UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
 
Form 10-K
_________________
 

R
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the fiscal year ended September 30, 2012
   
Or
 
£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the transition period from __________ to __________

Commission File Number: 000-53744
________________
 
SINGLE TOUCH SYSTEMS INC.
(Exact Name of Registrant as Specified in its Charter)
________________
 
Delaware
13-4122844
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
   
100 Town Square Place, Suite 204
07310
Jersey City, NJ
(Zip Code)
(Address of principal executive offices)
 

Registrant’s telephone number, including area code:
(201) 275-0555
 
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
Name of Each Exchange on Which Registered
   

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
________________
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes £     No R

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes £     No R

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K  £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
  Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company þ
          (Do not check if a smaller reporting company)    
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of March 31, 2012 was $22,492,673 based on the closing sale price of such common equity on such date.

As of December 21, 2012 there were 132,472,392 shares of the registrant’s common stock outstanding.
 
 
 



 
 
TABLE OF CONTENTS

 
 
Page
  
  
  
     
     
     

 
 
 
 

 
 
2


 
CAUTION REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements contained or incorporated by reference in this Annual Report on Form 10-K are “forward-looking statements.” These statements are based on the current expectations, forecasts, and assumptions of our management and are subject to various risks and uncertainties that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements. Forward-looking statements are sometimes identified by language such as “believes,” “anticipates,” “estimates,” “expects,” “plans,” “intends,” “projects,” “future” and similar expressions and may also include references to plans, strategies, objectives, and anticipated future performance as well as other statements that are not strictly historical in nature.

The risks, uncertainties, and other factors that could cause our actual results to differ materially from those expressed or implied in this Annual Report on Form 10-K include:

 
 
our ability to successfully retain and sell additional services to our existing clients and obtain new clients;

 
 
our reliance on primarily a single client and the continued use by such client of our services with favorable pricing terms;

 
 
changes in laws and regulations related to the communication services we provide to or through our clients;
 
 
 
the failure of our outsourced data center services providers to provide the anticipated levels of service;

 
 
any significant slowdown or failure of our systems or error in the performance of our services;

 
 
our failure to keep pace with changes in technology and the demands of our clients;

 
 
the ability to attract and retain key personnel;

 
 
our ability to obtain additional financing at favorable rates to maintain and develop our operations; and

 
 
competitive conditions in our industry.

There may be other factors that may cause our actual results to differ materially from the forward-looking statements. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. Readers should carefully consider this information as well the risks and other uncertainties described in other filings we may make with the Securities and Exchange Commission after the date of this Annual Report on Form 10-K. Readers are cautioned not to place undue reliance on forward-looking statements.  They reflect opinions, assumptions, and estimates only as of the date they were made, and we undertake no obligation to publicly update or revise any forward-looking statements in this Annual Report on Form 10-K, whether as a result of new information, future events or circumstances, or otherwise.

PART I
Item 1.  Business

General

We were incorporated in Delaware on May 31, 2000, under our original name, Hosting Site Network, Inc.  On May 12, 2008, we changed our name to Single Touch Systems Inc.  In the periods before the acquisition described in the next sentence, we had no active business operations.  On July 24, 2008, we acquired all of the outstanding shares of Single Touch Interactive, Inc. (“Interactive”).  Interactive was incorporated in Nevada on April 2, 2002.
 
We maintain a website located at http://www.singletouch.net, and electronic copies of our periodic or other reports and any amendments to those reports, are available, free of charge, under the “Company” link on our website as soon as practicable after such material is filed with, or furnished to, the SEC.
 
 
 
3



Single Touch Systems Inc. is an innovative mobile media solutions provider serving retailers, advertisers and brands. Through patented technologies and a modular, adaptable platform, our multi-channel messaging gateway enables marketers to reach consumers on all types of connected devices, with information that engages interest, drives transactions and strengthens relationships and loyalty.

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 in voice or Short Message Service (SMS), an abbreviated dial code or a coupon, promotion, or an advertisement. 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.

Background of Industry Growth and Potential

Across the globe, the mobile channel is growing fast. People in every country are buying more and more advanced mobile devices, and business and consumers alike are using mobile phones for everyday activities like checking the weather, taking advantages of discounts, shopping or sending and receiving financial information. As mobile adoption increases, e-Business and channel strategy professionals are challenged to determine how these devices integrate with their existing sales and service channels. Rapid adoption of the mobile channel is a critical driver of the need for e-business professionals to evolve their strategy and operations to agile commerce.

According to CTIA – The Wireless Association (June 2012), there were 322 million wireless subscribers in the US, more than the entire US population. In the US alone, there were 4.59 trillion combined minutes and messages sent for the year ended June 2012, representing an increase year over year in this same June period.

In 2011 Mobile device sales outnumbered PCs for the first time in history according to BI Intelligence. For 2012 PC sales are expected to grow 4% while smartphone growth is anticipated at 40% and tablets near 60%. Consumers are not relying on one channel to receive information. They are constantly on-the-go, sending and receiving communications of all types, and they have come to expect that information be literally in-hand at all times.

Principal Products and Services

Messaging and Notifications – Our Short Message Service (SMS) gateway has proven to be an excellent channel for retailers to communicate with their brand loyalists on a very personal level. This is accomplished through integration with the client’s customer relationship management (CRM) database. With such integration, retailers were able to send targeted mobile coupons and transactional messages based on a shopper’s CRM profile. Targeted mobile coupons can be sent based on past purchase behaviors making the content relevant and timely to a shopper. Transactional messages can add another layer of value by sending shipping and order pick-up alerts, as well as notifications for reorders, layaway and new product releases. The foremost example of our solution running today is Walmart. Walmart pharmacy departments send individualized text and voice messages through our gateway to their customers letting them know when their prescriptions are ready for pick-up.

Abbreviated Dial Codes- Our abbreviated dial codes have been proven to have 10 times the recall of a common keyword-to-short-code solution. We have seen many of our clients using this as an on-ramp to mobility solutions. Walmart is currently using #wmt to make it easier for their customers to locate and download their smartphone mobile app.  Forrester research called this dial code technology one of the top 4 for CMOs to watch. We see the potential for Single Touch customers to leverage the hash tags in the social media space with the # symbol in their abbreviated dial code to enhance brand awareness.
 
 
 
 
 
4

 
Certain Agreements

Our business agreements consist primarily of customer agreements and carrier agreements. Customer agreements are typically agreements with companies which have sales relationships with the end users of the transacted media content or service application. These agreements typically involve a split of the fees received between the brand owner and us or a fixed fee per transaction. Carrier agreements are infrastructure in nature and establish the connection to the end user that enables us to deliver and collect payment for the transacted media content or service application. Carrier agreements typically involve a split of the fees received between the carrier and us.

We have expanded our relationship with AT&T Services, Inc., through which we retain 11 client relationships representing nearly all of our reported revenue in the fiscal years ended in 2011 and 2012. The bulk of that revenue comes from notifications sent on behalf of 4 separate Walmart corporate programs. These programs and related services continue to develop nationwide, and we continue to experience increasing activity in these programs that have caused our AT&T revenues to grow.

Research and Development

During the fiscal years ended September 30, 2012 and September 30, 2011 we spent $434,915 and $502,110, respectively, on software development that was capitalized. Software development costs amortized and charged to operations in fiscal 2012 and fiscal 2011 were $446,876 and $412,632, respectively.

Our research and development activities relate primarily to general coding of software and product development. These activities consist of both new products and support or improvements to existing products.

We believe that we may need to increase our current level of dedicated research and development resources by adding both hardware and engineers as our business continues to develop.

Patents and Licenses

We currently hold rights to multiple patents relating to certain aspects of accessing information on a mobile device, sending information to and between mobile devices, advertising and media streaming. We believe the ownership of such patents is an important factor in our existing and future business.

We regularly file patent applications to protect innovations arising from our research, development and design, and are currently pursuing multiple patent applications. Over time, we have accumulated a portfolio of issued patents primarily in the U.S. No single patent is solely responsible for protecting our systems and services. We believe the duration of our patents are adequate relative to the expected lives of our systems and services.
 
 
 
5


 
Some of our systems and services may include intellectual property obtained from third parties. It may be necessary in the future to seek or renew licenses relating to various aspects of its systems and services. There is no guarantee that such licenses could be obtained on reasonable terms or at all. Because of technological changes in the industries in which we compete, current extensive patent coverage, and the rapid rate of issuance of new patents, it is possible that certain components of our systems and services may unknowingly infringe existing patents or intellectual property rights of others.

Government Regulation

We provide value-added and enabling platforms for carrier-based distribution of various software and media content, as well as notifications and other communications. Applicable regulations are primarily under the Federal Communications Commission and related to the operations policies and procedures of the wireless communications carriers. Messaging and safeguarding Personal Health Information, moreover, is relegated, among other things, to the Privacy Rule of the Health Insurance Portability and Accountability Act, otherwise known as HIPAA.  The wireless carriers are primarily responsible for regulatory compliance. Given the growing and dynamic evolution of digital wireless products that can be offered to consumers over a wireless communication network, regulators could impose rules, requirements and standards of conduct on third-party content and infrastructure providers such as us. We are not currently aware of any pending regulations that would materially impact our operations.
Employees

We currently have 16 full-time and no part-time employees including our chairman, our chief executive officer, our chief financial officer, 6 persons serving as programmers and technical staff operators, 5 persons in sales and marketing, 1 person in accounting and 1 administrative assistant. We expect to increase our future employee levels on an as-needed basis in connection with our expected growth.

Item 1A.  Risk Factors

No Disclosure Required.

Item 1B.  Unresolved Staff Comments

No Disclosure Required.

Item 2.  Properties

Our executive offices are located at 100 Town Square Place, Suite 204, Jersey City, NJ 07310. We have a five-year lease for this space at a rate of $8,925 per month. The facilities comprise approximately 3500 square feet consisting entirely of administrative office space.

We have additional offices located at 2235 Encinitas Blvd., Suite 210, Encinitas, CA 92024. We have a month-to-month renewal lease for this space at a rate of $3,027 per month. The facilities comprise approximately 1900 square feet consisting entirely of administrative and software development office space.

We have additional offices located at 3310 Market Street, Suite 204, Rogers, AK 72758. We have a five-year lease for this space at a rate of $3,645 per month. The facilities comprise approximately 2100 square feet consisting entirely of sales, client service, and administrative office space.

We have additional offices located at 12301 West Explorer Drive, Suite 210, Boise, ID 83713. We have a two-year lease for this space at a rate of $1,204 per month, which has been extended on a month-to-month basis. The facilities comprise approximately 1445 square feet consisting entirely of software development office space.

Our servers are housed at CoreSite, 900 N. Alameda Street, Los Angeles, CA 90012, Paetec, 100 W La Palma, Anaheim, CA 92801 and Coresite, 427 North La Salle, Chicago, IL 60605.
 
 
 
6


 
Item 3.  Legal Proceedings

On February 21, 2012, we filed a complaint against Zoove Corporation in the United States District Court, Northern District of California. The complaint alleges patent infringement, in which we seek preliminary and permanent injunctive relief as well as damages resulting from Zoove’s infringement of U.S. Patent No. 7,813,716 and U.S. Patent No. 8,041,341. The Complaint has been served, and Zoove has filed an answer.  We had a case management conference on June 25, 2012.  We filed our Claim Construction Brief on December 20, 2012, and are currently in the claim construction period.  A claim construction hearing is set for February 20, 2013.

On August 23, 2012, we filed a complaint against Hulu LLC in the United States District Court, Central District of California. The complaint alleges patent infringement, in which we seek preliminary and permanent injunctive relief as well as damages resulting from Hulu’s infringement of U.S. Patent No. 7,191,244. On December 21, 2012, we filed a dismissal of the lawsuit without prejudice. We are in the process of transferring our related Patents into our recently formed subsidiary Single Touch Systems R&D IP, Inc. Due to this transfer, the most efficient procedure was to dismiss the current lawsuit until such time that the transfers to Single Touch Systems R&D IP, Inc. are completed.

Item 4.  Mine Safety Disclosures

No disclosure required.

