determined by the LEC’s and the billing company. The Company processes its billings through the primary billing company.

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 5 – Fixed Assets

Property and equipment consisted of the following at September 30, 2010 and December 31, 2009:

	September 30, 2010			December 31, 2009
Microwave towers	$	1,999,152		$	1,999,152

Computer equipment		219,207			219,207

Furniture & equipment		117,190			116,338

Software		35,858			35,858

Tenant improvements		187,663			187,663
		2,548,848			2,558,218
Accumulated depreciation		(675,395	)		(551,657	)

Fixed assets, net	$	1,883,675		$	2,006,561

Depreciation expense for the nine months ended September 30, 2010 and 2009 was $124,963 and $151,706, respectively. Depreciation expense for the three months ended September 30, 2010 and 2009 was $40,690 and $50,501, respectively.

Note 6 – Intangible Assets and Goodwill

Goodwill consisted of $1,835,873 as of September 30, 2010 and December 31, 2009 as a result of the IBFA purchase as disclosed in the Company’s December 31, 2009 Form 10-K.

Note 7 – Line of Credit and Notes Payable

As of September 30, 2010, the amount, maturity date and term of each of our loans were as follows:

Lender	Principal Amount	Interest Rate	Maturity Date
Thermo Credit LLC	$ 1,915,000	10.25%	January 17, 2011
AHAP	40,000	Various	Upon Demand
Brilliant Capital	120,000	8.00%	Upon Demand
InfoCity, LLC and Others	819,200	8.00%	Upon Demand
Dr. Dicken Yung (related party)	130,500	3.25%	Upon Demand
Baldwin Yung (related party)	10,000	0.00%	Upon Demand
Boaz Yung (related party)	1,125	0.00%	Upon Demand

	$ 3,035,825

We have a $2,000,000 revolving line of credit with the Thermo Credit LLC, pursuant to a credit agreement, dated July 17, 2010, between the Company and the bank. This revolving line of credit is guaranteed/secured by assets of the Company. The credit agreement will terminate on January 17, 2011.

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 7 – Line of Credit and Notes Payable (Continued)

On September 2, 2010, the Company borrowed $120,000 from unrelated party and such note is payable upon demand and the Company has accrued an imputed interest of 8%.

Note 8 – Stockholders’ Equity (Deficit)

Preferred Stock

The Company has authorized 5,000,000 shares of no par value preferred stock available for issuance. No shares of preferred stock are outstanding as of September 30, 2010. Commensurate with the merger (See Note 10, Reverse Merger with IWI Holding Limited), the Company converted the former IWI Holdings outstanding Preferred Stock of 3,664,880 shares into 45,000,000 shares of common stock.

Common Stock

The authorized common stock is 120,000,000 shares at no par value. As of September 30, 2010 and December 31, 2009, the Company had 100,051,107 and 100,051,107 shares of common stock issued and outstanding, respectively.

During the year ended December 31, 2009, the Company issued 51,107 shares of common stock and 3,644,880 shares of preferred related to the reverse merger with IWI Holding Limited (See Note 10, Reverse Merger with IWI Holding Limited).

Note 9 – Segment Reporting

Our segments are various subsidiaries that offer different products and services over various technology platforms and are managed accordingly. We analyze our various operating segments based on segment income before income taxes. The customers and assets of our reportable segments are predominantly in the United States. We have four reportable segments: (1) Advertising Solutions, (2) Wireless, (3) Wireline, and (4) Other.

The Advertising Solutions segment includes the operations of Telava Networks, Inc. (100% owned) and Local Info Pages, Inc. (100% owned Korea-based entity).

The Wireless segment includes the operations of Telava Wireless, Inc. (75% owned) and Telava Mobile, Inc. (80% owned).

The Wireline segment includes the operations of IBFA Acquisitions (100% owned).

The Other segment includes results from all corporate operations.

In the following tables, we show how our segment results are reconciled to our consolidated results reported in accordance with GAAP. The Advertising Solutions, Wireless and Wireline and Other columns represent the segment results of each such operating segment. The consolidation and elimination column adds in those line items that we manage on a consolidated basis only. This column also eliminates any intercompany transactions included in each segment’s results. In the Segment assets line item, we have eliminated the value of our investments in our fully consolidated subsidiaries and the intercompany financing assets as these have no impact to the segments’ operations.

