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EX-23.1 - SINGLE TOUCH SYSTEMS S-1, AUDITORS CONSENT - SINGLE TOUCH SYSTEMS INCsingletouchexh23_1.htm
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EX-5.1 - SINGLE TOUCH SYSTEMS S-1, LEGAL OPINION AND CONSENT - SINGLE TOUCH SYSTEMS INCsingletouchexh5_1.htm


As filed with the Securities and Exchange Commission on February 5, 2013
Registration No. 333-_______
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933

SINGLE TOUCH SYSTEMS INC.
(Exact name of Registrant as specified in its charter)

Delaware
 
7389
 
13-4122844
(State or other jurisdiction of
incorporation or organization)
 
(Primary Standard Industrial
Classification Code Number)
 
(I.R.S. Employer
Identification Number)
100 Town Square Place, Suite 204
Jersey City, NJ 07310
(201) 275-0555
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

James L. Orsini
Chief Executive Officer
Single Touch Systems Inc.
100 Town Square Place, Suite 204
Jersey City, NJ 07310
(201) 275-0555
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copy to:
Hayden Trubitt, Esq.
Stradling Yocca Carlson & Rauth
4365 Executive Drive, Suite 1500
San Diego, California 92121
(858) 926-3000

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: x
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
 
 
 
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer ¨
 
Accelerated filer ¨
 
Non-accelerated filer ¨
 
Smaller reporting company x
       
(Do not check if a smaller reporting company)
   
 
CALCULATION OF REGISTRATION FEE
 
Title of Each Class of Securities to be Registered
 
Amount to
be Registered (1)
   
Proposed
Maximum
Offering Price
Per Share (2)
   
Proposed
Maximum
Aggregate
Offering Price
   
Amount of
Registration Fee
 
Common Stock, $0.001 par value per share
    20,440,000     $ 0.91     $ 18,600,400     $ 2,537.09  

(1)
In accordance with Rule 416 under the Securities Act, the registrant is also registering hereunder an indeterminate number of shares that may be issued and resold resulting from stock splits, stock dividends or similar transactions.

(2)
Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(c) under the Securities Act, using the average of the high and low prices as reported on the OTC Bulletin Board on February 1, 2013.
 
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission acting pursuant to said section 8(a) may determine.
 
The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
 
 
 


 
 
ii

 
 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion, Dated February 5, 2013
 
PROSPECTUS
 
SINGLE TOUCH SYSTEMS INC.
 
20,440,000 Shares
Common Stock
 
This prospectus relates to an aggregate of up to 20,440,000 shares of our common stock of which 220,000 are outstanding shares, 10,480,000 are shares that underlie currently outstanding warrants and 9,740,000 are shares that underlie currently outstanding convertible promissory notes, which shares may be resold from time to time by the selling stockholders identified in this prospectus. We issued such securities to the selling stockholders as consideration for cash loaned to us, with the exception that 480,000 shares underlie warrants granted as compensation for services as placement agent.
 
The selling stockholders may sell such common stock from time to time in the open market (at the prevailing market price) or in negotiated transactions.
 
You should read this prospectus and any prospectus supplement carefully before you invest. We will not receive any proceeds from the sale of the shares by the selling stockholders. If the warrants overlying certain of such shares of common stock are exercised for cash, we would receive such exercise-price cash proceeds.
 
Our common stock is traded on the OTC Bulletin Board under the symbol “SITO”. On February 1, 2013, the reported closing sale price of our common stock was $0.92 per share.
 
Investing in our common stock involves a high degree of risk. See Risk Factors” beginning on page 3 for certain risks you should consider before purchasing any shares.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
 
The date of this prospectus is _________, 2013

 

 
 
 


 
 
TABLE OF CONTENTS
 

This prospectus is part of a registration statement that we filed with the Securities and Exchange Commission. You should rely only on the information contained in this prospectus or to which we have referred you. We have not authorized anyone to provide you with information or to make any representation on behalf of Single Touch Systems Inc. that is different from that contained in this prospectus. You should not rely on any unauthorized information or representation. This prospectus is an offer to sell only the securities offered by this prospectus under circumstances and in jurisdictions where it is lawful to do so. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the date of delivery of this prospectus or of any sales of these securities. Our business, financial condition, results of operations and prospects may have changed since the date of this prospectus. This prospectus may be used only in jurisdictions where it is legal to sell these securities.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements contained or incorporated by reference in this prospectus are “forward-looking statements.” These statements are based on the current expectations, forecasts, and assumptions of our management and are subject to various risks and uncertainties that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements. Forward-looking statements are sometimes identified by language
 
 
 
 
such as “believes,” “anticipates,” “estimates,” “expects,” “plans,” “intends,” “projects,” “future” and similar expressions and may also include references to plans, strategies, objectives, and anticipated future performance as well as other statements that are not strictly historical in nature. The risks, uncertainties, and other factors that could cause our actual results to differ materially from those expressed or implied in this prospectus include, but are not limited to, those noted under the caption “Risk Factors” beginning on page 3 of this prospectus. Readers should carefully review this information as well the risks and other uncertainties described in other filings we may make after the date of this prospectus with the Securities and Exchange Commission.

Readers are cautioned not to place undue reliance on forward-looking statements. They reflect opinions, assumptions, and estimates only as of the date they were made, and we undertake no obligation to publicly update or revise any forward-looking statements in this prospectus, whether as a result of new information, future events or circumstances, or otherwise.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 
 
PROSPECTUS SUMMARY

This summary highlights the information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all of the information that you should consider before buying shares of our common stock. You should read the entire prospectus and any prospectus supplements carefully, especially the sections entitled “Caution Regarding Forward-Looking Statements,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” together with our financial statements and the related notes included elsewhere in this prospectus and in any prospectus supplements related hereto, before deciding to purchase shares of our common stock.

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

Our solution is designed to drive return on investment for high-volume clients and/or customized branded advertisers. Our platform and tools are designed to enable large brands or anyone with substantial reach to utilize the mobile device as a new means to communicate. Communication might be in the form of a reminder message, a coupon, an advertisement or a voice call. Regardless of the form, our platform can drive value and cost savings for companies large and small, and we provide the ability to drive contextually relevant advertising messages to the right audience.

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

For a more complete description of our business, please see “Business,” beginning on page 13.

All of the shares covered by this prospectus are being offered for resale by the selling stockholders named in this prospectus. We will not receive any proceeds from any sale of the shares.

An investment in our common stock is speculative and involves substantial risks. You should read the “Risk Factors” section of this prospectus for a discussion of certain factors to consider carefully before deciding to invest in shares of our common stock.

Corporate information

Our principal executive offices are located at 100 Town Square Place, Suite 204, Jersey City, NJ 07310 and our telephone number is (201) 275-0555. Our website is www.singletouch.net. The contents of our website are not incorporated by reference into this prospectus.
 
 


 
 
Summary of the Offering
 
Shares of common stock offered by us
 
None.
     
Shares of common stock offered by the Selling Stockholders
 
20,440,000 shares
     
Use of proceeds
 
We will not receive any proceeds from the sale of common stock covered by this prospectus. If the warrants overlying certain of such shares of common stock are exercised for cash, we would receive such exercise-price cash proceeds.
     
Risk Factors
 
An investment in our common stock is speculative and involves substantial risks. You should read the “Risk Factors” section of this prospectus for a discussion of certain factors to consider carefully before deciding to invest in shares of our common stock.
     
Plan of Distribution
 
The shares of common stock covered by this prospectus may be sold by the selling stockholders in the manner described under “Plan of Distribution.”
     
OTC Bulletin Board Symbol
 
“SITO”

 
 
 
 
 

 

 

 
 
RISK FACTORS

Your investment in our common stock involves a high degree of risk.  You should consider the risks described below and the other information contained in this prospectus carefully before deciding to invest in our common stock.  If any of the following risks actually occur, our business, financial condition and operating results could be harmed.  As a result, the trading price of our common stock could decline, and you could lose a part or all of your investment.
 
RISKS RELATED TO OUR BUSINESS
 
We currently rely on brand owners, and especially Walmart, to use our programs to satisfy their communication needs and thereby to generate our revenues from wireless carriers indirectly.  The loss of or a change in any of these significant relationships could materially reduce our revenues.
 
Both our present and our future depend heavily on our relationship with Walmart.  We must retain our current business there and expand the relationship into augmented programs, both for its own sake and as a reference point for possible similar business with other retailers and brand owners.  Our relationship with Walmart is subject to risk based on factors such as performance, reliability, pricing, competition, alternate technological solutions and changes in interpersonal relationships.
 
Our marketing and sales efforts are significantly impacted by our relationship with AT&T. We have direct to user marketing efforts but currently our primary revenue growth has been through our cooperative marketing with AT&T.
 
We have had and continue to develop our relationship with AT&T as exemplified by the relations we have with their client Walmart. We have cultivated and intend to work to continue to develop new products and relations with AT&T clients through coordinated marketing efforts with AT&T. This relationship has been beneficial but can be limiting as related to our independent marketing efforts as we believe we need to be careful to not conflict with the business interests of AT&T or its major clients. Should AT&T choose to promote another vendor’s products and services over our own, our current and future business could be negatively impacted. In addition, AT&T has significant influence over the pricing for many of its suppliers, including us.  We work cooperatively with AT&T to provide competitive pricing to the end users but AT&T ultimately has the final contracting authority with their clients who benefit from our products and services.
 
We have a history of losses.  Excluding extraordinary non-cash items, we have never been profitable.
 
Our operations have not been profitable on a GAAP, cash flow, or Adjusted EBITDA basis.  We will be unable to achieve profitability unless we experience substantial revenue growth.  We may never be able to achieve or maintain profitability.
 
We may not be able to effectively protect or monetize our patents.
 
We own a portfolio of patents related to mobile search, commerce, advertising and streaming media, which to date we have not monetized other than by using some of them in the course of our own operations.  To monetize some or all of them by sale would require access to potential buyers, which may be difficult for a smaller company such as us to obtain, and would also require completion of a buyer’s due diligence investigation into the strength of the patents, demonstration to the buyer that owning such patents would have defensive or offensive value to it, and negotiation of the price and other terms of transaction documents.
 
To monetize some or all of the patents by licensing would require similar steps.  In addition, we may not be able to monetize our patents as against companies who use our patented inventions unless they respect our ability to enforce our patents against them if they were not to agree to licenses.
 