PART II
 
Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock has been quoted on the OTC Bulletin Board since June 20, 2002. From June 20, 2002 until May 14, 2008 our stock was quoted under the symbol “HSNI”. From May 15, 2008 to the present it has been quoted under the symbol “SITO”. The following table sets forth, for the fiscal quarters indicated, the high and low closing sale prices per share of our common stock. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
 
 
Quarter Ended
  
High
 
  
Low
 
                 
December 31, 2012 (to 12/28/2012)
  
 
0.61
  
  
 
0.25
  
September 30, 2012
  
 
0.34
  
  
 
0.17
  
June 30, 2012
  
 
0.31
  
  
 
0.19
  
March 31, 2012
  
 
0.37
  
  
 
0.23
  
December 31, 2011
  
 
0.33
  
  
 
0.20
  
September 30, 2011
   
0.56
     
0.26
 
June 30, 2011
  
 
0.75
  
  
 
0.45
  
March 31, 2011
  
 
0.83
  
  
 
0.49
  
December 31, 2010
  
 
1.05
  
  
 
0.73
  
September 30, 2010
  
 
1.48
  
  
 
0.65
  

Holders

As of December 21, 2012, there were approximately 244 record holders of our common stock. This does not include the holders of approximately 82 un-exchanged stock certificates or the additional holders of our common stock who held their shares in street name as of that date.
 
 
 
7


 
Dividends

We have never paid or declared any cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future but rather intend to retain future earnings, if any, for reinvestment in our future business. Any future determination to pay cash dividends will be in compliance with our contractual obligations and otherwise at the discretion of the board of directors and based upon our financial condition, results of operations, capital requirements and such other factors as the board of directors deems relevant.
 
Recent Sales of Unregistered Securities

No Disclosure Required.
 
Equity Compensation Plan Information

The following table reflects information for equity compensation plans and arrangements for any and all directors, officers, employees and/or consultants through September 30, 2012.

Equity Compensation Plan Information
 
Number of securities
to be issued upon exercise of
outstanding options,
warrants and rights (a)
 
Weighted-
average exercise
price of
outstanding
options,
warrants and
rights (b)
   
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a)) (c)
 
Equity compensation plans
approved by security holders
7,255,000
 
$
0.78
     
1,545,000
 
Equity compensation plans
not approved by security holders
26,930,000
 
$
0.77
     
168,750
 
Total
34,185,000
 
$
0.77
     
1,713,750
 

In April 2008 our Board of Directors and stockholders adopted the 2008 Stock Option Plan (the “2008 Plan”) to provide participating employees, non-employee directors, consultants and advisors with an additional incentive to promote our success. The maximum number of shares of common stock which may be issued pursuant to options and awards granted under the 2008 Plan is 8,800,000. The 2008 Plan is currently administered by our Board of Directors but may be subsequently administered by a Compensation Committee designated by our Board of Directors. The 2008 Plan authorizes the grant to 2008 Plan participants of non-qualified stock options, incentive stock options, restricted stock awards, and stock appreciation rights. No option shall be exercisable more than 10 years after the date of grant. Upon separation from service, no further vesting of options can occur, and vested options will expire unless exercised within a year after separation, except as provided in individual employment agreements. No option granted under the 2008 Plan is transferable by the individual or entity to whom it was granted otherwise than by will or laws of decent and distribution, and, during the lifetime of such individual, is not exercisable by any other person, but only by him.

In December 2009 our Board of Directors adopted the 2009 Employee and Consultant Stock Plan (“2009 Plan”) to provide common stock grants to selected employees, non-employee directors, consultants and advisors. The total number of shares subject to the 2009 Plan is 2,000,000. The 2009 Plan is administered by our Board of Directors.

In December 2010 our Board of Directors adopted the 2010 Stock Plan (“2010 Plan”) to provide common stock option grants to selected employees, non-employee directors, consultants and advisors. In June 2011, the Board increased the total number of shares subject to the 2010 Plan to 25,000,000. The 2010 Plan is administered by our Board of Directors.
 
 
 
8


 
A total of 2,975,000 of the shares shown as underlying in the “Equity compensation plans not approved by security holders” row consists of 1,000,000 shares underlying warrants which we originally granted to Pharmacy Management Group, LLC in June 2011 as compensation for consulting services and 1,975,000 remaining shares underlying a warrant which we originally granted to Peltz Capital Management, LLC in October 2008 as compensation for consulting services.   These 2,975,000 warrants are not granted under any of the plans noted above and included for the purposes of this table only. There were 32,210,000 options outstanding at September 30, 2012.
 
Item 6.  Selected Financial Data

No disclosure required.

Item 7.  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 our financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K. 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 uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this Annual Report on Form 10-K.  Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors such as those noted under “Caution Regarding Forward-Looking Statements” on page 3 of this Annual Report on Form 10-K.  We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report on Form 10-K.

Overview

Single Touch Systems Inc. is an innovative mobile media solutions provider serving retailers, advertisers and brands. Through patented technologies and a modular, adaptable platform, our multi-channel messaging gateway enables marketers to reach consumers on all types of connected devices, with information that engages interest, drives transactions and strengthens relationships and loyalty.

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 we provide 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. These solutions are enhanced when we deploy imbedded advertisements, sponsorship and couponing.
 
“For the first time in history with near 322 million wireless subscribers in the USA, wireless penetration exceeds the U.S. population” (1)
 
“Short Messaging Service, simply known as SMS, sent in the USA for the 12 months ended June 2012 totaled 2.27 trillion up 3% from 2011” (1)

“SMS capable handsets on carriers networks rose to 268.5 million for the same period up 7.7% from 2011” (1) “In 2011 worldwide SMS traffic topped 8 trillion messages”
 
 
 
9


 
We have developed and are deploying advertisements, sponsorships and couponing within our product offerings. This development is significant in that our per-message revenue increases significantly for each message that includes an advertisement or sponsorship. We see these expanded offerings, including those not based directly on messaging volume, as important steps in our continued program to creating both consumer and advertiser demand for our mobile media platform, accessing mobile notifications, advertisements, sponsorships, coupons and commerce transactions from the mobile phone.

“53% of companies surveyed have or are deploying a dedicated team assigned to mobile programs, and 51% are looking for ways to further mobile marketing capabilities”(2)

We have expanded our relationship with AT&T Services, Inc., through which we retain 11 client relationships representing nearly all of our reported revenue in the fiscal years ended in 2011 and 2012. The bulk of that revenue comes from notifications sent on behalf of 4 separate Walmart corporate programs. These programs and related services continue to develop nationwide, and we continue to experience increasing activity in these programs that have caused our AT&T revenues to grow.

We have a portfolio of intellectual property relevant to our industry related to mobile search, commerce, advertising and streaming media. This portfolio represents our many years’ innovation in the wireless industry through patented technology developed by us, as well as patented technology we purchased from Microsoft and others.

We have law firms engaged to protect our patented technology rights against unauthorized users and infringers. We have sent letters of notification to several companies making them aware of our patent portfolio and have commenced litigation.
 
We have assigned 16 of our 18 and all of our intellectual property rights to Single Touch R&D IP, Inc a wholly owned subsidiary who will conduct all research, development, patent filings, patent maintenance and who  will continue to identify, notify, and, where circumstances warrant, enforce against companies we believe may be infringing on the intellectual property protected by our growing patent portfolio under the guidance of our Executive Chairman.

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.

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. 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 is 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 have a material adverse effect on our business prospects, financial condition and results of operations.
 
 

(1)
Source: June 2012 CTIA Semi Annual Wireless Survey
(2)
Source: Oct 2012 CMO Council Study

 
 
 
10

 
 
Results of Operations
Years Ended September 30, 2012 and 2011
 
During the fiscal year ended September 30, 2012, the Company had an increase in revenue of approximately 39% over revenue generated during the previous fiscal year ($6,346,919 in 2012 compared to $4,579,862 in 2011).  The growth, all of which is organic, is attributable to continuing consumer  adoption of our programs from existing client relationships. The Company’s net loss for the fiscal year ended September 30, 2012 was $3,255,186.  This is lower than the net loss incurred during the fiscal year ended September 30, 2011 of $7,985,163. Under the metrics employed by management to evaluate the underlying business explained below, Adjusted EBITDA, that underlying loss was reduced by $507,464 from the fiscal year ended September 30, 2011 to the fiscal year ended September 30, 2012.
 
We define Adjusted EBITDA as consolidated operating income before depreciation, amortization of intangible assets, stock-based compensation, and special charges.  We use Adjusted EBITDA to evaluate the underlying performance of our business, and a summary of Adjusted EBITDA, reconciling GAAP amounts (i.e., items reported in accordance with U.S. Generally Accepted Accounting Principles) to Adjusted EBITDA amounts (i.e., items included within Adjusted EBITDA as defined directly above) for the fiscal years ended September 30, 2012 and 2011 follows:
 
   
For the Year Ended September 30,
                         
                                                             
   
2012
   
2011
   
GAAP
   
Adjusted EBITDA
 
         
Adjust-
   
Adjusted
         
Adjust-
   
Adjusted
   
Change
   
Change
 
   
GAAP
   
ments
   
EBITDA
   
GAAP
   
ments
   
EBITDA
    $       %     $       %  
                                                                 
Revenue
                                                               
Wireless Applications
  $ 6,346,919     $ -     $ 6,346,919     $ 4,579,862     $ -     $ 4,579,862     $ 1,767,057       39 %   $ 1,767,057       39 %
                                                                                 
Operating Expenses
                                                                               
Royalties and Application Costs
  $ 2,907,110     $ -     $ 2,907,110     $ 2,543,885     $ -     $ 2,543,885     $ 363,225       14 %   $ 363,225       14 %
Research and Development
  $ 84,658     $ -     $ 84,658     $ 78,860     $ -     $ 78,860     $ 5,798       7 %   $ 5,798       7 %
Compensation expense (including
                                                                         
    stock-based compensation)
  $ 3,044,430     $ (365,422 )   $ 2,679,008     $ 5,468,643     $ (3,634,268 )   $ 1,834,375 *   $ (2,424,213 )     -44 %   $ 844,633       46 %
Depreciation and amortization
  $ 690,293     $ (690,293 )   $ -     $ 633,535     $ (633,535 )   $ -     $ 56,758       9 %                
General and administrative (including
                                                                         
    stock-based compensation)
  $ 2,386,694     $ (137,169 )   $ 2,249,525     $ 3,161,751     $ (958,163 )   $ 2,203,588     $ (775,057 )     -25 %   $ 45,937       2 %
    $ 9,113,185     $ (1,192,884 )   $ 7,920,301     $ 11,886,674     $ (5,225,966 )   $ 6,660,708     $ (2,773,489 )     -23 %   $ 1,259,593       19 %
                                                                                 
Loss from Operations/Adjusted EBITDA
  $ (2,766,266 )   $ 1,192,884     $ (1,573,382 )   $ (7,306,812 )   $ 5,225,966     $ (2,080,846 )   $ 4,540,546       -62 %   $ 507,464       -24 %
 
 
Royalties and Application Costs represent the direct out-of-pocket costs associated with revenue. Royalties and Application Costs vary substantially in line with revenue and totaled $2,907,110 in 2012, compared to $2,543,885 in 2011, an increase of 14%.  Because a portion of Royalties and Application Costs are fixed and all such costs are being monitored and reduced wherever possible, net margin continues to increase.
 
 
 
11

 
 
Research and Development expenses grew from $78,860 in 2011 to $84,658 in 2012, and adjusted Compensation expense grew from $1,834,375 to $2,679,008.  The former reflects the growing investment in technologies that we anticipate will generate revenues for years to come while the latter reflects the increased headcount necessary to support our expanding business while concurrently relying less on outside consultants.  
 
