SITO MOBILE, LTD. - Quarter Report: 2013 June (Form 10-Q)

singletouch10q063013.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ____________ to ____________

Commission file number: 000-53744

Single Touch Systems Inc.

(Exact name of small business issuer as specified in its charter)

Delaware	13-4122844
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

100 Town Square Place, Suite 204

Jersey City, NJ 07310

(Address of principal executive offices)

(201) 275-0555

(Registrants telephone number, including area code)

_____________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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. x Yes o 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). x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company; as defined within Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

The number of shares outstanding of each of the issuer's classes of common equity as of June 30, 2013: 135,755,980 shares of common stock.

Table of Contents

Contents

		Page
		Number

PART I	FINANCIAL INFORMATION	1

Item 1	Interim Financial Statements June 30, 2013	1

	Condensed Consolidated Balance Sheets	1-2

	Condensed Consolidated Statement of Operations	3

	Condensed Consolidated Statement of Cash Flows	4-6

	Notes to the Interim Financial Statements	7-17

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3	Quantitative and Qualitative Disclosures About Market Risk	25

Item 4	Controls and Procedures	25

PART II	OTHER INFORMATION	26

Item 1	Legal Proceedings	26

Item1A	Risk Factors	26

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	26

Item 3	Defaults Upon Senior Securities	26

Item 4	Mine Safety Disclosures	26

Item 5	Other Information	26

Item 6	Exhibits	27

SIGNATURES		27

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1 - Interim Financial Statements June 30, 2013

SINGLE TOUCH SYSTEMS, INC
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,		September 30,
	2013		2012

Assets
Current assets
Cash and cash equivalents	$	665,884	$	2,157,707
Accounts receivable - trade		1,283,459		1,085,840
Employee advances		3,316		-
Prepaid expenses		815,480		129,290

Total current assets		2,768,139		3,372,837

Property and equipment, net		249,789		228,499

Other assets
Capitalized software development costs, net		373,223		383,227
Intangible assets:
Patents		501,391		602,056
Patent applications cost		755,619		667,858
Software license		831,000		76,000
Deposit - related party		-		155,000
Other assets including security deposits		84,278		84,278

Total other assets		2,545,511		1,968,419

Total assets	$	5,563,439	$	5,569,755

See accompanying notes.

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SINGLE TOUCH SYSTEMS INC
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,			September 30,
	2013			2012


Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	1,356,107		$	768,263
Accrued expenses		230,970			200,591
Accrued compensation - related party		73,260			72,730
Current obligation under capital lease		19,568			-
Current obligation on patent acquisitions		-			87,500
Convertible debentures - unrelated parties		-			294,241
Total current liabilities		1,679,905			1,423,325

Long-term liabilities
Deferred revenue		-			25,000
Obligation under capital lease		33,543			-
Convertible debenture - related party		570,979			527,512
Convertible debentures - unrelated parties		3,033,545			2,685,280
Total long-term liabilities		3,638,067			3,237,792

Total liabilities		5,317,972			4,661,117

Stockholders' Equity
Preferred stock, $.0001 par value, 5,000,000 shares authorized;
none outstanding		-			-
Common stock, $.001 par value; 200,000,000 shares authorized,
135,755,980 shares issued and outstanding as of June 30, 2013
and 132,472,392 shares issued and outstanding as of September 30, 2012		135,756			132,472
Additional paid-in capital		129,326,641			125,425,617
Accumulated deficit		(129,216,930	)		(124,649,451	)

Total stockholders' equity		245,467			908,638

Total liabilities and stockholders' equity	$	5,563,439		$	5,569,755

See accompanying notes.

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SINGLE TOUCH SYSTEMS INC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



		For the Three Months Ended						For the Nine Months Ended
		June 30,						June 30,
		2013			2012			2013			2012

Revenue
Wireless applications		$	1,924,472		$	1,585,195		$	5,680,586		$	4,729,691

Operating Expenses
Royalties and application costs			804,937			776,881			2,465,270			2,194,512
Research and development			13,264			17,236			46,020			70,486
Compensation expense (including stock based
	compensation)*		764,559			959,195			3,155,100			2,332,979
Depreciation and amortization			163,292			179,534			478,227			498,609
General and administrative (including stock based compensation) *			950,488			478,707			3,024,169			1,587,120
			2,696,540			2,411,553			9,168,786			6,683,706

Loss from operations			(772,068	)		(826,358	)		(3,488,200	)		(1,954,015	)

Other Income (Expenses)
Interest income			20			-			61			-
Interest expense			(490,987	)		(144,380	)		(1,078,540	)		(310,457	)

	Net (loss) before income taxes		(1,263,035	)		(970,738	)		(4,566,679	)		(2,264,472	)

	Provision for income taxes		-			-			(800	)		(800	)

	Net income (loss)	$	(1,263,035	)	$	(970,738	)	$	(4,567,479	)	$	(2,265,272	)

Basic and diluted loss per share		$	(0.01	)	$	(0.01	)	$	(0.03	)	$	(0.02	)

Weighted average shares outstanding			134,185,887			131,710,414			133,101,030			130,779,655



*	Details of stock based compensation included within:

Compensation Expense		$	144,244		$	290,528		$	1,253,964		$	290,528
General and administrative		$	209,517		$	-		$	696,760		$	90,022
Total		$	353,761		$	290,528		$	1,950,724		$	380,550

See accompanying notes.