 
 
 
We are currently suing Zoove Corporation for patent infringement, but to continue to prosecute the Zoove action, and/or additional patent infringement actions, would require us to incur substantial legal fees and costs.  The outcome of litigation is never certain, and the amount of damages that might be awarded to us under any judgment is also uncertain; and even if a judgment is obtained it would be subject to appeal and to the uncertainties of collection.
 
In addition, companies whose actual or planned activities are blocked by our patents could attempt to develop technological work-arounds in order to avoid compensating us.
 
There can be no assurance that we will be able to effectively protect or monetize our patents, or that we will be able to obtain a return equal to the fair intrinsic value of the patents.  The effort to obtain monetization could entail significant expenses and also opportunity costs, as our executive Chairman Anthony Macaluso devotes a substantial portion of his business efforts to our protection and monetization program.
 
We currently rely on wireless carriers, and especially AT&T, to market and distribute our products and services and to generate our revenues.  The loss of or a change in any of these significant carrier relationships could cause us to lose access to their subscribers and thus materially reduce our revenues.
 
Our future success is highly dependent upon maintaining successful relationships with wireless carriers.  A significant portion of our revenue has always been derived from a very limited number of carriers, and currently nearly all of our revenues are paid to us through AT&T Services, Inc.  We expect that we will continue to generate a substantial majority of our revenues through distribution relationships with a limited number of carriers for the foreseeable future.  Our failure to maintain our relationships with these carriers would materially reduce our revenues and thus harm our business, operating results and financial condition.
 
Typically, carrier agreements have a term of one or two years with automatic renewal provisions upon expiration of the initial term, absent a contrary notice from either party.  In addition, some carrier agreements, including our key agreement with AT&T Services, Inc., provide that the carrier can terminate the agreement early and, in some instances, at any time without cause, which could give them the ability to renegotiate economic or other terms.
 
Many factors outside our control could impair our ability to generate revenues through a given carrier, including the following:
 
the carrier’s preference for our competitors’ products and services rather than ours;
the carrier’s decision to discontinue the sale of some or all of our products and services;
the carrier’s decision to offer similar products and services to its subscribers without charge or at reduced prices;
the carrier’s decision to restrict or alter subscription or other terms for downloading our products and services;
a failure of the carrier’s merchandising, provisioning or billing systems;
the carrier’s decision to offer its own competing products and services;
the carrier’s decision to transition to different platforms and revenue models; and
consolidation among carriers.

If any of our carriers decides not to market or distribute our products and services or decides to terminate, not renew or modify the terms of its agreement with us or if there is consolidation among carriers generally, we may be unable to replace the affected agreement with acceptable alternatives, causing us to lose access to that carrier’s subscribers and the revenues they afford us, which could materially harm our business, operating results and financial condition.
 
 
 
 
We may need to raise additional capital to meet our business requirements in the future and such capital raising may be costly or difficult to obtain and could dilute current stockholders’ ownership interests.
 
We may need to raise additional capital in the future, which may not be available on reasonable terms or at all.  Our present cash flow from operations is insufficient to achieve our business plan.  We may need to raise additional funds through public or private debt or equity financings to meet various objectives including, but not limited to:
 
pursuing growth opportunities, including more rapid expansion;
protecting our intellectual property from infringement;
acquiring complementary businesses;
making capital improvements to improve our infrastructure;
hiring and/or incentivizing qualified management and key employees;
developing new services, programming or products;
responding to competitive pressures; and
maintaining compliance with applicable laws.

As a result of the recent economic recession, and the continuing economic uncertainty, it has been difficult for companies, particularly smaller ones, to obtain equity or debt financing.
 
Any additional capital raised through the sale of equity or equity-backed securities may dilute current stockholders’ ownership percentages and could also result in a decrease in the fair market value of our equity securities.  The terms of those securities issued by us in future capital transactions may be more favorable to new investors, and may include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect.
 
Debt securities, on the other hand, are senior to common stock, might contain onerous restrictive covenants, and must be repaid when they mature; and if we do not profitably use the money raised, we may not have enough cash on hand to repay the debt upon maturity without impairing our operations.
 
If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rights to our technologies or our services, or grant licenses on terms that are not favorable to us.
 
Furthermore, any additional debt or equity or other financing that we may need may not be available on terms favorable to us, or at all.  If we are unable to obtain required additional capital, we may have to curtail our growth plans or cut back on existing business and, further, we may not be able to continue operating if we do not generate sufficient revenues from operations needed to stay in business.
 
We may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs.  We may also be required to recognize non-cash expenses in connection with certain securities we issue, such as convertible notes and warrants, which may adversely impact our reported financial results.
 
We may not be able to manage our growth effectively.
 
Our strategy envisions growing our business.  There can be no assurance that such growth will occur, either to the extent our strategy envisions or at all.  Even if we do grow, if we fail to manage our growth effectively our financial results could be adversely affected.  Growth may place a strain on our management systems and resources.  We must continue to refine and expand our business development capabilities, our systems and processes and our access to financing sources.  As we grow, we must continue to hire, train, supervise and manage new employees.  We cannot assure you that we will be able to:
 
meet our capital needs;
implement, improve and expand our operational, financial, management information, risk management and other systems effectively or efficiently or in a timely manner;
allocate our human resources optimally;
identify, hire, train, motivate and retain qualified managers and employees;
 
 
 
 
develop the management skills of our managers and supervisors; or
evolve a corporate culture that is conducive to success.
 
If we are unable to manage our growth and our operations our financial results could be adversely affected.
 
If we fail to maintain an effective system of internal control over financial reporting and other business practices, and of Board-level oversight, we may not be able to report our financial results accurately or prevent and detect fraud and other improprieties.  Consequently, investors could lose confidence in our financial reporting, and this may decrease the trading price of our stock.
 
We must maintain effective internal controls to provide reliable financial reports and to prevent and detect fraud and other improprieties.  We are responsible to review and assess our internal controls and implement additional controls when improvement is needed.  Failure to implement any required changes to our internal controls or any others that we identify as necessary to maintain an effective system of internal controls could harm our operating results and cause investors to lose confidence in our reported financial information.  Any such loss of confidence would have a negative effect on the market price of our stock.
 
Because we are relatively small, our internal control procedures may not be fully mature. We have limited internal personnel to implement procedures and must scale our procedures to be compatible with our resources. We also rely on outside professionals including accountants and attorneys to support our control procedures.
 
Also, and in any event, Sarbanes-Oxley Act requirements regarding internal control over financial reporting, and other internal controls over business practices, are costly to implement and maintain, and such costs are relatively more burdensome for smaller companies such as us than for larger companies.
 
Until fiscal 2012 we did not have an Audit Committee, a Compensation Committee or a Governance and Nominating Committee, composed of independent directors.  Accordingly, these Committees’ oversight procedures and issues familiarity may not yet be fully mature.
 
We have undergone a management transition and have two centers of management authority.
 
Until May 16, 2011, Anthony Macaluso served as our Chief Executive Officer, President and Chief Financial Officer.  On that date, James Orsini started his employment with us and took on those titles, with Anthony Macaluso remaining employed as our executive Chairman and serving as our Chief Innovation Officer.  On September 26, 2011 we employed John Quinn as our Chief Financial Officer.  We have also recruited and hired other senior staff.  We have moved our executive headquarters from Encinitas, California, to Jersey City, New Jersey, although Mr. Macaluso remains based in California.  Such a management transition subjects us to a number of risks, including risks pertaining to coordination of responsibilities and tasks, creation of new management systems and processes, differences in management style, effects on corporate culture, and the need for transfer of historical knowledge.  In addition, because both Mr. Macaluso and Mr. Orsini have substantial authority in our affairs, our operations will be adversely affected if they do not work together harmoniously, do not efficiently allocate responsibilities between themselves, or do not implement and abide by effective controls.
 
Our management ranks are thin, and losing or failing to add key personnel could adversely affect our business.
 
Our future performance depends substantially on the continued service of our senior management and other key personnel, including personnel which we need to hire.  In particular, our success depends upon the continued efforts of our management personnel, Anthony Macaluso, our executive Chairman and Chief Innovation Officer; James Orsini, our President and Chief Executive Officer; John Quinn, our Chief Financial Officer, and other members of the senior management team.  We need to identify and hire additional senior managers to perform key tasks and roles.  We do not have key man life insurance on any of our personnel.
 
 
 
 
Lack of remaining available authorized common stock may hamper our ability to meet future corporate needs.
 
We have a small amount of remaining authorized common stock. Of our 200,000,000 authorized shares of common stock, as of December 31, 2012 there were 132,472,392 shares outstanding, 55,462,675 shares reserved for issuance upon exercise of outstanding stock options and warrants, and 9,960,000 shares reserved for issuance upon conversion of outstanding convertible debt.  Because we cannot issue or commit common shares that would exceed the authorized 200,000,000-share threshold, we may be limited in our ability to, among other things, raise cash by selling equity or equity-linked securities, use common stock as currency for acquisitions, use common stock or stock options to recruit new officers and employees and incentivize and compensate new and existing officers and employees, and use common stock or stock options to resolve claims.  Even when stock options and warrants expire or convertible debt is repaid, we expect to continue issue new shares, options, warrants or convertible debt in the ordinary course of business. As a result, we expect to continue to have limited available shares until such time as we are able to increase our authorized share limit or significantly reduce the number of outstanding shares through a reverse split or some other appropriate action.  We cannot increase the 200,000,000-share limit except by amending our certificate of incorporation, which would require approval by holders of a majority of our outstanding shares.  There is no assurance that such stockholders approval could be obtained.
 
We are subject to competition.  And, if technological conditions change, our competitors may be better able to react than we are.
 
We have many actual and potential competitors, many of whom may have more financial, personnel, intellectual property, development and/or reputational resources than we do.  If we and our business do not grow larger, we will not be able to enjoy the brand power and economies of scale that many of our competitors do.  In addition, it is likely that our industry will be subject to rapid and profound technological changes.  Our competitors may have more ability to react to such changes than we do.
 
We may be unable to develop and introduce in a timely way new products or services.
 
The planned timing and introduction of new products and services are subject to risks and uncertainties.  Unexpected technical, operational, deployment, distribution or other problems could delay or prevent the introduction of new products and services, which could result in a loss of, or delay in, revenues.
 
We may experience unexpected expenses or delays in service enhancements if we are unable to license third-party technology on commercially reasonable terms.
 
We rely, to an extent, on technology that we license from third parties, and may find a need to license additional technology in the future.  These third-party technology licenses might not continue to be available to us on commercially reasonable terms or at all.  If we are unable to obtain or maintain these licenses on favorable terms, or at all, we could experience delays in completing and developing our products and services.
 
