UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2010
| o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from ____________ to ____________
Commission file number: 000-53744
Single Touch Systems, Inc.
(Exact name of small business issuer as specified in its charter)
| Delaware | 13-4122844 |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
2235 Encinitas Blvd., Suite 210
Encinitas, California 92024
(Address of principal executive offices)
(760) 438-0100
(Registrants telephone number, including area code)
_____________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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. x Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company; as defined within Rule 12b-2 of the Exchange Act.
| o | Large accelerated filer | o | Accelerated filer | o | Non-accelerated filer | x | Smaller reporting company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
The number of shares outstanding of each of the issuer's classes of common equity as of December 31, 2010: 127,766,551 shares of common stock
SINGLE TOUCH SYSTEMS INC. | |||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
| December 31, | September 30, | ||||||||
| 2010 | 2010 | ||||||||
| (Unaudited) | |||||||||
| Assets | |||||||||
| Current assets | |||||||||
| Cash and cash equivalents | $ | 3,256,540 | $ | 4,040,169 | |||||
| Accounts receivable - trade | 685,739 | 514,327 | |||||||
| Accounts receivable - related party | 38,652 | 36,762 | |||||||
| Prepaid expenses - other | 181,913 | 212,034 | |||||||
| Total current assets | 4,162,844 | 4,803,292 | |||||||
| Property and equipment, net | 272,692 | 203,091 | |||||||
| Other assets | |||||||||
| Capitalized software development costs, net | 389,079 | 305,710 | |||||||
| Intangible assets: | |||||||||
| Patents, net | 750,568 | 779,846 | |||||||
| Patent applications cost | 489,796 | 428,729 | |||||||
| Deposits and other assets | 16,486 | 15,282 | |||||||
| Total other assets | 1,645,929 | 1,529,567 | |||||||
| Total assets | $ | 6,081,465 | $ | 6,535,950 | |||||
| Liabilities and stockholders'equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 592,280 | $ | 461,364 | ||||
| Accrued compensation | 88,355 | 77,950 | ||||||
| Accrued compensation - related party | 17,187 | - | ||||||
| Current obligation on patent acquisitions | 175,000 | 175,000 | ||||||
Convertible debentures - related parties, including accrued interest, net of discounts | 411,201 | 197,280 | ||||||
| Total current liabilities | 1,284,023 | 911,594 | ||||||
| Long-term liabilities | ||||||||
| Obligation on patent acquisitions | 153,117 | 141,865 | ||||||
| Total liabilities | 1,437,140 | 1,053,459 | ||||||
| Stockholders' equity | ||||||||
Preferred stock, $.0001 par value; 5,000,000 shares authorized; none outstanding | - | - | ||||||
| Common stock, $.001 par value; 200,000,000 shares authorized; | ||||||||
| Issued and outstanding: | ||||||||
| 127,766,551 shares issued and outstanding as of December 31, 2010 and | ||||||||
| 123,676,892 shares issued and outstanding as of September 30, 2010 | 127,767 | 123,677 | ||||||
| Additional paid-in capital | 122,825,483 | 118,768,416 | ||||||
| Accumulated deficit | (118,308,425 | ) | (113,409,102 | ) | ||||
| Common stock subscriptions receivable | (500 | ) | (500 | ) | ||||
| Total stockholders' equity | 4,644,325 | 5,482,491 | ||||||
| Total liabilities and stockholders' equity | $ | 6,081,465 | $ | 6,535,950 | ||||
The accompanying notes are an integral part of these financial statements
SINGLE TOUCH SYSTEMS INC. | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
| For the Three Months Ended | ||||||||
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Revenue | ||||||||
| Wireless applications | $ | 1,011,738 | $ | 26,902 | ||||
| Operating Expenses | ||||||||
| Royalties and application costs | 506,455 | 150,168 | ||||||
| Research and development | 23,339 | 10,554 | ||||||
| Stock based compensation - non employees | - | 1,152,625 | ||||||
| Advisory and consulting services | 181,000 | 45,400 | ||||||
| Professional fees | 226,716 | 82,935 | ||||||
| Salaries and wages | 1,209,003 | 159,860 | ||||||
| Officers' compensation | 2,785,395 | 68,750 | ||||||
| Travel expenses | 45,044 | 25,293 | ||||||
| Rent expense | 29,703 | 27,674 | ||||||
| Depreciation and amortization | 137,287 | 117,854 | ||||||
| General and administrative | 101,382 | 46,645 | ||||||
| Total operating expenses | 5,245,324 | 1,887,758 | ||||||
| Loss from operations | (4,233,586 | ) | (1,860,856 | ) | ||||
| Other Income (Expenses) | ||||||||
| Changes in fair value of derivative and warrant liability | - | (798,600 | ) | |||||
| Loss on settlement of indebtedness | (651,315 | ) | (16,830 | ) | ||||
| Interest expense | (13,622 | ) | (77,604 | ) | ||||
| Net (loss) before income taxes | (4,898,523 | ) | (2,753,890 | ) | ||||
| Provision for income taxes | (800 | ) | (800 | ) | ||||
| Net income (loss) | $ | (4,899,323 | ) | $ | (2,754,690 | ) | ||
| Basic and diluted loss per share | $ | (0.04 | ) | $ | (0.04 | ) | ||
| Weighted average shares outstanding | 124,734,617 | 65,808,395 | ||||||
The accompanying notes are an integral part of these financial statements
SINGLE TOUCH SYSTEMS INC. | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| For the Three Months Ended | ||||||||
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | (4,899,323 | ) | $ | (2,754,690 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation expense | 22,250 | 24,705 | ||||||
| Amortization expense - software development costs | 56,759 | 89,221 | ||||||
| Amortization expense - patents | 29,278 | 3,928 | ||||||
| Loss on settlement of indebtedness | 651,315 | 16,830 | ||||||
| Stock based compensation | 3,603,708 | - | ||||||
| (Increase) decrease in assets | ||||||||
| (Increase) decrease in accounts receivable | (173,302 | ) | 10,703 | |||||
| (Increase) decrease in employee receivables | - | 1,153,821 | ||||||
| (Increase) decrease in prepaid expenses | 30,121 | - | ||||||
| (Increase) decrease in deposits and other assets | (1,204 | ) | - | |||||
| Increase (decrease) in liabilities | ||||||||
| Increase (decrease) in accounts payable | 161,459 | (68,593 | ) | |||||
| Increase (decrease) in payroll taxes payable | - | 302,496 | ||||||
| Increase (decrease) in accrued compensation | - | (364,857 | ) | |||||
Increase (decrease) in accrued compensation due related party | - | 74,942 | ||||||
| Increase (decrease) in accrued expenses | (2,952 | ) | 9,343 | |||||
| Increase (decrease) in accrued interest | 2,370 | 12,166 | ||||||
| Increase (decrease) in patent obligations | 11,252 | - | ||||||
| Increase (decrease) in derivative liability | - | 798,600 | ||||||
| Net cash used in operating activities | (508,269 | ) | (691,385 | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Purchase of property and equipment | (91,850 | ) | - | |||||
| Purchase of patent and patent applications | (61,067 | ) | (243,629 | ) | ||||
| Capitalized software development costs | (140,128 | ) | (137,538 | ) | ||||
| Net cash used in investing activities | $ | (293,045 | ) | $ | (381,167 | ) | ||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from issuance of common stock | $ | - | $ | 875,000 | ||||
| Proceeds received from related parties | 17,685 | - | ||||||
| Repayments on related party advances | - | (30,000 | ) | |||||
| Net cash provided by financing activities | 17,685 | 845,000 | ||||||
| Net increase (decrease) in cash | (783,629 | ) | (227,552 | ) | ||||
| Beginning balance - cash | 4,040,169 | 259,558 | ||||||
| Ending balance - cash | $ | 3,256,540 | $ | 32,006 | ||||
| Supplemental Information: | ||||||||
| Interest expense paid | $ | - | $ | 65,370 | ||||
| Income taxes paid | $ | - | $ | - | ||||
The accompanying notes are an integral part of these financial statements
SINGLE TOUCH SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Non-cash investing and financing activities:
For the three months ended December 31, 2010
During the three months ended December 31, 2010, the Company issued 365,975 shares of its common stock through the cashless exercise of 400,000 warrants.
During the three months ended December 31, 2010, the Company issued 723,684 shares of its common stock through a settlement with a former Note holder as to the number of shares he was entitled to in the original conversion of his note. The Company recognized a loss of $651,315 on the issuance of the 723,684 shares.
During the three months ended December 31, 2010, the Company issued 3,000,000 shares of its common stock to its President as compensation. The shares were valued at $2,700,000 and charged to operations and is included in officer's compensation..
During the three months ended December 31, 2010, the Company charged $193,866 to equity relating to the amortization of discounts on related party convertible debt (See Note 9).
In December 2010, the Company granted its employees options to purchase 9,655,000 shares of its common stock at $$0.90 per share. The options were granted pursuant to the Company’s 2010 Stock Plan. The options expire 3 years from date of grant.
