Attached files

file filename
EX-21 - LIST OF SUBSIDIARIES. - Unilava Corpexhibit_21.htm
EX-10.2 - FORM OF LETTER OF AGENCY FOR LONG DISTANCE - Unilava Corpexhibit_10-2.htm
EX-31.1 - CERTIFICATION OF THE CHIEF EXECUTIVE PURSUANT TO RULE 13A-14 OF THE SECURITIES AND EXCHANGE ACT OF 1934 AS AMENDED, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2003 - Unilava Corpexhibit_31-1.htm
EX-10.3 - ORM OF LETTER OF AGENCY FOR LOCAL DISTANCE - Unilava Corpexhibit_10-3.htm
EX-10.5 - MASTER SERVICE AGREEMENT DATED MARCH 18, 2008 BY AND BETWEEN LEVEL 3 COMMUNICATIONS, LLC AND TELAVA NETWORKS, INC. - Unilava Corpexhibit_10-5.htm
EX-10.4 - JOINT APPLICATION FOR APPROVAL OF AN INTERCONNECTION AGREEMENT, DATED MARCH 12, 2010, BY AND BETWEEN SOUTHWESTERN BELL TELEPHONE COMPANY D/B/A AT&T TEXAS AND IBFA ACQUISITION COMPANY, LLC. - Unilava Corpexhibit_10-4.htm
EX-32.1 - CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2003 - Unilava Corpexhibit_32-1.htm
EX-31.2 - CERTIFICATION OF THE FINANCIAL OFFICER PURSUANT TO RULE 13A-14 OF THE SECURITIES AND EXCHANGE ACT OF 1934 AS AMENDED, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2003. FILED HEREWITH - Unilava Corpexhibit_31-2.htm
EX-10.1 - EMPLOYMENT AGREEMENT DATED JULY 31, 2003 BETWEEN UNILAVA CORPORATION?S SUBSIDIARY AND BALDWIN YUNG. - Unilava Corpexhibit_10-1.htm


  UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

x   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2011

o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________

Commission File No. 000-25108

UNILAVA CORPORATION

(Exact name of registrant as specified in its charter)

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

353 Sacramento Street, Suite 1500
San Francisco, CA 94111

  (Address of principal executive offices)

(415) 321-3490

 (Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None
 
Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, no par value
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ¨ No x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ¨ No x
 
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 Website, 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large Accelerated Filer 
  o
 
 Accelerated Filer 
  o
 Non-Accelerated Filer 
  o
 
 Smaller reporting company
  x
 (Do not check if a smaller reporting company)  
       
 
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o No x
 
As of June 30, 2011 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of the shares of the registrant’s common stock held by non-affiliates (based upon the closing price of such shares as quoted on the OTC Bulletin Board maintained by the Financial Industry Regulatory Authority) was approximately $1.2 million. Shares of the registrant’s common stock held by each executive officer and director and each by each person who owns 10% or more of the outstanding common stock have been excluded from the calculation in that such persons may be deemed to be affiliates of the registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
 
There were a total of 100,051,107 shares of the registrant’s common stock issued and outstanding as of April 13, 2012.

DOCUMENTS INCORPORATED BY REFERENCE

None.
 
1

 

 

UNILAVA CORPORATION
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 2011 

TABLE OF CONTENTS
  
 
PART I
 Page
     
 Item 1. 
Business
4
     
 Item 1A.
Risk Factors 
18
     
 Item 1B.
Unresolved Staff Comments
23
     
 Item 2. 
Properties
23
     
 Item 3.
Legal Proceedings
23
     
 Item 4.  
(Reserved)
23
     
 
PART II
 
     
 Item 5. 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
24
     
 Item 6.
Selected Financial Data
25
     
 Item 7. 
Management's Discussion and Analysis of Financial Condition and Results of Operations
25
     
 Item 7A.
Quantitative and Qualitative Disclosures About Market Risk 
28
     
 Item 8. 
Financial Statements and Supplementary Data
28
     
 Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
28
     
 Item 9A.
Controls and Procedures
29
     
 Item 9B.
Other Information
30
     
 
PART III
 
     
 Item 10. 
Directors, Executive Officers and Corporate Governance
30
     
 Item 11.  
Executive Compensation
35
     
 Item 12.  
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matter
36
     
 Item 13. 
Certain Relationships and Related Transactions, and Director Independence
37
     
 Item 14.
Principal Accounting Fees and Services 
38
     
 
PART IV
 
     
 Item 15. 
 Exhibits and Financial Statements Schedules
39
     


 
 

 


 
2

 

 


 
Special Note Regarding Forward Looking Statements

 In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We use words such as “believe,” “expect,” “anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,” “aim,” “will” or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those identified in Item 1A, “Risk Factors” included herein, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements.

Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.

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

Use of Terms

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

 
·
“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
 
·
“IBFA” refers to IBFA Acquisitions LLC, a Michigan limited liability company and wholly owned subsidiary of the Company;
 
·
“LIP” refers to Local Info Pages, Inc., a Korean corporation and wholly owned subsidiary of Telava Networks;
 
·
“SEC” refers to the Securities and Exchange Commission;
 
·
“Securities Act” refers to the Securities Act of 1933, as amended;
 
·
“Telava Acquisitions” refers to Telava Acquisitions, Inc., a Delaware corporation and wholly owned subsidiary of the Company;
 
·
“Telava Networks” refers to Telava Networks, Inc., a Nevada corporation and wholly owned subsidiary of the Company;
 
·
“Telava Mobile” refers to Telava Mobile, Inc., a Delaware corporation and 80% owned subsidiary of the Company;
 
·
“Telava Wireless” refers to Telava Wireless, Inc., a Wyoming corporation and 75% owned subsidiary of Telava Networks; and
 
·
“U.S. dollars,” “dollars” and “$” refer to the legal currency of the United States.

Available Information

Unilava is a diversified communications holding company incorporated under the laws of the State of Wyoming in 2009 and has its principal executive offices at 353 Sacramento Street, Suite 1500, San Francisco, California 94111 (telephone number 415-321-3490). We maintain an internet website at www.unilava.com. This website address is for information only and is not intended to be an active link or to incorporate any website information into this document.  We make available, free of charge, on our website our annual report on Form 10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). We also make available on that website, and in print, if any stockholder or other person so requests, our code of business conduct and ethics entitled “Code of Ethics” applicable to all employees and Directors, our “Corporate Governance Guidelines,” and the charters for all committees of our Board of Directors, including Audit, Human Resources and Corporate Governance and Nominating. Any changes to our Code of Ethics or waiver of our Code of Ethics for senior financial officers, executive officers or Directors will be posted on that website.

 
 

 


 
3

 

 

PART I
ITEM 1.    BUSINESS
 
Overview of our Business
 

 
Through our consolidated subsidiaries, Telava Networks, Inc., Telava Acqusitions, Inc., Telava Wireless, Inc., Telava Mobile, Inc., Local Info Pages, Inc. and IBFA Acqusitions LLC , we provide a variety of communications services, products, and equipment that address the needs of small to medium enterprise businesses and consumers under the Unilava corporate brand which includes our retail brands consisting of Telava TM , Countryconnect TM , Telava TM Mobile, Local Area Yellow Pages, Counia, and Nationwide Roadside Assistance. We are licensed to provide long distance services in 41 States and local phone services in 11 States. Through our carrier-grade microwave wireless broadband infrastructure and broadband internet access partners, we offer mobile and high-definition IP-hosted voice services to residential, small and medium enterprises. We deliver small business a comprehensive and integrated suite of fee-based online and mobile advertising and web services. Headquartered in San Francisco, we have regional offices in Chicago, Seoul, Hong Kong, and Beijing.

Our History and Background
 
We were originally incorporated in the British Virgin Islands as IWI Holding Limited (“IWI”).  IWI was previously engaged in the international jewelry business. IWI went public via an initial public offering in 1994 and disposed of the subsidiary on December 31, 2007. On September 21, 2009, IWI entered into an agreement pursuant to which IWI acquired at closing on September 30, 2009, all of the outstanding shares of Telava Networks, Inc., a Nevada corporation (“Telava”), in exchange for 55 million newly issued shares of common stock. In addition, certain preferred stock of IWI which had been issued in 1994 totaling 3,644,880 shares was converted into 45 million shares of common stock. In connection with the closing of the acquisition, the Telava management was appointed as the members of IWI management, IWI continued as a Wyoming corporation, and the name of IWI was changed to Unilava Corporation (“Unilava”).

The Company consists of several subsidiaries which make up the consolidated financial statements.  The parent company is Unilava Corporation which is a holding company for the operating subsidiaries.  Telava Networks, Inc (Local Area Yellow Pages) has significant operating revenue.  Telava Wireless has significant assets.  Local Info Pages has overseas operations in Korea.  Telava Acquisitions is insignificant to the Company’s financial position and operating results.  Telava Mobile has minimal assets and operations.  IBFA has significant assets, liabilities and revenue.
 
TelavaNV, a privately owned company, was incorporated in Nevada on July 23, 2003 as Local Area Yellow Pages to provide advertising and directory listings for small and medium sized businesses on its internet website in a “Yellow Pages” format.  The Company provides those services to its subscribers for a monthly fee.  These services are provided primarily to small and medium sized businesses throughout the United States.  On July 10, 2007, Local Area Yellow Pages amended its Articles of Incorporation to change the name of the corporation to Telava Networks, Inc. (“TelavaNV”) for the purpose of launching its network to provide the next generation fixed and mobile WiMAX broad band solutions to small and medium businesses, public safety organizations, and others in various markets through its network.  TelavaNV continues its Yellow Pages operations while, at the same time, expanding its WiMAX network.  For the year ended December 31, 2011, nearly 24% of the Company’s revenues have been generated by its Yellow Pages business.

 
 

 


 
4

 

 

ITEM 1.    BUSINESS- continued
 
On January 19, 2006, TelavaNV formed Local Info Pages, Inc. (“LIP”), headquartered in Seoul, South Korea, as a wholly owned subsidiary of TelavaNV. LIP is one of the leading direct marketing and business service companies in Korea. LIP connects advertisers to targeted audiences through its network advertising products and services. On January 3, 2007, the Company acquired a website which brings value to the Company because of its large customer base which enables the Company to target and market its products to those customers.  Another division of LIP is the second largest coupon company in South Korea which enables advertisers to directly reach consumers with branded media products, coupons and other advertisements. Many consumers depend on the Company to deliver the best values in town via direct and online coupons. For advertisers, LIP offers business advertising solutions by enabling them to sell their products and services in person, online or through the mail.
 
On May 17, 2006, TelavaNV formed Telava Wireless, Inc. (“Telava Wireless”) as a subsidiary for the purpose of entering the mobile WiMAX broad band solutions market.  On November 6, 2006, the Company acquired 40 microwave towers in exchange for 25% of Telava Wireless.
 
On September 11, 2007, TelavaNV formed Telava Acquisitions, Inc. as a wholly owned subsidiary for the purpose of acquiring other related businesses.

On January 16, 2008, Telava Acquisitions, Inc. (“Telava”) a Delaware corporation and IBFA Acquisition Company, LLC (“IBFA”) a Michigan corporation and James Grabowski and Casimir Wojciechowski (the “Members”) entered into a Membership Interest Purchase Agreement (“MIPA”) whereby Telava agreed to purchase (the “Acquisition”) 100% of IBFA member interests from the Members for a purchase price of $2,250,000 subject to certain conditions such as a Management Agreement described below.  An initial $1,750,000 was paid in fiscal year 2008 with $500,000 deferred and payable at the rate of $25,000 to $50,000 per month based on a specific calculation.  During 2009, the Company paid $272,750 of deferred payments.  The remaining $227,750 was subject to “True-up” provisions as of the effective date of the Acquisition on January 11, 2009 (See discussion below).  Upon final settlement, The Company received concessions totaling $177,578 and made final payments totaling $95,172. Payment made related to the organization totaled $2,117,922.  The cost of acquisition totaling $1,835,873 has been entirely allocated to Goodwill which represents the overall cost of acquisition in excess of the fair value of tangible assets and identifiable intangible assets.

On November 12, 2008, TelavaNV formed Telava Mobile, Inc. (“TM”) as a 80% majority-owned subsidiary for the purpose of entering the mobile services businesses offering prepaid mobile calling cards and unlimited mobile services throughout the United States of America. 

Our Business

We are emerging as a leading provider of communications services in the United States and the world. We offer our services and products to consumers, businesses, and other providers in the U.S. and worldwide. The services and products that we offer vary by market and include: wireless communications, local exchange services, long-distance services, data/broadband and internet services, video services, telecommunications equipment, wholesale services and directory advertising and publishing. We group our operating subsidiaries as follows, corresponding to our operating segments for financial reporting purposes:
 
Wireless subsidiaries provide both wireless voice and data communications services across the U.S. and, through agreements, in a substantial number of foreign countries;
   
Wireline subsidiaries provide primarily landline voice and data communication services, high-speed broadband and voice services;
   
Advertising solutions subsidiaries publish Local Area Yellow Pages directories and sell directory advertising and internet-based advertising and local search; and
   
Other subsidiaries provide results from all corporate and other operations.
 
Our traditional wireline local exchange subsidiaries operate in 22 states: Alabama, Arkansas, California, Connecticut, Illinois, Indiana, Florida, Georgia, Kentucky, Louisiana, Kansas, Michigan, Mississippi, Missouri, Nevada, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee, Texas and Wisconsin. Our wireline local exchange services are provided through regulated subsidiaries which operate within authorized regions subject to regulation by each state in which they operate and by the Federal Communications Commission (FCC). Wireless service providers are regulated by the FCC.

 
 

 


 
5

 

 

ITEM 1.    BUSINESS- continued
 
With the expansion of our company through acquisitions, the resulting ownership consolidation of IBFA, and continuing advances in technology, we plan to offer new services that combine our traditional wireline and wireless services, thereby making our customers’ lives more convenient and productive and further innovating the communications and entertainment industry. In 2012, we plan to focus on the areas discussed below.