General and Administrative expenses for the fiscal year ended September 30, 2012 and 2011, both on a GAAP and on an Adjusted EBITDA basis, consist of the following:
 
   
For the Year Ended September 30,
                         
                                                             
   
2012
   
2011
   
GAAP
   
Adjusted EBITDA
 
         
Adjust-
   
Adjusted
         
Adjust-
   
Adjusted
   
Change
   
Change
 
   
GAAP
   
ments
   
EBITDA
   
GAAP
   
ments
   
EBITDA
   
$
   
%
   
$
   
%
 
                                                             
Professional Fees
  $ 779,541     $ (47,450 )   $ 732,091 *   $ 821,022     $ (58,050 )   $ 762,972 *   $ (41,481 )     -5 %   $ (30,881 )     -4 %
Travel
  $ 499,576     $ -     $ 499,576     $ 322,951     $ -     $ 322,951     $ 176,625       55 %   $ 176,625       55 %
Consulting expense
  $ 565,349     $ (89,719 )   $ 475,630 *   $ 1,448,613     $ (900,113 )   $ 548,500 *   $ (883,264 )     -61 %   $ (72,870 )     -13 %
Office rent
  $ 205,639     $ -     $ 205,639     $ 121,681     $ -     $ 121,681     $ 83,958       69 %   $ 83,958       69 %
Insurance expense
  $ 120,236     $ -     $ 120,236     $ 83,953     $ -     $ 83,953     $ 36,283       43 %   $ 36,283       43 %
Equipment lease
  $ -     $ -     $ -     $ 45,000     $ -     $ 45,000     $ (45,000 )     -100 %   $ (45,000 )     -100 %
Trade shows
  $ 21,213     $ -     $ 21,213     $ 78,324     $ -     $ 78,324     $ (57,111 )     -73 %   $ (57,111 )     -73 %
Telephone
  $ 61,729     $ -     $ 61,729     $ 38,820     $ -     $ 38,820     $ 22,909       59 %   $ 22,909       59 %
Office expense
  $ 31,356     $ -     $ 31,356     $ 7,949     $ -     $ 7,949     $ 23,407       294 %   $ 23,407       294 %
Other
  $ 102,055     $ -     $ 102,055     $ 193,438     $ -     $ 193,438     $ (91,383 )     -47 %   $ (91,383 )     -47 %
Total General and Administrative Expenses
  $ 2,386,694     $ (137,169 )   $ 2,249,525     $ 3,161,751     $ (958,163 )   $ 2,203,588     $ (775,057 )     -25 %   $ 45,937       2 %
                                                                                 
* Adjustments for each of these items represents the elimination of stock-based compensation included within the GAAP expense amount to arrive at the Adjusted EBITDA amount.
 

 
The diminution in adjusted Professional Fees, from $762,972 in 2011 to $732,091 in 2012, reflects management performing services previously outsourced.  Professional Fees include amounts paid to external attorneys, and Professional Fees have been reduced during this latter fiscal year, notwithstanding the commencement during that fiscal year of two litigations against defendants that the Company contends infringed on its intellectual property. The same is true for the $72,870 diminution to adjusted Consulting expense over the two periods.  Travel has increased $176,625 over the two periods, resulting from increased new business efforts, increased investor outreach, the hosting of an annual general meeting in August 2012, the addition of the New Jersey office, and travel between our four offices, a footprint now covering all of the Continental U.S.  Office rent has increased due to the opening of the New Jersey office at the very end of the fiscal year ended September 30, 2011, and Insurance expense has increased $36,283 over the two periods due largely to revenue growth and additional necessary coverage.
 
 
 
12

 

Liquidity and Capital Resources
 
At September 30, 2012, we had total assets of $5,569,755 and total liabilities of $4,661,117. As of September 30, 2011, we had total assets of $3,736,694 and total liabilities of $1,554,379. The increase in assets is largely due to increases in cash of $1,633,906, from $523,801 in 2011 to $2,157,707 in 2012, and additions of accounts receivable since September 30, 2011 totaling $178,565, from $907,275 in 2011 to $1,085,840 in 2012.  Cash has increased largely due to $4,312,000 of capital raised in two different convertible debt offerings, less cash offering costs and costs of funding ongoing operations and capital expenditures over the twelve months ended September 30, 2012.  Accounts receivable have risen along with revenue increases.
 
The increase in liabilities is largely due to the two convertible debt issuances since September 30, 2011 (Footnote 9 of the Notes to Consolidated Financial Statements.)  Accounts payable has been reduced over the same period, from $1,178,057 at September 30, 2011 to $768,263 at September 30, 2012, representing resolution of open balances with vendors and the institution of more standard payment terms over those twelve months.  The reduction to Current obligation on patent acquisitions represents the issuance of the penultimate payment due to a vendor of a group of patents (Footnote 8 of the Notes to Consolidated Financial Statements.)
 
During the fiscal year ended September 30, 2012 cash used in operating activities totaled $2,084,247. Most notably receivables increased, reflecting our growing revenue base, and we paid down trade creditor balances.
 
Cash used in investing activities totaled $625,618, of which $434,915 represented the capitalized internal costs of our software development, $33,195 represented equipment purchases, $146,558 represented capitalized legal fees incurred in the process of applying for various patents on our technology, and $30,000 represented the expenditure of the cash component of the Anywhere purchase (Footnote 6 of the Notes to Consolidated Financial Statements.) We continue to invest in physical and intellectual property that will separate us from competitors and allow us to continue to expend our mobile communications/advertising offering.  The Company obtained a $19,050 refund of cash, relating to the reduction to the security deposit on the New Jersey office.
 
Cash provided from financing activities amounted to $4,343,771.  The Company received $4,312,000 through the issuance of convertible debt, and $318,000 was received as proceeds for the exercise of warrants.  We paid down half ($87,500) remaining on our patent purchase obligation and incurred $210,049 of offering costs associated with the convertible debt.  We had an overall net increase in cash for the period of $1,633,906; the balance at the beginning of the fiscal year was $523,801 while the cash balance at the end of the period was $2,157,707.
 
During the fiscal year ended September 30, 2011 cash used in operating activities totaled $1,505,289. Most notably receivables and prepaid expenses increased during a period of revenue growth.  Offsetting those asset increases were increases of accounts payable and accrued expenses.  Following this earlier fiscal year the Company reached more current and typical payment terms with its operating vendors.
 
Cash used in investing activities totaled $1,059,604, of which $502,110 represented the capitalized internal costs of our software development, $196,067 represented equipment purchases, and $111,177 represented capitalized legal fees incurred in the process of applying for various patents on our technology.  We also expended $155,000 on the Soapbox Anywhere option and $95,250 on the initial New Jersey office lease security deposit.
 
Cash expended on financing activities amounted to $951,475.  The Company received $17,100 from the issuance of Common Stock and $17,685 from Loans and advances from related parties.  Those cash inflows were outstripped by $30,000 paid in costs of a private offering, $790,822 repaid to a related party, and $165,438 principal repaid on the patent obligation.  We had an overall net decrease in cash for the period of $3,516,368; the balance at the beginning of this earlier fiscal year was $4,040,169 while the cash balance at the end of the period was $523,801.
 
Over the twelve months following September 30, 2012 we believe that existing capital and anticipated funds will be sufficient to sustain our current level of operations.  Inasmuch as the Company is pursuing the monetization of its intellectual property, which plans are subject to change, additional external financing may, however, be required. In addition, increased acceleration in our organic business and/or other economic influences might also necessitate other financing. There can, moreover, be no assurance of when, if ever, our operations become profitable.
 
 
 
13

 

Off-Balance Sheet Arrangements
 
We have no off-balance sheet arrangements or financing activities with special purpose entities. 
 
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
 
Revenue is recognized 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.
 
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 ASC Topic 505-50, “Equity Based Payments to Non 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 recognized over the term of the consulting agreement. In accordance with ASC Topic 505, an asset acquired in exchange for the issuance of fully vested, non-forfeitable 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 non-forfeitable common stock issued for future consulting services as prepaid services in our consolidated balance sheet.
 
Conventional Convertible Debt
 
When the convertible feature of the conventional convertible debt provides for a rate of conversion that is below market value at issuance, this feature is characterized as a beneficial conversion feature (“BCF”). We record a BCF as a debt discount pursuant to ASC Topic 470-20, “Debt with Conversion and Other Options.” In those circumstances, the convertible debt will be recorded net of the discount related to the BCF. We amortize 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.
 
Software Development Costs
 
We account for our software development costs in accordance with ASC Topic 985-20, “Cost of Software to be Sold, Leased, or Otherwise Marketed.” Under ASC 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.
 
 
 
14



Fair Value Measurement
 
The Company complies with the provisions of ASC No. 820-10 (ASC 820-10), “Fair Value Measurements and Disclosures.”  ASC 820-10 relates to financial assets and financial liabilities. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (GAAP), and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions.
 
ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820-10 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions that are developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 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.
 
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.

Item 8.  Financial Statements and Supplementary Data
 
The financial statements required by this item begin on page F-1 with the index to financial statements followed by the financial statements.

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
None.
 
Item 9A.  Controls and Procedures
 
Management’s Evaluation of Disclosure Controls and Procedures
 
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer as of September 30, 2012, evaluated the effectiveness of our disclosure controls as defined in Rule 13a-15(e) under the Exchange Act. The Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of September 30, 2012 were effective to ensure that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure.
 
Management’s Report on Internal Control over Financial Reporting
 
It is the responsibility of management to establish and maintain effective internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Internal control over financial reporting is designed to provide reasonable assurance to management and board of directors regarding the preparation of reliable financial statements for external purposes in accordance with generally accepted accounting principles.
 
 
 
15

 
 
Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
 
Management has performed an assessment of the effectiveness of our internal control over financial reporting as of September 30, 2012 based upon criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control Over Financial Reporting – Guidance for Smaller Public Companies. Based on this assessment, management determined that our internal control over financial reporting was effective as of September 30, 2012.
 
Attestation Report of the Registered Public Accounting Firm
 
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.
 
Changes in Internal Control over Financial Reporting
 
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended September 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
Subsequent to the quarter ended September 30, 2012 we have identified the need to further enhance our existing internal controls over financial reporting that has materially affected, or is reasonably likely to affect materially, our internal controls over financial reporting.
 
We identified that our current banking product does not have the capabilities to support procedural protocols we had previously implemented.  Due to the limitations of this product it was identified that a transaction could be authorized independently although dual authorizations may have been required pursuant to our instructions to the bank.
 
We have determined that a new commercial banking product is required to support our previously implemented procedural protocols. We are evaluating new commercial banking products suitable to meet our requirements.
 
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.
 
Under the oversight of the Audit Committee, management will continue to review and make any changes it deems necessary to the overall design of the Company’s internal control over financial reporting, including implementing improvements in policies and procedures. We are committed to a proper internal control environment, and believe that, when fully implemented, these proactive measures will improve the Company’s internal control over financial reporting in response to our continued operational development.
 
Item 9B.  Other Information
 
None.
 
 
 
16


 
PART III

Item 10.  Directors, Executive Officers and Corporate Governance

Directors and Executive Officers
 
The following persons are our executive officers and directors, and hold the offices set forth opposite their names.

Name
 
Age
 
Position
Anthony Macaluso
 
50
 
Executive Chairman and Director
James Orsini
 
49
 
Chief Executive Officer, President and Director
John Quinn
 
49
 
Chief Financial Officer
Richard Siber
 
51
 
Director
Stuart R. Levine
 
65
 
Director
Stephen D. Baksa
 
67
 
Director
Jonathan E. Sandelman
 
54
 
Director
 
Our Board of Directors consists of six members. Only our independent, non-executive directors receive any cash remuneration for acting as such. All directors may, however be reimbursed their expenses, if any, for attendance at meetings of the Board of Directors.

No family relationships exist between any of our present directors and officers.

The following is a brief account of the business experience during the past five years of each of our directors and executive officers:
 
Anthony Macaluso became our President, Chief Executive Officer, Chairman, and principal shareholder upon the closing of the acquisition of Single Touch Interactive, Inc. He founded Interactive in 2002, and from that time to May 2011, has had primary responsibilities for our operations and business and continues as a working Executive Chairman, Head of Strategy and of Research and Development. On May 16, 2011 he named James Orsini  as our Chief Executive Officer, President and Chief Financial Officer.
 
James Orsini joined us on May 16, 2011 as our Chief Executive Officer, President and Chief Financial Officer, and as a Director. From February 2006 to May 2011, Mr. Orsini served as Executive Vice President and Director of Finance and Operations at Saatchi & Saatchi New York, a marketing/advertising agency unit of Publicis Groupe S.A. Mr. Orsini received a Bachelor of Science in Business Administration degree from Seton Hall University, magna cum laude (1985), and is a Certified Public Accountant.

