0001199835-13-000287.txt : 20130520 0001199835-13-000287.hdr.sgml : 20130520 20130520150449 ACCESSION NUMBER: 0001199835-13-000287 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20130331 FILED AS OF DATE: 20130520 DATE AS OF CHANGE: 20130520 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Unilava Corp CENTRAL INDEX KEY: 0000923168 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATION SERVICES, NEC [4899] IRS NUMBER: 000000000 STATE OF INCORPORATION: WY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25108 FILM NUMBER: 13857967 BUSINESS ADDRESS: STREET 1: 353 SACRAMENTO STREET STREET 2: SUITE 1500 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4153213490 MAIL ADDRESS: STREET 1: 353 SACRAMENTO STREET STREET 2: SUITE 1500 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 FORMER COMPANY: FORMER CONFORMED NAME: IWI HOLDING LTD DATE OF NAME CHANGE: 19940516 10-Q 1 unilava_10q-15541.htm UNILAVA 10Q 03-31-2013 unilava_10q-15541.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: March 31, 2013
 
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 May 15, 2013 is as follows:
 
Class of Securities
 
Shares Outstanding
Common stock, no par value
 
100,051,107
 
 
 
1

 

 
Quarterly Report on Form 10-Q
  Three Months Ended March 31, 2013


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
21
     
 Item 3.
 Quantitative and Qualitative Disclosures About Market Risk
28
     
 Item 4.
 Controls and Procedures
28
     
   PART II
OTHER INFORMATION
     
 Item 1.  
 Legal Proceedings
30
     
 Item 1A. 
 Risk Factors
30
     
 Item 2. 
 Unregistered Sales of Equity Securities and Use of Proceeds
30
     
 Item 3.
 Defaults Upon Senior Securities
30
     
 Item 4.    
 (Removed and Reserved)
30
     
 Item 5. 
 Other Information
31
     
 Item 6.  
 Exhibits
31
     
 
 Signatures
32
 
 



                                                        


 
 
 
 
 
2

 

 
 

 
  
 

PART I
FINANCIAL INFORMATION
 
ITEM 1.          FINANCIAL STATEMENTS.

The accompanying consolidated balance sheet of Unilava Corporation at March 31, 2013, the consolidated statements of operations and comprehensive loss for the three months ended March 31, 2012 and 2011 and the consolidated statements of cash flows for the three months ended March 31, 2013 and 2012, 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 in these condensed statements and all such adjustments are of a normal recurring nature.



UNILAVA CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

 
 Financial Statements
  Page(s)
     
 
Consolidated Balance Sheets (Unaudited)
 4
     
 
Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
 5
     
 
Consolidated Statements of Cash Flows (Unaudited)
 6
     
 
Notes to Consolidated Financial Statements (Unaudited)
 7-19
 
 
 


 
 
 
 

 
3

 

 
Unilava Corporation and Subsidiaries
 
Consolidated Balance Sheets
 
   
   
March 31,
   
December 31,
 
   
2013
   
2012
 
ASSETS
 
(unaudited)
       
CURRENT ASSETS
           
Cash
  $ -     $ -  
Certificates of deposit
    28,127       28,119  
Accounts receivable, net
    244,398       246,438  
Other current assets
    123       (24 )
                 
Total current assets
    272,648       274,533  
                 
Fixed assets, net
    1,483,418       1,510,822  
Goodwill
    767,873       767,873  
Other assets
    110,074       110,091  
                 
TOTAL ASSETS
  $ 2,634,013     $ 2,663,319  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
CURRENT LIABILITIES
               
Bank overdraft
  $ 79,131     $ 79,242  
Accounts payable and accrued expenses
    3,634,194       3,301,044  
Accounts payable and accrued expenses - related party
    180,625       180,625  
Deferred rent - current
    23,061       37,261  
Line of credit
    1,651,633       1,651,633  
Notes payable
    2,014,332       2,072,927  
Notes payable - related party
    1,039,709       881,008  
                 
TOTAL CURRENT LIABILITIES
    8,622,685       8,203,740  
                 
Deferred rent - non current
    -       -  
TOTAL LIABILITIES
    8,622,685       8,203,740  
                 
STOCKHOLDERS' DEFICIT
               
Preferred stock, no par value 5,000,000 shares authorized; issued and outstanding 0 and  0 outstanding at March 31, 2013 and December 31, 2012, respectively.
    -       -  
                 
Common stock, no par value 120,000,000 shares authorized; issued but not outstanding 100,052,888 and 100,052,888, respectively; issued and outstanding 100,051,107 and  100,051,107 at March 31, 2013 and December 31, 2012, respectively.
    1,519,074       1,519,074  
Common stock payable
    -       -  
Treasury stock, 1,781 and 1,781 shares at March 31, 2013 and December 31, 2012, respectively
    -       -  
Accumulated deficit
    (7,382,020 )     (6,953,739 )
Accumulated other comprehensive loss
               
     (Foreign translation adjustment)
    (63,895 )     (61,795 )
                 
STOCKHOLDERS' DEFICIT OF UNILAVA
    (5,926,841 )     (5,496,460 )
Non-controlling interest
    (61,831 )     (43,960 )
                 
TOTAL STOCKHOLDERS' DEFICIT
    (5,988,672 )     (5,540,420 )
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
  $ 2,634,013     $ 2,663,319  
                 
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
 

 

 
4

 

Unilava Corporation and Subsidiaries
 
Unaudited Consolidated Statements of Operations
 
   
             
   
For the three months ended
 
   
March 31,
 
   
2013
   
2012
 
Revenue
  $ 763,896     $ 820,887  
Cost of revenue
    412,650       389,062  
Gross profit
    351,246       431,825  
                 
Costs and Expenses
               
Salaries and payroll taxes
    270,533       332,055  
Selling, general & administrative
    419,678       444,819  
Depreciation
    33,899       36,716  
Goodwill impairment
    -       -  
Total costs and expenses
    724,110       813,590  
                 
Loss from operations
    (372,864 )     (381,765 )
                 
Other Income (Expense)
               