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SINGLE TOUCH SYSTEMS INC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Nine Months Ended
	June 30,
	2013			2012

Cash Flows from Operating Activities
Net loss	$	(4,567,479	)	$	(2,265,272	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation expense		68,833			82,574
Amortization expense - software development costs		308,730			319,498
Amortization expense - patents		100,664			96,537
Amortization expense - discount of convertible debt		727,704			188,282
Stock based compensation		1,950,724			380,550
(Increase) decrease in assets
(Increase) decrease in accounts receivable		(197,620	)		(190,644	)
(Increase) decrease in employee advances		(3,316	)		-
(Increase) decrease in prepaid expenses		(100,932	)		2,309
(Increase) decrease in deposits and other assets		-			(3,847	)
Increase (decrease) in liabilities
Increase (decrease) in accounts payable		567,131			(478,443	)
Increase (decrease) in accrued expenses		30,910			15,623
Increase (decrease) in deferred revenue		(25,000	)		25,000
Increase (decrease) in accrued interest		167,487			122,174

Net cash used in operating activities		(972,164	)		(1,705,659	)

Cash Flows from Investing Activities
Patents and patent applications costs		(87,761	)		(113,902	)
Purchase of property and equipment		(16,297	)		(29,370	)
Capitalized software development costs		(298,726	)		(321,345	)
Payment on settlement regarding Anywhere software license		(600,000	)		(30,000	)

Net cash used in investing activities	$	(1,002,784	)	$	(494,617	)

See accompanying notes.

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SINGLE TOUCH SYSTEMS INC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Nine Months Ended
	June 30,
	2013			2012

Cash Flows from Financing Activities
Proceeds from issuance of common stock		131,100			318,000
Proceeds from issuance of convertible debt - unrelated parties		688,000			1,500,000
Proceeds from issuance of convertible debt - related parties		-			500,000
Principal reduction on convertible debt		(200,000	)		-
Expenditures relating to private offerings		(48,475	)		-
Repayments on related party loans		-			-
Principal reduction on obligation on patent purchases		(87,500	)		(87,500	)

Net cash provided by (used in) financing activities		483,125			2,230,500

Net increase (decrease) in cash		(1,491,823	)		30,224

Beginning balance - cash		2,157,707			523,801

Ending balance - cash	$	665,884		$	554,025

Supplemental Information:
Interest expense paid	$	183,349		$	-
Income taxes paid	$	800		$	800

Non-cash investing and financing activities:

	For the nine months ended June 30, 2013

	During the nine months ended June 30,2013, the Company received $688,000 through the issuance of
	convertible debt including common stock warrants to purchase 1,376,000 shares of the Company's common
	stock at $0.25 per share. The Company recognized discounts against the principal amounts due totaling
	$163,849 with an offsetting amount charged to equity. (See Note 10)

	In connection with the above debt issuance, the Company paid placement fees that included cash
	totaling $48,475 and warrants to purchase 110,000 shares of the Company's common stock at $0.304
	per share. The warrants were valued at $27,445. The total placement fee of $75,920 is recognized as
	a loan fee and is reflected in the balance sheet as an additional discount against the principal and accrued
	interest due on the underlying convertible debt. (See Note 10)

	During the nine months ended June 30, 2013, the Company's Executive Chairman granted
	an option to a third party to purchase a total of 5,750,000 shares of the Company's common stock
	personally owned by him. Of the 5,750,000 options granted, 3,750,000 have an exercise price of $0.295
	per share and 2,000,000 have an exercise price of $0.48 per share. The options expire two years from
	date of grant. The options were granted in exchange for consulting services that directly benefit the
	Company. Therefore, the Company recorded the fair value of the options granted of $847,300 to equity
	as contributed capital with an offset to prepaid expense. The $847,300 is being amortized to operations
	over the two-year term of the consulting agreement (See Note 11).

See accompanying notes.

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SINGLE TOUCH SYSTEMS INC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued


Non-cash investing and financing activities (continued):

	For the nine months ended June 30, 2013 - continued

	During the nine months ended June 30, 2013, the Company recognized stock-based compensation
	totaling $1,950,724 of which $1,198,957 was recognized on the vesting of 6,449,000 options, $489,726
	was recognized as additional compensation on the November 30, 2012 modification of 17,134,334
	previously granted options, and $262,041 from the above indicated amortization of prepaid consulting expense.

	During the nine months ended June 30, 2013, debt and accrued interest totaling $1,052,000 was converted into
	2,104,000 shares the Company's common stock

	During the nine months ended June 30, 2013, the Company received $131,100 in consideration for the
	exercise of 689,000 common-stock warrants.

	During the nine months ended June 30, 2013, the Company issued 490,588 shares of its common stock
	to a former Director through the cashless exercise of 1,550,000 common-stock options

	During the nine months ended September 30 2013, the Company charged amortization of a beneficial
	conversion feature on convertible debt due to a Director of $6,070 to equity.

	For the nine months ended June 30, 2012

	During the nine months ended June 30, 2012, the Company received $2,000,000 through the issuance of
	convertible debt including common stock warrants to purchase 4,000,000 shares of the Company's
	common stock at $0.25 per share. The Company recognized discounts against the principal amounts due
	totaling $464,252 with an offsetting amount charged to equity. The discount is being amortized over the
	one year term of the respective debt instrument. The discounts consist of the relative fair value of the
	warrants totaling $412,736 and the relative fair value of beneficial conversion features totaling $51,516.

	During the nine months ended June 30 2012, the Company agreed to modify the terms of warrants granted
	to a consultant under a new agreement replacing a prior June 2011 agreement to purchase 1,000,000 shares
	of the Company's common stock. Under the modified terms, the exercise price was reduced from $0.80 per
	share to $0.40 per share and the expiration date of the warrants was extended from June 14, 2014 to
	December 14, 2014. The Company recognized compensation expense during the period of $53,600 on the
	modification.

