Sebring Software, Inc. - FORM 10-Q

Attached files

file	filename
EX-31 - Sebring Software, Inc.	ex31.htm
EX-32 - Sebring Software, Inc.	ex32.htm
EX-10.12 - Sebring Software, Inc.	ex10-12.htm
EX-10.11 - Sebring Software, Inc.	ex10-11.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X]	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2010

[ ]	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

For the transition period from ____________ to ______________

Commission file number: 000-53785

SUMOTEXT INCORPORATED

(Name of registrant in its charter)

Nevada	4822	26-0319491
(State or jurisdiction	(Primary Standard	(IRS Employer
of incorporation or	Industrial Classification	Identification No.)
organization)	Code Number)

2100 Riverdale, Suite 200

Little Rock, Arkansas, 72202

(Address of principal executive offices)

(800) 480-1248

(Registrant's telephone number)

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

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 ¨ No ¨

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

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company x

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

As of April 1, 2010, the registrant had 7,779,806 shares of common stock, $0.0001 par value per share, outstanding.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TABLE OF CONTENTS

			Page No.

	II	BALANCE SHEETS	2
	III	STATEMENTS OF OPERATIONS	3
	V	STATEMENTS OF CASH FLOWS	5
	VI	NOTES TO THE FINANCIAL STATEMENTS	6

SUMOTEXT, INC.

BALANCE SHEETS

(Unaudited)

	February 28, 2010			August 31, 2009
Assets

Current Assets:
Cash	$	219,926		$	130,083
Accounts receivables		48,138			32,296
Prepaid expenses		392			-
Total Current Assets		268,456			162,379

Property and equipment, net of accumulated depreciation of $112,518 and $86,587		151,126			175,552

Total assets	$	419,582		$	337,931

Liabilities and Stockholder's Equity (Deficit)

Current liabilities:
Accounts payable and accrued liabilities	$	42,124		$	38,571
Accrued expenses		8,181			9,470
Deferred revenue		56,864			43,320
Note payable, related party		125,000			435,000

Total current liabilities		232,169			526,361

Long term debt, related parties, net of discount		560,806			-

Total liabilities		792,975			526,361

Stockholder's Equity (Deficit)

Common stock: $0.0001 par value, 100,000,000 shares authorized, 7,779,806 and 7,779,806 shares issued and outstanding at February 28, 2010 and August 31, 2009, respectively		778			778
Additional paid-in capital		1,070,276			1,045,722
Accumulated deficit		(1,444,447	)		(1,234,930	)
Total stockholders' equity(deficit)		(373,393	)		(188,430	)

Total liabilities and stockholders' equity (deficit)	$	419,582		$	337,931

The accompanying notes are an integral part of these financial statements

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SUMOTEXT, INC.

STATEMENTS OF OPERATIONS

(Unaudited)

	Three months ended February 28,
	2010			2009
Revenues

Subscription services	$	297,836		$	141,266

Total Revenues		297,836			141,266

Cost of revenues		93,045			63,382


Gross margin		204,791			77,884

Selling, general and administrative expenses		278,425			256,482
Depreciation and amortization		12,990			12,845
Interest expense		10,506			-

Operating expenses		301,922			269,327

Operating loss		(97,130	)		(191,444	)

Interest income		-			75

Net loss		(97,130	)		(191,369	)

Basic and diluted loss per share	$	(0.01	)	$	(0.02	)

Basic and diluted weighted average of common shares outstanding		7,779,806			7,774,717

The accompanying notes are an integral part of these financial statements

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SUMOTEXT, INC.

STATEMENTS OF OPERATIONS

(Unaudited)

	Six months ended February 28,
	2010			2009
Revenues

Subscription services	$	568,403		$	242,702


Total Revenues		568,403			242,702

Cost of revenues		180,039			123,075


Gross margin		388,364			119,627

Selling, general and administrative expenses		554,653			474,030
Depreciation and amortization		25,931			25,581
Interest expense		17,297			-

Operating expenses		597,881			499,611

Operating loss		(209,517	)		(379,984	)

Interest income		-			504

Net loss		(209,517	)		(379,480	)

Basic and diluted loss per share	$	(0.03	)	$	(0.05	)

Basic and diluted weighted average of common shares outstanding		7,779,806			7,668,479

The accompanying notes are an integral part of these financial statements

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SUMOTEXT, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

	Six months ended February 28,
	2010			2009

Cash flows from operating activities:

Net loss	$	(209,517	)	$	(379,480	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		25,931			25,581
Amortization of debt discount		360			-
Changes in operating assets and liabilities:
Accounts receivables		(15,842	)		(25,442	)
Employee receivables		(392	)		5,805
Prepaid expenses		-			500
Accounts payable		3,094			7,435
Accrued expenses		(830	)		(667	)
Deferred revenue		13,544			(1,194	)

Net cash used in operating activities		(183,652	)		(367,462	)

Cash flows from investing activities:
Advances (payments) from (to) shareholder		-			(12,677	)
Purchase of property and equipment		(1,505	)		(8,458	)

Net cash used in investing activities		(1,505	)		(21,135	)

Cash flows from financing activities:
Proceeds from issuance of notes payable, related parties		275,000			-
Proceeds from issuance of stock		-			196,200

Net cash provided by financing activities		275,000			196,200

Net increase (decrease) in cash and cash equivalents		89,843			(192,397	)

Cash and cash equivalents, beginning of period		130,083			329,028

Cash and cash equivalents, end of period	$	219,926		$	136,631

Supplemental cash flow information:
Interest paid	$	18,506		$	-

The accompanying notes are an integral part of these financial statements

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SUMOTEXT, INC.

NOTES TO THE FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The accompanying unaudited interim financial statements of SUMOTEXT, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in SUMOTEXT’s Annual Financial Statements filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period presented have been reflected herein. The results of operations for the interim period is not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year ended August 31, 2009, as reported in the Form 10-K, have been omitted.

Note 2. Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered significant operating losses, used substantial funds in its operations, and needs to raise additional funds to accomplish its objectives. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Note 3. Related Party Transactions

In January 2007, the Company entered into contracts with two companies, Atreides, Inc., owned 100% by the President and a shareholder of the Company, and Datamethodolgy, Inc, owned 100% by another shareholder of the Company. During the quarter ending February 28, 2010, the Company paid Atreides, Inc. $32,100 for managing and training the Company’s sales representatives which was recorded as selling, general and administrative expenses. During the quarter ended February 28, 2010, the Company paid Datamethodology, Inc. $32,520 for maintenance and upgrading software related issues which was recorded as a cost of revenue.

In February 2010, the Company borrowed $150,000 from an individual accredited investor, Steve Bova, an advisor of the Company (the “Advisor”). The note payable is due in February 2012, bears 8% interest due quarterly and has no collateral. As of February 28, 2010, the entire balance of the note was outstanding. In connection with the note, the Company granted warrants to the investor to purchase 300,000 shares of common stock at an exercise price at $0.50 per share. The warrants were valued using a binomial lattice model resulting in a discount of $8,966. The discount is being amortized over the life of the note on a straight line basis. The warrants expire February 17, 2012. As of February 28, 2010, all the warrants remain outstanding.

In February 2010, the Company consolidated four note payables totaling $275,000 that were outstanding from the President and a shareholder of the Company. The note payable of $275,000 is due in February 2012, bears 8% interest due quarterly and has no collateral. As of February 28, 2010 the entire balance of the note was outstanding. In connection with the note, the Company granted warrants to the shareholder to purchase 550,000 shares of common stock at an exercise price at $0.50 per share. The warrants were valued using a binomial lattice model resulting in a discount of $15,888. The discount is being amortized over the life of the note on a straight line basis. The warrants expire February 17, 2012. As of February 28, 2010, all the warrants remain outstanding.

In March 2010, the Company entered into a $6,000 per month consulting agreement with the Clark Bova Group, LLC, where the Advisor is a partner. Under the terms of this agreement, the Clark Bova Group, LLC will provide the Company management oversight, strategic consulting, and corporate finance advisory services for the period of one year. The agreement provides the Company specific deliverables and work products produced by multiple named individuals. The Company can terminate this agreement at any time with 90 days prior notice.

Note 4. Notes Payable.

In June 2007, the Company borrowed $160,000 from Jim Stevenson through a promissory note (the “Stevenson Note”). Mr. Stevenson is a shareholder of the Company. The promissory note bears no interest and has no collateral and is due and payable upon (1) the sale of the Company’s business or the liquidation of a majority of its assets or (2) the Company reaching “a level of profitability” and a majority of the Company’s shareholders voting to repay the note before the sale of the Company or the liquidation of its assets. Pursuant to the terms of the note, it must be paid in whole or in part before any other debt obligations of the Company beyond normal operating costs, other than the Consolidated Note and the Bova Note, described below. The $160,000 loan remained outstanding as of February 28, 2010.

On April 16, 2009, the Company’s President, Timothy Miller, who is also a shareholder, loaned the Company $100,000 which matures April 15, 2010 with interest only payments due quarterly at 10% per annum.

On July 1, 2009, Mr. Miller, loaned the Company $50,000 which was to mature on July 2, 2010 with interest only payments due quarterly at 10% per annum. On August 3, 2009, Mr. Miller, loaned the Company $50,000 which was to mature on August 4, 2010 with interest only payments due quarterly at 10% per annum. On August 27, 2009, Mr. Miller, loaned the Company $75,000 which was to mature on August 28, 2010 with interest only payments due quarterly at 10% per annum.