Interest income
    20       17  
Other income
    1       42,122  
Gain on disposal of assets
    -       -  
Interest expense
    (73,309 )     (135,197 )
Other expense
    -       (10,000 )
Total other income (expense)
    (73,288 )     (103,058 )
                 
Loss before non-controlling interest
    (446,152 )     (484,823 )
Net loss allocable to non-controlling interest
    17,871       8,632  
Net loss
  $ (428,281 )   $ (476,191 )
                 
Comprehensive loss:
               
Foreign currency translation adjustment
    (2,100 )     (1,447 )
Total comprehensive loss
  $ (430,381 )   $ (477,638 )
                 
                 
Net loss per common share:
               
   Basic
  $ (0.00 )   $ (0.00 )
Weighted average common shares outstanding:
               
   Basic
    100,051,107       100,051,107  
                 
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
 

 

 
5

 

 
Unilava Corporation and Subsidiaries
 
Unaudited Consolidated Statements of Cash Flows
 
   
   
For the three months ended
 
   
March 31,
 
   
2013
   
2012
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
  $ (428,281 )   $ (476,191 )
Adjustments to reconcile net loss
               
to net cash used in operating activities:
               
Shares to be issued for services
    -       -  
Depreciation and amortization
    32,617       36,716  
Change in deferred rent
    (14,200 )     (11,415 )
Net loss allocated to non-controlling interest
    (17,871 )     (8,632 )
Gain from sale of equipment
    -       -  
Impairment of goodwill
    -       -  
CHANGES IN OPERATING ASSETS AND LIABILITIES:
               
Accounts receivable
    2,040       6,033  
Other current assets
    (147 )     4,853  
Other assets
    17       (204 )
Accounts payable and accrued expenses
    333,150       295,833  
Accounts payable and accrued expenses - related party
    -       26,413  
                 
CASH USED IN OPERATING ACTIVITIES
    (92,675 )     (126,594 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Interest earned on certificates of deposit
    (8 )     (10 )
Purchase of certificates of deposit
    -       -  
Proceeds from the sale of towers
    -       -  
Purchase of furniture and equipment
    (5,212 )     (636 )
                 
CASH USED IN INVESTING ACTIVITIES
    (5,220 )     (646 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Bank overdraft
    (111 )     -  
Proceeds from notes payable
    -       52,985  
Repayment of notes payable
    (58,595 )        
Proceeds from line of credit
    -       -  
Repayment of line of credit
    -       -  
Proceeds from related party notes payable
    158,701       52,542  
Repayment of related party notes payable
    -       (5,585 )
                 
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
    99,995       99,942  
                 
EFFECT OF EXCHANGE RATE CHANGES ON CASH
    (2,100 )     1,447  
Net DECREASE IN CASH
    (0 )     (25,851 )
CASH, beginning of period
    -       51,704  
CASH, end of period
  $ (0 )   $ 25,853  
                 
Supplemental disclosure of non-cash investing and financing activities:
               
Interest paid
  $ -     $ 52,984  
Taxes paid
  $ -     $ -  
                 
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
 

 
 
6

 
UNILAVA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2013


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.

The Company consists of several subsidiaries which make up the consolidated financial statements.  The parent company is Unilava Corporation which is a holding company for the operating subsidiaries.  Local Area Yellow Pages has significant operating revenue.  Telava Wireless has significant assets.  Local Info Pages has overseas operations in Korea.  Telava Acquisitions is insignificant to the Company financial position and operating results.  Telava Mobile has minimal assets and operations.  IBFA has significant assets, liabilities and revenue.
 
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.  During the three months ended March 31, 2012, nearly 21% 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.

On January 16, 2008, Telava Acquisitions, Inc. (“Telava”) a Delaware corporation and IBFA Acquisition Company, LLC (“IBFA”) a Michigan corporation and James Grabowski and Casimir Wojciechowski (the “Members”) entered into a Membership Interest Purchase Agreement (“MIPA”) whereby Telava agreed to purchase (the “Acquisition”) 100% of IBFA member interests from the Members for a purchase price of $2,250,000 subject to certain conditions such as a Management Agreement described below.  An initial $1,750,000 was paid in fiscal year 2008 with $500,000 deferred and payable at the rate of $25,000 to $50,000 per month based on a specific calculation.  During 2009, the Company paid $272,750 of deferred payments.  The remaining $227,750 was subject to “True-up” provisions as of the effective date of the Acquisition on January 11, 2009 (See discussion below).  Upon final settlement, The Company received concessions totaling $177,578 and made final payments totaling $95,172. Payment made related to the organization totaled $2,117,922.  The cost of acquisition totaling

 
7

 
UNILAVA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2013


Note 1 – Organization (Continued)

$1,835,873 has been entirely allocated to Goodwill which represents the overall cost of acquisition in excess of the fair value of tangible assets and identifiable intangible assets.

On November 12, 2008, TelavaNV formed Telava Mobile, Inc. (“TM”) as a 80% majority-owned subsidiary for the purpose of entering the mobile services businesses offering prepaid mobile calling cards and unlimited mobile services throughout the United States of America.
 
   
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 $7,382,020 at March 31, 2013.  In addition, the Company has negative working capital of $8,350,037 at March 31, 2013.
 
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 March 31, 2013 and for the three month periods ended March 31, 2013 and 2012 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 months ended March 31, 2013 are not necessarily indicative of the results for the full fiscal year ending December 31, 2013.  

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, 2012.




 
8

 
UNILAVA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2013


Note 3 - Summary of Significant Accounting Policies (Continued)

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, accounts 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.

Level 1   The preferred inputs to valuation efforts are “quoted prices in active markets for identical assets or liabilities,” with the caveat that the reporting entity must have access to that market.  Information at this level is based on direct observations of transactions involving the same assets and liabilities, not assumptions, and thus offers superior reliability. However, relatively few items, especially physical assets, actually trade in active markets.

Level 2   FASB acknowledged that active markets for identical assets and liabilities are relatively uncommon and, even when they do exist, they may be too thin to provide reliable information. To deal with this shortage of direct data, the board provided a second level of inputs that can be applied in three situations.