	During the nine months ended June 30, 2012, the Company was granted a perpetual license to utilize the
	Anywhere software. In consideration for the license, the Company agreed to pay $30,000 and issue
	200,000 shares of its common stock. The license was valued at $76,000 (See Note 6). The $30,000 was
	paid April 2012.

	During the nine months ended June 30, 2012, the Company recognized stock based compensation of
	$326,950 on the vesting of 4,000,000 options.

	During the nine months ended June 30, 2012, the Company charged amortization of a beneficial
	conversion feature on convertible debt due to a Director of $57,193 to equity.

See accompanying notes.

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SINGLE TOUCH SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization, History and Business

Single Touch Systems Inc. (the “Company”) was incorporated in Delaware on May 31, 2000, under its original name, Hosting Site Network, Inc. On May 12, 2008, the Company changed its name to Single Touch Systems Inc.

The Company offers its patented technologies via a modular, adaptable platform and a multi-channel messaging gateway to its customers, enabling them to reach consumers on all types of connected devices.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position of the Company as of June 30, 2013, and the results of its operations and cash flows for the three months and nine-months ended June 30, 2013 and 2012. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to rules and regulations of the U.S. Securities and Exchange Commission (the “Commission”). The Company believes that the disclosures in the unaudited condensed consolidated financial statements are adequate to make the information presented not misleading. However, the unaudited condensed consolidated financial statements included herein should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2012 filed with the Commission on January 2, 2013.

2. Summary of Significant Accounting Policies

Reclassification

Certain reclassifications have been made to conform the 2012 amounts to the 2013 classifications for comparative purposes.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Single Touch Systems Inc. and its wholly- owned subsidiaries, Single Touch Interactive, Inc., and Single Touch Interactive R&D IP, Inc. (formed in Nevada on October 8, 2012). Intercompany transactions and balances have been eliminated in consolidation.

Revenue Recognition

Revenue is derived on a per-message/notification basis through the Company’s patented technologies and a modular, adaptable platform designed to create multi-channel messaging gateways for all types of connected devices. The Company also earns revenue for services, such as programming, licensure on Software as a Service (“SaaS”) basis, and on a performance basis, such as when a client acquires a new customer through the Company’s platform. 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.

Accounts Receivable

Accounts receivable is reported at the customers’ outstanding balances, less any allowance for doubtful accounts. Interest is not accrued on overdue accounts receivable.

Allowance for Doubtful Accounts

An allowance for doubtful accounts on accounts receivable is charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and information collected from individual customers. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired.

Property and Equipment

Property and equipment are stated at cost. Major renewals and improvements are charged to the asset accounts while replacements, maintenance and repairs that do not improve or extend the lives of the respective assets are expensed. At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to income.

Depreciation is computed on the straight-line and accelerated methods for financial reporting and income tax reporting purposes based upon the following estimated useful lives:

Software development	2- 3 years
Equipment	5 years
Computer hardware	5 years
Office furniture	7 years

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SINGLE TOUCH SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Long-Lived Assets

The Company accounts for its long-lived assets in accordance with Accounting Standards Codification (“ASC”) Topic 360-10-05, “Accounting for the Impairment or Disposal of Long-Lived Assets.” ASC Topic 360-10-05 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value or disposable value. The Company determined that none of its long-term assets at June 30, 2013 were impaired.

Prepaid Royalties

The Company’s agreements with licensors and developers generally provide it with exclusive publishing rights and require it to make advance royalty payments that are recouped against royalties due to the licensor or developer based on product sales. Prepaid royalties are amortized on a software application-by-application basis, based on the greater of the proportion of current year sales to total current and estimated future sales or the contractual royalty rate based on actual net product sales. The Company continually evaluates the recoverability of prepaid royalties and charges to operations the amount that management determines is probable that will not be recouped at the contractual royalty rate in the period in which such determination is made or at the time the Company determines that it will cancel a development project. Prepaid royalties are classified as current and non-current assets based upon estimated net product sales within the next year.

Capitalized Software Development Costs

The Company capitalizes internal software development costs subsequent to establishing technological feasibility of a software application. Capitalized software development costs represent the costs associated with the internal development of the Company’s software applications. Amortization of such costs is recorded on a software application-by-application basis, based on the greater of the proportion of current year sales to total of current and estimated future sales for the applications or the straight-line method over the remaining estimated useful life of the software application. The Company continually evaluates the recoverability of capitalized software costs and will charge to operations amounts that are deemed unrecoverable for projects it abandons.

Issuances Involving Non-cash Consideration

All issuances of the Company’s stock for non-cash consideration have been assigned a dollar amount equaling the market value of the shares issued on the date the shares were issued for such services and property. The non-cash consideration paid pertains to consulting services and the acquisition of a software license (See Note 6).

Stock Based Compensation

The Company accounts for stock-based compensation under ASC Topic 505-50, formerly Statement of Financial Accounting Standards (“SFAS”) No. 123R, "Share-Based Payment” and SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - An amendment to SFAS No. 123.” These standards define a fair-value-based method of accounting for stock-based compensation. In accordance with SFAS Nos. 123R and 148, the cost of stock-based compensation is measured at the grant date based on the value of the award and is recognized over the vesting period. The value of the stock-based award is determined using the Binomial or Black-Scholes option-pricing models, whereby compensation cost is the excess of the fair value of the award as determined by the pricing model at the grant date or other measurement date over the amount that must be paid to acquire the stock. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period.