John Quinn joined us on September 26, 2011 as our Chief Financial Officer. Mr. Quinn was most recently Principal of ParenteBeard, LLC, an accounting and consulting firm. He was responsible for starting and was co-head of the Transaction Advisory Services group, which focused on M&A advisory and international tax consulting. Prior to joining ParenteBeard in 2010, Mr. Quinn was the New York based Chief Financial Officer of Financial Dynamics, a financial communications and investor relations consultancy. During his six-year tenure, Mr. Quinn was instrumental in converting an investor relations services provider into a full-service multinational and overseeing the sale and integration of Financial Dynamics to FTI Consulting, Inc. From 1997-2004 Mr. Quinn was a partner at Scarpati Quinn & Hennessey, LLP, where he was a key contributor to the rapid growth of the accounting firm into an advisory, consulting and international tax service provider. For the eight years prior, he was senior manager of M&A and tax at Saatchi & Saatchi, the global advertising and marketing giant. Mr. Quinn began his career as a senior associate at KPMG in 1986. Mr. Quinn holds a MBA in international finance from Columbia University’s Business School (1995) and graduated with a B.S. in accounting from the State University of New York (1986). He is a Certified Public Accountant.
 
 
 
17


 
Richard Siber became a director of ours upon the closing of the acquisition of Single Touch Interactive, Inc. in July 2008. Mr. Siber founded Siber Consulting LLC in July 2004 and presently serves as its Chief Executive Officer. Siber Consulting provides technical and marketing services to the wireless industry. From 1994 through June 30, 2008 Mr. Siber was a partner in the Communications & High Tech practice at Accenture, Ltd., where he helped manage Accenture’s worldwide wireless communications activities and was involved in all aspects of Accenture’s mobile and wireless practice, including its Service Delivery Platform. Throughout his career, Mr. Siber has provided a broad range of marketing, strategic and industry-oriented consulting services to mobile operators, equipment vendors and content providers worldwide in the wireless industry. His experience has included all wireless industry licensed and unlicensed technologies including Cellular, PCS, LMR, Paging, Narrowband and Broadband Mobile Data, WiFi, Wireless PBX, Wireless Local Loop, and Satellite. Mr. Siber is a frequent industry speaker and has chaired, moderated or spoken at more than 250 wireless conferences and forums worldwide. Mr. Siber has a Bachelor of Arts degree from Boston University (1983) and a Masters of Business Administration degree from Boston College (1990).

Stuart R. Levine was elected to the board of Single Touch Systems, Inc. on August 8, 2011.   Mr. Levine is the founder, Chairman and Chief Executive Officer of Stuart Levine and Associates LLC, an international management consulting and leadership development company.  From 1992 to 1996 he was Chief Executive Officer of Dale Carnegie & Associates, Inc, a provider of leadership, communication and sales skills training.  In 2011 and 2012, Mr. Levine was recognized by the National Association of Corporate Directors as one of the top 100 most influential people in governance within the United States.  Mr. Levine serves as a director of Broadridge Financial Solutions, Inc., a provider of investor communications, securities processing, and clearing and outsourcing solutions, where he serves as Chair of the Governance and Nominating Committee.  He is Lead Director of J. D’Addario & Company, Inc., a private manufacturer of musical instrument accessories.  He also serves on the board of North Shore-Long Island Jewish Health System.  In addition, Mr. Levine is the bestselling author of “The Leader in You” (Simon & Schuster 2004), “The Six Fundamentals of Success” (Doubleday 2004) and “Cut to the Chase” (Doubleday 2007).  Mr. Levine is the former Lead Director of Gentiva Health Services, Inc., a provider of home healthcare services, where he served from 2000 to 2009.  He also served as a director of European American Bank from 1995 to 2001 and The Olsten Corporation, a provider of staffing solutions, from 1994 to 2000.  Mr. Levine is a former Chairman of Dowling College, as well as a former Member of the New York State Assembly.
 
Specific experience, qualifications, attributes or skills:
 
 
Operating and management experience, including as chief executive officer of a global client services business

 
Public company directorship and committee experience

 
Frequent panel chair and participant in director education programs sponsored by the NACD

 
Independent of the Company

Stephen D. Baksa became a director of ours on November 1, 2011. Mr. Baksa was a General Partner at the Vertical Group from 1989 through 2010, a private equity and venture capital firm focused on the fields of medical technology and biotechnology. He is currently employed at the Vertical Group as an advisor/consultant.  For more than 30 years The Vertical Group has been an early stage investor and major shareholder of some of the medical technology industry’s most successful companies. Before Mr. Baksa joined The Vertical Group, he was co-founder of Paddington Partners, a firm engaged in special situation investing focused on public health care equities. Mr. Baksa holds an M.B.A. from The Rutgers School of Business (1969) and a B.A. in Economics from Gettysburg College (1967).
 
 
 
 
18


 
Jonathan E. Sandelman became a director of ours on December 10, 2012. Mr. Sandelman is the Chief Executive Officer, Founder, and Chief Investment Officer at Sandelman Partners, LP. He founded the firm on July 1, 2005. Mr. Sandelman is the President and Director at NMS Services Inc., NMS Services (Cayman) Inc., and BAC Services Inc. He was the President of the New York Office at Banc of America Securities LLC. Mr. Sandelman joined the firm in 1998 as the Head of Equity Financial Products and took charge of the equity department in 2002. He headed the firm's debt and equities business before becoming the President, a post that Mr. Sandelman held until October 20, 2004. He was the Deputy Head of Global Equities, Member of the Risk Management Committee, Member of the Compensation Committee, and Managing Director of Equity Derivatives at Salomon Brothers. Mr. Sandelman was a Director of Do Something and Impact Web Enterprises, Inc.  He holds a Bachelor of Arts and a Juris Doctor from Yeshiva University-Cardozo Law School.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that our directors and executive officers and persons who beneficially own more than 10% of our common stock (referred to herein as the “reporting persons”) file with the SEC various reports as to their ownership of and activities relating to our common stock. Such reporting persons are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based solely upon a review of copies of Section 16(a) reports and representations received by us from reporting persons, and without conducting any independent investigation of our own during the fiscal year ended September 30, 2012, Forms 3 and 4 were mostly timely filed with the SEC by such reporting persons, except for Anthony Macaluso, who has not yet filed Form 4 transaction information related to private transfers.

Code of Ethics

On December 1, 2004 we adopted a Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of our Code of Ethics will be provided to any person requesting same without charge. To request a copy of our Code of Ethics please make written request to our President c/o Single Touch Systems Inc. at 100 Town Square Place, Suite 204, Jersey City, NJ 07310.
 
Board of Directors
 
The Board of Directors currently consists of six members. During fiscal year 2012, the Board of Directors consisted of five members and met six times. Each director attended not less than 75% of the aggregate number of meetings.
 
Board Committees
 
The Board of Directors established an Audit Committee, a Compensation Committee and a Governance and Nominating Committee in fiscal year 2012. The current charters of each of the Audit Committee, Compensation Committee and Governance and Nominating Committee are available on our website located at www.singletouch.net. The information contained on our website is not a part of this proxy statement.
 
Audit Committee
 
The Audit Committee is currently comprised of Mr. Baksa (chairman), Mr. Siber and Mr. Levine. We believe all three of the members are “independent," as defined by SEC rules adopted pursuant to the requirements of the Sarbanes-Oxley Act of 2002.
 
The duties and responsibilities of the Audit Committee are set forth in the Audit Committee’s charter, as adopted by the Board of Directors in fiscal year ending September 30, 2012.
 
The Audit Committee oversees the financial reporting process for the Company on behalf of the Board of Directors and has other duties and functions as described in its charter.
 
 
 
19


 
Company management has the primary responsibility for the Company’s financial statements and the reporting process. The Company’s independent registered public accounting firm is responsible for auditing the Company’s financial statements and expressing an opinion as to their conformity with accounting principles generally accepted in the United States.

Our Audit Committee serves to monitor our financial reporting process and internal control system; retains and pre-approves audit and any non-audit services to be performed by our independent registered accounting firm; directly consults with our independent registered public accounting firm; reviews and appraises the efforts of our independent registered public accounting firm; and provides an open avenue of communication among our independent registered public accounting firm, financial and senior management and the Board of Directors.

The Audit Committee Chair reviewed and discussed our audited financial statements for the year ended September 30, 2012 with the Board of Directors.
 
The Board of Directors reviewed and discussed with representatives of Weaver, Martin & Samyn LLC, our independent registered public accounting firm, the matters required to be discussed by the Statement on Auditing Standards, as amended. The Board of Directors has also received and reviewed the written disclosures and the letter from Weaver, Martin & Samyn LLC, required by PCAOB rules, and the audit committee chair has discussed with Weaver, Martin & Samyn LLC, their independence.
 
Compensation Committee
 
The Compensation Committee is currently comprised of Mr. Siber (chairman), Mr. Baksa and Mr. Levine. We believe all three of the members are “independent," as defined by SEC rules adopted pursuant to the requirements of the Sarbanes-Oxley Act of 2002.
 
 The duties and responsibilities of the Compensation Committee are set forth in the Compensation Committee’s charter, as adopted by the Board of Directors in fiscal year ending September 30, 2012.
 
Among its duties, our Compensation Committee determines the compensation and benefits paid to our executive officers, including our President, Chief Executive Officer and our Executive Chairman.
 
Our Compensation Committee reviews and determines salaries, bonuses and other forms of compensation paid to our executive officers and management, approves recipients of stock option awards and establishes the number of shares and other terms applicable to such awards.
 
Our Compensation Committee also determines the compensation paid to our Board of Directors, including equity-based awards. More information about the compensation of our non-employee directors is set forth in the section of this Annual Report titled “Director Compensation.”
 
Governance and Nominating Committee
 
The Governance and Nominating Committee is currently comprised of Mr. Levine (chairman), Mr. Baksa and Mr. Siber. We believe all three of the members are “independent," as defined by SEC rules adopted pursuant to the requirements of the Sarbanes-Oxley Act of 2002.
 
 The duties and responsibilities of the Governance and Nominating Committee are set forth in the Governance and Nominating Committee’s charter, as adopted by the Board of Directors in fiscal year ending September 30, 2012.
 
Our Corporate Governance and Nominating Committee is charged with recommending the slate of director nominees for election to the Board of Directors, identifying and recommending candidates to fill vacancies on the Board, and reviewing, evaluating and recommending changes to our corporate governance processes. Among its duties and responsibilities, the Corporate Governance and Nominating Committee periodically evaluates and assesses the performance of the Board of Directors; reviews the qualifications of candidates for director positions; assists in identifying, interviewing and recruiting candidates for the Board; reviews the composition of each committee of the Board and presents recommendations for committee memberships; and reviews and recommends changes to the charter of the Governance and Nominating Committee and to the charters of other Board committees.
 
 
 
20

 
 
The process followed by the Governance and Nominating Committee to identify and evaluate candidates includes (i) requests to Board members, our Chief Executive Officer, and others for recommendations; (ii) meetings from time to time to evaluate biographical information and background material relating to potential candidates and their qualifications; and (iii) interviews of selected candidates. The Corporate Governance and Nominating Committee also considers recommendations for nomination to the Board of Directors submitted by shareholders.
 
In evaluating the suitability of candidates to serve on the Board of Directors, including shareholder nominees, the Governance and Nominating Committee seeks candidates who are “independent," as defined by SEC rules adopted pursuant to the requirements of the Sarbanes-Oxley Act of 2002 and who meet certain selection criteria established by the Governance and Nominating Committee.
 
Risk Oversight

The Board of Directors is responsible for the oversight of the Company’s risk management efforts. While the full Board of Directors is ultimately responsible for this oversight function, individual committees may consider specific areas of risk from time to time as directed by the Board. Members of management responsible for particular areas of risk for the Company provide presentations, information and updates on risk management efforts as requested by the Board or a Board committee.

Item 11.  Executive Compensation

The following table sets forth information concerning the total compensation paid or accrued by us during the two fiscal years ended September 30, 2012 to:

 
all individuals who served as our chief executive officer, chief financial officer or acted in a similar capacity for us at any time during the fiscal year ended September 30, 2012 and
 
 
all individuals who served as executive officers of ours at any time during the fiscal year ended September 30, 2012 and received annual compensation during the fiscal year ended September 30, 2012 in excess of $100,000.
 