Effective February 17, 2010, the Company entered into an Amended and Restated Promissory Note with Mr. Miller (which amended and restated a previous promissory note which also had an effective date of February 17, 2010 (the “Consolidated Note”). The Consolidated Note which had a principal amount of $275,000, amended and replaced the April 16, 2009, July 1, 2009, August 3, 2009 and August 27, 2009 promissory notes between the Company and Mr. Miller. The Consolidated Note accrues interest at the rate of 8% per annum, with all principal and accrued interest due on the due date of February 17, 2012. The repayment of the Consolidated Note is senior to all of the Company’s other outstanding obligations other than the Bova Note (defined below). In connection with Mr. Miller agreeing to the terms and conditions of the Consolidated Note, the Company agreed to grant Mr. Miller warrants to purchase 550,000 shares of the Company’s common stock at an exercise price of $0.50 per share, which warrants vested immediately and expire on February 17, 2012.

Effective November 30, 2009, Mr. Miller loaned the Company an additional $125,000 which matures on December 1, 2010, with interest only payments due quarterly at 10% per annum. As of February 28, 2010, the entire balance of the note was outstanding.

Effective February 17, 2010, the Company entered into an Amended and Restated Promissory Note with Steve Bova, an individual, and an accredited investor (which amended and restated a previous promissory note which also had an effective date of February 17, 2010 (the “Bova Note”). The Bova Note had a principal amount of $150,000, which represented amounts loaned to the Company by Mr. Bova. The Bova Note accrues interest at the rate of 8% per annum, with all principal and accrued interest due on the due date of February 17, 2012. The repayment of the Bova Note is senior to all of the Company’s other outstanding obligations. In connection with Mr. Bova agreeing to the terms and conditions of the Bova Note, the Company agreed to grant Mr. Bova warrants to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.50 per share, which warrants vested immediately and expire on February 17, 2012. As of February 28, 2010, the entire balance of the Consolidated Note was outstanding.

Note 5. Subsequent Events.

The Company has evaluated all events that occurred after the balance sheet date of February 28, 2010 through April 14, 2010, the date these financial statements were issued. The Management of the Company determined that there were no reportable events that occurred during that subsequent period to be disclosed or recorded.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

CERTAIN STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q (THIS "FORM 10-Q"), CONSTITUTE "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1934, AS AMENDED, AND THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (COLLECTIVELY, THE "REFORM ACT"). CERTAIN, BUT NOT NECESSARILY ALL, OF SUCH FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "BELIEVES", "EXPECTS", "MAY", "SHOULD", OR "ANTICIPATES", OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY THAT INVOLVE RISKS AND UNCERTAINTIES. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF SUMOTEXT INCORPORATED ("THE COMPANY", "WE", “SUMOTEXT,” "US" OR "OUR") TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. REFERENCES IN THIS FORM 10-Q, UNLESS ANOTHER DATE IS STATED, ARE TO FEBRUARY 28, 2010.

History

The Company was incorporated in Arkansas on June 8, 2007 as Reminderbox, Inc and began selling its services to clients on January 8, 2008 under the brand name SUMOTEXT Incorporated. On September 10, 2008 the Company converted into a Nevada corporation and contemporaneously changed its name to SUMOTEXT Incorporated. Our mailing address is 2100 Riverdale, Suite 200, Little Rock, Arkansas, 72202, our telephone number is (800) 480-1248, and our fax number is (501) 228-4482.

On or about June 30, 2008, the Company’s shareholders approved a 16,740:1 forward stock split of our issued and outstanding shares of common stock (the “Forward Split”), with an effective date of June 30, 2008. The effects of the Forward Split are retroactively affected throughout this report, unless otherwise noted.

The Company has never been a party to a reverse merger or a public shell acquisition. Rather, in early 2009, we filed and gained effectiveness of our Form S-1 Registration Statement with the SEC and became a fully reporting company. In April 2009, we obtained a quotation for our common stock on the Over-The-Counter Bulletin Board ("OTCBB") under the symbol SMXI.OB.

SUMOTEXT owns the rights to the registered internet domain names “www.textmarketing.com” and “www.sumotext.com,” which contain information that the Company does not desire to be incorporated by reference into this report.

About Us

SUMOTEXT is a short code application provider that enables legitimate businesses and organizations to instantly launch product offers, promotions, and time-sensitive alerts into the mobile channel via text messaging. By reserving and promoting identifiable keywords on a mobile short code, our clients leverage our platform, carrier relationships, and carrier-compliant campaign management tools to begin engaging their most valued customers and constituents on their mobile device via text messaging.

Our software service enables marketers to fully control keywords on short codes and configure highly interactive campaigns and message flows that identify, attract, profile, and reward their most valued customers. Not just for marketers, organizational leaders also recognize what we believe, which is that no other channel offers the immediate reach of a text message alert. Our powerful keyword and group management controls streamline communications throughout the enterprise to increase attendance and participation while keeping groups of employees, stakeholders and volunteers organized, informed, and motivated.

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The Company’s service delivery platform and campaign management tools are incapable of facilitating SPAM and were designed to impress and protect our client’s customers. Our system was designed to ensure that our client’s campaigns remain ‘real-time’ compliant with the FTC's CAN-SPAM Act, the Mobile Marketing Association's Code of Conduct, and the most stringent of all Operational Playbooks published by any wireless carrier. Our system can only send and receive text messages over a short code and only allows our clients to send text messages to customers who have opted-in to their specific keyword program from their hand set (mobile phone). Our system also adds "Reply STOP to Opt-out" to the end of each message sent. This provides our client’s customers a constant reminder that they are in complete control of the experience.

The Company believes that text message marketing is an efficient and cost-effective means to distribute time-sensitive information and promotions to disbursed groups. The Company believes that every business and organization that currently collects email addresses will eventually begin collecting mobile ‘opt-ins’.

Customers

The Company commercially launched its service on January 8, 2008. As of February 28, 2010, the Company serviced 606 unique, revenue-generating clients which include 561 small business accounts and 45 “Enterprise” accounts. Enterprise accounts typically represent a client with multiple stores or physical locations under a single corporate, co-op of franchisees, or agency billing account. It is common in our industry to allow small business clients access to our services on a month-to-month basis, while also paying higher transactional fees. It is also common for larger accounts to qualify for volume discounts by signing an annual agreement. SUMOTEXT provides its services to small businesses without contracts on a month-to-month basis and to Enterprise clients through annual contracts.

Partial Client List

Our diverse roster of clients include national retail and restaurant brands, professional sports venues and teams, radio stations, political campaigns, direct selling organizations, publishers, universities, school systems, mega-churches, chambers of commerce, non-profits, and local small businesses.

Our diverse roster of Enterprise clients include the Pepsi Bottling Group, L'Oreal USA, Baylor University, Neustar, Senator John McCain, New York Racing Association, French Culinary Institute, Tanger Outlet Malls, Hard Rock Orlando, UFC Gyms, Maps.com, Thornton's Oil, Westside Rentals, Pyramid Foods, Worldwide Golf, Mobile Press Wire, and FAMSA.

SUMOTEXT does not list a national brand as a client unless it represents the entire brand through an agreement with the corporate office. However, our small business clients include hundreds of independent operators and co-ops that represent many other brands and organizations that include Applebee's, Kentucky Fried Chicken, Taco Bell, The U.S. Naval Academy, GNC Nutrition, Subway, Smoothie King, Jersey Mikes, Play-n-Trade Video, Tan Republic, Cici's Pizza, Rita's Ice, Chick-Fil-A, Java Dave's, Coyote Ugly, Little Caesars, Melting Pot, Hardees, Papa's Pizza, Hollywood Tan, Hungry Howies, Andy's Burgers and Fries, Dairy Queen, Arby's, Jack in the Box, and many others.

Subscription Revenues

We currently derive substantially all of our revenue from fees associated with our monthly subscription services, which are occasionally sold by our salaried employees from leads generated through our marketing efforts, but are generally sold by our independent sales representatives. Our representatives are individually recruited, trained, and managed by the Company and are strategically located throughout the U.S. Our representatives are compensated by commission payments from the Company based on their status and the projected value of each deal. The Company currently offers subscription plans for small businesses, enterprises, and select industry verticals. The typical subscription is a monthly contract, although terms range up to 12 months. We bill a majority of our customers on a monthly basis through their credit cards and bank accounts. Revenue is recognized as the services are provided. These fees are deferred and recognized ratably over the customer's expected service period. Deferred revenues represent the liability for advance billings to customers for services not yet provided.

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Cost of Revenue

The Company’s cost of revenue consists primarily of the expenses related to providing our core service delivery platform which includes the salaries of technical personnel associated with the maintenance and enhancement of our SMS gateway and campaign management tools, our physical infrastructure and application hosting expenses, and the fees we pay aggregators and wireless carriers to connect to their networks which include connection fees, transaction fees, and short code leases.

The Company does not track research and development costs separately because its technology architecture enables it to service substantially all of its customers with a single version of its application which it tracks in cost of revenue. Since we do not have to maintain multiple versions of our software, we are able to constantly enhance our core service delivery platform with new features and functions that are shared by our clients.

The Company began developing a major new release of its service delivery platform in November 2008 and we began migrating clients to this new platform in February of 2010. We expect to have migrated all of our clients to this new platform by the end of the quarter ended May 31, 2010.

In the near term we expect cost of revenue expenses to increase as we temporarily support dual service delivery platforms; though in the long term, we expect that cost of revenue as a percentage of total revenue will decrease.