During the three months ended June 30, 2013, the Company recognized stock-based compensation expense totaling $353,761, of which $248,139 was recognized through the vesting of 3,250,000 common stock options and $105,622 was recognized as compensation during the period on the amortization of the fair value of 5,750,000 options granted personally by the Executive Chairman to a third-party consultant (See Note 11). During the nine months ended June 30, 2013, the Company recognized stock-based compensation expense totaling $1,950,724, of which $1,198,957 was recognized through the vesting of 6,499,000 common stock options, $489,726 was recognized on the November 30, 2012 modification of certain options previously granted (See Note 12), and $262,041 was recognized as compensation during the period on the amortization of the fair value of 5,750,000 options granted personally by the Executive Chairman to a third-party consultant (See Note 11).

During the nine months ended June 30, 2012, the Company recognized stock-based compensation expense totaling $380,550, of which $326,950 was recognized through the vesting of 4,000,000 common stock options and $53,600 was recognized as compensation on the modification of 1,000,000 warrants granted to a consultant under a new agreement replacing a prior agreement.

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SINGLE TOUCH SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Loss per Share

The Company reports earnings (loss) per share in accordance with ASC Topic 260-10, "Earnings per Share." Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted earnings (loss) per share has not been presented since the effect of the assumed conversion of warrants and debt to purchase common shares would have an anti-dilutive effect. Potential common shares as of June 30, 2013 that have been excluded from the computation of diluted net loss per share amounted to 54,149,528 shares and include 17,158,528 warrants, 29,135,000 options and $3,928,000 of debt and accrued interest convertible into 7,856,000 shares of the Company’s common stock. Potential common shares as of June 30, 2012 that have been excluded from the computation of diluted net loss per share amounted to 55,874,449 shares and include 18,670,175 warrants, 32,980,000 options and $2,112,137 of debt and accrued interest convertible into 4,224,274 shares of the Company’s common stock.

Cash and Cash Equivalents

For purpose of the statements of cash flows, the Company considers cash and cash equivalents to include all stable, highly liquid investments with maturities of three months or less.

Concentration of Credit Risk

The Company primarily transacts its business with one financial institution. The amount on deposit in that one institution may from time to time exceed the federally-insured limit.

Of the Company’s revenue earned during the nine months ended June 31, 2013 and 2012, approximately 99% were generated from contracts with eight customers covered under the Company’s master services agreement with AT&T.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Convertible Debentures

If the conversion features of 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”). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 “Debt with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related to the BCF, and the Company amortizes 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.

Income Taxes

The Company accounts for its income taxes under the provisions of ASC Topic 740, “Income Taxes.” The method of accounting for income taxes under ASC 740 is an asset and liability method. The asset and liability method requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between tax bases and financial reporting bases of other assets and liabilities.

Recent Accounting Pronouncements

The Company continually assesses any new accounting pronouncements to determine their applicability to the Company. Where it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequence of the change to its financial statements and assures that there are proper controls in place to ascertain that the Company’s financials properly reflect the change. The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s financial position, results of operations, or cash flow.

3. Accounts Receivable

Accounts receivable consist of the following:

	June 30,
	2013
Due from customers	$	1,286,337
Less allowance for bad debts		(2,878	)
	$	1,283,459

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SINGLE TOUCH SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4. Property and Equipment

The following is a summary of property and equipment:

	June 30,
	2013
Computer equipment	$	746,835
Equipment		46,731
Office furniture		127,670
Property held under capital
Lease		53,112
		974,348
Less accumulated depreciation		(724,559	)
	$	249,789

Depreciation expense for the three months ended June 30, 2013 and 2012 was $22,466 and $29,059, respectively. Depreciation expense for the nine months ended June 30, 2013 and 2012 was $68,833 and $82,574, respectively.

5. Capitalized Software Development Costs

The following is a summary of capitalized software development costs:

	June 30,
	2013
Beginning balance	$	383,227
Additions		298,726
Amortization		(308,730	)
Charge offs		-
Ending balance	$	373,223

Amortization expense for the three months ended June 30, 2013 was $107,273 and $118,244, respectively. Amortization expense for the nine months ended June 30,, 2013 was $308,730 and $319,498, respectively.

Amortization expense for the remaining estimated lives of these costs are as follows:

Year Ending June 30,
2013	$	251,191
2014		122,032
	$	373,223

6. Intangible Assets

Patents

The following is a summary of capitalized patent costs:

	June 30,
	2013
Patent costs		939,535
Amortization		(438,144	)
	$	501,391

Amortization charged to operations for the three months ended June 30, 2013 and 2012 totaled $33,555 and $32,231, respectively Amortization charged to operations for the nine months ended June 30, 2013 and 2012 totaled $100,664 and $96,537, respectively

A schedule of amortization expense over the estimated life of the patents is as follows:

Year Ending June 30,
2014	$	134,219
2015		134,219
2016		134,219
2017		88,885
2018		9,849
	$	501,391

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SINGLE TOUCH SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In January 2011, the Company was issued US Patent 7,865,181 “Searching for mobile content” and US Patent 7,865,182 “Over the air provisioning of mobile device settings.” The costs associated with these patents, totaling $29,254, are being amortized over the patent’s estimated useful life of 7 years.

In September 2011, the Company was issued US Patent 8,015,307 “System and method for streaming media.” The costs associated with these patents totaling $8,115 are being amortized over the patent’s estimated useful life of 7 years.

In October 2011, the Company was issued US Patent 8,041,341 “System of providing information to a telephony subscriber.” The costs associated with this patents totaling $22,940 are included above and are being amortized over the patent’s estimated useful life of 7 years.