Wireless
 
Telava Mobile began operations in January 2009 as a subsidiary of Telava Networks, Inc. We provide certain wireless services on our third generation (3G) network and second generation (2G) network. Through our mobile virtual network operator (MVNO) relationships, we offer 3G services with nationwide coverage in all 50 states, Puerto Rico and the U.S. Virgin Islands, utilizing code division multiple access (CDMA) or global system for mobile communications (GSM). In February 2010, we announced the Telava TM Broadband Bullet 3G unlimited service that allows compatible devices to enjoy the speeds of our 3G services where available. This initiative incorporates selling, marketing, product development, and operations resources to address growing non-traditional data needs, which covers a wide variety of products and services including telematics, in-vehicle devices, e-readers, specialized medical devices, and other original equipment manufacturer devices.
 
We believe that our value-driven wireless price plans are very competitive. Our Telava TM Mobile CDMA prepaid price plans include low and unlimited monthly voice plans and unlimited text service options. Our Telava TM Mobile GSM unlimited prepaid price plans bundle together with popular local and international texting services with traditional mobile voice calling at attractive price points. The addition of unlimited plans provides subscribers with unlimited mobile-to-mobile calling from our network to and from any wireless phone on any U.S. wireless carrier network or landline at no additional charge. Our Telava TM Mobile unique prepaid price plans include monthly hybrid plans and voice and data per usage plans. Subscribers may opt for automatic refill in any increments $5 or above to add money to their accounts. Subscribers utilize a credit card, debit card or PayPal account to credit their accounts automatically on a monthly basis or when their accounts reach a specified minimum amount.

Our CDMA third generation (3G) network, an all-digital wireless network that allow us to provide service in all 50 states, Puerto Rico and the U.S. Virgin Islands, uses a single frequency band and a digital spread-spectrum wireless technology that allows a large number of users to access the band by assigning a code to all voice and data bits, sending a scrambled transmission of the encoded bits over the air and reassembling the voice and data into its original format. We provide nationwide service through a combination of operating our own digital network in both major and smaller U.S. metropolitan areas and rural connecting routes using CDMA technology, affiliations under commercial arrangements with third-party affiliates and roaming on other providers’ networks.

Our GSM third generation (3G) network technology covers most major metropolitan areas of the U.S. This technology provides superior speeds for data and video services, as well as operating efficiencies, using the same spectrum and infrastructure for voice and data on an IP-based platform. Our wireless network also relies on digital transmission technologies known as Global System for Mobile Communication (GSM), General Packet Radio Services (GPRS) and Enhanced Data Rates for GSM Evolution (EDGE) for data communications.  Our GSM network have also announced plans to transition our network to more advanced Long Term Evolution technology in 2012 as network equipment and handsets are expected to become widely available.
  
As the wireless industry continues to mature, we believe that future wireless growth will become increasingly dependent on our ability to offer integrated handsets and other innovative devices such as GPS tracking and medical devices and innovative services that will encourage existing customers to upgrade their services and will attract customers from other providers as well as our ability to minimize turnover of our existing customer base (customer churn). We intend to accomplish these goals by continuing to expand our network coverage, improve our network quality and offer a broad array of products and services. The effective management of customer churn is critical to our ability to maximize revenue growth and to maintain and improve our operating margins.

Data & Voice Services

Wireless data communications services include mobile productivity applications, such as internet access and messaging and email services; wireless photo and video offerings; location-based capabilities, including asset and fleet management, dispatch services and navigation tools; and mobile entertainment applications all from a wireless handset.

As the communications industry continues to move toward internet-based technologies that are capable of blending traditional wireline and wireless services, we plan to offer services that take advantage of these new and more sophisticated technologies. In particular, we intend to continue to focus on deploying our integrated communications services, including high-speed broadband, VoIP and video services and on developing internet protocol-based services that allow customers to unite their home or business wireline services with their wireless service.

 
 

 


 
6

 

 

ITEM 1.    BUSINESS- continued
 
Wireless voice communications services include basic local and long distance wireless voice services, as well as voicemail, call waiting, three-way calling, caller identification, directory assistance, call forwarding, and speakerphone. We also provide voice and data services to areas in numerous countries outside of the United States through contract arrangements.

Voice over internet protocol (VoIP) is generally used to describe the transmission of voice using internet-protocol-based technology rather than a traditional wire and switch-based telephone network. We use this technology to provide voice services at a lower cost because this technology uses bandwidth more efficiently than a traditional network and has not been subject to traditional telephone industry regulation. While the development of VoIP has resulted in increased competition for our wireless and wireline voice services, it also presents growth opportunities for us to develop new products for our customers.

Network Footprint
 
We own microwave tower network components and have nationwide access to multiple microwave towers and more traditional network attributes including major carrier Points of Presence (POPs).  Incremental to these network assets including leased fiber capacity, our own microwave network is primarily located in alternate tier rural markets by circumstance and design. Access to non-owned assets is through lease arrangements, strategic alliances, or reciprocal agreements, which provide interactive connectivity from Tier 1 cities out to our underserved secondary and tertiary markets. 
 
A portion of our wireless network solution and applications consists of (i) P2P bandwidth delivery; (ii) multiple P2MP delivery; (iii) associated customer premise equipment (CPE); and (iv) IP specific applications including entertainment and business oriented data transfer. The network is designed to be scalable as more access points and CPE are deployed. With intelligent network design, there is no physical limit to the number of access points that can be deployed in metropolitan and/or rural markets thus providing for scalable bandwidth capacity and local area coverage to meet individual market demands as they grow. For P2MP deployment, access point radios currently have a service radius of approximately 15 to 30 miles depending on terrain. Access point radios can be located nearly anywhere, including company owned towers, building roof tops, existing cellular sites, paging or television towers, water tanks, or even unique clandestine locations, such as inside church steeples. Current CPE access is through rooftops, side-of-building or through wireless modems located inside customer locations. It is expected that these options will expand as technology convergence and new technology opportunities are available.
 
Our financial trigger-point model initiates capital investment, when appropriate, to migrate “off-net” customers to our network as it becomes cost effective. The model defines the revenue required to warrant capital investment and still maintain positive cash flow. Margins can increase from 33% to over 70% when the network is fully owned, as opposed to being leased. The model also identifies recurring and non-recurring costs, and includes overhead, training, and sales expenses.
 
Due to the rapid and positive evolution of factors that continue to encourage growth in the communications sector, along with the acquisition opportunities that lend themselves to the current environment, we have projected a substantial increase in our customer base and top line revenue, and hope to generate positive net income. The map below (Figure 1) shows a representative wireless network footprint and identifies access to fiber capacity and reciprocal wireless networks.  
 
 
 

 
 

 


 
7

 

 

ITEM 1.    BUSINESS- continued
 
Figure 1: Network Footprint
 
[
In addition to our footprint, we have access to multiple network components as well as to 2.3 GHz licensed spectrum in the southeast of the U.S.

Communications Technology
 
“Last Mile” is a phrase used to describe customer connectivity of a voice or data transmission path to the network.  For 100 years, last mile service was the exclusive domain of the local telephone company, but deregulation changed that.  Now multiple virtual local operators, wireless companies and cable and satellite companies provide last mile connectivity for data and voice.  More changes are in store as the convergence of technology evolves and new wireless technologies, like 802.16 WiMAX, are implemented.  This is a brief review of the various last mile technologies, as an aid to readers in understanding this strategic business plan.
    
Voice Communications
 
Since the invention of the telephone, voice communications has used dedicated circuit-switched voice networks.  Circuit-switching allocates a line, or circuit, to a single call for the duration of that call. Early circuit-switching was made manually by telephone operators, who were first replaced by automated electro­mechanical and then by digital telephone exchanges, which connect circuits based upon the number dialed by the caller.
 
During the past twenty years, wireline telephones have been augmented by mobile phones, which communicate wirelessly with a nearby base station.  Each base station is connected to the public telephone system, the “backhaul” connection, either by copper or fixed wireless transmission.  Mobile telephones operate on cellular networks, meaning that each operator’s coverage area is divided into a number of cells, each with its own base station. The coverage area of each cell varies based upon numerous factors, including:
 
* Power of the signal being transmitted
* Terrain: mountains, valleys and tall buildings reduce signal range necessitating smaller cells
* Frequency of the transmission: higher frequencies have shorter range
* Likely peak demand of the population being supported
* Bandwidth allocated to the operator
 
More frequency spectrum creates more system capacity, enabling more simultaneous users to be supported. In the United States, signal power, frequency allocation and base station locations are all controlled by the Federal Communications Commission (“FCC”). 
 
A key element of a wireless network is seamless hand off between cells, so that a mobile phone user traveling between cells can continue a conversation uninterrupted as they move from one cell to the next.  First-generation (1G) mobile phones introduced in the 1980s were large, high power analog devices.  Second generation mobile phones (2G) introduced in the 1990s used digital signal modulation and lower power to support more users, albeit with a reduction in range and often call quality.  2G operators divide their FCC-allocated bandwidth into carriers, then into channels and, finally, into slots.  This channelization is accomplished by air interface equipment at the base station using one of three basic methods:

* Frequency Division Multiple Access (FDMA)
* Time Division Multiple Access (TDMA)
* Code Division Multiple Access (CDMA)
 
The combination of different channelization methods and diverse frequencies are the reasons that a single mobile phone will not work on all networks in all countries.

 
 

 


 
8

 

 

ITEM 1.    BUSINESS- continued
 
Data Communications
 
The widespread adoption of computers by both business and government entities during the past forty years has created tremendous demand for digital data communications.  Initially, networks were built from point-to-point connections using modems to transmit digital data over the existing analog telephone infrastructure at very slow data rates.  To address increasing demand for data communications services, telephone companies began selling digital circuits at a variety of data rates, from copper T1 connections providing 1.54 Mbps up to fiber optic OC-192 connections providing 622 Mbps.
 
Academic, military and business Wide-Area Networks (“WAN”) had existed for many years.  The advent of the internet in the 1990s created the first open public WAN and massive incremental demand for data communications from both private and business users.  The TCP/IP communications protocol has been essential to the success of the internet.  Historically, computer companies, such as IBM and DEC, defined proprietary communications protocols that only their equipment used, forcing business users to select computer products from a single vendor in order to ensure that they worked together.  The advent of TCP/IP changed the model by enabling equipment and software from one vendor to talk with equipment and software from any other vendor.  TCP/IP is a packet switched protocol, meaning that the data to be communicated is broken up into small packets, each of which is sent separately across the network to be reassembled at its destination. TCP/IP packet switching provides a number of advantages over circuit switching:
 
Network circuits are no longer tied up by a single user for the duration of a conversation.  Each packet is very small and can be transmitted quickly, followed by a packet from another user, or process.  With a fast enough connection each user, or process, achieves results similar to a dedicated connection.
 
A Packet specifies its destination, not the means by which it should get there.  In fact, all trips across the internet take multiple ‘hops’ where a packet is sent via several intermediate locations before reaching its final destination.  At each hop, the next hop is determined by intelligent network routers from multiple possible routes providing both redundancy and scalability.
 
 Broadcast Communications
 
A broadcast signal delivers the same content to a broad audience simultaneously. Terrestrial wireless radio introduced commercial broadcasting, followed some years later by television.  In both cases, a signal broadcast from a transmission tower is received by a broad audience within the tower’s coverage area using an antenna. Multiple signals are transmitted by different broadcasters to the same audience on different frequencies and each listener/viewer selects which broadcast they wish to receive by filtering out the unwanted frequencies using a radio or television tuner.  In order to provide live national coverage, television broadcasters began using satellites so that a single signal could be sent to multiple broadcast towers simultaneously, which, in turn, transmit the signal to local audiences.  In order to maximize advertising revenue, broadcasters sell media slots at national and local levels by overlaying a national satellite feed with a local feed.

Cable television companies have made significant last-mile infrastructure investments during the past twenty years, installing coaxial cable to every house in their service area.  They aggregate many live and off-air video feeds either by satellite or high-speed wireline data communications, and deliver those feeds to the viewer’s cable decoder. Unlike broadcast television, cable networks are bi-directional enabling the cable company to remotely monitor the set-top box and viewers to make interactive requests such as pay-per-view.  The figure 3 shows representation of the broadcast communications functionality:
 


 


 
9

 

 
 
ITEM 1.    BUSINESS- continued
 
Figure 3. Broadcast communications
 
 
Satellite television eliminates the need for local terrestrial re-transmission of the signal by sending it directly to the consumer’s satellite dish.  The advent of high-power satellites has enabled broad consumer adoption by reducing the price of service and the diameter of consumer satellite dishes.  Satellite last mile delivery is often unidirectional, requiring the viewer to use a telephone line to send pay-per-view requests to the satellite broadcaster.
 
 Network Convergence
 
The wide array of voice and data communications options available today cause businesses and consumers to purchase multiple single-purpose communications devices and services to complete their daily tasks.  Workers typically have a personal computer connected to the company Local Area Network (“LAN”), which, in turn, is connected to the internet.  In addition, there is a phone per employee connected to a company Private Branch Exchange (“PBX”), which is, in turn, connected to the public telephone system.  Many companies also provide cell phones and laptops to mobile employees.  Most consumers have a telephone, a mobile phone, radios, televisions, cable or satellite television tuners, a home computer, an ISP account and, increasingly, a cable or DSL modem.  In each case, there is an expensive duplication of voice, data and broadcast infrastructure.
 
 Network convergence is becoming reality: mobile phones now receive email, PDAs include cellular voice and data connectivity, cordless phones switch to cellular networks when out of range, laptops support video conferencing, televisions and computers have been integrated into a single device, and even the refrigerator has not escaped being internet enabled by Korean electronics company LG. The goal of network convergence is to provide access to voice, data and broadcast services simultaneously from a single network connection using a single network protocol, TCP/IP.
 
 

 
 
 

 
 

 


 
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ITEM 1.    BUSINESS - continued
 
Figure 4: Network Convergence
 
 
Convergence will reduce costs, simplify networking, and encourage creativity with a host of new network connection products.  Voice over IP (“VoIP”) has been used between computers for some time, but broad adoption has been delayed for a number of reasons, including:
 
The widely deployed TCP/IP v4 guarantees neither the delivery order of data packets nor Quality of Service (“QoS”).  This is an issue for voice communications where it is important that there is low latency.
 
TCP/IP v4 was never conceived to support the number of connected devices being deployed and it will run out of addresses in the not too distant future.
 
TCP/IP provides no native security.
 