SUMMARY COMPENSATION TABLE

Position
 
Year
   
Salary ($)
   
Bonus ($)
   
Stock Awards ($)
   
Option Awards ($)
   
Total ($)
 
                                                 
Anthony Macaluso
Executive Chairman
   
2012
2011
     
385,000
322,582
     
0
0
     
0
2,700,000
     
142,237
205,182
     
527,237
3,227,764
 
                                                 
James Orsini
Chief Executive Officer
   
2012
2011
     
385,000
144,375
     
0
25,000
     
0
260,000
     
138,600
0
     
523,610
429,375
 
                                                 
John Quinn
Chief Financial Officer
   
2012
2011
     
225,000
4,327
     
0
0
     
0
30,000
     
17,375
0
     
242,385
34,327
 
                                                 
Note: The table above includes only the value of options that vested during the periods indicated. The listed executives may have unvested options that may vest in a future period. See “Outstanding Equity Awards at Fiscal Year-End” below.  
 
 
Employment Agreements and Benefits

Other than health insurance, we do not currently provide any employee benefit or retirement programs.  Our officers’ salaries are determined by the Board of Directors.  Officers and employees may receive bonuses from time to time in the form of cash or equity at the sole discretion of the Board of Directors.
 
 
 
21


 
We have no plans in place and have never maintained any plans that provide for the payment of retirement benefits or benefits that will be paid primarily following retirement including, but not limited to, tax qualified deferred benefit plans, supplemental executive retirement plans, tax-qualified deferred contribution plans and nonqualified deferred contribution plans.

Employment / Severance / Change-in-Control Agreements
 
Anthony Macaluso - On June 3, 2011, we entered into an employment letter agreement with Anthony Macaluso, as our executive Chairman, effective as of June 1, 2011. The agreement is for a three-year term, with successive two-year renewals unless either party elects against renewal. Mr. Macaluso is entitled to a $385,000 annual salary, subject to possible increases. Mr. Macaluso can also receive discretionary cash bonuses. We also agreed in the employment letter agreement to grant Mr. Macaluso certain stock options under our 2010 Stock Plan.

In full satisfaction of all obligations under the employment letter agreement to grant stock options to Mr. Macaluso, and after taking account of certain remissions, we granted Mr. Macaluso on June 1, 2011 a total of 4,500,000 stock options under our 2010 Stock Plan, with 1,500,000 of the options (at an exercise price of $0.65 per share) vesting on May 16, 2012, 1,500,000 of the options (at an exercise price of $0.90 per share) vesting on May 16, 2013 and 1,500,000 of the options (at an exercise price of $0.90 per share) vesting on May 16, 2014.

If Mr. Macaluso is terminated without cause or due to disability, or if he resigns for good reason (all as defined in the employment letter agreement) or if we elect not to renew his employment term, then upon giving us a release he shall be entitled to one year of salary continuation and one year of COBRA premiums payments. Also, if we are acquired or if he is terminated without cause or if he resigns for good reason (all as defined in the employment letter agreement) during Mr. Macaluso’s employment, all his unvested stock options would immediately vest.

In addition, if we terminate Mr. Macaluso’s employment without cause or due to disability or if he resigns for good reason, he would be entitled to exercise any of the 4,500,000 stock options until three years after the termination date (or, if earlier, the expiration of the options).
 
Mr. Macaluso, participated in the November 2012 plan where we modified the terms of stock options granted to certain employees, officers, directors, and active 3rd party service providers. As a result 3,000,000 options exercisable at $0.90 per share granted pursuant to his employment agreement were reduced to 2,550,000 options exercisable at $0.469 per share. Additional options granted in 2010 were reduced from 50,000 options exercisable at $1.375 per share to 40,000 exercisable at $0.469 per share and 1,200,000 options exercisable at $0.90 per share to 1,020,000 exercisable at $0.469 per share.

On December 6, 2012, for extraordinary service to the Company to date for work related to Single Touch Systems R&D I.P, Inc., we granted options to Mr. Macaluso to purchase 2,099,400 shares of our common stock at a price of $0.469 per share. The options immediately vested and expire on December 1, 2017.

James Orsini- On March 10, 2011, we entered into an employment letter agreement with James Orsini, who began employment as our Chief Executive Officer, President and Chief Financial Officer on May 16, 2011. The agreement (as amended on May 16, 2011) is for a three-year term, with successive two-year renewals unless either party elects against renewal. Mr. Orsini is entitled to a $385,000 annual salary, subject to possible increases. Mr. Orsini can also receive discretionary cash bonuses, and after three months of employment he was entitled to and did receive a $25,000 payment in respect of certain expenses. In addition, the agreement called for us to grant to him (and we accordingly did grant to him) 4,500,000 stock options under our 2010 Stock Plan; with one-third (with an exercise price of $0.63 per share) vesting on the first anniversary of his employment start date, one-third (with an exercise price of $0.90 per share) vesting on the second anniversary of his employment start date, and one-third (with an exercise price of $0.90 per share) vesting on the third anniversary of his employment start date. Vesting of his stock options shall accelerate if we experience a change in majority control. Mr. Orsini agreed not to compete with us during his employment and for two years thereafter.
 
 
 
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If we terminate Mr. Orsini’s employment without cause or for disability or if he resigns for good reason (as those terms are defined in the agreement), or if we elect not to enter into a renewal term of the employment letter agreement, he will receive one year of salary continuation and one year of COBRA premium payments. In addition, if we terminate Mr. Orsini’s employment without cause or if he resigns for good reason, he would be entitled to exercise any of the 4,500,000 stock options which had vested as of the termination date, until three years after the termination date (or, if earlier, the expiration of the options).

If we experience a change in majority control (as defined in the agreement) during Mr. Orsini’s employment, all his unvested stock options would immediately vest.

Mr. Orsini, participated in the November 2012 plan where we modified the terms of stock options granted to certain employees, officers, directors, and active 3rd party service providers. As a result 3,000,000 options exercisable at $0.90 per share granted pursuant to his employment agreement were reduced to 2,550,000 options exercisable at $0.469 per share.
 
John Quinn - On September 26, 2011, we entered into an employment letter agreement with John Quinn, as our Chief Financial Officer, effective as of September 26, 2011. Pursuant to the agreement we pay Mr. Quinn an annual salary of $225,000.  The Agreement also calls for successive one-year renewals unless either party elects against renewal.  Mr. Quinn can also receive discretionary cash bonuses.
 
We also agreed to grant Mr. Quinn 100,000 shares of our common stock under our 2009 Employee and Consultant Stock Plan, subject to the following restriction:  all of such shares would have been forfeited to us if Mr. Quinn’s employment with us ceased for any reason; such restrictions and risk of forfeiture cliff-lapsed on December 25, 2011.
 
We also agreed to grant Mr. Quinn a total of 1,500,000 upfront stock options under our 2008 Stock Option Plan with 500,000 of the options (at an exercise price of $0.65 per share) vesting after one year of service, 500,000 of the options (at an exercise price of $0.90 per share) vesting after two years of service and 500,000 of the options (at an exercise price of $0.90 per share) vesting after three years of service.
 
Under the Agreement, if Mr. Quinn is terminated without cause or due to his disability, or if he resigns for good reason (all as defined in the Agreement) or if we elect not to renew his employment term, then upon giving us a release he shall be entitled to six months of salary continuation and six months of COBRA premiums payments.  Also, vesting of his stock options shall accelerate if Mr. Quinn is terminated without cause or if he resigns for good reason, or if we are acquired.
 
Mr. Quinn, participated in the November 2012 plan where we modified the terms of stock options granted to certain employees, officers, directors, and active 3rd party service providers. As a result 1,000,000 options exercisable at $0.90 per share granted pursuant to his employment agreement were reduced to 850,000 options exercisable at $0.469 per share.
 
 
 
 
 
 
23

 
 
Equity Compensation

The following table reflects information for our executive officers named in the Summary Compensation Table, effective September 30, 2012.

Outstanding Equity Awards at Fiscal Year-End

Name
 
Number of securities
underlying unexercised
options exercisable (#)
 
Number of securities
underlying unexercised
options unexercisable (#)
 
Option exercise
price($)
 
Option expiration
date
Anthony Macaluso
 
50,000
1,200,000
 
-
-
 
1.38
0.90
 
7/28/2013
12/9/2013
   
750,000
1,500,000
-
-
 
-
-
1,500,000
1,500,000
 
0.65
0.65
0.90
0.90
 
6/1/2016
6/1/2016
6/1/2016
6/1/2016
                 
James Orsini
 
1,500,000
-
 
-
1,500,000
 
0.63
0.90
 
5/16/2016
5/16/2016
   
-
 
1,500,000
 
0.90
 
5/16/2016
                 
John Quinn
 
500,000
-
-
 
-
500,000
500,000
 
0.65
0.90
0.90
 
9/26/2014
9/26/2014
9/26/2014
                 
_____________
Note: The table above does not reflect modifications to outstanding options made subsequent to the year ended September 30, 2012. See “Employment Agreements and Benefits” above.

Director Compensation

On August 8, 2011, the Company appointed Stuart R. Levine to serve on its Board of Directors. Pursuant to the appointment letter agreement with him dated August 8, 2011 (the “Levine Agreement”), the Company will pay Mr. Levine an annual cash stipend of $20,000 (in quarterly increments). The Company also granted Mr. Levine 200,000 stock options under the Company’s 2010 Stock Plan exercisable at $0.331 per share, which fully vested on August 8, 2012. Such stock options will remain exercisable until the earlier of the scheduled expiration date or 18 months after the cessation of service, whichever is sooner. In addition, the Company issued Mr. Levine 25,000 shares of its common stock valued at their respective market value on date of grant totaling $7,000.

On August 23, 2012, the Company granted Stuart Levine options to purchase a total of 250,000 shares of the Company’s common stock at a price $0.325 per share. 50,000 of these options were granted as compensation for acting as a chairman of committee. The options expire on August 22, 2017 and immediately vested upon grant. Such stock options will remain exercisable until the earlier of the scheduled expiration date or 18 months after the cessation of service, whichever is sooner.

On August 8, 2011, Pursuant to the letter agreement with him dated August 8, 2011 (the “Siber Agreement”), the Company will pay Mr. Siber an annual cash stipend of $20,000 (in quarterly increments). The Company also granted Mr. Siber 200,000 stock options under the Company’s 2010 Stock Plan exercisable at $0.331 per share, which fully vest on August 8, 2012, subject to continuation of service. Such stock options would, if vested on the date of cessation of service, remain exercisable until the earlier of the scheduled expiration date or 18 months after the cessation of service, whichever is sooner.

On August 23, 2012, the Company granted Richard Siber options to purchase a total of 250,000 shares of the Company’s common stock at a price $0.325 per share. 50,000 of these options were granted as compensation for acting as a chairman of committee. The options expire on August 22, 2017 and immediately vested upon grant. Such stock options will remain exercisable until the earlier of the scheduled expiration date or 18 months after the cessation of service, whichever is sooner.
 
 
 
24


 
On November 1, 2011, the Company appointed Stephen D. Baksa to serve on its Board of Directors. Pursuant the appointment letter agreement with him dated November 1, 2011 (the “Baksa Agreement”), we will pay Mr. Baksa an annual cash stipend of $20,000 (in quarterly increments). The Company also granted to Mr. Baksa 200,000 five-year stock options under our 2010 Stock Plan, which annual options would vest in one lump amount one year after they are granted, subject to continuation of service. Such stock options would, if vested on the date of cessation of service, remain exercisable until the earlier of the scheduled expiration date or 18 months after the cessation of service, whichever is sooner. As contemplated by the Baksa Agreement, we granted such 200,000 stock options to Mr. Baksa effective November 1, 2011. The exercise price of the stock options is $0.225 per share.

On August 23, 2012, the Company granted Stephen Baksa options to purchase a total of 50,000 shares of the Company’s common stock at a price $0.325 per share. These options were granted as compensation for acting as a chairman of a committee. The options expire on August 22, 2017 and immediately vested upon grant. Such stock options will remain exercisable until the earlier of the scheduled expiration date or 18 months after the cessation of service, whichever is sooner.

On November 29, 2012, the Company granted Stephen Baksa options to purchase a total of 200,000 shares of the Company’s common stock at a price $0.389 per share. The options expire on November 28, 2017 and immediately vested upon grant. Such stock options will remain exercisable until the earlier of the scheduled expiration date or 18 months after the cessation of service, whichever is sooner.