Software license

On March 30, 2012, the Company was granted an exclusive perpetual license to utilize the “Anywhere” software and related source code from Soap Box Mobile, Inc. (“Soapbox”). Under the terms of the underlying agreement, the Company issued 200,000 shares of its common stock to Soapbox and paid $30,000 in April 2012. All of the consideration paid was distributed to eight individuals comprising all of the common shareholders of Soapbox pursuant to instruction from Soapbox. The Company valued the license at $76,000, comprising of the fair value of the 200,000 shares on date of grant ($46,000) and the $30,000 of cash. The license, by its terms, has an indefinite life and is therefore not subject to amortization. The Company’s Executive Chairman owns a majority preferred interest in Soapbox and received no portion of the consideration paid.

On November 27, 2012, the Company entered into a Settlement and Mutual Special Release with the Company’s Executive Chairman and agreed to pay him $755,000 for his full release from any claims related to the March 30, 2012 Soapbox agreement and included a perpetual exclusive license to utilize “Anywhere.” The $755,000 was capitalized and included in the cost of the software license.

7. Income Taxes

As of June 30, 2013, the Company has a net operating loss carryover of approximately $44,800,000 available to offset future income for income tax reporting purposes, which will expire in various years through 2033, if not previously utilized. However, the Company’s ability to use the carryover net operating loss may be substantially limited or eliminated pursuant to Internal Revenue Code Section 382.

We adopted the provisions of ASC 740-10-50, formerly FIN 48, “Accounting for Uncertainty in Income Taxes.” We had no material unrecognized income tax assets or liabilities for the nine months ended June 30 2013 or for the nine months ended June 30, 2012.

Our policy regarding income tax interest and penalties is to expense those items as general and administrative expense but to identify them for tax purposes. During the three and nine months ended June 30, 2013 and 2012, there were no income tax, or related interest and penalty items in the income statement, or liability on the balance sheet. We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for years beginning on or after October 1, 2009 or California state income tax examination by tax authorities for years beginning on or after October 1, 2007. We are not currently involved in any income tax examinations.

The provisions for income tax expense for the nine months ended June 30, 2013 and 2012 are as follows:

	2013		2012
Current
Federal	$	-	$	-
State		800		800
Total income tax expense	$	800	$	800

8. Capital Lease

The Company is the lessee of various computer equipment under a capital lease which expires in 2016. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the leased assets. The assets are depreciated over the lower of their related lease terms or their estimated productive lives. Depreciation of the assets under capital leases is included in depreciation expense.

Following is a summary of property held under the capital lease at June 30, 2013:

Computer equipment

53,111

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SINGLE TOUCH SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Minimum future lease payments under the capital lease at June 30, 2013 for each of the next three years and in the aggregate are as follows:

Year Ending June 30,
2014	$	20.519
2015		17,167
2016		17,167
Total minimum lease payments	$	54,853
Less amount representing interest		(1,742	)
Present value of net minimum lease payments	$	53,111

The effective interest rate charged on the capital lease is approximately 2.25% per annum.

9. Obligation on Patent Acquisitions

On March 15, 2010, the Company purchased six patents and three patent applications from an unrelated third party (the “Seller”) for $900,000 of which $550,000 was paid on the execution of the purchase agreement. Pursuant to the agreement, $175,000 was due on or before March 15, 2011, which was paid, and the final installment of $175,000 was due on or before March 15, 2012. The terms of the agreement were modified on March 1, 2012, whereby the remaining $175,000 became payable in two installments. Under the modified terms, an installment of $87,500 became due on or before March 15, 2012 and was paid. The fourth and final installment of $87,500 was paid on October 15, 2012.

Interest accrued and charged to operations for the three months ended June 30, 2013 and 2012 on this patent obligation totaled $0 and $1,283, respectively. Interest accrued and charged to operations for the nine months ended June 30, 2013 and 2012 on this patent obligation totaled $0 and $10,037, respectively.

10. Convertible Debt

During the months of November and December 2011, the Company received a total of $1,800,000 in consideration for issuing convertible notes and warrants to purchase 3,600,000 shares of the Company’s common stock to seven investors including a Company director. In February 2012, the Company received from two investors an additional $200,000 in consideration for issuing convertible notes and warrants to purchase 400,000 shares of the Company’s common stock. The notes bear interest at a rate of 10% per annum. Under the original terms of the promissory notes, principal and accrued interest were fully due one year from the respective date of each loan but could be extended by mutual consent of the holder and the Company. Outstanding principal and the first year’s accrued interest are convertible into shares of the Company’s common stock at a conversion rate of $0.50 per share. In September 2012, holders of nine notes with a face amount of $1,700,000 agreed to modify the terms of their notes and extend the maturity date of their notes to August 31, 2014. Of the remaining notes with a face value of $300,000, $200,000 matured and was paid in December 2012, and $100,000 that would otherwise have matured and been payable in in February 2013 was converted, together with $10,000 of interest, into 220,000 shares of the Company’s common stock in February 2013. The expiration dates of common stock warrants issued in connection with the modified notes were also extended to September 7, 2015. The modification of the terms of the convertible debt did not extinguish any portion of debt; therefore no gain or loss was recorded due to the modifications.

In connection with the Company’s second private offering dated September 7, 2012, the Company received a total of $3,000,000 in consideration for issuing convertible notes and warrants to purchase 6,000,000 shares of the Company’s common stock to 64 investors. The notes bear interest at a rate of 10% per annum, and interest is payable semi-annually. Principal and any unpaid accrued interest are fully due two years from the respective date of each loan. Outstanding principal is convertible into shares of the Company’s common stock at a conversion rate of $0.50 per share. The aforementioned warrants are fully exercisable into common shares commencing on the date of each loan at a price of $0.25 per share and expire three years from the respective date of grant.