Although many technical shortcomings have been addressed in TCP/IPv6, the existing networking infrastructure investment means that it will take time before there is widespread Ipv6 support.  In spite of these limitations, both AT&T and Verizon have launched consumer VoIP service, and many corporate networks have been using point-to-point VoIP for some time. Network convergence will be a reality within the next decade and will have a profound impact on the communications as network access devices; content and value added services are unbundled.  The Company is already witnessing this as represented below:
 
 
·
Established television broadcasting networks focus on content creation, licensing their original programming to various cable and satellite companies for distribution
     
 
·
AOL and MSN are selling content packages to consumers who have broadband network access provided by their local phone or cable company
     
 
·
Music and movies are being sold and delivered online as content providers are forced to embrace the compelling distribution economics of the Internet, comforted with more robust digital rights management

Telephone companies, currently being forced to eliminate the distinction between local and long distance calls, will rethink their international calling model as an increasing population of VoIP users call anywhere in the world at little or no charge.  Telephone hardware vendors are facing stiff competition from IP networking companies and network convergence is providing businesses and consumers with an increasing number of network options that best suit their needs and budget.
 
 Broadband
 
While TCP/IP has become the universal communications protocol there will be no standardization of the physical communication medium.  In fact, there is an increasingly wide variety of wireline and wireless technologies catering to specific requirements and environments. The major categories are listed in Figure 5. 



 
 

 
 

 


 
11

 

 

ITEM 1.    BUSINESS - continued
 
Figure 5. Last
 
 
Wireline
 
Wireline access provides reliable and cost effective means of broadband service for the  majority of home and business users.  For consumers there is little to choose between cable and ADSL.  In both systems network operators have restricted upstream performance to limit the systems usefulness in a business environment. DSL service provides symmetric upstream and downstream capabilities and is aimed primarily at small business users.  Medium size businesses typically installed T1 to T3 lines providing a symmetrical throughput from 1.5 Mbps to 44 Mbps.  During the past several years the similar performance of DSL offerings has placed strong downward pressure on the price of T1 lines.
 
Fiber optic connections provide the highest throughput of any available technology.  They were originally developed to provide backhaul capabilities for network providers, but are increasingly being used by large or highly network intensive businesses such as a web hosting and video conferencing.
  
 Wireless – Satellite
 
The majority of commercially available satellites are geostationary, meaning that they are in synchronous orbit 22,300 miles above the Earth, usefully enabling fixed ground based transponders to always point at the satellite.  Historically, satellites have been used for long range telecommunications backhaul, such as transatlantic voice conversations and national broadcasts of live events, but they are increasingly being positioned as a last mile broadband technology.  Service providers, such as Intelsat, provide high data rate connections to business users.  For consumers, last mile satellite fares less well, because consumer satellite dishes are significantly less powerful than the satellite operators’ transponders for both cost and licensing reasons.  This creates heavily asymmetrical data rates and, in some cases, there is no upstream capability at all.  One of the natural advantages of satellite communications is the broad footprint cast by a geostationary satellite enabling cost effective coverage in sparsely populated areas, over oceans and in the air.
 
 Wireless – 2.5G, 3G and 4G cellular
 
Smartphones, connected Personal Digital Assistants (“PDAs”), laptops and network operator’s desire for incremental revenue are driving demand for higher speed mobile data services.  The global rollout of 3G and 4G cellular technology, which promises mobile data rates of up to 2 Mbps, was expected several years ago, but didn’t materialize due to high spectrum licensing fees extracted from prospective 3G and 4G operators.
 
 
During the 1990s, the majority of the world standardized on the European developed GSM standard for 2G phones, the notable exceptions being the United States and Japan. GSM, which is used by over 70% of subscribers worldwide, uses TDMA over three frequency bands: 900 MHz, 1,800 MHz and 1,900 MHz. In order to begin addressing demand for cellular data services, European operators began deploying 2.5G solutions to cost-effectively upgrade existing 2G base stations, to provide data rates comparable with dialup modems.  In parallel with the rollout of 2.5G services, market leaders Ericsson and Nokia developed hybrid 2.5G/3G handsets and base stations to enable a smooth transition from GSM/GPRS to the 3G WCDMA system.
 
In contrast to the Europeans, United States cellular operators deployed a variety of incompatible 2G technologies ensuring that phones from each operator would only work with that operator’s network.  During the last few years, faced with increasing demand for data services and no clear migration path from existing proprietary systems, United States cellular operators began deploying GSM/GPRS networks.  Users can now use the same handset on multiple domestic and international networks.

 
 

 


 
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ITEM 1.    BUSINESS - continued
 
Wireless – 802.11 WiFi
 
802.11b is a widely deployed Wireless Local Area Network (“WLAN”) technology, which provides connectivity between two peer devices, or between multiple devices and an Access Point (AP) at speeds varying between 1 Mbps and 11 Mbps with a range of up to 300ft.  The effective data rate is dependent upon the distance between devices and the number and density of any physical barriers between them. 802.11g operate in the same crowded 2.4GHz frequency band as 802.11b using three non-overlapping channels.  This makes both 802.11b and 802.11g interference prone.  The advantage of 802.11g is that it provides a notional maximum data rate of 54 Mbps, but backward compatibility with 802.11b devices and interference typically reduces this rate substantially.  802.11a is more likely to deliver 54 Mbps because it operates in the 5.2 GHz spectrum and uses sophisticated OFDM modulation which is less susceptible to interference.  The downsides to 802.11a are that the device range is typically half that of 802.11b/g and the devices are more expensive.
 
There has been some confusion between 802.11 and 2.5G/3G cellular data services.  In reality, the technologies are designed to accomplish very different tasks: 802.11 is a short range, high speed local area network replacement with high power consumption making it impractical for very small devices.  Conversely, 2.5G and 3G cellular data networks provide lower peak data rates, but offer long range coverage with seamless cell-to-cell connection transfer and low power consumption required for small devices.
 
 Wireless – Bluetooth PAN
 
A Personal Area Network (“PAN”) enables multiple devices within close physical proximity of the user to communicate wirelessly.  Bluetooth has become synonymous with PANs, although it was originally conceived by Ericsson to eliminate the wiring between computer peripherals and to replace fragile line-of-sight infrared.  Bluetooth v1.1 operates in unlicensed 2.4 GHz spectrum, has a maximum range of about 10 meters and supports a data rate of 0.92 Mbps (USB v1.1 communicates at 1.5 Mbps).  Most importantly, Bluetooth chipsets are cheap; prices have fallen to about $5 as production volume has increased.  Over 2,000 device manufacturers now support Bluetooth and almost all new mobile phones and PDAs incorporate it.
 
 Wireless – 802.16 WiMAX
 
802.16 is designed as a Metropolitan Area Network (MAN) technology and has a range of up to 30 miles, providing symmetrical data rates as high as 100 Mbps.  While a primary market for this technology is the provision wireless backhaul from 802.11 access points, it can also provide wireless last mile service to both fixed and mobile users.  In an effort to drive sales of portable electronic devices using its chips, Intel has become a leader in developing WiMAX chips for telecommunications infrastructure providers.  The radio equipment required to support 802.16 currently consumes more power and costs significantly more per node than WiFi configurations.

Our Products and Services

Wireless Services

We offer a comprehensive range of high-quality nationwide wireless voice communications services in a variety of prepaid pricing plans. Our voice offerings are tailored to meet the communications needs of targeted customer segments, including youth, family, active professionals, small businesses, and major national corporate accounts.

Wireless Voice Service

Our voice service is offered on a no contract basis, referred to as prepaid. Service is prepaid and provided on a monthly basis according to the applicable rate plan chosen. Our wireless services include basic local wireless communications service, long-distance service and roaming services. We offer prepaid service to meet the demands of distinct consumer segments, such as the youth market, families and small business customers, who prefer to control usage or pay in advance.

Wireless Equipment

We sell a wide variety of handsets and personal computer wireless data cards manufactured by various suppliers for use with our voice and data services.  We sell through our online stores or through agents or third-party retail stores.  We also sell accessories, such as carrying cases, hands-free devices, batteries, battery chargers and other items, to consumers, as well as to agents and other third-party distributors for resale. We generally offer subscribers a discount on equipment to initiate or upgrade service.  Our subscriber base also includes emerging devices (e.g., eReaders and mobile navigation devices) purchased by consumers from third-party suppliers.
 

 
 

 


 
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ITEM 1.    BUSINESS - continued
 
Wireline Services

Our wireline subsidiaries provide both retail and resell communication services domestically and internationally. Our wireline operation provided approximately 66% of 2011 operating revenues. We divide our wireline services into three product-based categories: local, long distance and other.  Revenues from our traditional voice services have been declining as customers have been switching to wireless, cable and other internet-based providers. In addition, the continuing economic recession has caused wireline customers to terminate their residential or business phone service as individuals have lost jobs or otherwise combined households and businesses have closed or reduced operations. We have responded by offering packages of combined voice and data services, including broadband and video, and intend to continue this strategy during 2012.

Wireless Voice Services

Voice includes traditional local and long-distance service provided to retail customers and wholesale access to our network and individual network elements provided to competitors. At December 31, 2011, our wireline subsidiaries served approximately 55,000 active consumer access lines. We also have a number of integrated voice and data services, such as integrated network connections, that provide customers the ability to integrate access for their voice and data services, the data component of which is included in the data category. Additionally, voice revenues do not include any of our VoIP revenues, which are included in data revenues.    
 
Long distance consists of traditional long distance and international long distance for customers that select us as their primary long-distance carrier. Long distance also includes services provided by calling card, 1-800 services and conference calling. These services are used in a wide variety of business applications, including sales, reservation centers or customer service centers. We also provide wholesale switched access service to other service providers.

Voice also includes calling features, fees to maintain wire located inside customer premises and other miscellaneous voice products. Calling features are enhanced telephone services available to retail customers such as Caller ID, Call Waiting and voicemail. These calling features services are generally more profitable than basic local phone service.

Data

Data includes traditional products, such as switched and dedicated transport, internet access and network integration, and data equipment sales, and U-verse services. Additionally, data products include high-speed connections such as private lines, packet, dedicated internet and enterprise networking services, as well as products such as DSL/broadband, dial-up internet access and Wi-Fi (local radio frequency commonly known as wireless fidelity). We also provide businesses voice applications over IP-based networks. Over the past several years, we have established third-party arrangements to offer new multi-protocol label switching/asynchronous transfer mode, or MPLS/ATM network, and other extensive global data networks. These products allow us to provide highly complex global data networks.

Private Line uses high-capacity digital circuits to transmit from point-to-point in multiple configurations and allows customers to create internal data networks and to access external data networks.
 
Switched Transport services transmit data using switching equipment to transfer the data between multiple lines before reaching its destination. Dedicated Transport services use a single direct line to transmit data between destinations. DSL is a digital modem technology that converts existing twisted-pair telephone lines into access paths for multimedia and high-speed data communications to the internet or private networks. DSL allows customers to simultaneously make a phone call and access information via the internet or an office local area network. Digital Services use dedicated digital circuits to transmit digital data at various high rates of speed.

Internet access services include a wide range of products for residences and businesses. Internet services offered include basic dial-up access service, dedicated access, web hosting, email and high-speed access services.

Packet services consist of data networks using packet switching and transmission technologies, including traditional circuit-based, and IP connectivity services. Packet services enable customers to transmit large volumes of data economically and securely and are used for local area network interconnection, remote site, point of sale and branch office communications. High-speed packet services are used extensively by enterprise (large business) customers.

 
 

 


 
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ITEM 1.    BUSINESS - continued
 
Dedicated internet services are designed to meet the needs of all types of commercial and governmental enterprises, including small and medium sized businesses. Our managed internet services provide customers with dedicated high-speed access to the internet managed by us.

Enterprise networking services provide comprehensive support from network design, implementation and installation to ongoing network operations and management for networks of varying scales, including local area networks, wide area networks, and virtual private networks. These services include applications such as email, order entry systems, employee directories, human resource transactions and other database applications.

Customer premises equipment and other equipment sales range from single-line and cordless telephones to sophisticated digital PBX systems. PBX is a private telephone switching system, typically used by businesses and usually located on a customer’s premises, which provides intra-premise telephone services as well as access to our network.

Advertising Solutions
 
Advertising Solutions includes our directory operations, which sell Yellow Pages online internet-based directory advertising and local search. The online business directory is a comprehensive and invaluable business portal that allows searchers to quickly access local and online business information, including instant maps, direct links to featured business websites, and other valuable tools and resources. Advertising Solutions provided approximately 29% of total operating revenues in 2011. This operation sells advertising services throughout the United States and in South Korea under the brand name Local Info Pages, Inc. (“LIP”).  Headquartered in Seoul, LIP, a Unilava wholly owned subsidiary, is one of the leading direct marketing and business service companies in Korea. We connect advertisers to targeted audiences through its network advertising products and services. Through the acquisition of websites from Ttoore/Counia, we enable advertisers to directly reach consumers with branded media products, coupons and other advertisements. Consumers trust us to deliver the best values in town via direct and online coupons. For advertisers, we offer business advertising solutions by enabling them to sell their products and services in person, online or through the mail.

LIP offers brands that include:
 
 
*
Counia.com – the trusted local coupon website consumers visit frequently for savings and values; and
 
 
*
Local114.co.kr – South Korea’s online yellow pages and business service provider enabling emerging enterprises with bundled solutions, including website development, internet advertising, and other member value-added services.

Other Products and Services

Our Other businesses include operations from Nationwide Roadside Assistance, our roadside services subsidiary, operator services, corporate and other operations. The Other operations provided approximately 4% of total operating revenues.

Government Regulation

Wireless communications providers must be licensed by the FCC to provide communications services at specified spectrum frequencies within specified geographic areas and must comply with the rules and policies governing the use of the spectrum as adopted by the FCC. Wireless licenses are issued for a fixed time period, typically ten years, and we must seek renewal of these licenses.  While the FCC has generally renewed licenses given to operating companies such as us, the FCC has authority to both revoke a license for cause and to deny a license renewal if a renewal is not in the public interest. Additionally, while wireless communications providers’ prices and service offerings are generally not subject to regulation, the federal government and an increasing number of states are considering new regulations and legislation relating to various aspects of wireless services.

Our wireline subsidiaries are subject to regulation by state commissions which have the power to regulate intrastate rates and services, including local, long-distance and network access services. These subsidiaries are also subject to the jurisdiction of the FCC with respect to interstate and international rates and services, including interstate access charges. Access charges are designed to compensate our wireline subsidiaries for the use of their networks by other carriers.

