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EX-5.1 - SINGLE TOUCH SYSTEMS S-1/A, LEGAL OPINION & CONSENT - SITO MOBILE, LTD.singletouchexh5_1.htm
EX-23.1 - SINGLE TOUCH SYSTEMS S-1/A, AUDITORS CONSENT - SITO MOBILE, LTD.singletouchexh23_1.htm


As filed with the Securities and Exchange Commission on July 7 , 2011
Registration No.  333-175119
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
PRE-EFFECTIVE AMENDMENT NO. 1 TO 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)
 
2235 Encinitas Boulevard, Suite 210
Encinitas, California 92024
(760) 438-0100
(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.
2235 Encinitas Boulevard, Suite 210
Encinitas, California 92024
(760) 438-0100
(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
 
 
10,910,841
 
 
$
0.425
 
 
$
4,637,108
 
 
$
538.37 *
 
Common Stock, $0.001 par value per share
   
1,269,801
   
$
0.505
   
$
641,250
   
$
74.45
 
Total
   
12,180,642
     
n/a
   
$
5,278,358
   
$
612.82
 

(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 June 20, 2011 (with respect to the 10,910,841 shares listed in the registration statement as initially filed) and on June 30, 2011 (with respect to the 1,269,801 shares added by Pre-Effective Amendment No. 1).
*
Previously paid ($74.45 is being paid with Pre-Effective Amendment No. 1).
 
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.
 

 
 
 
 
 
 


 
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 July 7 , 2011
 
PROSPECTUS
 
SINGLE TOUCH SYSTEMS INC.
 
12,180,642 Shares
Common Stock
(8,407,007 Currently-Outstanding Shares of Common Stock and 3,773,635 Shares of Common Stock Underlying Warrants)
 
This prospectus relates to an aggregate of up to 12,180,642 shares of our common stock which may be resold from time to time by the selling stockholders identified in this prospectus. The selling stockholders may sell common stock from time to time in the open market (at the prevailing market price) or in negotiated transactions.   Of the 12,180,642 shares, 8,407,007 are currently outstanding and 3,773,635 underlie currently outstanding warrants.
 
Currently three registration statements covering the resale of a total of 22,713,761 shares of our common stock by various selling stockholders are effective.  12,180,642 shares of common stock are registered for resale under registration no. 333-175119, of which this prospectus is a part; 7,255,000 shares of common stock are registered for resale under registration no. 333-170593; and 3,278,119 shares of common stock are registered for resale under registration no. 333-172844.
 
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 any of the selling stockholders.
 
Our common stock is traded on the OTC Bulletin Board under the symbol “SITO”. On July 6 , 2011, the last reported closing sale price of our common stock was  $0.55 per share.
 
Investing in our common stock involves a high degree of risk. See Risk Factors beginning on page 2 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                      , 2011
 
 
 
 
 
 
 
 
 


 
 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 2 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 the ability to drive contextually relevant advertising messages to the right audience.
 
Our business has focused on leveraging our solutions in the areas of messaging/notifications and Abbreviated Dial Codes.
 
Currently, over 90% of our revenues are paid to us through AT&T Services, Inc., and currently the bulk of that revenue comes from notifications sent on behalf of Walmart. We are primarily a B2B player and/or white label service, and do not seek to have a consumer brand presence for our own name.
 
For a more complete description of our business, please see “Business,” beginning on page 10.   
 
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 2235 Encinitas Boulevard, Suite 210, Encinitas, California 92024 and our telephone number is (760) 438-0100. 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
  
12,180,642 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 indirectly generate our revenues from wireless carriers. The loss of or a change in any of these significant relationships could materially reduce our revenues.
 
Both are 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.
 
 


 
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 over 90% 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. The agreements generally do not obligate the carriers to market or distribute any of our products or services. In many of these agreements, we warrant that our products do not violate community standards, do not contain libelous content, do not contain material defects or viruses, and do not violate third-party intellectual property rights and we indemnify the carrier for any breach of a third party’s intellectual property.
 
Many other 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 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 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. The raising of additional capital may dilute our current stockholders’ ownership interests. Our present income 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;
 
 
 
acquiring complementary businesses;
 
 
 
 
 
 
making capital improvements to improve our infrastructure;
 
 
 
hiring qualified management and key employees;
 
 
 
developing new services, programming or products;
 
 
 
responding to competitive pressures;
 
 
 
complying with regulatory requirements such as licensing and registration; and
 
 
 
maintaining compliance with applicable laws.
 
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.
 
Furthermore, any additional debt or equity 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 effectively manage our growth.
 
Our strategy envisions growing our business. Even if we do grow, if we fail to effectively manage our growth 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;
 
 
 
expand our systems effectively or efficiently or in a timely manner;
 
 
 
allocate our human resources optimally; or
 
 
 
identify and hire qualified employees or retain valued employees.
 
If we are unable to manage our growth and our operations our financial results could be adversely affected.
 
We are undergoing a management transition.
 
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.  We intend to recruit and hire other senior executives, e.g., a permanent Chief Financial Officer.  In connection with the hire of Mr. Orsini, we expect to soon move our executive headquarters from Encinitas, California, to Jersey City, New Jersey.  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.
 
Our management ranks are thin, and losing or failing to add key personnel could affect our ability to successfully grow 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 Chairman, and James Orsini, our President and Chief Executive Officer, and other members of the senior management team. We need to identify and hire additional senior managers to perform key tasks and roles.
 
 
 
 
Our inability to adequately protect or monetize our proprietary technology could adversely affect our business.
 
Our proprietary technology is one of the keys to our performance and ability to remain competitive. We rely on a combination of patent, copyright and trade secret laws to establish and protect our proprietary rights. We also use technical measures, confidentiality agreements and non-compete agreements to protect our proprietary rights.
 
We rely on copyright laws and/or trade secret laws to protect the source code for our proprietary software. We generally enter into agreements with our employees and consultants and limit access to and distribution of our software, documentation and other proprietary information. The steps we take to protect our proprietary information may not prevent misappropriation of our technology, and the agreements we enter into for that purpose might not be enforceable. A third party might obtain and use our software or other proprietary information without authorization or develop similar software independently. It is difficult for us to police the unauthorized use of our technology, particularly because the global nature of the Internet makes it difficult to control the ultimate destination or security of software or other transmitted data. The laws of other countries may not provide us with adequate or effective protection of our intellectual property.
 
In fact, we believe competitors are violating some of our patents. We believe this is damaging our business. Although we have engaged a law firm to undertake legal actions to enjoin violations of our patent rights and/or compel compensation for use of those rights, there is no assurance of success and, even in the event of success, we will incur legal fees and expenses.
 
Competitors might be able to work around our patents and our other intellectual property.
 
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. 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 shares of common stock on any national securities exchange (assuming we elect to seek and are successful in obtaining such listing) could be adversely affected.
 
We are subject to competition.
 
We have many actual and potential competitors, almost all of whom have more financial, personnel, intellectual property and/or reputational resources than we do. If we and our business do not grow larger, we will not be able to enjoy the economies of scale that many of our competitors do.
 
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or detect fraud. 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 detect fraud. We will be assessing our internal controls to identify areas that need improvement. 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 trading price of our stock.
 
 


 
Also, and in any event, Sarbanes-Oxley Act requirements regarding internal control over financial reporting are costly to implement and maintain, and such costs are relatively more burdensome for smaller companies such as us than for larger companies.
 
RISKS RELATED TO OUR INDUSTRY
 
If wireless subscribers do not continue to use their mobile handsets to access mobile content and other applications, our business growth and future revenues may be adversely affected.
 
We operate in a developing industry. Our success depends on growth in the number of wireless subscribers who use their handsets to receive information and access data services and, in particular, applications of the type we develop and distribute. New or different mobile applications developed by our current or future competitors may be preferred by subscribers to our offerings. In addition, other mobile platforms may become widespread, and end users may choose to switch to these platforms. If the market for our products and services does not continue to grow or we are unable to acquire new end users, our business growth and future revenues could be adversely affected.
 
System or network failures could reduce our sales, increase costs or result in a loss of end users of our products and services.
 
Mobile content delivery relies on wireless carrier networks to deliver products and services to end users. In certain circumstances, mobile content distributors may also rely on their own servers to deliver products on demand to end users through their carriers’ networks. In addition, certain products require access over the mobile Internet to our servers in order to enable certain features. 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, 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. Wireless communications infrastructure may be unable to support the demands placed on it if the number of subscribers continues to increase, or if existing or future subscribers increase their bandwidth requirements. Wireless communications have experienced a variety of outages and other delays as a result of infrastructure and equipment failures, and could face outages and delays in the future. These outages and delays could reduce the level of wireless communications usage as well as our ability to distribute our products and services successfully. In addition, changes by a wireless carrier to network infrastructure may interfere with downloads and may cause end users to lose functionality. This could harm our business, operating results and financial condition.
 
Actual or perceived security vulnerabilities in mobile handsets or wireless networks could adversely affect our revenues.
 
Maintaining the security of mobile handsets and wireless networks is critical for our business. There are individuals and groups who develop and deploy viruses, worms and other illicit code or malicious software programs that may attack wireless networks and handsets. Security experts have identified computer “worm” programs that target handsets running on certain operating systems. Although these worms have not been widely released and do not present an immediate risk to our business, we believe future threats could lead some end users to seek to reduce or delay future purchases of our products or reduce or delay the use of their handsets, or persuade retailers or brand owners that solutions utilizing our programs are not sufficiently reliable. Wireless carriers and handset manufacturers may also increase their expenditures on protecting their wireless networks and mobile phone products from attack, which could delay adoption of new handset models. Any of these activities could adversely affect our revenues and this could harm our business, operating results and financial condition.
 
It is possible that laws and regulations may be adopted in the United States and elsewhere that could restrict the media and wireless communications industries, including laws and regulations regarding customer privacy, taxation, content suitability, copyright, distribution and antitrust. Such news laws and regulations, if any, might be adverse to our business interest. Furthermore, the growth and development of the market for electronic commerce
 
 
 
 
may prompt calls for more stringent consumer protection laws that may impose additional burdens on companies such as ours conducting business through wireless carriers. We anticipate that regulation of our industry will increase and that we will be required to devote legal and other resources to address this regulation. Changes in current laws or regulations or the imposition of new laws and regulations in the United States or elsewhere regarding the media and wireless communications industries may lessen the growth of wireless communications services and may materially reduce our ability to increase or maintain sales of our products and services.
 
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 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.
 
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 and is not heavily traded, 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.
 
The average daily trading volume in our common stock for the twelve-month period ended September 30, 2010 was approximately 75,000 shares. If limited 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.
 
Applicable SEC rules and investor practices governing the trading of “penny stocks” may limit 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; therefore, the common stock may be considered a “penny stock” and potentially 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. Under these regulations, 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).
 
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 variations in our operating results and prospects;
 
 
 
announcements of technological innovations by us or our competitors;
 
  
 
announcements by us or our competitors of significant brand owner engagements, acquisitions, 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; 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 these companies, and in particular the market prices of stock in smaller companies and technology companies have been highly volatile. 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 the 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 future earnings, if any, to fund business growth. Consequently, stockholders’ only opportunity to achieve a return on your investment is if the price of our common stock appreciates and they sell their 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.
 
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 would likely decline. If one or more of these analysts ceases to cover us or fails to publish regular reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.
 
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 March 31, 2011, there were 128,222,670 shares of common stock outstanding, 18,330,000 shares of common stock issuable upon exercise of outstanding stock options and 39,104,880 shares of common stock issuable upon exercise or conversion of outstanding warrants and convertible notes. (In addition, in May and June 2011 we granted 9,750,000 stock options to executives and 750,000 stock options to a service provider .)  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 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 30% of our outstanding common stock, on a Rule 13d-3 basis. 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. If you acquire common stock, you may have no effective voice in the management of the Company.
 
Our income statements are heavily influenced by non-cash charges, which may negatively influence investors’ view of us.
 
Investors like companies which report income statement profits (or relatively small net losses), and do not like companies which report large losses on their income statements. In recent years our income statements’ reported losses have been increased by large non-cash charges such as those for non-employee stock-based compensation, employee stock-based compensation, net loss on settlement of indebtedness (with below-market stock issuances),
 
 
 
 
and changes in the fair value of derivative liability. This could make it more difficult for some investors to easily understand our operations and the situation of our business, especially if they prefer to use traditional stock valuation metrics and multiples; and it could cause some investors to disregard us or to view us negatively. This could affect the demand for our stock, and adversely affect our stock price. It is possible that we will take actions which result in such charges on our future statements of income; but whether or not we do, the past instances of charges will continue to be reflected in the current-period-versus-past-period comparisons which are used in our SEC reports and by investors and analysts.
 
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. In the immediate future, arguably a majority of the business operations, revenue and payroll will be conducted in, derived from, and paid to residents of California. Therefore, 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.
 
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 stockholders. See “Selling Stockholders” 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 / PRICE RANGE OF COMMON STOCK / DIVIDENDS
 
Market Information
 
Our common stock has been quoted on the OTC Bulletin Board since June 20, 2002. From June 20, 2002 until May 14, 2008 our stock was quoted under the symbol “HSNI”. From May 15, 2008 to the present it has been quoted under the symbol “SITO”. The following table sets forth, for the fiscal quarters indicated, the high and low closing sale prices per share of our common stock. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
 
Quarter Ended
  
High
 
  
Low
 
September 30, 2011 (to date)   $ 0.56     $ 0.54  
June 30, 2011
 
 
0.75
   
 
0.45
 
March 31, 2011
  
 
0.83
  
  
 
0.49
  
December 31, 2010
  
 
1.05
  
  
 
0.73
  
September 30, 2010
  
 
1.48
  
  
 
0.65
  
June 30, 2010
  
 
1.52
  
  
 
0.48
  
March 31, 2010
  
 
0.84
  
  
 
0.45
  
December 31, 2009
  
 
0.76
  
  
 
0.65
  
September 30, 2009
  
 
0.55
  
  
 
0.52
  
June 30, 2009
  
 
1.05
  
  
 
1.05
  
March 31, 2009
  
 
2.35
  
  
 
2.20
  
December 31, 2008
  
 
3.50
  
  
 
3.00
  
 
 
 
 
The aggregate market value of shares of our common stock held on March 31, 2009 by persons who were not affiliates of us was $45,004,630. The aggregate market value of shares of our common stock held on March 31, 2010 by persons who were not affiliates of us was $22,411,148.
 
Holders
 
As of March 31, 2011, there were 275 record holders of our common stock. This does not include the beneficial owners of unexchanged stock certificates or the additional beneficial owners 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
 
We were incorporated in Delaware on May 31, 2000, under our original name, Hosting Site Network, Inc. On May 12, 2008, we changed our name to Single Touch Systems Inc. In the periods before the acquisition described in the next sentence, we had no active business operations. On July 24, 2008, we acquired all of the outstanding shares of Single Touch Interactive, Inc. (“Interactive”). Interactive was incorporated in Nevada on April 2, 2002.
 
We maintain a website located at http://www.singletouch.net, and electronic copies of our periodic and current reports, proxy statements for our annual stockholders’ meetings, 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.
 
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 the ability to drive contextually relevant advertising messages to the right audience.
 
Currently, over 90% of our revenues are paid to us through AT&T Services, Inc., and currently the bulk of that revenue comes from notifications sent on behalf of Walmart. We are primarily a B2B player and/or white label service, and do not seek to have a consumer brand presence for our own name.
 
Background of Industry Growth and Potential
 
Cell phone penetration and usage are becoming almost ubiquitous, and business applications utilizing cell phones are growing rapidly.
 
 
 
 
 
AT&T Wireless and Verizon Wireless continue to be the dominant US wireless providers. (AT&T Wireless and Verizon Wireless had 90 million and 92 million subscribers, respectively, at June 30, 2010.1) For many consumers, cellular phones have already made the transition from a communication device to a media-consumption device. With continuing technological advancements, people are becoming more dependent on their cell phones and less dependent on landlines. The Centers for Disease Control and Prevention reported in May 2010 that, as of 2009, 25% of American households (and about half of Americans age 25-29) have cell phones but no landline.
 
Principal Products and Services
 
Messaging and Notifications – Our Short Message Service (SMS) gateway offers a hosted messaging platform to SMS-enable any application, website or system. We enable the immediate capability to deliver and receive messages to and from any application, via our messaging platform.
 
The foremost example of our solution running today is Walmart. Walmart pharmacy departments send individualized text messages through our gateway, to their customers letting them know when their prescriptions are ready for pickup. Potentially, we would be able to not only send customers a reminder but also let them know that a product is on sale, provide product information or product reviews, display inventory levels or enable a click-through connection to customer service.
 
Abbreviated Dial Codes – Abbreviated Dial Codes (ADCs) enable completion of a mobile call by pushing fewer digits than in a standard telephone number. (Think of dialing 411 for information.) We enable ADC programs for enterprises. Solutions such as #BET, #MTV and #WMT (for Walmart) are examples of such programs. ADCs are as easy as (indeed, even easier than) making a phone call, can be used on all mobile phones and enable everyone to have access to content, coupons, reviews, connections to customer service, etc. All of our ADCs begin with the # or * symbol. A combination such as ## or ** could also be utilized.
 
We own important patents for ADC or # programs, and are considering ways to protect and/or monetize our intellectual property rights in this area.
 
We also focus on messaging and notifications; in some cases these notifications are accessed by using an ADC.
 
Certain Agreements
 
Our business agreements consist primarily of customer agreements and carrier agreements. Customer agreements are typically agreements with companies which have sales relationships with the end users of the transacted media content or service application. These agreements typically involve a split of the fees received between the brand owner and us or a fixed fee per transaction. Carrier agreements are infrastructure in nature and establish the connection to the end user that enables us to deliver and collect payment for the transacted media content or service application. Carrier agreements typically involve a split of the fees received between the carrier and us.
 
 
 


1
Derived from their respective periodic SEC reports.
 

 
 
Our services agreement with AT&T Services, Inc., as amended, provides among other things that we shall provision, implement and maintain the ADC Registry Program to be licensed for use by AT&T for the purpose of marketing and promoting customer retail locations and other programs. AT&T may terminate the agreement at any time on upon proper written notice as provided in the agreement.
 
Research and Development
 
During the fiscal years ended September 30, 2010 and September 30, 2009 we spent $528,166 and $784,207, respectively, on software development which was capitalized. Software development costs amortized and charged to operations in fiscal 2010 and fiscal 2009 were $438,445 and $657,055, respectively. In addition, in fiscal 2010 we charged off $218,776 in development costs we deemed impaired, compared to $301,465 in 2009.
 
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. Certain of our research and development resources are dedicated to improving our ADC programs while others are dedicated to refining our mobile notification and couponing products.
 
We believe that we may need to increase our current level of dedicated research and development resources by adding both hardware and engineers.
 
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. 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, 9 persons serving as programmers and technical staff operators, 3 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 2235 Encinitas Blvd., Suite 210, Encinitas, CA 92024. We have a month-to-month renewal lease for this space, beginning August 1, 2010, at a rate of $8,000 per month. The facilities comprise approximately 5000 square feet consisting entirely of administrative and software development office space.
 
Our servers are housed at CoreSite, 900 N. Alameda Street, Los Angeles, CA 90012. We lease the servers, certain other equipment, fixtures and furniture, an analytics platform and other software, and certain service accounts, for $7,500 per month. The lessor is Soapbox Media, Inc., which is majority-owned by Anthony Macaluso, our executive Chairman.
 
 

 
 
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. 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 in the Risk Factors section above. 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 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.
 
Currently, over 90% of our revenues are paid to us through AT&T Services, Inc., and currently the bulk of that revenue comes from notifications sent on behalf of Walmart.  We have seen continuing development of revenue beginning in the second quarter of our 2010 fiscal year from our Walmart related programs we had developed with Walmart and AT&T over the prior two year period.
 
These programs and related services continue to rollout nationwide and we have experienced continuing increase of activity in these programs that have caused our AT&T revenues to grow.   We have also noted a pattern of increasing messaging activity over time from locations who have implemented our programs, as locations and users get familiar with the available services offered.
 
In addition to the current programs, we have received approval to deploy advertisements with our notification messaging programs and are working towards implementation.  This development is significant in that our per message revenue increases significantly for each notification that includes an advertisement.  This additional revenue element subject to deployment is applicable to existing messaging.  Therefore, advertising deployment would benefit from existing traffic and continuing increases in notification messaging volume.  We see this as an important next step towards our roadmap of creating consumer and brand awareness and confidence on how to utilize our mobile media platform accessing mobile notifications, advertisements, coupons and commerce transactions all from the mobile phone.
 
We have a portfolio of intellectual property relevant to our industry related to mobile search, commerce, advertising and streaming media. We have engaged the notable law firm of McKool Smith to protect our patented technology against unauthorized users and infringers. McKool Smith is presently completing its evaluations of industry activities and is preparing to move forward against identified infringers.
 
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 development is recent and 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.
 
For several years before July 24, 2008, we existed as a “shell company” with nominal assets. On July 24, 2008, we acquired all of the shares of Single Touch Interactive, Inc. in exchange for our issuance of an aggregate of 42,967,554 shares of our common stock; in addition, we assumed the obligation to issue up to 48,027,433 common shares issuable upon exercise or conversion of warrants and convertible notes which had been issued by Single Touch Interactive, Inc. The transaction was accounted for as a reverse merger (recapitalization) with Single Touch Interactive, Inc. deemed to be the accounting acquirer, and Single Touch Systems Inc. the legal acquirer. 
 
Results of Operations
 
Six-Months Ended March 31, 2011 and March 31, 2010
 
We reported a net loss of $5,331,111 for the six-months ended March 31, 2011 compared to a net loss of $2,071,276 for the six-month period ending March 31, 2010.  The indicated net losses included stock based compensation in 2011 and 2010 of $3,603,708 and $1,152,625, respectively. Stock based compensation was a substantial component of the net loss of each of the comparative periods, exceeding the sum of all other components of our losses in each of the comparative periods.
 
Our revenues for the six month period ended March 31, 2011 were $2,045,433 compared to $134,095 in the same six month period in the prior year. The majority of our income in the 2011 six month period was through our contract with AT&T Services, Inc., and currently the bulk of that revenue comes from notifications sent on behalf of Walmart. The revenue increase was related to AT&T programs for Walmart that had not been implemented in that prior comparative period.
 
Net revenues for the six months ended March 31, 2011, after deducting royalties and application costs of $959,355, is $1,086,078. For the six months ended March 31, 2010 our royalties and application costs of $281,653 exceeded our revenue by $147,558. Our loss from operations for the six months ended March 31, 2011 was $4,652,954 compared to $2,960,351 for the same six month period in 2010.
 
Operating expenses for the six months in 2011 totaled $5,739,032 which consisted of research and development costs of $32,872, compensation expense of $4,321,237 (including the indicated stock based compensation of $3,603,708), depreciation and amortization expense of $294,580, and general and administrative expenses of $1,090,343.  Included in general and administrative expenses are consulting fees of $335,500, professional fees of $388,489, travel of $126,490, rent of $57,989, and $45,000 that we incurred on the lease of equipment. Operating expenses for the six months in 2010 totaled $2,812,793 which consisted of research and development costs of $47,405, stock based compensation to non-employees of $1,152,625, compensation expense of $690,492, depreciation and amortization expense of $265,733, and general and administrative expenses of $656,538.  Included in general and administrative expenses are consulting fees of $204,650, professional fees of $180,701, travel of $67,024, rent of $55,349, and $24,000 that we incurred on the lease of equipment and bad debt of $54,084.  Stock based compensation was responsible for the majority of the differential between the two comparative periods.
 
In the first six month period of  2011, we incurred a loss of $651,315 on the settlement of indebtedness, based on the value of shares which we issued to resolve a dispute with a note holder.  In the first six month period of  2010, our loss in this category was only $45,580.
 
Revenue Development
 
We have seen continuing development of revenue beginning in the second quarter of our 2010 fiscal year from our Walmart related programs developed with Walmart and AT&T. Currently, more than 90% of our revenues are generated with AT&T Services, Inc., from notifications sent on behalf of Walmart.
 
 
 
 
The wireless industry is dynamic with constant evolution in technological capabilities resulting in a continuous evolution of product services with varying lifecycles. We have functioned in this industry for many years as an innovator and pioneer of many products that have been implemented and phased out as the industry continues to evolve. Our results in prior periods were related to programs that were being or have now been phased out.
 
The three month period ended June 30, 2010 began the continuing roll outs of the AT&T programs for Walmart. We saw messaging activity related to those programs develop rapidly from nominal testing to several million messages in that period as an initial test rollout was implemented by Walmart to their retail locations.
 
During the three month period ended September 30, 2010 we saw dramatic increases in revenue over the prior period as a result of an over seven fold increase in messaging activity from an expanded roll out to many more retail locations. During the three month period ended December 31, 2010 we saw revenue increase to $1,011,738, exceeding the entire year revenue for wireless applications of $792,564 for the prior fiscal year ended September 30, 2010.
 
During the three month period ended March 31, 2011 we have experienced continuing double digit growth in the messaging activity; although the messaging growth rate is stabilizing as compared to the prior roll out periods.
 
During this entire three month period we have exceeded total monthly messaging volume thresholds for the top tier pricing. Pricing for messaging levels at this tier minimum and above are at a reduced per message rate. AT&T is also applying the top tier rate retroactively to the lower volume tiers as well.
 
Future additional messaging growth in the top tier volume thresholds will pace as increased revenue from our AT&T programs for Walmart.
 
Years Ended September 30, 2010 and September 30, 2009
 
During the fiscal year ending September 30, 2010, we had revenues of $0.8 million and experienced a net operating loss of $4.7 million and a net loss of $12.2 million. 
 
During the fiscal year ending September 30, 2009, we had revenues of $0.8 million and experienced a net operating loss of $22.3 million and a net loss of $13.5 million. 
 
The major difference in our net operating loss for the respective fiscal years was the $17.7 million decrease in our operating expenses to $5.5 million in fiscal 2010 as compared to $23.2 million in fiscal 2009. The decrease in operating expenses in 2010 over 2009 was primarily driven by a $11.5 million decrease in non-employee stock-based compensation ($1.2 million versus $12.7 million) and the decrease in impairment loss of $5.4 million ($0.2 million versus $5.6 million). Almost all the $12.7 million of non-employee stock-based compensation in fiscal 2009 is for non-cash amortization of the original valuation of compensatory warrants we issued in October 2008 to Peltz Capital Management, LLC. In addition, we decreased our employee salaries in 2010 as compared to 2009 by $0.4 million ($1.1 million versus $1.5 million).
 
Our net loss was $1.3 million lower in fiscal 2010 than in fiscal 2009 ($12.2 million versus $13.5 million). The difference is far less than the difference in the size of the two years’ net operating losses, because of two non-operating items. In fiscal 2010 we recognized a loss on the cancellation of debt totaling $2.8 million. Of the $2.8 million loss, $1.8 million was recognized on the issuance of 1.6 million shares of our common stock in cancellation of $1.1 million of notes payable, and $0.9 million was recognized through the issuance of 1 million shares of our common stock to a note holder in complete settlement of the debt due it. The losses were recognized because the fair market value of the shares we issued exceeded the total debt cancelled. The other non-operating item that affected our net loss was the change in the fair market value of our derivative liability relating to the Peltz warrants. The net change in value in 2010 compared to 2009 was a negative $13 million. The Company recognized a loss of $4 million on the net change in the fair value of the derivative liability during 2010 and recognized a net gain of $9 million on the net change in the fair value of the derivative liability in 2009. Our derivative liability pertains to our requirement to register the underlying shares associated with this warrant grant pursuant to ASC Topic 815-40, formerly EITF Issue No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.” We value the warrant using the Black-Scholes option valuation model. When the price of our stock goes down, the value of our derivative liability goes down, decreasing net loss (although not affecting cash).   
 
Also, our interest expense increased $0.3 million to $0.8 million in fiscal 2010. The major difference in interest expense pertained to the non-cash amortization of the beneficial conversion feature (“BCF”) inherent in $0.5 million of convertible debt we issued to non-affiliates in fiscal 2010; there was no BCF amortization in fiscal 2009. We also recognized a BCF relating to the convertible debt due to our President and a company affiliated with him, but we charge the amortization of that BCF to equity because the underlying debt is due to a related party.   
 
 
 
 
Liquidity and Capital Resources
 
Six-Month Period Ended March 31, 2011
 
During the six-month period ending March 31, 2011 cash used in operating activities totaled $853,212; cash used in investing activities totaled $407,074 of which $292,219 comprised the capitalized internal costs of our software development. Cash used during the same six-month period for financing activities was $506,315 and included $320,000 prepaid on a related party debt and $175,000 was paid on our patent acquisition obligation.  We had an overall net decrease in cash for the period of $1,766,601; where the beginning balance for the period was $4,040,169, the cash balance at the end of the period was $2,273,568.
 
During the six-month period ending March 31, 2010 cash used in operating activities totaled $2,070,998; cash used in investing activities totaled $1,145,956, primarily for capitalized software development costs of $275,359 and for patent and patent application purchase costs of $830,597; cash provided by financing activities totaled $3,576,500  primarily from proceeds from the issuance of shares of our common stock and a convertible note. We had an overall net increase in cash for the 6 month period of $359,546; the beginning balance for the period was $259,558 and the cash balance at the end of the period was $619,104.
 
Year Ended September 30, 2010
 
At September 30, 2010, we had total assets of $6.5 million and total liabilities of $1 million; while at September 30, 2009, we had total assets of $2.4 million (although that included $1.1 million which was the unamortized portion of the fair value of the warrants issued in October 2008 to our special advisor that was classified to prepaid expense) and total liabilities of $11 million. The fair value of the warrant had been completely amortized by the end of fiscal 2010. Also, of our total liabilities at September 30, 2009 of $11 million, $4.7 million pertained to the derivative liability on the above indicated warrant.
 
Our cash balance increased by $3.8 million during the 12 months ended September 30, 2010.
 
From September 2009 through January 2010, we raised $1.8 million by issuing approximately 5.6 million shares of common stock and 6.25 million common stock warrants (exercisable for $1.00 or $1.50 per share cash) to Mike Robert.
 
In January 2010 we raised approximately $0.5 million by issuing approximately 1.5 million shares of common stock and approximately 0.5 million common stock warrants (exercisable for $1.50 per share cash) to Zanett Opportunity Fund Ltd. and its affiliates. We paid a $25,000 placement agent fee in connection therewith.
 
From January through May 2010, we raised approximately $3.6 million by issuing approximately 9.7 million shares of common stock to 38 accredited investors. We compensated our placement agent, Gar Wood Securities, LLC, and its affiliates, with approximately 0.1 million common stock warrants and approximately $0.1 million cash in connection therewith. (We also had issued 1.0 million common stock warrants to that firm in January 2010 upon the inception of our relationship with it.) In addition, we compensated our placement agent Financial West Investment Group, Inc., and its affiliates, with approximately 55,000 common stock warrants and approximately $29,000 cash in connection therewith.
 
Also, in July 2010, we raised $6.2 million by issuing approximately 8.2 million shares of common stock and approximately 2.1 million common stock warrants (exercisable for $1.00 per share cash until July 2013) to 27 accredited investors. The offering was structured as the sale of approximately 2.1 million detachable units (each consisting of four shares and one warrant) at $3.00 per unit. We compensated our placement agent in the offering, Gar Wood Securities, LLC, and its affiliates, with approximately 0.2 million of the common stock warrants and approximately $0.2 million cash.
 
We also resolved a significant amount of outstanding debt in and shortly before fiscal 2010.
 
In September 2009, an individual investor converted a $0.5 million convertible note, which we had issued to him in August 2009, into common shares at a rate of $0.95 per share.
 
In March 2010 we issued a $0.5 million convertible note and 1.0 million common stock warrants to Mike Robert in exchange for $0.5 million, but in August 2010 he converted the note into common shares at a rate of $0.37 per share.
 
In March and May 2010, we repaid the final $0.8 million (plus accrued interest) of our 2008 secured loan from Fort Ashford Funds, LLC. (In addition, we issued 1,000,000 shares of common stock to Fort Ashford Funds, LLC in September 2010 in connection with a settlement agreement.)
 
 
 
 
 
In June 2010, approximately $3.0 million of obligations owed to Anthony Macaluso, his affiliate, Activate, Inc., director James Cassina and others were converted into common shares. Also in June 2010, we modified approximately $0.8 million of indebtedness to Anthony Macaluso and his affiliate Activate, Inc. by extending its due date to June 27, 2011 at a reduced interest rate of 1% per annum, and with a conversion price of $0.37 per share.
 
Our only outstanding indebtedness at the end of the 2010 fiscal year was the approximately $0.8 million of indebtedness to Anthony Macaluso and his affiliate Activate, Inc., with a due date of June 27, 2011, an interest rate of 1% per annum, and a conversion price of $0.37 per share.
 
The future of our liquidity/capital resources position will hinge on how soon, if ever, our operations become profitable.
 
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 our financial statements.  These are important accounting policies that require management’s most difficult, subjective judgments.
 
Revenue Recognition
 
Under the terms of various service and licensing agreements, we receive a fee, net of revenue sharing and other costs, each time our application is utilized by the end user.  Revenue is recognized in the month the application is utilized.  We record our revenue pursuant to Accounting Standards Codification (“ASC”) Topic 605-45, formerly EITF Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent.”
 
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, formerly EITF Issue No. 96-18, “Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”, and formerly EITF 00-18, “Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other Than 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, nonforfeitable 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 nonforfeitable 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, this feature is characterized as a beneficial conversion feature (“BCF”).  We record a BCF as a debt discount pursuant to ASC Topic 470-20, formerly EITF Issue No. 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingency Adjustable Conversion Ratio,” and formerly EITF Issue No. 00-27, “Application of EITF Issue No. 98-5 to Certain Convertible Instrument(s).”  In those circumstances, the convertible debt will be recorded net of the discount related to the BCF.  We amortize the discount to interest expense 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, formerly Statement of Financial Accounting Standards No. 86, “Accounting for the Cost of Computer 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, which is generally two years.
 
 
 
 
Goodwill and intangible assets
 
We account for goodwill and other intangible assets in accordance with the provisions of ASC 350, Intangibles, Goodwill and Other Assets. We are required to review goodwill at least annually for impairment or, more frequently if events and circumstances indicate goodwill might be impaired. We perform our annual review at the end of each fiscal year. We are required to recognize an impairment loss to the extent that our goodwill carrying amount exceeds fair value. Evaluating any impairment to goodwill involves significant management estimates.
 
Fair Value Measurement
 
We adopted ASC Topic 820-10, formerly Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”, at the beginning of fiscal year 2009 to measure the fair value of certain of our financial assets and liabilities required to be measured on a recurring basis.  The adoption of Topic 820-10 did not impact our consolidated financial position or results of operations.  Topic 820-10 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  Topic 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 on the measurement date.  A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability.  The three levels of the fair value hierarchy under Topic 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.  We have no Level 1 assets or liabilities.
 
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.
 
We have no Level 2 assets.  Our Level 2 liabilities consist of our obligation on the acquisition of certain patents totaling $152,031 and our convertible debt to our president and a company wholly owned by him totaling $364,198. We determine the fair value of these obligations based on the effective yields and maturities of similar obligations.  
 
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.  We have no Level 3 assets or liabilities.
 
Recent Accounting Pronouncements
 
In January 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2011-01 (ASU 2011-01) Receivables (Topic 310): “Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings” in Update No. 2010-20.  ASU 2011-01 temporarily delays the effective date of the disclosures about troubled debt restructurings.  The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated.  Currently, the guidance is anticipated to be effective for interim and annual period ending after June 15, 2011.  We do not expect the provisions of ASU 2011-01 to have a material effect on our financial position, results of operations or cash flows.
 
Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or are not expected to be significant to our financial statements.
 
 

 
 
MANAGEMENT
 
The following persons are our executive officers and directors, and hold the offices set forth opposite their names.
 
Name
  
Age
 
Position
Anthony Macaluso
  
48
  
Chairman
James Orsini
 
48
 
Chief Executive Officer, President, Chief Financial Officer and Director
Richard Siber
  
49
  
Director
James Darcey
  
42
  
Senior Vice President
 
Our Board of Directors consists of four members. None of our directors receive any cash remuneration for acting as such. Directors may, however be reimbursed their expenses, if any, for attendance at meetings of the Board of Directors.
 
No family relationships exist between any of our present directors and officers.
 
The following is a brief account of the business experience during the past five years of each of our directors and executive officers:
 
Anthony Macaluso became our President, Chief Executive Officer, Chairman, and principal shareholder upon the closing of the acquisition of Single Touch Interactive, Inc. He founded Interactive in 2002 and from that time to May 2011, has had primary responsibilities for our operations and business.  On May 16, 2011, he stepped down as our Chief Executive Officer, President and Chief Financial Officer, but continued on as our executive Chairman.
 
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, and 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).
 
James Darcey became our Senior Vice President of Carrier Relations following the closing of the acquisition of Single Touch Interactive, Inc. Mr. Darcey is primarily responsible for business development. Mr. Darcey has been with Single Touch since November 2003. Mr. Darcey graduated from the University of Arkansas at Little Rock with a bachelor’s degree in finance in 1991. He also received a master’s degree in business administration from the University of Arkansas at Fayetteville in 1994.
 
 
 
 
 
 
 
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, 2010 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, 2010 and
 
 
 
all individuals who served as executive officers of ours at any time during the fiscal year ended September 30, 2010 and received annual compensation during the fiscal year ended September 30, 2010 in excess of $100,000.
 
SUMMARY COMPENSATION TABLE
 
Position
  
Year
 
  
Salary ($)
 
  
Bonus ($)
 
  
Stock
Awards ($)
 
  
Option
Awards ($)
 
  
Total ($)
 
Anthony Macaluso
  
 
2010
  
  
 
275,000
  
  
 
0
  
  
 
0
  
  
 
3,140
  
  
 
278,140
  
Chief Executive and Financial Officer
  
 
2009
  
  
 
275,000
  
  
 
0
  
  
 
0
  
  
 
3,140
  
  
 
278,140
  
James S. Darcey
  
 
2010
  
  
 
180,000
  
  
 
0
  
  
 
0
  
  
 
12,560
  
  
 
192,560
  
Senior Vice President-Carrier Relations
  
 
2009
  
  
 
180,000
  
  
 
0
  
  
 
0
  
  
 
12,560
  
  
 
192,560
  
 
Employment Agreements and Benefits
 
As of September 30, 2010, none of our officers or employees had written employment agreements, and all of our officers and employees were employees at will. 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. Similarly, as of September 30, 2010 we had no contracts, agreements, plans or arrangements, whether written or unwritten, that provide for payments to the named executive officers or any other persons following, or in connection with, the resignation, retirement or other termination of a named executive officer or a change in control of us or a change in a named executive officer’s responsibilities following a change in control.
 
In 2011, we entered into employment agreements with James Orsini and Anthony Macaluso.  See “Management--Employment/Severance/Change-in-Control Agreements.”
 
Equity Compensation
 
The following table reflects information for our executive officers named in the Summary Compensation Table, effective September 30, 2010. In each case, the indicated stock option was granted under the 2008 Stock Option Plan on July 28, 2008 and vested three years before the indicated expiration date.
 
 
 
 
 
 
 
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
  
 
6,000,000
50,000
50,000
  
  
  
  
 
—  
—  
—  
  
  
  
  
 
1.375
1.375
1.375
  
  
  
  
 
7/28/2011
7/28/2012
7/28/2013
  
  
  
                                 
James Darcey
  
 
200,000
200,000
  
  
  
 
—  
—  
  
  
  
 
1.375
1.375
  
  
  
 
7/28/2012
7/28/2013
  
  
 
The following table reflects information for equity compensation plans and arrangements for any and all directors, officers, employees and/or consultants through September 30, 2010. Warrants initially granted by Interactive are excluded.
 
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
8,675,000
  
$
1.375
  
  
 
125,000
  
Equity compensation plans not approved by security holders
11,457,500
  
$
0.080
  
  
 
1,417,500
  
Total
20,132,500
  
$
0.649
  
  
 
1,542,500
  
 
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. 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.
 
The 10,875,000 shares shown as underlying in the “Equity compensation plans not approved by security holders” row consist of shares underlying a warrant which we granted to Peltz Capital Management, LLC in October 2008 as compensation for consulting services; the warrant agreement was amended by a September 2010 settlement and release agreement, pursuant to which 7,000,000 warrants will be returned to us unless certain terms of the release and settlement agreement are violated.
 
A summary of recent overall activity in our stock option and compensatory warrants programs is as follows:
 
 
  
Number of
shares
   
Weighted average
exercise price
 
Outstanding - September 30, 2007
  
 
4,750,000
  
 
$
0.71
  
Granted
  
 
10,675,000
  
   
1.12
  
Exercised
  
 
—  
  
   
—  
  
Canceled
  
 
—  
  
   
—  
  
Outstanding - September 30, 2008
  
 
15,425,000
  
 
$
0.99
  
Granted
  
 
11,000,000
  
   
0.08
  
Exercised
  
 
(40,000
   
0.01
  
Canceled
  
 
—  
  
   
—  
  
Outstanding - September 30, 2009
  
 
26,385,000
  
 
$
0.61
  
Granted
  
 
1,325,342
  
   
1.00
  
Exercised
  
 
(400,000
   
(0.05
Canceled
  
 
—  
  
   
—  
  
Outstanding - September 30, 2010
  
 
27,310,342
  
 
$
0.64
  
 
Of these 27,310,342 options and compensatory warrants outstanding at September 30, 2010, all were exercisable on that date.
 
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.
 
In December 2010, pursuant to the 2010 Plan the Board granted 9,655,000 options to employees, outside directors and consultants at an exercise price of $0.90 per share expiring three years from the date of the grant.  See also the following subsection.
 
In May and June 2011, pursuant to the 2010 Plan, the Board granted 10,500,000 options, including 9,750,000 options to officers and directors.  See also the following subsection.
 
 
 
 
 
Employment / Severance / Change-in-Control Agreements
 
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 is entitled to 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.
 
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).
 
Director Compensation
 
There are currently no regular cash compensation arrangements in place for members of the Board of Directors acting as such. Directors may however be reimbursed their expenses, if any, for attendance at meetings of the Board of Directors.
 
 
 
 
 
 
The following table sets forth compensation received by our directors in fiscal year 2010.
 
Name
  
Fees earned or
paid in cash ($)
 
  
Stock
awards ($)
 
  
Option
awards ($)
   
All other
compensation ($)
 
  
Total ($)
 
Anthony Macaluso
  
 
0
  
  
 
0
  
  
 
3,140
(1)(2)
   
0
  
  
 
3,140
  
James Cassina
  
 
0
  
  
 
0
  
  
 
3,140
(1)
   
0
  
  
 
3,140
  
Laurence Dunn
  
 
0
  
  
 
0
  
  
 
3,140
(1)
   
0
  
  
 
3,140
  
Richard Siber
  
 
0
  
  
 
0
  
  
 
3,140
(1)
   
0
  
  
 
3,140
  
 
(1)
In fiscal 2008, we granted to each respective director (as such) 100,000 options to purchase common stock at price per share of $1.375. 50,000 of these options vested on July 28, 2009 and 50,000 of these options vested on July 28, 2010. In fiscal 2010, $3,140 was recognized as compensation to each respective director on the July 2010 vesting of the second 50,000 of the options.
(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.
 
 
RELATED PARTY TRANSACTIONS
 
Cassina 2008 Investment
 
In 2008, our then-director James Cassina and his affiliated company Core Energy Enterprises, Inc., together with 21 other accredited investors, participated in our private placement of $3,300,000 of convertible promissory notes. Mr. Cassina and Core Energy Enterprises, Inc. invested a total of $1,150,000, on the same terms as the other investors. Later in 2008, upon the completion of the reverse merger, the notes were automatically converted into our common stock, Class A Warrants and Class B Warrants. Mr. Cassina and Core Energy Enterprises, Inc. received a total of 920,000 shares of common stock, 920,000 Class A Warrants and 920,000 Class B Warrants in this conversion.
 
Macaluso 2008 Compensation
 
On July 15, 2008, Single Touch Interactive, Inc. entered into an employment agreement with Anthony Macaluso, covering his services through December 31, 2008. Under the agreement, Anthony Macaluso received $275,000 in salary during the ensuing portion of 2008 and received (on July 24, 2008) 1,500,000 shares of common stock as compensation for services.
 
Macaluso/Affiliates 2008 Indebtedness Consolidation and Restatement
 
Before the reverse merger of July 24, 2008, Anthony Macaluso made certain loan advances to Single Touch Interactive, Inc. Initially, the outstanding balance bore interest at a rate of 8% per annum and was to become due and payable in December 2010. On July 24, 2008, we and he entered into a modification of the debt arising from such loan advances, accrued interest and $893,750 of accrued compensation, evidencing it by a convertible promissory note with a principal amount of $2,319,512, bearing interest at an annual rate of 8%, with interest payable monthly. The principal balance was payable on demand, and if no demand was made the note was to mature on July 15, 2010. The note was convertible at the holder’s option into shares of our common stock at $0.08 per share.
 
Before the reverse merger of July 24, 2008, Activate Sports, LLC, which is an affiliate of Anthony Macaluso, made certain loan advances to Single Touch Interactive, Inc. Initially, the outstanding balance bore interest at a rate of 8% per annum and was to become due and payable in December 2010. On July 24, 2008, we and Activate Sports, LLC entered into a modification of the debt arising from such loan advances and accrued interest, evidencing it by a convertible promissory note with a principal amount of $561,558, bearing interest at an annual rate of 8%, with interest payable monthly. The principal balance was payable on demand, and if no demand was made the note was to mature on July 15, 2010. The note was convertible at the holder’s option into shares of our common stock at $0.08 per share.
 
 
 
 
Before the reverse merger of July 24, 2008, Activate, Inc., which is an affiliate of Anthony Macaluso, made certain loan advances to Single Touch Interactive, Inc. Initially, the outstanding balance bore interest at a rate of 8% per annum and was to become due and payable in December 2010. On July 24, 2008, we and Activate, Inc. entered into a modification of the debt arising from such loan advances and accrued interest, evidencing it by a convertible promissory note with a principal amount of $73,445, bearing interest at an annual rate of 8%, with interest payable monthly. The principal balance was payable on demand, and if no demand was made the note was to mature on July 15, 2010. The note was convertible at the holder’s option into shares of our common stock at $0.08 per share.
 
On September 16, 2008, Activate Sports, LLC exercised its right to convert the full principal balance due it by the Company of $561,558 into 7,019,475 shares of common stock.
 
Dunn Warrants for Consulting 2007/2008
 
In July 2007 and June 2008 Single Touch Interactive, Inc. issued common stock warrants to Laurence Dunn, who later became a Director, as consideration for consulting services as a strategic advisor performing corporate planning, strategic consulting projects, mergers and acquisition advice, introduction to institutional groups, financial engineering services and related services. The warrants were for the purchase of 500,000 shares of common stock at a price of $0.02 per share and for the purchase of 1,000,000 shares of common stock at an exercise price of $0.01 per share, respectively. Mr. Dunn has transferred 52,500 of the $0.02 warrants and exercised all of the $0.01 warrants. The remaining 447,500 $0.02 warrants are still outstanding.
 
Siber Consulting
 
Single Touch engages Richard Siber, a director, on a cash basis for technical and marketing consulting services through Siber Consulting. Mr. Siber beneficially received a total of $80,000 in cash compensation for the year ended September 30, 2008.
 
StreamWorks 2009 Intellectual Property Transaction (Macaluso/Activate)
 
On June 2, 2009, we entered into an Intellectual Property Rights Purchase and Transfer Agreement with StreamWorks Technologies, Inc., a Delaware corporation (“StreamWorks”), pursuant to which we acquired a portfolio of 2 US patents and 14 patent applications related primarily to the management, streaming and routing of electronic media. In consideration for the portfolio, StreamWorks received 3,666,667 common shares of the Company and warrants to purchase 1,833,334 shares of our common stock at an exercise price of $2.30 per share for a period of two years. In addition, StreamWorks executives Floyd Bowen and Charles Jennings entered into non-compete agreements in our favor not to compete with us in the field of mobile Abbreviated Dial Codes or mobile Streaming Dynamic Advertising for three years. Shortly before this transaction, Activate, Inc., an affiliate of Anthony Macaluso, sold 1,200,000 shares of our common stock, which it owned, to three major investors in StreamWorks for $1,200,000.
 
On March 30, 2010, an additional US patent, for “System and Method for Streaming Media,” was issued to us, based on a patent application in this portfolio.
 
Dunn 2009-2011 Consulting
 
We engaged our then- director Laurence Dunn as a consultant on financial matters, at a rate of $15,000 per month, from December 1, 2009 through March 2011, and at a rate of $10,000 per month for April 2011.
 
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, two US patents and one foreign patent 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 ex-wife 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.
 
Ongoing Macaluso Related-Party Arrangements
 
Anthony Macaluso is currently a majority shareholder of Soapbox Mobile, Inc., which provided the use of servers, certain other equipment, fixtures and furniture, an analytic platform and other software, and certain service accounts to us from February 2008 through June 2010 at a monthly rate of $4,000 and has been providing them to us since July 1, 2010 at a monthly rate of $7,500.
 
Activate, Inc., an affiliate of Anthony Macaluso, has licensed a wireless application to Single Touch Interactive, Inc., in return for a 3% royalty.
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
The following table sets forth, as of June 29 , 2011, 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., 2235 Encinitas Blvd., Suite 210, Encinitas, CA 92024. Shares of Common Stock subject to options, warrants, or convertible notes currently exercisable or convertible or exercisable or convertible within 60 days after June 29 , 2011 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)
  
 
41,070,310
  
  
 
30.3
%
Richard Siber (2)
  
 
3,100,000
  
  
 
2.3
James Orsini
   
400,000
     
0.3
%
Medical Provider Financial Corporation IV (3)
  
 
12,700,000
  
  
 
9.8
Peltz Capital Management, LLC (4)
  
 
9,825,000
  
  
 
7.1
Nicole Macaluso (1)(5)
  
 
26,316,094
  
  
 
20.3
Mike Robert (6)
  
 
17,570,070
  
  
 
12.8
James Darcey (7)
  
 
2,052,000
  
  
 
1.6
Officers and Directors as a Group (5 persons) (8)
  
 
46,622,310
  
  
 
33.6
 
(1)
Includes 4,250,000 shares underlying stock options, 1,250,000 shares underlying warrants. Also includes 3,829,309 shares owned by Dan Ayala, which Mr. Macaluso has the right to vote pursuant to a proxy. Also includes 22,016,094 shares owned directly or as custodian by Nicole Macaluso, which Mr. Macaluso has the right to vote pursuant to a proxy. Mr. Macaluso owns 9,743,782 shares outright in his own name. Mr. Macaluso disclaims beneficial ownership of the shares owned by Dan Ayala and of the shares owned by Nicole Macaluso.
(2)
Includes 3,100,000 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 for Medical Provider Financial Corporation IV.
(4)
The address for Peltz Capital Management, LLC is 280 Park Avenue, New York, NY 10017. Includes 9,825,000 shares underlying warrants.
(5)
The address for Ms. Macaluso is P. O. Box 1318, Rancho Santa Fe, CA 92067. Includes 3,050,000 shares underlying stock options and 1,250,000 shares underlying warrants. Ms. Macaluso owns 21,766,094 shares outright in her own 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 8,250,000 shares underlying warrants issued by us and 550,000 shares underlying contractual rights to purchase granted by third parties. Mr. Robert owns 8,995,070 shares outright and in the name of his retirement account.
(7)
Includes 1,900,000 shares underlying stock options.
(8)
Includes Messrs. Macaluso, Siber, Orsini and Darcey.
 
 
SELLING STOCKHOLDERS
 
This prospectus covers offers and sales of up to 12,180,642 shares of our common stock which may be offered from time to time by the selling stockholders identified in this prospectus.
 
The table below identifies the selling stockholders and shows the number of shares of common stock beneficially owned by each of the selling stockholders before and after this offering, and the numbers of shares offered for resale by each of the selling stockholders. Our registration of these shares does not necessarily mean that any selling stockholder will sell all or any of their 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 the selling stockholders and that no additional shares of common stock will be bought or sold by any selling stockholders. No estimate can be given as to the number of shares that will be held by the selling stockholders after completion of this offering because the selling stockholders 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.
 
 
 
 
The 9,698,341 shares to be sold hereunder by the selling stockholders other than Laurence Dunn, Gar Wood Securities, LLC, Jackson E. Spears, Constance A. Schadewitz and William R. Gregozeski were issued by us, or underlie warrants issued by us , in July 2010 in a private placement to the respective selling stockholders or their predecessors; we issued 8,225,339 shares (7,642,006 of which are being registered here) plus warrants overlying 2,056,334 shares which are being registered here.  Each detachable unit consisting of four shares and one warrant was sold for $3.00.  The warrants are exercisable for $1.00 per share cash and expire on July 15, 2013.
 
The 1,212,500 shares to be sold hereunder by Laurence Dunn include 447,500 shares underlying warrants, with an exercise price of $0.02 per share, which were issued to him on July 25, 2007 by our predecessor Single Touch Interactive, Inc., in connection with his consulting services to that company.  Mr. Dunn was until recently a Director of Single Touch Systems Inc.
 
The 1,269,801 shares to be sold hereunder by Gar Wood Securities, LLC and its affiliates Jackson E. Spears, Constance A. Schadewitz and William R. Gregozeski underlie warrants issued to them on January 1, May 10 and July 23, 2010 in connection with placement and financial advisory services rendered by Gar Wood Securities, LLC.  The warrants are exercisable for $1.00 per share cash and expire on December 31, 2012 (as to 1,000,000 warrants), on May 9, 2013 (as to 100,273 warrants) and on July 22, 2013 (as to 169,528 warrants).
 
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
 
%
 
Kenneth R. Burns (2)
 
504,503
 
*
 
166,666
 
337,837
 
*
 
C. Kenneth Shank (3)
 
301,810
 
*
 
166,666
 
135,144
 
*
 
Stephen D. Baksa (4)
 
4,749,750
 
3.7%
 
500,000
 
4,249,750
 
3.3%
 
Daniel D. Blackwell, Jr. and Carla Falcon Blackwell (5)
 
166,666
 
*
 
166,666
 
0
 
*
 
ELAN 2008 GRAT II, Edward M. Giles, Grantor (6)
 
5,877,778
 
4.5%
 
416,670
 
2,127,773
 
1.6%
 
Isles Capital L.P. (6)
 
5,877,778
 
4.5%
 
500,000
 
2,127,773
 
1.6%
 
Edward M. Giles (6)
 
5,877,778
 
4.5%
 
1,166,670
 
2,127,773
 
1.6%
 
Edward M. Giles Roth IRA #3 (6)
 
5,877,778
 
4.5%
 
1,666,665
 
2,127,773
 
1.6%
 
John S. Concklin (7)
 
416,669
 
*
 
83,335
 
333,334
 
*
 
H.S. FitzGibbon II (8)
 
166,667
 
*
 
83,334
 
83,333
 
*
 
Mark T. Donahoe (9)
 
520,270
 
*
 
250,000
 
270,270
 
*
 
Superius Securities Group, Inc. Profit Sharing Plan (10)
 
5,516,667
 
4.3%
 
2,500,000
 
3,016,667
 
2.3%
 
Robert V. Chiarello (11)
 
790,540
 
*
 
250,000
 
540,540
 
*
 
Sean M. Crowley (12)
 
223,334
 
*
 
223,334
 
0
 
*
 
James Crowley (13)
 
63,333
 
*
 
33,333
 
30,000
 
*
 
Marshall & Ilsley Trust Company, N.A. (14)
 
513,375
 
*
 
513,375
 
0
 
*
 
Band & Co. (15)
 
104,875
 
*
 
104,875
 
0
 
*
 
Rob Damron (16)
 
6,750
 
*
 
6,750
 
0
 
*
 
Gemini Master Fund, Ltd. (17)
 
193,335
 
*
 
193,335
 
0
 
*
 
Hudson Bay Master Fund LP (18)
 
33,333
 
*
 
33,333
 
0
 
*
 
Health Alliance Network, Inc. Profit Sharing Plan FBO Anthony V. Milone (19)
 
345,902
 
*
 
35,000
 
270,902
 
*
 
Anthony V. Milone (20)
 
345,902
 
*
 
40,000
 
270,902
 
*
 
Triad Petroleum Inc. Defined Benefit Pension Plan (21)
 
40,000
 
*
 
40,000
 
0
 
*
 
Matthew Strobeck (22)
 
83,335
 
*
 
83,335
 
0
 
*
 
Cranshire Capital LP (23)
 
16,667
 
*
 
16,667
 
0
 
*
 
Iroquois Master Fund Ltd. (24)
 
41,666
 
*
 
41,666
 
0
 
*
 
Margery Scotti (25)
 
1,416,666
 
1.1%
 
250,000
 
1,166,666
 
*
 
Gavin Scotti (26)
 
436,936
 
*
 
166,666
 
270,270
 
*
 
Laurence Dunn (27)
 
2,812,500
 
2.2%
 
1,212,500
 
1,600,000
 
1.2%
 
Gar Wood Securities, LLC (28)
  126,980   *   126,980   0   *  
Jackson E. Spears (29)
  480,941   *   480,941   0   *  
Constance A. Schadewitz (30)
  330,940   *   330,940   0   *  
William A. Gregozeski (31)
  330,940   *   330,940   0   *  
TOTAL
  26,613,128   19.7 % 12,180,642   14,432,486   11.0 %
 
 
* Less than 1%.
 
 
 
 
 
(1)
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities.  The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 under the Securities Exchange Act and is not necessarily indicative of beneficial ownership for any other purpose.  Applicable percentage ownership is based on 129,609,892 shares of common stock outstanding as of June 29 , 2011.  In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of such person’s common stock subject to options, warrants and convertible promissory notes exercisable or convertible within 60 days after June 29 , 2011 are deemed to be outstanding.  Except as otherwise noted, we believe that each of the stockholders named in the table has sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to applicable community property laws.  The information with respect to beneficial ownership is based upon record ownership data provided by our transfer agent, information as supplied or confirmed by selling stockholders or based upon our actual knowledge.
 
(2)
Includes 33,333 shares underlying warrants.
 
(3)
Includes 33,333 shares underlying warrants.
 
(4)
Stephen D. Baksa is the beneficial owner of the securities held by himself (3,736,418 outstanding shares and 100,000 shares underlying warrants), as Trustee to Brian S. Baksa Trust (456,666 outstanding shares) and as Trustee to Sarah Elizabeth Baksa Trust (456,666 outstanding shares).
 
(5)
Includes 33,333 shares underlying warrants.
 
(6)
Edward M. Giles is the beneficial owner of the securities held by himself (1,481,106 outstanding shares and 233,334 shares underlying warrants), Edward M. Giles Roth IRA #3 (1,333,332 outstanding shares and 333,333 shares underlying warrants), ELAN 2008 GRAT II, Edward M. Giles, Grantor (333,336 outstanding shares and 83,334 shares underlying warrants), Isles Capital, L.P. (670,270 outstanding shares and 100,000 shares underlying warrants), December 2009 Five Year GRAT (833,333 outstanding shares), Edward M. Giles Roth IRA #5 (200,000 outstanding shares) and Edward M. Giles IRA #2 (276,400 outstanding shares).
 
(7)
Includes 16,667 shares underlying warrants.
 
(8)
Includes 16,667 shares underlying warrants.
 
(9)
Includes 50,000 shares underlying warrants.
 
(10)
Includes 500,000 shares underlying warrants.  The natural person with voting and investment control over the entity’s beneficially-owned shares is James Hudgins.
 
(11)
Includes 50,000 shares underlying warrants.
 
(12)
Includes 66,667 shares underlying warrants.
 
(13)
Includes 33,333 shares underlying warrants.
 
(14)
Includes 102,675 shares underlying warrants.  The natural person with voting and investment control over the entity's beneficially-owned shares is Joseph Frohna.
 
(15)
Includes 20,975 shares underlying warrants.  The natural person with voting and investment control over the entity's beneficially-owned shares is Joseph Frohna.
 
(16)
Includes 1,350 shares underlying warrants.
 
(17)
Includes 66,667 shares underlying warrants.  The natural person with voting and investment control over the entity’s beneficially-owned shares is Steven Winters.
 
(18)
Includes 33,333 shares underlying warrants.  The natural person with voting and investment control over the entity’s beneficially-owned shares is Sander Gerber.  Sander Gerber disclaims beneficial interest over these securities.
 
(19)
Includes 7,000 shares underlying warrants. Includes 149,568 shares and 8,000 warrants held by Anthony V. Milone.
 
(20)
Includes 8,000 shares underlying warrants. Includes 148,000 shares and 7,000 warrants held by Health Alliance Network, Inc. Profit Sharing Plan.
 
(21)
Includes 8,000 shares underlying warrants.  The natural person with voting and investment control over the entity’s beneficially-owned shares is Joseph Di Mauro.
 
(22)
Includes 16,667 shares underlying warrants.
 
(23)
Includes 16,667 shares underlying warrants.  The natural person with voting and investment control over the entity’s beneficially-owned shares is Keith Goodman.
 
(24)
Includes 8,333 shares underlying warrants.  The natural person with voting and investment control over the entity’s beneficially-owned shares is Joshua Silverman.
 
(25)
Includes 50,000 shares underlying warrants.
 
(26)
Includes 33,333 shares underlying warrants.
 
(27)
Includes 447,500 shares underlying warrants and 1,600,000 shares underlying stock options.
 
(28)
Includes 126,980 shares underlying warrants.  The natural person with voting and investment control over the entity’s beneficially-owned shares is Robert Jersey.  Excludes shares beneficially-owned by Jackson E. Spears, Constance A. Schadewitz and William R. Gregozeski.
 
(29)
Includes 480,941 shares underlying warrants.
 
(30)
Includes 330,940 shares underlying warrants.
 
(31)
Includes 330,940 shares underlying warrants.
 
DESCRIPTION OF CAPITAL STOCK
 
General Background
 
Our authorized capital stock currently consists of 200 million shares of common stock, $0.001 par value, and 5 million shares of preferred stock, $0.0001 par value.
 
As of March 31, 2011, we had issued and outstanding 128,222,670 of shares of common stock, held by 275 stockholders of record. In addition, as of March 31, 2011, we had outstanding options to acquire 18,330,000 shares of common stock, outstanding warrants to acquire 37,836,820 shares of common stock and convertible debt convertible into 1,268,060 shares of common stock.
 
Common Stock
 
Except as required by law, holders of our common stock are entitled to vote on all matters as a single class, and each holder of common stock is entitled to one vote for each share of common stock owned. Holders of common stock do not have cumulative voting rights.
 
 
 
 
 
Holders of our common stock are entitled to receive ratably any dividends that may be declared by the board of directors out of legally available funds, subject to any preferential dividend rights of any outstanding preferred stock. Upon any liquidation, dissolution, or winding up of Single Touch Systems, holders of our common stock are entitled to share ratably in all assets remaining available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock.
 
Holders of our common stock have no preemptive, subscription, redemption or conversion rights. Our outstanding shares of common stock are validly issued, fully paid and nonassessable. The rights, preferences and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of holders of shares of any series of preferred stock which we may designate and issue in the future without further stockholder approval.
 
Our common stock is not currently traded on any national securities exchange and instead is quoted on the OTC Bulletin Board under the symbol “SITO.”
 
Preferred Stock
 
We are authorized to issue 5,000,000 shares of “blank check” preferred stock, $0.0001 par value per share, none of which as of the date hereof is designated or outstanding. The Board of Directors is vested with authority to divide the shares of preferred stock into series and to fix and determine the relative rights and preferences of the shares of any such series. Once authorized, the dividend or interest rates, conversion rates, voting rights, redemption prices, maturity dates and similar characteristics of the preferred stock will be determined by the Board of Directors, without the necessity of obtaining approval of our stockholders.
 
The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of Single Touch Systems without further action by the stockholders and may adversely affect the market price of and voting, economic and other rights of holders of our common stock.
 
Warrants
 
The shares and exercise-price figures below reflect adjustments for any stock splits, reverse stock splits and stock dividends. Warrants issued by Single Touch Interactive, Inc. are now exercisable only for shares of Single Touch Systems Inc. common stock.
 
In 2005, Single Touch Interactive, Inc. issued to one consulting firm and to Jordan Schur warrants for the purchase of 5,000,000 shares of common stock at an exercise price of $1.00 per share. These warrants expire on July 15, 2015. In the merger, we assumed these warrants. These warrants do not have a net-exercise provision. Of these warrants, 1,250,000 have been canceled upon the issuance of 1,250,000 shares; and the remaining 1,250,000 warrants owned by Jordan Schur have been amended so that their exercise price is $0.70 per share (which exercise price can, however, at the discretion of our Board of Directors, be increased at the time of a proposed exercise to an exercise price no greater than the then market price per share).
 
From July 9, 2006 through July 23, 2007, in connection with issuances of convertible debt, Single Touch Interactive, Inc. issued to 20 note purchasers warrants for the purchase of 774,000 shares of common stock at an exercise price of $1.76 per share. Each respective warrant expires on the fifth anniversary of its date of grant. In the merger, we assumed these warrants. These warrants do not have a net-exercise provision.
 
On July 25, 2007, Single Touch Interactive, Inc. issued to 2 consultants (including Laurence Dunn, who became and until recently remained our director) warrants for the purchase of 1,000,000 shares of common stock at an exercise price of $0.02 per share. These warrants expire on July 25, 2012. In the merger, we assumed these warrants. These warrants do not have a net-exercise provision.
 
On July 24, 2008, in the merger, convertible notes which we had issued to 23 note purchasers were automatically converted into (among other things) 2,640,000 Class A Warrants and 2,640,000 Class B Warrants. The Class A Warrants had an exercise price of $1.60 per share and although they were scheduled to expire on January 23, 2010, our Board of Directors has extended the expiration date to July 23, 2011. The Class B Warrants have an exercise price of $2.05 per share and expire on July 23, 2011. The Class A Warrants and Class B Warrants do not have a net-exercise provision.
 
On October 30, 2008, in connection with a Non-Exclusive Special Advisory Services Agreement, we issued to Peltz Capital Management, LLC warrants initially exercisable for the purchase of 5,952,362 shares of common stock at an exercise price of $2.10 per share. These warrants have a net-exercise provision and expire on October 30, 2013. The number of underlying shares and the exercise price of these warrants were subsequently adjusted to 11,000,000 and $0.08,
 
 
 
 
respectively, under the terms of a September 29, 2010 settlement and release agreement, and as of the date of this prospectus 1,175,000 of such warrants have been satisfied via net-exercise; and (under the terms of the September 29, 2010 settlement and release agreement) the remaining number of warrants will be reduced by 7,000,000, subject to the elimination of such reduction if certain terms of the settlement and release agreement are violated.
 
From September 23, 2009 through January 7, 2010, in connection with the sale of common stock, we issued to Mike Robert warrants to purchase 6,250,000 shares; 1,250,000 at an exercise price of $1.50 expiring on September 23, 2009, 1,500,000 at an exercise price of $1.50 expiring on November 4, 2011, 1,750,000 at an exercise price of $1.00 expiring on December 11, 2011 and 1,750,000 at an exercise price of $1.00 expiring on January 7, 2012. These warrants do not have a net-exercise provision.
 
In January 2010, in connection with the sale of common stock, we issued to Zanett Opportunity Fund Ltd. and its affiliates warrants to purchase 510,811 shares at an exercise price of $1.50 per share that expire on January 11, 2012. These warrants do not have a net-exercise provision.
 
In January 2010, in connection with our engagement of it as a financial adviser, we issued to Gar Wood Securities, LLC and its affiliates  warrants to purchase 1,000,000 shares at an exercise price of $1.00 per share that expire in   December 2012 . Also in connection with the issuance of our common stock from January 2010 to May 2010, the compensation we paid to Gar Wood Securities, LLC as our placement agent included issuing to it and its affiliates 100,273 common stock warrants at an exercise price of $1.00 per share that expire on May   9, 2013. Also, in connection with these common stock issuances, the compensation we paid to Financial West Investment Group, Inc. as our placement agent included issuing to it and its affiliates 55,541 common stock warrants at an exercise price of $1.00 per share that expire on May 28, 2013. These warrants do not have a net-exercise provision.
 
On March 12, 2010, in connection with the issuance of a convertible note, we issued to Mike Robert warrants for the purchase of 1,000,000 shares of common stock at an exercise price of $0.75 per share. These warrants expire on March 21, 2012. These warrants do not have a net-exercise provision.
 
On July 16, 2010, in connection with the sale of common stock, we issued to 29 accredited investors warrants for the purchase of 2,056,334 shares of common stock at an exercise price of $1.00 per share. These warrants expire on July 15, 2013. In connection therewith, the compensation we paid to Gar Wood Securities, LLC as our placement agent included issuing to it and its affiliates 169,528 common stock warrants  at an exercise price of $1.00 per share and with an expiration date of July 22, 2013. These warrants do not have a net-exercise provision.
 
Anti-takeover Effects of Provisions of Delaware Law and our Charter and Bylaws
 
Certain provisions of our Certificate of Incorporation and Bylaws may make it more difficult to acquire control of us by various means. These provisions could deprive our stockholders of opportunities to realize a premium on the shares of common stock owned by them. In addition, these provisions may adversely affect the prevailing market price of our stock. These provisions are intended to:
 
enhance the likelihood of continuity and stability in the composition of the board and in the policies formulated by the board;
 
discourage certain types of transactions which may involve an actual or threatened change in control of Single Touch Systems;
 
discourage certain tactics that may be used in proxy fights;
 
encourage persons seeking to acquire control of us to consult first with the board of directors to negotiate the terms of any proposed business combination or offer; and
 
reduce our vulnerability to an unsolicited proposal for a takeover that does not contemplate the acquisition of all our outstanding shares or that is otherwise unfair to our stockholders.
 
Our Certificate of Incorporation provides that special meetings of our stockholders may be called only by the board of directors or an officer authorized by it to do so. This limitation on the right of stockholders to call a special meeting could make it more difficult for stockholders to initiate actions that are opposed by the board of directors. These actions could include the removal of an incumbent director or the election of a stockholder nominee
 
 
 
 
as a director. They could also include the implementation of a rule requiring stockholder ratification of specific defensive strategies that have been adopted by the board of directors with respect to unsolicited takeover bids. In addition, the limited ability of the stockholders to call a special meeting of stockholders may make it more difficult to change the existing board and management.
 
Our authorized but unissued shares of common stock and preferred stock are available for future issuance without stockholder approval. These additional shares may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of common stock and preferred stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
 
The Delaware General Corporation Law, or DGCL, provides generally that the affirmative vote of a majority of the shares outstanding and entitled to vote is required to amend a corporation’s certificate of incorporation. Our bylaws may be amended generally by the affirmative vote of a majority of the shares entitled to vote thereon or by the act of a majority of our directors.
 
We believe that we currently would not satisfy the elements of Section 203 of the DGCL (Section 203), and accordingly that currently the provisions of Section 203 would not apply to any proposed business combination in which we would be acquired. Under Section 203, certain business combinations between a Delaware corporation whose stock generally is publicly traded or held of record by more than 2,000 stockholders and an interested stockholder are prohibited for a three-year period following the date that such stockholder became an interested stockholder, unless (i) the corporation has elected in its original certificate of incorporation not to be governed by Section 203 (we did not make such an election), (ii) the business combination was approved by the Board of Directors of the corporation before the other party to the business combination became an interested stockholder, (iii) upon consummation of the transaction that made it an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the commencement of the transaction (excluding voting stock owned by directors who are also officers or held in employee benefit plans in which the employees do not have a confidential right to render or vote stock held by the plan), or (iv) the business combination was approved by the Board of Directors of the corporation and ratified by two-thirds of the voting stock which the interested stockholder did not own. The three-year prohibition also does not apply to certain business combinations proposed by an interested stockholder following the announcement or notification of certain extraordinary transactions involving the corporation and a person who had not been an interested stockholder during the previous three years or who became an interested stockholder with the approval of the majority of the corporation’s directors. The term business combination is defined generally to include mergers or consolidations between a Delaware corporation and an interested stockholder, transactions with an interested stockholder involving the assets or stock of the corporation or its majority-owned subsidiaries and transactions which increase an interested stockholder’s percentage ownership of stock. The term interested stockholder is defined generally as a stockholder who, together with affiliates and associates, owns (or, within three years prior, did own) 15% or more of a Delaware corporation’s voting stock. If it should become applicable to us in the future, Section 203 could prohibit or delay a merger, takeover or other change in control of our company and therefore could discourage attempts to acquire us.
 
Applicability of California Corporate Law
 
Although we are incorporated in Delaware, we may nonetheless be subject to Section 2115 of the California General Corporation Law, which imposes various requirements of California corporate law on non-California corporations if they have specified characteristics of ownership and operations indicating significant contacts with California. Public companies listed on a recognized national securities exchange are generally exempt from Section 2115. Since our common stock is traded on the OTC Bulletin Board, we are potentially subject to the provisions of Section 2115. The key provision of California corporate law that may apply to us is the right of our stockholders to cumulate votes in the election of directors.
 
In May 2005, the Delaware Supreme Court in VantagePoint Venture Partners 1996 v. Examen, Inc. held that Section 2115 violates the internal affairs doctrine and thus does not apply to Delaware corporations. If followed by California courts, this ruling would mean that the cumulative voting requirements and other sections of the California Corporations Code do not apply to us. The impact of the Delaware Supreme Court’s decision on our situation, as it may be interpreted by California courts, is uncertain.
 
Indemnification of Directors and Officers
 
The DGCL permits a corporation to indemnify its current and former directors and officers against expenses, judgments, fines and amounts paid in connection with a legal proceeding. To be indemnified, the person must have acted in good faith and in a manner the person reasonably believed to be in, and not opposed to, the best interests of the corporation. With respect to any criminal action or proceeding, the person must not have had reasonable cause to believe the conduct was unlawful.
 
The DGCL permits a present or former director or officer of a corporation to be indemnified against certain expenses if the person has been successful, on the merits or otherwise, in defense of any proceeding brought against such person by virtue of the fact that such person is or was an officer or director of the corporation. In addition, the DGCL permits the advancement of expenses relating to the defense of any proceeding to directors and officers contingent upon the person’s commitment to repay advances for expenses against such person is not ultimately entitled to be indemnified.
 
 
 
 
 
The DGCL provides that the indemnification provisions contained in the DGCL are not exclusive of any other right that a person seeking indemnification may have or later acquire under any provision of a corporation’s by-laws, by any agreement, by any vote of stockholders or disinterested directors or otherwise. Furthermore, the DGCL provides that a corporation may maintain insurance, at its expense, to protect its directors and officers against any expense, liability or loss, regardless of whether the corporation has the power to indemnify such persons under the DGCL.
 
Our Certificate of Incorporation provides that, to the extent permitted by the DGCL, we will indemnify our current and former directors and officers against all expenses actually and reasonably incurred by them as a result of their being threatened with or otherwise involved in any action, suit or proceeding by virtue of the fact that they are or were one of our officers or directors. However, we will not be required to indemnify an officer or director for an action, suit or proceeding commenced by that officer or director unless we authorized that director or officer to commence the action, suit or proceeding. Our Certificate of Incorporation also provides that we shall advance expenses incurred by any person we are obligated to indemnify, upon presentation of appropriate documentation.
 
Furthermore, our Bylaws provide that we may purchase and maintain insurance on behalf of our directors and officers against any liability, expense or loss, whether or not we would otherwise have the power to indemnify such person under our Certificate of Incorporation or the DGCL.
 
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors and officers, we have been advised that, although the validity and scope of the governing statute have not been tested in court, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In addition, indemnification may be limited by state securities laws.
 
Transfer Agent and Registrar
 
The transfer agent and registrar for our common stock is Continental Stock Transfer & Trust Company.
 
PLAN OF DISTRIBUTION
 
The selling stockholders and any of their pledgees, donees, transferees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock, registered hereunder, on any stock exchange, market or trading facility on which the shares are traded or in private transactions, at fixed or negotiated prices. The selling stockholders may use any one or more of the following methods when selling shares:
 
ordinary brokerage transactions and transactions in which the broker-dealer solicits investors;
 
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
 
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
 
an exchange distribution in accordance with the rules of the applicable exchange;
 
privately negotiated transactions;
 
to cover short sales made after the date this Registration Statement is declared effective by the Securities and Exchange Commission;
 
broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;
 
a combination of any such methods of sale; and
 
any other method permitted pursuant to applicable law.
 
The selling stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.
 
 
 
 
Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.
 
The selling stockholders may from time to time pledge or grant a security interest in some or all of the shares owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell shares of common stock from time to time under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.
 
Upon being notified in writing by a selling stockholder that any material arrangement has been entered into with a broker-dealer for the sale of common stock through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, we will, if then required, file a supplement to this prospectus pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of each such selling stockholder and of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the price at which such the shares of common stock were sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, and (vi) other facts material to the transaction. In addition, upon the being notified in writing by a selling stockholder that a donee or pledgee intends to sell more than 500 shares of common stock, we will, if then required, file a supplement to this prospectus in accordance with applicable securities law.
 
The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
 
Gar Wood Securities, LLC, Jackson E. Spears, Constance A. Schadewitz and William R. Gregozeski are “underwriters” within the meaning of the Securities Act, as to the 1,269,801 shares potentially to be sold by them respectively.  The other selling stockholders (and in particular Laurence Dunn, who until recently was a director of the Company, as to the 1,212,500 shares potentially to be sold by him) and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. Any commissions received by such “underwriters,” broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, that can be attributed to the sale of securities will be paid by the selling stockholder and/or the purchasers. Each selling stockholder has represented and warranted to us that it acquired the securities subject to this registration statement in the ordinary course of such selling stockholder’s business and, at the time of its purchase of such securities such selling stockholder had no agreements or understandings, directly or indirectly, with any person to distribute any such securities.
 
We have advised each selling stockholder that it may not use shares registered on this registration statement to cover short sales of common stock made before the date on which this registration statement shall have been declared effective by the Securities and Exchange Commission. If a selling stockholder uses this prospectus for any sale of the common stock, it will be subject to the prospectus delivery requirements of the Securities Act. The selling stockholders will be responsible to comply with the applicable provisions of the Securities Act and the Securities Exchange Act, and the rules and regulations thereunder promulgated, including, without limitation, Regulation M, as applicable to such selling stockholders in connection with resales of their respective shares under this registration statement.
 
We will pay all fees and expenses incident to the registration of the shares, but we will not receive any proceeds from the sale of the common stock.
 
LEGAL MATTERS
 
Selected legal matters with respect to the validity of the securities offered by this prospectus will be passed upon for us by Stradling Yocca Carlson & Rauth, San Diego, California.
 
EXPERTS
 
Our financial statements as of and for the fiscal years ended September 30, 2009 and 2010, included in this prospectus have been audited by Weaver & Martin LLC, an independent registered public accounting firm, as stated in their reports appearing herein and elsewhere in this prospectus, and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.
 
 
 
 
 
 
WHERE YOU CAN FIND MORE INFORMATION
 
We have filed a registration statement on Form S-1 with the SEC for the stock offered pursuant to this prospectus. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto. Statements contained in this prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the registration statement, each such statement being qualified in all respects by such reference. For further information with respect to us and the common stock offered hereby, please refer to the registration statement and its exhibits and schedules for further information relating to us and our common stock.
 
We are subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934 and in accordance therewith file reports, proxy statements and other information with the Securities and Exchange Commission. Such reports, proxy statements, other information and a copy of the registration statement may be inspected by anyone without charge and copies of these materials may be obtained upon the payment of the fees prescribed by the Securities and Exchange Commission, at the Public Reference Room maintained by the Securities and Exchange Commission at 100 F Street, NE , Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The registration statement and the reports, proxy statements and other information filed by us are also available through the Securities and Exchange Commission’s website on the World Wide Web at the following address: http://www.sec.gov.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
INDEX TO FINANCIAL STATEMENTS
 
   
Page
Condensed Consolidated Financial Statements for the Six Months Periods Ended March 31, 2011 and 2010
 
Consolidated Financial Statements for the Fiscal Years Ended September 30, 2010 and 2009
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
SINGLE TOUCH SYSTEMS INC.
           
CONDENSED CONSOLIDATED BALANCE SHEETS
 
               
     
March 31,
   
September 30,
 
     
2011
   
2010
 
     
(Unaudited)
       
Assets
           
Current assets
           
 
Cash and cash equivalents
  $ 2,273,568     $ 4,040,169  
 
Accounts receivable - trade
    693,879       514,327  
 
Accounts receivable - related party
    38,651       36,762  
 
Prepaid expenses - other
    142,891       212,034  
                   
 
Total current assets
    3,148,989       4,803,292  
                   
Property and equipment, net
    248,405       203,091  
                   
Other assets
               
 
Capitalized software development costs, net
    412,602       305,710  
 
Intangible assets:
               
 
Patents, net
    768,752       779,846  
 
Patent applications cost
    486,630       428,729  
 
Deposits and other assets
    16,486       15,282  
                   
 
Total other assets
    1,684,470       1,529,567  
                   
 
Total assets
  $ 5,081,864     $ 6,535,950  
 
 

 
 
 

 

The accompanying notes are an integral part of these financial statements

 

SINGLE TOUCH SYSTEMS INC.
           
CONDENSED CONSOLIDATED BALANCE SHEETS - continued
 
             
   
March 31,
   
September 30,
 
   
2011
   
2010
 
   
(Unaudited)
       
             
Liabilities and stockholders'equity
           
Current liabilities
           
Accounts payable and accrued expenses
  $ 512,728     $ 461,364  
Accrued compensation
    99,260       77,950  
Accrued compensation - related party
    11,458       -  
Current obligation on patent acquisitions
    152,031       175,000  
Convertible debentures - related parties, including accrued interest, net of discounts
    364,198       197,280  
                 
Total current liabilities
    1,139,675       911,594  
                 
Long-term liabilities
               
Obligation on patent acquisitions
    -       141,865  
                 
Total liabilities
    1,139,675       1,053,459  
                 
Stockholders' equity
               
Preferred stock,  $.0001 par value; 5,000,000 shares authorized;
               
  none outstanding
    -       -  
Common stock, $.001 par value; 200,000,000 shares authorized;
               
  128,222,670 shares issued and outstanding as of March 31, 2011
               
  and 123,676,892 shares issued and outstanding as of September 30, 2010
    128,223       123,677  
Additional paid-in capital
    122,554,679       118,768,416  
Accumulated deficit
    (118,740,213 )     (113,409,102 )
Common stock subscriptions receivable
    (500 )     (500 )
                 
Total stockholders' equity
    3,942,189       5,482,491  
                 
Total liabilities and stockholders' equity
  $ 5,081,864     $ 6,535,950  
 
 
 
 
 
 
 
The accompanying notes are an integral part of these financial statements

 
 
SINGLE TOUCH SYSTEMS INC.
                       
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
                         
                         
   
For the Three Months Ended
   
For the Six Months Ended
 
   
March 31,
   
March 31,
 
   
2011
   
2010
   
2011
   
2010
 
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
 
Revenue
                       
Wireless applications
  $ 1,031,585     $ 107,193     $ 2,045,433     $ 134,095  
Royalties and application costs
    (450,790 )     (131,485 )     (959,355 )     (281,653 )
      580,795       (24,292 )     1,086,078       (147,558 )
                                 
Operating Expenses
                               
Research and development
    9,533       36,851       32,872       47,405  
Stock based compensation - non employees
    -       -       -       1,152,625  
Compensation expense
    326,839       461,882       4,321,237       690,492  
Depreciation and amortization
    157,294       147,879       294,580       265,733  
General and administrative
    506,497       428,591       1,090,343       656,538  
Total operating expenses
    1,000,163       1,075,203       5,739,032       2,812,793  
                                 
Loss from operations
    (419,368 )     (1,099,495 )     (4,652,954 )     (2,960,351 )
                                 
Other Income (Expenses)
                               
Changes in fair value of derivative and warrant liability
    -       1,981,100       -       1,182,500  
Loss on settlement of indebtedness
    -       (28,750 )     (651,315 )     (45,580 )
Interest expense
    (12,420 )     (169,441 )     (26,042 )     (247,045 )
                                 
Net income (loss) before income taxes
    (431,788 )     683,414       (5,330,311 )     (2,070,476 )
                                 
Provision for income taxes
    -       -       (800 )     (800 )
                                 
Net income (loss)
  $ (431,788 )   $ 683,414     $ (5,331,111 )   $ (2,071,276 )
                                 
Basic and diluted loss per share
  $ (0.00 )   $ 0.01     $ (0.04 )   $ (0.03 )
                                 
Weighted average shares outstanding
    128,071,629       73,581,918       126,388,312       69,652,445  
 
 
 
 
 
 
 
 
See accompanying notes.
 
 
SINGLE TOUCH SYSTEMS INC.
           
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
             
   
For the Six Months Ended
 
   
March 31,
 
   
2011
   
2010
 
   
(Unaudited)
   
(Unaudited)
 
             
Cash Flows from Operating Activities
           
Net loss
  $ (5,331,111 )   $ (2,071,276 )
Adjustments to reconcile net loss to net cash
               
used in operating activities:
               
Amortization of discount on on convertible debt
    -       69,747  
Depreciation expense
    46,537       48,955  
Amortization expense - software development costs
    185,327       204,958  
Amortization expense - patents
    62,716       11,821  
Provision for bad debts
    -       54,084  
Loss on settlement of indebtedness
    651,315       45,580  
Stock based compensation
    3,603,708       1,152,625  
(Increase) decrease in assets
               
(Increase) decrease in accounts receivable
    (181,442 )     (38,228 )
(Increase) decrease in prepaid expenses
    69,143       14,255  
(Increase) decrease in deposits and other assets
    (1,204 )     -  
Increase (decrease) in liabilities
               
Increase (decrease) in accounts payable
    (3,810 )     (514,573 )
Increase (decrease) in payroll taxes payable
    -       347,291  
Increase (decrease) in accrued compensation
    21,311       (310,752 )
Increase (decrease) in accrued compensation due related party
    11,458       -  
Increase (decrease) in accrued expenses
    (1,344 )     60,000