In connection with the second private offering, the Company incurred offering costs totaling $424,843 including the fair value of warrants issued to the Placement Agent to purchase 479,920 shares of the Company’s common stock at a purchase price of $0.304 per share. The value of the warrants of $166,319 was calculated using the Binomial Option model with a risk-free interest rates ranging from 0.31% to 0.34%, volatility ranging from 94.17% to 95.23%, and trading prices ranging from $0.28 to $0.33 per share. The $424,843 is being amortized over the two-year term of the related debt using the effective interest method.

Pursuant to ASC Topic 470-20, “Debt with Conversion and Other Options,” the convertible notes were recorded net of discounts that include the relative fair value of the warrants, the notes’ beneficial conversion features, and the above indicated loan fee, all totaling $1,530,415. The discounts are being amortized to either interest expense (if the debt is due to an unrelated party) or equity (if the debt is due to a related party) over the term of the various notes using the effective interest method. The initial value of the warrants of $1,124,773 issued to investors was calculated using the Binomial Option model with a risk-free interest rates ranging from 0.31% to 0.43%, volatility ranging from 94.17% to 103.00%, and trading prices ranging from $0.22 to $0.35 per share. The beneficial conversion feature of $51,516 was calculated pursuant to ASC Topic 470-20 using trading prices ranging from $0.26 to $0.35 per share and an effective conversion price $0.0322 per share.

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SINGLE TOUCH SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During the nine months ended June 30, 2013, the Note holders converted debt and accrued interest totaling $1,052,000 into 2,104,000 shares of the Company’s common stock and exercised warrants for the issuance of 689,000 common shares. The Company received a total of $131,100 on the exercise of the warrants.

Interest accrued on the above convertible debt and charged to operations for the three months ended June 30, 2013 and 2012 was $108,765 and $49,918 respectively. Interest accrued on the above convertible debt and charged to operations for the six months ended June 30, 2013 and 2012 was $350,836 and $112,137 respectively.

Amortization of the discounts for the three months ended June 30, 2013 totaled $378,227 of which $372,157 was charged to interest expense and $2,074 was charged to equity. Amortization of the discounts for the three months ended June 30, 2012 totaled $117,284 of which $93,179 was charged to interest expense and $24,105 was charged to equity.

Amortization of the discounts for the nine months ended June 30, 2013 totaled $727,704 of which $721,634 was charged to interest expense and $6,070 was charged to equity. Amortization of the discounts for the nine months ended June 30, 2012 totaled $245,475 of which $188,282 was charged to interest expense and $57,193 was charged to equity.

Discount amortization expense for the three and nine months ended June 30, 2013 includes $197,827 of the remaining unamortized portion of discounts attributable the $1,052,000 of debt converted during the period that was charged to operations upon the conversions.

The balance of these convertible notes at June 30, 2013 is as follows:

Principal balance	$	3,758,000
Accrued interest		323,281
		4,081,281
Less discount		(476,757	)
		3,604,524
Less current portion		-
Long-term portion	$	3,604,524

The following are maturities of the principal balance of the convertible debt:

December 31,
2014	$	3,758,000
	$	3,758,000

11. Related Party Transactions

As discussed in Note 10, a Company director provided $500,000 of the $5,000,000 received in the Company’s convertible debt issuances. As part of the consideration received for the $500,000, the director received warrants to purchase 1,000,000 common shares of the Company’s common stock for a period of three years at a price of $0.25 per share. The $500,000 note, as well as the first year’s interest on the note, is convertible into the Company’s common shares at a conversion rate of $0.50 per share.

On November 27, 2012, the Company entered into a Settlement and Mutual Special Release with the Company’s Executive Chairman as final global settlement of any and all outstanding matters related to Anthony Macaluso’s ownership and control relationship in Soapbox, including any and all claims he may have individually related to or on behalf of Soapbox in any capacity held by him formerly or currently. The Company agreed to a total consideration of $755,000 of which $155,000 has been previously paid. The $755,000 was capitalized and included in the cost of the software license.

On November 30, 2012, the Company’s Executive Chairman agreed to modify the terms of common stock options previously granted to him. Under the modified terms, options granted to originally purchase 50,000 common shares with an exercise price of $1.375 per share were reduced to 40,000 common stock options with an exercise price of $0.469 per share and options granted to originally purchase 4,200,000 common shares with an exercise price of $0.90 per share were reduced to 3,570,000 common stock options with an exercise price of $0.469 per share.

On November 30, 2012, the Company’s Chief Executive Officer agreed to modify the terms of common stock options previously granted to him. Under the modified terms, options granted to originally purchase 3,000,000 common shares with an exercise price of $0.90 per share were reduced to 2,550,000 common stock options with an exercise price of $0.469 per share.

On November 30, 2012, the Company’s Chief Financial Officer agreed to modify the terms of common stock options previously granted to him. Under the modified terms, options granted to originally purchase 1,000,000 common shares with an exercise price of $0.90 per share were reduced to 850,000 common stock options with an exercise price of $0.469 per share.

On November 30, 2012, a Company Director also agreed to modify the terms of common stock options previously granted to him. Under the modified terms, options granted to originally purchase 3,000,000 common shares with an exercise price of $0.90 per share were reduced to 2,550,000 common stock options with an exercise price of $0.469 per share.

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SINGLE TOUCH SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During the three months ended December 31, 2012, the Company's Executive Chairman granted an option to a third party to purchase a total of 5,750,000 shares of the Company’s common stock owned personally by him. Of the 5,750,000 options granted, 3,750,000 have an exercise price of $0.295 per share and 2,000,000 have an exercise price of $0.48 per share. The options expire two years from date of grant. The options were granted in exchange for consulting services that directly benefit the Company. The Company therefore recorded the fair value of the options granted of $847,300 to equity as contributed capital with an offset to prepaid expense. The $847,300 is being amortized to operations over the two year term of the consulting agreement. During the three and nine months ended June 30, 2013, the amortized portion of the prepaid expense that charged to operations totaled $105,622, and $262,041, respectively.