Our subsidiaries operating outside the U.S. are subject to the jurisdiction of national and supranational regulatory authorities in the market where service is provided. Regulation is generally limited to operational licensing authority for the provision of enterprise services. 
 
 

 


 
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ITEM 1.    BUSINESS - continued
 
Importance, Duration and Effect Of Licenses
   
Certain of our subsidiaries have licenses to various patents, copyrights, trademarks and other intellectual property necessary to conduct business. Our subsidiaries also hold government-issued licenses or franchises to provide wireline or wireless services. We actively pursue patents, trademarks and service marks to protect our intellectual property within the U.S. and abroad. We maintain a portfolio of trademark and service mark registrations. We have also entered into agreements that permit other companies, in exchange for fees and subject to appropriate safeguards and restrictions, to utilize certain of our trademarks and service marks.
 
Our Customers

Through our carrier-grade microwave wireless broadband infrastructure and broadband internet access partners, we offer mobile and high-definition IP-hosted voice services to residential, small and medium enterprises.

We expect to continue to strengthen the reach and sophistication of our network facilities and our ability to offer a variety of communications services, both wireless and wireline, to large businesses and wholesale customers worldwide. We expect to offer similar services to small and medium sized businesses and to increase the attractiveness of our services to governmental customers. We also expect to extend our wholesale business offerings to other service products and systems integration services.

No customer accounted for 10% or more of our consolidated revenues in 2011, 2010, 2009 or 2008.  We do not depend on one or a few major customers for our revenues.
 
Competition
 
We believe that the market for wireless services has been and will continue to be characterized by intense competition on the basis of price, the types of services and devices offered and quality of service. We compete with a number of wireless carriers, including four national wireless companies: AT&T, Verizon Wireless, Sprint, and T-Mobile. Our primary competitors offer voice, high-speed data, entertainment and location-based services that are designed to compete with our products and services. AT&T and Verizon also offer competitive wireless services packaged with local and long distance voice, high-speed internet services and video. Our prepaid services compete with a number of carriers and resellers including Metro PCS Communications, Inc., Leap Wireless International, Inc. and TracFone Wireless, which offer competitively-priced calling plans that include unlimited local calling. Additionally, AT&T, T-Mobile, Sprint and Verizon also offer competitive prepaid services and wholesale service to resellers. Competition will increase to the extent that new firms enter the market if additional radio spectrum is made available for commercial wireless services. We also expect competition to increase as a result of other technologies and services that are developed and introduced in the future, including potentially those using unlicensed spectrum and long term evolution. Wholesale services and products also contribute to increased competition. In some instances, resellers that use our network and offer like services compete against our offerings.
 
Most markets in which we operate have high rates of penetration for wireless services, thereby limiting the growth of subscribers of wireless services. As the wireless market matures, it is becoming increasingly important to retain existing subscribers in addition to attracting new subscribers. We and our competitors continue to offer more service plans that combine voice and data offerings, plans that allow users to add additional mobile devices to their plans at attractive rates, plans with a higher number of bundled minutes included in the fixed monthly charge for the plan, plans that offer the ability to share minutes among a group of related subscribers, or combinations of these features. Consumers respond to these plans by migrating to those they deem most attractive. In addition, wireless carriers also try to appeal to subscribers by offering devices at prices significantly lower than their acquisition cost, and we may offer higher cost devices at greater discounts than our competitors, with the expectation that the loss incurred on the device will be offset by future service revenue. As a result, we and our competitors recognize immediate losses that will not be recovered until future periods when service is provided. Our ability to effectively compete in the wireless business is dependent upon our ability to retain existing and attract new subscribers in an increasingly competitive marketplace.

Raw Materials and Our Principal Suppliers

Our principal suppliers for our telephone and network services include AT&T and Level 3.  Since we do not have material manufacturing operations, we do not purchase raw materials in any material quantities.
 
Intellectual Property

We hold registered trademarks under the brand names of “Telava” and “Country Connect” and do not hold any pending or granted patents.

Research and Development

We spent minimal resources on research and development during the past two fiscal years and anticipate that we will spend minimal resources in developing technologies that are related to the current business models going forward.

 
 

 


 
16

 

 
 
ITEM 1.    BUSINESS- continued
 
The majority of our research activities are related to our wireline segment, performed at our subsidiary Telava Networks. Telava Networks’ engineers conduct research in a variety of areas, including intellectual property; advanced network design and architecture; network operations support systems; data mining technologies and other communication technologies. The engineers work with our business units to create new services and invent tools and systems to manage secure and reliable networks for us and our customers.
 
Employees

As of December 31, 2011, we employed approximately 28 persons who are all full time employees worldwide. The following table illustrates the allocation of these employees among the various job functions conducted at our company.

Department
 
Number of Employees
Management and Administration
 
6
Business Development
 
3
Finance and Accounting
 
2
Technical and Engineering
 
5
Customer Service
 
9
Sales and Marketing
 
3
TOTAL
 
28

We consider our relations with our employees to be good. None of our employees is represented by a labor union.
 

  

 
 

 


 
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Item 1A.   RISK FACTORS
 
Investing in shares of the Registrant’s common stock involves a high degree of risk. Before investing in its common stock, careful consideration will need to be given to the following risks, together with the financial and other information contained in this prospectus. If any of the following risks actually occur, our business, prospects, financial condition and results of operations could be adversely affected. In that case, the trading price of its common stock would likely decline and all or a part of any investment could be lost.

RISKS RELATED TO OUR BUSINESSES
 
The Registrant is an early stage company with a history of losses.

At this stage of development, the Company is subject to the following risks:
 
 
·
the results of operations may fluctuate significantly, which may adversely affect the value of an investment in its common stock;
 
·
the Company may be unable to develop and deploy its network, expand its services, meet the objectives it has established for its business strategy or grow its business profitably, if at all;
 
·
it may be difficult to predict accurately its key operating and performance metrics because of its limited operating history.
 
In addition, the stock market in general, and the market for shares of technology companies in particular, has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies.  The Registrant expects the price of its common stock will be subject to continued volatility. In addition, in the past, following periods of volatility in the trading price of a company’s securities, securities class action litigation or shareholder derivative suits have often been instituted against those companies. Such litigation, if instituted against the Company, could result in substantial costs and divert its management’s attention and resources.
 
Our technology may become obsolete which could materially adversely affect our ability to sell our products and services.
 
If our technology, products and services become obsolete, our business operations would be materially adversely affected. The market in which we compete is characterized by rapid technological change, evolving industry standards, introductions of new products, and changes in customer demands that can render existing products obsolete and unmarketable. Our current products will require continuous upgrading or our technology will become obsolete. Our future success will depend upon our ability to address the increasingly sophisticated needs of our customers by supporting existing and emerging hardware, software, database, and networking platforms and by developing and introducing enhancements to our existing products and new products on a timely basis that keep pace with technological developments, evolving industry standards, and changing customer requirements. There were minimal research and development expenses for the years ended December 31, 2011 and 2010, respectively.
 
We may be exposed to potential risks relating to our internal controls over financial reporting and our ability to have the operating effectiveness of our internal controls attested to by our independent auditors.
 
As directed by Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404, the SEC adopted rules requiring public companies to include a report of management on their internal controls over financial reporting in their annual reports, on Form 10-K. We are subject to this requirement commencing with our fiscal year ending December 31, 2008 and a report of our management is included under Item 9A of this Annual Report on Form 10-K. In the event we identify significant deficiencies or material weaknesses in our internal controls that we cannot remediate in a timely manner, investors and others may lose confidence in the reliability of our financial statements.

We face intense competition, including from companies with greater resources, which could adversely affect our growth and could lead to decreased revenues.
 
Several companies, including Google, Microsoft, Verizon, and Yahoo!, currently market internet Yellow Pages or local search services that directly compete with our services and products.  We may not compete effectively with existing and potential competitors for several reasons, including the following:

 
some competitors have longer operating histories and greater financial and other resources than we have and are in better financial condition than we are;
 
some competitors have better name recognition, as well as larger, more established, and more extensive marketing, customer service, and customer support capabilities than we have;

 
 

 


 
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Item 1A.   RISK FACTORS - continued
 
 
some competitors may supply a broader range of services, enabling them to serve more or all of their customers’ needs. This could limit our sales and strengthen our competitors’ existing relationships with their customers, including our current and potential IAP advertisers;
 
some competitors may be able to better adapt to changing market conditions and customer demand; and
 
barriers to entry are not significant.  As a result, other companies that are not currently involved in the internet-based Yellow Pages advertising business may enter the market or develop technology that reduces the need for our services.
 
Increased competitive pressure could lead to reduced market share, as well as lower prices and reduced margins for our services.  If we experience reductions in our revenue for any reason, our margins may continue to decline, which would adversely affect our results of operations.  We cannot assure you that we will be able to compete successfully in the future.

Our success depends upon our ability to establish and maintain relationships with our advertisers.

Our ability to generate revenue depends upon our ability to maintain relationships with our existing advertisers, to attract new advertisers to sign up for revenue-generating services, and to generate traffic to our advertisers’ websites.  We primarily use telemarketing efforts to attract new advertisers.  These telemarketing efforts may not produce satisfactory results in the future.  We attempt to maintain relationships with our advertisers through customer service and delivery of traffic to their businesses.  An inability to either attract additional advertisers to use our service or to maintain relationships with our advertisers could have a material adverse effect on our business, prospects, financial condition, and results of operations.

If we do not introduce new or enhanced offerings to our advertisers and users, we may be unable to attract and retain those advertisers and users, which would significantly impede our ability to generate revenue.

We will need to introduce new or enhanced products and services in order to attract and retain advertisers and users and to remain competitive.  We may experience difficulties that could delay or prevent us from introducing new products and services.  If we do not periodically enhance our existing products and services, develop new technologies that address our advertisers’ and users’ needs and preferences, or respond to emerging technological advances and industry standards and practices on a timely and cost-effective basis, our products and services may not be attractive to advertisers and users, which would significantly impede our revenue growth. In addition, our reputation and our brand could be damaged if any new product or service introduction is not favorably received.
 
Our results of operations could fluctuate due to factors outside of our control.

Our operating results have historically fluctuated significantly and we have experienced recent declines in net revenues.  We could continue to experience fluctuations or continued declining operating results due to factors that may or may not be within our control.  Such factors include the following:
   
 
· fluctuating demand for our services, which may depend on a number of factors including;
· changes in economic conditions and our IAP advertisers’ profitability;
· varying IAP advertiser response rates to our direct marketing efforts;
· our ability to complete direct mailing solicitations on a timely basis each month;
· changes in our direct marketing efforts;
· IAP advertiser refunds or cancellations, and
· our ability to continue to bill through LEC billing, ACH billing or credit card channels rather than through direct invoicing;
· market acceptance of new or enhanced versions of our services or products;
· price competition or pricing changes by us or our competitors;
· new product offerings or other actions by our competitors;
· the amount and timing of expenditures for expansion of our operations, including the hiring of new employees, capital expenditures, and related costs;
· technical difficulties or failures affecting our systems or the internet in general;
· a decline in internet traffic at our website;
· the cost of acquiring, and the availability of, information for our database of potential advertisers; and
· the fixed nature of a significant amount of our operating expenses.
 


 
 

 


 
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Item 1A.   RISK FACTORS - continued
 
The loss of our ability to bill IAP advertisers through our Local Exchange Carriers on the IAP advertisers’ telephone bills would adversely impact our results of operations.

We currently bill our advertisers through (i) their local exchange carrier (“LEC”).  Similar to the local Regional Bell Operating Companies, we are approved to bill our products and services directly on some of our advertisers’ local telephone bill through their LEC, commonly referred to as their local telephone company.  We believe that this is an efficient and cost-effective billing method as compared to direct billing methods.  

The existence of the LECs is the result of federal legislation.  In the same manner, Congress could pass future legislation that obviates the existence of or the need for the LECs.  Additionally, regulatory agencies could limit or prevent our ability to use the LECs to bill our advertisers.  The introduction of and advancement of new technologies, such as WiFi technology or other wireless-related technologies, could render unnecessary the existence of fixed telecommunication lines, which also could obviate the need for and access to the LECs. Finally, we have historically been affected by the LECs’ internal policies.  With respect to certain LECs, such policies are becoming more stringent. Our inability to use the LECs to bill our advertisers through their monthly telephone bills would result in increased dilution and decreased revenues and would have a material adverse impact on our financial condition and results of operations.

Our revenue may decline over time due to the involvement of the CLECs in the local telephone markets.

Due to competition in the telephony industry, many business customers are finding alternative telephone suppliers, such as Competitive Local Exchange Carriers, or CLECs, that offer less expensive alternatives to the LECs.  When the LECs effectuate a price increase, many business customers look for an alternative telephone company, which may be a CLEC.  When our advertising customers switch service providers from the LECs to a CLEC, we are precluded from billing these customers on their monthly telephone bill and must instead convert them to alternative billing methods such as ACH billing or direct invoicing.  This conversion process can be disruptive to our operations and result in lost revenue.  We cannot provide any assurances that our efforts will be successful. We may experience future increases in dilution of our customer base that we are able to bill on their monthly telephone bills, which, in turn, may result in decreases in our revenue.

We depend heavily upon our executive officers and key personnel.

Our performance depends substantially on the performance of our executive officers and other key personnel.  The success of our business in the future will depend on our ability to attract, train, retain, and motivate high quality personnel, especially highly qualified technical and managerial personnel.  The loss of services of any executive officers or key personnel could have a material adverse effect on our business, results of operations or financial condition.  

Competition for talented personnel is intense, and there is no assurance that we will be able to continue to attract, train, retain or motivate other highly qualified technical and managerial personnel in the future.  In addition, market conditions may require us to pay higher compensation to qualified management and technical personnel than we currently anticipate.  Any inability to attract and retain qualified management and technical personnel in the future could have a material adverse effect on our business, prospects, financial condition, and results of operations.
 
Our ability to efficiently process new advertiser sign-ups and to bill our advertisers monthly depends upon our third party service providers and billing aggregators and processors, respectively.