We may not be able to adequately safeguard our intellectual property rights from unauthorized use, and we may become subject to claims that we infringe on others’ intellectual property rights.
 
We rely on a combination of patents, trade secrets, copyrights, trademarks, and other intellectual property laws, nondisclosure agreements and other arrangements with employees, actual and prospective customers and actual or prospective capital providers and their agents and advisors, and other protective measures to preserve our proprietary rights.  These measures afford only limited protection and may not preclude competitors from developing products or services similar or superior to ours.  Moreover, the laws of certain foreign countries do not protect intellectual property rights to the same extent as the laws of the United States.
 
Although we implement protective measures and intend to defend our proprietary rights, these efforts may not be successful.  From time to time, we may litigate within the United States or abroad to enforce our issued or licensed patents, to protect our trade secrets and know-how or to determine the enforceability, scope and validity of our proprietary rights and the proprietary rights of others.  Enforcing or defending our proprietary rights can involve complex factual and legal questions and could be expensive, would require management’s attention and might not bring us timely or effective relief.
 
 
 
 
Furthermore, third parties may assert that our products or processes infringe their intellectual property rights.  Although there are no pending or threatened intellectual property lawsuits against us, we may face litigation or infringement claims in the future.  Infringement claims could result in substantial judgments, and could result in substantial costs and diversion of our resources even if we ultimately prevail.  A third party claiming infringement may also obtain an injunction or other equitable relief, which could effectively block our use of allegedly infringing items.  Although we may seek licenses from third parties covering intellectual property that we are allegedly infringing, we may not be able to obtain any such licenses on acceptable terms and conditions, if at all.
 
Applicable rules, including those contained in and issued under the Sarbanes-Oxley Act of 2002, may be burdensome to us and/or make it difficult for us to retain or attract qualified officers and directors, which could adversely affect the management of our business.
 
We may be unable to attract and retain those qualified officers, directors and members of board committees required to provide for our effective management because of the rules and regulations that govern publicly-held companies.  The enactment of the Sarbanes-Oxley Act of 2002 has resulted in the issuance of a series of rules and regulations and the strengthening of existing rules and regulations by the SEC, as well as the adoption of new and more stringent rules by national securities exchanges.  (Our securities are not currently listed on any national securities exchange.)  The perceived increased personal risk associated with these recent changes may deter qualified individuals from accepting roles as directors and executive officers.
 
Further, some of these recent changes heighten the requirements for board or committee membership, particularly with respect to an individual’s independence from the corporation and level of experience in finance and accounting matters.  We may have difficulty attracting and retaining directors with the requisite qualifications.  If we are unable to attract and retain qualified officers and directors, the management of our business and our ability to obtain or retain listing of our common stock on any national securities exchange (assuming we elect to seek and are successful in obtaining such listing) could be adversely affected.
 
We have a history of related-party transactions.
 
Throughout our history we have engaged in related-party transactions with our directors and officers, including our executive Chairman Anthony Macaluso. In all related-party transactions, there is a risk that even if the Company personnel on the other side of the table from the related party are striving to ensure that the terms of the transaction are arms-length, the related party’s influence may be such that the transaction terms could be viewed as favorable to that related-party. We established committees comprised of independent directors in our most recent fiscal year to review proposed related-party transactions, but even such committees and procedures may be susceptible to the influences inherent to these types of transactions. Our financial statements and other disclosure in this prospectus provide specific information about our prior related-party transactions. We may engage in additional related-party transactions in the future.
 
RISKS RELATED TO OUR INDUSTRY
 
Demand for the services we provide is not yet well established.
 
Brand owners who are potential users of the services we provide must weigh their decisions in the light of limited budgets for marketing and notification, the inertia of dealing with well established providers of well established traditional modalities for marketing and notification, lack of experience with services such as ours and the perception (whether or not well founded) of technological risk and not-fully-demonstrated cost-effectiveness of our services.  There are indications that the market among major brand owners for services such as ours may be in an early stage of development.
 
 
 
 
System or network failures could reduce our sales, increase costs or result in a loss of end users of our products and services.
 
Any failure of, or technical problem with, carriers’, third parties’ or billing systems, delivery or information systems, or communications networks could result in the inability of end users to receive communications or download our products, prevent the completion of a billing transaction, or interfere with access to some aspects of our products.  If any of these systems fails or if there is an interruption in the supply of power, an earthquake, superstorm, fire, flood or other natural disaster, or an act of war or terrorism, end users might be unable to access our offerings.  For example, from time to time, our carriers have experienced failures with their billing and delivery systems and communication networks, including gateway failures that reduced the provisioning capacity of their branded e-commerce system.  Any failure of, or technical problem with, the carriers’, other third parties’ or our systems could cause us to lose end users or revenues or incur substantial repair costs and distract management from operating our business, or persuade retailers or brand owners that solutions utilizing our programs are not sufficiently reliable.  This, in turn, could harm our business, operating results and financial condition.
 
Our business depends on the growth and maintenance of wireless communications infrastructure.
 
Our success will depend on the continued growth and maintenance of wireless communications infrastructure in the United States and internationally.  This includes deployment and maintenance of reliable next-generation digital networks with the speed, data capacity and security necessary to provide reliable wireless communications services.  We have no control over this.
 
RISKS RELATED TO OUR COMMON STOCK
 
Our common stock is not traded on any national securities exchange.
 
Our common stock is currently quoted on the OTC Bulletin Board, which may increase price quotation volatility and could limit the liquidity of the common stock, all of which may adversely affect the market price of the common stock and our ability to raise additional capital.
 
Trading in our stock has been modest, so investors may not be able to sell as much stock as they want at prevailing prices.  Moreover, modest volume can increase stock price volatility.
 
The average daily trading volume in our common stock for the twelve-month period ended September 30, 2012 was approximately 61,000 shares.  If modest trading in our stock continues, it may be difficult for investors to sell or buy substantial quantities of shares in the public market at any given time at prevailing prices.  Moreover, the market price for shares of our common stock may be made more volatile because of the relatively low volume of trading in our common stock.  When trading volume is low, significant price movement can be caused by the trading in a relatively small number of shares.
 
Applicable SEC rules governing the trading of “penny stocks” limits the trading and liquidity of the common stock which may affect the trading price of the common stock.
 
Our common stock is currently quoted on the OTC Bulletin Board, and trades below $5.00 per share, and we have less than $2,000,000 of net tangible assets; therefore, the common stock is currently considered a “penny stock” and so is subject to SEC rules and regulations which impose limitations upon the manner in which such shares may be publicly traded.  These regulations require the delivery, before any transaction involving a penny stock, of a disclosure explaining the penny stock market and the associated risks; and certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability determination regarding such a purchaser and receive such purchaser’s written agreement to a transaction before sale.  In addition, margin regulations prevent low-priced stocks such as ours from being used as collateral for brokers’ margin loans to investors.  These regulations have the effect of limiting the trading activity of the common stock and reducing the liquidity of an investment in our common stock.  In addition, many institutional investors, as a matter of policy, do not invest in stocks which are not traded on a national securities exchange and/or which trade for less than $5.00 per share (or some lower price point).
 
 
 
 
Securities analysts may not initiate coverage or continue to cover our common stock, and this may have a negative impact on its market price.
 
Common stock prices are often significantly influenced by the research and reports that securities analysts publish about companies and their business.  We do not have any control over these analysts.  There is no guarantee that securities analysts will cover our common stock.  If securities analysts do not cover our common stock, the lack of research coverage may adversely affect its market price.  If we are covered by securities analysts and our stock is downgraded, our stock price will likely decline.  If one or more of these analysts ceases to cover us or fails to publish regular reports on us, we can lose visibility in the financial markets, which can cause our stock price or trading volume to decline.
 
The price of our common stock has been and may continue to be volatile, which could lead to losses by investors and costly securities litigation.
 
The trading price of our common stock has been and is likely to continue to be volatile and could fluctuate in response to factors such as:
 
actual or anticipated monetizations of our patents;
actual or anticipated variations in our operating results (including whether we have achieved our key business targets and/or earnings estimates) and prospects;
announcements of technological innovations by us or our competitors;
announcements by us or our competitors of significant acquisitions, business wins, strategic partnerships, joint ventures or capital commitments;
additions or departures of key personnel;
introduction of new services by us or our competitors;
sales of our common stock or other securities in the open market (particularly if overall trading volume is not high);
general market conditions and broader political and economic conditions; and
other events or factors, many of which are beyond our control.

The stock market has experienced significant price and volume fluctuations, which have often been unrelated to the operating performance of companies, and in particular the market prices of stock in smaller companies and technology companies have been highly volatile.  The market price of our common stock at any particular time may not remain the market price in the future.  In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been initiated against that company.  Litigation initiated against us, whether or not successful, could result in substantial costs and diversion of our management’s attention and resources, which could harm our business and financial condition.
 
We do not expect any cash dividends to be paid on our common stock in the foreseeable future.
 
We have never declared or paid a cash dividend on our common stock, and we do not anticipate such a declaration or payment for the foreseeable future.  We expect to use any future earnings, as well as any capital that may be raised in the future, to fund business growth.  Consequently, a stockholder’s only opportunity to achieve a return on investment would be for the price of our common stock to appreciate and that stockholder to sell his or her shares at a profit.  We cannot assure stockholders of a positive return on their investment when they sell their shares, nor can we assure that stockholders will not lose the entire amount of their investment.
 
You may experience dilution of your ownership interests because of the future issuance of additional shares of our common stock and our preferred stock.
 
We have aggressively issued common stock and other equity-based securities in support of our business objectives and initiatives.  In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders.  We are currently authorized to issue an aggregate of 205,000,000 shares of capital stock consisting of 200,000,000 shares of common stock and 5,000,000 shares of preferred stock with preferences and rights to be determined by our Board of Directors.  As of December 31, 2012, there were 132,472,392 shares outstanding, 55,462,675 shares reserved for issuance upon exercise of outstanding stock
 
 
 
 
options and warrants, and 9,960,000 shares reserved for issuance upon conversion of outstanding convertible debt. The holders of such options, warrants, and convertible securities can be expected to exercise (convert) them at a time when our common stock is trading at a price higher than the exercise (conversion) price of these outstanding options, warrants, and convertible securities.  If these options or warrants to purchase our common stock are exercised, convertible debt is converted or other equity interests are granted under our 2008, 2009 or 2010 stock plans, or under other plans or agreements adopted in the future, such equity interests will have a dilutive effect on your ownership of common stock.  We may also issue additional shares of our common stock or other securities that are convertible into or exercisable for common stock in connection with hiring or retaining employees, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes.  Such securities may be issued at below-market prices or, in any event, prices that are significantly lower than the price at which you may have paid for your shares.  The future issuance of any such securities may create downward pressure on, or dampen any upward trend in, the trading price of our common stock.
 