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 9 – Segment Reporting (Continued)

For the nine months ended September 30, 2010

	Advertising Solutions			Wireless			Wireline			Other			Elimination			Consolidated
Revenue from external customers		1,935,511			23,226			2,165,131			-			-			4,123,868
Cost of revenue		677,301			67,495			1,068,533			-			-			1,813,329
Gross profit		1,258,210			(44,269	)		1,096,598			-			-			2,310,539

Operations and support expenses		1,995,286			89,395			918,547			11,354			-			3,014,582
Depreciation and amortization		65,000			59,963			-			-			-			124,963

Total segment operating expenses		2,060,286			149,358			918,547			11,354			-			3,139,545

Segment operating income		(802,076	)		(193,627	)		178,051			(11,354	)		-			(829,006	)

Total other income (expense)		(221,282	)		114,025			(4,934	)		(0	)		-			(112,191	)

Segment income before income taxes		(1,023,358	)		(79,602	)		173,117			(11,354	)		-			(941,197	)

Segment assets		3,042,549			1,790,946			2,221,406			512			(2,404,128	)		4,651,285

For the nine months ended September 30, 2009

	Advertising Solutions			Wireless			Wireline			Other		Elimination			Consolidated
Revenue from external customers		3,177,832			24,833			2,416,878			-		-			5,619,543
Cost of revenue		1,376,582			123,885			1,506,990			-		-			3,007,457
Gross profit		1,801,250			(99,052	)		909,888			-		-			2,612,086

Operations and support expenses		3,077,734			108,556			851,662			-		-			4,037,952
Depreciation and amortization		91,743			59,963			-			-		-			151,706

Total segment operating expenses		3,169,477			168,519			851,662			-		-			4,189,658

Segment operating income		(1,368,227	)		(267,571	)		58,226			-		-			(1,577,572	)

Total other income (expense)		45,700			43,190			(42	)		-		-			(88,848	)

Segment income before income taxes		(1,322,527	)		(224,381	)		58,184			-		-			(1,488,724	)

Segment assets		3,697,564			1,840,223			2,364,092			-		(2,363,902	)		5,537,977

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 9 – Segment Reporting (Continued)

For the three months ended September 30, 2010

	Advertising Solutions			Wireless			Wireline			Other			Elimination			Consolidated
Revenue from external customers		563,715			9,100			690,337			-			-			1,263,152
Cost of revenue		216,722			12,255			342,213			-			-			571,190
Gross profit		346,993			(3,155	)		348,124			-			-			691,962

Operations and support expenses		594,105			30,495			383,582			2,521			-			1,010,703
Depreciation and amortization		20,703			19,988			-			-			-			40,691

Total segment operating expenses		614,808			50,483			383,582			2,521			-			1,051,394

Segment operating income		(267,815	)		(53,638	)		(35,458	)		(2,521	)		-			(359,432	)

Total other income (expense)		(83,855	)		797			1,999			-			-			(81,059	)

Segment income before income taxes		(351,670	)		(52,841	)		(33,459	)		(2,521	)		-			(440,491	)

Segment assets		3,042,549			1,789,540			2,221,406			512			(2,404,128	)		4,649,879

For the three months ended September 30, 2009

	Advertising Solutions			Wireless			Wireline		Other		Elimination			Consolidated
Revenue from external customers		1,025,450			9,360			758,611		-		-			1,793,422
Cost of revenue		459,559			67,114			476,843		-		-			1,003,516
Gross profit		565,891			(57,754	)		281,768		-		-			789,906

Operations and support expenses		1,061,985			39,997			280,137		-		-			1,382,099
Depreciation and amortization		30,513			19,988			-		-		-			50,501

Total segment operating expenses		1,092,498			59,965			280,137		-		-			1,432,600

Segment operating income		(526,607	)		(117,719	)		1,632		-		-			(642,693	)

Total other income (expense)		(91,235	)		26,108			13		-		-			(65,114	)

Segment income before income taxes		(617,842	)		(91,611	)		1,645		-		-			(707,808	)

Segment assets		3,697,564			1,840,223			2,364,092		-		(2,363,902	)		5,537,977

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 10 - Reverse Merger with IWI Holding Limited