We currently use third party service providers to provide us with advertiser information at the point of sign-up for our Internet Advertising Package.  Our ability to gather information to bill our advertisers at the point of sign-up could be adversely affected if one or more of these providers experiences a disruption in its operations or ceases to do business with us.  Any disruption in these third parties’ ability to perform these functions could adversely affect our financial condition and results of operations.

We depend upon third parties to provide certain services and software, and our business may suffer if the relationships upon which we depend fail to produce the expected benefits or are terminated.

We depend upon third-party software to operate certain of our services.  The failure of this software to perform as expected would have a material adverse effect on our business.  Additionally, although we believe that several alternative sources for this software are available, any failure to obtain and maintain the rights to use such software would have a material adverse effect on our business, prospects, financial condition, and results of operations.  



 
 


 
20

 

 
 
Item 1A.   RISK FACTORS - continued
 
The market for our services is uncertain.

The demand and market acceptance for our services may be subject to a high level of uncertainty.  Advertisers and users may not adopt or continue to use internet-based Yellow Pages services and other online services that we may offer in the future.  Advertisers may find internet-based Yellow Pages advertising to be less effective for meeting their business needs than traditional methods of Yellow Pages or other advertising and marketing.  Our business, prospects, financial condition or results of operations will be materially and adversely affected if potential advertisers do not adopt internet-based Yellow Pages as an important component of their advertising expenditures.

Our business is subject to a strict regulatory environment.

Existing laws and regulations and any future regulation may have a material adverse effect on our business.  For example, we believe that our direct marketing programs meet existing requirements of the United States Federal Trade Commission.  Any changes to FTC requirements or changes in our direct or other marketing practices, however, could result in our marketing practices failing to comply with FTC regulations and other government regulations.

We may not be able to adequately protect our intellectual property rights.

Our success depends both on our internally developed technology and our third party technology. We rely on a variety of trademarks, service marks, and designs to promote our brand names and identity.  We also rely on a combination of contractual provisions, confidentiality procedures, and trademark, copyright, trade secrecy, unfair competition, and other intellectual property laws to protect the proprietary aspects of our products and services.  Legal standards relating to the validity, enforceability, and scope of the protection of certain intellectual property rights in internet-related industries are uncertain and still evolving. The steps we take to protect our intellectual property rights may not be adequate to protect our intellectual property and may not prevent our competitors from gaining access to our intellectual property and proprietary information.  In addition, we cannot provide assurance that courts will always uphold our intellectual property rights or enforce the contractual arrangements that we have entered into to protect our proprietary technology. 

RISKS RELATED TO THE INTERNET

We may not be able to adapt as the internet, internet-based Yellow Pages services, and IAP advertiser demands continue to evolve.

Our failure to respond in a timely manner to changing market conditions or client requirements could have a material adverse effect on our business, prospects, financial condition, and results of operations. The internet, e-commerce, and the internet yellow pages industry are characterized by:

 
rapid technological change;
 
changes in advertiser and user requirements and preferences;
 
frequent new product and service introductions embodying new technologies; and
 
the emergence of new industry standards and practices that could render our existing service offerings, technology, and hardware and software infrastructure obsolete.
 
In order to compete successfully in the future, we must

 
enhance our existing services and develop new services and technology that address the increasingly sophisticated and varied needs of our prospective or current IAP advertisers;
 
license, develop or acquire technologies useful in our business on a timely basis; and
 
respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis.
 
We may be required to keep pace with rapid technological change in the internet industry.

In order to remain competitive, we will be required continually to enhance and improve the functionality and features of our existing services, which could require us to invest significant capital.  We may not have the funds or technical know-how to upgrade our services, technology, and systems.  If we face material delays in introducing new services, products, and enhancements, our advertisers and users may forego the use of our services and select those of our competitors, in which event our business, prospects, financial condition, and results of operations could be materially and adversely affected.


 
 

 


 
21

 

 
 
Item 1A.   RISK FACTORS - continued
 
Regulation of the internet may adversely affect our business.

Due to the increasing popularity and use of the internet and online services such as online Yellow Pages, federal, state, local, and foreign governments may adopt laws and regulations, or amend existing laws and regulations, with respect to the internet and other online services.  These laws and regulations may affect issues such as user privacy, pricing, content, taxation, copyrights, distribution, and quality of products and services.  Any new legislation could hinder the growth in use of the internet generally or in our industry and could impose additional burdens on companies conducting business online, which could, in turn, decrease the demand for our services, increase our cost of doing business, or otherwise have a material adverse effect on our business, prospects, financial condition, and results of operations.

Our business could be negatively impacted if the security of the internet becomes compromised.

To the extent that our activities involve the storage and transmission of proprietary information about our advertisers or users, security breaches could damage our reputation and expose us to a risk of loss or litigation and possible liability.  We may be required to expend significant capital and other resources to protect against security breaches or to minimize problems caused by security breaches.  Our security measures may not prevent security breaches. Our failure to prevent these security breaches or a misappropriation of proprietary information may have a material adverse effect on our business, prospects, financial condition, and results of operations.
 
Our technical systems could be vulnerable to online security risks, service interruptions or damage to our systems.

Our systems and operations may be vulnerable to damage or interruption from fire, floods, power loss, telecommunications failures, break-ins, sabotage, computer viruses, penetration of our network by unauthorized computer users or “hackers,” natural disaster, and similar events.  Preventing, alleviating, or eliminating computer viruses and other service-related or security problems may require interruptions, delays or cessation of service.  We may need to expend significant resources protecting against the threat of security breaches or alleviating potential or actual service interruptions.  The occurrence of such unanticipated problems or security breaches could cause material interruptions or delays in our business, loss of data, or misappropriation of proprietary or IAP advertiser-related information or could render us unable to provide services to our IAP advertisers for an indeterminate length of time.  The occurrence of any or all of these events could materially and adversely affect our business, prospects, financial condition, and results of operations.

RISKS RELATED TO OUR SECURITIES

Stock prices of technology companies have declined precipitously at times in the past and the trading price of our common stock is likely to be volatile, which could result in substantial losses to investors.

The trading price of our common stock has been volatile over the past few years and investors could experience losses in response to factors including the following, many of which are beyond our control:

 
decreased demand in the internet services sector;
 
variations in our operating results;
 
announcements of technological innovations or new services by us or our competitors;
 
changes in expectations of our future financial performance, including financial estimates by securities analysts and investors;
 
our failure to meet analysts’ expectations;
 
changes in operating and stock price performance of other technology companies similar to us;
 
conditions or trends in the technology industry;
 
additions or departures of key personnel; and
 
future sales of our common stock.
 
Domestic and international stock markets often experience significant price and volume fluctuations that are unrelated to the operating performance of companies with securities trading in those markets.  These fluctuations, as well as political events, terrorist attacks, threatened or actual war, and general economic conditions unrelated to our performance, may adversely affect the price of our common stock.  In the past, securities holders of other companies often have initiated securities class action litigation against those companies following periods of volatility in the market price of those companies’ securities.  If the market price of our stock fluctuates and our stockholders initiate this type of litigation, we could incur substantial costs and experience a diversion of our management’s attention and resources, regardless of the outcome.  This could materially and adversely affect our business, prospects, financial condition, and results of operations.

 
 

 


 
22

 

 

ITEM 1B.   UNRESOLVED STAFF COMMENTS

None.
 
ITEM 2.    PROPERTIES

Our primary administrative offices are located in San Francisco, California.  We also have offices in Korea and Chicago.  Unilava Corp. and its subsidiaries do not own any real property. The following information presents certain information about our leased properties:
  
 
 Approximate 
 Date Current 
 
Average
 
 Location  
   Square Feet  
 Lease Expires 
 
Monthly Rent
 
           
Headquarters
353 Sacramento Street, Suite 1500
San Francisco, CA  
 5,049 sq. ft. 
 April 30, 2013 
 
$
39,172
 
             
Chicago Office
1850 Howard Street, Unit C
Elk Grove Village, IL                                                            
 5,437 sq. ft. 
February 28, 2014
 
$
3,709
 
             
Korea Office
6F Seoul Building
677 Yeoksam-Dong, Gangnam-Gu
Seoul, Korea 135-080    
 2,703 sq. ft.
 April  30, 2012  
 
$
1,591
 
 
 ITEM 3.    LEGAL PROCEEDINGS
 
As of December 31, 2011, we had no material pending legal proceedings, except for the following. 
 
Vermont Attorney General Investigation Against Local Area Yellow Pages (“LAYP”)

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

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

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

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

McLane v. Unilava Corporation, et al.
 
In February 2011, Caron McLane, former employee, filed a lawsuit against Unilava Corporation and Local Area Yellow Pages, Inc. (“LAYP”) and claims that she was wrongly terminated by the company.  Ms. McLane seeks for damages for the wrongly termination claims. The company intends to vigorously defend the case and does not intend to settle the case with Ms. McLane.
 
ITEM 4.    (REMOVED AND RESERVED)

 
 
23

 

 

 
PART II
 
ITEM 5.    MARKET FOR COMMON EQUITY, RELATED STOCK­HOLDER MATTERS AND COMMON STOCK REPURCHASES
 
The Company's common stock was listed on the OTCBB and traded under the symbol IWIHF until November 2009. From November 2009 to present, our symbol is UNLA.OB. The following table sets forth the quarterly high and low sale prices per share of our common stock during the last two fiscal years.
 

 
High
Low
Quarter Ended:
   
March 31, 2010
June 30, 2010
September 30, 2010
December 31, 2010
$0.25
$0.25
$0.75
$0.65
$0.25
$0.25
$0.55
$0.14
 
Quarter Ended:
   
March 31, 2011
June 30, 2011
September 30, 2011
December 31, 2011
$0.09
$0.04
$0.02
$0.02
 
$0.02
$0.01
$0.01
$0.00
 
Holders
 
We currently have 100,051,107 shares of our common stock issued and outstanding as of April 13, 2012, which are held of record and beneficially owned by 65 persons not including those shares held in “street name.”

Dividends

We have one class of authorized preferred stock, of which there are no shares issued and outstanding.  
 
We have not paid or declared any dividends on our common stock, nor do we anticipate paying any cash dividends or other distributions on our common stock in the foreseeable future.  Any future dividends will be declared at the discretion of our board of directors and will depend, among other things, on our earnings, if any, our financial requirements for future operations and growth, and other facts as our board of directors may then deem appropriate.

Before the Merger, Telava Networks, Inc. and its subsidiaries was a privately-held company.  It is now our wholly-owned subsidiary.  Before the Merger, there was no public market for the securities of Telava Networks, Inc.  We have never declared or paid any cash dividends on our capital stock.

Securities Authorized for Issuance under Equity Compensation Plans

 We do not currently have any equity compensation plans in place.

Report of Offering of Securities and Use of Proceeds Therefrom
 
Not Applicable.
 
 Company repurchases of common stock during the year ended December 31, 2011
 
There were no Company repurchases of common stock during the year ended December 31, 2011.
 

 
 

 


 
24

 

 

ITEM 5.    MARKET FOR COMMON EQUITY, RELATED STOCK­HOLDER MATTERS AND COMMON STOCK REPURCHASES - continued
 
Sales of Unregistered Securities during the year ended December 31, 2011
 
All sales of securities have been disclosed in previously filed reports.  
 
 
ITEM 6.    SELECTED FINANCIAL DATA

Not applicable.
 
 
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion reflects our plan of operation.  This discussion should be read in conjunction with the financial statements which are attached to this report.  This discussion contains forward-looking statements, including statements regarding our expected financial position, business and financing plans.  These statements involve risks and uncertainties.  Our actual results could differ materially from the results described in or implied by these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly under the headings “Special Note Regarding Forward-Looking Statements” and “Risk Factors.”

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

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

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make judgments, assumptions and estimates that affect the amounts reported.  Note 3 of Notes to Financial Statements describes the significant accounting policies used in the preparation of the financial statements.  Certain of these significant accounting policies are considered to be critical accounting policies, as defined below.
   
A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations.  Specifically, critical accounting estimates have the following attributes:
 
 
·
We are required to make assumptions about matters that are highly uncertain at the time of the estimate; and
 
 
·
Different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.

Estimates and assumptions about future events and their effects cannot be determined with certainty.  We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances.  These estimates may change as new events occur, as additional information is obtained and as our operating environment changes.  These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known.  Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our financial statements are fairly stated in accordance with accounting principles generally accepted in the United States, and present a meaningful presentation of our financial condition and results of operations.

 
 

 


 
25

 

 

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
 
In preparing our financial statements to conform to accounting principles generally accepted in the United States, we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes.  These estimates include useful lives for fixed assets for depreciation calculations, assumptions for the analysis of impairment on long lived assets and goodwill and assumptions for valuing options and warrants.  Actual results could differ from these estimates.

Revenue Recognition 

In general, revenue for our services is recognized when all of the following criteria are satisfied: (i) persuasive evidence of an arrangement exists; (ii) the price is fixed or determinable; (iii) collectability is reasonably assured; and (iv) services have been performed.

Telava NV and LIP :  The Company’s revenue is generated by customer subscriptions of directory and advertising services.  Revenue is billed and recognized monthly for services subscribed in that specific month.  The Company utilizes outside billing companies to transmit billing data, much of which is forwarded to Local Exchange Carriers (“LEC’s”) that provide local telephone service.
 
LEC Billing :  When a customer subscribes to the Company’s service, an electronic customer file is created which is the basis for the billing.  The Company submits gross billings electronically to third party billing aggregators. These billing aggregators compile and format electronic customer files and forward the billing records to the appropriate LEC’s.  The billing for our service flows through to monthly bills of the individual LEC customers.  The LEC’s collect the Company’s billing and remit amounts to the billing aggregators, which in turn remit funds to the Company.  The following are significant accounting estimates and assumptions used in the revenue recognition process with respect to these billings.
 
Customer refunds :  The Company’s customer refund policy allows the customer to request a refund if they are not satisfied with the service within the first 30 days of the subscription.  The Company accrues for refunds based on historical experience of refunds as a percentage of new billings in that 30-day period.  Customer refunds are based on historical operations and since the refunds have been insignificant the Company does not have a reserve against gross revenue.
 
Non-paying customers :  There are customers who may not pay the fee for our services even though the Company believes they are valid subscribers.  Included in cost of services is an accrual for estimated non-paying customers that are recorded at the time of billing.