Selling, General and Administrative Expenses

The Company tracks its selling, general and administrative expenses as follows: 1) advanced commission payments to sales representatives, 2) salary and internal personnel expenses related to executive management, recruiting and training, sales management, billing, and client support, 3) non-personnel, external fees and expenses related to corporate marketing including brand building, corporate communications, advertising, association fees, trade shows, recruiting, search engine optimization, Company travel, and meals and entertainment, 4) expenses related to being a fully reporting public company which include external legal, accounting, audit, registrar, and filings, and 5) expenses related to general office items including rent, utilities, telephone, office supplies, printing, credit card processing fees, software, and other third party services.

In the near term we plan to gradually increase SG&A expenses as we grow our leadership team, hire more salaried employees, and accelerate our investments in marketing and promotion of our services. In the long term we expect to increase the velocity of sales per representative which could significantly increase advanced commission payments to sales representatives and associated SG&A expenses.

Material Agreements:

On or about January 1, 2007, the Company entered into a Software Development and Consulting Agreement with Timothy Miller, in his capacity as President of Atreides, LLC (“Atreides”), which was amended in February and March 2009, to clarify several of the provisions of the agreement. Timothy Miller is the Chief Executive Officer, President and Director of the Company. Mr. Miller is also the sole officer and employee of Atreides, LLC. Atreides does not have any clients which compete with the Company. Currently, Atreides has no other clients besides the Company; however, Atreides has had other clients in the past and may have additional clients in the future. Mr. Miller performs services for the Company through Atreides instead of personally, because operating as a limited liability company affords Mr. Miller certain tax benefits, as well as increased liability protection, which he would not have if he performed services for the Company in his own personal name. During the quarter ended February 28, 2010, the Company paid Atreides $30,802 for his services which included product management and operations. During the year ending August 31, 2009, and during the year ending August 31, 2008, the Company paid Atreides $115,041 and $76,000, respectively, for managing the Company’s employees and operations which was recorded as selling, general and administrative expenses. All work products created or enhanced through the Atreides agreement are owned by the Company.

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The Company maintains a $2,000,000 key man life insurance policy on Timothy Miller.

On or about January 1, 2007, the Company entered into a Software Development and Consulting Agreement with Eric Woods in his capacity as President of DataMethodology, LLC (“DataMethodology”), which was amended in February 2009, to clarify several of the provisions of the agreement. Eric Woods currently holds 7.7% of the Company’s Common Stock. Mr. Woods is the sole officer and employee of DataMethodology, LLC. DataMethodology does not have any clients which compete with the Company. Currently, DataMethodology has two (2) other clients besides the Company and those clients pay DataMethodology software licensing fees for applications previously developed by DataMethodology that are presently in use by those clients. Mr. Woods performs services for the Company through DataMethodology instead of personally, because operating as a limited liability company affords Mr. Woods certain tax benefits, as well as increased liability protection, which he would not have if he performed services for the Company in his own personal name. During the quarter ended February 28, 2010, the Company paid DataMethodology $32,520 for managing the Company’s application development efforts and technical infrastructure. For the year ended August 31, 2009, and for the year ended August 31, 2008, the Company paid DataMethodology $124,200 and $82,015, respectively, for maintenance and upgrading software related issues which was recorded as a cost of revenue. All work products created or enhanced through the DataMethodology agreement are owned by the Company.

Effective November 30, 2009, Mr. Miller loaned the Company an additional $125,000 which matures on December 1, 2010, with interest only payments due quarterly at 10% per annum.

In March 2010, the Company entered into a $6,000 per month consulting agreement with the Clark Bova Group, LLC. Mr. Bova is partner at the Clark Bova Group, LLC. Under the terms of this agreement, the Clark Bova Group, LLC will provide the Company management oversight, strategic consulting, and corporate finance advisory services for the period of one year. The agreement provides the Company specific deliverables and work products produced by multiple named individuals. The Company can terminate this agreement at any time with 90 days prior notice.

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Additional Business Operations Agreements:

On or around February 15, 2010 the Company entered into an agreement with Pepsi Bottling Group (“Pepsi”) to support a "Grow With Pepsi" cooperative marketing program designed to assist certain Pepsi-exclusive restaurant customers. As part of the "Grow with Pepsi" offering, the Pepsi Bottling Group selected SUMOTEXT to provide text message marketing services to Pepsi customers who elect to participate in the program. The Company cannot predict the financial impact of this agreement, the number of Pepsi customers that will choose to participate in the program, or the number of customers that will continue to pay the Company after the Pepsi-subsidized trial period has ended. However, the Company believes that if the program is successful, the results could significantly increase the number of the Company’s clients and as a result, the Company’s results of operations.

On or around March 16, 2010, the Company entered into an agreement with Neustar (http://www.neustar.com), the company that the CTIA (http://ctia.org/) chose to administer the Common Short Code Administration (http://www.usshortcodes.com/). Through this agreement, Neustar became a client of the Company, hired the Company to provision and certify a dedicated short code with the wireless carriers, and licensed the Company’s platform to demonstrate the features and capabilities of common short codes to their prospective clients. Though the financial terms of the agreement are not material, the Company believes that the fact that Neustar has chosen to become a client of the Company could be perceived as a product endorsement of the Company’s platform. Though Neustar and the Common Short Code Administration have strict vendor neutrality positions, it is possible that the exposure of the Company’s platform to businesses who are considering leasing common short codes from the Common Short Code Administration could result in new sales inquiries to the Company from those same prospects, of which there can be no assurance.

PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS

Based on recent results and current expectations, management expects to see continued growth of all of our regularly reported key business metrics while we continue to focus on attracting new working capital, retaining existing clients, and enhancing what we believe is already an industry leading service delivery platform. The Company believes it is currently well positioned for this emerging industry even though our products and services currently have only limited appeal beyond the early adopters identified in certain key industry verticals.

Despite the challenges inherent to a nascent industry, we believe more than ever that short codes will become the predominate method that marketers will use to identify, attract, and reward their most valued customers; as well build valuable customer profiles and collect customer feedback and comments in the future. We also believe that SMS via short codes will become the predominate method that business and organizational leaders use to streamline communications, provide emergency alerts, and increase attendance and participation from various groups of employees, stakeholders and volunteers.

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Key Business Metrics

Management periodically reviews certain key business metrics to evaluate the effectiveness of our operational strategies, allocate resources and maximize the financial performance of our business. These key business metrics include the following items, described below, which are reported and compared quarter-to-quarter. Management does not believe that a comparison of the metrics from the quarter ended February 28, 2010 to 2009 would be useful to investors as the Company only began commercial activities in January 2008, and had only limited customers as of February 28, 2009.

Base Recurring Monthly Subscription Plan Fees

As of February 28, 2010, the Company had 606 clients that were scheduled for $103,508 in base recurring monthly subscription plan fees, which includes approximately $10,000 in monthly fees to lease common short codes which the Company sometimes collects from its clients on behalf of the Common Short Code Administration (“CSCA”). This represents an increase of $12,266 or 13% in base recurring monthly subscription plan fees when compared to the prior quarter ended November 30, 2009.

Base monthly subscription plan fees do not include account set-up fees, professional service fees, or transaction fees which are additional usage charges when our clients exceed the base number of messages included in their subscription plan. The Company rarely charges professional service fees.

Net Client Additions

We maintain and grow our subscriber base through a combination of adding new clients and retaining existing clients. We define net client additions in a particular period as the gross number of new clients added during the period, less client cancellations during the period. The Company does not normally offer an introductory free trial period, but when it does, it only counts as new clients those clients whose subscriptions have extended beyond the free trial period. Additionally, we do not count clients that have canceled their monthly subscription plan or are not current in their payments if we have unsuccessfully attempted to contact the client for more than 30 days.

We review this metric to evaluate whether we are performing within our business plan. An increase in net client additions could signal an increase in subscription revenue, higher customer retention, and an increase in the effectiveness of our sales efforts. Similarly, a decrease in net client additions could signal decreased subscription revenue, lower customer retention, and a decrease in the effectiveness of our sales efforts. Net subscriber additions above or below our business plan could have a long-term impact on our operating results due to the subscription nature of our business.

During the quarter ending February 28, 2010, the Company netted 92 new clients in addition to the 514 existing clients the Company claimed at the end of the prior quarter for a total of 606 unique paying clients at the end of the quarter. This represents an increase of 18% when compared to the prior quarter ended November 30, 2009.

Monthly Turnover

Monthly turnover is a metric we measure each quarter, and which we define as customer cancellations in the quarter divided by the sum of the number of subscribers at the beginning of the quarter and the gross number of new subscribers added during the quarter, divided by three. Customer cancellations in the quarter include cancellations from gross subscriber additions, which is why we include gross subscriber additions in the denominator. In measuring monthly turnover, we use the same conventions with respect to free trials and subscribers who are not current in their payments as described above for net subscriber additions. Monthly turnover is the key metric that allows management to evaluate whether we are retaining our existing subscribers in accordance with our business plan. An increase in monthly turnover may signal deterioration in the quality of our service, or it may signal a behavioral change in our subscriber base. Lower monthly turnover signals higher customer retention. Though this metric is valuable internally, we do not believe that it completely reflects the quality of our services as there are always some clients who enroll in our programs with the intention of launching, but never actually begin supporting their mobile marketing programs with marketing materials or employee training and therefore cancel their plan.

During the quarter ending February 28, 2010, the Company had a monthly turnover rate of approximately 3.5% based on 514 existing clients at the end of the prior period, 165 new client enrollments during the period, and 73 total cancellations during the period.

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COMPARISON OF OPERATING RESULTS

FOR THE THREE MONTHS ENDED FEBRUARY 28, 2010, COMPARED TO THE THREE MONTHS ENDED FEBRUARY 28, 2009

Revenues increased $156,570 or 111% to $297,836 for the three months ended February 28, 2010, as compared to revenues of $141,266 for the three months ended February 28, 2009. The increase in revenues was principally due to the fact that the Company did not begin commercial sales until January 8, 2008 and has been steadily growing its customer base since that time.