On August 18, 2009 (the “Effective Date”), IWI Holding Limited, a British Virgin Islands shell corporation (“IWI”), and Telava Networks, Inc., a Nevada corporation (“Telava”) closed their Agreement and Plan of Reorganization (“the Plan”). In accordance with the Plan, Telava became a wholly-owned subsidiary of IWI. The Telava Stockholders received restricted IWI Common Stock at the rate of 7.4324 shares for each of their 7,400,000 shares issued and outstanding. As a result, IWI issued 55,000,000 restricted shares in exchange for 100 percent of the outstanding capital stock of Telava. As of the date of the merger, IWI had outstanding 2,554,700 shares of common stock and 3,644,880 shares of preferred stock. Following the closing of the merger and as agreed to pursuant to the Plan, the common stock was subject to a 50:1 reverse split into 51,107 shares and 3,644,880 shares of preferred stock was converted into 45,000,000 shares of common stock. In total 100,051,107 shares are outstanding following the Effective Date of the Plan.

The merger was accounted for as a “reverse merger,” as the stockholders of Telava owned a majority of the outstanding shares of IWI common stock immediately following the Plan. Telava was deemed to be the acquirer in the reverse merger. Consequently, the assets and liabilities and the historical operations of Telava prior to the Merger are reflected in the financial statements and have been recorded at the historical cost basis of Telava. Our consolidated financial statements after completion of the merger include the assets and liabilities of both IWI and Telava, historical operations of Telava and our IWI operations from the Effective Date of the Plan.

Note 11 – Commitments and Contigencies

As of September 30, 2010, the Company has $83,277 in accounts payable and accrued expenses for the potential commissions owed to Farm Bureau. Currently, the Company estimated the amounts they believe are owed to the vendor and is negotiating the amounts due to Farm Bureau.

The Company sub-leased 5,280 square ft. of its office space to a publication company for the remaining terms of the master lease agreement ending April 30, 2013.

Note 12 – Subsequent Events

The Company had signed a Memorandum of Understanding on December 7, 2009 to acquire 80% interest in China Dragon Telecom Limited and its affiliates based in Hong Kong, China. The negotiations and execution of definitive agreements, regulatory approval and other customary conditions is expected to be completed in late 2010. As of September 30, 2010, China Dragon Telecom Limited is still being audited by an accounting firm.

ITEM 2.

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

Special Note Regarding Forward Looking Statements

Statements contained herein include “forward-looking statements” within the meaning of such term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the factors described in the section captioned “Risk Factors” below. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements include, among other things, statements relating to:

our anticipated growth strategies and our ability to manage the expansion of our business operations effectively;

our dependence on the growth of our target market in the areas in which we do business; and

our ability to maintain or increase our market share in the competitive markets in which we do business.

Also, forward-looking statements represent our estimates and assumptions only as of the date hereof. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

Use of Terms

Except as otherwise indicated by the context, references herein to “Unilava,” “we,” “us,” “our,” “our Company,” or “the Company” are to the combined business of Unilava Corporation, a Wyoming corporation, and its consolidated subsidiaries, Telava Networks, Inc. (100% owned), Telava Acqusitions, Inc. (100% owned), Telava Wireless, Inc. (75% owned), Telava Mobile, Inc. (80% owned), Local Info Pages, Inc. (100% owned Korea-based entity) and IBFA Acqusitions LLC (100% owned) which are 100% consolidated in the financial statements as adjusted for various minority interests. In addition, unless the context otherwise requires:

“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;

“IBFA” refers to IBFA Acquisitions LLC, a Michigan limited liability company and wholly owned subsidiary of the Company;

“LIP” refers to Local Info Pages, Inc., a Korean corporation and wholly owned subsidiary of Telava Networks;

“SEC” refers to the Securities and Exchange Commission;

“Securities Act” refers to the Securities Act of 1933, as amended;

“Telava Acquisitions” refers to Telava Acquisitions, Inc., a Delaware corporation and wholly owned subsidiary of the Company;

“Telava Networks” refers to Telava Networks, Inc., a Nevada corporation and wholly owned subsidiary of the Company;

“Telava Mobile” refers to Telava Mobile, Inc., a Delaware corporation and 80% owned subsidiary of the Company;

“Telava Wireless” refers to Telava Wireless, Inc., a Wyoming corporation and 75% owned subsidiary of Telava Networks; and

“U.S. dollars,” “dollars” and “$” refer to the legal currency of the United States.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Overview of Our Business