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

Fees :  Both the billing aggregator and the LEC charge processing fees.  Additionally, the LEC charges fees for responding to billing inquiries by its customers, processing refunds, and other customer-related services.  Such fees are estimated at the time of billing and charged to cost of services.
 
Revenue for billings to certain customers billed directly by the Company and not through the LEC’s, is recognized based on estimated future collections.  The Company continuously reviews this estimate for reasonableness based on its collection experience. 
 
Telava Wireless :  Leasing revenue for towers are recognized on a monthly basis based on the terms and conditions of the lease agreements. 
 
LIP :  Printing revenue for coupon books are recognized as services are performed.

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

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

 
 

 


 
26

 

 
 
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
 
Revenue is stated at amounts billed or invoiced and accrued to subscribers or other carriers and content providers, taking into consideration the bill cycle cut-off (for postpaid subscribers), and charges against preloaded airtime value (for prepaid subscribers), and excludes value-added tax (VAT) and overseas communication tax.

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

Foreign Currency Translation

The financial statements of our Korean subsidiary are measured using the Korean Won as the functional currency.  Assets, liabilities and equity accounts of the company are translated at exchange rates as of the balance sheet date or historical acquisition date, depending on the nature of the account.  Revenues and expenses are translated at average rates of exchange in effect during the period.  The resulting cumulative translation adjustments have been recorded as a separate component of stockholders' equity (deficit).  The financial statements are presented in United States of America dollars.

Results of Operations for the Fiscal Years Ended December 31, 2011 and 2010
 
Our revenue for the year ended December 31, 2011 was $3,523,327, a $1,783,127 or 34% decrease compared to the revenue of $5,306,454 for the year ended December 31, 2010.  The decrease in revenue was primarily derived from a decline in marketing effort in the online advertising solutions revenue.

Our receivables for the year ended December 31, 2011 was $320,587, a 37% decrease compared to the receivables of $510,531 for the year ended December 31, 2010.  A decrease was due to a change in billing policies and restrictions adopted by the third party billing aggregators and imposed by certain LECs pertaining to our operations in the advertising solutions business combined with the decrease in revenue.
 
Our accounts payable and notes payable for the year ended December 31, 2011 were $2,859,825 and $2,099,995, a 36% increase - $759,830 and a 55%. A $599,899 increase in notes payable to $1,694,075 from $1,094,176 for the year ended December 31, 2011 and 2010, respectively.  A significant part of the increase in notes payable was due to additional capital needed to pay off some liabilities after assumption of liabilities for the IBFA acquisition and to sustain operations.
 
Our line of credit for the year ended December 31, 2011 was $1,507,176, a 20% decrease compared the balance as of December 31, 2010.  The decrease was due to repayments of the line of credit during the year.  As of the date of this filing, the line of credit is in default and we are renegotiating the terms with the lender.
 
The cost of sales for the years ended December 31, 2011 and 2010 totaled $1,987,926 and $2,345,112, respectively.  The $357,186, or 15% decrease in 2010 was due to decrease in overall sales and lowering of costs incurred in sales.
 
Our gross profit decreased $1,425,941 or 48% to $1,535,401 for the year ended December 31, 2011 from $2,961,342 for the year ended December 31, 2010.  The gross margin decreased from 56% to 44% as a result of retention ratio of IBFA customer base related to the acquisition of IBFA.
 
Operating expenses increased $537,525 or 14% to $4,286,516 for the year ended December 31, 2011 from $3,748,991 for the year ended December 31, 2010.  The increase was attributed to the goodwill impairment totaling $1,068,000.  However, there was a substantial decrease in headcount and better control of the expenses associated with market expansion and sales growth in other businesses and expenses related to the operations of IBFA.

Other expense for the years ended December 31, 2011 and 2010 were $329,033 and $258,548, respectively.  The $70,485 or 27% increase in other expense was due primarily to increase in interest expenses.

 
 

 


 
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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
 
Net loss for the year ended December 31, 2011 and 2010 was $2,986,289 and $1,002,743, respectively.  The $1,983,546 or 198% increase in our net loss was primarily the result of the impairment of goodwill and the increased costs related to our facility and expansion into other markets and additional costs associated with the operation of IBFA.

Segment Results

Our wireless revenue was $156,745 in 2011 and $68,067 in 2010.  The increase was due to increase in customer base in wireless products such as prepaid phone and enhanced broadband businesses.  The wireless operation contributed less than 4% of the overall operating revenue of the company.

Our wireline revenue was $2,329,224 in 2011 and $2,794,649 in 2010.  The significant decrease was due to decrease in internet service revenue.  The wireline operation contributed to more than 66% of the overall revenue of the company.

Our advertising solutions revenue was $1,037,358 in 2011 and $2,433,738 in 2010.  The decrease was due to decrease in marketing efforts in certain markets and regions due to LEC restrictions.  However, our operating profit was at 70% compared to 66% in 2010.  The increase in operating profit margin was due to steady retention of customer base in the advertising solutions business.  The operating expense was $2,019,188 which was lower than that of 2010 due to more control in costs associated with operations.

Expansion of the wireless business will require a significant amount of capital. We estimate the capital need to be approximately $10 million, to be used primarily for building infrastructure and integrating infrastructure with our existing wireless assets. We have no agreement or understanding with any person to supply the required cash, but we anticipate that we will be able to raise all or part of our capital needs by the sale of securities. If we are unable to raise the amount of $10 million, our expansion will be accordingly delayed. Our market area is the smaller metropolitan area (less than 100,000 population) which is currently underserved by current broadband solutions.  We intend to raise funds from government grants and initiatives or private sources to deploy our networks and technology. In the event that sufficient capital is not raised, we may seek additional funding from some private investors to help fund the expansion of operations by means of convertible loans.
 
Off-Balance Sheet Arrangements
 
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
 
 
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Inflation

Although our operations are influenced by general economic conditions, we do not believe inflation had a material effect on the results of operations during the year ended December 31, 2011.   However, there can be no assurance our business will not be affected by inflation in the future.

 
ITEM 8.    FINANCIAL STATEMENTS
 
The information required by this Item is submitted as a separate section of this Form 10-K. See CONSOLIDATED AUDITED FINANCIAL STATEMENTS AND NOTES.
 
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
None.
 

 

 
 

 


 
28

 

 

ITEM 9A.  CONTROLS AND PROCEDURES
  
Evaluation of Disclosure Controls and Procedures
 
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a] 15(e) and 15d] 15(e) under the Securities Exchange Act of 1934 (the Exchange Act)). Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on our assessment, we determined that, as of December 31, 2011, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed, because of the material weaknesses in our internal control over financial reporting described below, our disclosure controls and procedures were not effective to satisfy the objectives for which they are intended.
 
Notwithstanding management’s assessment that our internal control over financial reporting was ineffective as of December 31, 2011 due to the material weakness described below under Management’s Report on Internal Control Over Financial Reporting, we believe that the consolidated financial statements included in this Annual Report on Form 10-K correctly present our financial condition, results of operations and cash flows for the fiscal years covered thereby in all material respects.
 
Internal Control over Financial Reporting
 
(a) Management’s Annual Report on Internal Control Over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13(a)-15(f) under the Securities Exchange Act. The Company’s internal control over financial reporting is a process that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States and includes those policies and procedures that:
 
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
 
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and
 
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
 
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as based on framework established in Internal Control Integrated Framework issued by the committee of Sponsoring Organizations of the Treadway Commission (COSO) as of December 31, 2011. Based on such evaluation, our management, including the CEO and CFO, has concluded that the Company’s internal control over financial reporting as of December 31, 2011 is ineffective.
 
This assessment identified the following material weaknesses in the company’s internal control over financial reporting:

 
-
Management override
 
-
Insufficient quarterly and annual financial closing procedures
 
-
Insufficient cutoff for recording revenue
 
-
Insufficient cutoff for recording payables

 
 

 


 
29

 

 

ITEM 9A.  CONTROLS AND PROCEDURES - continued
 
It is Management’s opinion that the above weaknesses exist due to the small size of operating staff and the current phase of operations. In an effort to remediate the identified material weakness and enhance our internal controls, we have initiated, or plan to initiate, the following measure:

We plan to increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. We will create a senior position to focus on financial reporting and standardizing and documenting our accounting procedures with the goal of increasing the effectiveness of the internal controls in preventing and detecting misstatements of accounting information. We anticipate the costs of implementing these remediation initiatives will be approximately $50,000 to $100,000 a year in increased salaries and $50,000 to $100,000 a year in increased legal and accounting expenses.  We anticipate that these initiatives will be at least partially, if not fully, implemented by December 31, 2012.  Additionally, we plan to test our updated controls and remediate our deficiencies by December 31, 2012.
 
(b) Attestation Report of the Registered Public Accounting Firm
 
This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.

Changes in Internal Controls

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the year ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
ITEM 9B.  OTHER INFORMATION
   
Not Applicable.
 


 

   
PART III
 
ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
 
Directors and Executive Officers
 
The members of the Board of Directors of Unilava, Inc. serve until the next annual meeting of stockholders, or until their successors have been elected.  The officers serve at the pleasure of the Board of Directors.  The following sets forth information about our directors and executive officers:
The address of each, unless otherwise noted, is 353 Sacramento Street, Suite 1500, San Francisco California.
 
           
Number of Shares
   
Percentage of
 
Name
Office
 
Age
   
Owned (1)
   
Shares Owned (1)
 
                     
Baldwin Yung
PRESIDENT/CEO/
 
40
     
5,500,000
     
5.50
%
 
CFO/DIRECTOR
                     
              
                       
Boaz Yung
Executive Vice President
 
32
     
1,375,000
     
1.30
%
  
                       
Dicken Yung
Director
 
75
     
2,475,000
     
2.40
%
                         
Michael Corrigan
Director 
 
62
     
--
     
--
 
                         
Ruth Brown
Director
 
65
     
--
     
--
 

 
 

 


 
30

 

 
 
ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE - continued
 
               
Number of
   
Percentage of
 
 Name   Office     Age    
Shares
Owned (1)
   
Shares Owned (1)
 
                         
Rodger Spainhower
 
Director
      67       --       --  
                               
Colin Tilley
 
Director
      61       --       --  
                               
Dr. Brian Peacock
 
Director
      75       --       ---  
                               
Carlington HK
                             
Limited (2)
    N/A       N/A       38,500,000       38.50 %
                                 
All executive officers and directors as a
                         
 group (8 persons)
                    13,750,000       13.80 %
(1) Except as otherwise noted, shares are owned beneficially and of record, and such record stockholder has sole voting, investment, and dispositive power.
 
(2) Mr. Lam Kam Hung is the control person of Carlington Hong Kong Limited, an investment group which directly owns these shares.
 
Baldwin Yung – President and Chief Executive Officer and Chief Financial Officer
 
Baldwin Yung, age 40, has been President, CEO and CFO of Unilava since inception and is a member of the Board’s Audit and Corporate Governance Committees.  Mr. Yung is an experienced venture capitalist and finance executive who has raised funds in both debt and equity for publicly and privately-held companies.  He is also a successful entrepreneur, having co-founded a publicly-traded interactive multimedia and data management company- DigiLava, Inc.  Earlier in his career, Mr. Yung worked for global public accounting firms, such as Price Waterhouse Coopers, L.L.P., PKF International (previously known as Pannell, Kerr & Forster) and Worldwide CPAs, specializing in external audits and financial advisory services.  He has provided management consulting services to small to medium-sized start-ups and early-stage companies in various sectors including technology and telecommunications. Mr. Yung was Chief Executive of Telava Networks, Inc., A California Corporation between the period August 2007 to March 2009.
 
Mr. Yung has a Bachelor of Arts degree in Accounting from University of Oregon. He is a member and was appointed as the Honorary Chairman of the Business Advisory Council of the State of California and was awarded 2005 Businessman of the Year.
 
Boaz Yung – Executive Vice President of Business Development & Technology
 
With extensive experience in emerging business and technology, Boaz Yung, age 32, has served as Executive Vice President of Unilava since 2003, overseeing new market development, long-term strategic direction and the overall vision of the Company.  As a co-founder, Mr. Yung spearheaded Unilava’s Telava divisions to a global corporation.
 
Mr. Yung’s leadership philosophy and professional experience mirrors the Company’s goal—providing solution through strategy with technology and insight with action. He has led major assignments for companies with innovative technologies for Fortune 500 companies in the United States, Asia and Europe.  Mr. Yung possesses more than 10 years experience in business and consumer software product development, specifically in start-up software technology for both the Internet and advertising markets.
  
Prior to Telava, he served as Vice President of Operations at DigiLava, Inc. (DGLV.PK), a U.S. publicly traded interactive multimedia and data management company.  Mr. Yung also received his broad experiences and extensive network in the capital financing field while working as a Direct Investment Manager at Worldwide Capital. 
 
Mr. Yung is an honor graduate of University of Oregon with a Bachelor of Science degree in General Science with minors in Computer Information Technology, Business, and Chemistry. Boaz Yung is the brother of Baldwin Yung.
  
 
 

 


 
31

 

 

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE - continued
 
Colin Tilley – Director
 
Colin Tilley, age 61, has been a Board Member of Unilava for four years and is a member of the Board’s Audit and Corporate Governance Committees.  He has over 30 years of general management experience.  Having started his career in municipal government in London, where he rose to the position of Deputy Director, he went to work for international management consultants Pannell Kerr Forster Associates as a senior management consultant for five years.  He left to establish the first of three companies he has successfully co founded.  The first, Whiteley International, was a management consultancy, of which he was a partner for some 12 years, which specialized in strategy development, business planning, organizational reviews and business monitoring and evaluation.  During this time, he also co-founded Creating Excellence, a multi-faceted management and marketing company, with UK clients such as Nike, Reuters, the BBC, Comic Relief, Sport England, UK Sport and the British Heart Foundation.  He has been involved in all aspects of the business, especially strategic direction, business planning and development and client development.  He remains as a director of that organization in a mainly non-executive capacity.  More recently, he formed Tilley and Associates, to offer consultancy and interim management services.  
 
In a non-executive capacity, Mr. Tilley has been appointed twice to the boards of The Princess Alexandra Acute Hospital Trust and the World Leisure Organisation, which is a Non-Governmental Organisation (NGO) of the United Nations.  He was recently appointed to the board of Usport at the University of Sheffield.  He has co-authored two books and numerous articles on many aspects of management, especially leadership and motivation. 
 