On November 29, 2012, the Company granted Stephen Baksa, a Director, 200,000 stock options exercisable at $0.389 per share, which fully vested on date of grant.

On December 6, 2012, the Company granted its Executive Chairman 2,099,400 stock options exercisable at $0.469 per share, which fully vested on date of grant.

On December 10, 2012, the Company granted Jonathan Sandelman, a Director, 200,000 stock options exercisable at $0.446 per share, which fully vested on date of grant.

On March 29, 2013, the Company granted Peter Holden, a Director, 200,000 stock options exercisable at $0.687 per share, which fully vested on date of grant.

On April 16, 2013, granted Jonathan Sandelman, a Director, 50,000 stock options exercisable at $0.676 per share, which fully vested on date of grant.

On May 1, 2013, granted David Nelson, a Director, 200,000 stock options exercisable at $0.705 per share, which fully vested on date of grant.

During the nine months ended June 30, 2013, Richard Siber, a former Director, received 490,588 shares of the Company’s common stock through the cashless exercise of 1,550,000 stock option.

12. Fair Value

The Company’s financial instruments at June 30, 2013 consist principally of convertible debentures. Convertible debentures are financial liabilities with carrying values that approximate fair value. The Company determines the fair value of convertible debentures based on the effective yields of similar obligations.

The Company believes all of the financial instruments’ recorded values approximate fair market value because of their nature and respective durations.

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, which 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.

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SINGLE TOUCH SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company utilizes the best available information in measuring fair value. The following table summarizes, by level within the fair value hierarchy, the financial assets and liabilities recorded at fair value on a recurring basis as follows:

June 30, 2013:

Fair Value Measurements

Level 1

Level 2

Level 3

Total Fair Value

Liabilities

Convertible debentures

3,604,524

13. Stockholders’ Equity

Common Stock

The holders of the Company's common stock are entitled to one vote per share of common stock held.

During the three months ended June 30, 2013, the Company issued 529,000 shares of its common stock to 13 investors on the exercise of 529,000 warrants. The Company received $91,100 through the various exercises.

During the three months ended June 30, 2013, the Company issued 1,884,000 shares on the conversion of debt totaling $942,000.

During the three months ended June 30, 2013, the Company issued a former Director 397,000 common shares on the cashless exercise of 1,250,000 options.

During the three months ended June 30, 2012, the Company issued 1,350,000 shares of its common stock on the exercise of 1,350,000 warrants. The Company received $278,000 through the various exercises.

Warrants

As indicated in Note 10, the Company has issued warrants to seventy-one investors to purchase a total of 10,000,000 shares of the Company’s common stock at a price of $0.25 per share as part of the $2,000,000 private placement completed in February 2012 and the $3,000,000 private placement completed in October 2012. The warrants expire at various dates through September 2015.

In March 2012, the Company agreed to modify the terms of warrants granted to a consultant under a new agreement that replaced a prior agreement in June 2011 to purchase 1,000,000 shares of the Company's common stock. Under the modified terms, the exercise price was reduced from $0.80 per share to $0.40 per share and the expiration date of the warrants was extended from June 14, 2014 to December 14, 2014. The Company recognized consultant’s compensation expense during the period of $53,600 on the modification.

On September 30, 2011, the Company modified the terms of certain warrants previously granted to a shareholder. Under the modified terms, the expiration date for warrants to purchase 1,750,000 shares of the Company’s common stock at a price of $1.00 per share was extended one year to December 13, 2012, the expiration date for warrants to purchase 1,750,000 shares of the Company’s common stock at a price of $1.00 per share was extended one year to January 7, 2013. As the fair value of these warrants based upon their modified terms were less than their respective fair value when originally granted, the Company did not recognize any additional compensation. In consideration for the modification, the shareholder agreed to cancel 2,750,000 stock options previously granted with an exercise price of $1.50 per share.

Options

In November 2012, the Company modified the terms of stock options granted to certain employees, officers, directors, and active third-party service providers. Under the modified terms, the Company reduced the number of shares to be purchased under these option grants from a total of 17,134,334 shares to a total of 14,534,934 shares with a reduction in the purchase price on these grants from original prices ranging from $1.375 to $0.90 per share to $0.469 per share. A breakdown of the modified grants is as follows:

	Shares under		Shares under
	Original		Modified
	Grant		Grant
Employees		5,809,334		4,914,934
Officers and directors		11,300,000		9,600,000
Outside legal counsel		25,000		20,000
		17,134,334		14,534,934

In addition to reducing the number of options previously granted at the reduced purchase price, Messrs. Macaluso and Orsini voluntarily agreed to amend their stock options to defer vesting of already vested options related to their employment agreements and half of their unvested options for an additional six months. The Company accounted for the modification to the option grants pursuant to ASC Topic 718-20-35 and recognized $489,726 as additional compensation that was charged to operations during the three months ended December 31, 2012.

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SINGLE TOUCH SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On November 29, 2012, the Company granted options to a Director to purchase 200,000 shares of the Company common stock at a purchase price of $0.389 per share expiring five years from date of grant. The 200,000 options were valued at $26,760 under a Binomial Option Model using a trading price of $0.25 per share, a risk free interest rate of 0.63%, and volatility of 98.76%. The options immediately vested, and the $26,760 was fully charged to operations on the date of grant.