Unilava Corporation, a Wyoming corporation, was formerly known as IWI Holding Limited (“IWI”), and was engaged in the international jewelry business through a US subsidiary. IWI went public via an initial public offering in 1994, and disposed of the subsidiary on December 31, 2007. On September 21, 2009, IWI entered into an Agreement pursuant to which IWI acquired all of the outstanding shares of Telava Networks, Inc., a Nevada corporation (“Telava Networks”), in exchange for 55 million shares of stock. In addition, certain preferred stock of IWI which had been issued in 1994 for 3,644,880 was converted into 45 million shares of common stock. In connection with the closing of the acquisition, the Telava management was appointed as the members of IWI management, the name of IWI was changed to Unilava Corporation (“Unilava” or the “Company”) and the corporation was reincorporated from the British Virgin Islands to Wyoming via Articles of Continuation.

Unilava, with its operations primarily conducted by its subsidiaries, provides a variety of communications services, products, and equipment that address the needs of small and medium sized enterprise businesses and consumers under the Unilava corporate brand which includes our retail brands consisting of TelavaTM, CountryconnectTM, TelavaTM Mobile, Local Area Yellow Pages, Ttoore, Counia, and Nationwide Roadside Assistance. We are licensed to provide long distance services in 41 States and local phone services in 11 States. Through our carrier-grade microwave wireless broadband infrastructure and broadband Internet access partners, we offer mobile and high-definition IP-hosted voice services to residential, small and medium enterprises. We deliver small business a comprehensive and integrated suite of fee-based online and mobile advertising and web services. Headquartered in San Francisco, we have regional offices in Chicago, Seoul, Hong Kong, and Beijing.

We are emerging as a leading provider of communications services in the United States and the world. We offer our services and products to consumers, businesses, and other providers in the U.S. and worldwide. The services and products that we offer vary by market, and include: wireless communications, local exchange services, long-distance services, data/broadband and Internet services, video services telecommunications equipment, wholesale services and directory advertising and publishing. We group our operating subsidiaries as follows, corresponding to our operating segments for financial reporting purposes:

Wireless subsidiaries provide both wireless voice and data communications services across the U.S. and, through agreements, in a substantial number of foreign countries;

Wireline subsidiaries provide primarily landline voice and data communication services, high-speed broadband and voice services;

Advertising solutions subsidiaries publish Local Area Yellow Pages directories and sell directory advertising and Internet-based advertising and local search; and

Other subsidiaries provide results from all corporate and other operations.

Third Quarter Financial Performance Highlights

The following summarizes certain key financial information for the third fiscal quarter.

Revenue: Revenue was $1,263,152 for the three months ended September 30, 2010, a decrease of $530,270, or 30%, from $1,793,422 for the same period last year due to a decrease in our marketing effort of the online advertising business.

Gross Profit and Margin: Gross profit was $691,962 for the three months ended September 30, 2010, a decrease of $97,944 or 12%, from $789,906 for the same period last year due to decline in online advertising business. Gross margin was 55% for the three months ended September 30, 2010 as compared to 44% for the same period last year, an 11% increase mainly due to more efficient control of the underforming marketing centers related to the online advertising business.

Net Loss: Net loss was $440,488 for the three months ended September 30, 2010, a decrease of $267,320 or approximately 38%, from $707,807 for the same period of last year due to a reduction in our overall operating costs.

Basic net income per share: Basic net income per share was approximately $0.00 for the three months ended September 30, 2010, as compared to approximately $0.01 for the same period last year.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Results of Operations

Comparison of Three Months Ended September 30, 2010 and 2009

The following table shows key components of our results of operations during the three months ended September 30, 2010 and 2009, in both dollars and as a percentage of our total sales.

U.S. dollars, except percentages	Three Months Ended September 30, 2010						Three Months Ended September 30, 2009
				Percent of						Percent of
	Dollars			Total Sales			Dollars			Total Sales
Total sales	$	1,263,152			100	%	$	1,793,422			100	%
Cost of sales		571,190			45	%		1,003,516			56	%
Gross profit		691,962			55	%		789,906			44	%

Salaries and payroll		407,129			32	%		595,041			33	%
Depreciation and amortization		40,690			3	%		50,501			3	%
Selling, general and administrative expenses		603,573			48	%		787,058			44	%
Income (loss) from operations		(359,430	)		(28	)%		(642,694	)		(36	)%

Other income (expense)		(81,058	)		(6	)%		(65,114	)		(4	)%
Income (loss) before income taxes		(440,488	)		(35	)%		(707,808	)		(39	)%
Income taxes		-			-			-			-
Net loss	$	(440,488	)		(35	)%	$	(707,808	)		(39	)%

Total Sales. Our total sales decreased 30% to $1,263,152 in the three months ended September 30, 2010 from $1,793,422 in the same period last year, primarily as a result of a decrease of sales in our online advertising business.