Mr. Tilley has a Bachelor of Education (Hons) degree from Loughborough University in the UK and a Masters degree in management from the University of Oregon, USA.   

With his substantial experience in international corporate consulting, Mr. Tilley brings to the Board  a broad knowledge base in corporate governance, strategic development and business planning.
 
Brian Peacock  - Director

Dr. Brian Peacock, age 75, is a member of the Board’s Remuneration/Compensation Committee. Dr. Brian Peacock has a background in ergonomics and industrial engineering which have provided a foundation for a long career in industry and academia, which included eighteen years in academia, fifteen years with General Motors' vehicle design and manufacturing organizations, and four years as discipline coordinating scientist for the National Space Biomedical Institute / NASA. He is a licensed professional engineer, a licensed private pilot, a certified professional ergonomist and a fellow of both the Ergonomics and Human Factors Society (UK) and the Human Factors and Ergonomics Society (USA). Dr. Peacock has authored over 300 journal articles, reports, book chapters and presentations, including books on Statistical Distributions, Automotive Ergonomics and Ergonomics in Design.
 
Dr. Brian Peacock recently retired as a professor in the Department of Safety Science at Embry Riddle Aeronautical University, where he taught classes in system safety and applied ergonomics. He is currently a consultant in ergonomics and systems engineering and teaches classes at two Singapore universities.

Dr. Peacock’s  distinguished tenure in academia and his long-term career at a Fortune 500 company allow Dr. Peacock to provide a distinctive perspective to the Board, especially on matters relating to business planning, technological product development, and corporate structure.
 
Dicken Yung – Chairman and Director
 
Dr. Dicken Yung, age 75, has chaired the Board of Directors since inception of the company and is a member of the Board’s Remuneration/Compensation Committee. For over 20 years, Dr. Yung has been involved in technology and industrial investments. He was Chairman of Digilava, Inc. in US and Director of Versatech Industries in Canada. Dr. Yung was bestowed in 2003 the most distinguished award by the Shanghai Municipality Government, the ‘Magnolia Gold Medal’. He has also received the award for ‘Most Distinguished Contributions to the Movement of Special Olympics in China’ from the quasi-government ministry for disabled persons, China Disabled Persons Federation.

Dr. Yung has an extensive global professional background in senior level management for public services and non-government organizations. A former Justice of the Peace, Dr. Yung has held various senior management positions in the British Hong Kong Government. For the past 17 years Dr. Yung has been Professor and Director of Asia Pacific Professional and Education Programs of the University of Oregon Continuation Center, USA. For over 40 years, in a voluntary capacity, Dr. Yung founded several renowned charities in Hong Kong, including Hong Kong Sports Association for the Mentally Disabled, Hong Kong Special Olympics, Hong Kong Recreation Management Association and the Association for Scientific Studies of Mental Handicap. He was also a Founding Member, Vice Chairman and Program Chairman of Hong Kong Physically-handicapped and Able-bodied Association for decades. Internationally, Dr. Yung has served for four terms as a Board Member of Special Olympics International (SOI). As President of East Asia Region of SOI, Dr. Yung was instrumental in bringing to China the 2007 Special Olympics World Summer Games in Shanghai. While serving as Executive Board Member of World Leisure Organization, he played a key role in bringing the six-month 2006 World Leisure Expo in Hangzhou. Dr. Yung had also served for two terms as a Board Member of Hostelling International (USA).

 

 


 
32

 

 

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE - continued
 
Dr. Yung earned his Ph.D. from the University of Nottingham, an M.A. from the University of Leeds, both in the United Kingdom, and other postgraduate qualifications and Senior Fellowships from the University of Otago, New Zealand, University of Hong Kong, and professional institutes in the UK and the US.  Dr. Yung is the father of Baldwin Yung and Boaz Yung.

Dr. Yung’s extensive international experience in both the public and private sectors benefits the Board substantially, particularly in matters relating to corporate governance, business development and strategic planning.
 
Michael Corrigan – Director

            Mr. Michael Corrigan, age 62, has been a Director since inception of the company and serves on the Board’s Audit and Corporate Governance Committees. He is a member of The State Bar of California and has his own law practice in Southern California. Mr. Corrigan’s practice focuses on general and SEC representation of emerging high technology and other operating companies. He has been counsel to private and public companies in a broad range of industries, including computer hardware and software, telecommunications, multimedia, action sports, restaurant, entertainment and sporting goods manufacturing. He has assisted these companies with their corporate and partnership organization, private and public financing of debt and equity, mergers and acquisitions, joint ventures, technology licensing, real estate syndication and related commercial arrangements. He has advised owners of these companies on retirement planning and estate planning matters. In addition, Mr. Corrigan has represented several regional investment banking, advisory and management firms in securities and underwriting transactions, as well as compliance matters.

In a non-executive capacity, Mr. Corrigan sits on the Medical Bioethics Committee of Sharp Memorial Hospital, the Eagle Scout Review Board, the Board of Trustees of the California Ballet Association and the Board of Trustees of the San Diego Repertory Theatre. He previously sat on the Board of Directors of the National Kidney Foundation of Southern California and the Board of Directors of United Way/CHAD.

Mr. Corrigan received his undergraduate degree from the University of Notre Dame, with a major in finance, and both a J.D. and an MBA from the University of Denver.

Mr. Corrigan’s substantial experience in corporate legal advisory provides guidance and perspective to the Board especially on subject matters relating to mergers and acquisitions, corporate governance and securities law compliance.
 
Ruth Brown – Director

             Mrs. Ruth Brown, age 65, has been Director since inception of the company and is a member of the Board’s Remuneration/Compensation Committee. Mrs. Brown is an avid investor who has been involved in technology and real estate investments over the past 13 years. Mrs. Brown is a business entrepreneur with ownership in a commercial meat company in Southern California and a real estate and property management company in Hawaii.

 After attending Kapiolani Community College and working at the University of Hawaii, Mrs. Brown moved to California in 1967, where she worked in the field of accounting.  In the late 1970s, Mrs. Brown, together with her husband, successfully started a commercial meat company and business has been in operation since then.  Today, the company has three subsidiaries with over 40 employees. During the 1990s, Mr. and Mrs. Brown started investing in Hawaii Real Estate and in high-tech digital media industry. In 1999, they started their own property management company in Hawaii and have found much success in Hawaii Real Estate. Mrs. Brown has also for many years been actively involved as a volunteer in community educational work.

Mr. Brown’s background in accounting and technology and real estate investments brings to the Board expertise on matters concerning corporate financial planning, strategic planning and corporate governance.

Rodger Spainhower - Corporate Secretary

Mr. Rodger Spainhower, age 67,   serves as Corporate Secretary and Director of Unilava Corporation. He founded Highland Business Services, Inc., a business consulting company, in 1984 and has since then been providing services to businesses in areas of management, administration, compliance, software development and data management. Prior to founding Highland, Mr. Spainhower served as President and CEO of Hyland Title Corporation, where he oversaw the company’s management, administration and coordination of all services to a major title insurance agency. Before Hyland Title, Mr. Spainhower built a broad base of operations experience serving as Vice President at Great Western National Bank and as Operations Officer & Auditor at Valley National Bank in the US. At both banks, Mr. Spainhower was in charge of managing the bank operation for various branch offices including cash control, personnel, accounting and customer services.
 
Mr. Spainhower studied at the American Institute of Banking with special emphasis on Banking and Business Administration.  Mr. Spainhower’s experience in the banking industry brings to the Board knowledge on matters relating to software development, data management and strategic planning.

 
 

 


 
33

 

 

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE - continued
 
There are no agreements or understandings for any of our executive officers or director to resign at the request of another person and no officer or director is acting on behalf of nor will any of them act at the direction of any other person.

Family Relationships

No family relationships exist among the directors and officers, except that Baldwin Yung and Boaz Yung are the sons of the Chairman, Dr. Dicken Yung.
 
Involvement in Certain Legal Proceedings

To the best of our knowledge, none of our directors or executive officers has, during the past ten years:

 
·
been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
 
 
·
had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;
 
 
·
been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;
 
 
·
been found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
 
 
·
been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
 
 
·
been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

Except as set forth in our discussion below in Item 13, “Certain Relationships and Related Transactions” none of our directors, director nominees or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.

 
 

 


 
34

 

 

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE - continued
 
Section 16(A) Beneficial Ownership Reporting Compliance
 
Section 16(a) of the Exchange Act requires our executive officers, directors and beneficial owner of more than 10% of a registered class of our equity securities to file with the SEC statements of ownership and changes in ownership. The same persons are required to furnish us with copies of all Section 16(a) forms they file. We believe that, during fiscal 2011, all of our executive officers, directors and beneficial owner of more than 10% of a registered class of our equity securities complied with the applicable filing requirements.
 
In making these statements, we have relied upon examination of the copies of all Section 16(a) forms provided to us and the written representations of our executive officers, directors and beneficial owner of more than 10% of a registered class of our equity securities.
 
Code of Ethics
   
In August 2004, the Company adopted a Code of Ethics. This Code of Ethics continues to be applicable to current management following the acquisition of Telava Networks, Inc, a Nevada Corporation. The Company will provide to any person without charge, upon request, a copy of such code of ethics. Requests should be sent to the Chief Financial Officer at the address on the cover page of this Annual Report.

Audit Committee and Audit Committee Financial Expert

We do not have an audit committee or an audit committee financial expert serving on the audit committee. Our entire board of directors currently is responsible for the functions that would otherwise be handled by an audit committee. However, we intend to establish an audit committee of the board of directors in the near future. We envision that the audit committee will be primarily responsible for reviewing the services performed by our independent auditors, evaluating our accounting policies and our system of internal controls. Upon the establishment of an audit committee, the board will determine whether any of the directors qualify as an audit committee financial expert.


 ITEM 11.   EXECUTIVE COMPENSATION
 
Summary Compensation Table — Fiscal Years Ended December 31, 2011, 2010, 2009 and 2008
 
The following table sets forth the cash compensation of Unilava's executive officers and directors during each of the last three fiscal years.  The remuneration described in the table does not include the cost of benefits which may be furnished to the named executive officers, including premiums for health insurance and other benefits provided to such individuals that are extended in connection with the conduct of our business.  The value of such benefits cannot be precisely determined, but the executive officers named below did not receive such other compensation in the years set forth below.
  
 
ANNUAL COMPENSATION
   
LONG TERM COMPENSATION
 
Name and
         
Other Annual
         
Award
         
Payouts
         
All
 
Principal Position
                                                 
 
 Year
 
Salary
   
Bonus
         
Compensation
               
Other
       
                                       
               
Restricted
   
Securities
   
LTIP
   
Compensation
             
                 
Stock
   
Underlying
   
Payouts ($)
   
Awards
   
Options
   
SARs(#)
 
                                                   
 Baldwin Yung
2011
 
$
  72,000
   
$
  0
     
0
     
0
     
0
     
0
     
0
     
0
 
 Chief Executive Officer
2010
 
$
  72,000
   
$
  0
     
0
     
0
     
0
     
0
     
0
     
0
 
 President and CFO
2009
 
$
86,000
   
$
27,000
     
0
     
0
     
0
     
0
     
0
     
0
 
 
2008
 
$
80,000
   
$
0
     
0
     
0
     
0
     
0
     
0
     
0
 
 
 
Summary of Employment Agreements and Material Terms
 
Option/SAR Grants in the year ended December 31, 2011 to Named Executive Officers
 
     
Number of  
 
% of Total  
 
 
Options/SARs
Employees in
Securities
 
Options/SARs
 
Name
   
Underlying
Granted to
   
 
Granted (#) 
Fiscal Year  
Exercise or Base
   
Expiration
             
 Baldwin Yung 
0
0
  -
-
  -
-
 
 
 
35

 

 


ITEM 11.   EXECUTIVE COMPENSATION - continued
 
Aggregated Option/SAR Exercises and Fiscal Year End Option/SAR Values
 
Name 
 
Shares Acquired
on Exercise (#)
   
Value Realized ($)
   
Number of 
 Securities
Underlying
Unexercised
Options/SARs at
Fiscal Year End 
Exercisable/ 
Unexercisable
   
Value of
Unexercised
In-the-Money
Options/SARs at
Fiscal Year End
Exercisable/
Unexercisable
 
                         
Baldwin Yung 
 
-
   
--
   
--
   
--
 
    
 
Outstanding Equity Awards at Fiscal Year End
 
None.
 
Option Exercises and Stock Vested
 
No options to purchase our capital stock were exercised by any of our named executive officers, nor was any restricted stock held by such executive officers vested during the fiscal year ended December 31, 2011.
 
Pension Benefits
 
No named executive officers received or held pension benefits during the fiscal year ended December 31, 2011.
 
Nonqualified Deferred Compensation
 
No nonqualified deferred compensation was offered or issued to any named executive officer during the fiscal year ended December 31, 2011.
 
Potential Payments upon Termination or Change in Control
 
Our named executive officers are not entitled to severance payments upon the termination of their employment agreements or following a change in control.
 
Compensation of Directors
 
No member of our board of directors received any compensation for his or her services as a director during the year ended December 31, 2011.
 
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
The following table presents information regarding the beneficial ownership of all shares of our common stock as of the date of this report by:
 
 
·
Each person who owns beneficially more than five percent of the outstanding shares of our common stock;
 
 
·
Each director of the Company;
 
 
·
Each named executive officer of the Company; and
 
 
·
All directors and officers of the Company as a group.
 
 The address of each, unless otherwise noted, is 353 Sacramento Street, Suite 1500, San Francisco California.
 
 

 
 

 


 
36

 

 
 
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS - continued
 
           
Number of Shares
   
Percentage of
 
Name
Office
 
Age
   
Owned (1)
   
Shares Owned (1)
 
                     
Baldwin Yung
PRESIDENT/CEO/
 
40
     
5,500,000
     
5.50
%
 
CFO/DIRECTOR
                     
              
                       
Boaz Yung
Executive Vice President
 
32
     
1,375,000
     
1.30
%
  
                       
Dicken Yung
Director
 
75
     
2,475,000
     
2.40
%
                         
Michael Corrigan
Director 
 
62
     
--
     
--
 
                         
Ruth Brown
Director
 
65
     
--
     
--
 
                         
Rodger Spainhower
Director
 
67
     
--
     
--
 
                         
Colin Tilley
Director
 
61
     
--
     
--
 
                         
Dr. Brian Peacock
Director
 
75
     
--
     
---
 
                         
Carlington HK
                       
Limited (2)
N/A
 
N/A
     
38,500,000
     
38.50
%
                         
All executive officers and directors as a
                     
 group (8 persons)
           
13,750,000
     
13.80
%

 
(1) Except as otherwise noted, shares are owned beneficially and of record, and such record stockholder has sole voting, investment, and dispositive power.
 