Cost of revenues increased $29,663 or 47% to $93,045 for the three months ended February 28, 2010, as compared to cost of revenues of $63,382 for the three months ended February 28, 2009. The increase in cost of revenues was principally attributable to the continued increase in capacity of our technical infrastructure and a continued increase in message volumes associated with our growing client subscriber base.

Gross margin increased $127,907 or 163% to $204,791 for the three months ended February 28, 2010, as compared to gross margin of $77,884 for the three months ended February 28, 2009.

Cost of revenues as a percentage of revenues were 31.2% for the three months ended February 28, 2010, compared to 44.9% for the three months ended February 28, 2009, a decrease in cost of revenues as a percentage of revenues of 13.7% from the prior period. The main reason for the decrease in cost of revenues as a percentage of sales was that we have a number of fixed costs associated with product development and our connections to wireless networks which are now shared over a broader client base.

Selling, general and administrative expenses ("G&A") increased $21,943 or 9% to $278,425 for the three months ended February 28, 2010, as compared to G&A expense of $256,482 for the three months ended February 28, 2009. The increase in G&A expense was principally attributable to our expanded staff, marketing efforts, commissions to sales representatives, and the expanded legal and accounting expenses associated with becoming a public company.

During the three months ended February 28, 2010, we incurred operating expenses of $301,922, compared to operating expenses of $269,327 incurred during the three months ended February 28, 2009, an increase of $32,595 or 12% from the prior period. The increase in operating expenses is principally due to the increase in G&A expenses and a $10,504 increase in interest expense for the three months ended February 28, 2010, compared to the three months ended February 28, 2009 due mainly to the Miller Notes (defined below), which were not outstanding for the three months ended February 28, 2009.

We had an operating loss of $97,130 for the three months ended February 28, 2010, compared to an operating loss of $191,444 for the three months ended February 28, 2009, a decrease in operating loss of $94,314 or 49% from the prior period.

We had a net loss of $97,130 for the three months ended February 28, 2010, as compared to a net loss of $191,369 for the three months ended February 28, 2009, a decrease in net loss of $94,239 or 49% from the prior period. The decrease in net loss was mainly due to the $156,570 increase in revenues, which was offset by the $29,663 increase in cost of revenues and the $32,595 increase in total operating expenses.

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FOR THE SIX MONTHS ENDED FEBRUARY 28, 2010, COMPARED TO THE SIX MONTHS ENDED FEBRUARY 28, 2009

Revenues increased $325,701 or 134% to $568,403 for the six months ended February 28, 2010, as compared to revenues of $242,702 for the six months ended February 28, 2009. The increase in revenues was principally due to the fact that the Company did not begin commercial sales until January 8, 2008 and has been steadily growing its customer base since that time.

Cost of revenues increased $56,964 or 46% to $180,039 for the six months ended February 28, 2010, as compared to cost of revenues of $123,075 for the six months ended February 28, 2009. The increase in cost of revenues was principally attributable to the continued increase in capacity of our technical infrastructure and a continued increase in message volumes associated with our growing client subscriber base.

Gross margin increased $268,737 or 225% to $388,364 for the six months ended February 28, 2010, as compared to gross margin of $119,627 for the six months ended February 28, 2009.

Cost of revenues as a percentage of revenues were 31.7% for the six months ended February 28, 2010, compared to 50.7% for the six months ended February 28, 2009, a decrease in cost of revenues as a percentage of revenues of 19.0% from the prior period. The main reason for the decrease in cost of revenues as a percentage of sales was that we have a number of fixed costs associated with product development and our connections to wireless networks which are now shared over a broader client base.

Selling, general and administrative expenses ("G&A") increased $80,623 or 18% to $554,653 for the six months ended February 28, 2010, as compared to G&A expense of $474,030 for the six months ended February 28, 2009. The increase in G&A expense was principally attributable to our expanded staff, marketing efforts, commissions to sales representatives, and the expanded legal and accounting expenses associated with becoming a public company.

During the six months ended February 28, 2010, we incurred operating expenses of $597,881, compared to operating expenses of $499,611 incurred during the six months ended February 28, 2009, an increase of $98,270 or 20% from the prior period. The increase in operating expenses is principally due to the increase in G&A expenses and a $17,297 increase in interest expense for the six months ended February 28, 2010, compared to the six months ended February 28, 2009 due mainly to the Miller Notes (defined below), which were not outstanding for the six months ended February 28, 2009.

We had an operating loss of $209,517 for the six months ended February 28, 2010, compared to an operating loss of $379,984 for the six months ended February 28, 2009, a decrease in operating loss of $170,467 or 45% from the prior period.

We had a net loss of $209,517 for the six months ended February 28, 2010, as compared to a net loss of $379,480 for the six months ended February 28, 2009, a decrease in net loss of $169,963 or 45% from the prior period. The decrease in net loss was mainly due to the $325,701 increase in revenues, which was offset by the $56,964 increase in cost of revenues and the $98,270 increase in total operating expenses.

LIQUIDITY AND CAPITAL RESOURCES

As of February 28, 2010, we had total current assets of $268,456, consisting of cash of $219,926, accounts receivable of $48,138 and prepaid assets of $392. We had total assets of $419,582 consisting of $268,456 of current assets and $151,126 of property and equipment, net of accumulated depreciation.

We had total liabilities of $792,975, consisting of current liabilities of $232,169, which included accounts payable and accrued liabilities of $42,124, accrued expenses of $8,181, deferred revenue of $56,864, and the notes payable described below of $125,000 relating to the November 30, 2009, Miller Note, described below, which bears interest at the rate of 10% per annum and matures in 2010, and long term debt of $560,806 relating to $160,000 from the Stevenson Note which does not bear interest or have a stated maturity date and $275,000 evidenced by the Consolidated Note, described below and $150,000 evidenced by the Bova Note, described below.

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We had working capital of $36,287 as of February 28, 2010, compared to a working capital deficit of $363,982 at August 31, 2009.

We had a total accumulated deficit of $1,444,447 as of February 28, 2010.

We had net cash used in operating activities of $183,652 for the six months ended February 28, 2010, which was mainly due to $209,517 of net loss and $15,842 of increases in accounts receivable, offset by $25,931 of depreciation and amortization and $13,544 of increase in deferred revenue.

We had $1,505 of net cash used in investing activities for the six months ended February 28, 2010, which represented purchase of property and equipment.

We had $275,000 of net cash provided by financing activities for the six months ended February 28, 2010, which mainly reflected proceeds from $125,000 borrowed from Mr. Miller in November 2009 and $150,000 borrowed from Mr. Bova, as described below.

In June 2007, the Company borrowed $160,000 from Jim Stevenson through a promissory note (the “Stevenson Note”). Mr. Stevenson is a shareholder of the Company. The promissory note bears no interest and has no collateral and is due and payable upon (1) the sale of the Company’s business or the liquidation of a majority of its assets or (2) the Company reaching “a level of profitability” and a majority of the Company’s shareholders voting to repay the note before the sale of the Company or the liquidation of its assets. The $160,000 loan remained outstanding as of February 28, 2010 and is due in priority behind the Bova Note and the notes payable to Mr. Miller (as provided below).

Effective July 1, 2009, Mr. Miller, loaned the Company $50,000 which was to mature on July 2, 2010 with interest only payments due quarterly at 10% per annum. Effective August 3, 2009, Mr. Miller, loaned the Company $50,000 which was to mature on August 4, 2010 with interest only payments due quarterly at 10% per annum. Effective August 27, 2009, Mr. Miller, loaned the Company $75,000 which was to mature on August 28, 2010 with interest only payments due quarterly at 10% per annum. Effective November 30, 2009, Mr. Miller loaned the Company an additional $125,000 which matures December 1, 2010, with interest only payments due quarterly at 10% per annum (collectively the April 16, 2009, July 1, 2009, August 3, 2009, August 27, 2009 and November 30, 2009 notes are referred to herein as the “Miller Notes”).

Effective February 17, 2010, the Company entered into an Amended and Restated Promissory Note with Steve Bova, an individual accredited investor (which amended and restated a previous promissory note which also had an effective date of February 17, 2010 (the “Bova Note”). The Bova Note had a principal amount of $150,000, which represented amounts loaned to the Company by Mr. Bova. The Bova Note accrues interest at the rate of 8% per annum, with all principal and accrued interest due on the due date of February 17, 2012. The repayment of the Bova Note is senior to all of the Company’s other outstanding obligations. In connection with Mr. Bova agreeing to the terms and conditions of the Bova Note, the Company agreed to grant Mr. Bova warrants to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.50 per share, which warrants vested immediately and expire on February 17, 2012.

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As of February 28, 2010, the Company estimates that its current total monthly expenses are approximately $143,000 of which approximately $40,000 is directly attributable to advanced commission payments made to sales representatives. With current base monthly subscription plan fees received of $103,000, combined with overage (additional usage) charges to existing accounts, and new account set-up fees with their associated growth in base monthly subscription fees, the Company estimates that its current negative monthly cash flow is approximately $40,000. The Company estimates the need for approximately $350,000 of additional funding during the next 12 months to continue its business operations and an additional $650,000 to expand its operations, which does not include funds the Company will require to repay the Stevenson Note, Consolidated Note and Bova Note.

If we are unable to raise adequate working capital for fiscal 2010 and beyond, we will be restricted in the implementation of our business plan. We estimate that we can continue to operate through June 2010 with our cash on hand if no additional funding is raised.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of February 28, 2010, the Company's management carried out an evaluation, under the supervision of the Company's Chief Executive Officer, of the effectiveness of the design and operation of the Company's system of disclosure controls and procedures pursuant of the Securities and Exchange Act, Rule 13a-15(e) and 15d-15(e) under the exchange Act. Based upon that evaluation, and due to a onetime event regarding valuation of warrants granted pursuant to debt obligations issued by the Company and previously discussed in this filing under Note 3. Related Party Transactions, under Notes to the Financial Statements, the Chief Executive Officer concluded that the Company's Disclosure controls and procedures were not effective, as of the date of his evaluation, for the purposes of recording, processing, summarizing and timely reporting material information required to be disclosed in reports filed by the Company under the Securities Exchange Act of 1934. Management believes it has remedied this onetime event by implementing proper valuation and review procedures with respect to those warrants. Additionally, any warrants or options granted in the future will be adequately reviewed and valued by the procedures management has implemented. As such, we believe that the control deficiency and any material weakness caused by the lack of specific controls regarding options or warrants have been remedied.

Changes in Internal Control over Financial Reporting

No change in the Company's internal control over financial reporting occurred during the quarter ended February 28, 2010, that materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not currently involved in legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future.

ITEM 1A. RISK FACTORS

An investment in our common stock is highly speculative, and should only be made by persons who can afford to lose their entire investment in us. You should carefully consider the following risk factors and other information in this quarterly report before deciding to become a holder of our common stock. If any of the following risks actually occur, our business and financial results could be negatively affected to a significant extent.

WE HAVE FUTURE CAPITAL NEEDS, INCLUDING $400,000 WHICH WE OWE TO OUR CHIEF EXECUTIVE OFFICER, $160,000 WHICH WE OWE TO A SHAREHOLDER OF THE COMPANY, AND $150,000 WHICH WE OWE TO STEVE BOVA, AND WITHOUT ADEQUATE CAPITAL WE MAY BE FORCED TO CEASE OR CURTAIL OUR BUSINESS OPERATIONS.

We have generated limited revenues to date and anticipate the need for approximately $350,000 of additional funding to continue our business operations for the next 12 months and an additional $650,000 to significantly expand our operations, of which there can be no assurance we will be able to raise.

We will also require $400,000 to repay the funds owed to our Chief Executive Officer (described above), which have maturity dates in 2010 and 2012, which funds we do not currently have. We will also require $160,000 to repay the Stevenson Note at some point in the future and an additional $150,000 to repay the Bova Note (defined above) prior to February 2012. We estimate that we can continue to operate through June 2010 with our cash on hand if no additional funding is raised.

If financing is available, it may involve issuing securities senior to our common stock or equity financings, which are dilutive to holders of our common stock. In addition, in the event we do not raise additional capital from conventional sources, such as our existing investors or commercial banks, there is a likelihood that our growth will be restricted and we may be forced to scale back or curtail implementing our business plan. If we are unable to raise the additional funding we would be forced to eliminate certain employee positions and significantly reduce our direct sales force whose advanced commission payments represent the vast majority of our quarterly negative cash flows; and as a result, the value of our securities, if any, would likely become worthless and we may be forced to abandon our business plan, sell all or substantially all of our assets, cease filing with the Securities and Exchange Commission and/or file for bankruptcy protection. Even assuming we raise the additional capital we require to continue our business operations, we anticipate incurring net losses for the foreseeable future.

WE CURRENTLY GENERATE LIMITED REVENUES AND HAVE NOT GENERATED A PROFIT SINCE INCEPTION.

The Company generated revenues of $297,836 for the three months ended February 28, 2010 and $568,403 for the six months ended February 28, 2010, $608,610 for the year ended August 31, 2009 and $83,477 for the year ended August 31, 2008, had a net loss of $97,130 for the three months ended February 28, 2010 and $209,517 for the six months ended February 28, 2010, and had a net loss of $725,571 for the year ended August 31, 2009 and $486,645 for the year ended August 31, 2008, and has not generated a profit since its inception in June 2007. We make no assurances that we will be able to generate substantial revenues in the future and/or that we will be able to gain clients in the future to build our business to the point that we generate a profit.

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THE SUCCESS OF THE COMPANY DEPENDS HEAVILY ON TIMOTHY MILLER AND HIS INDUSTRY KNOWLEDGE, RELATIONSHIPS, AND EXPERTISE.

The success of the Company will depend on the abilities of Timothy Miller, the Company’s President and Chief Executive Officer, to manage the business. We have a consulting agreement with Mr. Miller’s company, Atreides, LLC, which can be terminated by either party at any time. The loss of Mr. Miller will have a material adverse effect on the business, results of operations and financial condition of the Company. In addition, the loss of Mr. Miller may force the Company to seek a replacement who may have less experience, fewer contacts, or less understanding of the business. Further, we can make no assurances that we will be able to find a suitable replacement for Mr. Miller, which could force the Company to curtail its operations and/or cause any investment in the Company to become worthless. The Company currently has a Software Development and Consulting Agreement with Mr. Miller, as described below under “Material Agreements.”

WE MAY CHOOSE TO GO PRIVATE IN THE FUTURE, ENTER INTO A MERGER OR ACQUISITION TRANSACTION AND/OR CEASE OUR PUBLIC FILINGS, WHICH COULD CAUSE OUR SECURITIES TO DECLINE IN VALUE OR BECOME WORTHLESS.

Moving forward, we may seek to go private in the future and/or to enter into a merger or acquisition transaction with a third party who is in a different line of business than we are currently in (although we currently have no plans to enter into or affect such a transaction). Additionally, we may file a Form 15 in the future, which if approved by the Commission, will suspend our periodic and current report filing obligations with the Commission. In the event that our management decides to take the Company private, any investors in the Company could be forced to be bought out and in the event of a reverse merger, acquisition or other merger, our shareholders could own shares in a company with operations which may be completely different, more risky and have less assets and/or revenues than the Company. In the event that we decide to go private and/or file a Form 15 to suspend our reporting obligations with the Commission, any investment in the Company could be lost or exchanged for shares of a company with different operations than we have, which may have a lesser value than our shares, and/or may have no value or liquidity. Due to the fact that our “affiliates” exercise majority voting control over the Company, as described below, investors will have little to no say in whether the Company goes private (or files a Form 15 and suspends its filing obligations) and/or if the Company enters in an acquisition, merger or reverse merger transaction in the future.

Additionally, while we have no immediate plans to merge with or acquire any entity, in the event that we do enter into a merger and/or acquisition with a separate company in the future, our majority shareholders will likely change and new shares of common or preferred stock could be issued resulting in substantial dilution to our then current shareholders. As a result, our new majority shareholders will likely change the composition of our Board of Directors and replace our current management. The new management will likely change our business focus and we can make no assurances that our new management will be able to properly manage our direction or that this change in our business focus will be successful. If we do enter into a merger or acquisition, and our new management fails to properly manage and direct our operations, we may be forced to scale back or abandon our operations, which will cause the value of our common stock to decline or become worthless.

OUR “AFFILIATES” EXERCISE MAJORITY VOTING CONTROL OVER THE COMPANY AND THEREFORE EXERCISE CONTROL OVER CORPORATE DECISIONS INCLUDING THE APPOINTMENT OF NEW DIRECTORS.

Timothy Miller, our sole Director and Chief Executive Officer and President can vote an aggregate of 1,757,700 shares, currently equal to 22.6% of our outstanding common stock. Additionally, three other shareholders, Jim Stevenson, Joe Miller and Doug Cooper, collectively can vote an aggregate of 4,093,497 shares, currently equal to 52.6% of our outstanding common stock. Therefore, Timothy Miller, Jim Stevenson, Joe Miller and Doug Cooper, our “affiliates” are able to vote 75.2% of our outstanding shares of common stock and therefore exercise control in determining the outcome of all corporate transactions or other matters, including the election of Directors, mergers, consolidations, the sale of all or substantially all of our assets, and also the power to prevent or cause a change in control. Any investors who purchase shares will be minority shareholders and as such will have little to no say in the direction of the Company and the election of Directors. Additionally, it will be difficult if not impossible for investors to remove Mr. Miller as a Director of the Company, which will mean he will remain in control of who serves as officers of the Company as well as whether any changes are made in the Board of Directors. As a potential investor in the Company, you should keep in mind that even if you own shares of the Company's common stock and wish to vote them at annual or special shareholder meetings, your shares will likely have little effect on the outcome of corporate decisions.

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OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO FORECAST OUR FUTURE RESULTS, MAKING ANY INVESTMENT IN US HIGHLY SPECULATIVE.

We have a limited operating history, and our historical financial and operating information is of limited value in predicting our future operating results. We may not accurately forecast customer behavior and recognize or respond to emerging trends, changing preferences or competitive factors facing us, and, therefore, we may fail to make accurate financial forecasts. Our current and future expense levels are based largely on our investment plans and estimates of future revenue. As a result, we may be unable to adjust our spending in a timely manner to compensate for any unexpected revenue shortfall, which could then force us to curtail or cease our business operations.

OUR LOSSES RAISE DOUBT AS TO WHETHER WE CAN CONTINUE AS A GOING CONCERN.

We had an accumulated deficit of $1,444,447 and working capital of $36,287 as of February 28, 2010, a net loss of $97,130 for the three months ended February 28, 2010, a net loss of $209,517 for the six months ended February 28, 2010, a net loss of $725,571 for the year ended August 31, 2009 and a net loss of $486,645 for the year ended August 31, 2008. These factors among others indicate that we may be unable to continue as a going concern, particularly in the event that we cannot generate revenues, obtain additional financing and/or obtain profitable operations. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty and if we cannot continue as a going concern, your investment in us could become devalued or worthless.

Our independent certified public accountant has added an emphasis paragraph to its report on our financial statements for the year ended August 31, 2009 regarding our ability to continue as a going concern. Key to this determination is our recurring net losses, an accumulated deficit, and a working capital deficiency. The Company’s financial statements are prepared using principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company does not have significant cash or other material liquid assets, nor does it have an established source of revenue sufficient to cover its operating costs and to allow it to continue as a going concern. The Company may, in the future, experience significant fluctuations in its results of operations.

OUR INDUSTRY IS HIGHLY COMPETITIVE.

The mobile phone marketing industry is highly competitive and fragmented. The Company expects competition to intensify in the future. The Company competes in its market with numerous mobile application providers, many of which have substantially greater financial, managerial and other resources than those presently available to the Company. Numerous well-established companies are focusing significant resources on providing mobile marketing services that currently compete and will compete with the Company's services in the future. The Company can make no assurance that it will be able to effectively compete with these other companies or that competitive pressures, including possible downward pressure on the prices we charge for our products and services, will not arise. In the event that the Company cannot effectively compete on a continuing basis or competitive pressures arise, such inability to compete or competitive pressures will have a material adverse effect on the Company’s business, results of operations and financial condition.

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DEPRESSED GENERAL ECONOMIC CONDITIONS OR ADVERSE CHANGES IN GENERAL ECONOMIC CONDITIONS COULD ADVERSELY AFFECT OUR OPERATING RESULTS. IF ECONOMIC OR OTHER FACTORS NEGATIVELY AFFECT THE SMALL AND MEDIUM-SIZED BUSINESS SECTOR, OUR CUSTOMERS MAY BECOME UNWILLING OR UNABLE TO PURCHASE OUR SERVICES, WHICH COULD CAUSE OUR REVENUE TO DECLINE AND IMPAIR OUR ABILITY TO OPERATE PROFITABLY.

As our business has grown, we have become increasingly subject to the risks arising from adverse changes in domestic and global economic conditions. Uncertainty about future economic conditions makes it difficult for us to forecast operating results and to make decisions about future investments. For example, the direction and relative strength of the global economy has recently been increasingly uncertain due to softness in the residential real estate and mortgage markets, volatility in fuel and other energy costs, difficulties in the financial services sector and credit markets, continuing geopolitical uncertainties and other macroeconomic factors affecting spending behavior. If economic growth in the United States continues to be slowed, or if other adverse general economic changes occur or continue, many customers may delay or reduce technology purchases or marketing spending. This could result in reductions in sales of our services and products, longer sales cycles, and increased price competition.

The majority of our existing and target customers are small and medium-sized businesses. We believe these businesses are more likely to be significantly affected by economic downturns than larger, more established businesses. For instance, the current global financial crisis affecting the banking system and financial markets and the possibility that financial institutions may consolidate or go out of business have resulted in a tightening in the credit markets, which could limit our customers’ access to credit. Additionally, these customers often have limited discretionary funds, which they may choose to spend on items other than our services. If small and medium-sized businesses experience economic hardship, or if they behave more conservatively in light of the general economic environment, they may be unwilling or unable to expend resources to develop their online presences, which would negatively affect the overall demand for our services and products and could cause our revenue to decline.

THE MAJORITY OF OUR SERVICES ARE SOLD ON A MONTH-TO-MONTH BASIS, AND IF OUR CUSTOMERS ARE UNABLE OR CHOOSE NOT TO RENEW THEIR MONTHLY SUBSCRIPTIONS, OUR REVENUE MAY DECREASE.

Typically, our services are sold pursuant to month-to-month subscription agreements, and the majority of our customers can generally cancel their subscriptions to our services at any time with little or no penalty. As a result, our results of operations can fluctuate substantially on a month-to-month basis. Additionally, if a significant number of our customers were to cancel their services, our results of operations could be adversely affected and the value of our securities could decline in value or become worthless.

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OUR OPERATING RESULTS ARE DIFFICULT TO PREDICT AND FLUCTUATIONS IN OUR PERFORMANCE MAY RESULT IN VOLATILITY IN THE MARKET PRICE OF OUR COMMON STOCK.

Due to our limited operating history, lack of working capital, our evolving business model, and the unpredictability of our emerging industry, our operating results are difficult to predict. We could experience fluctuations in our operating and financial results due to a number of factors, such as:

•

our ability to retain and increase sales to existing customers, attract new customers, and satisfy our customers’ requirements;

•

the renewal rates for our services;

•

our ability to hire, train and retain members of our sales force;

	•	our ability to continue to advance commission payments to our sales representatives;

	•	the rate of expansion and effectiveness of our sales force;

•

technical difficulties or interruptions in our services;

•

general economic conditions; and

•

the availability of additional investment in our services or operations.

These factors and others all tend to make the timing and amount of our revenue unpredictable and may lead to greater period-to-period fluctuations in revenue than we have experienced historically.

While we expect to see continued quarterly growth in sales revenue and net new client additions, as a result of these factors, and in light of current global and U.S. economic conditions, we believe that our quarterly revenue and results of operations are likely to vary significantly in the future and that period-to-period comparisons of our operating results may not be meaningful. The results of one quarter may not be relied on as an indication of future performance. If our quarterly revenue or results of operations fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially.

WE HAVE A RISK OF SYSTEM AND INTERNET FAILURES, WHICH COULD HARM OUR REPUTATION, CAUSE OUR CUSTOMERS TO SEEK REIMBURSEMENT FOR SERVICES PAID FOR AND NOT RECEIVED, AND CAUSE OUR CUSTOMERS TO SEEK ANOTHER PROVIDER FOR SERVICES.

We must be able to operate the systems that manage our network around the clock without interruption. Our operations will depend upon our ability to protect our network infrastructure, equipment, and customer files against damage from human error, fire, earthquakes, hurricanes, floods, power loss, tele-communications failures, sabotage, intentional acts of vandalism and similar events. Our networks are currently subject to various points of failure. For example, a problem with one of our routers (devices that move information from one computer network to another) or switches could cause an interruption in the services that we provide to some or all of our customers. In the past, we have experienced periodic interruptions in service. We have also experienced, and in the future we may continue to experience, delays or interruptions in service as a result of the accidental or intentional actions of Internet users, current and former employees, or others. Any future interruptions could:

Cause customers or end users to seek damages for losses incurred;

Require the Company to replace existing equipment or add redundant facilities;

Damage the Company’s reputation for reliable service;

Cause existing customers to cancel their contracts; or

Make it more difficult for the Company to attract new customers.

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OUR DATA CENTERS ARE MAINTAINED BY THIRD PARTIES.

A substantial portion of the network services and computer servers we utilize in the provision of services to customers are housed in data centers owned by other third party service providers. We obtain Internet connectivity for those servers, and for the customers who rely on those servers through the owners of those data centers. In the future, we may house other servers and hardware items in facilities owned or operated by other service providers.

A disruption in the ability of one of these service providers to provide service to us could cause a disruption in service to our customers. A service provider could be disrupted in its operations through a number of contingencies, including unauthorized access, computer viruses, accidental or intentional actions, electrical disruptions, and other extreme conditions. Although we believe we have taken adequate steps to protect our business through contractual arrangements with our service providers, we cannot eliminate the risk of a disruption in service resulting from the accidental or intentional disruption in service by a service provider. Any significant disruption could cause significant harm to us, including a significant loss of customers. In addition, a service provider could raise its prices or otherwise change its terms and conditions in a way that adversely affects our ability to support our customers or could result in a decrease in our financial performance.

WE DO NOT MAINTAIN DIRECT CONNECTIONS TO THE NETWORKS OF THE WIRELESS CARRIERS WHO ULTIMATELY SEND AND RECEIVE SMS MESSAGES TO AND FROM THE HANDSETS OF THEIR WIRELESS SUBSCRIBERS. INSTEAD, WE RELY HEAVILY ON THE RELIABILITY, SECURITY, AND PERFORMANCE OF OUR INDUSTRY’S CONNECTION AGGREGATORS. ANY DIFFICULTIES IN MAINTAINING CONNECTIONS TO OUR AGGREGATOR, OR ANY DIFFICULTIES BY OUR AGGREGATOR TO MAINTAIN CONNECTIONS TO THE NETWORKS OF WIRELESS CARRIERS MAY RESULT IN SERVICE INTERRUPTIONS.

Our SMS gateway and campaign management tools that underlie our ability to deliver our services require connections to the networks of wireless carriers are made through connection aggregators. The reliability and continuous availability of these connections are critical to our business, and any interruptions would harm our reputation, profitability, and ability to conduct business.

WE RELY ON THE CONTINUED PROVISIONING OF OUR SHARED AND DEDICATED SHORT CODES ON THE NETWORKS OF WIRELESS CARRIERS.

A substantial portion of our revenue is derived from services provided over more than one shared short codes. Though we are vigilant to follow carrier guidelines and have taken great care to design our campaign management tools to keep our clients’ campaigns ‘real-time’ compliant with the Federal Trade Commission’s (the FTC's) CAN-SPAM Act, the Mobile Marketing Association's Code of Conduct, and the most stringent of all Operational Playbooks published by any wireless carrier, there remains a possibility that our short codes could be de-provisioned by any single carrier. If one of our shared short codes were to be de-provisioned by any major carrier network for any length of time, it would significantly affect our ability to conduct business while we pursued resolution and relief from damages through legal channels.

WE FACE INTENSE AND GROWING COMPETITION. IF WE ARE UNABLE TO COMPETE SUCCESSFULLY, OUR BUSINESS WILL BE SERIOUSLY HARMED.

The market for our services and products is competitive and has relatively low barriers to entry. Our competitors vary in size and in the variety of services they offer. We encounter competition from a wide variety of companies which include companies with similar ‘in-house’ capabilities, as well as competition from those that license or private-label solutions from those companies.

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In addition, due to relatively low barriers to entry in our industry, we expect the intensity of competition to increase in the future from other established and possibly better funded companies. Increased competition may result in price reductions, reduced gross margins, and loss of market share, any one of which could seriously harm our business. We also expect that competition will increase as a result of industry consolidations and formations of alliances among industry participants.

Many of our current and potential future competitors have longer operating histories, significantly greater financial, technical, marketing and other resources, greater brand recognition and, we believe, a larger installed base of customers. These competitors may be able to adapt more quickly to new or emerging technologies and changes in customer requirements. They may also be able to devote greater resources to the promotion and sale of their services and products than we can. If we fail to compete successfully against current or future competitors, our revenue could increase less than anticipated or decline, and our business could be harmed.

IF OUR SECURITY MEASURES ARE BREACHED, OUR SERVICES MAY BE PERCEIVED AS NOT BEING SECURE, AND OUR BUSINESS AND REPUTATION COULD SUFFER.

Our services involve the storage and transmission of our customers’ proprietary information. Although we employ technical and internal control procedures to assure the security of our customers’ data, we cannot guarantee that these measures will be sufficient for this purpose. If our security measures are breached as a result of third-party action, employee error or otherwise, and as a result our customers’ data becomes available to unauthorized parties, we could incur liability and our reputation would be damaged, which could lead to the loss of current and potential customers. If we experience any breaches of our network security or sabotage, we might be required to expend significant capital and other resources to remedy, protect against or alleviate these and related problems, and we may not be able to remedy these problems in a timely manner, or at all. Because techniques used by outsiders to obtain unauthorized network access or to sabotage systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures.

IF WE CANNOT ADAPT TO TECHNOLOGICAL ADVANCES, OUR SERVICES AND PRODUCTS MAY BECOME OBSOLETE AND OUR ABILITY TO COMPETE WOULD BE IMPAIRED.

Changes in our industry occur very rapidly, including changes in the way mobile phones and carrier networks operate. As a result, our services and products could become obsolete. The introduction of competing products employing new technologies and the evolution of new industry standards could render our existing products or services obsolete and unmarketable. To be successful, our services and products must keep pace with technological developments and evolving industry standards, address the ever-changing and increasingly sophisticated needs of our customers, and achieve market acceptance. If we are unable to develop new services, or enhancements to our services on a timely and cost-effective basis, or if new services or products or enhancements do not achieve market acceptance, our business would be seriously harmed.

PROVIDING MOBILE MARKETING SERVICES TO SMALL AND MEDIUM-SIZED BUSINESSES DESIGNED TO ALLOW THEM TO BUILD MOBILE LOYALTY, REWARDS, AND ALERT PROGRAMS IS A NEW AND EMERGING MARKET; IF THIS MARKET FAILS TO DEVELOP, WE WILL NOT BE ABLE TO GROW OUR BUSINESS.

Our success depends on a significant number of small and medium-sized businesses that desire to sustain mobile loyalty, rewards, and alert programs with their customers. The market for our services and products is relatively new. If small or medium-sized businesses determine that subscribing to these services is not giving their businesses an advantage, they would be less likely to renew their subscriptions. If the market for our services fails to grow or grows more slowly than we currently anticipate, or if our services and products fail to achieve widespread customer acceptance, our business would be seriously harmed.

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ANY GROWTH COULD STRAIN OUR RESOURCES AND OUR BUSINESS MAY SUFFER IF WE FAIL TO IMPLEMENT APPROPRIATE CONTROLS AND PROCEDURES TO MANAGE OUR GROWTH.

Growth in our business may place a strain on our management, administrative, and sales and marketing infrastructure. If we fail to successfully manage our growth, our business could be disrupted, and our ability to operate our business profitably could suffer. Growth in our employee base may be required to expand our customer base and to continue to develop and enhance our services. To manage growth of our operations and personnel, we would need to enhance our operational, financial, and management controls and our reporting systems and procedures. This would require additional personnel and capital investments, which would increase our cost base. The growth in our fixed cost base may make it more difficult for us to reduce expenses in the short term to offset any shortfalls in revenue.

OUR ARTICLES OF INCORPORATION, AS AMENDED, AND BYLAWS LIMIT THE LIABILITY OF, AND PROVIDE INDEMNIFICATION FOR, OUR OFFICERS AND DIRECTORS.

Our Articles of Incorporation, generally limit our officers' and Directors' personal liability to the Company and its stockholders for breach of fiduciary duty as an officer or Director except for breach of the duty of loyalty or acts or omissions not made in good faith or which involve intentional misconduct or a knowing violation of law. Our Articles of Incorporation, as amended, and Bylaws provide indemnification for our officers and Directors to the fullest extent authorized by the Nevada General Corporation Law against all expense, liability, and loss, including attorney's fees, judgments, fines excise taxes or penalties and amounts to be paid in settlement reasonably incurred or suffered by an officer or Director in connection with any action, suit or proceeding, whether civil or criminal, administrative or investigative (hereinafter a "Proceeding") to which the officer or Director is made a party or is threatened to be made a party, or in which the officer or Director is involved by reason of the fact that he or she is or was an officer or Director of the Company, or is or was serving at the request of the Company as an officer or director of another corporation or of a partnership, joint venture, trust or other enterprise whether the basis of the Proceeding is alleged action in an official capacity as an officer or Director, or in any other capacity while serving as an officer or Director. Thus, the Company may be prevented from recovering damages for certain alleged errors or omissions by the officers and Directors for liabilities incurred in connection with their good faith acts for the Company. Such an indemnification payment might deplete the Company's assets. Stockholders who have questions regarding the fiduciary obligations of the officers and Directors of the Company should consult with independent legal counsel. It is the position of the Securities and Exchange Commission that exculpation from and indemnification for liabilities arising under the Securities Act of 1933, as amended, and the rules and regulations thereunder is against public policy and therefore unenforceable.

WE WILL INCUR INCREASED COSTS IN CONNECTION WITH COMPLIANCE WITH SECTION 404 OF THE SARBANES OXLEY ACT, AND OUR MANAGEMENT WILL BE REQUIRED TO DEVOTE SUBSTANTIAL TIME TO NEW COMPLIANCE INITIATIVES.

We are subject to among other things, the periodic reporting requirements of Section 15(d) of the Securities Exchange Act of 1934, as amended, and will incur significant legal, accounting and other expenses in connection with such requirements. The Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") and new rules subsequently implemented by the SEC have imposed various new requirements on public companies, including requiring changes in corporate governance practices. As such, our management and other personnel will need to devote a substantial amount of time to these new compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. In addition, the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure of controls and procedures. Our compliance with Section 404 will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.

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ANY FAILURES OF THE MOBILE TELECOMMUNICATIONS NETWORK, THE INTERNET OR OUR TECHNOLOGY MAY REDUCE USE OF OUR SERVICES.

Our business depends on our ability to maintain the satisfactory performance, reliability and availability of our technology. Any server interruptions, break-downs or system failures, including failures caused by sustained power shutdowns, floods or fire causing loss or corruption of data or malfunctions of software or hardware equipment, or other events outside our control that could result in a sustained shutdown of all or a material portion of the mobile networks, the Internet or our technology platform, could adversely impact our ability to provide our services to customers and decrease our revenues.

THE MAJORITY OF THE COMPANY’S CLIENT RELATIONSHIPS ARE ON A MONTH-TO-MONTH BASIS AND THEREFORE SUBJECT TO CANCELLATION TERMINATION OR NON-RENEWAL AT ANY TIME FOR ANY REASON.

The Company commercially launched its service on January 8, 2008. As of February 28, 2010, the Company serviced 606 unique, revenue generating clients. However, the Company does not enter into contracts with its small business clients and/or only enters into month-to-month contracts as is the usual business practice in the Company’s industry. As a result, approximately 48 percent of the Company’s revenue is currently derived from clients who could cancel or terminate their relationships with the Company without any significant notice at any time for any reason. Consequently, the Company’s revenues could decrease or decline significantly and the Company could be forced to curtail or abandon its business operations, which could cause any investment in the Company to become worthless.

Risks Relating To the Company’s Securities

WE HAVE NEVER PAID CASH DIVIDENDS IN CONNECTION WITH OUR COMMON STOCK AND HAVE NO PLANS TO PAY DIVIDENDS IN THE FUTURE.

We have paid no cash dividends on our common stock to date and it is not anticipated that any cash dividends will be paid to holders of our common stock in the foreseeable future. While our dividend policy will be based on the operating results and capital needs of our business, it is anticipated that any earnings will be retained to finance our future expansion.

INVESTORS MAY FACE SIGNIFICANT RESTRICTIONS ON THE RESALE OF OUR COMMON STOCK DUE TO FEDERAL REGULATIONS OF PENNY STOCKS.

Our common stock will be subject to the requirements of Rule 15(g)9, promulgated under the Securities Exchange Act as long as the price of our common stock is below $5.00 per share. Under such rule, broker-dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements, including a requirement that they make an individualized written suitability determination for the purchaser and receive the purchaser's consent prior to the transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990, also requires additional disclosure in connection with any trades involving a stock defined as a penny stock. Generally, the Commission defines a penny stock as any equity security not traded on an exchange or quoted on NASDAQ that has a market price of less than $5.00 per share. The required penny stock disclosures include the delivery, prior to any transaction, of a disclosure schedule explaining the penny stock market and the risks associated with it. Such requirements could severely limit the market liquidity of the securities and the ability of purchasers to sell their securities in the secondary market.

