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SINGLE TOUCH SYSTEMS INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations(Edgar Glimpses Via Acquire Media NewsEdge) The following Management's Discussion and Analysis should be read in conjunction with Single Touch's financial statements and the related notes thereto. The Management's Discussion and Analysis may contain "forward-looking statements." Any statements that are not statements of historical fact 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 Quarterly Report on Form 10-Q include: our ability to successfully retain and sell additional services to our existing clients and obtain new clients; our reliance on primarily a single client and the continued use by such client of our services with favorable pricing terms; changes in laws and regulations related to the communication services we provide to or through our clients; the failure of our outsourced data center services providers to provide the anticipated levels of service; any significant slowdown or failure of our systems or error in the performance of our services; our failure to keep pace with changes in technology and the demands of our clients; the ability to attract and retain key personnel; our ability to obtain additional financing at favorable rates to maintain and develop our operations; and competitive conditions in our industry. There may be other factors that may cause our actual results to differ materially from the forward-looking statements. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. Readers should carefully consider this information as well the risks and other uncertainties described in our other filings made 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 Quarterly Report on Form 10-Q, whether as a result of new information, future events or circumstances, or otherwise. 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. 18-------------------------------------------------------------------------------- Table of Contents 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 (if the debt is due to an unrelated party) 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. 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) "One billion smartphones will be shipped globally this year" (2) "Americans now spend an average of 158 minutes every day on their smartphones and tablets" (3) 19 -------------------------------------------------------------------------------- Table of Contents 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. "Mobile now accounts for 12 percent of Americans' media consumption time, triple its share in 2009" (4) Our relationship with AT&T Services, Inc., through which we retain multiple client relationships, represents nearly all of our reported revenue in the fiscal years ended in 2011 and 2012. The bulk of that revenue comes from notifications sent on behalf of 4 separate Walmart corporate programs. These programs and related services continue to develop nationwide, and we continue to experience increasing activity in these programs that have caused our AT&T revenues to grow. We have a portfolio of intellectual property relevant to our industry related to mobile search, commerce, advertising and streaming media. This portfolio represents our many years' innovation in the wireless industry through patented technology developed by us, as well as patented technology we purchased from Microsoft and others. We have law firms engaged to protect our patented technology rights against unauthorized users and infringers. We have sent letters of notification to several companies making them aware of our patent portfolio and have commenced litigation. We have assigned 16 of our 18 and all of our intellectual property rights to Single Touch R&D IP, Inc a wholly owned subsidiary that will conduct all research, development, patent filings, patent maintenance and that 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. There can be no assurance that we will be able obtain additional financing, if at all or upon terms that will be acceptable to us. 