On December 10, 2012, pursuant to the letter agreement with him dated December 10, 2012 (the “Sandelman Agreement”), the Company will pay Mr. Sandelman an annual cash stipend of $20,000 (in quarterly increments). The Company also granted Mr. Sandelman 200,000 stock options under the Company’s 2008 Stock Plan exercisable at $0.446 per share. The options expire on December 10, 2017 and immediately vested upon grant. Such stock options will remain exercisable until the earlier of the scheduled expiration date or 18 months after the cessation of service, whichever is sooner.

Effective August 23, 2012, our non-employee Board members receive $250 per meeting, Committee or Board, in-person or telephonic. This compensation is in addition to the $20,000 per year compensation for regular board service by the non-employee Directors. There are currently no other regular cash compensation arrangements in place for members of the Board of Directors acting as such.  Directors may however be reimbursed their expenses, if any, for attendance at meetings of the Board of Directors.

The following table sets forth compensation received by our directors in fiscal year ended September 30, 2012.

Name
 
Fees earned or
paid in cash ($)
   
Stock awards ($)
   
Option awards ($)
   
All other
compensation ($)
   
Total ($)
 
Anthony Macaluso(2)
    0       0       0       0       0  
James Orsini(1)
    0       0       0       0       0  
Richard Siber
    20,750       0       22,359       0       43,109  
Stuart R. Levine
    20,000       0       22,359       0       42,359  
Stephen D. Baksa
    18,315       0       8,838       0       27,153  

(1)
This table includes only his compensation which was expressly for service as a director.  Mr. Orsini received other compensation as an executive officer—see the Summary Compensation Table above.
(2)
This table includes only his compensation which was expressly for service as a director.  Mr. Macaluso received other compensation as an executive officer—see the Summary Compensation Table above.
 
 

 

 
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Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth, as of December 21, 2012, the beneficial ownership of Single Touch Systems Inc. common stock by each of our directors and named executive officers, each person known to us to beneficially own more than 5% of our common stock, and by the officers and directors of the Company as a group.  Except as otherwise indicated, all shares are owned directly.  Unless otherwise indicated in the footnotes to the following table, each person named in the table has sole voting and investment power (subject to applicable community property laws) and that person’s address is c/o Single Touch Systems Inc., 100 Town Square Place, Suite 204, Jersey City, NJ 07310.  Shares of Common Stock subject to options, warrants, or convertible notes currently exercisable or convertible or exercisable or convertible within 60 days after December 21, 2012 are deemed outstanding for computing the share ownership and percentage of the person holding such options, warrants, or convertible notes but are not deemed outstanding for computing the percentage of any other person.

   
Shares
   
Percentage
 
Anthony Macaluso (1)
   
34,582,526
     
21.6
%
Richard Siber (2)
   
3,055,000
     
2.6
%
James Orsini (12)
   
1,900,000
     
1.4
%
Medical Provider Financial Corporation IV (3)
   
12,700,000
     
9.6
%
John Quinn(9)
   
600,000
     
0.5
%
Nicole Macaluso (1)(5)
   
23,267,219
     
17.4
%
Mike Robert (6)
   
9,774,370
     
7.2
%
Stephen D. Baksa (4)
   
8,315,034
     
6.1
%
Stuart R. Levine (8)
   
475,000
     
0.4
%
Jonathan E. Sandelman (10)
   
3,575,000
     
2.7
%
Peltz Capital Management LLC (11)
   
7,975,000
     
5.7
%
                 
Officers and Directors as a Group (7 persons) (7)
   
52,502,560
     
31.4
%

(1)
Includes 4,639,400 shares underlying stock options, 1,250,000 shares underlying warrants. Also includes 21,997,219 shares owned directly or as custodian by Nicole Macaluso, which Mr. Macaluso has the right to vote pursuant to a proxy. Mr. Macaluso holds 3,395,907 shares in his own name. Mr. Macaluso disclaims beneficial ownership of the shares owned by Nicole Macaluso. Does not include 3,300,000 shares underlying stock options not exercisable within 60 days.
(2)
Includes 3,040,000 shares underlying stock options.
(3)
The address for Medical Provider Financial Corporation IV is 2100 South State College Boulevard, Anaheim, CA 92806. Thomas Seaman is now acting as receiver.
(4)
Includes shares held by him directly and in trust. Includes 450,000 shares underlying stock options, 1,100,000 shares underlying warrants and 1,000,000 shares convertible pursuant to a promissory note.
(5)
The address for Ms. Macaluso is P. O. Box 1318, Rancho Santa Fe, CA 92067. Includes 20,000 shares underlying stock options and 1,250,000 shares underlying warrants. Ms. Macaluso holds 21,747,219 shares in her name and 250,000 shares as custodian for children. Other than the shares listed in the table next to her name, Ms. Macaluso disclaims beneficial ownership of the shares beneficially owned by Anthony Macaluso.
(6)
The address for Mr. Robert is 4831 Mt. Longs Drive, San Diego, CA 92117. Includes 2,750,000 shares underlying warrants issued by us.
(7)
Includes Messrs. Macaluso, Siber, Orsini, Baksa, Levine, Sandelman and Quinn.
(8)
Includes 450,000 shares underlying stock options.
(9)
Includes 500,000 shares underlying stock options. Does not include 850,000 shares underlying stock options not exercisable within 60 days.
(10)
Includes 200,000 shares underlying stock options.
(11)
The address for Peltz Capital Management LLC is 9601 Wilshire Boulevard, Beverly Hills, CA 90210.  Includes 250,000 shares held directly, 1,975,000 shares underlying stock options from us and 5,750,000 shares underlying options from Mr. Macaluso.
(12)
Includes 1,500,000 shares underlying stock options.  Does not include 2,550,000 shares underlying stock options not exercisable within 60 days.
 
 
 
 
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Item 13.  Certain Relationships and Related Transactions, and Director Independence
 
2010 Macaluso/Activate Consolidation and Modification - 2009 Debt - In fiscal 2009, Activate, Inc., which is an affiliate of Anthony Macaluso, made loan advances of $894,500 to us, at 8% interest per annum. We repaid $99,081 in fiscal 2009 and $504,000 in fiscal 2010. In June 2009, Activate, Inc. purchased from a third party a $250,000 promissory note, bearing 10% interest per annum, which we had issued.
 
  On June 28, 2010, we issued Activate, Inc. a new convertible promissory note with a principal amount of $633,651, which represented $291,397 of outstanding loan advances, plus the $54,170 of accrued but unpaid interest on the loan advances, plus the $250,000 principal amount of the purchased promissory note, plus the $29,787 of accrued but unpaid interest on the purchased $250,000 promissory note, plus the $8,297 of accrued but unpaid interest on the converted $73,445 convertible promissory note. The new note was to mature on June 27, 2011, accrued interest at an annual rate of 1% and was convertible at the holder’s option into our common stock at $0.37 per share. We prepaid, in February and April 2011, the entire principal amount of and all accrued interest on this new note.
 
Macaluso 2010 Debt Conversion - On or shortly after June 28, 2010, Anthony Macaluso and his former spouse, Nicole Macaluso, converted a convertible promissory note’s principal balance of $2,319,512 into 28,993,896 shares of our common stock. Anthony Macaluso received 13,773,992 of these shares issued.
 
 On June 28, 2010, we issued Anthony Macaluso a new convertible promissory note with a principal amount of $155,531, which represented $123,581 of accrued compensation (net of payroll taxes) plus the $31,950 accrued but unpaid interest due him on the converted $2,319,512 convertible promissory note. The new note matured on June 27, 2011, accrued interest at an annual rate of 1% and was convertible at the holder’s option into our common stock at $0.37 per share. We repaid, in May and June 2011, the entire principal amount of and all accrued interest on this new note. On June 28, 2010, Activate, Inc. converted a convertible note’s principal balance of $73,445 into 918,063 shares of our common stock.
 
Soapbox Mobile, Inc. Related-Party Arrangements - Anthony Macaluso is the preferred shareholder of Soapbox Mobile, Inc. (“Soapbox”, which provided the use of certain equipment and software to us from February 2008 through June 2010 at a monthly rate of $4,000 and had been providing them to us from July 1, 2010 to June 30, 2011 at a monthly rate of $7,500. On June 30, 2011, we entered into an agreement with Anthony Macaluso whereby the Company was granted an option to acquire his majority interest in Soapbox. Under the terms of the option grant, we were required to pay and did a deposit of $155,000 which was to be refunded in the event the acquisition did not close. Under the option agreement both parties had the opportunity to perform due diligence necessary to determine the value of the majority interest and perform other actions necessary to complete the acquisition.

On March 30, 2012, we were granted an exclusive perpetual license to utilize the “Anywhere” software and related source code from Soapbox. Under the terms of the underlying agreement, we issued 200,000 shares of its common stock to Soapbox and paid $30,000 in April 2012. All of the consideration paid was distributed to eight individuals comprising all of the common shareholders of Soapbox pursuant to instructions from Soapbox. We valued the license at $76,000, comprising of the fair value of the 200,000 shares on date of grant ($46,000) and the $30,000 of cash. The license, by its terms, has an indefinite life and is therefore not subject to amortization. Our Executive Chairman owns a majority preferred interest in Soapbox and received no portion of the consideration paid.

On November 27, 2012 we entered into a Settlement and Mutual Special Release with our Executive Chairman as final global settlement of any and all outstanding matters related to Anthony Macaluso’s ownership and control relationship in Soapbox Mobile, including any and all claims he may have individually related to or on behalf of Soapbox in any capacity held by him formerly or currently. Macaluso claimed his personal capital outlay for his ownership interest in Soapbox Mobile was $755,000, made primarily due to their Anywhere software platform.  We agreed to total consideration of $755,000, which included the $155,000 received related to the original Option Agreement from June 2011.
 
Baksa 2011 Convertible Note and Warrants Purchase - On November 14, 2011, one of our Directors, Stephen Baksa purchased from us a $500,000 promissory note and 1,000,000 warrants, in exchange for $500,000 cash.  The note bears interest at 10% per annum and matures in one year, and is convertible into our common stock at $0.50 per share. The warrants have an exercise price of $0.25 per share and expire in three years.
 
 
 
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Baksa Convertible Note and Warrants 2012 Modification – In support of a private offering by us that began in September of 2012, one of our Directors, Stephen Baksa agreed to modify his outstanding Note and Warrants at the our request. The modified notes bear interest at a rate of 10% per annum. Principal and any unpaid accrued interest are fully due on September 7, 2014. Outstanding principal is convertible into shares of our common stock at a conversion rate of $0.50 per share. The warrants are exercisable at price of $0.25 per share and expire on September 7, 2015. The modifications are consistent with the terms of the notes and warrants issued in our September 2012 offering which was completed in October 2012.
 
Outstanding Current Service Provider High-Exercise-Price Plan Options - In November 2012, we modified the terms of stock options granted to certain employees, officers, directors, and active 3rd party service providers. Under the modified terms, we reduced the number of shares to be purchased under these option grants from a total of 17,134,334 shares to a total of 14,534,934 shares with a reduction in the purchase price on these grants from original prices ranging from $1.375 to $0.90 per share to $0.469 per share. A breakdown of the modified grants is as follows:
 
   
Shares under
   
Shares under
 
   
Original
   
Modified
 
   
Grant
   
Grant
 
Employees
    5,809,334       4,914,934  
Officers and directors
    11,300,000       9,600,000  
Outside legal counsel
    25,000        20,000  
      17,134,334       14,534,934  
 
The modifications to options held by our officers are listed in Item 11 “Executive Compensation” of this report on Form 10-K. In addition to reducing the number of options previously granted at the reduced purchase price, Messrs. Macaluso and Orsini voluntarily agreed to amend their stock options to defer vesting of already vested options related to their employment agreements and half of their unvested options for an additional six months.

 Richard Siber, a Company director, participated in the plan and as a result options granted in 2010 were reduced from 3,000,000 options exercisable at $0.90 per share to 2,550,000 exercisable at $0.469 per share. Additional options granted in 2010 were reduced from 50,000 options exercisable at $1.375 per share to 40,000 exercisable at $0.469 per share.