We are controlled by our executive Chairman/major stockholder Anthony Macaluso.
 
Anthony Macaluso, our executive Chairman, beneficially owns approximately 21.6% of our outstanding common stock, on a Rule 13d-3 basis, as of December 21, 2012.  Such concentrated control of the Company may adversely affect the price of our common stock.  Because of his high percentage of beneficial ownership, and his positions as an officer and director, Mr. Macaluso may be able to control matters requiring the vote of stockholders, including the election of our Board of Directors and certain other significant corporate actions.  This control could delay, defer or prevent others from initiating a potential merger, takeover or other change in our control, even if these actions would benefit our other stockholders and us.  This control could adversely affect the voting and other rights of our stockholders and could depress the market price of our common stock.  Actions which Mr. Macaluso determines to be in his best interest might not be in your (or even our) best interest.  If you acquire common stock, you may have no effective voice in the management of the Company.
 
Our certificate of incorporation, bylaws and Delaware law contain provisions that could have the effect of deterring or delaying changes in incumbent management, proxy contests or changes in control.
 
Anti-takeover provisions of our certificate of incorporation, bylaws and Delaware law may have the effect of deterring or delaying attempts by our stockholders to remove or replace management, engage in proxy contests and/or effect changes in control.  The provisions of our charter documents include:
 
the inability of stockholders to call special meetings of stockholders;
the ability of our board of directors to amend our bylaws without stockholder approval; and
the ability of our board of directors to issue up to 5,000,000 shares of preferred stock without stockholder approval upon the terms and conditions and with the rights, privileges and preferences as our board of directors may determine.
 
 
In addition, as a Delaware corporation, we are subject to Delaware law, including Section 203 of the Delaware General Corporation Law.  In general, Section 203 prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder unless certain specific requirements are met as set forth in Section 203.  These provisions, alone or together, could have the effect of deterring or delaying changes in incumbent management, proxy contests or changes in control.  We think Section 203 does not currently apply to us, but in the future it might apply to us.
 
Even though we are not a California corporation, our common stock could still be subject to a number of key provisions of the California General Corporation Law.
 
Under Section 2115 of the California General Corporation Law, or CGCL, non-listed corporations not organized under California law may still be subject to a number of key provisions of the CGCL.  This determination is based on whether the corporation has specific significant business contacts with California and if more than 50% of its voting securities are held of record by persons having addresses in California.  Under Section 2115, we could be subject to certain provisions of the CGCL.  Among the more important provisions are those relating to the election and removal of directors, cumulative voting, standards of liability and indemnification of directors, distributions, dividends and repurchases of shares, shareholder meetings, approval of certain corporate transactions, dissenters’ rights, and inspection of corporate records.  We have not determined whether or not we are, or will be, subject to such CGCL requirements.
 

 
 
USE OF PROCEEDS

We will not receive any proceeds from the sales, if any, of the common stock covered by this prospectus. All net proceeds from the sale of the common stock covered by this prospectus will go to the selling stockholder. See “Selling Stockholder” and “Plan of Distribution” described below. If the warrants overlying certain of such shares are exercised for cash, we would receive such exercise-price cash proceeds, which we would intend to use for general working capital purposes.

Market Information

Our common stock is quoted on the OTC Bulletin Board under the symbol “SITO”. The following table sets forth, for the fiscal quarters indicated, the high and low closing sale prices per share of our common stock. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. The Closing Sale price of our common stock on January 28, 2013 was $0.92.

Quarter Ended
 
High
   
Low
 
                 
December 31, 2012
   
0.65
     
0.25
 
September 30, 2012
   
0.34
     
0.17
 
June 30, 2012
   
0.31
     
0.19
 
March 31, 2012
   
0.37
     
0.23
 
December 31, 2011
   
0.33
     
0.20
 
September 30, 2011
   
0.56
     
0.26
 
June 30, 2011
   
0.75
     
0.45
 
March 31, 2011
   
0.83
     
0.49
 
December 31, 2010
   
1.05
     
0.73
 

Holders

As of December 31, 2012, there were approximately 244 record holders of our common stock. This does not include the holders of approximately 82 un-exchanged stock certificates or the additional holders of our common stock who held their shares in street name as of that date.

Dividends

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

 
 
BUSINESS
General

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

Our solution is designed to drive return on investment for high-volume clients and/or customized branded advertisers. Our platform and tools are designed to enable large brands or anyone with substantial reach to utilize the mobile device as a new means to communicate. Communication might be in the form of a reminder message in voice or Short Message Service (SMS), an abbreviated dial code or a coupon, promotion, or an advertisement. Regardless of the form, our platform can drive value and cost savings for companies large and small and the ability to drive contextually relevant advertising messages to the right audience.

We maintain a website located at http://www.singletouch.net, and electronic copies of our periodic or other reports and any amendments to those reports, are available, free of charge, under the “Company” link on our website as soon as practicable after such material is filed with, or furnished to, the SEC.

Background of Industry Growth and Potential

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

According to CTIA – The Wireless Association (June 2012), there were 322 million wireless subscribers in the US, more than the entire US population. In the US alone, there were 4.59 trillion combined minutes and messages sent for the year ended June 2012.
 
Principal Products and Services
 
Messaging and Notifications – Our Short Message Service (SMS) gateway has proven to be an excellent channel for retailers to communicate with their brand loyalists on a very personal level. This is accomplished through integration with the client’s customer relationship management (CRM) database. With such integration, retailers are able to send targeted mobile coupons and transactional messages based on a shopper’s CRM profile. Targeted mobile coupons can be sent based on past purchase behaviors making the content relevant and timely to a shopper. Transactional messages can add another layer of value by sending shipping and order pick-up alerts, as well as notifications for reorders, layaway and new product releases. The foremost example of our solution running today is Walmart. Walmart pharmacy departments send individualized text and voice messages through our gateway to their customers letting them know when their prescriptions are ready for pick-up.
 
Abbreviated Dial Codes- Our abbreviated dial codes have been proven to have 10 times the recall of a common keyword-to-short-code solution. We have seen many of our clients using this as an on-ramp to mobility solutions. Walmart is currently using #wmt to make it easier for their customers to locate and download their smartphone mobile app. Forrester Research called this dial code technology one of the top 4 for CMOs to watch. We see the potential for Single Touch customers to leverage the hash tags in the social media space with the # symbol in their abbreviated dial code to enhance brand awareness.
 
 
 
 
 
 
Certain Agreements

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

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

Research and Development

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

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

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

Patents and Licenses

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

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

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

Government Regulation

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

Employees

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

Properties

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

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

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

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

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

 
 
Legal Proceedings

On February 21, 2012, we filed a complaint against Zoove Corporation in the United States District Court, Northern District of California. The complaint alleges patent infringement, in which we seek preliminary and permanent injunctive relief as well as damages resulting from Zoove’s infringement of U.S. Patent No. 7,813,716 and U.S. Patent No. 8,041,341. The Complaint has been served, and Zoove has filed an answer. We had a case management conference on June 25, 2012. We filed our Claim Construction Brief on December 20, 2012, and are currently in the claim construction period. A claim construction hearing is set for February 20, 2013.
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following Management’s Discussion and Analysis should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this prospectus. The Management’s Discussion and Analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions.  Any statements that are not statements of historical fact are forward-looking statements.  When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements.  These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this prospectus.  Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors such as those noted under “Risk Factors” on page 3 of this prospectus.  We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this prospectus.
 
Overview
 
Single Touch Systems Inc. is an innovative mobile media solutions provider serving retailers, advertisers and brands. Through patented technologies and a modular, adaptable platform, our multi-channel messaging gateway enables marketers to reach consumers on all types of connected devices, with information that engages interest, drives transactions and strengthens relationships and loyalty.
 
Our solution is designed to drive return on investment for high-volume clients and/or customized branded advertisers. Our platform and tools are designed to enable large brands or anyone with substantial reach to utilize the mobile device as a new means to communicate. Communication might be in the form of a reminder message, a coupon, an advertisement or a voice call. Regardless of the form, our platform can drive value and cost savings for companies large and small, and we provide the ability to drive contextually relevant advertising messages to the right audience.
 
Our business has focused on leveraging our solution in the areas of messaging/notifications and Abbreviated Dial Codes. These solutions are enhanced when we deploy imbedded advertisements, sponsorship and couponing.
 
“For the first time in history with near 322 million wireless subscribers in the USA, wireless penetration exceeds the U.S. population” (1)
 
“Short Messaging Service, simply known as SMS, sent in the USA for the 12 months ended June 2012 totaled 2.27 trillion up 3% from 2011” (1)
 
“SMS capable handsets on carriers networks rose to 268.5 million for the same period up 7.7% from 2011” (1)
 
“In 2011 worldwide SMS traffic topped 8 trillion messages”
 
 
 
 
We have developed and are deploying advertisements, sponsorships and couponing within our product offerings. This development is significant in that our per-message revenue increases significantly for each message that includes an advertisement or sponsorship. We see these expanded offerings, including those not based directly on messaging volume, as important steps in our continued program to creating both consumer and advertiser demand for our mobile media platform, accessing mobile notifications, advertisements, sponsorships, coupons and commerce transactions from the mobile phone.
 
“53% of companies surveyed have or are deploying a dedicated team assigned to mobile programs, and 51% are looking for ways to further mobile marketing capabilities”(2)
 
We have expanded our relationship with AT&T Services, Inc., through which we retain 11 client relationships representing nearly all of our reported revenue in the fiscal years ended in 2011 and 2012. The bulk of that revenue comes from notifications sent on behalf of 4 separate Walmart corporate programs. These programs and related services continue to develop nationwide, and we continue to experience increasing activity in these programs that have caused our AT&T revenues to grow.
 
We have a portfolio of intellectual property relevant to our industry related to mobile search, commerce, advertising and streaming media. This portfolio represents our many years’ innovation in the wireless industry through patented technology developed by us, as well as patented technology we purchased from Microsoft and others.
 
We have law firms engaged to protect our patented technology rights against unauthorized users and infringers. We have sent letters of notification to several companies making them aware of our patent portfolio and have commenced litigation.
 