(2) Mr. Lam Kam Hung is the control person of Carlington Hong Kong Limited, an investment group which directly owns these shares.

 Securities Authorized for Issuance under Equity Compensation Plans

We do not currently have any equity compensation plans in place.

 
Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
   
 
During 2010, Dicken Yung, Chairman, loaned the Company $144,000 and was repaid $18,000.  The amounts are due on demand and bear no interest.  During 2011, the Company repaid $19,648.  As of December 31, 2011, the balance owed was $176,352.

During 2010, Baldwin Yung, CEO, loaned the Company $10,000 and $38,141 as outstanding accounts payable which is still owed by the Company.  The amounts are due on demand and bear no interest.  As of December 31, 2011, the balance owed as loan and payables were $387,000 and $63,433.

During 2010, Boaz Yung, EVP, loaned the Company $1,125 as outstanding notes payable which is still owed by the Company.  The amounts are due on demand and bear no interest.  As of December 31, 2011, the balance owed was $1,125.

During 2010, Cherie Yung, Director of International Business Development, loaned the Company $12,488 as outstanding accounts payable which is still owed by the Company.  The amounts are due on demand and bear no interest.  As of December 31, 2011, the balance owed as loan and payables were $135,000 and $54,572.

During the year ended December 31, 2011 and 2010, the Company had professional fees billed of $2,394 and $2,610, respectively, from an entity that is owned and controlled by an officer and director of the Company.

The Company in 2006 acquired 40 towers in exchange for 25% interest of Telava Wireless. The Company has an arrangement with the seller, now a related entity, whereby the Company will always have the right to 40 tower assets at any given time and as such has the ability to exchange tower assets with the related entity if a tower is sold or if the tower is not deemed suitable. During the year ended December 31, 2011, the Company successfully sold a tower for $172,000 with net proceeds of $160,000. The tower sold had a net book value of $40,273 resulting in a gain on sale of asset of $119,726.  Due to the arrangement, the seller, now a related entity, was required to replace the tower asset during the year.  The value of the replaced tower was deemed as a contribution from the related entity and as such the tower was transferred at a Zero cost basis. The related party entity is owned and controlled by an individual who owns approximately 25% of a Telava Wireless and is a minority shareholder of the Company. The Company also assists a related entity with the sales and acquisitions of tower assets.

There were no other related party transactions in 2011 and 2010.
 
Director Independence
 
Mr. Corrigan serves on our board as an “independent director” as defined by the applicable rules of the SEC.
 
 

 
 

 


 
37

 

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
 
Audit Fees
 
Our principal accountants, De Joya Griffith and Company LLC billed us $48,900 for audit and review fees during the fiscal years ended December 31, 2011 and $43,500 for fiscal year ended December 31, 2010.
 
Audit–related Fees
 
None.
 
Tax Fees
 
Our principal accountants,   De Joya Griffith and Company LLC billed us $4,500 for tax preparation fees during the fiscal years ended December 31, 2011 and $3,500 for fiscal year ended December 31, 2010.
 
All Other Fees
 
None.
 
Audit Committees pre-approval policies and procedures
 
The Registrant has an audit committee as disclosed above.  Its engagement of the above auditors was approved by the Board of Directors.  No services described in Item 9(e)(2) through 9(e)(4) of Schedule 14A were performed by our auditors.  
 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
38

 
 
PART IV
 
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
 
Financial Statements and Schedules
 
The financial statements are set forth under Item 8 of this annual report on Form 10-K. Financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included.
 
Exhibit Index
 
The following exhibits are filed as part of this report or incorporated by reference:
 
Exhibit Number 
Exhibit
  
 2.1 Agreement and Plan of Reorganization between the Registrant and Telava Networks, Inc. **
   
 3.1 Certificate of Incorporation *
   
 3.2 Articles of Continuance *
   
 3.3 Bylaws*
   
10.1
Employment Agreement dated July 31, 2003 between Unilava Corporation’s subsidiary and Baldwin Yung.
   
10.2
Form of Letter of Agency for Long Distance.
   
10.3
Form of Letter of Agency for Local Distance.
   
10.4
Joint Application for Approval of an Interconnection Agreement, dated March 12, 2010, by and between Southwestern Bell Telephone Company d/b/a AT&T Texas and IBFA Acquisition Company, LLC.
   
10.5
Master Service Agreement  dated March 18, 2008 by and between Level 3 Communications, LLC and Telava Networks, Inc.
   
21 
List of Subsidiaries.

31.1 
Certification of the Chief Executive pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934 as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2003.
   
 31.2
Certification of the Financial Officer pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934 as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2003. Filed herewith.
 
32. 1
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003.
*Incorporated by reference to such exhibit as filed with the Current Report on Form 8-K dated November 17, 2009.
 **Incorporated by reference to such exhibit as filed with the Report on Form 6-K dated September 30, 2009.
   
   
 
 

 


 
39

 

 

 

SIGNATURES
 
                Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on April 16, 2012.
 
 
UNILAVA CORPORATION.
 
 By:/s/ Baldwin Yung 
 Baldwin Yung 
President, Chief Executive Officer and Chief Financial Officer
 
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on April 16, 2012.
 
 
 By:/s/ Baldwin Yung 
 Baldwin Yung 
President and Chief Financial Officer, & Director
 
 By :/s/ Ruth Brown
 Ruth Brown
 Director
 
 By :/s/ Dicken Yung
 Dicken Yung
 Director
 
 By :/s/ Rodger Spainhower
 Rodger Spainhower
 Director
 
 
 
 
   

     

 
 

 


 
40

 

 

UNILAVA, INC.

REPORT ON AUDIT OF CONSOLIDATED AUDITED FINANCIAL STATEMENTS AND NOTES

YEARS ENDED DECEMBER 31, 2011 AND 2010

 
CONTENTS
 
 
 
 
 Page
Report of Independent Registered Public Accounting Firm  
 F-2
   
 FINANCIAL STATEMENTS
 
   
 Consolidated Balance Sheets  
 F-3
   
 Consolidated Statements of Operations   
 F-4
   
 Consolidated Statement of Stockholders’ Deficit
 F-5
   
 Consolidated Statements of Cash Flows  
 F-6
   
 Notes to the Financial Statements
 F-7
 

 
 

 


 
F-1

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
To the Board of Directors and Stockholders
Unilava Corporation and its subsidiaries

 
We have audited the accompanying consolidated balance sheets of Unilava Corporation and its subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of operations and comprehensive loss, stockholders’ deficit, and cash flows for the years then ended. Unilava Corporation and its subsidiaries’ management are responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Unilava Corporation and its subsidiaries as of December 31, 2011 and 2010, and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.
 
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered losses from operations, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
/s/ De Joya Griffith & Company, LLC
Henderson, Nevada
 
April 15, 2012

 
 

 


 
F-2

 

 
 

Unilava Corporation
           
Consolidated Balance Sheets
           
As of December 31, 2011 and 2010
           
(Audited)
           
   
December 31,
   
December 31,
 
   
2011
   
2010
 
ASSETS
           
CURRENT ASSETS
           
Cash
  $ 51,704     $ 89,822  
Certificates of deposit - current
    28,078       28,363  
Accounts receivable, net
    320,587       510,531  
Other current assets
    5,409       44,344  
                 
Total current assets
    405,778       673,060  
                 
Fixed assets, net
    1,651,953       1,846,459  
Certificates of deposit
    -       50,000  
Goodwill
    767,873       1,835,873  
Other assets
    95,306       98,979  
                 
TOTAL ASSETS
  $ 2,920,910     $ 4,504,371  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
CURRENT LIABILITIES
               
Accounts payable and accrued expenses
    2,859,825       2,099,995  
Deferred rent - current
    47,099       42,038  
Line of credit
    1,507,176       1,892,500  
Notes payable
    1,694,075       1,094,176  
Notes payable - related party
    699,477       137,125  
                 
TOTAL CURRENT LIABILITIES
    6,807,652       5,265,834  
                 
Deferred rent - non current
    40,684       85,535  
TOTAL LIABILITIES
    6,848,336       5,351,369  
                 
STOCKHOLDERS' DEFICIT
               
Preferred stock, no par value 5,000,000 shares authorized; issued and outstanding 0 and  0 outstanding at December 31, 2011 and December 31, 2010, respectively.
    -       -  
                 
Common stock, no par value 120,000,000 shares authorized; issued but not outstanding 100,052,888 and 100,052,888, respectively; issued and outstanding 100,051,107 and  100,051,107 at December 31, 2011 and December 31, 2010, respectively.
    1,519,074       1,519,074  
Treasury stock, 1,781 and 1,781 shares at December 31, 2011 and December 31, 2010, respectively
    -       -  
Accumulated deficit
    (5,370,761 )     (2,384,472 )
Accumulated other comprehensive loss
               
     (Foreign translation adjustment)
    (63,974 )     (63,694 )
                 
STOCKHOLDERS' DEFICIT OF UNILAVA
    (3,915,661 )     (929,092 )
Non-controlling interest
    (11,765 )     82,094  
                 
TOTAL STOCKHOLDERS' DEFICIT
    (3,927,426 )     (846,998 )
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
  $ 2,920,910     $ 4,504,371  
   
SEE ACCOMPANYING NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS.
 

 
 

 
F-3

 

Unilava Corporation
           
Consolidated Statements of Operations and Comprehensive Loss
           
For the Years Ended December 31, 2011 and 2010
           
(Audited)
           
   
For the Years Ended
 
   
December 31,
 
   
2011
   
2010
 
Revenue
  $ 3,523,327     $ 5,306,454  
Cost of revenue
    1,987,926       2,345,112  
Gross profit
    1,535,401       2,961,342  
                 
Costs and Expenses
               
Salaries and payroll taxes
    1,402,257       1,728,005  
Selling, general & administrative
    1,660,632       1,852,871  
Depreciation and amortization
    155,627       168,115  
Goodwill impairment
    1,068,000       -  
Total costs and expenses
    4,286,516       3,748,991  
                 
Loss from operations
    (2,751,115 )     (787,649 )
                 
Other Income (Expense)
               
Interest income
    652       541  
Other income
    4,187       174,441  
Gain on disposal of assets
    119,726       -  
Interest expense
    (453,189 )     (432,597 )
Other expense
    (409 )     (933 )
Total other income (expense)
    (329,033 )     (258,548 )
                 
Loss before non-controlling interest
    (3,080,148 )     (1,046,197 )
Net loss allocable to non-controlling interest
    93,859       43,454  
Net loss
  $ (2,986,289 )   $ (1,002,743 )
                 
Comprehensive loss:
               
Foreign currency translation adjustment
  $ (280 )   $ 53,265  
Total comprehensive loss
  $ (2,986,569 )   $ (949,478 )
                 
                 
Net loss per common share:
               
   Basic
  $ (0.03 )   $ (0.01 )
Weighted average common shares outstanding:
               
   Basic
    100,051,107       100,051,107  
                 
SEE ACCOMPANYING NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS.
 

 

 
F-4

 

Unilava Corporation
Consolidated Statements of Stockholder's Deficit
For the Years Ended December 31, 2011 and 2010
 
(Audited)  
                                                                   
                                                                   
   
Preferred Stock
   
Common Stock
   
Treasury Stock
         
Accumulated
             
     Number            Number                  Number                 Other           Total  
   
of
         
of
               
of
         
Accumulated
   
Comprehensive
   
Minority
   
Stockholders'
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Payable
   
Shares
   
Amount
   
Deficit
   
Income (loss)
   
Interest
   
Deficit
 
BALANCES December 31, 2009
    -     $ -       100,051,107     $ 1,519,074     $ 135,783       (1,781 )   $ -     $ (1,381,729 )   $ (116,959 )   $ 125,548     $ 281,717  
                                                                                         
Reclassification to accounts payable
                                    (135,783 )                                             (135,783 )
Foreign currency translation adjustment
                                                                    53,265               53,265  
Net loss
                                                            (1,002,743 )             (43,454 )     (1,046,197 )
BALANCES December 31, 2010
    -     $ -       100,051,107     $ 1,519,074     $ -       (1,781 )   $ -     $ (2,384,472 )   $ (63,694 )   $ 82,094     $ (846,998 )
                                                                                         
Foreign currency translation adjustment
                                                                    (280 )             (280 )
Net loss
    -       -       -       -       -       -       -       (2,986,289 )             (93,859 )     (3,080,148 )
BALANCES December 31, 2011
    -     $ -       100,051,107     $ 1,519,074     $ -       (1,781 )   $ -     $ (5,370,761 )   $ (63,974 )   $ (11,765 )   $ (3,927,426 )
                                                                                         
SEE ACCOMPANYING NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS.
 
 

 


 
F-5

 


 
Unilava Corporation
           
Consolidated Statements of Cash Flows
           
For the Years Ended December 31, 2011 and 2010
           
(Audited)
           
   
For the Years Ended
 
   
December 31,
 
   
2011
   
2010
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
  $ (2,986,289 )   $ (1,002,743 )
Adjustments to reconcile net loss
               
to net cash provided (used) in operating activities:
               
Depreciation and amortization
    155,627       168,115  
Change in deferred rent
    (39,790 )     12,923  
Net loss allocated to non-controlling interest
    (93,859 )     (43,454 )
Gain from the sale of equipment
    (119,726 )     -  
Impairment of goodwill
    1,068,000       -  
CHANGES IN OPERATING ASSETS AND LIABILITIES:
               
Accounts receivable
    189,944       914,891  
Other current assets
    38,935       (34,535 )
Other assets
    3,673       22,564  
Accounts payable and accrued expenses
    759,830       (62,611 )
                 
CASH USED IN OPERATING ACTIVITIES
    (1,023,655 )     (24,850 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Redemption (purchase) of certificates of deposit
    50,285       (6,497 )
Proceeds from the sale of towers
    160,227       -