Level 3   If inputs from levels 1 and 2 are not available, FASB acknowledges that fair value measures of many assets and liabilities are less precise. The board describes Level 3 inputs as “unobservable,” and limits their use by saying they “shall be used to measure fair value to the extent that observable inputs are not available.” This category allows “for situations in which there is little, if any, market activity for the asset or liability at the measurement date”. Earlier in the standard, FASB explains that “observable inputs” are gathered from sources other than the reporting company and that they are expected to reflect assumptions made by market participants.

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.  The Company has a restricted cash balance of $28,127 and $28,119 on March 31, 2013 and December 31, 2012, respectively, which is comprised of Certificates of Deposit.   The restricted cash is held in certificates of deposit at various banking institutions.  The Company is expected to maintain the amounts in the certificates of deposit per agreements with certain vendors.

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.
 

 

 
9

 
UNILAVA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2013


Note 3 - Summary of Significant Accounting Policies (Continued)
 
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.

Goodwill consisted of $767,873 as of March 31, 2012 and December 31, 2011 as a result of the IBFA purchase as disclosed in the Company’s December 31, 2011 Form 10-K.

Accounting for Share-Based Compensation
 
The Company records stock based compensation in accordance with the guidance in ASC Topic 505 and 718 which requires the Company to recognize expenses related to the fair value of its employee stock option awards.  This eliminates accounting for share-based compensation transactions using the intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.

 
10

 
UNILAVA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2013


Note 3 - Summary of Significant Accounting Policies (Continued)

Accounting for Share-Based Compensation (Continued) 
 
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 718-10 and the conclusions reached by the FASB ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.
 
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 historically have been insignificant and therefore there is no reserve 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. 

 
11

 
UNILAVA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2013


Note 3 - Summary of Significant Accounting Policies (Continued)

Revenue Recognition (Continued)

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

IBFA:   Wireless services and wireline voice and data communication services. Revenue is recognized at the time of delivery of the products or services, and the collectibility is reasonably assured. The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent.

Service revenue includes the value of all telecommunications services provided, net of free usage allocations and discounts. Revenue is recognized when earned, and are net of the share of other foreign and local carriers and content providers, if any, under existing correspondence and interconnection and settlement agreements.

Revenue is stated at amounts billed or invoiced and accrued to subscribers or other carriers and content providers, taking into consideration the bill cycle cut-off (for postpaid subscribers), and charges against preloaded airtime value (for prepaid subscribers), and excludes value-added tax (VAT) and overseas communication tax.

Advertising Costs

The Company incurs advertising costs that are not considered direct response advertising and are expensed when incurred.  For the three months ended March 31, 2013 and 2012, the Company incurred approximately $22 and $738, respectively, in marketing and advertising expense. 

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.
 




 
12

 
UNILAVA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2013


Note 3 - Summary of Significant Accounting Policies (Continued)

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 three  months  ended March 31, 2013 and 2012,  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.
   
Recent Accounting Pronouncements
 
The Company has evaluated the recent accounting pronouncements through May 2013 and believes that none of them will have a material effect on the Company’s financial statements.
 
Recently Adopted Accounting Guidance
 
On July 1, 2011, we adopted guidance issued by the Financial Accounting Standards Board (“FASB”) on disclosure requirements related to fair value measurements. The guidance requires the disclosure of roll-forward activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). Adoption of this new guidance did not have a material impact on our financial statements.
 
On January 1, 2012, we adopted guidance issued by the FASB on accounting and disclosure requirements related to fair value measurements. The guidance limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts. Additionally, the guidance expands the disclosures on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to changes in unobservable inputs. Adoption of this new guidance did not have a material impact on our financial statements.
 
 


 
13

 
UNILAVA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2013


Note 3 - Summary of Significant Accounting Policies (Continued)
 
Recent Accounting Guidance Not Yet Adopted
 
In December 2011, the FASB issued guidance enhancing disclosure requirements about the nature of an entity’s right to offset and related arrangements associated with its financial instruments and derivative instruments. The new guidance requires the disclosure of the gross amounts subject to rights of set-off, amounts offset in accordance with the accounting standards followed, and the related net exposure. In January 2013, the FASB clarified that the scope of this guidance applies to derivatives, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset or subject to an enforceable master netting arrangement, or similar agreements. The new guidance will be effective for us beginning July 1, 2013. We do not expect material impacts on our financial statements upon adoption.
 
In February 2013, the FASB issued guidance on disclosure requirements for items reclassified out of AOCI. This new guidance requires entities to present (either on the face of the income statement or in the notes) the effects on the line items of the income statement for amounts reclassified out of AOCI. The new guidance will be effective for us beginning July 1, 2013. Other than requiring additional disclosures, we do not anticipate material impacts on our financial statements upon adoption.
 
In March 2013, the FASB issued guidance on a parent’s accounting for the cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. This new guidance requires that the parent release any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The new guidance will be effective for us beginning July 1, 2014. We are currently studing what effect, if any, this accounting will have on our financial statements.

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 three months ended March 31, 2013 and 2012, approximately20.26% and 5.1% of the Company's net sales were made to customers outside the United States. 
 
Reclassification
 
Certain reclassifications have been made to prior years’ financial statements to conform to the current year presentation.  These reclassifications had no effect on previously reported results of operations or accumulated deficit.  
 
 

 
 
14

 
UNILAVA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2013


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 March 31, 2013 and 2012, the amount reserved for uncollectible account balances is $726 and $5,023, 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.


Note 5 – Fixed Assets
 
Property and equipment consisted of the following at March 31, 2013 and December 31, 2012: 
 
   
March 31,
2013
   
December 31,
2012
 
Microwave towers
 
$
1,949,019
   
$
1,949,019
 
                 
Computer equipment
   
232,863
     
226,265
 
                 
Furniture & equipment
   
113,163
     
114,549
 
                 
Software
   
35,858
     
35,858
 
                 
Tenant improvements
   
186,949
     
186,949
 
     
2,517,852
     
2,512,640
 
Accumulated depreciation
   
(1,034,434
)
   
(1,001,818
)
                 
Fixed assets, net
 
$
1,483,418
   
$
1,510,822
 
 
Depreciation expense for the three months ended March 31, 2013 and 2012 was $33,899 and $36,716, respectively.





 

 
15

 
UNILAVA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2013


Note 6 – Line of Credit and Notes Payable

As of March 31, 2013, the amount, maturity date and term of each of our loans were as follows:
 
Lender
 
Principal Amount
   
Interest Rate
 
Maturity Date
Thermo Credit LLC
 
$
1,651,632
     
17.00
%
January 17, 2011
AHAP
   
40,000
   
Various
 
Upon Demand
Brilliant Capital
   
836,420
     
8.00
%
Upon Demand
InfoCity, LLC and Others
   
1,137,911
     
8.00
%
Upon Demand
Dr. Dicken Yung (related party)
   
267,763
     
0.00
%
Upon Demand
Baldwin Yung (related party)
   
432,500
     
0.00
%
Upon Demand
Boaz Yung (related party)
   
1,125
     
0.00
%
Upon Demand
Cherie Yung (related party)
   
320,300
     
0.00
%
Upon Demand
   
$
4,687,651
           

As of December 31, 2012, the amount, maturity date and term of each of our loans were as follows:
 
Lender
 
Principal Amount
   
Interest Rate
 
Maturity Date
Thermo Credit LLC
 
$
1,651,632
     
17.00
%
January 17, 2011
AHAP
   
40,000
     
8.00
%
Upon Demand
Brilliant Capital
   
838,920
     
8.00
%
Upon Demand
InfoCity, LLC and Others
   
1,140,976
     
8.00
%
Upon Demand
Dr. Dicken Yung (related party)
   
213,289
     
0.00
%
Upon Demand
Baldwin Yung (related party)
   
382,000
     
0.00
%
Upon Demand
Boaz Yung (related party)
   
1,125
     
0.00
%
Upon Demand
Cherie Yung (related party)
   
280,300
     
0.00
%
Upon Demand
   
$
4,548,242
           

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 the all of the assets of the Company including cash, accounts receivable and fixed assets (See Note 4 Accounts Receivable and Note 5 Fixed Assets). The credit agreement had certain debt covenants that the Company did not comply with during the quarters ended March 31, 2012 and 2011.  The first covenant was that the Company must maintain a ratio of cash flow to scheduled principal payments plus all accrued interest payments on funded debt of not less than 1 to 1 as of the end of each fiscal quarter.  The second covenant was that the Company must maintain a tangible net worth of not less than $0 as of the last day of each fiscal quarter.  The credit agreement terminated on January 17, 2011, the line is in default and as such cash proceeds from the Company’s receivables and sale of assets have been directed to serve as collateral. (See Note 12, Subsequent Events)

 
 
16

 
UNILAVA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2013
 
 
Note 7 – 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 March 31, 2013.  Commensurate with the merger, 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 March 31, 2013 and December 31, 2012, the Company had 100,052,888 and 100,052,888 shares of common stock issued but not outstanding, respectively.  The Company had 100,051,107 and 100,051,107 shares of common stock issued and outstanding, respectively.  As of March 31, 2013 and December 31, 2012, the Company had 1,781 and 1,781 shares of treasury stock. 


Note 8 – 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.


 

 
17

UNILAVA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2013


Note 8 – Segment Reporting (Continued)

For the three months ended March 31, 2013
 
   
Advertising Solutions
   
Wireless
   
Wireline
   
Other
   
Elimination
   
Consolidated
 
Revenue from external customers
 
$
172,299
   
$
 160,555
   
$
431,042
   
$
    -
   
$
   -
   
$
 763,896
 
Cost of revenue
   
           4,372
     
    175,391
     
     232,886
     
         -
     
            -
     
      412,650
 
Gross profit
   
      167,927
     
    (14,837
   
     198,155
     
       -
     
           -
     
      351,246
 
                                                 
Operations and support expenses
   
 500,452
     
23,136
     
163,595
     
3,028
     
  -
     
690,211
 
Depreciation and amortization
   
             14,205
     
        19,323
     
                371
     
             -
     
                -
     
           33,899
 
                                                 
Total segment operating expenses
   
          514,657
     
       42,458
     
        163,967
     
3,028
     
                -
     
         724,110
 
                                                 
Segment operating income
   
    (346,730
   
    (57,295
   
       34,189
     
    (3,028
   
                -
     
    (372,864
                                                 
Total other income (expense)
   
           (48,118
   
      (16,159
   
                  17
     
             -
     
                -
     
          (64,261
                                                 
Net loss allocable to minority interest
   
                    -
     
  17,871
     
                  -
     
             -
     
                -
     
           17,871
 
                                                 
Segment income before income taxes
 
$
         (394,848
 
$
      (55,582
 
$
           34,206
   
$
      (3,028
 
$
                -
   
$
        (419,253
                                                 
Segment assets
 
$
    2,066,110
   
$
 1,536,567
   
$
     347,992
   
$
   682,000
   
$
 (1,998,655
 
$
   2,634,015
 

 For the three months ended March 31, 2012

   
Advertising Solutions
   
Wireless
   
Wireline
   
Other
   
Elimination
   
Consolidated
 
Revenue from external customers
 
$
           213,097
   
$
        84,466
   
$
         523,324
   
$
             -
   
$
                -
   
$
         820,887
 
Cost of revenue
   
         64,094
  
  
  
      60,672
  
  
  
      264,296
  
  
  
             -
  
  
  
                -
  
  
  
       389,062
 
Gross profit
   
       149,003
  
  
  
        23,794
 
  
  
     259,028
  
  
  
             -
  
  
  
                -
  
  
  
       431,825
 
                                                 
Operations and support expenses
   
          504,074
  
  
  
 12,956
  
  
  
         257,726
  
  
  
       2,118
  
  
  
                -
  
  
  
         776,874
 
Depreciation and amortization
   
             17,022
  
  
  
19,323
  
  
  
                371
  
  
  
             -
  
  
  
                -
  
  
  
           36,716
 
                                                 
Total segment operating expenses
   
           521,096
  
  
  
32,279
  
  
  
         258,097
  
  
  
       2,118
  
  
  
                -
  
  
  
         813,590
 
                                                 
Segment operating income
   
         (372,093
  
  
        (8,485
)  
  
  
                931
 
  
  
      (2,118
  
  
                -
  
  
  
        (381,765
                                                 
Total other income (expense)
   
           (86,907
  
  
      (16,166
)  
  
  
                  15
  
  
  
             -
  
  
  
                -
  
  
  
        (103,058
                                                 
Net loss allocable to minority interest
   
                     -
  
  
  
          8,632
  
  
  
                  -
  
  
  
             -
  
  
  
                -
  
  
  
             8,632
 
                                                 
Segment income before income taxes
 
$
         (459,000
 
$
      (16,019
 
$
                946
   
$
      (2,118
 
$
                -
   
$
        (476,191
                                                 
Segment assets
 
$
   2,556,929
   
$
   1,566,936
   
$
   1,026,961
   
$
      (676
 
$
 (2,301,842
 
$
    2,848,308
 
   
 
18

 
UNILAVA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2013
 
 
Note 9 –Commitments

A portion of our facilities are under operating leases that expire at various dates through 2014.  Rent expense was $157,140 and $149,187 for the three months ended March 31, 2013 and 2012, respectively.

Minimum rental commitments under all non-cancelable leases with an initial term in excess of one year were as follows as of March 31, 2013:
 
Year Payable
Amount
 
2013
 
 $
437,003
 
2014
   
247,043
 
2015
   
27,910
 
2016 and Thereafter
   
7,910
 
Total
 
1,070,448
 



Note 10 – Litigation

As of March 31, 2013, we had no material pending legal proceedings, except for the following. 

Vermont Attorney General Investigation Against Local Area Yellow Pages (“LAYP”)

The Vermont Attorney General has an active investigation into the business practices of LAYP focusing on whether certain notices and a three day right to cancel were provided to customers.  The Vermont Attorney General has proposed to settle if, LAYP will agree to issue a full refund to all Vermont customers whose telephone bills were charged and a payment of $10,000 in civil penalties and injunctive relief.  The amount for the full refund to all Vermont customers is estimated approximately $65,000.  The suit was filed in the Superior Court of Vermont.

Illinois Agricultural Association v. IBFA Acquisition Co. LLC (“IBFA”) and Telava Acquisitions, LLC

The Illinois Agricultural Association (IAA) claims that IBFA and Telava Acquisitions, LLC has past due referral fees in the amount of approximately $95,000.  We have denied the allegations and are defending our position in arbitration.  The matter is in the discovery stage and a hearing has been set for June 2011.  The suit was filed with the American Arbitration Association – Commercial Dispute Unit of Illinois.  On September 8, 2011, the AAA granted the award to IAA in the amount of $118,971.11 in full settlement of the case.
 

 
 
 
 
 

 
 
19

 
UNILAVA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2013
 
 
Note 10 – Litigation (continued)

Chen v. Unilava Corporation, et al.

In June 2010, Chris Chen, former Executive Vice President of Sales, filed a lawsuit against Unilava Corporation and Local Area Yellow Pages, Inc. (“LAYP”)  Mr. Chen seeks $49,613 in unpaid wages, $12,000 in statutory waiting time penalties and 4,300,000 shares of common stock or the fair market value of the common stock and attorneys’ fees.  In July 2010, Unilava and LAYP filed a cross-complaint seeking compensatory damages of no less than $3,000,000, punitive damages and attorneys’ fees.  The Court has ordered the parties to participate in mediation and they are in the process of selecting a mediator.  In September, both parties entered into an agreement to settle the case with prejudice.  Unilava Corporation and LAYP had to pay damages of approximately $50,000. The company recorded an unpaid balance of $11,111 as of December 31, 2012.

McLane v. Unilava Corporation, et al.
 
In February 2011, Caron McLane, former employee, filed a lawsuit against Unilava Corporation and Local Area Yellow Pages, Inc. (“LAYP”) and claims that she was wrongly terminated by the company.  Ms. McLane seeks for damages for the wrongly termination claims. The company intends to vigorously defend the case and does not intend to settle the case with Ms. McLane.
 

Note 11 – Related Party Transactions

As of December 31, 2012, Dicken Yung, Chairman, had a loan balance of $213,289 and $30,211 as outstanding accounts payable which is still owed by the Company. The amounts are due on demand and bear no interest.  During the three months ended March 31, 2013, the Company repaid $19,080.  As of March 31, 2013, the balance owed was $267,763 and $33,583.
 
As of December 31, 2012, Baldwin Yung, CEO, had a loan balance of $382,000 and $45,564 as outstanding accounts payable which is still owed by the Company.  The amounts are due on demand and bear no interest.  As of March 31, 2013, the balance owed was $432,500 and $48,063.
 
As of December 31, 2012, Boaz Yung, EVP, had a loan balance of $1,125 and $9,875 as outstanding accounts payable which is still owed by the Company.  The amounts are due on demand and bear no interest.  As of March 31, 2012, the balance owed was $1,125 and $9,875.
 
As of December 31, 2012, Cherie Yung, Director, had a loan balance of $280,300 and $94,731, as outstanding accounts payable which is still owed by the Company.  During the three months ended March 31, 2013, Ms. Yung loaned an additional $40,000 to the Company.  The amounts are due on demand and bear no interest.  As of March 31, 2013, the balance owed was $320,300 and $107,440.
 
There were no other related party transactions in 2013.
 
 
Note 12 – Subsequent Events
 
The Company has an outstanding line of credit facility with Thermo Credit LLC (“Thermo Credit”) which is currently in default.  

The Company signed a Memorandum of Understanding on December 7, 2009 to acquire an 80% interest in China Dragon Telecom Limited ("China Dragon Telecom") and its affiliates based in Hong Kong, China. The negotiations and execution of definitive agreements, regulatory approval and the performance of other customary conditions was expected to be completed in 2012 due to additional audit procedures that are needed to issue the audited financials of China Dragon Telecom. As of March 31, 2013, China Dragon Telecom was still being audited by an accounting firm.
 
 
 
 
 
 

 

 
 
 
 
 
 
20

 

  
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.

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, 2011.

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.



 
 
 
 
 
 
21

 
 
 
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.

Our goal is to become 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.

First Quarter Financial Performance Highlights

The following summarizes certain key financial information for the first fiscal quarter of 2013.
 
 
·
Total Sales : Total Sales was $763,896 for the three months ended March 31, 2013, a decrease of $56,991, or 7%, from $820,887 for the same period last year.

 
·
Gross Profit and Margin : Gross profit was $351,246 for the three months ended March 31, 2013, a decrease of $80,579, or 19%, from $431,825 for the same period last year. Gross margin was 46% for the three months ended March 31, 2013, as compared to 53% for the same period last year.

 
·
Net Loss: Net loss was $428,281 for the three months ended March 31, 2013, an increase of $47,910, or approximately 10%, from $476,191 for the same period of last year.
 
 
·
Basic net income per share : Basic net loss per share was approximately $0.00 for the three months ended March 31, 2013, as compared to approximately $0.00 for the same period last year.
 
 
 
 
22

 

 
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued
 
Results of Operations

Comparison of Three Months Ended March 31, 2013 and 2012

The following table shows key components of our results of operations during the three months ended March 31, 2013 and 2012, in both dollars and as a percentage of our total sales.
 
U.S. dollars, except percentages
 
Three Months Ended
March 31, 2013
   
Three Months Ended
March 31, 2012
 
         
Percent of
         
Percent of
 
   
Dollars
   
Total Sales
   
Dollars
   
Total Sales
 
Total sales
 
$
763,896
     
100
%
 
$
820,887
     
100
%
Cost of sales
   
412,650
     
54
%
   
389,062
     
47
%
Gross profit
   
351,246
     
46
%
   
431,825
     
53
%
                                 
Salaries and payroll
   
270,533
     
35
%
   
332,055
     
40
%
Depreciation and amortization
   
33,899
     
4
%
   
36,716
     
4
%
Selling, general and administrative expenses
   
419,678
     
55
%
   
444,819
     
54
%
Income (loss) from operations
   
(372,864
)
   
(49)
%
   
(381,765
)
   
(47)
)%
                                 
Other income  (expense)
   
(73,288
)
   
(10)
%
   
(103,058
   
(13)
)%
Loss before non-controlling interest
   
(446,152
)
   
(58)
%
   
(484,823
)
   
(59)
)%
Net loss allocable to non-controlling interest
   
17,871
     
2
   
8,632
     
1
Net loss
 
$
(428,281
)
   
          (56)
%
 
$
(476,191
)
   
          (58)
)%
 
Total Sales . Our total sales decreased 7% to $736,896 in the three months ended March 31, 20123from $820,887 in the same period last year, primarily as a result of a decrease in sales in our online advertising business and attrition of customer base of a subsidiary.

Cost of sales . Our cost of sales increased 6% to $412,650 in the three months ended March 31, 2013, from $389,062 in the same period last year, mainly due to a an increase in costs associated with our marketing campaign and training costs for our underperforming marketing centers during the 2013 period.

Gross profit and gross profit margin . Our gross profit decreased 19% to $351,246 in the three months ended March 31, 2013, from $431,825 in the same period last year. The gross profit margin (gross profit as a percentage of total sales) was 46% for the three months ended March 31, 2013 and 53% for the three months ended March 31, 2012. The decrease in the gross profit margin was primarily due to a decrease in overall sales.

Salaries and payroll.   Our salaries and payroll expenses decreased 19% to $270,533 in the three months ended March 31, 2013 from $332,055 in the same period last year, mainly due to a reduction in personnel and related payroll expenses during the 2013 period.
 
Selling, general and administrative expenses . Our selling, general and administrative expenses decreased 6% to $419,678 in the three months ended March 31, 2013, from $444,819 in the same period last year, mainly due to an active management of our administrative costs to eliminate unnecessary expenses in connection with our operations.
 
Other income and expenses . Interest expense decreased 46% to $73,309 in the three months ended March 31, 2013, from $135,197 in the same period in 2012, primarily due to an decrease in loan interest associated with the Thermo Credit LLC loan.

 
23

 

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

Comparison of Three Months Ended March 31, 2013 and 2012 - continued

Income taxes . Income taxes remained flat at zero dollars in the three months ended March 31, 2013 from the same period in 2012, mainly due to recurring losses.
 
Net loss . As a result of the foregoing reasons, net loss decreased 10% to $428,281 in the three months ended March 31, 2013, from $476,191 in the same period last year.
 
Segment Data

Net (loss) for the advertising solutions segment decreased 13% to ($394,848) in the three months ended March 31, 2013, from ($459,000) in the same period last year, mainly due to a decrease in sales, less efforts in direct marketing and higher attrition ratio.

Total assets for the advertising solutions segment decreased 19% to $2,066,110 as of March 31, 2013 from $2,556,929 as of March 31, 2012, mainly due to decrease in  receivables from intercompany accounts.

Net (loss) for the wireless segment increased 246% to ($55,582) in the three months ended March 31, 2013, from net loss of ($16,019) in the same period last year, mainly due to increases in costs associated with the increased sales.

Total assets for the wireless segment decreased 1% to $1,536,567 as of March 31, 2013, from $1,566,936 as of March 31, 2012, mainly due to amortization on tower assets.

Net income for the wireline segment increased 3,515% to $34,206 in the three months ended March 31, 2013, from $946 in the same period last year, mainly due to an decrease in marketing of wireless marketing and operating costs.
 
Total assets for the wireline segment decreased 66% to $347,992 as of March 31, 2013, from $1,026,961 as of March 31, 2012, mainly due to impairment of goodwill during the year ended December 31, 2012.


 
 
 
 
 
 
24

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

Liquidity and Capital Resources

As of March 31, 2013, we had cash and cash equivalents of approximately $28,127. 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
 
Three Months Ended March 31,
 
   
2013
   
2012
 
Net cash provided by (used in) operating activities
 
$
(92,675
 
$
(126,594
Net cash provided by (used in) investing activities
   
(5,220
)
   
(646
)
Net cash provided by (used in) financing activities
   
99,995
     
99,942
 
Net increase in cash and cash equivalents
 
$
(2,100
)
 
$
(25,853
)

Operating Activities

Net cash used in operating activities was $92,675 in the three months ended March 31, 2013, compared with $126,594 used in operating activities in the same period last year. Net loss after adjustment for noncash items was $427,735 in the three months ended March 31, 2013.  This decrease was primarily due to increased operating and legal costs of underperforming subsidiaries.

Investing Activities

Net cash used in investing activities in the three months ended March 31, 2013 was $5,220, compared with $646 used in investing activities in the same period last year. The increase was mainly due to purchases of equipment.
 
Financing Activities

Net cash provided by financing activities in the three months ended March 31, 2013 was $99,995, compared with $99,942 of net cash provided by financing activities in the same period in 2012. The decrease in net cash provided by financing activities was mainly due to cash proceeds from unrelated third-party loans and proceeds from related party loans offset by a repayment of the related party loans.

Capital Expenditures

Our capital expenditures for the three months ended March 31, 2013 and 2012 were $5,212 and $636, respectively. As of March 31, 2013, we had cash and cash equivalents of $28,127, primarily consisting of demand deposits.

To date, we have financed our operations primarily through cash flows from operations, augmented by short-term bank and personal loans 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.
 
 
 
 
 
 
25

 
  

ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
 
Loan Commitments

As of March 31, 2013, 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
 
$
1,651,632
 
17.00%
Jan 17, 2011
             
Dr. Dicken Yung
 
$
267,763
 
0%
Upon demand
             
Baldwin Yung
 
$
432,500
 
0%
Upon demand
             
Boaz Yung
 
$
1,125
 
0%
Upon demand
             
AHAP
 
$
40,000
 
8%
Upon demand
             
Brilliant Capital
 
$
836,420
 
8%
Upon demand
             
InfoCity LLC and others
 
$
1,137,911
 
8%
Upon demand
             
Cherie Yung
 
$
320,300
 
0%
Upon demand
             
TOTAL 
 
$
4,687,651
     

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 the all of the assets of the Company including cash, accounts receivable and fixed assets. The credit agreement had certain debt covenants that the Company did not comply with during the year ended December 31, 2011 and the quarter ended March 31, 2012.  The first covenant was that the Company must maintain a ratio of cash flow to scheduled principal payments plus all accrued interest payments on funded debt of not less than 1-to-1 as of the end of each fiscal quarter.  The second covenant was that the Company must maintain a tangible net worth of not less than $0 as of the last day of each fiscal quarter.  The credit agreement terminated on January 17, 2011 and the Company is renegotiating the terms with the lender. Although the line of credit is currently in default status, the Company believes that a plan or an amendment of the facility can be negotiated.

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. 

 
26

 

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

 
·
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  March 31, 2012 and December 31, 2011, 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.




 
27

 

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

Recent Accounting Pronouncements

The Company has evaluated the recent accounting pronouncements through May 2013 and believes that none of them will have a material effect on the Company’s financial statements.

ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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 the all of the assets of the Company including cash, accounts receivable and fixed assets. The credit agreement had certain debt covenants that the Company did not comply with during the quarters ended March 31, 2013 and 2012.  The first covenant was that the Company must maintain a ratio of cash flow to scheduled principal payments plus all accrued interest payments on funded debt of not less than 1 to 1 as of the end of each fiscal quarter.  The second covenant was that the Company must maintain a tangible net worth of not less than $0 as of the last day of each fiscal quarter.  The credit agreement terminated on January 17, 2011, the line is in default and as such cash proceeds from the Company’s receivables and sale of assets have been directed to serve as collateral.
 
ITEM 4.
CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
 
As required by Rule 13a-15(e), our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer and Chief Financial Officer, Mr. Baldwin Yung, of the effectiveness of the design and operation of our disclosure controls and procedures, as of March 31, 2013. Based upon, and as of the date of this evaluation, Mr. Yung, determined that, for the reasons disclosed below, as of March 31, 2013, and as of the date of this Report, our disclosure controls and procedures were not effective.
 
 

 
 
 
 
 
28

 

 
  ITEM 4.
CONTROLS AND PROCEDURES - continued
 
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as based on framework established in Internal Control Integrated Framework issued by the committee of Sponsoring Organizations of the Treadway Commission (COSO) as of March 31, 2013. During our management’s review of our internal control over financial reporting as of March 31, 2013, our management identified the following material weaknesses in the company’s internal control over financial reporting:
 
 
-
Management’s ability to override procedures
 
 
-
Insufficient quarterly and annual financial closing procedures
 
 
-
Insufficient cutoff for recording revenue
 
 
-
Insufficient cutoff for recording payables
 
It is Management’s opinion that the above weaknesses exist due to the small size of operating staff and the current phase of operations. In an effort to remediate the identified material weakness and enhance our internal controls, we have initiated, or plan to initiate, the following measures:

 
·
We plan to increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us.
 
 
·
We will create a senior position to focus on financial reporting and standardizing and documenting our accounting procedures with the goal of increasing the effectiveness of the internal controls in preventing and detecting misstatements of accounting information.

We anticipate the costs of implementing these remediation initiatives will be approximately $50,000 to $100,000 a year in increased salaries and $50,000 to $100,000 a year in increased legal and accounting expenses.  We anticipate that these initiatives will be at least partially, if not fully, implemented before the end of 2013.  We also plan to test our updated controls and remediate our deficiencies by December 31, 2013.
 
Changes in Internal Control Over Financial Reporting

During the quarter ended March 31, 2013, 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.

 
 
 
 
 

 
29

 

 
  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. Below are legal proceedings or claims that we believe will not have a material adverse affect on our business, financial condition or operating results;

Vermont Attorney General Investigation Against Local Area Yellow Pages (“LAYP”)

The Vermont Attorney General has an active investigation into the business practices of LAYP focusing on whether certain notices and a three day right to cancel were provided to customers.  The Vermont Attorney General has proposed to settle if, LAYP will agree to issue a full refund to all Vermont customers whose telephone bills were charged and a payment of $10,000 in civil penalties and injunctive relief.  The amount for the full refund to all Vermont customers is estimated at approximately $65,000.  The suit was filed in the Superior Court of Vermont.

Illinois Agricultural Association v. IBFA Acquisition Co. LLC (“IBFA”) and Telava Acquisitions, LLC

The Illinois Agricultural Association (IAA) claimed that IBFA and Telava Acquisitions, LLC had past due referral fees in the amount of approximately $95,000.  We denied the allegations and defended our position in arbitration.  The matter was in the discovery stage and a hearing was set for June 2011.  The suit was filed with the American Arbitration Association – Commercial Dispute Unit of Illinois.  On September 8, 2011, the AAA granted the award to IAA in the amount of $118,971.11 in full settlement of the case.
 
Chen v. Unilava Corporation, et al.

In June 2010, Chris Chen, former Executive Vice President of Sales, filed a lawsuit against Unilava Corporation and Local Area Yellow Pages, Inc. (“LAYP”)  Mr. Chen seeks $49,613 in unpaid wages, $12,000 in statutory waiting time penalties and 4,300,000 shares of common stock or the fair market value of the common stock and attorneys’ fees.  In July 2010, Unilava and LAYP filed a cross-complaint seeking compensatory damages of no less than $3,000,000, punitive damages and attorneys’ fees.  The Court has ordered the parties to participate in mediation.  In September 2011, both parties entered into an agreement to settle the case for $50,000 with prejudice.

McLane v. Unilava Corporation, et al.
 
In February 2011, Caron McLane, former employee, filed a lawsuit against Unilava Corporation and Local Area Yellow Pages, Inc. (“LAYP”) and claims that she was wrongly terminated by the company.  Ms. McLane seeks for damages for the wrongly termination claims. The company intends to vigorously defend the case and does not intend to settle the case with Ms. McLane.

ITEM 1.
RISK FACTORS.

Investors are directed to the “Risk Factors” section of our Annual Report on Form 10-K with the SEC on April 16, 2013. 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.
MINE SAFETY DISCLOSURES.
 
Not applicable.

 
30

 


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
   
   
   
   
101.INS
XBRL Instance Document
   
101.SCH
XBRL Taxonomy Extension Schema
   
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
   
101.DEF
XBRL Taxonomy Extension Definition Linkbase
   
101.LAB
XBRL Taxonomy Extension Label Linkbase
   
101.PRE
XBRL Extension Presentation Linkbase

 
 
 
 
 
 
 
 
 
 
 
 
31

 

 
 

 
  


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: May 20, 2013
UNILAVA CORPORATION
     
     
 
By: 
/s/ Baldwin Yung
 
Baldwin Yung, Chief Executive Officer and Chief Financial Officer
(Principal Executive, Financial and Accounting Officer)
 




















 
   
 
   
  
 
 
32

 

 
 

EXHIBIT INDEX
 
Exhibit No.
Description
   
   
   
   
101.INS
XBRL Instance Document
   
101.SCH
XBRL Taxonomy Extension Schema
   
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
   
101.DEF
XBRL Taxonomy Extension Definition Linkbase
   
101.LAB
XBRL Taxonomy Extension Label Linkbase
   
101.PRE
XBRL Extension Presentation Linkbase
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
33

EX-31.1 2 exhibit_31-1.htm CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER FILED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 exhibit_31-1.htm


 
Exhibit 31.1
 
CERTIFICATIONS
 
I, Baldwin Yung, certify that:
 
1.
I have reviewed this quarterly report on Form 10-Q of Unilava Corporation;
   
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
     
 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
 
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
 
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
 
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
     
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
     
 
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: May 20, 2013
 
/s/ Baldwin Yung                                                
Baldwin Yung
Chief Executive Officer
(Principal Executive Officer)

EX-31.2 3 exhibit_31-2.htm CERTIFICATIONS OF PRINCIPAL FINANCIAL OFFICER FILED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 exhibit_31-2.htm


 
Exhibit 31.2
 
 
CERTIFICATIONS
 
I, Baldwin Yung, certify that:
 
1.
I have reviewed this quarterly report on Form 10-Q of Unilava Corporation;
     
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
     
 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
 
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
 
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
 
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
     
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
     
 
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
 
 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: May 20, 2013
 
/s/ Baldwin Yung                                                
Baldwin Yung 
Chief Financial Officer
(Principal Financial and Accounting Officer)
EX-32.1 4 exhibit_32-1.htm 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. exhibit_32-1.htm

Exhibit 32.1
 
 
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
 
The undersigned, Baldwin Yung, the Chief Executive Officer of UNILAVA CORPORATION (the “Company”), DOES HEREBY CERTIFY that:
 
1. The Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
 
2. Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
 
IN WITNESS WHEREOF, each of the undersigned has executed this statement this 20th day of May, 2013.
 
/s/ Baldwin Yung                                            
Baldwin Yung
Chief Executive Officer
(Principal Executive Officer)
 
A signed original of this written statement required by Section 906 has been provided to Unilava Corporation and will be retained by Unilava Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
 
The forgoing certification is being furnished to the Securities and Exchange Commission pursuant to § 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

 
EX-32.2 5 exhibit_32-2.htm 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. exhibit_32-2.htm

Exhibit 32.2
 
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
 
The undersigned, Baldwin Yung, the Chief Financial Officer of UNILAVA CORPORATION (the “Company”), DOES HEREBY CERTIFY that:
 
1. The Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
 
2. Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
 
IN WITNESS WHEREOF, each of the undersigned has executed this statement this 20th day of May, 2013.
 
/s/ Baldwin Yung                                        
Baldwin Yung
Chief Financial Officer
(Principal Financial Officer)
 
A signed original of this written statement required by Section 906 has been provided to Unilava Corporation and will be retained by Unilava Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
 
The forgoing certification is being furnished to the Securities and Exchange Commission pursuant to § 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
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(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.&#160;&#160;All material intercompany accounts and transactions have been eliminated. 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