For the three months ended December 31, 2009
During the three months ended December 31, 2009, the Company issued 80,000 shares in cancellation of legal and accounting fees due totaling $32,000. The shares were valued at their respective market value on date of issuance and the Company recognized a loss on the settlement of debt in the amount of $16,830.
During the three months ended December 31, 2009, the Company charged $305,278 to equity relating to the amortization of discounts on related party convertible debt (See Note 9).
The accompanying notes are an integral part of these financial statements
Single Touch Systems, Inc.
Notes To Condensed Consolidated Financial Statements
December 31, 2010
(Unaudited)
1. Organization, History and Business
Single Touch Systems Inc. (“the Company’) was incorporated in Delaware on May 31, 2000, under its original name, Hosting Site Network, Inc. On May 12, 2008, the Company changed its name to Single Touch Systems Inc.
On July 24, 2008, the Company acquired all of the outstanding shares of Single Touch Interactive, Inc. (“Interactive”), a company incorporated in the state of Nevada on April 2, 2002, in exchange for issuing 42,967,554 shares of its common stock. For financial reporting purposes, the acquisition was treated as a reverse acquisition whereby Interactive’s operations continue to be reported as if it had actually been the acquirer. Assets and liabilities continue to be reported at Interactive’s historical cost, as the Company had nominal assets, liabilities and operations before the reverse acquisition.
The Company develops software applications utilized by end users in downloading images, ringtones, games, and other content into their cell phones and other wireless communication devices.
On May 27, 2008, Interactive declared a 1-for-2 reverse split of its common stock. All references in the accompanying financial statements to the number of shares outstanding and per-share amounts have been restated to reflect this stock split.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position of the Company as of December 31, 2010, and the results of its operations and cash flows for the three months ended December 31, 2010 and 2009. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to rules and regulations of the U.S. Securities and Exchange Commission (the “Commission”). The Company believes that the disclosures in the unaudited condensed consolidated financial statements are adequate to make the information presented not misleading. However, the unaudited condensed consolidated financial statements i ncluded herein should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2010 filed with the Commission on December 29, 2010.
The accompanying consolidated financial statements are prepared using the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America.
2. Summary of Significant Accounting Policies
Reclassification
Certain reclassifications have been made to conform the 2010 amounts to 2011 classifications for comparative purposes.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Single Touch Systems Inc. and its wholly owned subsidiaries, Single Touch Interactive, Inc, and HSN, Inc. (an inactive company formed in New Jersey on August 21, 2001). Intercompany transactions and balances have been eliminated in consolidation.
Revenue Recognition
The Company recognizes revenue in accordance with Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements, as revised by SAB No. 104. As such, the Company recognizes revenue when persuasive evidence of an arrangement exists, title transfer has occurred, the price is fixed or readily determinable and collectability is probable. Sales are recorded net of sales discounts.
Single Touch Systems, Inc.
Notes To Condensed Consolidated Financial Statements
December 31, 2010
(Unaudited)
Revenue is derived from licensing of the Company’s wireless applications to various telecommunication companies. Under the terms of the various licensing agreements, the Company receives a fee, net of revenue sharing and other costs, each time its application is utilized by the end user. Revenue is recognized in the month the application is utilized. The Company records its revenue pursuant to Accounting Standards Codification (“ASC”) Topic 605-45-45 “Reporting Revenue Gross as a Principal versus Net as an Agent.”
Advanced licensing fees received with minimum guarantees where it cannot determine the fee earned are recognized in income on the straight line basis over the term of the license in accordance with ASC Topic 928-605-25, “Financial Reporting in the Record and Music Industry.”
In addition, the Company also generates income through the development of software for third parties on a contractual basis. Revenue is recognized upon delivery of the software.
Accounts Receivable
Accounts receivable is reported at the customers’ outstanding balances less any allowance for doubtful accounts. Interest is not accrued on overdue accounts receivable.
Allowance for Doubtful Accounts
An allowance for doubtful accounts on accounts receivable is charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and information collected from individual customers. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired. As of December 31, 2010, the Company’s provision for bad debt amounted to $13,463.
Property and Equipment
Property and equipment are stated at cost. Major renewals and improvements are charged to the asset accounts while replacements, maintenance and repairs that 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.
Depreciation is computed on the straight-line and accelerated methods for financial reporting and income tax reporting purposes based upon the following estimated useful lives:
| Software development | 2- 3 years |
| Equipment | 5 years |
| Computer hardware | 5 years |
| Office furniture | 7 years |
Long-Lived Assets
The Company accounts for its long-lived assets in accordance with ASC Topic 360-10-05, “Accounting for the Impairment or Disposal of Long-Lived Assets.” ASC Topic 360-10-05 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 no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are 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 or disposable value. & #160;At December 31, 2010, the Company determined that none of its long-term assets were impaired.
Prepaid Royalties
The Company’s agreements with licensors and developers generally provide it with exclusive publishing rights and require it to make advance royalty payments that are recouped against royalties due to the licensor or developer based on product sales. Prepaid royalties are amortized on a software application-by-application basis, based on the greater of the proportion of current year sales to total current and estimated future sales or the contractual royalty rate based on actual net product sales. The Company continually evaluates the recoverability of prepaid royalties, and charges to operations the amount that management determines is probable that will not be recouped at the contractual royalty rate in the period in which such determination is made or at the time the Company determines that it will cancel a development project. Prepaid roya lties are classified as current and non-current assets based upon estimated net product sales within the next year.
Single Touch Systems, Inc.
Notes To Condensed Consolidated Financial Statements
December 31, 2010
(Unaudited)
Capitalized Software Development Costs
The Company capitalizes internal software development costs subsequent to establishing technological feasibility of a software application. Capitalized software development costs represent the costs associated with the internal development of the Company’s software applications. Amortization of such costs is recorded on a software application-by-application basis, based on the greater of the proportion of current year sales to total of current and estimated future sales for the applications or the straight-line method over the remaining estimated useful life of the software application. The Company continually evaluates the recoverability of capitalized software costs and will charge to operations amounts that are deemed unrecoverable for projects it abandons.
Issuances Involving Non-cash Consideration
All issuances of the Company’s stock for non-cash consideration have been assigned a dollar amount equaling the market value of the shares issued on the date the shares were issued for such services. The non-cash consideration received pertains to consulting services.
Stock Based Compensation
The Company accounts for stock-based compensation under ACS Topic 505-50, formerly SFAS No. 123R, "Share-Based Payment” and SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - An amendment to SFAS No. 123.” These standards define a fair value based method of accounting for stock-based compensation. In accordance with SFAS Nos. 123R and 148, the cost of stock-based compensation is measured at the grant date based on the value of the award and is recognized over the vesting period. The value of the stock-based award is determined using the Black-Scholes option-pricing model, whereby compensation cost is the excess of the fair value of the award as determined by the pricing model at the grant date or other measurement date over the amount that must be paid to acquire the stock. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period. During the three months ended December 31, 2010, the Company recognized stock based compensation expense of $3,603,708 of which $2,700,000 pertains to the value assigned to 3,000,000 common shares issued to the Company’s president and $903,708 pertains to the value assigned to the 9,655,000 options granted to its employees.
Loss Per Share
The Company reports earnings (loss) per share in accordance with ASC Topic 260-10, "Earnings per Share." Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted earnings (loss) per share has not been presented since the effect of the assumed conversion of warrants and debt to purchase common shares would have an anti-dilutive effect. Potential common shares as of December 31, 2010 that have been excluded from the computation of diluted net loss per share include 39,336,820 warrants, 18,330,000 options, and $789,182 of debt convertible into 2,132,924 shares of the Company’s common stock. Potential common shares as of December 31, 2009 that have been excluded from the computation of diluted net loss per share include 32,369,334 warrants, 8,675,000 options, and $2,417,432 of debt convertible into 30,217,902 shares of the Company’s common stock.
Cash and Cash Equivalents
For purpose of the statements of cash flows, the Company considers cash and cash equivalents to include all stable, highly liquid investments with maturities of three months or less.
Concentration of Credit Risk
The Company primarily transacts its business with one financial institution. The amount on deposit in that one institution may from time-to-time exceed the federally insured limit.
During the three months ended December 31, 2010, significantly all of the Company’s revenue was generated from contracts with one customer. During the three months ended December 31, 2009, significantly all of the Company’s revenue was generated from contracts with seven customers.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affects 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.
Single Touch Systems, Inc.
Notes To Condensed Consolidated Financial Statements
December 31, 2010
(Unaudited)
Convertible Debentures
If the conversion feature of conventional convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 “Debt with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related to the BCF and the Company amortizes the discount to interest expense or equity (if the debt is due to a related party), over the life of the debt using the effective interest method.
Income Taxes
The Company accounts for its income taxes under the provisions of ASC Topic 740 ”Income Taxes” (formerly Statement of Financial Accounting Standards 109). The method of accounting for income taxes under ASC 740 is an asset and liability method. The asset and liability method requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between tax bases and financial reporting bases of other assets and liabilities.