We have assigned 16 of our 18 patents and all of our intellectual property rights to Single Touch Interactive R&D IP, Inc., a wholly owned subsidiary who will conduct all research, development, patent filings, patent maintenance and who  will continue to identify, notify, and, where circumstances warrant, enforce against companies we believe may be infringing on the intellectual property protected by our growing patent portfolio under the guidance of our Executive Chairman.
 
As we expand operational activities, we may continue to experience operating losses and/or negative cash flows from operations and may be required to obtain additional financing to fund operations.
 
Throughout our history our operations have been constrained by our ability to raise funds, and our liquidity has been an ongoing issue. We have received debt and equity investments both from insiders and from private investors. We have always had negative cash flows from operations and net operating losses, although the size of the net operating losses has been magnified by a variety of non-cash accounting charges. As we expand operational activities, we may continue to experience operating losses and/or negative cash flows from operations and may be required to obtain additional financing to fund operations.
 
Our operating history makes predictions of future operating results difficult to ascertain. Our revenue is concentrated with a single customer. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in our stage of development. Such risks include, but are not limited to, an evolving business model and the management of growth. To address these risks we must, among other things, diversify our customer base, implement and successfully execute our business and marketing strategy, continue to develop and upgrade technology and products, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.
 
 

(1)
Source: June 2012 CTIA Semi Annual Wireless Survey
(2)
Source: October 2012 CMO Council Study
 
 
 
Results of Operations
Years Ended September 30, 2012 and 2011
 
During the fiscal year ended September 30, 2012, the Company had an increase in revenue of approximately 39% over revenue generated during the previous fiscal year ($6,346,919 in 2012 compared to $4,579,862 in 2011).  The growth, all of which is organic, is attributable to continuing consumer  adoption of our programs from existing client relationships. The Company’s net loss for the fiscal year ended September 30, 2012 was $3,255,186.  This is lower than the net loss incurred during the fiscal year ended September 30, 2011 of $7,985,163. Under the metrics employed by management to evaluate the underlying business explained below, Adjusted EBITDA, that underlying loss was reduced by $507,464 from the fiscal year ended September 30, 2011 to the fiscal year ended September 30, 2012.
 
We define Adjusted EBITDA as consolidated operating income before depreciation, amortization of intangible assets, stock-based compensation, and special charges.  We use Adjusted EBITDA to evaluate the underlying performance of our business, and a summary of Adjusted EBITDA, reconciling GAAP amounts (i.e., items reported in accordance with U.S. Generally Accepted Accounting Principles) to Adjusted EBITDA amounts (i.e., items included within Adjusted EBITDA as defined directly above) for the fiscal years ended September 30, 2012 and 2011 follows:
 
   
For the Year Ended September 30,
                         
                                                             
   
2012
   
2011
   
GAAP
   
Adjusted EBITDA
 
         
Adjust-
   
Adjusted
         
Adjust-
   
Adjusted
   
Change
   
Change
 
   
GAAP
   
ments
   
EBITDA
   
GAAP
   
ments
   
EBITDA
    $       %     $       %  
                                                                 
Revenue
                                                               
Wireless Applications
  $ 6,346,919     $ -     $ 6,346,919     $ 4,579,862     $ -     $ 4,579,862     $ 1,767,057       39 %   $ 1,767,057       39 %
                                                                                 
Operating Expenses
                                                                               
Royalties and Application Costs
  $ 2,907,110     $ -     $ 2,907,110     $ 2,543,885     $ -     $ 2,543,885     $ 363,225       14 %   $ 363,225       14 %
Research and Development
  $ 84,658     $ -     $ 84,658     $ 78,860     $ -     $ 78,860     $ 5,798       7 %   $ 5,798       7 %
Compensation expense (including
                                                                         
    stock-based compensation)
  $ 3,044,430     $ (365,422 )   $ 2,679,008     $ 5,468,643     $ (3,634,268 )   $ 1,834,375 *   $ (2,424,213 )     -44 %   $ 844,633       46 %
Depreciation and amortization
  $ 690,293     $ (690,293 )   $ -     $ 633,535     $ (633,535 )   $ -     $ 56,758       9 %                
General and administrative (including
                                                                         
    stock-based compensation)
  $ 2,386,694     $ (137,169 )   $ 2,249,525     $ 3,161,751     $ (958,163 )   $ 2,203,588     $ (775,057 )     -25 %   $ 45,937       2 %
    $ 9,113,185     $ (1,192,884 )   $ 7,920,301     $ 11,886,674     $ (5,225,966 )   $ 6,660,708     $ (2,773,489 )     -23 %   $ 1,259,593       19 %
                                                                                 
Loss from Operations/Adjusted EBITDA
  $ (2,766,266 )   $ 1,192,884     $ (1,573,382 )   $ (7,306,812 )   $ 5,225,966     $ (2,080,846 )   $ 4,540,546       -62 %   $ 507,464       -24 %
 
 
Royalties and Application Costs represent the direct out-of-pocket costs associated with revenue. Royalties and Application Costs vary substantially in line with revenue and totaled $2,907,110 in 2012, compared to $2,543,885 in 2011, an increase of 14%.  Because a portion of Royalties and Application Costs are fixed and all such costs are being monitored and reduced wherever possible, net margin continues to increase.
 
 
 
 
Research and Development expenses grew from $78,860 in 2011 to $84,658 in 2012, and adjusted Compensation expense grew from $1,834,375 to $2,679,008.  The former reflects the growing investment in technologies that we anticipate will generate revenues for years to come while the latter reflects the increased headcount necessary to support our expanding business while concurrently relying less on outside consultants.  
 
General and Administrative expenses for the fiscal year ended September 30, 2012 and 2011, both on a GAAP and on an Adjusted EBITDA basis, consist of the following:
 
   
For the Year Ended September 30,
                         
                                                             
   
2012
   
2011
   
GAAP
   
Adjusted EBITDA
 
         
Adjust-
   
Adjusted
         
Adjust-
   
Adjusted
   
Change
   
Change
 
   
GAAP
   
ments
   
EBITDA
   
GAAP
   
ments
   
EBITDA
   
$
   
%
   
$
   
%
 
                                                             
Professional Fees
  $ 779,541     $ (47,450 )   $ 732,091 *   $ 821,022     $ (58,050 )   $ 762,972 *   $ (41,481 )     -5 %   $ (30,881 )     -4 %
Travel
  $ 499,576     $ -     $ 499,576     $ 322,951     $ -     $ 322,951     $ 176,625       55 %   $ 176,625       55 %
Consulting expense
  $ 565,349     $ (89,719 )   $ 475,630 *   $ 1,448,613     $ (900,113 )   $ 548,500 *   $ (883,264 )     -61 %   $ (72,870 )     -13 %
Office rent
  $ 205,639     $ -     $ 205,639     $ 121,681     $ -     $ 121,681     $ 83,958       69 %   $ 83,958       69 %
Insurance expense
  $ 120,236     $ -     $ 120,236     $ 83,953     $ -     $ 83,953     $ 36,283       43 %   $ 36,283       43 %
Equipment lease
  $ -     $ -     $ -     $ 45,000     $ -     $ 45,000     $ (45,000 )     -100 %   $ (45,000 )     -100 %
Trade shows
  $ 21,213     $ -     $ 21,213     $ 78,324     $ -     $ 78,324     $ (57,111 )     -73 %   $ (57,111 )     -73 %
Telephone
  $ 61,729     $ -     $ 61,729     $ 38,820     $ -     $ 38,820     $ 22,909       59 %   $ 22,909       59 %
Office expense
  $ 31,356     $ -     $ 31,356     $ 7,949     $ -     $ 7,949     $ 23,407       294 %   $ 23,407       294 %
Other
  $ 102,055     $ -     $ 102,055     $ 193,438     $ -     $ 193,438     $ (91,383 )     -47 %   $ (91,383 )     -47 %
Total General and Administrative Expenses
  $ 2,386,694     $ (137,169 )   $ 2,249,525     $ 3,161,751     $ (958,163 )   $ 2,203,588     $ (775,057 )     -25 %   $ 45,937       2 %
                                                                                 
* Adjustments for each of these items represents the elimination of stock-based compensation included within the GAAP expense amount to arrive at the Adjusted EBITDA amount.
 

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

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

Off-Balance Sheet Arrangements
 
We have no off-balance sheet arrangements or financing activities with special purpose entities. 
 
Critical Accounting Policies and Estimates
 
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.  We have identified the following accounting policies that we believe are key to an understanding of ours financial statements.  These are important accounting policies that require management’s most difficult, subjective judgments.
 
Revenue Recognition
 
Revenue is recognized in accordance with Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements, as revised by SAB No. 104. As such, the Company recognizes revenue when persuasive evidence of an arrangement exists, title transfer has occurred, the price is fixed or readily determinable and collectability is probable. Sales are recorded net of sales discounts.
 
Non-monetary Consideration Issued for Services
 
We value all services rendered in exchange for our common stock at the quoted price of the shares issued at date of issuance or at the fair value of the services rendered, whichever is more readily determinable. All other services provided in exchange for other non-monetary consideration are valued at either the fair value of the services received or the fair value of the consideration relinquished, whichever is more readily determinable.
 
Our accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of ASC Topic 505-50, “Equity Based Payments to Non Employees.” The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. In accordance with ASC Topic 505, an asset acquired in exchange for the issuance of fully vested, non-forfeitable equity instruments should not be presented or classified as an offset to equity on the grantor’s balance sheet once the equity instrument is granted for accounting purposes. Accordingly, we record the fair value of non-forfeitable common stock issued for future consulting services as prepaid services in our consolidated balance sheet.
 
Conventional Convertible Debt
 
When the convertible feature of the conventional convertible debt provides for a rate of conversion that is below market value at issuance, this feature is characterized as a beneficial conversion feature (“BCF”). We record a BCF as a debt discount pursuant to ASC Topic 470-20, “Debt with Conversion and Other Options.” In those circumstances, the convertible debt will be recorded net of the discount related to the BCF. We amortize the discount to interest expense or equity (if the debt is due to a related party) over the life of the debt using the effective interest method.
 
 
 
 
 
Software Development Costs
 
We account for our software development costs in accordance with ASC Topic 985-20, “Cost of Software to be Sold, Leased, or Otherwise Marketed.” Under ASC Topic 985-20, we expense software development costs as incurred until we determine that the software is technologically feasible. Once we determine that the software is technologically feasible, we amortize the costs capitalized over the expected useful life of the software.
 