Peltz Capital Management, LLC Consulting Services 2012 - On October 15, 2012 our Executive Chairman granted an option to purchase up to 3,750,000 shares personally held by him, at an exercise price of $0.295 per share to Peltz Capital Management, LLC in connection with Consulting services to be provided to the Company’s Executive Chairman. Further, the personal grant by the Executive Chairman also included a registration rights agreement whereby we are obligated to register the shares underlying the options at our expense. We are receiving a direct benefit from the services rendered by the consultant and have recorded the fair value of the option grant as contributed capital in the amount of $549,750.  Pursuant to the Agreement, the option vested immediately and expire two years form the date of grant. Additionally, services are to be rendered by the consultant for a period equal to the life of the option as a result, the fair value of the option will be amortized on a straight line basis over the two-year life of the grant.

On December 7, 2012 our Executive Chairman granted a further option to purchase up to 2,000,000 shares personally held by him, at an exercise price of $0.48 per share to Peltz Capital Management, LLC in connection with Consulting services to be provided to Company’s Executive Chairman. Further, the personal grant by the Executive Chairman also included a registration rights agreement whereby we are obligated to register the shares underlying the options at our expense.  We are receiving a direct benefit from the services rendered by the consultant and have recorded the fair value of the option grant as contributed capital in the amount of $371,800.  Pursuant to the Agreement, the option vested immediately and expires two years form the date of grant. Additionally, services are to be rendered by the consultant for a period equal to the life of the option as a result, the fair value of the option will be amortized on a straight line method over the two-year life of the grant.



 
28


 
Director Independence
 
Our Board of Directors presently consists of six members. Our Board of Directors has determined that each of Mr. Baksa, Mr. Siber and Mr. Levine are “independent," as defined by SEC rules adopted pursuant to the requirements of the Sarbanes-Oxley Act of 2002.  Although our stock is not listed for trading on the Nasdaq Stock Market at this time, we are required to determine the independence of our directors by reference to the rules of a national securities exchange or of a national securities association (such as the Nasdaq Stock Market).  In accordance with these requirements, we have determined that Richard Siber, Stuart R. Levine and Stephen D. Baksa are "independent directors," as determined in accordance with Rule 4200(a)(15) of the Marketplace Rules of the Nasdaq Stock Market, Inc.
 
Mr. Macaluso and Mr. Orsini  are executive officers of the Company, and therefore are not independent directors. Mr. Sandelman has recently joined the Board and as such it has not yet made a formal determination regarding independence.
 
Item 14.  Principal Accountant Fees and Services

Audit Fees

The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements and review of financial statements included in the registrant's Form 10-K or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years ending September 30, 2012 and 2011 were: $55,000 and $63,960, respectively.

Audit-Related Fees

No aggregate fees were billed in either of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of the registrant's financial statements and are not reported under item (1) for the fiscal years ending September 30, 2012 and 2011.

Tax Fees

No aggregate fees were billed for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning for the fiscal years ending September 30, 2012 and 2011.

All Other Fees

No other fees were billed for professional services provided by the principal accountant, other than the services reported above, for the fiscal years ending September 30, 2012 and 2011.

Audit Committee Pre-Approval Policies
 
Our Audit Committee by their Chair has approved the principal accountant's performance of services for the audit of the registrant's annual financial statements and review of financial statements included in our Form 10-K or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal year ending September 30, 2012.  Audit-related fees, tax fees, and all other fees, if any, were approved by the Audit Committee Chair.
 
Work Performed by Others

The percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was less than 50 percent.
 
 
 
29


 
PART IV

Item 15.  Exhibits and Financial Statement Schedules

(a)(1) The following financial statements are included in Item 8 of Form 10-K:

 
Page
F - 1
Financial Statements  
    Consolidated Balance Sheets as of September 30, 2012 and 2011 F - 2
    Consolidated Statements of Operations for the years ended September 30, 2012 and 2011 F - 4
    Consolidated Statements of Cash Flows for the years ended September 30, 2012 and 2011 F - 5
    Statement of Stockholders’ (Deficit) for the years ended September 30, 2012 and 2011 F - 8
    Notes to Consolidated Financial Statements F - 9

(a)(2) Financial Statement Schedules:  
 
All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.

(a)(3) Exhibits.
 
The information required by this Item is set forth on the exhibit index that follows the signature page of this report.
____________
 
 
 

 

 
30

 
 
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
SINGLE TOUCH SYSTEMS INC.
 
     
       
 
By:
/s/  James Orsini            
    James Orsini  
    Chief Executive Officer and President  
       
       
  By: /s/  John Quinn         
    John Quinn  
   
Chief Financial Officer
 
 
 
Date: December 31, 2012
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

Signature   Title   Date  
           
/s/  Anthony Macaluso   Director   December 31, 2012  
Anthony Macaluso
         
           
/s/  James Orsini
 
Director
 
December 31, 2012
 
James Orsini
         
           
/s/  Richard Siber
 
Director
 
December 31, 2012
 
Richard Siber
         
           
   
Director
     
Stuart R. Levine
         
           
/s/  Stephen d. Baksa    Director   December 31, 2012  
Stephen D. Baksa          
           
    Director      
Jonathan E. Sandelman          
 
 
 
 
 
31

 
 
INDEX TO FINANCIAL STATEMENTS

 
Page
F - 1
Financial Statements  
    Consolidated Balance Sheets as of September 30, 2012 and 2011 F - 2
    Consolidated Statements of Operations for the years ended September 30, 2012 and 2011 F - 4
    Consolidated Statements of Cash Flows for the years ended September 30, 2012 and 2011 F - 5
    Statement of Stockholders’ (Deficit) for the years ended September 30, 2012 and 2011 F - 8
    Notes to Consolidated Financial Statements F - 9

 
 
 
 
 
 
 
 
 
 
 
 
 
32

 
 
Index to Exhibits


Exhibit No.
 
Description
     
3.1
 
Certificate of Incorporation of Hosting Site Network, Inc. (currently known as Single Touch Systems Inc.) Incorporated by reference to Exhibit 3.1 to the registrant’s Registration Statement on Form SB-2, filed November 8, 2001.
3.2
 
Certificate of Amendment to Certificate of Incorporation of Hosting Site Network, Inc. (currently known as Single Touch Systems Inc.) 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.
3.3
 
Certificate of Amendment to Certificate of Incorporation of Hosting Site Network, Inc. (currently known as Single Touch Systems Inc.) Incorporated by reference to Exhibit 3.3 to the registrant’s Current Report on Form 8-K, filed July 31, 2008.
3.4
 
Amended and Restated Bylaws of Hosting Site Network, Inc. (currently known as Single Touch Systems Inc.) 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.
10.1
 
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. Incorporated by reference to Exhibit 10.2 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.2
 
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. Incorporated by reference to Exhibit 10.2.1 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
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. Incorporated by reference to Exhibit 10.3 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.4
 
Services Agreement 20071210.103.C Between Single Touch Interactive, Inc. and AT&T Services, Inc. dated April 11, 2008. Incorporated by reference to Exhibit 10.6 to the registrant’s Annual Report on Form 10-K, filed January 14, 2010.
10.4.1
 
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. Incorporated by reference to Exhibit 10.7 to the registrant’s Annual Report on Form 10-K, filed January 14, 2010.
10.4.2
 
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. Incorporated by reference to Exhibit 10.6.2 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.5+
 
2008 Stock Option Plan for Single Touch Systems Inc. (formerly Hosting Site Network, Inc.) Incorporated by reference to Exhibit 10.10 to the registrant’s Current Report on Form 8-K, filed July 31, 2008.
10.5.1+
 
Form of Notice of Stock Option Grant/Stock Option Agreement under 2008 Stock Option Plan. Incorporated by reference to Exhibit 10.7.1 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.6
 
Non-Exclusive Special Advisory Services Agreement between Peltz Capital Management, LLC and us, dated October 30, 2008. Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K, filed November 5, 2008.
10.6.1
 
Form of Warrant issued by us in favor of Peltz Capital Management, LLC, dated October 30, 2008. 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
 
 
 
 
 
 
Exhibit No.
 
Description
     
10.6.2
 
Form of Registration Rights Agreement between Peltz Capital Management, LLC and us, dated October 30, 2008. Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K, filed November 5, 2008. The form of Registration Rights Agreement is attached thereto as Exhibit B.
10.6.3
 
Settlement and Release Agreement, among Peltz Capital Management, LLC, Anthony Macaluso and Single Touch Systems, Inc., effective September 29, 2010. Incorporated by reference to Exhibit 10.33 to the registrant’s Annual Report on Form 10-K, filed December 29, 2010.
10.7+
 
2009 Employee and Consultant Stock Plan. 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.
10.7.1+
 
Form of stock grant acknowledgement letter under 2009 Employee and Consultant Stock Plan. Incorporated by reference to Exhibit 10.16.1 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.8
 
Common Stock Purchase Agreement, between Mike Robert and us, dated January 7, 2010. Incorporated by reference to Exhibit 10.20 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.8.1
 
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. Incorporated by reference to Exhibit 10.20.1 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.9
 
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. Incorporated by reference to Exhibit 10.22 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.9.1
 
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. Incorporated by reference to Exhibit 10.22.1 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.10
 
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. Incorporated by reference to Exhibit 10.22.2 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.11
 
Convertible Promissory Note ($500,000) issued by us in favor of Mike Robert, dated March 12, 2010. Incorporated by reference to Exhibit 10.23 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.11.1
 
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. Incorporated by reference to Exhibit 10.24 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.12
 
Confidential Patent Purchase Agreement among Microsoft Corporation, Microsoft Licensing, GP and Single Touch Interactive, Inc., dated March 15, 2010. Incorporated by reference to Exhibit 10.8 to the registrant’s Quarterly Report on Form 10-Q, filed May 14, 2010.
10.13
 
Form of Common Stock Purchase Agreement.  We entered into respective agreements on this form with 29 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. Incorporated by reference to Exhibit 10.29 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.13.1
 
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. Incorporated by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K, filed July 21, 2010.
 
 
 
 
 
Exhibit No.
 
Description
     
10.14
 
Settlement Agreement and Mutual General Release, among Ted Cooper and Single Touch Systems, Inc., dated December 14, 2010. Incorporated by reference to Exhibit 10.31 to the registrant’s Annual Report on Form 10-K, filed December 29, 2010.
10.15+
 
2010 Stock Option Plan. Incorporated by reference to Exhibit 10.32 to the registrant’s Annual Report on Form 10-K, filed December 29, 2010
10.15.1+
 
Certificate regarding amendment of 2010 Stock Plan. Incorporated by reference to Exhibit 10.32.1 to the registrant’s registration statement on Form S-1, filed June 24, 2011.
10.15.2+
 
Form of Notice of Stock Option Grant/Stock Option Agreement under 2010 Stock Plan. Incorporated by reference to Exhibit 10.32.2 to the registrant’s registration statement on Form S-1, filed June 24, 2011
10.16+
 
Employment letter agreement, between James Orsini and us, dated March 10, 2011. Incorporated by reference to Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q, filed May 16, 2011
10.16.1+
 
Amendment of employment letter agreement, between James Orsini and us, dated May 16, 2011. Incorporated by reference to Exhibit 10.33.1 to the registrant’s registration statement on Form S-1, filed June 24, 2011.
10.17+
 
Employment letter agreement, between Anthony Macaluso and us, dated June 3, 2011, as of June 1, 2011. Incorporated by reference to Exhibit 10.34 to the registrant’s registration statement on Form S-1, filed June 24, 2011.
10.18+
 
Board of Directors Service Letter Agreement between Richard S. Siber and us dated August 8, 2011. Incorporated by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q, filed February 13, 2012.
10.19+
 
Board of Directors Service Letter Agreement between Stuart R. Levine and us dated August 8, 2011. Incorporated by reference to Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q, filed February 13, 2012.
10.20+
 
Form of Indemnification Agreement. Incorporated by reference to Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q, filed February 13, 2012.
10.21+
 
Employment letter agreement and Restricted Stock Issuance Agreement, between John Quinn and us, dated September 26, 2011. Incorporated by reference to Exhibit 10.4 to the registrant’s Quarterly Report on Form 10-Q, filed February 13, 2012.
10.22+
 
Board of Directors Service Letter Agreement between Stephen D. Baksa and us dated November 1, 2011. Incorporated by reference to Exhibit 10.5 to the registrant’s Quarterly Report on Form 10-Q, filed February 13, 2012.
10.23
 
Form of Warrant replacing Stock Option in favor of Pharmacy Management Strategies LLC, dated June 28, 2011. Incorporated by reference to Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q, filed May 18, 2012.
10.24
 
Option Agreement between Anthony Macaluso and us dated June 30, 2011, together with amendments dated September 30, 2011 and December 28, 2011. Incorporated by reference to Exhibit 10.32 to the registrant’s Registration Statement on Form S-1, filed February 28, 2012.
 