Recent Accounting Pronouncements
In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements. ASU No. 2010-06 amends FASB ASC 820 and clarifies and provides additional disclosure requirements related to recurring and non-recurring fair value measurements and employers’ disclosures about postretirement benefit plan assets. The new disclosures and clarifications under this ASU are effective over a period of two fiscal years, for interim and annual reporting periods beginning after December 15, 2009 and after December 15, 2010. The first adoption date updates under ASU No. 2010-06 did not have a material impact on the Company’s condensed consolidated financial statements. The adoption of the second date of updates is not expected to have a material impact on the Company 217;s condensed consolidated financial statements.
3. Accounts Receivable
Fees earned but not paid as of December 31, 2010, net of any revenue sharing, amounted to $724,391. Of this amount $38,651 is due from Activate, Inc., a related party.
4. Property and Equipment
The following is a summary of property and equipment at December 31, 2010:
| Computer hardware | $ | 662,890 | ||
| Equipment | 46,731 | |||
| Office furniture | 37,194 | |||
| 746,815 | ||||
| Less: accumulated depreciation | (474,123 | ) | ||
| $ | 272,692 |
Depreciation expense for the three months ended December 31, 2010 and 2009 was $22,250 and $24,705, respectively.
5. Capitalized Software Development Costs
The following is a summary of capitalized software development costs at December 31, 2010:
| Beginning balance | $ | 305,710 | ||
| Additions | 140,128 | |||
| Amortization | (56,759 | ) | ||
| Charge-offs | - | |||
| Ending balance | $ | 389,079 |
Amortization expense for the three months ended December 31, 2010 and 2009 was $56,759 and $89,221, respectively.
Amortization expense for the remaining estimated lives of these costs are as follows:
Year ending June 30, | ||||
| 2011 | $ | 303,062 | ||
| 2012 | 86,017 | |||
| $ | 389,079 | |||
Single Touch Systems, Inc.
Notes To Condensed Consolidated Financial Statements
December 31, 2010
(Unaudited)
6. Intangible Assets
On June 2, 2009, the Company entered into an Intellectual Property Rights Purchase and Transfer Agreement (“Agreement”) with Streamworks Technologies, Inc., a Delaware corporation (“Streamworks”). Pursuant to the Agreement, the Company acquired a portfolio of sixteen patents and patent applications related primarily to the management, streaming and routing of electronic media. In consideration for the portfolio, Streamworks received 3,666,667 common shares of the Company and warrants to purchase 1,833,334 shares of the Company’s common stock at an exercise price of $2.30 per share for a period of two years.
In addition, non-compete agreements were provided to the Company by certain management of Streamworks and the Company provided Streamworks with registration rights covering the common shares issued pursuant to the agreement.
The Company valued the intellectual property at the fair value of the common shares and warrants provided totaling $5,470,851. The property purchased has not reached technological feasibility. Therefore, the Company valued the technology at its estimated fair value of $104,418 and recognized an impairment loss during the year ended September 30, 2009 of $5,366,433. The Company is amortizing the technology’s estimated fair value of $104,418 over its seven year estimated life. The Company incurred additional legal fees associated with the patent applications during the year ended September 30, 2010 of $37,163. Costs associated with patent applications are not being amortized. Upon the issuance of a patent, its respective cost will be amortized over the patent’s estimated us eful life. Costs associated with abandoned applications are charged to operations. On March 30, 2010, the Company was issued US Patent 7,689,706 “System and Method for Streaming Media”. The costs associated with this patent of $3,116 is being amortized over the patent’s estimated useful life of 7 years.
On December 14, 2009, the Company’s president assigned all of his rights in a patent and various patent applications for a total of $244,840, which represented the total legal fees he incurred relating to the property transferred. Of the $244,840 total, $42,368 is allocated to the cost of the patent and $202,472 is allocated to the various patent applications. The Company incurred additional legal fees associated with the patent applications during the three months ended December 31, 2009 of $42,368. Costs associated with patent applications are not being amortized. Upon the issuance of a patent, its respective costs will be amortized over the patent’s estimated useful life. Costs associated with abandoned applications are charged to operations.
On March 15, 2010, the Company purchased six patents and three patent applications from an unrelated third party for $900,000 of which $550,000 was paid on the execution of the purchase agreement. $175,000 is due on or before March 15, 2011 and the final installment of $175,000 is due on or before March 15, 2012. As the agreement did not provide for any stated interest on the payments, the Company was required to impute interest on the payment stream The Company present valued the payments at $831,394 using an effective interest rate of 15% in its computation .Of the $831,394, $706,685 was allocated to the purchased patents and $124,709 was allocated to the patent applications. The patents are being amortized over 7 years. The value assigned to the patent applications is not being amortized. Upon the issuance of a patent, its res pective cost will be amortized over the patent’s estimated useful life. Costs associated with abandoned applications are charged to operations. The Company granted the Seller a license to utilize all acquired patents over their respective lives on a world-wide basis for no consideration. In addition, the Company is required to reserve for the Seller ten abbreviated dialing codes for a five year period. Amortization charged to operations for the three months ended December 31, 2010 and 2009 were $29,278 and $3,928, respectively, A summary of patent costs subject to amortization at December 31, 2010 is as follows:
| Patent costs | $ | 856,857 | ||
| Less accumulated amortization | (106,289 | ) | ||
| $ | 750,568 |
A schedule of amortization expense over the estimated life of the patents is as follows:
| Period Ending June 30, | ||||
| 2011 | $ | 122,904 | ||
| 2012 | 122,904 | |||
| 2013 | 122,904 | |||
| 2014 | 122,904 | |||
| 2015 | 122,904 | |||
| Thereafter | 136,048 | |||
| $ | 750,568 | |||
Single Touch Systems, Inc.
Notes To Condensed Consolidated Financial Statements
December 31, 2010
(Unaudited)
7. Income Taxes
As of December 31, 2010, for income tax purposes, the Company has unused operating loss carryforwards of approximately $24,600,000, which may provide future federal tax benefits of approximately $8,364,000 which expire in various years through 2030 and future state benefits of approximately $2,175,000 which expire in various years through 2021.
An allowance of $ $10,539,000 has been provided to reduce the tax benefits accrued by the Company for these operating losses to zero as it cannot be determined when, or if, the tax benefits derived from these losses will materialize. Timing differences between expenses deducted for income tax and deducted for financial reporting purposes are insignificant and have no material impact to the differences in the reporting of income taxes.
The provisions for income tax expense for the three months ended December 31, 2010 and 2009 are as follows:
| 2010 | 2009 | |||||||
| Current | ||||||||
| Federal | $ | - | $ | - | ||||
| State | 800 | 800 | ||||||
| Total income tax expense | $ | 800 | $ | 800 | ||||
8. Obligation on Patent Acquisitions
As discussed in Note 6, the Company acquired six patents and three patent applications for a payments totaling $900,000 of which $550,000 was paid. The remaining $350,000 is payable in two annual installments of $175,000 each. The patents have been pledged as collateral against the remaining balance due. As the agreement did not provided for any stated interest on the remaining two payments, the Company imputed interest at an annual rate of 15% and present valued the remaining payments to $281,394. Interest accrued and charged to operations for the three months ended December 30, 2010 and 2009 totaled $11,252 and $0, respectively. Following is the maturities of the long-term portion of the obligation:
| March 31, 2012 | $ | 175,000 | ||
| Less imputed interest | (21,883 | ) | ||
| $ | 153,117 |
9. Related Parties – Loan Activities
Note payable - officer
The Company’s president has assisted in funding the operations of the Company through loan advances of which a portion have been repaid. On July 24, 2008, the Company modified the terms of the debt and the balance due him on that date including accrued interest and accrued compensation totaling $2,319,512 was evidenced by a convertible promissory note bearing interest at an annual rate of 8%. Interest is payable monthly and the principal outstanding balance is payable on demand. If no demand is made, than the principal balance and any accrued interest is fully due and payable on July 15, 2010. Any portion of the outstanding principal loan balance is convertible into shares of the Company’s common stock at a price of $0.08 per share. On June 28, 2010, the Company’s president elected to convert the prin cipal balance due of $2,319,512 into 28,993,896 shares of the Company’s common stock.
The Company accounted for the modification of the debt pursuant to EITF 96-19 “Debtor's Accounting for a Modification or Exchange of Debt Instruments” and APB Opinion 26 (ASC Topic 470-50), and recognized a gain on the modification of $2,319,512 that was charged to equity. The convertible debt was recorded net of a discount that includes a beneficial conversion feature (“BCF”) amounting to $2,319,512. The discount is amortized to equity over the life of the debt using the effective interest method. Interest charged to operations relating to this note for the three months ended December 31, 2009 amounted to $20,401. For the three months ended December 31, 2009, the Company charged $295,908 to equity on the amortization of the dis count.
On June 28, 2010, the Company issued its President a new convertible promissory note totaling $155,531, which consisted of the remaining accrued interest due him on the above indicated converted note totaling $31,950 and accrued compensation due him (net of payroll taxes) totaling $123,581. The new note accrues interest at an annual rate of 1% and the principal balance owed is convertible into shares of the Company’s common stock at a price of $0.37 per share. The President has the right to convert at anytime up to June 27, 2011, the maturity date of the note. Any remaining principal and unpaid accrued interest is fully due and payable on the maturity date. Interest charged to operations relating to this note for the three months ended December 31, 2010 amounted to $773.