Fair Value Measurement
 
The Company complies with the provisions of ASC No. 820-10 (ASC 820-10), “Fair Value Measurements and Disclosures.”  ASC 820-10 relates to financial assets and financial liabilities. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (GAAP), and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions.
 
ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820-10 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions that are developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820-10 are described below:
 
Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.
 
Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
 
Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
 
 
 
 
 
 
 
 
 
 
MANAGEMENT
 
Directors and Executive Officers

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

Name
 
Age
 
Position
Anthony Macaluso
 
50
 
Executive Chairman and Director
James Orsini
 
49
 
Chief Executive Officer, President and Director
John Quinn
 
49
 
Chief Financial Officer
Richard Siber
 
51
 
Director
Stuart R. Levine
 
65
 
Director
Stephen D. Baksa
 
67
 
Director
Jonathan E. Sandelman
 
54
 
Director

Our Board of Directors consists of six members. Only our independent, non-executive directors receive any cash remuneration for acting as such. All directors may, however be reimbursed their expenses, if any, for attendance at meetings of the Board of Directors.

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

The following is a brief account of the business experience during the past five years of each of our directors and executive officers:

Anthony Macaluso became our President, Chief Executive Officer, Chairman, and principal shareholder upon the closing of the acquisition of Single Touch Interactive, Inc. in 2008. He founded Interactive in 2002, and from that time to May 2011, had primary responsibilities for our operations and business. He continues as a working Executive Chairman and Chief Innovation Officer.

James Orsini joined us on May 16, 2011 as our Chief Executive Officer, President and Chief Financial Officer, and as a Director. From February 2006 to May 2011, Mr. Orsini served as Executive Vice President and Director of Finance and Operations at Saatchi & Saatchi New York, a marketing/advertising agency unit of Publicis Groupe S.A. Mr. Orsini received a Bachelor of Science in Business Administration degree from Seton Hall University, magna cum laude (1985), and is a Certified Public Accountant.

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

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

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

Specific experience, qualifications, attributes or skills:
 
Operating and management experience, including as chief executive officer of a global client services business
 
Public company directorship and committee experience
 
Frequent panel chair and participant in director education programs sponsored by the NACD
 
Independent of the Company

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

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

 
 
Executive Compensation

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

 
all individuals who served as our chief executive officer, chief financial officer or acted in a similar capacity for us at any time during the fiscal year ended September 30, 2012 and
 
all individuals who served as executive officers of ours at any time during the fiscal year ended September 30, 2012 and received annual compensation during the fiscal year ended September 30, 2012 in excess of $100,000.
 
Summary Compensation Table
 
Position
 
Year
   
Salary ($)
   
Bonus ($)
   
Stock Awards ($)
   
Option Awards ($)
   
Total ($)
 
                                                 
Anthony Macaluso
       Executive Chairman
   
2012
2011
     
385,000
322,582
     
0
0
     
0
2,700,000
     
142,237
205,182
     
527,237
3,227,764
 
                                                 
James Orsini
Chief Executive Officer
   
2012
2011
     
385,000
144,375
     
0
25,000
     
0
260,000
     
138,600
0
     
523,610
429,375
 
                                                 
John Quinn
Chief Financial Officer
   
2012
2011
     
225,000
4,327
     
0
0
     
0
30,000
     
17,375
0
     
242,385
34,327
 
                                                 
Note: The table above includes only the value of options that vested during the periods indicated. The listed executives may have also received unvested options that may vest in a future period. See “Outstanding Equity Awards at Fiscal Year-End” below.
 

Employment Agreements and Benefits

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

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

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

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

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

In addition, if we terminate Mr. Macaluso’s employment without cause or due to disability or if he resigns for good reason, he would be entitled to exercise any of the 4,500,000 stock options until three years after the termination date (or, if earlier, the expiration of the options).

Mr. Macaluso participated in the November 2012 program where we modified the terms of stock options granted to certain employees, officers, directors, and active third party service providers. As a result 3,000,000 options exercisable at $0.90 per share granted pursuant to his employment agreement were reduced to 2,550,000 options exercisable at $0.469 per share. Additional options granted in 2010 were reduced from 50,000 options exercisable at $1.375 per share to 40,000 exercisable at $0.469 per share and 1,200,000 options exercisable at $0.90 per share to 1,020,000 exercisable at $0.469 per share.

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

James Orsini- On March 10, 2011, we entered into an employment letter agreement with James Orsini, who began employment as our Chief Executive Officer, President and Chief Financial Officer on May 16, 2011. The agreement (as amended on May 16, 2011) is for a three-year term, with successive two-year renewals unless either party elects against renewal. Mr. Orsini is entitled to a $385,000 annual salary, subject to possible increases. Mr. Orsini can also receive discretionary cash bonuses, and after three months of employment he was entitled to and did receive a $25,000 payment in respect of certain expenses. In addition, the agreement called for us to grant to him (and we accordingly did grant to him) 4,500,000 stock options under our 2010 Stock Plan; with one-third (with an exercise price of $0.63 per share) vesting on the first anniversary of his employment start date, one-third (with an exercise price of $0.90 per share) vesting on the second anniversary of his employment start date, and one-third (with an exercise price of $0.90 per share) vesting on the third anniversary of his employment start date. Vesting of his stock options shall accelerate if we experience a change in majority control. Mr. Orsini agreed not to compete with us during his employment and for two years thereafter.

If we terminate Mr. Orsini’s employment without cause or for disability or if he resigns for good reason (as those terms are defined in the agreement), or if we elect not to enter into a renewal term of the employment letter agreement, he will receive one year of salary continuation and one year of COBRA premium payments. In addition, if we terminate Mr. Orsini’s employment without cause or if he resigns for good reason, he would be entitled to exercise any of the 4,500,000 stock options which had vested as of the termination date, until three years after the termination date (or, if earlier, the expiration of the options).

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

Mr. Orsini participated in the November 2012 program where we modified the terms of stock options granted to certain employees, officers, directors, and active third party service providers. As a result 3,000,000 options exercisable at $0.90 per share granted pursuant to his employment agreement were reduced to 2,550,000 options exercisable at $0.469 per share.

John Quinn - On September 26, 2011, we entered into an employment letter agreement with John Quinn, as our Chief Financial Officer, effective as of September 26, 2011. Pursuant to the agreement we pay Mr. Quinn an annual salary of $225,000. The Agreement also calls for successive one-year renewals unless either party elects against renewal. Mr. Quinn can also receive discretionary cash bonuses.
 
 

 
We also agreed to grant Mr. Quinn 100,000 shares of our common stock under our 2009 Employee and Consultant Stock Plan, subject to the following restriction: all of such shares would have been forfeited to us if Mr. Quinn’s employment with us ceased for any reason; such restrictions and risk of forfeiture cliff-lapsed on December 25, 2011.

We also agreed to grant Mr. Quinn a total of 1,500,000 upfront stock options under our 2008 Stock Option Plan with 500,000 of the options (at an exercise price of $0.65 per share) vesting after one year of service, 500,000 of the options (at an exercise price of $0.90 per share) vesting after two years of service and 500,000 of the options (at an exercise price of $0.90 per share) vesting after three years of service.

Under the Agreement, if Mr. Quinn is terminated without cause or due to his disability, or if he resigns for good reason (all as defined in the Agreement) or if we elect not to renew his employment term, then upon giving us a release he shall be entitled to six months of salary continuation and six months of COBRA premiums payments. Also, vesting of his stock options shall accelerate if Mr. Quinn is terminated without cause or if he resigns for good reason, or if we are acquired.

Mr. Quinn participated in the November 2012 program where we modified the terms of stock options granted to certain employees, officers, directors, and active third party service providers. As a result 1,000,000 options exercisable at $0.90 per share granted pursuant to his employment agreement were reduced to 850,000 options exercisable at $0.469 per share.
 
 
 
 
 
 
 
 




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

Outstanding Equity Awards at Fiscal Year-End

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




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

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

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

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

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

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

 
 
Director Compensation

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

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

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

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

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

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

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

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

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

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

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

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

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

 
 

 

 
 
Certain Relationships and Related Transactions, and Director Independence

In addition to the cash and equity compensation arrangements of our directors and executive officers discussed above under “Director Compensation” and “Executive Compensation,” the following is a description of transactions since October 1, 2009, to which we have been a party in which the amount involved exceeded or will exceed $120,000 and in which any of our directors, executive officers, beneficial holders of more than 5% of our capital stock, or entities affiliated with them, had or will have a direct or indirect material interest.
 
Macaluso 2009 Intellectual Property Transaction - On December 14, 2009, Anthony Macaluso assigned to us, as required by the Agreement and Plan of Merger and Reorganization dated March 20, 2008, under which we acquired Interactive in a reverse merger, all of his rights in a US patent and approximately 20 patent applications, generally related to providing information over cell phones. Upon the assignment, we reimbursed him $244,840 for the total legal fees he had incurred relating to the property transferred. Since then, several patents have been issued on these patent applications.

2010 Macaluso/Activate Consolidation and Modification - 2009 Debt - In fiscal 2009, Activate, Inc., which is an affiliate of Anthony Macaluso, made loan advances of $894,500 to us, at 8% interest per annum. We repaid $99,081 in fiscal 2009 and $504,000 in fiscal 2010. In June 2009, Activate, Inc. purchased from a third party a $250,000 promissory note, bearing 10% interest per annum, which we had issued. On June 28, 2010, we issued Activate, Inc. a new convertible promissory note with a principal amount of $633,651, which represented $291,397 of outstanding loan advances, plus the $54,170 of accrued but unpaid interest on the loan advances, plus the $250,000 principal amount of the purchased promissory note, plus the $29,787 of accrued but unpaid interest on the purchased $250,000 promissory note, plus the $8,297 of accrued but unpaid interest on the converted $73,445 convertible promissory note. The new note was to mature on June 27, 2011, accrued interest at an annual rate of 1% and was convertible at the holder’s option into our common stock at $0.37 per share. We prepaid, in February and April 2011, the entire principal amount of and all accrued interest on this new note.
 
 
 
 
 
 
 
 
 

 
Macaluso 2010 Debt Conversion - On or shortly after June 28, 2010, Anthony Macaluso and his former spouse, Nicole Macaluso, converted a convertible promissory note’s principal balance of $2,319,512 into 28,993,896 shares of our common stock. Anthony Macaluso received 13,773,992 of these shares issued.

On June 28, 2010, we issued Anthony Macaluso a new convertible promissory note with a principal amount of $155,531, which represented $123,581 of accrued compensation (net of payroll taxes) plus the $31,950 accrued but unpaid interest due him on the converted $2,319,512 convertible promissory note. The new note matured on June 27, 2011, accrued interest at an annual rate of 1% and was convertible at the holder’s option into our common stock at $0.37 per share. We repaid, in May and June 2011, the entire principal amount of and all accrued interest on this new note. On June 28, 2010, Activate, Inc. converted a convertible note’s principal balance of $73,445 into 918,063 shares of our common stock.

Cassina 2010 Debt Conversion - From time to time our then- director James Cassina advanced funds to us, and from time to time we have repaid some of the principal amount of and accrued interest on such advances. The net advances began accruing interest in December 2008 at an annual rate of 8%. On June 29, 2010, we issued 606,768 shares of common stock to him in satisfaction of the total balance of $224,511 (which included accrued interest of $25,011), for an effective conversion rate of $0.37 per share.

Soapbox Mobile, Inc. Related-Party Arrangements - Anthony Macaluso is the preferred shareholder of Soapbox Mobile, Inc. (“Soapbox”), which provided the use of certain equipment and software to us from February 2008 through June 2010 at a monthly rate of $4,000 and had been providing them to us from July 1, 2010 to June 30, 2011 at a monthly rate of $7,500. On June 30, 2011, we entered into an agreement with Anthony Macaluso whereby the Company was granted an option to acquire his majority interest in Soapbox. Under the terms of the option grant, we were required to pay and did a deposit of $155,000 which was to be refunded in the event the acquisition did not close. Under the option agreement both parties had the opportunity to perform due diligence necessary to determine the value of the majority interest and perform other actions necessary to complete the acquisition.

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

On November 27, 2012 we entered into a Settlement and Mutual Special Release with Mr. Macaluso as final global settlement of any and all outstanding matters pertaining to Soapbox Mobile, including any and all claims he may have individually related to or on behalf of Soapbox in any capacity held by him formerly or currently. Macaluso claimed his personal capital outlay for his ownership interest in Soapbox was $755,000, made primarily due to their Anywhere software platform. We agreed to total consideration of $755,000, which included the $155,000 received related to the original Option Agreement from June 2011.

Mike Robert Settlement and Mutual Release – On September 30 2011, the Company modified the terms of certain warrants previously granted to Mike Robert, who beneficially owned more than 5% of our stock. Under the modified terms, the expiration date for warrants to purchase 2,750,000 shares of the Company’s common stock at a price of $1.00 per share were extended one year to December 13, 2012, the expiration date for warrants to purchase 1,750,000 shares of the Company’s common stock at a price of $1.00 per share were extended one year to January 7, 2013, the expiration date for warrants to purchase 1,000,000 shares of its common stock at $0.75 per share were extended to September 3, 2013. As the fair value of these warrants based upon their modified term were less than their respective fair value when originally granted, we did not recognize any additional consideration to Mr. Robert. As consideration to us for the modification, Mr. Robert agreed to cancel 2,750,000 stock options previously granted with an exercise price of $1.50 per share.
 
 
 
 
Baksa 2011 Convertible Note and Warrants Purchase - On November 14, 2011, one of our Directors, Stephen Baksa, purchased from us a $500,000 promissory note and 1,000,000 warrants, in exchange for $500,000 cash. The note bears interest at 10% per annum and matures in one year, and is convertible into our common stock at $0.50 per share. The warrants have an exercise price of $0.25 per share and expire in three years.
 
Baksa Convertible Note and Warrants 2012 Modification – In support of a private offering by us that began in September of 2012, one of our Directors, Stephen Baksa agreed to modify his outstanding $500,000 Note and 1,000,000 Warrants from the November 2011 transaction at our request. The modified notes bear interest at a rate of 10% per annum. Principal and any unpaid accrued interest are fully due on September 7, 2014. Outstanding principal is convertible into shares of our common stock at a conversion rate of $0.50 per share. The warrants are exercisable at price of $0.25 per share and expire on September 7, 2015. The modifications are consistent with the terms of the notes and warrants issued in our September 2012 offering which was completed in October 2012.

Outstanding Current Service Provider High-Exercise-Price Plan Options - In December 2012, we modified the terms of certain stock options granted to certain employees, officers, directors, and active third party service providers by mutual agreements with them. Under the modified terms, we reduced the number of shares to be purchased under these option grants from a total of 17,134,334 shares to a total of 14,534,934 shares with a reduction in the purchase price on these grants from original prices ranging from $1.375 to $0.90 per share, to $0.469 per share. A breakdown of the modified grants is as follows:
 
   
Shares under
   
Shares under
 
   
Original
   
Modified
 
   
Grant
   
Grant
 
Employees
   
5,809,334
     
4,914,934
 
Officers and directors
   
11,300,000
     
9,600,000
 
Outside legal counsel
   
25,000
     
20,000
 
     
17,134,334
     
14,534,934
 
 
The modifications to options held by our officers are listed under “Executive Compensation” in this prospectus. Also, in addition to reducing the number of options previously granted at the reduced purchase price, Messrs. Macaluso and Orsini voluntarily agreed to amend their stock options to defer vesting of already vested options related to their employment agreements and half of their unvested options for an additional six months. The options modification program had not required any changes in any affected options’ vesting trems.

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

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

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

Our Board of Directors presently consists of six members. Our Board of Directors has determined that each of Mr. Baksa, Mr. Siber and Mr. Levine are “independent," as defined by SEC rules adopted pursuant to the requirements of the Sarbanes-Oxley Act of 2002. Although our stock is not listed for trading on the Nasdaq Stock Market at this time, we are required to determine the independence of our directors by reference to the rules of a national securities exchange. In accordance with these requirements, we have determined that Richard Siber, Stuart R. Levine and Stephen D. Baksa are "independent directors," as determined in accordance with Rule 4200(a)(15) of the Marketplace Rules of the Nasdaq Stock Market, Inc.

Mr. Macaluso and Mr. Orsini are executive officers of the Company, and therefore are not independent directors. Mr. Sandelman has recently joined the Board and as such it has not yet made a formal determination regarding independence.
 
 
 

 
 
Security Ownership of Certain Beneficial Owners and Management

The following table sets forth, as of December 31, 2012, the beneficial ownership of Single Touch Systems Inc. common stock by each of our directors and named executive officers, each person known to us to beneficially own more than 5% of our common stock, and by the officers and directors of the Company as a group. Except as otherwise indicated, all shares are owned directly. Unless otherwise indicated in the footnotes to the following table, each person named in the table has sole voting and investment power (subject to applicable community property laws) and that person’s address is c/o Single Touch Systems Inc., 100 Town Square Place, Suite 204, Jersey City, NJ 07310. Shares of Common Stock subject to options, warrants, or convertible notes currently exercisable or convertible or exercisable or convertible within 60 days after December 31, 2012 are deemed outstanding for computing the share ownership and percentage of the person holding such options, warrants, or convertible notes but are not deemed outstanding for computing the percentage of any other person.

   
Shares
   
Percentage
 
Anthony Macaluso (1)
   
34,582,526
     
21.6
%
Richard Siber (2)
   
3,055,000
     
2.6
%
James Orsini (12)
   
1,900,000
     
1.4
%
Medical Provider Financial Corporation IV (3)
   
12,700,000
     
9.6
%
John Quinn (9)
   
600,000
     
0.5
%
Nicole Macaluso (1)(5)
   
23,267,219
     
17.4
%
Mike Robert (6)
   
9,774,370
     
7.2
%
Stephen D. Baksa (4)
   
8,415,034
     
6.2
%
Stuart R. Levine (8)
   
475,000
     
0.4
%
Jonathan E. Sandelman (10)
   
3,575,000
     
2.7
%
Peltz Capital Management LLC (11)
   
7,975,000
     
5.7
%
                 
Officers and Directors as a Group (7 persons) (7)
   
52,602,560
     
31.4
%

(1)
Includes 4,639,400 shares underlying stock options, 1,250,000 shares underlying warrants. Also includes 21,997,219 shares owned directly or as custodian by Nicole Macaluso, which Mr. Macaluso has the right to vote pursuant to a proxy. Mr. Macaluso holds 3,395,907 shares in his own name. Mr. Macaluso disclaims beneficial ownership of the shares owned by Nicole Macaluso. Does not include 3,300,000 shares underlying stock options not exercisable within 60 days.
(2)
Includes 3,040,000 shares underlying stock options.
(3)
The address for Medical Provider Financial Corporation IV is 2100 South State College Boulevard, Anaheim, CA 92806. Thomas Seaman is now acting as receiver.
(4)
Includes shares held by him directly and in trust. Includes 450,000 shares underlying stock options, 1,100,000 shares underlying warrants and 1,100,000 shares convertible pursuant to a promissory note.
(5)
The address for Ms. Macaluso is P. O. Box 1318, Rancho Santa Fe, CA 92067. Includes 20,000 shares underlying stock options and 1,250,000 shares underlying warrants. Ms. Macaluso holds 21,747,219 shares in her name and 250,000 shares as custodian for children. Other than the shares listed in the table next to her name, Ms. Macaluso disclaims beneficial ownership of the shares beneficially owned by Anthony Macaluso.
(6)
The address for Mr. Robert is 4831 Mt. Longs Drive, San Diego, CA 92117. Includes 2,750,000 shares underlying warrants issued by us.
(7)
Includes Messrs. Macaluso, Siber, Orsini, Baksa, Levine, Sandelman and Quinn.
(8)
Includes 450,000 shares underlying stock options.
(9)
Includes 500,000 shares underlying stock options. Does not include 850,000 shares underlying stock options not exercisable within 60 days.
(10)
Includes 200,000 shares underlying stock options.
(11)
The address for Peltz Capital Management LLC is 9601 Wilshire Boulevard, Beverly Hills, CA 90210. Includes 250,000 shares held directly, 1,975,000 shares underlying stock options from us and 5,750,000 shares underlying options from Mr. Macaluso.
(12)
Includes 1,500,000 shares underlying stock options. Does not include 2,550,000 shares underlying stock options not exercisable within 60 days.
 
 
 
 
SELLING STOCKHOLDERS
 
This prospectus covers offers and sales of up to 20,440,000 shares of our common stock which may be offered from time to time by the selling stockholder identified in this prospectus.