Cost of sales. Our cost of sales decreased 43% to $571,190 in the three months ended September 30, 2010 from $1,003,516 in the same period last year, mainly due to a decrease in sales and trimming of costs in our underperforming marketing centers.

Gross profit and gross profit margin. Our gross profit decreased 11% to $691,962 in the three months ended September 30, 2010 from $789,906 in the same period last year. The gross profit margin (gross profit as a percentage of total sales) was 55% for the three months ended September 30, 2010 and 44% for the three months ended September 30, 2009. The increase in the gross profit margin was primarily due to a tightening of control in our underperforming marketing centers.

Salaries and payroll. Our salaries and payroll expenses decreased 32% to $407,129 in the three months ended September 30, 2010 from $595,041 in the same period last year, mainly due to a decrease in human resources and related payroll expenses.

Selling, general and administrative expenses. Our selling, general and administrative expenses decreased 23% to $603,573 in the three months ended September 30, 2010 from $787,058 in the same period last year, mainly due to a decrease in bad debt expense and related selling expenses.

Other income and expenses. Interest expense increased 24% to $118,777 in the three months ended September 30, 2010 from $95,411 in the same period in 2009, primarily due to an increase in loan size and fees associated with the extension of a loan facility. Decrease in other income was due to no brokerage fees received from tower sales in the three months ended September 30, 2010.

Income taxes. Income taxes remained flat at zero dollars in the three months ended September 30, 2010 from the same period in 2009, mainly due to recurring losses.

Net loss. Net loss decreased 38% to $440,488 in the three months ended September 30, 2010 from $707,808 in the same period last year, mainly due to the increase in gross profit margin.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

Comparison of Nine Months Ended September 30, 2010 and 2009

The following table shows key components of our results of operations during the nine months ended September 30, 2010 and 2009, in both dollars and as a percentage of our total sales.

	Nine Months Ended						Nine Months Ended
U.S. dollars, except percentages	September 30, 2010						September 30, 2010
				Percent of						Percent of
	Dollars			Total Sales			Dollars			Total Sales
Total sales	$	4,123,868			100	%	$	5,619,543			100	%
Cost of sales		1,813,329			44	%		3,007,457			54	%
Gross profit		2,310,539			56	%		2,612,086			46	%

Salaries and payroll		1,349,075			33	%		1,955,289			35	%
Depreciation and amortization		124,963			3	%		151,706			3	%
Selling, general and administrative expenses		1,665,507			40	%		2,082,663			37	%
Income (loss) from operations		(829,006	)		(20	)%		(1,577,572	)		(28	)%

Other income (expense)		(112,191	)		(3	)%		88,848			2	%
Income (loss) before income taxes		(941,197	)		(23	)%		(1,488,724	)		(26	)%
Income taxes		-			-			-			-
Net loss	$	(941,197	)		(23	)%	$	(1,488,724	)		(26	)%

Total Sales. Our total sales decreased 27% to $4,123,868 in the nine months ended September 30, 2010 from $5,619,543 in the same period last year, primarily as a result of a decrease in overall sales of our online advertising business and less wireline usage.

Cost of sales. Our cost of sales decreased 40% to $1,813,329 in the nine months ended September 30, 2010 from $3,007,457 in the same period last year, mainly due to a decrease in sales and a decrease in utilizing underperforming marketing centers.

Gross profit and gross profit margin. Our gross profit decreased 12% to $2,310,539 in the nine months ended September 30, 2010 from $2,612,086 in the same period last year. The gross profit margin (gross profit as a percentage of total sales) was 56% for the nine months ended September 30, 2010 and 46% for the nine months ended September 30, 2009. The increase in the gross profit margin was primarily due to tightening control and trimming of underperforming marketing centers and costs related to the centers.

Salaries and payroll. Our salaries and payroll expenses decreased 31% to $1,349,075 in the nine months ended September 30, 2010 from $1,955,289 in the same period last year, mainly due to decrease in human resources and related payroll expenses.