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In addition, various state securities laws impose restrictions on transferring "penny stocks" and as a result, investors in the common stock may have their ability to sell their shares of the common stock impaired.

SHAREHOLDERS MAY BE DILUTED SIGNIFICANTLY THROUGH OUR EFFORTS TO OBTAIN FINANCING AND SATISFY OBLIGATIONS THROUGH THE ISSUANCE OF ADDITIONAL SHARES OF OUR COMMON STOCK.

We have no committed source of financing. Wherever possible, our Board of Directors will attempt to use non-cash consideration to satisfy obligations. In many instances, we believe that the non-cash consideration will consist of restricted shares of our common stock. Our Board of Directors has authority, without action or vote of the shareholders, to issue all or part of the authorized but unissued shares of common stock. In addition, if a trading market develops for our common stock, we may attempt to raise capital by selling shares of our common stock, possibly at a discount to market. These actions will result in dilution of the ownership interests of existing shareholders, may further dilute common stock book value, and that dilution may be material. Such issuances may also serve to enhance existing management’s ability to maintain control of the Company because the shares may be issued to parties or entities committed to supporting existing management.

STATE SECURITIES LAWS MAY LIMIT SECONDARY TRADING, WHICH MAY RESTRICT THE STATES IN WHICH AND CONDITIONS UNDER WHICH SHAREHOLDERS CAN SELL OUR SHARES.

Secondary trading in our common stock may not be possible in any state until the common stock is qualified for sale under the applicable securities laws of the state or there is confirmation that an exemption, such as listing in certain recognized securities manuals, is available for secondary trading in the state. If we fail to register or qualify, or to obtain or verify an exemption for the secondary trading of, the common stock in any particular state, the common stock could not be offered or sold to, or purchased by, a resident of that state. In the event that a significant number of states refuse to permit secondary trading in our common stock, the liquidity for the common stock could be significantly impacted.

BECAUSE WE ARE NOT SUBJECT TO COMPLIANCE WITH RULES REQUIRING THE ADOPTION OF CERTAIN CORPORATE GOVERNANCE MEASURES, OUR STOCKHOLDERS HAVE LIMITED PROTECTIONS AGAINST INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND SIMILAR MATTERS.

The Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, the New York and American Stock Exchanges and the Nasdaq Stock Market, as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities that are listed on those exchanges or the Nasdaq Stock Market. Because we are not presently required to comply with many of the corporate governance provisions and because we chose to avoid incurring the substantial additional costs associated with such compliance any sooner than legally required, we have not yet adopted these measures.

Because our Directors are not independent directors, we do not currently have independent audit or compensation committees. As a result, our Directors have the ability to, among other things, determine their own level of compensation. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested director transactions, conflicts of interest, if any, and similar matters and any potential investors may be reluctant to provide us with funds necessary to expand our operations.

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We intend to comply with all corporate governance measures relating to director independence as and when required. However, we may find it very difficult or be unable to attract and retain qualified officers, Directors and members of board committees required to provide for our effective management as a result of the Sarbanes-Oxley Act of 2002. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of Directors and executive officers. The perceived increased personal risk associated with these recent changes may make it more costly or deter qualified individuals from accepting these roles.

WE CURRENTLY HAVE A LIMITED PUBLIC MARKET FOR OUR SECURITIES WHICH MAY BE VOLATILE AND ILLIQUID.

In April 2009, we obtained quotation for our common stock on the Over-The-Counter Bulletin Board (“OTCBB”) under the symbol SMXI.OB. However, there is currently a limited public market for our common stock, and we can make no assurances that there will be demand for our common stock in the future. If there is a market for our common stock in the future, we anticipate that such market would continue to be illiquid and would be subject to wide fluctuations in response to several factors, including, but not limited to:

	(1)	actual or anticipated variations in our results of operations;
	(2)	our ability or inability to generate new revenues;
	(3)	the number of shares in our public float;
	(4)	increased competition; and
	(5)	conditions and trends in the market for mobile marketing services.

Furthermore, our stock price may be impacted by factors that are unrelated or disproportionate to our operating performance. These market fluctuations, as well as general economic, political and market conditions, such as recessions, interest rates or international currency fluctuations may adversely affect the market price and liquidity of our common stock.

IF WE ARE LATE IN FILING OUR QUARTERLY OR ANNUAL REPORTS WITH THE SEC, WE MAY BE DE-LISTED FROM THE OVER-THE-COUNTER BULLETIN BOARD.

Pursuant to Over-The-Counter Bulletin Board ("OTCBB") rules relating to the timely filing of periodic reports with the SEC, any OTCBB issuer which fails to file a periodic report (Form 10-Q's or 10-K's) by the due date of such report (not withstanding any extension granted to the issuer by the filing of a Form 12b-25), three (3) times during any twenty-four (24) month period is automatically de-listed from the OTCBB. Such removed issuer would not be re-eligible to be listed on the OTCBB for a period of one-year, during which time any subsequent late filing would reset the one-year period of de-listing. If we are late in our filings three times in any twenty-four (24) month period and are de-listed from the OTCBB, our securities may become worthless and we may be forced to curtail or abandon our business plan.

NEVADA LAW AND OUR ARTICLES OF INCORPORATION AUTHORIZE US TO ISSUE SHARES OF COMMON STOCK, WHICH SHARES MAY CAUSE SUBSTANTIAL DILUTION TO OUR SHAREHOLDERS.

Pursuant to our Articles of Incorporation, we have 100,000,000 shares of common stock authorized. As of April 1, 2010, we had 7,779,806 shares of common stock issued and outstanding. As a result, our Board of Directors has the ability to issue a large number of additional shares of common stock without shareholder approval, which if issued would cause substantial dilution to our then shareholders. As a result, the issuance of shares of common stock may cause the value of our securities to decrease and/or become worthless.

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

Effective February 17, 2010, in connection with Timothy Miller, the Company’s Chief Executive Officer and Director, agreeing to the terms and conditions of the Consolidated Note (as defined and described above), the Company agreed to grant Mr. Miller warrants to purchase 550,000 shares of the Company’s common stock at an exercise price of $0.50 per share, which warrants vested immediately and expire on February 17, 2012.

Effective February 17, 2010, in connection with Steve Bova agreeing to the terms and conditions of the Bova Note (as defined and described above), the Company agreed to grant Mr. Bova warrants to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.50 per share, which warrants vested immediately and expire on February 17, 2012.

We claim an exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, since the foregoing grants did not involve a public offering, the recipients took the securities for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuances and we paid no underwriting discounts or commissions.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit Number	Description of Exhibit

3.1(1)	Articles of Incorporation

3.2(1)	Bylaws

10.1(1)	Software Development and Consulting Agreement with Atreides, LLC

10.2(1)	Software Development and Consulting Agreement with DataMethodology, LLC

10.3(2)	First Amendment to Software Development and Consulting Agreement with Atreides, LLC

10.4(2)	First Amendment to Software Development and Consulting Agreement with DataMethodology, LLC

10.5(3)	Second Amendment to Software Development and Consulting Agreement with Atreides, LLC

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10.6(4)	Promissory Note with Timothy Miller - $100,000 -- April 16, 2009

10.7(6)	Promissory Note with Timothy Miller - $50,000 -- July 2, 2009

10.8(6)	Promissory Note with Timothy Miller - $50,000 – August 3, 2009

10.9(6)	Promissory Note with Timothy Miller - $75,000 – August 28, 2009

10.10(7)	Promissory Note with Timothy Miller - $125,000 – November 30, 2009

10.11*	Amended and Restated Promissory Note with Steven Bova – February 17, 2010

10.12*	Amended and Restated Promissory Note with Timothy Miller – February 17, 2010

16.1(5)	Letter from Malone & Bailey, PC

31*

32*

Certificate of the Chief Executive Officer and Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certificate of the Chief Executive Officer and Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Filed herewith.

(1) Filed as an Exhibit to the Company’s Registration Statement on Form S-1, filed with the Commission on January 23, 2009, and incorporated by reference herein.

(2) Filed as an Exhibit to the Company’s Amended Registration Statement on Form S-1/A, filed with the Commission on February 27, 2009, and incorporated by reference herein.

(3) Filed as an Exhibit to the Company’s Amended Registration Statement on Form S-1/A, filed with the Commission on March 19, 2009, and incorporated by reference herein.

(4) Filed as an Exhibit to the Company’s Report on Form 10-Q for the quarterly period ended May 31, 2009, filed with the Commission on July 1, 2009, and incorporated herein by reference.

(5) Filed as an Exhibit to the Company’s Report on Form 8-K, filed with the Commission on September 9, 2009, and incorporated herein by reference.

(6) Filed as an Exhibit to the Company’s Report on Form 10-K for the fiscal year ended August 31, 2009, filed with the Commission on November 5, 2009, and incorporated herein by reference.

(6) Filed as an Exhibit to the Company’s Report on Form 10-Q for the quarter ended November 30, 2009, filed with the Commission on December 31, 2009, and incorporated herein by reference.

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SIGNATURES

In accordance with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	SUMOTEXT INCORPORATED

Date: April 15, 2010	By: /s/ Timothy Miller
	Timothy Miller
	Chief Executive Officer (Principal Executive Officer) and Principal Accounting Officer (Principal Financial Officer)

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Attached files

Sebring Software, Inc. Reports

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