The table below identifies each selling stockholder and shows the number of shares of common stock beneficially owned by the selling stockholder before and after this offering, and the numbers of shares offered for resale by the selling stockholder.  Our registration of these shares does not necessarily mean that each such selling stockholder will sell all or any of its shares of common stock. However, the “Shares Beneficially Owned After Offering” columns in the table assume that all shares covered by this prospectus will be sold by each such selling stockholder and that no additional shares of common stock will be bought or sold by the selling stockholder. No estimate can be given as to the number of shares that will be held by each such selling stockholder after completion of this offering because each such selling stockholder may offer some or all of the shares and, to our knowledge, there are currently no agreements, arrangements or understandings with respect to the sale of any of the shares.
 
12,000,000 shares to be sold hereunder by certain selling stockholders represent 6,000,000 shares convertible at $0.50 per share pursuant to promissory notes sold in a private offering by us in September and October of 2012 for an aggregate of $3,000,000 to 64 accredited investors, together with 6,000,000 shares underlying warrants, which are to expire three years after issuance, to purchase common shares at $0.25 per share,  which such investors also received in the private offering.
 
480,000 shares to be sold hereunder by certain selling stockholders represent shares underlying an aggregate of 480,000 warrants, which are to expire three years after issuance, to purchase common shares at $0.305 per share.  We granted such 480,000 warrants to Taglich Brothers LLC as compensation for services as placement agent in connection with the $3,000,000 offering noted in the paragraph above. In December 2012 Taglich Brothers LLC assigned all 480,000 warrants to certain selling stockholders.
 
In a private offering by us in November 2011 through February of 2012, we sold promissory notes with an aggregate principal amount of $2,000,000 to 9 accredited investors; in addition those 9 investors received an aggregate of 4,000,000 warrants, which are to expire three years after issuance, to purchase common shares at $0.25 per share. Such promissory notes, and accrued interest thereon, are convertible into common stock at $0.50 per share. 7,960,000 shares to be sold hereunder by certain selling stockholders relate to such private offering: 3,000,000 shares underlying such warrants, 3,400,000 shares underlying the principal portion of such promissory notes with an aggregate principal balance of $1,700,000, 340,000 shares underlying the accrued-interest portion of such promissory notes with an aggregate principal balance of $1,700,000, 1,000,000 outstanding shares which were issued to one of the investors in May 2012 upon exercise of warrants from such private offering, and 220,000 outstanding shares which were issued to one of the investors in January 2013 upon conversion of the principal amount of and accrued interest on a $100,000 promissory note from such private offering.  (The remaining $200,000 promissory note from such private offering, and accrued interest thereon, has been repaid to an investor in cash, and therefore no shares underlying such $200,000 principal, and accrued interest thereon, is being registered.)
 
The following table sets forth the name of each selling stockholder, and, if applicable, the nature of any position, office, or other material relationship which the selling stockholder has had, within the past three years, with us or with any of our predecessors or affiliates, the amount of shares of our common stock beneficially owned by such stockholder before the offering, the amount being offered for the stockholder’s account, and the amount to be owned by such stockholder after completion of the offering.
 
 
 

       
Shares Beneficially Owned Before Offering (1)
   
Shares Beneficially Owned After Offering (1)
 
   
Beneficial Owner
 
Shares
   
%
   
Shares Being Offered
   
Shares
   
%
 
                                   
  (2)
Stephen D. Baksa
    8,415,034       6.2 %     2,100,000       6,315,034       4.7 %
  (3)
H S Fitzgibbon II
    570,000       *       420,000       150,000       *  
  (4)
Pike H. Sullivan
    4,060,000       3.0 %     3,360,000       540,000       *  
  (5)
Edward M. Giles
    5,560,544       4.1 %     420,000       5,140,544       3.8 %
  (6)
John D. Hogan IRA
    586,667       *       420,000       166,667       *  
  (7)
Heartland Bank and Trust Company as Custodian for Rex J & Reva M Bates Trust
    420,000       *       420,000       0       *  
  (8)
Superius Securities Group, Inc. Profit Sharing Plan
    3,400,000       2.6 %     400,000       3,000,000       2.3 %
  (9)
John W. Bakus
    920,000       *       420,000       500,000       *  
                                             
  (10)
Robert Schroeder
    187,800       *       187,800       0       *  
  (11)
Michael N Taglich
    609,100       *       609,100       0       *  
  (12)
Robert F Taglich
    609,100       *       609,100       0       *  
  (13)
John S Tschohl Tod Dtd 03/15/06
    40,000       *       40,000       0       *  
  (14)
John R Bertsch Trust Dtd 12/4/2004 John R Bertsch Trustee
    400,000       *       400,000       0       *  
  (15)
David A Random
    400,000       *       400,000       0       *  
  (16)
Foutch Family Living Trust Uad 10/20/08 Carolyn Foutch Ttee
    100,000       *       100,000       0       *  
  (17)
Michael L Smith
    120,000       *       120,000       0       *  
  (18)
Donald V Moline
    40,000       *       40,000       0       *  
  (19)
Jeffrey G Hipp & Mary Ann Hipp Jt/Wros
    200,000       *       200,000       0       *  
  (20)
Paul R Winter
    200,000       *       200,000       0       *  
  (20)
Alvin R Bonnette Rev Trust U A Dtd 1/31/85 Alvin R Bonnette Ttee
    100,000       *       100,000       0       *  
  (22)
Junge Revocable Trust Uad 12/09/91 John P Junge Ttee Amd 09/26/06
    1,000,000       *       1,000,000       0       *  
  (23)
The Cuomo Family Trust Dtd 11/21/2006
    40,000       *       40,000       0       *  
  (24)
John A Friedman
    120,000       *       120,000       0       *  
  (25)
Applebaum Family Ltd Partners Irving Applebaum General Ptnr
    100,000       *       100,000       0       *  
  (26)
Keith Liggett
    40,000       *       40,000       0       *  
  (27)
Dennis Fortin
    600,000       *       600,000       0       *  
 
 
 
 
 
  (28)
William C Steele Ttee William C Steele Living Trust Uad 5-11-98
    240,000       *       240,000       0       *  
  (29)
Glenn R Hubbard
    120,000       *       120,000       0       *  
  (30)
Ashok Kumar Narang
    400,000       *       400,000       0       *  
  (31)
David Frank Rios & Margaret Jo Rios 1999 Trust Dtd 6/22/99
    200,000       *       200,000       0       *  
  (32)
Keith A Palmer Theresa R Palmer Jt/Wros
    120,000       *       120,000       0       *  
  (33)
Nutie Dowdle
    200,000       *       200,000       0       *  
  (34)
Steven A Boggs
    200,000       *       200,000       0       *  
  (35)
Andrew K Light
    400,000       *       400,000       0       *  
  (36)
Carolyn L Foutch
    40,000       *       40,000       0       *  
  (37)
Thomas R Jennett & Jodi K Jennett Jt Ten Wros
    40,000       *       40,000       0       *  
  (38)
Larry S Kaplan Marla B Kaplan Jt/Wros
    120,000       *       120,000       0       *  
  (39)
Gary Arnold And Patricia Arnold Ten Com
    200,000       *       200,000       0       *  
  (40)
Dr Richard V Nuttal & Annetta Mets Nuttall Jtwros
    20,000       *       20,000       0       *  
  (41)
Patricia Tschohl Tod Dtd 05/04/06
    168,000       *       168,000       0       *  
  (42)
Arnold Ventures Fund Lp
    400,000       *       400,000       0       *  
  (43)
Shadow Capital Llc
    400,000       *       400,000       0       *  
  (44)
Robert B Cashion
    80,000       *       80,000       0       *  
  (45)
Brigitte Ferrada - Stetson
    200,000       *       200,000       0       *  
  (46)
Richard Buchakjian
    100,000       *       100,000       0       *  
  (47)
Randall S Knox
    100,000       *       100,000       0       *  
  (48)
Howard A Kalka
    100,000       *       100,000       0       *  
  (49)
Robert W Main Ttee Under The Robert W Main Trust Dtd 9/7/05
    28,000       *       28,000       0       *  
  (50)
Richard Duke
    200,000       *       200,000       0       *  
  (51)
Paul Seid
    500,000       *       500,000       0       *  
  (52)
Dr Mordecai Bluth
    72,000       *       72,000       0       *  
  (53)
Walter T Parkes
    40,000       *       40,000       0       *  
  (54)
Douglas Friedrich & Melanie Friedrich Jt/Wros
    80,000       *       80,000       0       *  
  (55)
The Shirley J Lewis Marital Trust B Uad 06/26/01 Guy W Lewis Ttee
    200,000       *       200,000       0       *  
  (56)
Guy W Lewis Revocable Trust Uad 06/26/01 Guy W Lewis Ttee
    200,000       *       200,000       0       *  
  (57)
The Ladendorf Family Revocable Living Trust Uad 04/11/11
    192,000       *       192,000       0       *  
  (58)
Larry L Johnson
    120,000       *       120,000       0       *  
 
 
 
 
  (59)
C Mark Casey
    40,000       *       40,000       0       *  
  (60)
Terry Schaefer & Company Cpa Pc
    40,000       *       40,000       0       *  
  (61)
Keith Becker
    200,000       *       200,000       0       *  
  (62)
Robert Louis Fisher & Carroll Fisher Jt Ten Wros
    80,000       *       80,000       0       *  
  (63)
Ronald D Cowan Living Trust Uad 05/08/03 Ronald D Cowan Ttee
    120,000       *       120,000       0       *  
  (64)
Phillip L Burnett & Allyson Burnett Jtwros
    40,000       *       40,000       0       *  
  (65)
Big Red Investments Partnership Ltd
    40,000       *       40,000       0       *  
  (66)
Sterling Family Investment Llc
    400,000       *       400,000       0       *  
  (67)
Tom Hirsch Maureen A Hirsch
    40,000       *       40,000       0       *  
  (68)
Herb B Grimes
    200,000       *       200,000       0       *  
  (69)
James Tadych And Patricia Tadych Revocable Trust Uad 09/23/93
    300,000       *       300,000       0       *  
  (70)
David J Moulder
    100,000       *       100,000       0       *  
  (71)
Bibicoff Family Trust Dtd 5/16/00
    200,000       *       200,000       0       *  
  (72)
Joseph Martha
    20,000       *       20,000       0       *  
  (73)
Bruce Newell
    100,000       *       100,000       0       *  
  (74)
Douglas Hailey
    45,000       *       45,000       0       *  
  (75)
Vincent M Palmieri
    30,000       *       30,000       0       *  
  (76)
Gary Kurnov
    10,000       *       10,000       0       *