Selling, general and administrative expenses. Our selling, general and administrative expenses decreased 20% to $1,665,507 in the nine months ended September 30, 2010 from $2,082,663 in the same period last year, mainly due to decrease in other related operating costs.

Other income and expenses. Interest expense increased 39% to $331,886 in the nine months ended September 30, 2010 from $238,939 in the same period in 2009, primarily due to an increase in loan amounts and fees associated with the extension of one of our loan facilities.

Income taxes. Income taxes remained flat at zero dollars in the nine months ended September 30, 2010 from the same period in 2009, mainly due to recurring losses.

Net loss. Net loss decreased 37% to $941,197 in the nine months ended September 30, 2010 from $1,488,723 in the same period last year, mainly due to the increase in gross profit margin.

Segment Data

Net (loss) for the advertising solutions segment decreased 23% to ($1,023,358) in the nine months ended September 30, 2010 from ($1,322,527) in the same period last year, mainly due to less efforts in direct marketing and higher attrition ratio.

Total assets for the advertising solutions segment decreased 18% to $3,042,549 as of September 30, 2010 from $3,697,564 as of September 30, 2009, mainly due to less receivables.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Net (loss) for the wireless segment decreased 65% to ($79,602) in the nine months ended September 30, 2010 from ($224,381) in the same period last year, mainly due to cancelations of co-location agreements.

Total assets for the wireless segment decreased 3% to $1,790,946 as of September 30, 2010 from $1,840,223 as of September 30, 2009, mainly due to amortization on tower assets.

Net income for the wireline segment increased 198% to $173,117 in the nine months ended September 30, 2010 from $58,184 in the same period last year, mainly due to trimming of operating costs.

Total assets for the wireline segment decreased 6% to $2,221,406 as of September 30, 2010 from $2,364,092 as of September 30, 2009, mainly due to decrease in receivables.

Liquidity and Capital Resources

As of September 30, 2010, we had cash and cash equivalents of approximately $59,492. The following table provides a summary of our net cash flows from operating, investing, and financing activities. To date, we have financed our operations primarily through net cash flow from operations, augmented by short-term bank and personal borrowings and equity contributions by our shareholders.

U.S. Dollars	Nine Months Ended September 30,
	2010			2009
Net cash provided by (used in) operating activities	$	36,227		$	(796,892	)
Net cash provided by (used in) investing activities		(8,507	)		99,186
Net cash provided by (used in) financing activities		(95,632	)		542,446
Net increase in cash and cash equivalents	$	(24,081	)	$	(163,132	)

Operating Activities

Net cash provided by operating activities was $36,227 in the nine months ended September 30, 2010, compared with $796,892 used by operating activities in the same period last year. Net loss after adjustment for noncash items was $(872,122) in the nine months ended September 30, 2010. This increase was primarily due to funding of underperforming subsidiaries.

Investing Activities

Net cash used in investing activities in the nine months ended September 30, 2010 was $8,507, compared with $99,186 provided by investing activities in the same period last year. The decrease was mainly due to a reduction in investing activities.

Financing Activities

Net cash used by financing activities in the nine months ended September 30, 2010 was $96,632, compared with $542,446 net cash provided by financing activities in the same period in 2009. The decrease in net cash provided by financing activities was mainly from cash proceeds from unrelated third-party loans and repayment of facility provided by Thermo Credit, LLC.

Capital Expenditures

Our capital expenditures for the nine months ended September 30, 2010 and 2009 were $2,077 and $8,709, respectively. Our capital expenditures during the second quarter of 2010 consisted of capital expenditures relating to the acquisition of furniture and equipment, as compared the second quarter of 2009 where we did not have any capital expenditures. As of September 30, 2010, we had cash and cash equivalents of $59,492, primarily consisting of cash on hand and demand deposits.