10.25
 
Settlement, Mutual Release and Discharge between Mike Robert and us, dated September 30, 2011. Incorporated by reference to Exhibit 10.33 to the registrant’s Registration Statement on Form S-1, filed February 28, 2012.
10.26
 
Form of Convertible Promissory Note. We entered into respective agreements on this form of note with 8 persons in November 2011 through February 2012 for an aggregate principal amount of $2,000,000. In each case the maturity date is one year after the issuance date. Incorporated by reference to Exhibit 10.34 to the registrant’s Registration Statement on Form S-1, filed February 28, 2012.
 
 
 
 
 
 
Exhibit No.
 
Description
     
10.26.2
 
Form of Warrant to Purchase Common Stock ($0.25 exercise price). We issued a total of 4,000,000 Warrants on this form to 8 persons in November 2011 through February 2012. Incorporated by reference to Exhibit 10.34.1 to the registrant’s Registration Statement on Form S-1, filed February 28, 2012.
 
10.27
 
Settlement Agreement and Mutual General Release, among Soapbox Mobile, Inc. with, by and including all Common Shareholders collectively and individually and us, effective March 30, 2012. Incorporated by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q, filed May 18, 2012.
10.27.1
 
Perpetual Exclusive License Agreement among Soapbox Mobile, Inc. and us, effective March 30, 2012. Incorporated by reference to Exhibit 10.1.1 to the registrant’s Quarterly Report on Form 10-Q, filed May 18, 2012.
 
 
 
 
 
 
 
 
 
 
 
 
101.INS**
 
XBRL Instance Document.
101.SCH**
 
XBRL Taxonomy Extension Schema Document.
101.CAL**
 
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF**
 
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB**
 
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE**
 
XBRL Taxonomy Extension Presentation Linkbase Document.
____________

*
Filed herewith
**
Furnished herewith
+
Each of these Exhibits constitutes a management contract, compensatory plan, or arrangement.


 
36

 
 
 
Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders
Single Touch Systems
Encinitas, California

We have audited the accompanying consolidated balance sheets of Single Touch Systems ("the Company") as of September 30, 2012 and 2011 and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the years in the two year period ended September 30, 2012. Single Touch Systems management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Single Touch Systems as of September 30, 2012 and 2011, and the results of its operations and its cash flows for each of the years in the two year period ended September 30, 2012 in conformity with accounting principles generally accepted in the United States.


/s/ Weaver, Martin & Samyn LLC
Weaver, Martin & Samyn LLC
Kansas City, Missouri
December 31, 2012

 
 
 
 
F - 1


 
SINGLE TOUCH SYSTEMS, INC
           
CONSOLIDATED BALANCE SHEETS
           
               
     
September 30,
 
     
2012
   
2011
 
               
Assets
             
Current assets
           
 
Cash and cash equivalents
  $ 2,157,707     $ 523,801  
 
Accounts receivable - trade
    1,085,840       907,275  
 
Prepaid expenses
    129,290       93,872  
                   
 
Total current assets
    3,372,837       1,524,948  
                   
Property and equipment, net
    228,499       303,214  
                   
Other assets
               
 
Capitalized software development costs, net
    383,227       395,188  
 
Intangible assets:
               
 
Patents
    602,056       714,623  
 
Patent applications cost
    667,858       544,240  
 
Software license
    76,000       -  
 
Deposit - related party
    155,000       155,000  
 
Other assets including security deposits
    84,278       99,481  
                   
 
Total other assets
    1,968,419       1,908,532  
                   
 
Total assets
  $ 5,569,755     $ 3,736,694  
 
 
 
 
See accompanying notes.
 
 
F - 2

 
 
SINGLE TOUCH SYSTEMS, INC
           
CONSOLIDATED BALANCE SHEETS - continued
           
             
   
September 30,
 
   
2012
   
2011
 
             
Liabilities and Stockholders' Equity (Deficit)
           
Current liabilities
           
Accounts payable
  $ 768,263     $ 1,178,057  
Accrued expenses
    200,591       176,232  
Accrued compensation - related party
    72,730       36,410  
Current obligation on patent acquisitions
    87,500       163,680  
Convertible debentures - unrelated  parties, including accrued interest, of
               
  $21,342 net of discounts of $27,101
    294,241       -  
                 
Total current liabilities
    1,423,325       1,554,379  
                 
Long-term liabilities
               
Deferred revenue
    25,000       -  
Convertible debentures - related party, including accrued interest of
               
  $43,973 net of discounts of $16,461
    527,512       -  
Convertible debentures - unrelated parties, including accrued interest of
               
  $100,479 net of discounts and loan fees of $927,199
    2,685,280       -  
                 
Total long-term liabilities
    3,237,792       -  
                 
Total liabilities
    4,661,117       1,554,379  
                 
Stockholders' Equity
               
Preferred stock,  $.0001 par value, 5,000,000 shares authorized;
               
none outstanding
    -       -  
Common stock, $.001 par value; 200,000,000 shares authorized,
               
  132,472,392 shares issued and outstanding as of September 30, 2012
               
  and 130,182,392 issued and outstanding as of September 30, 2011
    132,472       130,182  
Additional paid-in capital
    125,425,617       123,446,398  
Accumulated deficit
    (124,649,451 )     (121,394,265 )
                 
Total stockholders' equity
    908,638       2,182,315  
                 
Total liabilities and stockholders' equity
  $ 5,569,755     $ 3,736,694  
 
See accompanying notes.
 
 
F - 3

 
 
 SINGLE TOUCH SYSTEMS, INC
           
CONSOLIDATED STATEMENTS OF OPERATIONS
           
             
             
             
   
For the Years Ended
 
   
September 30,
 
   
2012
   
2011
 
             
Revenue
           
Wireless applications
  $ 6,346,919     $ 4,579,862  
                 
Operating Expenses
               
Royalties and application costs
    2,907,110       2,543,885  
Research and development
    84,658       78,860  
Compensation expense (including stock based
               
  compensation of $365,422 in 2012 and $3,634,268 in 2011)
    3,044,430       5,468,643  
Depreciation and amortization
    690,293       633,535  
General and administrative (including stock based
               
  compensation of $137,169 in 2012 and $958,162 in 2011)
    2,386,694       3,161,751  
      9,113,185       11,886,674  
                 
Loss from operations
    (2,766,266 )     (7,306,812 )
                 
Other Income (Expenses)
               
Net (loss)on settlement of indebtedness
    -       (651,315 )
Interest expense
    (488,120 )     (26,236 )
                 
Net (loss) before income taxes
    (3,254,386 )     (7,984,363 )
                 
Provision for income taxes
    (800 )     (800 )
                 
Net income (loss)
  $ (3,255,186 )   $ (7,985,163 )
                 
Basic and diluted loss per share
  $ (0.02 )   $ (0.06 )
                 
Weighted average shares outstanding
    131,192,693       127,817,223  
 
 
 
See accompanying notes.
 
 
F - 4

 
 
SINGLE TOUCH SYSTEMS, INC
           
CONSOLIDATED STATEMENTS OF CASH FLOWS
           
             
   
For the Years Ended
 
   
September 30,
 
   
2012
   
2011
 
             
Cash Flows from Operating Activities
           
Net loss
  $ (3,255,186 )   $ (7,985,163 )
Adjustments to reconcile net loss to net cash
               
  used in operating activities:
               
Depreciation expense
    107,909       95,945  
Amortization expense - software development costs
    446,876       412,632  
Amortization expense - patents
    135,508       124,959  
Amortization expense - discount of convertible debt
    311,005          
Stock based compensation
    502,591       4,592,430  
Bad debts
    18,326       105,632  
Loss on settlement of debt
    -       651,316  
(Increase) decrease in assets
               
(Increase) decrease in accounts receivable
    (196,890 )     (461,818 )
(Increase) decrease in prepaid expenses
    7,781       142,015  
(Increase) decrease in deposits and other assets
    (3,847 )     11,051  
Increase (decrease) in liabilities
               
Increase (decrease) in accounts payable
    (409,794 )     683,965  
Increase (decrease) in accrued expenses
    60,679       109,494  
Increase (decrease) in deferred revenue expenses
    25,000       -  
Increase (decrease) in accrued interest
    165,795       12,253  
                 
Net cash used in operating activities
    (2,084,247 )     (1,505,289 )
                 
Cash Flows from Investing Activities
               
Option paid to related party regarding Soapbox Mobil, Inc.
    -       (155,000 )
Investment in certificate of deposit, pledged
    -       (95,250 )
Redemption of certificate deposit, pledged
    19,050       -  
Patents and patent applications costs
    (146,558 )     (111,177 )
Purchase of property and equipment
    (33,195 )     (196,067 )
Capitalized software development costs
    (434,915 )     (502,110 )
Payment on purchase of Anywhere software license
    (30,000 )     -  
                 
Net cash used in investing activities
  $ (625,618 )   $ (1,059,604 )
 
See accompanying notes.
 
 
F - 5

 
 
SINGLE TOUCH SYSTEMS, INC
           
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
           
             
   
For the Years Ended
 
   
September 30,
 
   
2012
   
2011
 
             
Cash Flows from Financing Activities
               
Proceeds from issuance of common stock
    318,000       17,100  
Proceeds from issuance of convertible debt - unrelated parties
    3,812,000       -  
Proceeds from issuance of convertible debt  - related parties
    500,000       -  
Loan advances received from related parties
    -       17,685  
Expenditures relating to private offerings
    (210,049 )     (30,000 )
Repayments on related party loans
    -       (790,822 )
Principal reduction on obligation on patent purchases
    (76,180 )     (165,438 )
                 
Net cash provided by (used in) financing activities
    4,343,771       (951,475 )
                 
Net increase (decrease) in cash
    1,633,906       (3,516,368 )
                 
Beginning balance - cash
    523,801       4,040,169  
                 
Ending balance - cash
  $ 2,157,707     $ 523,801  
                 
Supplemental Information:
               
                 
Interest expense paid
  $ 11,321     $ 50,705  
Income taxes paid
  $ 800     $ 800  
 
Non-cash investing and financing activities:
   
 
For the year ended September 30, 2012
   
 
During the year ended September 30, 2012, the Company received $3,812,000 through the issuance of
 
convertible debt including common stock warrants to purchase 8,624,000 shares of the Company's common
 
stock at $0.25 per share. The Company recognized discounts against the principal amounts due totaling
 
$1,012,440 with an offsetting amount charged to equity.  (See Note 9)
   
 
In connection with the above of debt issuance, the Company paid placement fees that included cash
 
totaling $210,049 and warrants to purchase 369,920 shares of the Company's common stock at $0.304
 
per share. The warrants were valued at $138,874. The total placement fee of $348,923 is recognized as
 
a loan fee and is reflected in the balance sheet as an additional discount against the principal and accrued interest
 
due on the underlying convertible debt.  (See Note 9)
   
 
During the year ended September 30, 2012, the Company agreed to modify the terms of warrants granted
 
to a consultant under a new agreement replacing a prior June 2011 agreement to purchase 1,000,000 shares
 
of the Company's common stock. Under the modified terms, the exercise price was reduced from $0.80 per
 
share to $0.40 per share and the expiration date of the warrants was extended from June 14, 2014 to December
 
14, 2014.  The Company  recognized compensation expense during the period of $53,600 on the modification.
   
 
During the year ended September 30, 2012, the Company was granted a perpetual license to utilize the
 
Anywhere software. In consideration for the license, the Company agreed to pay $30,000 and issue
 
200,000 shares of its common stock. The license was valued at $76,000 (See Note 6).
 
See accompanying notes.
 
 
F - 6

 
 
SINGLE TOUCH SYSTEMS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued