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EX-31.2 - SINGLE TOUCH SYSTEMS 10K, CERTIFICATION 302, CFO - SITO MOBILE, LTD.singletouchexh31_2.htm
EX-32.1 - SINGLE TOUCH SYSTEMS 10K, CERTIFICATION 906, CEO - SITO MOBILE, LTD.singletouchexh32_1.htm
EX-23.1 - SINGLE TOUCH SYSTEMS 10K, AUDITORS CONSENT - SITO MOBILE, LTD.singletouchexh23_1.htm
EX-31.1 - SINGLE TOUCH SYSTEMS 10K, CERTIFICATION 302, CEO - SITO MOBILE, LTD.singletouchexh31_1.htm
EX-32.2 - SINGLE TOUCH SYSTEMS 10K, CERTIFICATION 906, CFO - SITO MOBILE, LTD.singletouchexh32_2.htm


 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
 
Form 10-K
_________________
 

R
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the fiscal year ended September 30, 2011
   
Or
 
£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the transition period from __________ to __________

Commission File Number: 000-53744
________________
 
SINGLE TOUCH SYSTEMS INC.
(Exact Name of Registrant as Specified in its Charter)
________________
 
Delaware
13-4122844
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
   
100 Town Square Place, Suite 204
07310
Jersey City, NJ
(Zip Code)
(Address of principal executive offices)
 

Registrant’s telephone number, including area code:
(201) 275-0555
 
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
Name of Each Exchange on Which Registered
   

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
________________
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes £     No R
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes £     No R
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes R    No £
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes R    No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K  £
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company þ
        (Do not check if a smaller reporting company)    
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ
 
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of March 31, 2011 was $67,573,482 based on the closing sale price of such common equity on such date.
 
As of December 22, 2011 there were 130,182,392 shares of the registrant’s common stock outstanding.
 
 





 
TABLE OF CONTENTS

 
 
Page
     
     
     
 

 
 
 
 
 

 



FORWARD-LOOKING STATEMENTS

Some of the statements contained or incorporated by reference in this Annual Report on Form 10-K are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and we intend that such forward-looking statements be subject to the safe harbors created thereby.  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 Annual Report on Form 10-K include, but are not limited to, those noted under the caption “Risk Factors” beginning on page 4 of this Annual Report on Form 10-K.  Readers should carefully review this information as well the risks and other uncertainties described in other filings we may make with the Securities and Exchange Commission after the date of this Annual Report on Form 10-K.

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 Annual Report on Form 10-K, whether as a result of new information, future events or circumstances, or otherwise.

PART I
 
Item 1.  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 or other reports and any amendments to those reports, are available, free of charge, under the “Company” link on our website as soon as practicable after such material is filed with, or furnished to, the SEC.

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

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

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 providing a means for businesses to communicate to its primary constituents, in particular its customers, and we 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. USA Today notes that well-known retailers and brands are employing various mobile tactics to enhance the shopping experience. A Custom Mobile Retail Advisor Survey from Sept 2011 showed 46% of mobile phone consumers engaged in shopping activities on their mobile device.

According to CTIA – The Wireless Association (June 2011), there were 327 million wireless subscribers in the US, representing 103.9% of the US population. The combined minutes and messages of this group have risen 9.5% year over year in this same June period.

It takes 90 minutes for the average person to respond to an email yet only 90 seconds to respond to a SMS or Multimedia Messaging Service (MMS) text message; that’s a 300% increase in opens for SMS/MMS vs. emails. 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.

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  not only to send a customer 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 – 75% of smartphone users prefer mobile couponing to physical paper copies based on the Custom Mobile Retailer Advisor survey from September 2011. The Association of National Advertisers reports while normal paper coupon redemption is between 1% to 3% feature phones coupon redemption is 10% and smartphone coupon redemption is 20%. Our recent case studies with Hibbett sporting goods showed 14% redemption. MobiLens, a unit of comscore, reported a 24% average response rate from those that received SMS advertisements during the three-month period ended September 2011. We are showing a better than 5% click-through from Rich Text Messages with embedded uniform resource locators (URL), which compares favorably with a traditional Internet banner advertising of 1% click-through rate.

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.

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, 2011 and September 30, 2010 we spent $502,110 and $528,166, respectively, on software development that was capitalized. Software development costs amortized and charged to operations in fiscal 2011 and fiscal 2010 were $412,632 and $438,445, respectively. In addition, in fiscal 2011 we charged off  $0 in development costs we deemed impaired, compared to $218,776 in fiscal 2010.

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. Messaging and safeguarding Personal Health Information, moreover, is relegated, among other things, to the Privacy Rule of the Health Insurance Portability and Accountability Act, otherwise known as HIPAA.  The wireless carriers are primarily responsible for regulatory compliance. Given the growing and dynamic evolution of digital wireless products that can be offered to consumers over a wireless communication network, regulators could impose rules, requirements and standards of conduct on third-party content and infrastructure providers such as us. We are not currently aware of any pending regulations that would materially impact our operations.

Employees

We currently have 18 full-time and no part-time employees including our chairman, our chief executive officer, our chief financial officer, 7 persons serving as programmers and technical staff operators, 6 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.
 
 
 




 
 
Item 1A.  Risk Factors

An 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 Annual Report on Form 10-K carefully before deciding to invest in our common stock.  If any of the following risks actually occur, our business, financial condition and operating results could be harmed.  As a result, the trading price of our common stock could decline, and you could lose a part or all of your investment.

RISKS RELATED TO OUR BUSINESS

We currently rely on brand owners, and especially Walmart, to use our programs to satisfy their communication needs and thereby to generate our revenues from wireless carriers indirectly.  The loss of or a change in any of these significant relationships could materially reduce our revenues.

Both our present and our future depend heavily on our relationship with Walmart.  We must retain our current business there and expand the relationship into augmented programs, both for its own sake and as a reference point for possible similar business with other retailers and brand owners.  Our relationship with Walmart is subject to risk based on factors such as performance, reliability, pricing, competition, alternate technological solutions and changes in interpersonal relationships.

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 manage our growth effectively.

Our strategy envisions growing our business.  Even if we do grow, if we fail to manage our growth effectively our financial results could be adversely affected.  Growth may place a strain on our management systems and resources.  We must continue to refine and expand our business development capabilities, our systems and processes and our access to financing sources.  As we grow, we must continue to hire, train, supervise and manage new employees.  We cannot assure you that we will be able to:

meet our capital needs;
 
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 have undergone 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. On September 26, 2011 we employed John Quinn as our Chief Financial Officer. We have also recruited and hired other senior staff. We have moved our executive headquarters from Encinitas, California, to Jersey City, New Jersey. 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 grow our business successfully.

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; James Orsini, our President and Chief Executive Officer; John Quinn, our Chief Financial Officer, and other members of the senior management team. We need to identify and hire additional senior managers to perform key tasks and roles.

Our inability to  protect or monetize our proprietary technology adequately 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 law firms 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 report our financial results accurately 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 hardware and software to deliver products on demand to end users through their carriers’ networks.  In addition, certain products require access over the mobile Internet to our hardware and software 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 and privacy 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, 2011 was approximately 83,000 shares.  If modest trading in our stock continues, it may be difficult for investors to sell or buy substantial quantities of shares in the public market at any given time at prevailing prices.

Applicable SEC rules governing the trading of “penny stocks” limits the trading and liquidity of the common stock which may affect the trading price of the common stock.

Our common stock is currently quoted on the OTC Bulletin Board, and trades below $5.00 per share; 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 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 any future earnings, as well as any capital that may be raised in the future, to fund business growth.  Consequently, a stockholders’ only opportunity to achieve a return on investment may result if the price of our common stock appreciates and that stockholder sell his or her shares at a profit.  We cannot assure stockholders of a positive return on their investment when they sell their shares, nor can we assure that stockholders will not lose the entire amount of their investment.

Securities analysts may not initiate coverage or continue to cover our common stock, and this may have a negative impact on its market price.

Common stock prices are often significantly influenced by the research and reports that securities analysts publish about companies and their business. We do not have any control over these analysts. There is no guarantee that securities analysts will cover our common stock. If securities analysts do not cover our common stock, the lack of research coverage may adversely affect its market price. If we are covered by securities analysts and our stock is downgraded, our stock price will likely decline. If one or more of these analysts ceases to cover us or fails to publish regular reports on us, we can lose visibility in the financial markets, which can cause our stock price or trading volume to decline.

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 September 30, 2011, there were 130,182,392 shares of common stock outstanding, 33,780,000 shares of common stock issuable upon exercise of outstanding stock options and 16,030,986 shares of common stock issuable upon exercise or conversion of outstanding warrants and convertible notes. 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 24% 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 understand our operations and the situation of our business easily, 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 could 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.

Item 1B.  Unresolved Staff Comments

Not applicable.

Item 2.  Properties

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

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

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

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

Our servers are housed at CoreSite, 900 N. Alameda Street, Los Angeles, CA 90012 and Coresite, 427 North La Salle, Chicago, IL 60605.
 
Item 3.  Legal Proceedings

No disclosure required.
 
Item 4.  Removed and Reserved
 
PART II
 
Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
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
 
     
December 31, 2011 (to 12/20/2011)
  
 
0.33
  
  
 
0.20
  
September 30, 2011
  
 
0.56
  
  
 
0.26
  
June 30, 2011
  
 
0.75
  
  
 
0.45
  
March 31, 2011
  
 
0.83
  
  
 
0.49
  
December 31, 2010
  
 
1.05
  
  
 
0.73
  
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
  

Holders

As of September 30, 2011, there were 251 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.




Recent Sales of Unregistered Securities

The securities that we issued or sold within the past fiscal year which were not registered with the Securities and Exchange Commission and have not previously been disclosed in our current or periodic reports are described below:
 
1.        Convertible Debt Financing for up to $2,000,000 with 50% Warrant Coverage - The Company approved borrowing of up to $2,000,000 against 1-year promissory notes, which term can be extended by mutual agreement of the holder and the Company, in minimum $250,000 units bearing 10% interest per annum payable annually. The notes can be prepaid without penalty at the option of the Company upon ten days’ written notice to the Holder.  The principal and interest for 12 months is convertible, at the option of the holder, into common stock of the company at $0.50 per share.
 
Each $250,000 note includes a warrant exercisable within three years entitling the holder to purchase as many as 500,000 shares of common stock of the Company at $0.25 shares; the warrants do not allow for cashless exercise.  The terms of the Notes include standard default terms for acceleration, which include non-payment and insolvency.  The Notes allow for the Company to obtain debt financing from a financial institution or other financial sponsor on typical terms and for such debt to be senior to the notes.
 
On November 14, 2011, the Company accepted a total of $1,000,000 in financing on those terms.   One of our Directors, Stephen Baksa, invested $500,000 in the units, and another shareholder invested $500,000. Each received 1,000,000 warrants to purchase common shares exercisable at $0.25 expiring in three years as a result of the investment.
 
On December 15, 2011, the Company approved the acceptance of minimum $100,000 units and on that date accepted an additional $400,000 in financing.   One of our shareholders invested an additional $200,000 in the units, and two other shareholders invested $100,000 each. As a result of the additional investments a total of 800,000 warrants to purchase common shares exercisable at $0.25 expiring in three years were issued.
 
On December 20, 2011 the Company accepted an additional $100,000 in financing from one investor, resulting in the issuance of 200,00 additional warrants.  On December 22, 2011 the Company accepted an additional $100,000 in financing from one investor, resulting in the issuance of another 200,000 warrants. On December 28, 2011 the Company accepted an additional $200,000 in financing from one investor, resulting in the issuance of 400,000 additional warrants.   As a result of these three investments, the Company received $400,000 of financing and issued 800,000 additional warrants, leaving $200,000 of financing approved by the Board and still available.
 
The offerings of the securities described in Paragraph 1 were exempt from registration under Section 4(2) of the Securities Act of 1933.
 
 
 
 

 
 
Equity Compensation Plan Information

The following table reflects information for equity compensation plans and arrangements for any and all directors, officers, employees and/or consultants through September 30, 2011.

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
 
8,475,000
 
$
0.88
     
325,000
 
Equity compensation plans
not approved by security holders
 
28,130,000
 
$
0.74
     
1,457,500
 
Total
 
36,605,000
 
$
0.77
     
1,782,500
 

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.

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.

The 3,825,000 shares shown as underlying in the “Equity compensation plans not approved by security holders” row consists of 1,000,000 shares underlying an option which we granted to Pharmacy Management Group, LLC in June 2011 as compensation for consulting services and 2,825,000 remaining shares underlying a warrant which we granted to Peltz Capital Management, LLC in October 2008 as compensation for consulting services.  The Peltz warrant  was amended by a September 2010 settlement and release agreement, pursuant to which 7,000,000 previously-issued warrants were returned to us under certain terms of the release.   We canceled those 7,000,000 warrants in June 2011, and the 2,825,000 warrants included above are the only ones remaining outstanding to Peltz Capital Management, LLC as of September 30, 2011.
 

 
 
Item 6.  Selected Financial Data

Not applicable.

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K.  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 Annual Report on Form 10-K.  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 Item 1A “Risk Factors” above.  We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report on Form 10-K.
 
Overview

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

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

Our business has focused on leveraging our solution in the areas of messaging/notifications and Abbreviated Dial Codes.

Currently, over 90% of our revenues are paid to us through AT&T Services, Inc., and 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 that 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 that 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 anticipated to be additive 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 engaged several law firms including the notable law firm of McKool Smith, to protect our patented technology against unauthorized users and infringers. The Company has begun sending letters of notification to several companies making them aware of its patent portfolio.

As we expand operational activities, we may continue to experience operating losses and/or negative cash flows from operations and may be required to obtain additional financing to fund operations.

Throughout our history our operations have been constrained by our ability to raise funds, and our liquidity has been an ongoing issue. We have received debt and equity investments both from insiders and from private investors. We have always had negative cash flows from operations and net operating losses, although the size of the net operating losses has been magnified by a variety of non-cash accounting charges. As we expand operational activities, we may continue to experience operating losses and/or negative cash flows from operations and may be required to obtain additional financing to fund operations.

Our operating history makes predictions of future operating results difficult to ascertain. Our revenue 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
 
Years Ended September 30, 2011 and September 30, 2010

During the fiscal year ending September 30, 2011, we had revenues of approximately $4.6 million and experienced a loss from operations of approximately $7.3 million, of which approximately $4.6 million pertained to stock-based compensation. Our net loss for the year was roughly $8 million, which included an approximate $650 thousand loss on settlement of indebtedness. Excluding stock-based compensation, and the loss on settlement of indebtedness, our net loss for the year was approximately $2.8 million. Stock-based compensation has no impact on our cash position.
 
During the fiscal year ending September 30, 2010, we had revenues of approximately $792,000 and experienced a loss from operations of approximately $4.7 million, of which approximately $1.2 million pertained to stock-based compensation. Our net loss for the year was roughly $12 million, which included an approximate $2.7 million loss from settlement of debt and a loss of approximately $3.9 million from changes if the fair value of a derivative liability.  Excluding stock-based compensation and the loss from settlement of debt and the loss from the changes in the derivative liability, our net loss for the year amounted to approximately $4.2 million.
 
 
 
 
 
 
The following table presents the Company’s consolidated revenues and operating results for the years ended September 30, 2011 and 2010:
 
                         
   
For the Year Ended
             
   
September 30,
   
Increase (decrease)
 
   
2011
   
2010
    $       %  
                           
Revenue
                         
Wireless applications
  $ 4,579,862     $ 792,564     $ 3,787,298       477.85 %
                                 
Operating Expenses
                               
Royalties and application costs
    2,543,885       651,028       1,892,857       290.75 %
Research and development
    78,860       84,240       (5,380 )     -6.39 %
Compensation expense
    5,468,643       1,422,020       4,046,623       284.57 %
Depreciation and amortization
    633,535       611,897       21,638       3.54 %
General and administrative
    3,161,751       2,729,286       432,465       15.85 %
      11,886,674       5,498,471       6,388,203       116.180 %
                                 
Loss from operations
    (7,306,812 )     (4,705,907 )     (2,600,905 )     55.27 %
                                 
Other Income (Expenses)
                               
Net gain (loss) on settlement of indebtedness
    (651,315 )     (2,738,985 )     2,087,670       -76.22 %
Changes in fair value of derivative and
                               
warrant liability
    -       (3,946,275 )     3,946,275       -100.00 %
Interest expense
    (26,236 )     (812,785 )     786,549       -96.77 %
                                 
Net (loss) before income taxes
    (7,984,363 )     (12,203,952 )     4,219,589       -34.58 %
                                 
Provision for income taxes
    (800 )     (800 )     -       -  
                                 
Net income (loss)
  $ (7,985,163 )   $ (12,204,752 )   $ 4,219,589       -34.58 %

 
 
 
 

 
 
General and administrative expenses for the two years ended September 30, 2011 and 2010 consist of the following:
 
   
For the Year Ended
             
   
September 30,
   
Increase (decrease)
 
   
2011
   
2010
    $       %  
                           
Consulting Services
  $ 1,448,613     $ 1,449,687     $ (1,074 )     -0.07 %
Professional services
    821,022     $ 404,381     $ 416,641       103.03 %
Impairment loss
    -     $ 218,776     $ (218,776 )     -100.00 %
Travel
    322,951     $ 197,613     $ 125,338       63.43 %
Rent expense
    121,681     $ 101,473     $ 20,208       19.91 %
Bad debts
    105,632     $ -     $ 105,632       100.00 %
Penalties
    3,168     $ 72,595     $ (69,427 )     -95.64 %
Insurance
    83,953     $ 43,002     $ 40,951       95.23 %
Marketing  expense
    78,324     $ 11,000     $ 67,324       612.04 %
Equipment lease
    45,000     $ 58,500     $ (13,500 )     -23.08 %
Outside services
    39,936     $ 12,366     $ 27,570       222.95 %
Telephone
    38,820     $ 36,529     $ 2,291       6.27 %
Other expenses
    52,651     $ 123,364     $ (70,713 )     -57.32 %
    $ 3,161,751     $ 2,729,286     $ 432,465       15.85 %
 
Other expenses

In fiscal year 2011, we recognized a loss of approximately $650 thousand through the issuance of 723,684 shares of our common stock in complete settlement of disputed claims. Interest expense for fiscal year 2011 totaled approximately $26 thousand.

In fiscal 2010 we recognized a loss on the cancelation of debt totaling approximately $2.7 million. Of the $2.7 million loss, approximately $900 thousand was recognized on the issuance of 612,500 shares of our common stock for past due professional services totaling approximately $400 thousand; approximately $1.8 million was recognized on the issuance of 3.03 million shares of our common stock in cancellation of approximately $1.12 million of notes payable; and approximately $900 thousand was recognized through the issuance of 1 million shares of our common stock to a note holder in complete settlement of the debt outstanding on the note. The other non-operating item that affected our net loss for fiscal year 2010 was the change in the fair market value of our derivative liability relating to the Peltz warrants, which created a net loss for the year of approximately $3.9 million.
 
Interest expense for fiscal year 2010 amounted to approximately $813 thousand, and included $500 thousand on the amortization of a beneficial conversion feature on debt that we issued to a non-affiliate, approximately $172 thousand on debt due our chief executive officer and his wholly owned corporation, and approximately $141 thousand on debt due non-affiliates.
 

 

 
Liquidity and Capital Resources
 
At September 30, 2011, we had total assets of approximately $3.7 million and total liabilities of approximately $1.5 million, while at September 30, 2010, we had total assets of approximately $6.5 million and total liabilities of approximately $1 million.
 
Our cash balance decreased by approximately $3.5 million during the year ended September 30, 2011.
 
Our only outstanding indebtedness at September 30, 2011 is the approximately $164,000 (net of approximately $11 thousand implicit interest) due Microsoft on March 15, 2012 on our acquisition of patents and patent applications.
 
The future of our liquidity/capital resources position will hinge on how soon, if ever, our operations become profitable, as well as whether any future capital raised.
 
During the fiscal year ended September 30, 2011, net cash used in our operating activities totaled approximately $1.5 million. Net cash used in investing activities totaled approximately $1 million and included approximately $155 thousand paid to Mr. Macaluso on the option of acquiring his interest in Soapbox Mobil, Inc.; approximately $95 thousand on an investment in a certificate of deposit that is pledged as a security deposit on our office lease in New Jersey; approximately $111 thousand paid in legal fees on patent and patent applications; approximately $196 thousand on equipment purchases; and approximately $502 thousand on software development. We used approximately $956 thousand in our financing activities including the reduction of approximately $791 thousand in debt due to Mr. Macaluso and the reduction of approximately $165 thousand of debt due non-affiliates.

During the fiscal year ended September 30, 2010, net cash used in our operating activities totaled approximately $4.6 million. Net cash used in investing activities totaled approximately $1.5 million and included approximately $900 thousand on the acquisition of patent and patent applications, approximately $69 thousand on equipment purchases and approximately $528 thousand on software development. Financing activities provided us with approximately $9.95 million. During the year, we received approximately $11.6 million through the issuance of approximately 24.4 million shares of our common stock through various private offerings and $500 thousand in proceeds from the issuance of convertible debt. Of the $12.1 million received, approximately $313 thousand was used in costs associated with the private offerings; $522 thousand was used in reducing the principal balance due to Mr. Macaluso and his wholly owned corporation; approximately $875 thousand was used to reduce the principal balance due on non-affiliate debt; and $450 thousand was paid as partial consideration in the modification of the term relating to warrants granted to a consultant.
 
Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.  We have identified the following accounting policies that we believe are key to an understanding of ours financial statements.  These are important accounting policies that require management’s most difficult, subjective judgments.
 
Revenue Recognition
 
Revenue is recognized in accordance with Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements, as revised by SAB No. 104. As such, the Company recognizes revenue when persuasive evidence of an arrangement exists, title transfer has occurred, the price is fixed or readily determinable and collectability is probable. Sales are recorded net of sales discounts.
 
 

 
Non-monetary Consideration Issued for Services

We value all services rendered in exchange for our common stock at the quoted price of the shares issued at date of issuance or at the fair value of the services rendered, whichever is more readily determinable. All other services provided in exchange for other non-monetary consideration are valued at either the fair value of the services received or the fair value of the consideration relinquished, whichever is more readily determinable.
 
Our accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of ASC Topic 505-50, “Equity Based Payments to Non Employees.” The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. In accordance with ASC Topic 505, an asset acquired in exchange for the issuance of fully-vested, non-forfeitable equity instruments should not be presented or classified as an offset to equity on the grantor’s balance sheet once the equity instrument is granted for accounting purposes. Accordingly, we record the fair value of non-forfeitable common stock issued for future consulting services as prepaid services in our consolidated balance sheet.

Conventional Convertible Debt

When the convertible feature of the conventional convertible debt provides for a rate of conversion that is below market value at issuance, this feature is characterized as a beneficial conversion feature (“BCF”). We record a BCF as a debt discount pursuant to ASC Topic 470-20, “Debt with Conversion and Other Options.” In those circumstances, the convertible debt will be recorded net of the discount related to the BCF. We amortize the discount to interest expense or equity (if the debt is due to a related party) over the life of the debt using the effective interest method.

Software Development Costs

We account for our software development costs in accordance with ASC Topic 985-20, “Cost of Software to be Sold, Leased, or Otherwise Marketed.” Under ASC Topic 985-20, we expense software development costs as incurred until we determine that the software is technologically feasible. Once we determine that the software is technologically feasible, we amortize the costs capitalized over the expected useful life of the software.

Fair Value Measurement
 
The Company complies with the provisions of ASC No. 820-10 (ASC 820-10), “Fair Value Measurements and Disclosures.”  ASC 820-10 relates to financial assets and financial liabilities. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (GAAP), and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions.
 
ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820-10 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions, about market participant assumptions, that are developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820-10 are described below:
 
Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.
 
 
 
 
Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
 
Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
 
Item 8.  Financial Statements and Supplementary Data

The financial statements required by this item begin on page F-1 with the index to financial statements followed by the financial statements.

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.
 
Item 9A.  Controls and Procedures

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2011. This evaluation was carried out under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer. Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of September 30, 2011, our disclosure controls and procedures were effective.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosure.

A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Management’s Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for our company. Our control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Our internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of our assets; provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles; that receipts and expenditures are being made only with proper authorizations of management and directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of company assets that could have a material effect on the financial statements.
 
 

 
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate.

Management, including our Principal Executive Officer and Principal Financial Officer, assessed the effectiveness of our internal control over financial reporting as of September 30, 2011. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control Over Financial Reporting – Guidance for Smaller Public Companies published in June of 2006 and the PCAOB preliminary staff views published October 17, 2007. Based on our assessment and those criteria, management concluded during the period covered by this report, that our internal control and procedures over financial reporting was effective as of September 30, 2011.
 
Attestation Report of the Registered Public Accounting Firm

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

Changes in Internal Control over Financial Reporting

During the period covered by this report, there was no significant change in our internal controls over financial reporting or in other factors that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

Item 9B.  Other Information

None.
PART III

Item 10.  Directors, Executive Officers and Corporate Governance

Directors and Executive Officers

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

Name
 
Age
 
Position
Anthony Macaluso
 
49
 
Executive Chairman and Director
James Orsini
 
48
 
Chief Executive Officer, President and Director
John Quinn
 
48
 
Chief Financial Officer
Richard Siber
 
49
 
Director
Stuart R. Levine
 
64
 
Director
Stephen D. Baksa
 
66
 
Director

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

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

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

Anthony Macaluso became our President, Chief Executive Officer, Chairman, and principal shareholder upon the closing of the acquisition of Single Touch Interactive, Inc. 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 (1985), and is a certified public accountant.
 
John Quinn joined us on September 26, 2011, as our Chief Financial Officer. Mr. Quinn was most recently Principal of ParenteBeard, LLC, an accounting and consulting firm. He was responsible for starting and was co-head of the Transaction Advisory Services group, which focused on M&A advisory and international tax consulting. Prior to joining ParenteBeard in 2010, Mr. Quinn was the New York based Chief Financial Officer of Financial Dynamics, a financial communications and investor relations consultancy. During his six-year tenure, Mr. Quinn was instrumental in converting an investor relations services provider into a full-service multinational and overseeing the sale and integration of Financial Dynamics to FTI Consulting, Inc.

From 1997-2004 Mr. Quinn was a partner at Scarpati Quinn & Hennessey, LLP, where he was a key contributor to the rapid growth of the accounting firm into an advisory, consulting and international tax service provider. For the eight years prior, he was senior manager of M&A and tax at Saatchi & Saatchi, the global advertising and marketing giant. Mr. Quinn began his career as a senior associate at KPMG in 1986. Mr. Quinn holds a MBA in international finance from Columbia University’s Business School (1995) and graduated with a B.S. in accounting from the State University of New York (1986). He is a Certified Public Accountant.

Richard Siber became a director of ours upon the closing of the acquisition of Single Touch Interactive, Inc. in July 2008. Mr. Siber founded Siber Consulting LLC in July 2004 and presently serves as its Chief Executive Officer. Siber Consulting provides technical and marketing services to the wireless industry. From 1994 through June 30, 2008 Mr. Siber was a partner in the Communications & High Tech practice at Accenture, Ltd. where he helped manage Accenture’s worldwide wireless communications activities and was involved in all aspects of Accenture’s mobile and wireless practice, including its Service Delivery Platform. Throughout his career, Mr. Siber has provided a broad range of marketing, strategic and industry-oriented consulting services to mobile operators, equipment vendors and content providers worldwide in the wireless industry. His experience has included all wireless industry licensed and unlicensed technologies including Cellular, PCS, LMR, Paging, Narrowband and Broadband Mobile Data, WiFi, Wireless PBX, Wireless Local Loop, and Satellite. Mr. Siber is a frequent industry speaker and has chaired, moderated or spoken at more than 250 wireless conferences and forums worldwide. Mr. Siber has a Bachelor of Arts degree from Boston University (1983) and a Masters of Business Administration degree from Boston College (1990).
 
Stuart R. Levine was elected to the board of Single Touch Systems, Inc. on August 8, 2011.   Mr. Levine is the founder, Chairman and Chief Executive Officer of Stuart Levine and Associates LLC, an international management consulting and leadership development Company.  From 1992 to 1996, he was Chief Executive Officer of Dale Carnegie & Associates, Inc, a provider of leadership, communication and sales skills training.  In 2011, Mr. Levine was recognized by the National Association of Corporate Directors as one of the top 100 most influential people in governance within the United States.  Mr. Levine serves as a director of Broadridge Financial Solutions, Inc., a provider of investor communications, securities processing, and clearing and outsourcing solutions, where he serves as Chair of the Governance and Nominating Committee.  He is Lead Director of J. D’Addario & Company, Inc., a private manufacturer of musical instrument accessories.  He also serves on the board of North Shore-Long Island Jewish Health System.  In addition, Mr. Levine is the bestselling author of “The Leader in You” (Simon & Schuster 2004),
 
 
 
 
“The Six Fundamentals of Success” (Doubleday 2004) and “Cut to the Chase” (Doubleday 2007).  Mr. Levine is the former Lead Director of Gentiva Health Services, Inc., a provider of home healthcare services, where he served from 2000 to 2009.  He also served as a director of European American Bank from 1995 to 2001 and The Olsten Corporation, a provider of staffing solutions, from 1994 to 2000.  Mr. Levine is a former Chairman of Dowling College as well as a former Member of the New York State Assembly.
 
Specific experience, qualifications, attributes or skills:
 
 
Operating and management experience, including as chief executive officer of a global client services business

 
 
Public company directorship and committee experience

 
 
Frequent panel chair and participant in director education programs sponsored by the NACD

 
 
Independent of the Company
 
Stephen D. Baksa became a director of ours on November 1, 2011. Mr. Baksa was a General Partner at the Vertical Group from 1989 through 2010, a private equity and venture capital firm focused on the fields of medical technology and biotechnology. He is currently employed at the Vertical Group as an advisor/consultant.  For more than 30 years, The Vertical Group has been an early stage investor and major shareholder of some of the medical technology industry’s most successful companies. Before Mr. Baksa joined The Vertical Group, he was co-founder of Paddington Partners, a firm engaged in special situation investing focused on public health care equities. Mr. Baksa holds an M.B.A. from The Rutgers School of Business (1969) and a B.A. in Economics from Gettysburg College (1967).
 
Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who own more than ten percent of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities.  Officers, directors and ten-percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.  To our knowledge, based solely on the review of copies of such reports furnished to us, during the fiscal year ended September 30, 2011, all of our officers, directors and ten percent stockholders complied with all applicable Section 16(a) filing requirements, with the exception of Anthony Macaluso, a director and an officer, who has not filed Form 4 transaction information; Richard Siber, a director, who has not filed Form 3 information; Mike Robert, a ten percent stockholder, that has not filed Form 3 information and Nicole Macaluso, a ten percent stockholder, who has not filed Form 3 information.

Code of Ethics

On December 1, 2004 we adopted a Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of our Code of Ethics will be provided to any person requesting same without charge. To request a copy of our Code of Ethics please make written request to our President c/o Single Touch Systems Inc. at 100 Town Square Place, Suite 204, Jersey City, NJ 07310.

Audit Committee

Our Board of Directors may designate from among its members an executive committee and one or more other committees. No such committees have been appointed to date.  Accordingly, we do not have an audit committee and or have not designated an audit committee financial expert. We are presently not required to have an audit committee financial expert but have recently expanded our board, added new directors and are presently evaluating the members to make a designation.  We have determined that for the purpose of and pursuant to the instructions of item 407(d) of regulation S-K titled Audit Committee Financial Expert, we have not completed our evaluations and therefore do not currently have a member acknowledged to possess the attributes of an “audit committee financial expert”.
 
 

 
Similarly we do not have a nominating committee or a committee performing similar functions.  Presently, our entire board serves the functions of an audit committee and a nominating committee.  We have not implemented procedures by which our security holders may recommend board nominees to us but expect to do so in the future.

The Board has recently directed the drafting of the charter and formation of the governance and nominating committee. Stuart R. Levine has been designated as Chairman of that committee. The governance and nominating committee has been directed to draft the charters for the audit committee and compensation committee, then make recommendations for chairs of those committees among the independent board members. Until these committees are completed, the full Board of Directors will undertake the duties of the audit committee, compensation committee and nominating committee.
 
Item 11.  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, 2011 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, 2011 and
 
all individuals who served as executive officers of ours at any time during the fiscal year ended September 30, 2011 and received annual compensation during the fiscal year ended September 30, 2011 in excess of $100,000.
 
SUMMARY COMPENSATION TABLE

Position
 
Year
 
Salary ($)
   
Bonus ($)
   
Stock Awards ($)
   
Option Awards ($)
   
Total ($)
 
Anthony Macaluso
 
2011
    322,582       0       2,700,000       205,182       3,227,764  
Executive Chairman   2010     275,000       0       0       3,140       278,140  
                                             
James Orsini
 
2011
    144,375       25,000       260,000       0       429,375  
Chief Executive Officer   2010     0       0       0       0       0  
                                             
John Quinn
 
2011
    4,327       0       30,000       0       34,327  
Chief Financial Officer   2010     0       0       0       0       0  
 
Employment Agreements and Benefits

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

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

 
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 was entitled to and did receive a $25,000 payment in respect of certain expenses. In addition, the agreement called for us to grant to him (and we accordingly did grant to him) 4,500,000 stock options under our 2010 Stock Plan; with one-third (with an exercise price of $0.63 per share) vesting on the first anniversary of his employment start date, one-third (with an exercise price of $0.90 per share) vesting on the second anniversary of his employment start date, and one-third (with an exercise price of $0.90 per share) vesting on the third anniversary of his employment start date. Vesting of his stock options shall accelerate if we experience a change in majority control. Mr. Orsini agreed not to compete with us during his employment and for two years thereafter.

If we terminate Mr. Orsini’s employment without cause or for disability or if he resigns for good reason (as those terms are defined in the agreement), or if we elect not to enter into a renewal term of the employment letter agreement, he will receive one year of salary continuation and one year of COBRA premium payments. In addition, if we terminate Mr. Orsini’s employment without cause or if he resigns for good reason, he will 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 will 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).

On September 26, 2011, we entered into an employment letter agreement with John Quinn, as our Chief Financial Officer, effective as of September 26, 2011. Pursuant to the agreement we pay Mr. Quinn an annual salary of $225,000.  The Agreement also calls for successive one-year renewals unless either party elects against renewal.  Mr. Quinn can also receive discretionary cash bonuses.
 
We also agreed to grant Mr. Quinn 100,000 shares of our common stock under our 2009 Employee and Consultant Stock Plan, subject to the following restriction:  all of such shares would have been forfeited to us if Mr. Quinn’s employment with us ceased for any reason; such restrictions and risk of forfeiture cliff-lapsed on December 25, 2011.
 
 
 
 
We also agreed to grant Mr. Quinn a total of 1,500,000 upfront stock options under our 2008 Stock Option Plan with 500,000 of the options (at an exercise price of $0.65 per share) vesting after one year of service, 500,000 of the options (at an exercise price of $0.90 per share) vesting after two years of service and 500,000 of the options (at an exercise price of $0.90 per share) vesting after three years of service.
 
Under the Agreement, if Mr. Quinn is terminated without cause or due to his disability, or if he resigns for good reason (all as defined in the Agreement) or if we elect not to renew his employment term, then upon giving us a release he shall be entitled to six months of salary continuation and six months of COBRA premiums payments.  Also, vesting of his stock options shall accelerate if Mr. Quinn is terminated without cause or if he resigns for good reason, or if we are acquired.
 
Equity Compensation

The following table reflects information for our executive officers named in the Summary Compensation Table, effective September 30, 2011.

Outstanding Equity Awards at Fiscal Year-End

Name
 
Number of securities underlying unexercised options exercisable (#)
 
Number of securities underlying unexercised options unexercisable (#)
 
Option exercise price($)
 
Option expiration date
Anthony Macaluso
 
50,000
50,000
1,200,000
 
 
1.38
1.38
0.90
 
7/28/2012
7/28/2013
12/9/2013
   
750,000
1,500,000
1,500,000
1,500,000
 
__
1,500,000
1,500,000
1,500,000
 
0.65
0.65
0.90
0.90
 
6/1/2016
6/1/2016
6/1/2016
6/1/2016
                 
James Orsini
 
1,500,000
1,500,000
 
1,500,000
1,500,000
 
0.63
0.90
 
5/16/2016
5/16/2016
   
1,500,000
 
1,500,000
 
0.90
 
5/16/2016
                 
John Quinn
 
500,000
500,000
500,000
 
500,000
500,000
500,000
 
0.65
0.90
0.90
 
9/26/2014
9/26/2014
9/26/2014

____________________


Director Compensation

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

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

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

There are currently no other regular cash compensation arrangements in place for members of the Board of Directors acting as such.  Directors may however be reimbursed their expenses, if any, for attendance at meetings of the Board of Directors.

The following table sets forth compensation received by our directors in fiscal year 2011.

Name
 
Fees earned or
paid in cash ($)
   
Stock awards ($)
   
Option awards ($)
   
All other
compensation ($)
   
Total ($)
 
Anthony Macaluso(2)
    0       0       0       0       0  
James Orsini(1)
    0       0       0       0       0  
Richard Siber
    0       0     $ 10,215       0     $ 10,215  
Stuart R. Levine
    0     $ 7,000     $ 10,215       0     $ 17,215  
_____________________
(1)
This table includes only his compensation which was expressly for service as a director.  Mr. Orsini received other compensation as an executive officer—see the Summary Compensation Table above.
(2)
This table includes only his compensation which was expressly for service as a director.  Mr. Macaluso received other compensation as an executive officer—see the Summary Compensation Table above.


Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth, as of December 20, 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., 100 Town Square Place, Suite 204, Jersey City, NJ 07310.  Shares of Common Stock subject to options, warrants, or convertible notes currently exercisable or convertible or exercisable or convertible within 60 days after December 20, 2010 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)
   
37,515,498
     
23.5
%
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
%
John Quinn
   
100,000
     
0.1
%
Nicole Macaluso (1)(5)
   
23,297,219
     
17.7
%
Mike Robert (6)
   
13,783,370
     
10.2
%
Stephen D. Baksa (4)
   
7,865,034
     
5.9
%
Stuart R. Levine (8)
   
25,000
     
0.0
%
                 
Officers and Directors as a Group (6 persons) (7)
   
49,005,532
     
30.7
%

(1)
Includes 2,050,000 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 21,997,219 shares owned directly or as custodian by Nicole Macaluso, which Mr. Macaluso has the right to vote pursuant to a proxy. Mr. Macaluso owns 8,388,970 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. Does not include 4,500,000 shares underlying stock options not exercisable within 60 days.
(2)
Includes 3,100,000 shares underlying stock options. Does not include 200,000 shares underlying stock options not exercisable within 60 days.
(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)
Includes shares held by him directly and in trust. Also includes 1,100,000 shares underlying warrants and 1,000,000 shares convertible pursuant to a promissory note.
(5)
The address for Ms. Macaluso is P. O. Box 1318, Rancho Santa Fe, CA 92067. Includes 50,000 shares underlying stock options and 1,250,000 shares underlying warrants. Ms. Macaluso owns 21,747,219 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 4,500,000 shares underlying warrants issued by us. Mr. Robert owns 9,228,370 shares outright and in the name of his retirement account.
(7)
Includes Messrs. Macaluso, Siber, Orsini, Baksa, Levine and Quinn.
(8)
Does not include 200,000 shares underlying stock options not exercisable within 60 days.
 

Item 13.  Certain Relationships and Related Transactions, and Director Independence
 
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 of $24,282 and $942,397 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.  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.
 
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.  The Company paid the balance due in full during the year ended September 30, 2011.

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 were exercised in June of 2011. Only 50,000 of the transferred warrants were outstanding at September 30, 2011.
 
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, several patents have been issued on these patent applications.

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

 
Macaluso 2010 Debt Conversion
 
On or shortly after June 28, 2010, Anthony Macaluso and his former spouse, Nicole Macaluso, converted a convertible promissory note’s principal balance of $2,319,512 into 28,993,896 shares of our common stock. Anthony Macaluso received 13,773,992 of these shares issued.
 
On June 28, 2010, we issued Anthony Macaluso a new convertible promissory note with a principal amount of $155,531, which represented $123,581 of accrued compensation (net of payroll taxes) plus the $31,950 accrued but unpaid interest due him on the converted $2,319,512 convertible promissory note. The new note matured on June 27, 2011, accrued interest at an annual rate of 1% and was convertible at the holder’s option into our common stock at $0.37 per share. We repaid, in May and June 2011, the entire principal amount of and all accrued interest on this new note.
 
On June 28, 2010, Activate, Inc. converted a convertible note’s principal balance of $73,445 into 918,063 shares of our common stock.
 
Cassina 2010 Debt Conversion
 
From time to time our then- director James Cassina advanced funds to us, and from time to time we have repaid some of the principal amount of and accrued interest on such advances. The net advances began accruing interest in December 2008 at an annual rate of 8%. On June 29, 2010, we issued 606,768 shares of common stock to him in satisfaction of the total balance of $224,511 (which included accrued interest of $25,011), for an effective conversion rate of $0.37 per share.
 
Soapbox Mobile, Inc. Related-Party Arrangements
 
Anthony Macaluso is currently the majority shareholder of Soapbox Mobile, Inc., which provided the use of certain equipment and software to us from February 2008 through June 2010 at a monthly rate of $4,000 and had been providing them to us from July 1, 2010 to June 30, 2011 at a monthly rate of $7,500.
 
On June 30, 2011, the Company entered into an agreement with Anthony Macaluso whereby the Company was granted an option to acquire his majority interest in Soapbox. Under the terms of the option grant, the Company was required to pay and did a deposit of $155,000 which will be refunded in the event the acquisition does not close. Under the option agreement as modified, the term is six months, during which both parties will perform due diligence necessary to determine the value of the majority interest and perform other actions necessary to complete the acquisition. The option has been extended to the nine months expiring March 31, 2012.
 
Director Independence
 
Our Board of Directors presently consists of five members. We believe three of the members are “independent," as defined by SEC rules adopted pursuant to the requirements of the Sarbanes-Oxley Act of 2002.  Although our stock is not listed for trading on the Nasdaq Stock Market at this time, we are required to determine the independence of our directors by reference to the rules of a national securities exchange or of a national securities association (such as the Nasdaq Stock Market).  In accordance with these requirements, we have determined that Richard Siber, Stuart R. Levine and Stephen D. Baksa are "independent directors," as determined in accordance with Rule 4200(a)(15) of the Marketplace Rules of the Nasdaq Stock Market, Inc.
 

 
 
Item 14.  Principal Accountant Fees and Services

Audit Fees

The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements and review of financial statements included in the registrant's Form 10-K or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years ending September 30, 2011 and 2010 were: $63,960 and $51,250, respectively.

Audit-Related Fees

No aggregate fees were billed in either of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of the registrant's financial statements and are not reported under item (1) for the fiscal years ending September 30, 2011 and 2010.

Tax Fees

No aggregate fees were billed for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning for the fiscal years ending September 30, 2011 and 2010.

All Other Fees

No other fees were billed for professional services provided by the principal accountant, other than the services reported above, for the fiscal years ending September 30, 2011 and 2010.

Audit Committee Pre-Approval Policies

Our officers performing such functions of an audit committee have approved the principal accountant's performance of services for the audit of the registrant's annual financial statements and review of financial statements included in our Form 10-K or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal year ending September 30, 2011.  Audit-related fees, tax fees, and all other fees, if any, were approved by officers performing such functions of an audit committee.

Work Performed by Others

The percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was less than 50 percent.
 
PART IV

Item 15.  Exhibits and Financial Statement Schedules

(a)(1) The following financial statements are included in Item 8 of Form 10-K:
 
 
 
 
 
 
(a)(2) Financial Statement Schedules:  
 
None.
 
(a)(3) Exhibits.
 
____________
 
Index to Exhibits

Exhibit
No.
 
 
Description
3.1
 
Certificate of Incorporation of Hosting Site Network, Inc. (currently known as Single Touch Systems Inc.) Incorporated by reference to Exhibit 3.1 to the registrant’s Registration Statement on Form SB-2, filed November 8, 2001.
3.2
 
Certificate of Amendment to Certificate of Incorporation of Hosting Site Network, Inc. (currently known as Single Touch Systems Inc.) Incorporated by reference to Exhibit 3.2 to Post-Effective Amendment No. 3 to the registrant’s Registration Statement on Form SB-2, filed April 11, 2002.
3.3
 
Certificate of Amendment to Certificate of Incorporation of Hosting Site Network, Inc. (currently known as Single Touch Systems Inc.) Incorporated by reference to Exhibit 3.3 to the registrant’s Current Report on Form 8-K, filed July 31, 2008.
3.4
 
Amended and Restated Bylaws of Hosting Site Network, Inc. (currently known as Single Touch Systems Inc.) Incorporated by reference to Exhibit 3.3 to Post-Effective Amendment No. 2 to the registrant’s Registration Statement on Form SB-2, filed February 8, 2002.
10.1
 
Form of Single Touch Interactive, Inc. Warrant ($1.00 exercise price (post-adjustment), expires July 11, 2015).  A total of 5,000,000 Warrants (post-adjustment) on this form were issued to two persons in 2005. Incorporated by reference to Exhibit 10.2 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.2.1
 
Single Touch Interactive, Inc. Warrant, as amended and re-issued ($0.70 exercise price (post-adjustment), subject to Board resetting; expires July 11, 2015).  1,250,000 Warrants (post-adjustment) on this form were re-issued to Jordan Schur on June 12, 2007. Incorporated by reference to Exhibit 10.2.1 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.3
 
Form of Single Touch Interactive, Inc. Warrant ($0.02 exercise price (post-adjustment), expires July 2012).  A total of 2,000,000 Warrants (post-adjustment) were issued on this form to 2 persons in 2007. Incorporated by reference to Exhibit 10.4 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
 
 
 
 
 
 
Exhibit
No.
 
Description
10.4
 
Services Agreement 20071210.103.C Between Single Touch Interactive, Inc. and AT&T Services, Inc. dated April 11, 2008. Incorporated by reference to Exhibit 10.6 to the registrant’s Annual Report on Form 10-K, filed January 14, 2010.
10.5.1
 
Amendment 20071210.103.A.001 to the Services Agreement 20071210.103.C Between Single Touch Interactive, Inc. and AT&T Services, Inc., dated March 20, 2009. Incorporated by reference to Exhibit 10.7 to the registrant’s Annual Report on Form 10-K, filed January 14, 2010.
10.5.2
 
Amendment 20071210.103.A.002 to Services Agreement 20071210.103.C Between Single Touch Interactive, Inc. and AT&T Services, Inc., dated October 25, 2010. Incorporated by reference to Exhibit 10.6.2 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.6+
 
2008 Stock Option Plan for Single Touch Systems Inc. (formerly Hosting Site Network, Inc.) Incorporated by reference to Exhibit 10.10 to the registrant’s Current Report on Form 8-K, filed July 31, 2008.
10.6.1+
 
Form of Notice of Stock Option Grant/Stock Option Agreement under 2008 Stock Option Plan. Incorporated by reference to Exhibit 10.7.1 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.7
 
Non-Exclusive Special Advisory Services Agreement between Peltz Capital Management, LLC and us, dated October 30, 2008. Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K, filed November 5, 2008.
10.7.1
 
(Form of) Warrant issued by us in favor of Peltz Capital Management, LLC, dated October 30, 2008. Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K, filed November 5, 2008. The form of Warrant is attached thereto as Exhibit A
10.7.2
 
(Form of) Registration Rights Agreement between Peltz Capital Management, LLC and us, dated October 30, 2008. Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K, filed November 5, 2008. The form of Registration Rights Agreement is attached thereto as Exhibit B.
10.7.3
 
Settlement and Release Agreement, among Peltz Capital Management, LLC, Anthony Macaluso and Single Touch Systems, Inc., effective September 29, 2010. Incorporated by reference to Exhibit 10.33 to the registrant’s Annual Report on Form 10-K, filed December 29, 2010.
10.8+
 
2009 Employee and Consultant Stock Plan. Incorporated by reference to Exhibit 4 to the registrant’s Registration Statement on Form S-8 (SEC File No. 333-163557), filed December 8, 2009.
10.8.1+
 
Form of stock grant acknowledgement letter under 2009 Employee and Consultant Stock Plan. Incorporated by reference to Exhibit 10.16.1 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.9
 
Non-Exclusive Placement Agency Agreement with Financial West Investment Group, Inc., dated November 30, 2009. Incorporated by reference to Exhibit 10.17 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.10
 
Common Stock Purchase Agreement, between Mike Robert and us, dated December 13, 2009. Incorporated by reference to Exhibit 10.18 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.10.1
 
Form of Warrant ($1.00 exercise price, expires December 13, 2011).  1,750,000 Warrants on this form were issued to Mike Robert on December 13, 2009. Incorporated by reference to Exhibit 10.18.1 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.11
 
Engagement letter agreement with Gar Wood Securities, LLC, dated January 1, 2010. Incorporated by reference to Exhibit 10.19 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
     
10.11.1
 
Form of Warrant to Purchase Common Stock ($1.00 exercise price, expires December 31, 2012).  A total of 1,000,000 Warrants on this form were issued in favor of Gar Wood Securities, LLC and its affiliates on January 1, 2010. Incorporated by reference to Exhibit 10.19.1 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
 
 
 
 
Exhibit
No.
 
Description
10.12
 
Common Stock Purchase Agreement, between Mike Robert and us, dated January 7, 2010. Incorporated by reference to Exhibit 10.20 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.12.1
 
Form of Warrant ($1.00 exercise price, expires January 7, 2012).  1,750,000 Warrants on this form were issued to Mike Robert on January 7, 2010. Incorporated by reference to Exhibit 10.20.1 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.13
 
Form of Common Stock Purchase Agreement.  We entered into respective agreements on this form with Zanett Opportunity Fund Ltd. and its affiliates, dated January 8, 2010, calling for the issuance of a total of 1,459,459 shares of common stock and 510,811 Warrants. Incorporated by reference to Exhibit 10.21 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.13.1
 
Form of Warrant ($1.50 exercise price, expires January 11, 2012).  A total of 510,811 Warrants on this form were issued to Zanett Opportunity Fund Ltd. and its affiliates on January 11, 2010. Incorporated by reference to Exhibit 10.21.1 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.14
 
Form of Common Stock Purchase Agreement.  We entered into respective agreements on this form with 38 persons between January and May 2010 calling for the issuance of 9,735,132 shares of common stock. Incorporated by reference to Exhibit 10.22 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.14.1
 
Form of Warrant to Purchase Common Stock (1.00 exercise price, expires 3 years from issuance).  A total of 100,273 Warrants were issued to our placement agent Gar Wood Securities, LLC and its affiliates on this form on May 10, 2010. Incorporated by reference to Exhibit 10.22.1 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.14.2
 
Form of Warrant to Purchase Common Stock (1.00 exercise price, expires 3 years from issuance).  A total of 55,541 Warrants were issued to our placement agent Financial West Investment Group, Inc. and its affiliates on this form on May 28, 2010. Incorporated by reference to Exhibit 10.22.2 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.15
 
Convertible Promissory Note ($500,000) issued by us in favor of Mike Robert, dated March 12, 2010. Incorporated by reference to Exhibit 10.23 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.15
 
Warrant to purchase 1,000,000 shares ($0.75 exercise price, expires March 12, 2012), issued by us to Mike Robert, dated March 12, 2010. Incorporated by reference to Exhibit 10.24 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.16
 
Confidential Patent Purchase Agreement among Microsoft Corporation, Microsoft Licensing, GP and Single Touch Interactive, Inc., dated March 15, 2010. Incorporated by reference to Exhibit 10.8 to the registrant’s Quarterly Report on Form 10-Q, filed May 14, 2010.
10.17+
 
Single Touch Interactive, Inc.  Convertible Promissory Note for $151,367 in favor of Anthony Macaluso, dated June 28, 2010. Incorporated by reference to Exhibit 10.26 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.18+
 
Single Touch Interactive, Inc.  Convertible Promissory Note for $632,035 in favor of Activate, Inc., dated June 28, 2010. Incorporated by reference to Exhibit 10.27 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.19
 
Form of Settlement, Release and Discharge.  We entered into respective agreements on this form with 4 persons on June 29, 2010 calling for the issuance of a total 1,607,521 shares of common stock.  One of persons was James Cassina (606,768 shares). Incorporated by reference to Exhibit 10.28 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
     
10.20
 
Form of Common Stock Purchase Agreement.  We entered into respective agreements on this form with 27 persons in July 2010 calling for the issuance of units comprising a total of 8,225,339 shares of common stock and 2,056,334 Warrants. Incorporated by reference to Exhibit 10.29 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
 
 
 
 
Exhibit
No.
 
Description
10.20.1
 
Form of Warrant to Purchase Common Stock ($1.00 exercise price, expires July 15, 2013).  A total of 2,056,334 Warrants on this form were issued to 27 persons on July 16, 2010.  Also, in connection therewith, the compensation we paid to our placement agent Gar Wood Securities, LLC included issuing to it and its affiliates 169,528 Warrants on this form. Incorporated by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K, filed July 21, 2010.
10.21
 
Settlement Agreement and Mutual General Release, among Fort Ashford Funds, LLC, Frank Kavanaugh, Single Touch Interactive, Inc., Anthony Macaluso and us, dated September 30, 2010. Incorporated by reference to Exhibit 10.30 to the registrant’s Registration Statement on Form S-1, filed November 12, 2010.
10.22
 
Settlement Agreement and Mutual General Release, among Ted Cooper and Single Touch Systems, Inc., dated December 14, 2010. Incorporated by reference to Exhibit 10.31 to the registrant’s Annual Report on Form 10-K, filed December 29, 2010.
10.23+
 
2010 Stock Option Plan. Incorporated by reference to Exhibit 10.32 to the registrant’s Annual Report on Form 10-K, filed December 29, 2010
10.23.1+
 
Certificate regarding amendment of 2010 Stock Plan. Incorporated by reference to Exhibit 10.32.1 to the registrant’s registration statement on Form S-1, filed June 24, 2011.
10.23.2+
 
Form of Notice of Stock Option Grant/Stock Option Agreement under 2010 Stock Plan. Incorporated by reference to Exhibit 10.32.2 to the registrant’s registration statement on Form S-1, filed June 24, 2011
10.24+
 
Employment letter agreement, between James Orsini and us, dated March 10, 2011. Incorporated by reference to Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q, filed May 16, 2011
10.24.1+
 
Amendment of employment letter agreement, between James Orsini and us, dated May 16, 2011. Incorporated by reference to Exhibit 10.33.1 to the registrant’s registration statement on Form S-1, filed June 24, 2011.
10.25+
 
Employment letter agreement, between Anthony Macaluso and us, dated June 3, 2011, as of June 1, 2011. Incorporated by reference to Exhibit 10.34 to the registrant’s registration statement on Form S-1, filed June 24, 2011.
     
21
 
List of Subsidiaries. Incorporated by reference to Exhibit 21 to the registrant’s Current Report on Form 8-K, filed July 31, 2008.
 
     
 
 
 
 
____________

*
Filed herewith
+
Each of these Exhibits constitutes a management contract, compensatory plan, or arrangement.
 
 
 
 
 

 
 
 
Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders
Single Touch Systems
Encinitas, California

We have audited the accompanying consolidated balance sheets of Single Touch Systems ("the Company") as of September 30, 2011 and 2010 and the related consolidated statements of operations, changes in stockholders' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Single Touch Systems as of September 30, 2011 and 2010, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.


/s/ Weaver, Martin & Samyn LLC
Weaver, Martin & Samyn LLC
 Kansas City, Missouri
December 29, 2011

 
 
 
 
 
 
 
 
SINGLE TOUCH SYSTEMS, INC
           
CONSOLIDATED BALANCE SHEETS
 
               
     
September 30,
 
     
2011
   
2010
 
               
Assets
           
Current assets
           
 
Cash and cash equivalents
  $ 523,801     $ 4,040,169  
 
Accounts receivable - trade
    907,275       514,327  
 
Accounts receivable - related party
    -       36,762  
 
Prepaid expenses
    93,872       212,034  
 
Other current asset
    155,000       -  
                   
 
Total current assets
    1,679,948       4,803,292  
                   
Property and equipment, net
    303,214       203,091  
                   
Other assets
               
 
Capitalized software development costs, net
    395,188       305,710  
 
Intangible assets:
               
 
Patents
    714,623       779,846  
 
Patent applications cost
    544,240       428,729  
 
Deposits and other assets
    99,481       15,282  
                   
 
Total other assets
    1,753,532       1,529,567  
                   
 
Total assets
  $ 3,736,694     $ 6,535,950  
 
 
 
 
 
See accompanying notes.
 
 
 
SINGLE TOUCH SYSTEMS, INC
           
CONSOLIDATED BALANCE SHEETS - continued
 
             
   
September 30,
 
   
2011
   
2010
 
             
Liabilities and Stockholders' Equity (Deficit)
           
Current liabilities
           
Accounts payable and other accrued expenses
  $ 1,178,057     $ 461,364  
Accrued compensation
    176,232       77,950  
Accrued compensation - related party
    36,410       -  
Current obligation on patent acquisitions
    163,680       175,000  
Convertible debentures - related parties, including accrued interest,
               
net of discounts of $575,857
    -       197,280  
                 
Total current liabilities
    1,554,379       911,594  
                 
Long-term liabilities
               
Obligation on patent acquisitions
    -       141,865  
                 
Total liabilities
    1,554,379       1,053,459  
                 
Stockholders' Equity (Deficit)
               
Preferred stock,  $.0001 par value, 5,000,000 shares authorized;
               
none outstanding
    -       -  
Common stock, $.001 par value; 200,000,000 shares authorized,
               
130,182,392 shares issued and outstanding as of September 30, 2011
               
and 123,676,892 shares issued and outstanding as of September 30, 2010
    130,182       123,677  
Additional paid-in capital
    123,446,398       118,768,416  
Accumulated deficit
    (121,394,265 )     (113,409,102 )
Common stock subscriptions receivable
    -       (500 )
                 
Total stockholders' equity (deficit)
    2,182,315       5,482,491  
                 
Total liabilities and stockholders' equity (deficit)
  $ 3,736,694     $ 6,535,950  
 
 
 
 
See accompanying notes.

 
 
SINGLE TOUCH SYSTEMS, INC
           
CONSOLIDATED STATEMENTS OF OPERATIONS
 
               
     
For the Year Ended
 
     
September 30,
 
     
2011
   
2010
 
               
Revenue
           
Wireless applications
  $ 4,579,862     $ 792,564  
                   
Operating Expenses
               
Royalties and application costs
    2,543,885       651,028  
Research and development
    78,860       84,240  
Compensation expense (including stock based
    5,468,643       1,422,020  
 
compensation of $3,634,268 in 2011 and $52,439 in 2010)
               
Depreciation and amortization
    633,535       611,897  
General and administrative (including stock based
               
 
compensation of $958,162 in 2011 and $1,185,281 in 2010)
    3,161,751       2,729,286  
        11,886,674       5,498,471  
                   
Loss from operations
    (7,306,812 )     (4,705,907 )
                   
Other Income (Expenses)
               
Net gain (loss) on settlement of indebtedness
    (651,315 )     (2,738,985 )
Changes in fair value of derivative and warrant liability
    -       (3,946,275 )
Interest expense
    (26,236 )     (812,785 )
                   
Net (loss) before income taxes
    (7,984,363 )     (12,203,952 )
                   
Provision for income taxes
    (800 )     (800 )
                   
Net income (loss)
  $ (7,985,163 )   $ (12,204,752 )
                   
Basic and diluted loss per share
  $ (0.06 )   $ (0.14 )
                   
Weighted average shares outstanding
    127,817,223       85,055,249  
 
 
 
 
 
See accompanying notes.
 
 
 
SINGLE TOUCH SYSTEMS, INC
                                   
STATEMENT OF STOCKHOLDERS' (DEFICIT)
                               
FROM OCTOBER 1, 2009 THROUGH SEPTEMBER 30, 2011
 
                                     
               
Additional
         
Common
       
   
Common Stock
   
Paid-in
   
Accumulated
   
Shares
       
   
Shares
   
Amount
   
Capital
   
Deficit
   
Subscribed
   
Total
 
                                     
Balance - September 30, 2009
    64,442,417     $ 64,442     $ 92,568,239     $ (101,204,350 )   $ -     $ (8,571,669 )
Shares issued for cash
    24,519,927       24,520       11,587,485       -       -       11,612,005  
Compensation to placement agents on warrant grants
    -       -       558,200       -       -       558,200  
Offering costs - cash
    -       -       (312,770 )     -       -       (312,770 )
Offering costs - compensation recognized on warrant granted to placement agents
    -       -       (558,200 )     -       -       (558,200 )
Reclass of warrant liability to permanent equity pursuant to modification in terms of warrant grant
    -       -       8,658,675       -       -       8,658,675  
Shares issued in cashless exercise of warrants
    113,198       113       (113 )     -       -       -  
Shares issued in cancellation of  convertible debt and accrued interest
    32,938,850       32,939       5,312,541       -       -       5,345,480  
Shares issued in cancelation of payables for professional services
    612,500       613       465,667       -       -       466,280  
Recognition of beneficial conversion feature on issuance of convertible debt
    -       -       1,289,181       -       -       1,289,181  
Compensation recognized on vesting of option grants
    -       -       85,094       -       -       85,094  
Amortization of beneficial conversion feature on related party debt
                    (1,255,033 )     -       -       (1,255,033 )
Shares issued pursuant to settlement agreement
    1,000,000       1,000       849,000       -       -       850,000  
Shares issued pursuant to subscription receivable
    50,000       50       450       -       (500 )     -  
Payment under terms of modified warrant agreement     -       -       (480,000 )     -       -       (480,000 )
Net loss for the year ended September 30, 2010
    -       -       -       (12,204,752 )     -       (12,204,752 )
Balance - September 30, 2010
    123,676,892       123,677       118,768,416       (113,409,102 )     (500 )   $ 5,482,491  
Shares issued in cashless exercise of warrants
    944,316       944       (944 )     -       -       -  
Shares issued for services
    3,625,000       3,625       3,043,375       -       -       3,047,000  
Compensation recognized on option and warrant grants
    -       -       1,545,430       -       -       1,545,430  
Shares issued on exercise of options
    1,212,500       1,212       15,388       -       -       16,600  
Shares issued in settement of shareholder claim
    723,684       724       650,591       -       -       651,315  
Amortization of beneficial conversion feature on related party debt
    -       -       (575,858 )     -       -       (575,858 )
Cash received on subscription receivable
    -       -       -       -       500       500  
Net loss for the year ended September 30, 2011
    -       -       -       (7,985,163 )     -       (7,985,163 )
Balance - September 30, 2011
    130,182,392     $ 130,182     $ 123,446,398     $ (121,394,265 )   $ -     $ 2,182,315  

 
See accompanying notes.
 
 
SINGLE TOUCH SYSTEMS, INC
           
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
             
   
For the Year Ended
 
   
September 30,
 
   
2011
   
2010
 
             
Cash Flows from Operating Activities
           
Net loss
  $ (7,985,163 )   $ (12,204,752 )
Adjustments to reconcile net loss to net cash
               
used in operating activities:
               
Depreciation expense
    95,945       99,875  
Impairment loss
    -       218,776  
Bad debts
    105,632       -  
Loss on settlement of debt
    651,316       2,773,437  
Amortization expense - software development costs
    412,632       438,445  
Amortization expense - patents
    124,959       73,578  
Amortization expense - discount of convertible debt
    -       500,000  
Stock based compensation
    4,592,430       1,237,720  
(Increase) decrease in assets
               
(Increase) decrease in accounts receivable
    (461,818 )     (424,918 )
(Increase) decrease in prepaid expenses
    142,015       (180,405 )
(Increase) decrease in deposits and other assets
    11,051       -  
Increase (decrease) in liabilities
               
Increase (decrease) in accounts payable
    683,965       (581,332 )
Increase (decrease) in accrued compensation
    110,838       (526,825 )
Increase (decrease) in accrued compensation
               
due related party
    -       (206,956 )
Increase (decrease) in accrued expenses
    (1,344 )     -  
Increase (decrease) in accrued interest
    12,253       162,553  
Decrease (increase) in derivative liability
    -       3,946,275  
                 
Net cash used in operating activities
    (1,505,289 )     (4,674,529 )
                 
Cash Flows from Investing Activities
               
Option paid to related party to acquire majority
               
interest in Soapbox Mobile, Inc
    (155,000 )     -  
Investment in certificate of deposit, pledged
    (95,250 )     -  
Acquisition of patents and patent applications
    (111,177 )     (899,774 )
Purchase of property and equipment
    (196,067 )     (69,248 )
Capitalized software development costs
    (502,110 )     (528,166 )
                 
Net cash used in investing activities
  $ (1,059,604 )   $ (1,497,188 )
 
 
See accompanying notes.
 
 
 
SINGLE TOUCH SYSTEMS, INC
           
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
 
             
   
For the Year Ended
 
   
September 30,
 
   
2011
   
2010
 
             
Cash Flows from Financing Activities
               
Proceeds from issuance of common stock
  $ 17,100     $ 11,612,005  
Expenditures relating to private offerings
    (30,000 )     (312,770 )
Proceeds received from related parties
    17,685       -  
Repayments on related party advances
    (790,822 )     (521,685 )
Proceeds from issuance of debt to others
    -       500,000  
Repayments on debt to others
    (165,438 )     (875,222 )
Payment relating to modification of terms on warrant agreement
    -       (450,000 )
                 
Net cash provided by (used in) financing activities
    (951,475 )     9,952,328  
                 
Net increase (decrease) in cash
    (3,516,368 )     3,780,611