Single Touch Systems, Inc.
Notes To Condensed Consolidated Financial Statements
December 31, 2010
(Unaudited)
The Company valued the conversion feature of the note at $155,531 using the Black-Scholes Option Model and was recorded as a discount against the note’s outstanding balance. The discount is amortized to equity over the life of the debt using the effective interest method. For the three months ended December 31, 2010, the Company charged $35,249 to equity on the amortization of the discount.
A summary of the balance due the Company’s president as of December 31, 2010 is as follows:
| Principal balance due | $ | 155,531 | ||
| Accrued interest | 781 | |||
| Less: discount | (69,366 | ) | ||
| $ | 86,946 |
Note Payable - Activate, Inc.
Activate, Inc. (“Activate”), a corporation wholly owned by the Company’s President, has advanced the Company $50,000. Under the originally terms of the loan, the advance was assessed interest at an annual rate of 8% and was fully due and payable with accrued interest in December 2010. On July 24, 2008, the Company modified the terms of the debt and the balance due to Activate on that date, including accrued interest, totaling $73,445 was evidenced by a convertible promissory note bearing interest at an annual rate of 8%. Interest was payable monthly and the principal outstanding balance was payable on or before July 15, 2010. Any portion of the outstanding principal loan balance is convertible into shares of the Company’s common stock at a price of $0.08 per share. On June 28, 2010, Activate con verted the principal balance due it of $73,445 into 918,063 shares of the Company’s common stock. Interest charged to operations relating to this note for the three months ended December 31, 2009 amounted to $1,411.
The Company accounted for the modification of the debt pursuant to EITF 96-19 “Debtor's Accounting for a Modification or Exchange of Debt Instruments” and APB Opinion 26 (ASC Topic 470-50), and recognized a gain on the modification of $73,445 that was charged to equity. The convertible debt was recorded net of a discount that includes BCF amounting to $73,445. The discount is amortized to equity over the life of the debt using the effective interest method. For the three months ended December 31, 2009, the Company charged $9,370 to equity on the amortization of the discount.
During the year ended September 30, 2009 Activate advanced the Company an additional net amount of $795,397. During the three months ended December 31, 2009, the Company repaid $30,000 on these advances. The advances bear interest at a rate of 8% and the outstanding balance is fully due and payable on demand. Interest accruing on the advances during the three months ended December 31, 2009 totaled $15,408, which was charged to operations.
The balance of the outstanding advances and related accrued interest at June 28, 2010 amounted to $345,567 was converted into a new convertible promissory note as discussed below.
In June 2009, Activate purchased a $250,000 promissory note from a debtor of the Company and assumed all of his rights and interest in the note. The note bears interest at an annual rate of 10%. Interest accruing on this note during the three months ended December 31, 2009 amounted to $7,562, which was charged to operations.
As indicated above, on June 28, 2010, the Company issued Activate a new convertible promissory note totaling $633,651, which accrues interest at an annual rate of 1%. The principal balance owed is convertible into shares of the Company’s common stock at a price of $0.37 per share. Activate has the right to convert at anytime up to June 27, 2011, the maturity date of the note. Any remaining principal and unpaid accrued interest is fully due and payable on the maturity date. Interest charged to operations relating to this note for the three months ended December 31, 2010 amounted to $1,597.
The Company valued the conversion feature of the note at $633,651 using the Black Scholes Option Model and was recorded as a discount against the note’s outstanding balance. The discount is amortized to equity over the life of the debt using the effective interest method. For the three months ended December 31, 2010, the Company charged $158,617 to equity on the amortization of the discount.
A summary of the balance due to Activate as of December 31, 2010 is as follows:
| Principal balance due | $ | 633,651 | ||
| Accrued interest | 3,229 | |||
| Less: discount | (312,625 | ) | ||
| $ | 324,255 |
Single Touch Systems, Inc.
Notes To Condensed Consolidated Financial Statements
December 31, 2010
(Unaudited)
Other Related Party Loans
A Company director advanced funds totaling $199,500 to the Company. The balance of the advances began accruing interest in December 2008 at an annual rate of 8%. Interest accrued and charged to operations during the year ended September 30, 2010 and 2009 amounted to $11,893 and $13,118, respectively. The total balance owed as of June 28, 2010 including accrued interest of $224,511 was cancelled in exchange for the issuance of 606,768 shares of the Company’s common stock. Interest charged to operations during the three months ended December 31, 2009 amounted to $7,745.
10. Notes Payable - Other
On December 5, 2008, the Company entered into a Loan and Security Agreement with a third party for a total loan of $1,000,000. Proceeds from the loan were net of loan fees incurred by lender. The loan bears interest at an annual rate of 10% per annum and accrued interest is payable 90 days after the loan proceeds are received. All related party debt is subordinate to this loan. The loan has been guaranteed by the Company’s President, and is secured by the Company’s assets. The loan and accrued interest was fully paid during the year ended September 30, 2010. Accrued interest charged to operations for the three months ended December 31, 2009 amounted to $43,556.
An unrelated third party advanced a total of $134,500 to the Company. The total balance owed as of June 28, 2010 including accrued interest of $148,532 was cancelled in exchange for the issuance of 399,356 shares of the Company’s common stock. Interest accrued and charged to operations during the three months ended September 30, 2009 amounted to $2,712.
An unrelated third party advanced a total of $50,085 to the Company. The total balance owed as of June 28, 2010 including accrued interest of $53,971 was cancelled in exchange for the issuance of 145,344 shares of the Company’s common stock. Interest accrued and charged to operations during the three months ended September 30, 2009 amounted to $1,010.
An unrelated third party advanced a total of $150,000 to the Company. The total balance owed as of June 28, 2010 including accrued interest of $169,331 was cancelled in exchange for the issuance of 456,053 shares of the Company’s common stock. Interest accrued and charged to operations during the three months ended September 30, 2009 amounted to $3,024.
11. Related Party Transactions
The Company entered into an agreement with Activate, Inc., a corporation wholly owned by the Company’s President. Activate holds a license on certain applications on which the Company licensed to a third party Activate has sublicensed the applications to the Company and in consideration, receives 3% of all net revenue generated under the license. Activate collects the revenue generated under this license and pays 97% of the amounts collected to the Company.
The Company leases from Soapbox Mobile, Inc. the use of servers, certain other equipment, fixtures and furniture, an analytic platform and other software, and certain service accounts to us from February 2008 through June 2010 at a monthly rate of $4,000 and has been providing them to us since July 1, 2010 at a monthly rate of $7,500. The Company’s President is a majority shareholder of Soapbox Mobile, Inc. Rent expense pertaining to this lease for the three months ended September 30 2010 and 2009 was $22,500 and $12.000, respectively.
On December 14, 2009, the Company's president assigned all of his rights in a patent and various patent applications for a total of $244,840, which represented the total legal fees he incurred relating to the property transferred.
Single Touch Systems, Inc.
Notes To Condensed Consolidated Financial Statements
December 31, 2010
(Unaudited)
12. Fair Value
The Company’s financial instruments consist principally of notes payable, convertible debentures and a derivative warrant liability. Notes payable and convertible debentures are financial liabilities with carrying values that approximate fair value. The Company determines the fair value of notes payable and convertible debentures based on the effective yields of similar obligations. The Company determines the fair value of its derivative warrant liability based upon the trading prices of its common stock on the date of issuance and when applicable, on the last day of the quarter. The Company uses the Black-Scholes Option Model in valuing the fair value of its derivative warrant liability.
The Company believes all of the financial instruments’ recorded values approximate fair market value because of their nature and respective durations.
The Company complies with the provisions of ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), previously referred to as SFAS No. 157. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements required under other accounting pronouncements. ASC 820-10-35, “Fair Value Measurements and Disclosures - Subsequent Measurement” (“ASC 820-10-35”), clarifies that fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. ASC 820-10-35 also requires that a f air value measurement reflect the assumptions market participants would use in pricing an asset or liability based on the best information available. Assumptions include the risks inherent in a particular valuation technique (such as a pricing model) and/or the risks inherent in the inputs to the model. The Company also follows ASC 825 “Interim Disclosures about Fair Value of Financial Instruments”, previously referred to as FAS 107-1 to expand required disclosures.
ASC 820-10-35 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under ASC 820-10-35 are described below:
Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.
Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The Company utilizes the best available information in measuring fair value. The following table summarizes, by level within the fair value hierarchy, the financial assets and liabilities recorded at fair value on a recurring basis as of December 31, 2010:
| Fair Value Measurements | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total Fair Value | |||||||||||||
| Liabilities | ||||||||||||||||
| Obligation | ||||||||||||||||
| on patent acquisitions | - | $ | 328,117 | - | $ | 328,117 | ||||||||||
| Convertible debentures - | ||||||||||||||||
| Related parties | - | $ | 411,201 | - | $ | 411,201 | ||||||||||
Single Touch Systems, Inc.
Notes To Condensed Consolidated Financial Statements
December 31, 2010
(Unaudited)
13. Stockholders’ Equity
Common Stock
The holders of the Company's common stock are entitled to one vote per share of common stock held.
During the three months ended December 31, 2010, the Company issued 4,089,659 of its common stock of which 365,975 shares were issued in the cashless exercises of 400,000 warrants, 3,000,000 shares were issued to the Company’s president as compensation valued at $2,700.000 that was charged to operations and included in officers’ compensation, and issued 723,684 shares of its common through a settlement with a former note holder as to the number of shares he was entitled to in the original conversion of his note. The Company recognized a loss of $651,315 on the issuance of the 723,684 shares
During the three months ended December 31, 2009, the Company issued 3,330,000 shares of its common stock of which 3,250,000 shares were issued for $875,000 in cash, 50,000 shares were issued to the Company’s legal counsel in exchange for the cancellation of $20,000 due him for past services, and 30,000 shares were issued to the Company’s outside accountant in exchange for canceling $12,000 due him for past services.
Warrants
As indicated, the Company issued 365,975 shares of its common stock in the cashless exercises of 400,000 warrants.
Options
On April 22, 2008, the Company adopted its 2008 Stock Option Plan (the “Plan”). Under the Plan, the Company reserved 8,800,000 shares of its common stock to be issued to employees, directors, consultants, and advisors. The exercise price under the Plan cannot be less than the fair market value of the shares on date of grant. In 2008, the Company granted options to employees and consultants to purchase a total of 8,675,000 shares of the Company’s common stock at price per share of $1.375 per share. The options expire three years from date of vesting, which is as follows:
| Number of | ||||
| Vesting Date | Options | |||
| July 28, 2008 | 6,000,000 | |||
| July 28, 2009 | 1,320,000 | |||
| July 28, 2010 | 1,355,000 | |||
| 8,675,000 | ||||
The 6,000,000 options that vest on July 28, 2008 were granted to the Company’s president. These 8,675,000 options were valued at $544,790 using the Black-Sholes Option Model based upon an expected life of 3 years, risk free interest rate of 2.90%, and expected volatility of 94%. At the date of grant, the Company’s common stock had a trading price of $.25 per share. The Company is charging the $544,790 to operations as compensation expense based upon the vesting of the respective options. The Company did not recognize any compensation expense during the three months ended December 31, 2010 or 2009 relating to these options.
In December 2010 our Board of Directors adopted the 2010 Stock Option Plan (“2010 Plan”) to provide common stock option grants to selected employees, non-employee directors, consultants and advisors. The total number of shares subject to the 2010 Plan is 15,000,000. The 2010 Plan is administered by our Board of Directors; pursuant to the 2010 Plan the Board granted 9,655,000 options to employees at an exercise price of $0.90 per share expiring three years from the date of the grant. The 9,655,000 options were valued at $903,708 under the Black-Scholes Option Model using a trading price of $0.90 per share, risk free interest rate of 1.99% and volatility of 137%.
A summary of outstanding stock warrants and options is as follows:
| Weighted Average | ||||||||
| Number of Shares | Exercise Price | |||||||
| Outstanding – September 30, 2010 | 47,411,820 | $ | .96 | |||||
| Granted | 9,655,000 | $ | .90 | |||||
| Exercised | (400,000 | ) | $ | (.08 | ) | |||
| Cancelled | - | $ | - | |||||
| Outstanding – December 31, 2010 | 56,666,820 | $ | .95 | |||||
All of the 56,666,820 options and warrants granted are fully exercisable at December 31, 2010.
Single Touch Systems, Inc.
Notes To Condensed Consolidated Financial Statements
December 31, 2010
(Unaudited)
14. Commitments and Contingency
Licensing Fee Obligations
The Company has entered into various licensing agreements that require the Company to pay fees to the licensors on revenues earned by the Company utilizing the related license. The amounts paid on each license vary depending on the terms of the related license.
15. Subsequent Events
None.
Single Touch Systems, Inc.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
The following Management's Discussion and Analysis should be read in conjunction with Single Touch's financial statements and the related notes thereto. The Management's Discussion and Analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertaintie s that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this Report on Form 10-Q. The Company’s actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Report on Form 10-Q.
The following discussion should be read in conjunction with our unaudited consolidated financial statements and related notes and other financial data included elsewhere in this report. See also the notes to our consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended September 30, 2010.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We have identified the following accounting policies that we believe are key to an understanding of ours financial statements. These are important accounting policies that require management’s most difficult, subjective judgments.
Revenue Recognition
Under the terms of various service and licensing agreements, we receive a fee, net of revenue sharing and other costs, each time its application is utilized by the end user. Revenue is recognized in the month the application is utilized. We record our revenue pursuant to Accounting Standards Codification (“ASC”) Topic 605-45, formerly EITF Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent.”
Non-monetary Consideration Issued for Services
We value all services rendered in exchange for our common stock at the quoted price of the shares issued at date of issuance or at the fair value of the services rendered, whichever is more readily determinable. All other services provided in exchange for other non-monetary consideration are valued at either the fair value of the services received or the fair value of the consideration relinquished, whichever is more readily determinable.
Our accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of ACS Topic 505-50, formerly EITF Issue No. 96-18, “Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”, and formerly EITF 00-18, “Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other Than Employees.” The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is r ecognized over the term of the consulting agreement. In accordance with ACS Topic 505, an asset acquired in exchange for the issuance of fully vested, nonforfeitable equity instruments should not be presented or classified as an offset to equity on the grantor’s balance sheet once the equity instrument is granted for accounting purposes. Accordingly, we record the fair value of nonforfeitable common stock issued for future consulting services as prepaid services in our consolidated balance sheet.
Single Touch Systems, Inc.
Conventional Convertible Debt
When the convertible feature of the conventional convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”). We record a BCF as a debt discount pursuant to ACS Topic 470-20, formerly EITF Issue No. 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingency Adjustable Conversion Ratio,” and formerly EITF Issue No. 00-27, “Application of EITF Issue No. 98-5 to Certain Convertible Instrument(s).” In those circumstances, the convertible debt will be recorded net of the discount related to the BCF. We amortize the discount to interest expense over the life of the debt using the effective interest method.
Software Development Costs
We account for our software development costs in accordance with ACS Topic 985-20, formerly Statement of Financial Accounting Standards No. 86, “Accounting for the Cost of Computer Software to be Sold, Leased, or Otherwise Marketed.” Under ACS Topic 985-20, we expense software development costs as incurred until we determine that the software is technologically feasible. Once we determine that the software is technologically feasible, we amortize the costs capitalized over the expected useful life of the software, which is generally two years.
Goodwill and intangible assets
The Company accounts for goodwill and other intangible assets in accordance with the provisions of ASC 350, Intangibles, Goodwill and Other Assets . The Company is required to review goodwill at least annually for impairment or, more frequently if events and circumstances indicate goodwill might be impaired. The Company performs its annual review at the end of each fiscal year. The Company is required to recognize an impairment loss to the extent that its goodwill carrying amount exceeds fair value. Evaluating any impairment to goodwill involves significant management estimates.
Fair Value Measurement
We adopted ACS Topic 820-10, formerly Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”, at the beginning of fiscal year 2009 to measure the fair value of certain of our financial assets and liabilities required to be measured on a recurring basis. The adoption of Topic 820-10 did not impact our consolidated financial position or results of operations. Topic 820-10 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Topic 820-10 defines fair value as the pric e that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability. The three levels of the fair value hierarchy under Topic 820-10 are described below:
Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access. We have no Level 1 assets or liabilities.
Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
We have no Level 2 assets. Our Level 2 liabilities consist of notes payable, convertible debentures and a derivative warrant liability. We determine the fair value of notes payable and convertible debentures based on the effective yields of similar obligations. We determine the fair value of our derivative warrant liability based upon the trading prices of our common stock on the date of issuance and when applicable, on the last day of the quarter. We use the Black-Scholes Option Model in valuing the fair value of our derivative warrant liability.
Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. We have no Level 3 assets or liabilities.
Single Touch Systems, Inc.
Overview
Single Touch Systems, Inc. is a provider of customized easy-to-use wireless solutions. Our patented and patent pending technology simplifies adoption by reaching new data subscribers and generating new revenue streams for carriers, consumer brand companies and retailers.
We have developed and are deploying our scalable messaging and voice based enterprise level solutions. Our technology enables the delivery of mission-critical messaging across multiple communication channels. With gateways that connect directly into the infrastructure of all key mobile-network operators, we guarantee delivery and receipt of massive quantities of messages in real time, to and from any application or platform.
Our solution is designed to drive return on investment for high volume clients and/or customized branded advertisers. Our platform and tools are designed to enable large brands or anyone with substantial reach to utilize the mobile device as a new means to communicate. Communication might be in the form of a reminder message, a coupon, an advertisement or a voice call. Regardless of the form, our platform can drive value and cost savings for companies large and small, and the ability to drive contextually relevant advertising messages to the right audience.
Our business has focused on leveraging our solution in the areas of messaging/notifications and Abbreviated Dial Codes.
Currently, over 90% of our revenues are paid to us through AT&T Services, Inc., and currently the bulk of that revenue comes from notifications sent on behalf of Walmart. We have seen continuing development of revenue beginning in the second quarter of our 2010 fiscal year and continuing throughout our first quarter of 2011 from our Walmart related programs we have developed with Walmart and AT&T over the past two years; as these programs and related services continue the rollout nationwide we anticipate this continuing increase of activity will cause our AT&T revenues to grow. We have also noted a pattern of increasing messaging activity over time from locations who have implemented our programs, as locations and users get familiar with the available services offered.
Specifically, we have seen revenue for the three month period ending December 31, 2010 increase to $1,011,738 which far overshadows nominal revenues of $26,902 for the comparable period in 2009 and exceeds the entire year revenue for wireless applications of 792,564 for the prior fiscal year ended September 30, 2010.
In addition to the current programs, we have received approval to deploy advertisements with our notification messaging programs and are working towards implementation. This development is significant in that our per message revenue increases significantly for each notification that includes an advertisement. This additional revenue element subject to deployment is applicable to existing messaging. Therefore, advertising deployment would benefit from existing traffic and continuing increases in notification messaging volume. We see this as an important next step towards our roadmap of creating consumer and brand awareness and confidence on how to utilize our mobile media platform accessing mobile notifications, advertisements, coupons and commerce transactions all from the mobile phone.
Throughout our history our operations have been constrained by our ability to raise funds, and our liquidity has been an ongoing issue. We have received debt and equity investments both from insiders and from private investors. We have always had negative cash flows from operations and net operating losses, although the size of the net operating losses has been magnified by a variety of non-cash accounting charges. We believe, however, that recent events have significantly improved our liquidity. As we expand operational activities, we may continue to experience operating losses and/or negative cash flows from operations and may be required to obtain additional financing to fund operations.
Our operating history makes predictions of future operating results difficult to ascertain. Our revenue development is recent and concentrated with a single customer. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in our stage of development. Such risks include, but are not limited to, an evolving business model and the management of growth. To address these risks we must, among other things, diversify our customer base, implement and successfully execute our business and marketing strategy, continue to develop and upgrade technology and products, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can h ave a material adverse effect on our business prospects, financial condition and results of operations.
Single Touch Systems, Inc.
Results of Operations
Results of Operations for the Three-Months Ended December 31, 2010 and December 31, 2009
The Company reports a net loss of $4,899,323 for the three-months ended December 31, 2010 versus a net loss of $2,754,690 for the three-month period ending December 31, 2009.
The net loss for the three-month period ended December 31, 2010 includes Royalties and Application costs of $506,455; Salary and Wages of $3,994,398which includes stock based compensation of $3,603,708; and depreciation and amortization expense of $137,287. Revenues for the period were $1,011,738 up 92% from the fourth Quarter of 2010. The majority of our income in 2010 was through our contract with AT&T Services, Inc., and currently the bulk of that revenue comes from notifications sent on behalf of Walmart.
The net loss for the three-month period ended December 31, 2009 includes stock based compensation to non-employees of $1,152,625; changes in fair value of derivative and warrant liability expense of $798,600; and salary and wages totaling $228,610. Revenues for the period were $26,902.
Our largest expense during the three months ended December 31, 2010 and 2009 was the previously indicated stock based compensation of $3,603,708 and $1,152,625. During the three months ended December 31, 2010, the Company issued 3,000,000 shares of its common stock to its President and granted its employees options to purchase 9,655,000 shares of its common stock at $0.90 per share. The Company valued the issued shares at $2,700,000 and the option grants at $903,708. Stock based compensation in 2010 amounted to approximately 74% of the total operating expenses in 2010. The stock based compensation in the same period in 2009 of $1,152,625 amounted to approximately 61% of total operating expenses in 2009. Our operating expenses during the three months ended Dece mber 31, 2010, exclusive of stock based compensation, were $1,641,616 significantly higher than the amount of operating expenses incurred during the same three month period in 2009 by $933,385. The majority of the increase was due to higher royalties and application costs in 2010 of $506,455 as compared to $150,168 in 2009, cash based salaries and wages of $390,690 in 2010 as compared to $228,610 in 2009, advisory and consulting services of $181,000 in 2010 as compared to $45,400 in 2009, depreciation and amortization $137,287 in 2010 as compared to $117,854 in 2009, and general and administrative expenses $101,382 in 2010 as compared to $46,645 in 2009. The increase in operating costs in 2010 was caused by increased customer activity in 2010.
Another large expense during the three months ended December 31, 2010 was a $651,315 loss on settlement of indebtedness. The Company issued 723,684 shares of its common stock through a settlement with a former Note holder caused by a dispute as to the number of shares he believed he was entitled to through the original conversion of his note.
Revenues
Revenues for the three month period ending December 31, 2010 were $1,011,738, resulting in an increase of approximately 3760% over revenues of $26,902 for the comparable period in 2009. The revenue increase in the three month period ended December 31, 2010 from the comparative period in 2009 was a result of significantly increased revenues with AT&T Services, Inc., from notifications sent on behalf of Walmart.
Changes in assets and liabilities
At December 31, 2010, we had total assets of $6,081,465 and total liabilities of $1,437,140; comparably, at December 31, 2009, we had total assets of $1,269,819 and total liabilities of $11,977,626. The total liability in 2009 of $11,977,626 included a derivative liability of $5,511,000 on stock warrants granted to a consultant. The liability was removed in September 2010 as the Company no longer considered the warrant grant as a derivative under the modified terms.
Single Touch Systems, Inc.
Liquidity and Capital Resources
During the three-month period ending December 31, 2010 cash used in operating activities totaled $508,269; cash used in investing activities totaled $293,045, of which $140,128 comprised the capitalized internal costs of our software development, and $61,067 in capitalized legal fees incurred in the process of applying for various patents on our technology. We had an overall net decrease in cash for the period of $783,629; where the beginning balance for the period was $4,040,169, the cash balance at the end of the period was $3,256,540.
During the three-month period ending December 31, 2009 cash used in operating activities totaled $691,385; cash used in investing activities totaled $381,167, of which $243,629 comprised the capitalized internal costs of our software development, and $137,538 in capitalized legal fees incurred in the process of applying for various patents on our technology; and, cash provided by financing activities from proceeds from the issuance of shares of our common stock totaled $875,000. During the same three-month period, the Company repaid $30,000 to Activate Inc. We had an overall net decrease in cash for the period of $227,552; where the beginning balance for the period was $259,558, the cash balance at the end of the period was $32,006.
Over the next twelve months we believe that existing capital and anticipated funds from operations will be sufficient to sustain our current level of operations although additional capital may be required to support continued growth and expansion of our line of services. There can be no assurance of when, if ever, our operations become profitable.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements or financing activities with special purpose entities.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Not required for Smaller Reporting Companies
Item 4 - Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s Principal Executive Officer and Principal Financial Officer, Mr. Macaluso, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer has concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls
There has been no change in the Company’s internal controls over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
Internal control systems, no matter how well designed and operated, have inherent limitations. Therefore, even a system which is determined to be effective cannot provide absolute assurance that all control issues have been detected or prevented. Our systems of internal controls are designed to provide reasonable assurance with respect to financial statement preparation and presentation.
Item 1 - Legal Proceedings
From time to time the Company may be named in claims arising in the ordinary course of business. Currently, no legal proceedings or claims are pending against or involve the Company that, in the opinion of management, could reasonably be expected to have a material adverse effect on its business and financial condition.
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
The securities that we issued or sold during the three months ended December 31, 2010 and were not registered with the Securities and Exchange Commission are described below:
1. On November 1, 2010, the Company issued Peltz 91,753 shares of its common stock through a cashless exercise of 100,000 warrants.
2. On November 11, 2010, the Company issued Peltz 92,000 shares of its common stock through a cashless exercise of 100,000 warrants.
3. On December 2, 2010, the Company issued Peltz 182,222 shares of its common stock through a cashless exercise of 200,000 warrants.
4. On December 9, 2010, the Company issued 3,000,000 shares of its common stock to its President. The shares cannot be sold or transferred for a period of eighteen months from date of issuance.
5. In December 2010 our Board of Directors adopted the 2010 Stock Option Plan (“2010 Plan”) to provide common stock option grants to selected employees, non-employee directors, consultants and advisors. The total number of shares subject to the 2010 Plan is 15,000,000. The 2010 Plan is administered by our Board of Directors; pursuant to the 2010 Plan the Board granted 9,655,000 options to employees at an exercise price of $0.90 per share expiring three years from the date of the grant.
6. On December 9, 2010, the Company issued 723,684 shares of its common stock to Ted Cooper as a consideration for a mutual general release of claims.
The offerings of the securities described in Paragraphs 1 through 6 above were exempt from registration under Section 3(a)(9) (in the case of conversions) or Section 4(2) of the Securities Act of 1933.
The securities that we issued or sold subsequent to the three months ended December 31, 2010 and were not registered with the Securities and Exchange Commission are described below:
7. On January 11, 2011, the Company issued Peltz 180,000 shares of its common stock through a cashless exercise of 200,000 warrants.
The offering of the securities described in Paragraphs 7 above was exempt from registration under Section 3(a)(9) of the Securities Act of 1933.
Item 3 - Defaults Upon Senior Securities
None, for the period ending December 31, 2010.
Item 4 - (Removed and Reserved)
Item 5 - Other Information
None, for the period ending December 31, 2010.
Exhibit Number | Description | |
| 2.1 | Agreement and Plan of Merger and Reorganization dated March 20, 2008 among Single Touch Systems Inc., Single Touch Acquisition Corp. and Single Touch Interactive, Inc. (1) | |
| 2.2 | Addendum dated May 29, 2008 to Agreement and Plan of Merger and Reorganization dated March 20, 2008 among Single Touch Systems Inc., Single Touch Acquisition Corp. and Single Touch Interactive, Inc. (2) | |
| 2.3 | Second Addendum dated June 10, 2008 to Agreement and Plan of Merger and Reorganization dated March 20, 2008 among Single Touch Systems Inc., Single Touch Acquisition Corp. and Single Touch Interactive, Inc. (3) | |
| 2.4 | Third Addendum dated June 27, 2008 to Agreement and Plan of Merger and Reorganization dated March 20, 2008 among Single Touch Systems Inc., Single Touch Acquisition Corp. and Single Touch Interactive, Inc. (4) | |
| 2.5 | Fourth Addendum dated July 22, 2008 to Agreement and Plan of Merger and Reorganization dated March 20, 2008 among Single Touch Systems Inc., Single Touch Acquisition Corp. and Single Touch Interactive, Inc. (5) | |
| 2.6 | Fifth Addendum dated July 24, 2008 to Agreement and Plan of Merger and Reorganization dated March 20, 2008 among Single Touch Systems Inc., Single Touch Acquisition Corp. and Single Touch Interactive, Inc. (6) | |
| 3.1 | Certificate of Incorporation of Hosting Site Network, Inc. (currently known as Single Touch Systems Inc.) (7) | |
| 3.2 | Certificate of Amendment to Certificate of Incorporation of Hosting Site Network, Inc. (currently known as Single Touch Systems Inc.) (8) | |
| 3.3 | Certificate of Amendment to Certificate of Incorporation of Hosting Site Network, Inc. (currently known as Single Touch Systems Inc.) (9) | |
| 3.4 | Amended and Restated Bylaws of Hosting Site Network, Inc. (currently known as Single Touch Systems Inc.) (10) | |
| 10.1 | Revenue Sharing and Software License Agreement between Single Touch Interactive, Inc. and Activate, Inc., dated 2004. (11) | |
| 10.2 | Form of Single Touch Interactive, Inc. Warrant ($1.00 exercise price (post-adjustment), expires July 11, 2015). A total of 5,000,000 Warrants (post-adjustment) on this form were issued to two persons in 2005. (12) | |
| 10.2.1 | Single Touch Interactive, Inc. Warrant, as amended and re-issued ($0.70 exercise price (post-adjustment), subject to Board resetting; expires July 11, 2015). 1,250,000 Warrants (post-adjustment) on this form were re-issued to Jordan Schur on June 12, 2007. (13) | |
| 10.3 | Form of Single Touch Interactive, Inc. Warrant ($1.76 exercise price (post-adjustment), expires 5 years from issuance). A total of 774,000 Warrants (post-adjustment) were issued on this form to 20 persons in 2006 and 2007. (14) | |
| 10.4 | Form of Single Touch Interactive, Inc. Warrant ($0.02 exercise price (post-adjustment), expires July 2012). A total of 2,000,000 Warrants (post-adjustment) were issued on this form to 2 persons in 2007. (15) | |
| 10.5 | Form of Single Touch Interactive, Inc. Warrant ($0.01 exercise price (post-adjustment), expires June 22, 2011). A total of 1,000,000 Warrants (post-adjustment) were issued on this form to 2 persons in 2008. (16) | |
| 10.6 | Services Agreement 20071210.103.C Between Single Touch Interactive, Inc. and AT&T Services, Inc. dated April 11, 2008 (17) | |
| 10.6.1 | Amendment 20071210.103.A.001 to the Services Agreement 20071210.103.C Between Single Touch Interactive, Inc. and AT&T Services, Inc., dated March 20, 2009. (18) | |
| 10.6.2 | Amendment 20071210.103.A.002 to Services Agreement 20071210.103.C Between Single Touch Interactive, Inc. and AT&T Services, Inc., dated October 25, 2010. (19) | |
| 10.7+ | 2008 Stock Option Plan for Single Touch Systems Inc. (formerly Hosting Site Network, Inc.) (20) | |
| 10.7.1+ | Form of Notice of Stock Option Grant/Stock Option Agreement under 2008 Stock Option Plan(21) |
Single Touch Systems, Inc.
| 10.8 | Form of Single Touch Interactive, Inc. Warrant to Purchase Common Stock ($0.88 exercise price (post-adjustment), expires June 22, 2011). A total of 2,322,000 Warrants (post-adjustment) on this form were issued to 20 persons on June 23, 2008 (22) | |
| 10.9 | Form of Class A Warrant for the Purchase of Shares of Common Stock ($1.60 exercise price, expires January 23, 2010). A total of 2,640,000 Warrants on this form were issued to 23 persons on July 24, 2008. We later extended the scheduled expiration date to July 23, 2011. (23) | |
| 10.10 | Form of Class B Warrant for the Purchase of Shares of Common Stock ($2.05 exercise price, expires July 23, 2011). A total of 2,640,000 Warrants on this form were issued to 23 persons on July 24, 2008. (24) | |
| 10.11 | Non-Exclusive Special Advisory Services Agreement between Peltz Capital Management, LLC and us, dated October 30, 2008. (25) | |
| 10.11.1 | (Form of) Warrant issued by us in favor of Peltz Capital Management, LLC, dated October 30, 2008 (25) | |
| 10.11.2 | (Form of) Registration Rights Agreement between Peltz Capital Management, LLC and us, dated October 30, 2008 (25) | |
| 10.12 | Intellectual Property Rights Purchase and Transfer Agreement, between StreamWorks Technologies, Inc. and us, dated June 2, 2009 (26) | |
| 10.12.1 | Form of Non-Compete Agreement in favor of us. Charles Jennings and Floyd Bowen entered into agreements with us on this form on June 22, 2009. (27) | |
| 10.12.2 | Form of Warrant ($2.30 exercise price, expires June 8, 2011). 1,833,334 Warrants on this form were issued to StreamWorks Technologies, Inc. on June 8, 2009. (28) | |
| 10.13 | Convertible Promissory Note ($500,000) issued by us in favor of Ted Cooper, dated August 17, 2009 (29) | |
| 10.14 | Common Stock Purchase Agreement, between Mike Robert and us, dated September 22, 2009 (30) | |
| 10.14.1 | Form of Warrant ($1.50 exercise price, expires September 23, 2011). 1,250,000 Warrants on this form were issued to Mike Robert on September 23, 2009. (31) | |
| 10.15 | Common Stock Purchase Agreement, between Mike Robert and us, dated November 4, 2009 (32) | |
| 10.15.1 | Form of Warrant ($1.50 exercise price, expires November 4, 2011). 1,500,000 Warrants on this form were issued to Mike Robert on November 4, 2009. (33) | |
| 10.16+ | 2009 Employee and Consultant Stock Plan (34) | |
| 10.16.1+ | Form of stock grant acknowledgement letter under 2009 Employee and Consultant Stock Plan (35) | |
| 10.17 | Non-Exclusive Placement Agency Agreement with Financial West Investment Group, Inc., dated November 30, 2009. (36) | |
| 10.18 | Common Stock Purchase Agreement, between Mike Robert and us, dated December 13, 2009 (37) | |
| 10.18.1 | Form of Warrant ($1.00 exercise price, expires December 13, 2011). 1,750,000 Warrants on this form were issued to Mike Robert on December 13, 2009. (38) | |
| 10.19 | Engagement letter agreement with Gar Wood Securities, LLC, dated January 1, 2010. (39) | |
| 10.19.1 | Form of Warrant to Purchase Common Stock ($1.00 exercise price, expires December 31, 2012). A total of 1,000,000 Warrants on this form were issued in favor of Gar Wood Securities, LLC and its affiliates on January 1, 2010. (40) | |
| 10.20 | Common Stock Purchase Agreement, between Mike Robert and us, dated January 7, 2010 (41) | |
| 10.20.1 | Form of Warrant ($1.00 exercise price, expires January 7, 2012). 1,750,000 Warrants on this form were issued to Mike Robert on January 7, 2010. (42) | |
| 10.21 | Form of Common Stock Purchase Agreement. We entered into respective agreements on this form with Zanett Opportunity Fund Ltd. and its affiliates, dated January 8, 2010, calling for the issuance of a total of 1,459,459 shares of common stock and 510,811 Warrants. (43) | |
| 10.21.1 | Form of Warrant ($1.50 exercise price, expires January 11, 2012). A total of 510,811 Warrants on this form were issued to Zanett Opportunity Fund Ltd. and its affiliates on January 11, 2010. (44) | |
| 10.22 | Form of Common Stock Purchase Agreement. We entered into respective agreements on this form with 38 persons between January and May 2010 calling for the issuance of 9,735,132 shares of common stock. (45) | |
| 10.22.1 | Form of Warrant to Purchase Common Stock (1.00 exercise price, expires 3 years from issuance). A total of 100,273 Warrants were issued to our placement agent Gar Wood Securities, LLC and its affiliates on this form on May 10, 2010. (46) | |
| 10.22.2 | Form of Warrant to Purchase Common Stock (1.00 exercise price, expires 3 years from issuance). A total of 55,541 Warrants were issued to our placement agent Financial West Investment Group, Inc. and its affiliates on this form on May 28, 2010.(47) |
| 10.23 | Convertible Promissory Note ($500,000) issued by us in favor of Mike Robert, dated March 12, 2010. (48) | |
| 10.24 | Warrant to purchase 1,000,000 shares ($0.75 exercise price, expires March 12, 2012), issued by us to Mike Robert, dated March 12, 2010. (49) | |
| 10.25 | Confidential Patent Purchase Agreement among Microsoft Corporation, Microsoft Licensing, GP and Single Touch Interactive, Inc., dated March 15, 2010. (50) | |
| 10.26+ | Single Touch Interactive, Inc. Convertible Promissory Note for $151,367 in favor of Anthony Macaluso, dated June 28, 2010. (51) | |
| 10.27+ | Single Touch Interactive, Inc. Convertible Promissory Note for $632,035 in favor of Activate, Inc., dated June 28, 2010. (52) | |
| 10.28 | Form of Settlement, Release and Discharge. We entered into respective agreements on this form with 4 persons on June 29, 2010 calling for the issuance of a total 1,607,521 shares of common stock. One of persons was James Cassina (606,768 shares). (53) | |
| 10.29 | Form of Common Stock Purchase Agreement. We entered into respective agreements on this form with 27 persons in July 2010 calling for the issuance of units comprising a total of 8,225,339 shares of common stock and 2,056,334 Warrants. (54) | |
| 10.29.1 | Form of Warrant to Purchase Common Stock ($1.00 exercise price, expires July 15, 2013). A total of 2,056,334 Warrants on this form were issued to 27 persons on July 16, 2010. Also, in connection therewith, the compensation we paid to our placement agent Gar Wood Securities, LLC included issuing to it and its affiliates 169,528 Warrants on this form. (55) | |
| 10.30 | Settlement Agreement and Mutual General Release, among Fort Ashford Funds, LLC, Frank Kavanaugh, Single Touch Interactive, Inc., Anthony Macaluso and us, dated September 30, 2010. (56) | |
| 10.31 | Settlement Agreement and Mutual General Release, among Ted Cooper and Single Touch Systems, Inc., dated December 14, 2010. (58) | |
| 10.32 | 2010 Stock Option Plan (59) | |
| 10.33 | Settlement and Release Agreement, among Peltz Capital Management, LLC, Anthony Macaluso and Single Touch Systems, Inc., effective September 29, 2010. (60) | |
| 21 | List of Subsidiaries. (57) | |
| 24.1 | Power of Attorney (included in the signature page). | |
| * | Filed herewith |
| + | Each of these Exhibits constitutes a management contract, compensatory plan, or arrangement. |
| (1) | Incorporated by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K, filed March 21, 2008. |
| (2) | Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K, filed June 3, 2008. |
| (3) | Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K, filed June 20, 2008. |
| (4) | Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K, filed July 14, 2008. |
| (5) | Incorporated by reference to Exhibit 2.5 to the registrant’s Current Report on Form 8-K, filed July 31, 2008. |
| (6) | Incorporated by reference to Exhibit 2.6 to the registrant’s Current Report on Form 8-K, filed July 31, 2008. |
| (7) | Incorporated by reference to Exhibit 3.1 to the registrant’s Registration Statement on Form SB-2, filed November 8, 2001. |
| (8) | Incorporated by reference to Exhibit 3.2 to Post-Effective Amendment No. 3 to the registrant’s Registration Statement on Form SB-2, filed April 11, 2002. |
| (9) | Incorporated by reference to Exhibit 3.3 to the registrant’s Current Report on Form 8-K, filed July 31, 2008. |
| (10) | Incorporated by reference to Exhibit 3.3 to Post-Effective Amendment No. 2 to the registrant’s Registration Statement on Form SB-2, filed February 8, 2002. |
| (11) | Incorporated by reference to Exhibit 10.1 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (12) | Incorporated by reference to Exhibit 10.2 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
Single Touch Systems, Inc.
| (13) | Incorporated by reference to Exhibit 10.2.1 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (14) | Incorporated by reference to Exhibit 10.3 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (15) | Incorporated by reference to Exhibit 10.4 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (16) | Incorporated by reference to Exhibit 10.5 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (17) | Incorporated by reference to Exhibit 10.6 to the registrant’s Annual Report on Form 10-K, filed January 14, 2010. |
| (18) | Incorporated by reference to Exhibit 10.7 to the registrant’s Annual Report on Form 10-K, filed January 14, 2010. |
| (19) | Incorporated by reference to Exhibit 10.6.2 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (20) | Incorporated by reference to Exhibit 10. 10 to the registrant’s Current Report on Form 8-K, filed July 31, 2008. |
| (21) | Incorporated by reference to Exhibit 10.7.1 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (22) | Incorporated by reference to Exhibit 4.10 to the registrant’s Current Report on Form 8-K, filed July 31, 2008. |
| (23) | Incorporated by reference to Exhibit 4.8 to the registrant’s Current Report on Form 8-K, filed July 31, 2008. |
| (24) | Incorporated by reference to Exhibit 4.9 to the registrant’s Current Report on Form 8-K, filed July 31, 2008. |
| (25) | Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K, filed November 5, 2008. The form of Warrant is attached thereto as Exhibit A and the form of Registration Rights Agreement is attached thereto as Exhibit B. Both the warrant and the Registration Rights Agreement were executed on October 30, 2008. |
| (26) | Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K, filed June 8, 2009. |
| (27) | Incorporated by reference to Exhibit 10.12.1 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (28) | Incorporated by reference to Exhibit 10.12.2 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (29) | Incorporated by reference to Exhibit 10.13 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (30) | Incorporated by reference to Exhibit 10.14 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (31) | Incorporated by reference to Exhibit 10.14.1 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (32) | Incorporated by reference to Exhibit 10.15 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (33) | Incorporated by reference to Exhibit 10.15.1 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (34) | Incorporated by reference to Exhibit 4 to the registrant’s Registration Statement on Form S-8 (SEC File No. 333-163557), filed December 8, 2009. |
| (35) | Incorporated by reference to Exhibit 10.16.1 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (36) | Incorporated by reference to Exhibit 10.17 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (37) | Incorporated by reference to Exhibit 10.18 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (38) | Incorporated by reference to Exhibit 10.18.1 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (39) | Incorporated by reference to Exhibit 10.19 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (40) | Incorporated by reference to Exhibit 10.19.1 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (41) | Incorporated by reference to Exhibit 10.20 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
Single Touch Systems, Inc.
| (42) | Incorporated by reference to Exhibit 10.20.1 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (43) | Incorporated by reference to Exhibit 10.21 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (44) | Incorporated by reference to Exhibit 10.21.1 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (45) | Incorporated by reference to Exhibit 10.22 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (46) | Incorporated by reference to Exhibit 10.22.1 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (47) | Incorporated by reference to Exhibit 10.22.2 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (48) | Incorporated by reference to Exhibit 10.23 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (49) | Incorporated by reference to Exhibit 10.24 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (50) | Incorporated by reference to Exhibit 10.8 to the registrant’s Quarterly Report on Form 10-Q, filed May 14, 2010. |
| (51) | Incorporated by reference to Exhibit 10.26 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (52) | Incorporated by reference to Exhibit 10.27 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (53) | Incorporated by reference to Exhibit 10.28 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (54) | Incorporated by reference to Exhibit 10.29 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (55) | Incorporated by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K, filed July 21, 2010. |
| (56) | Incorporated by reference to Exhibit 10.30 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010. |
| (57) | Incorporated by reference to Exhibit 21 to the registrant’s Current Report on Form 8-K, filed July 31, 2008. |
| (58) | Incorporated by reference to Exhibit 10.31 to the registrant’s Annual Report on Form 10-K, filed December 29, 2010. |
| (59) | Incorporated by reference to Exhibit 10.32 to the registrant’s Annual Report on Form 10-K, filed December 29, 2010. |
| (60) | Incorporated by reference to Exhibit 10.33 to the registrant’s Annual Report on Form 10-K, filed December 29, 2010. |
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Single Touch Systems, Inc. | |||
| Date: February 10, 2011 | By: | /s/ Anthony Macaluso, President | |
| Anthony Macaluso, President | |||
| Principal Executive Officer | |||
| Principal Financial Officer | |||
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