To date, we have financed our operations primarily through cash flows from operations, augmented by short-term bank and personal loans and equity contributions by our stockholders and unrelated third-party loans. We believe that our cash on hand and cash flow from operations will meet a portion of our present cash needs and we will require additional cash resources, including loans, to meet our expected capital expenditures and working capital requirements for the next 12 months. We may, however, in the future, require additional cash resources due to changed business conditions, implementation of our strategy to expand our marketing efforts and increase brand awareness, or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Loan Commitments

As of September 30, 2010, the amount, maturity date and term of each of our loans were as follows:

Bank/Person(s)	Amount Outstanding		Interest Rate	Maturity Date
Thermo Credit LLC	$	1,915,000	10.25%	Jan 17, 2011

Dr. Dicken Yung	$	130,500	3.25%	Upon demand

Baldwin Yung	$	10,000	0%	Upon demand

Boaz Yung	$	1,125	0%	Upon demand

AHAP	$	40,000	Various	Upon demand

Brilliant Capital	$	120,000	8%	Upon demand

InfoCity LLC and others	$	819,200	8%	Upon demand

TOTAL	$	3,035,825

We have a $2,000,000 revolving line of credit with Thermo Credit LLC, pursuant to a credit agreement, dated July 17, 2010, between the Company and the bank. This revolving line of credit is guaranteed/secured by assets of the Company. The credit agreement will terminate on January 17, 2011.

Inflation

Inflation and changing prices have not had a material effect on our business, and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor price changes in the economies and industries in which we operate and continually maintain effective cost controls in operations.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, sales or expenses, results of operations, liquidity or capital expenditures, or capital resources that are material to an investment in our securities.

Seasonality

Our operating results and operating cash flows historically have not been subject to dramatic seasonal variations, although there is an increase in advertising and selling expenses when we begin sales of new products or services. New market opportunities or new product and new service introductions could change any perceived patterns, seasonal or operational.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates, and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Basis of Consolidation and Presentation. The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). In the opinion of management, the accompanying balance sheets, and statements of operations, and cash flows and include all adjustments, consisting only of normal recurring items, considered necessary to give a fair presentation of operating results for the periods presented. All material intercompany transactions and balances have been eliminated in consolidation.

Business Combinations. The Company adopted the accounting pronouncements relating to business combinations (primarily contained in ASC Topic 805 "Business Combinations"), including assets acquired and liabilities assumed arising from contingencies. These pronouncements established principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree as well as provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. In addition, these pronouncements eliminate the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement criteria and require an acquirer to develop a systematic and rational basis for subsequently measuring and accounting for acquired contingencies depending on their nature. Our adoption of these pronouncements will have an impact on the manner in which we account for any future acquisitions.

Use of estimates. The preparation of consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

Allowance for doubtful accounts. The Company reduces gross trade accounts receivable by an allowance for doubtful accounts. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable. The Company reviews its allowance for doubtful accounts on a regular basis and all past due balances are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

Impairment of long-lived assets. The Company reviews the carrying amount of its long-lived assets, including intangibles, for impairment, each reporting period. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is considered not recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flow. For periods ended December 31, 2009 and September 30, 2010, the Company determined no impairment charges were necessary.

Property, plant and equipment, net. Property and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets. Any gain or loss arising on the sale or disposal of the asset is included in the income statement in the period the item is sold or otherwise disposed. Maintenance and repairs of property and equipment are charged to operations when incurred.

Recent Accounting Pronouncements

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

None.

ITEM 4.

CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15 under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2010. Based on our assessment, our Chief Executive Officer and Chief Financial Officer determined that as of September 30, 2010, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed, our disclosure controls and procedures were not effective as of September 30, 2010.

Changes in Internal Control Over Financial Reporting

During the quarter ended September 30, 2010, there were no changes in our internal control over financial reporting identified in connection with the evaluation performed during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

ITEM	1. LEGAL PROCEEDINGS.

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.

ITEM	1A. RISK FACTORS.

Investors are directed to the “Risk Factors” section of our Annual Report on Form 10-K with the SEC on April 15, 2010. There have been no material changes to the risk factors disclosed therein.

ITEM	2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM	3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM	4. (REMOVED AND RESERVED).

ITEM 5

OTHER INFORMATION.

We have no information to disclose that was required to be in a report on Form 8-K during the period covered by this report, but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.

ITEM 6.

EXHIBITS.

The following exhibits are filed as part of this report or incorporated by reference:

Exhibit No.		Description
31.1		Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

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

Date: November 22, 2010	UNILAVA CORPORATION


	By:	/s/ Baldwin Yung
		Baldwin Yung, Chief Executive Officer (Principal Executive Officer)

	By:	/s/ Baldwin Yung
		Baldwin Yung, Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

EXHIBIT INDEX

Exhibit No.		Description
31.1		Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.