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: Gartner report 4/4/13 (3) Source: Flurry report 4/13/13 (4) Source: eMarketer report 10/23/12 20-------------------------------------------------------------------------------- Table of Contents Results of Operations Results of Operations for the Three Months Ended March 31, 2013 and 2012 During the three months ended March 31, 2013, the Company had an increase in revenue of approximately 16% over revenue generated during the quarter ended March 31, 2012 ($1,808,836 in 2013 compared to $1,554,823 in 2012). The growth, all of which is organic, is attributable to continuing mobile adoption and new programs for existing and new client relationships. The Company's net loss for the fiscal quarter ended March 31, 2013 was $1,072,289. This is higher than the net loss incurred during the fiscal quarter ended March 31, 2012 of $655,337. Under the metrics employed by management to evaluate the underlying business explained below, Adjusted EBITDA, that underlying loss, $442,694 for the quarter ended March 31, 2013, was $138,024 more than that for the quarter ended March 31, 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 quarters ended March 31, 2013 and 2012 follows: For the Three Months Ended March 31, 2013 2012 GAAP Adjusted EBITDA Adjust- Adjusted Adjust- Adjusted Change Change GAAP ments EBITDA GAAP ments EBITDA $ % $ % Revenue Wireless Applications $ 1,808,836 $ 1,808,836 $ 1,554,823 $ 1,554,823 $ 254,013 16 % $ 254,013 16 % Operating Expenses Royalties and Application Costs $ 776,540 $ 776,540 $ 654,310 $ 654,310 $ 122,230 19 % $ 122,230 19 % Research and Development $ 24,050 $ 24,050 $ 16,050 $ 16,050 $ 8,000 50 % $ 8,000 50 % Compensation expense (including $ - $ - stock-based compensation) $ 635,203 $ 635,203 $ 679,961 $ 679,961 $ (44,758 ) -7 % $ (44,758 ) -7 % Depreciation and amortization $ 160,148 $ (160,148 ) $ - $ 163,604 $ (163,604 ) $ - $ (3,456 ) -2 % General and administrative (including $ - $ - stock-based compensation) $ 1,006,158 $ (190,421 ) $ 815,737 $ 577,778 $ (68,606 ) $ 509,172 $ 428,380 74 % $ 306,565 60 % $ 2,602,099 $ (350,569 ) $ 2,251,530 $ 2,091,703 $ (232,210 ) $ 1,859,493 $ 510,396 24 % $ 392,037 21 % Loss from Operations/Adjusted EBITDA $ (793,263 ) $ 350,569 $ (442,694 ) $ (536,880 ) $ 232,210 $ (304,670 ) $ (256,383 ) 48 % $ (138,024 ) 45 % 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 $776,540 in 2013, compared to $654,310 in 2012, an increase of 19%. Royalties and Application Costs as a percentage of revenue increased by 1%, from 42% to 43% from the quarter ended March 31, 2012 to that for 2013, attributable to the composition of message types. Research and Development expense increased from $16,050 in 2012 to $24,050 in 2013 while adjusted Compensation expense decreased from $679,961 to $635,203. The modest increase to the former reflects the variance throughout any given fiscal year of the innovation process. Similarly, reduced adjusted Compensation expense represents a more targeted focus on the expansion of our existing mobile messaging and marketing business, as well as efficiencies gained from staff and from the expanded management team now in its second year with the Company. 21-------------------------------------------------------------------------------- Table of Contents General and administrative expenses for the quarter ended March 31, 2013 and 2012, both on a GAAP and on an Adjusted EBITDA basis, consist of the following: For the Three Months Ended March 31, 2013 2012 GAAP Adjusted EBITDA Adjust- Adjusted Adjust- Adjusted Change Change GAAP ments EBITDA GAAP ments EBITDA $ % $ % Professional Fees $ 439,859 $ 439,859 $181,818 $ (15,006 ) $ 166,812 $ 258,041 142 % $ 273,047 164 % Travel $ 81,044 $ 81,044 $ 80,386 $ 80,386 $ 658 1 % $ 658 1 % Consulting expense $ 323,865 $ (190,421 ) $ 133,444 $ 166,895 $ (53,600 ) $ 113,295 $ 156,970 94 % $ 20,149 18 % Office rent $ 53,820 $ 53,820 $ 53,145 $ 53,145 $ 675 1 % $ 675 1 % Insurance expense $ 46,230 $ 46,230 $ 31,894 $ 31,894 $ 14,336 45 % $ 14,336 45 % Equipment lease $ - $ - $ - $ - $ - Trade shows $ 17,537 $ 17,537 $ 3,995 $ 3,995 $ 13,542 339 % $ 13,542 339 % Telephone $ 15,220 $ 15,220 $ 19,419 $ 19,419 $ (4,199 ) -22 % $ (4,199 ) -22 % Office expense $ 13,118 $ 13,118 $ 9,862 $ 9,862 $ 3,256 33 % $ 3,256 33 % Other $ 15,465 $ 15,465 $ 30,364 $ 30,364 $ (14,899 ) -49 % $ (14,899 ) -49 % Total General and Administrative Expenses $ 1,006,158 $ (190,421 ) $ 815,737 $ 577,778 $ (68,606 ) $ 509,172 $ 428,380 74 % $ 306,565 60 % The increase in adjusted Professional Fees, from $166,812 in 2012 to $439,859 in 2013, reflects amounts paid to external attorneys, who have been engaged to represent us in litigation and other intellectual property initiatives we have commenced and with increased efforts relating to our compliance and filings for our most recent financings and past financings. Travel expense was relatively unchanged over the two periods, increasing only $658 while adjusted Consulting expense increased $20,149 over the two periods. Outside counsel, management, and consultants are regularly engaged both in active intellectual property monetization efforts, as well as with the development of our existing, underlying business. Insurance expense increased $14,336, and expenses related to Trade shows increased $13,542. An increased Board size and composition of outside directors, together with a growing business and market capitalization, precipitated the former while the need to communicate with current and prospective holders of our securities and new business efforts led to the latter. 22-------------------------------------------------------------------------------- Table of Contents Results of Operations for the Six Months Ended March 31, 2013 and 2012: Revenues increased 19%, from $3,144,496 for the six months ended March 31, 2012 to $3,756,114 for the six months ended March 31, 2013. Net loss increased from $1,294,533 from the earlier to $3,304,444 for the later period, but the loss on an Adjusted EBITDA basis increased at a much lesser rate, $95,061. A table summarizing Loss from Operations and Adjusted EBITDA for the two six-month periods follows: For the Six Months Ended March 31, 2013 2012 GAAP Adjusted EBITDA Adjust- Adjusted Adjust- Adjusted Change Change GAAP ments EBITDA GAAP ments EBITDA $ % $ % Revenue Wireless Applications $ 3,756,114 $ - $ 3,756,114 $ 3,144,496 $ - $ 3,144,496 $ 611,618 19 % $ 611,618 19 % Operating Expenses Royalties and Application Costs $ 1,660,333 $ - $ 1,660,333 $ 1,417,631 $ - $ 1,417,631 $ 242,702 17 % $ 242,702 17 % Research and Development $ 32,756 $ - $ 32,756 $ 53,250 $ - $ 53,250 $ (20,494 ) -38 % $ (20,494 ) -38 % Compensation expense (including stock-based compensation) $ 2,390,541 $ (1,109,720 ) $ 1,280,821 $ 1,373,784 $ (9,690 ) $ 1,364,094 * $ 1,016,757 74 % $ (83,273 ) -6 % Depreciation and amortization $ 314,934 $ (314,934 ) $ - $ 319,075 $ (319,075 ) $ - $ (4,141 ) -1 % General and administrative (including stock-based compensation) $ 2,073,682 $ (487,243 ) $ 1,586,439 $ 1,108,448 $ (89,753 ) $ 1,018,695 * $ 965,234 87 % $ 567,744 56 % $ 6,472,246 $ (1,911,897 ) $ 4,560,349 $ 4,272,188 $ (418,518 ) $ 3,853,670 $ 2,200,058 51 % $ 706,679 18 % Loss from Operations/Adjusted EBITDA $ (2,716,132 ) $ 1,911,897 $ (804,235 ) $ (1,127,692 ) $ 418,518 $ (709,174 ) $ (1,588,440 ) 141 % $ (95,061 ) 13 % Royalties and Application Costs increased 17% over the two periods. The lesser rate of growth in these costs reflects operating leverage, partially fixed costs that do not increase with volume, and some vendor renegotiations. Adjusted Compensation expense was reduced $83,273 (6%) over the two periods, reflecting staffing more focused on key strategic initiatives, emphasizing intellectual property monetization and management and development of new business. 23 -------------------------------------------------------------------------------- Table of Contents A table of General and administrative for the two six-month periods follows: For the Six Months Ended March 31, 2013 2012 GAAP Adjusted EBITDA Adjust- Adjusted Adjust- Adjusted Change Change GAAP ments EBITDA GAAP ments EBITDA $ % $ % Professional Fees $ 777,492 $ (1,894 ) $ 775,598 * $ 348,778 $ (30,012 ) $ 318,766 * $ 428,714 123 % $ 456,832 143 % Travel $ 248,887 $ - $ 248,887 $ 219,227 $ - $ 219,227 $ 29,660 14 % $ 29,660 14 % Consulting expense $ 761,344 $ (485,349 ) $ 275,995 * $ 273,820 $ (59,741 ) $ 214,079 * $ 487,524 178 % $ 61,916 29 % Office rent $ 107,640 $ - $ 107,640 $ 98,436 $ - $ 98,436 $ 9,204 9 % $ 9,204 9 %Insurance expense $ 75,199 $ - $ 75,199 $ 60,050 $ - $ 60,050 $ 15,149 25 % $ 15,149 25 % Equipment lease $ - $ - $ - $ - $ - $ - $ - $ - Trade shows $ 18,327 $ - $ 18,327 $ 15,995 $ - $ 15,995 $ 2,332 15 % $ 2,332 15 % Telephone $ 27,945 $ - $ 27,945 $ 31,029 $ - $ 31,029 $ (3,084 ) -10 % $ (3,084 ) -10 % Office expense $ 24,837 $ - $ 24,837 $ 17,918 $ - $ 17,918 $ 6,919 39 % $ 6,919 39 % Other $ 32,011 $ - $ 32,011 $ 43,195 $ - $ 43,195 $ (11,184 ) -26 % $ (11,184 ) -26 % Total General and Administrative Expenses $ 2,073,682 $ (487,243 ) $ 1,586,439 $ 1,108,448 $ (89,753 ) $ 1,018,695 $ 965,234 87 % $ 567,744 56 % * Adjustment represents the elimination of stock-based compensation recorded in accordance with GAAP but not considered in the calculation of Adjusted EBITDA. Adjusted General and administrative expense increased $567,744 (56%) over the two periods. An increase in professional fees of $456,832, or 143%, represented the large majority of this and is comprised of legal fees for intellectual property monetization efforts and registering all recent offerings and keeping current registrations for all prior ones. The rise in adjusted Consulting expense of $61,916, or 29%, was related to capital markets outreach programs. Liquidity and Capital Resources At March 31, 2013, we had total assets of $5,695,475 and total liabilities of $5,446,138. As of September 30, 2012, we had total assets of $5,569,755 and total liabilities of $4,661,117. The increase in assets is largely due to the increase in Prepaid expenses of $698,314, mostly due to a non-monetary payment by our Executive Chairman as contribution to capital and a Software license expenditure of $755,000, a settlement with our Executive Chairman for our Anywhere platform since September 30, 2012. Cash has decreased $1,233,357 due roughly in equal measure to the underlying loss for the six-month period and the Anywhere settlement. The increase in liabilities ($805,021) in the six months since September 30, 2012 is largely due to the increase in Accounts payable ($310,390) with the balance attributable to our Convertible debenture issuances and redemptions. The increase in Accounts Payable is largely related to our intellectual property monetization efforts. During the fiscal half year ended March 31, 2013 cash used in operating activities totaled $749,731. The most notable adjustment, when reconciling Net loss to Net cash used in operating activities, was the $1,596,963 non-cash charge for Stock-based compensation, which reduced Net loss for GAAP purposes but which we exclude from the calculation of Adjusted EBITDA. 24-------------------------------------------------------------------------------- Table of Contents Cash used in investing activities for the six months ended March 31, 2013 totaled $875,651, of which $201,998 represented the capitalized internal costs of our software development, $72,356 represented capitalized legal fees incurred in the process of applying for various patents on our technology, $1,297 represented purchases of physical equipment, and $600,000 was part of the Anywhere settlement. We continue to invest in physical and intellectual property that will separate us from competitors and allow us to continue to expand our mobile communications/advertising offering, and with the Anywhere payment and settlement all parties that might otherwise have made related claims are foreclosed from doing so. Cash provided from financing activities for the six months ended March 31, 2013 amounted to $392,025. The Company received $688,000 through the issuance of the final tranche of convertible debt and related warrants of its $3,000,000 most recent private placement and paid $48,475 in cash relating to that placement. The Company also received $40,000 from share issuances. We paid the final $87,500 remaining on our patent purchase obligation and repaid $200,000 of principal, together with $20,000 of interest, to the one note holder from our first $2,000,000 private placement. This note holder converted its note at a time when the conversion price ($0.50 per share) was less than our stock price, and all other such note holders from that placement have either converted such notes into shares or elected to amend and extend their notes. We had an overall net decrease in cash for the period of $1,233,357; the cash balance at the beginning of the current fiscal year was $2,157,707 while the cash balance at the end of this six-month period was $924,350. During the six months ended March 31, 2012 cash used in operating activities totaled $1,115,893. Accounts receivable increased by $201,254 while Accounts payable decreased $249,816 during that earlier period. Cash used in investing activities during the six months ended March 31, 2012 totaled $307,250, of which $207,068 represented the capitalized internal costs of our software development, $29,370 represented equipment purchases, and $70,812 represented capitalized legal fees incurred in the process of applying for various patents on our technology. Cash provided by financing activities amounted to $1,952,500 in that earlier six-month period ended March 31, 2012. The Company received $1,500,000 from unrelated parties and $500,000 from a director for the first $2,000,000 private placement. The Company also received $40,000 from share issuances and paid $87,500 on a prior patent purchase obligation. We had an overall net increase in cash for the earlier six-month period of $529,357; the cash balance at the beginning of the earlier fiscal year was $523,801 while the cash balance at the end of the period was $1,053,158. Over the next twelve months we believe that existing capital and anticipated funds from operations may 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 relating to such efforts will be required. In addition, increased acceleration in our organic business and/or other economic influences might also necessitate other financing. There can be no assurance that we will be able obtain additional financing, if at all or upon terms that will be acceptable to us. 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. |