On December 6, 2012, the Company granted options to its Executive Chairman to purchase 2,099,400 shares of the Company common stock at a purchase price of $0.469 per share expiring five years from date of grant. The 2,099,400 options were valued at $636,328 under a Binomial Option Model using a trading price of $0.46 per share, a risk free interest rate of 0.60%, and volatility of 98.54%. The options immediately vested, and the $636,328 was fully charged to operations on the date of grant.

On December 6, 2012, the Company granted options to an employee to purchase 500,000 shares of the Company common stock at a purchase price of $0.469 per share expiring five years from date of grant. The 500,000 options were valued at $151,550 under a Binomial Option Model using a trading price of $0.46 per share, a risk free interest rate of 0.60%, and volatility of 98.54%. The options immediately vest and the $151,550 was fully charged to operations on the date of grant.

On December 10, 2012, the Company granted options to a Director to purchase 200,000 shares of the Company common stock at a purchase price of $0.446 per share expiring five years from date of grant. The 200,000 options were valued at $50,220 under a Binomial Option Model using a trading price of $0.40 per share, a risk free interest rate of 0.62%, and volatility of 98.32%. The options immediately vest and the $50,220 was fully charged to operations on the date of grant.

On March 29, 2013, the Company granted options to a Director to purchase 200,000 shares of the Company common stock at a purchase price of $0.6870 per share expiring five years from date of grant. The 200,000 options were valued at $85,960 under a Binomial Option Model using a trading price of $0.67 per share, a risk free interest rate of 0.76%, and volatility of 97.10%. The options immediately vest and the $85.960 was fully charged to operations on the date of grant.

On April 16, 2013 the Company granted options to a Director to purchase 50,000 shares of the Company common stock at a purchase price of $0.676 per share expiring five years from date of grant. The 50,000 options were valued at $19,295 under a Binomial Option Model using a trading price of $0.75 per share, a risk free interest rate of 0.71%, and volatility of 96.65%. The options immediately vest and the $19.295 was fully charged to operations on the date of grant.

On May 1, 2013 the Company granted options to a Director to purchase 200,000 shares of the Company common stock at a purchase price of $0.705 per share expiring five years from date of grant. The 200,000 options were valued at $84,600 under a Binomial Option Model using a trading price of $0.67 per share, a risk free interest rate of 0.65%, and volatility of 96.28%. The options immediately vest and the $84,600 was fully charged to operations on the date of grant.

A summary of outstanding stock warrants and options is as follows:

	Number			Weighted Average
	of Shares			Exercise Price
Outstanding – September 30, 2012		55,326,595		$	.75
Granted		19,020,414	(1)	$	.42
Exercised		-		$	-
Cancelled		(18,884,334	)(2)	$	(.92	)
Outstanding – December 31, 2012		55,462,675		$	.55
Granted		200,000		$	.69
Exercised		(460,000	)	$	(09	)
Cancelled		(5,596,000	)	$	(.36	)
Outstanding – March 31, 2013		49,606,675		$	.59
Granted		250,000		$	.70
Exercised		(1,779,000	)	$	(.64	)
Cancelled		(1,784,147	)	$	(.36	)
Outstanding – June 30, 2013		46,293,528		$	.49

Of the 46,293,528 options and warrants outstanding, 40,795,194 are fully vested and currently available for exercise. In addition, as many as 7,856,000 of shares of common stock can be issued on the conversion of debt as of June 30, 2013.

(1)	Includes modified option grants to purchase 14,534,934 common shares pursuant to the November 2012 agreement.

(2)	Includes modified option grants reducing 17,134,334 common shares pursuant to the November 2012 agreement.

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SINGLE TOUCH SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

14. Commitments and Contingency

Operating Leases

The Company leases office space in Encinitas, California; Rogers, Arkansas; Jersey City, New Jersey; and Boise, Idaho. The Encinitas lease expires on May 31, 2013. The Rogers office is leased for a term of five years, effective January 1, 2012. The Boise lease expired on October 14, 2012, and is currently being leased on a month-to-month basis. The Jersey City lease expires on June 30, 2016, and the Company has the option to lease the Jersey City offices for an additional five years. In addition to paying rent, the Company is also required to pay its pro rata share of the property’s operating expenses. Rent expense for the three months ended June 30, 2013 and 2012 was $53,820 and $52,966, respectively. Rent expense for the nine months ended June 30, 2013 and 2012 was $161460 and $151,402, respectively. Minimum future rental payments under non-cancellable operating leases with terms in excess of one year as of June 30, 2013 for the next five years and in the aggregate are:

2014	$	154,877
2015		157,563
2016		160,271
2017		23,215
	$	495,926

Licensing Fee Obligations

The Company has entered into various licensing agreements that require the Company to pay fees to the licensors on revenues earned by the Company utilizing the related license. The amounts paid on each license vary depending on the terms of the related license.

Legal Claim

In July 2013 one of our subsidiaries, Single Touch Interactive, Inc., was named as co-defendant in Elizabeth Ibey v Wal-Mart Stores, Inc. and Single Touch Interactive, Inc. The plaintiff alleges that our subsidiary violated the Telephone Consumer Protection Act and that unspecified others were similarly harmed. We believe we have meritorious defenses against the suit and will defend our rights vigorously, but the resultant liability, if any, cannot currently be estimated.

15. Subsequent Events

In July 2013, six employees, the Company’s outside legal counsel, and a former Director exercised options to purchase 428,000 shares of the Company’s common stock at a price of $.469 per share. The Company received $200,732 through the various exercises. In addition, the Company’s Executive Chairman received 8,203 shares of the Company’s common stock through the cash-less exercise of 40,000 common-stock options.

In July 2013 the Legal Claim explained above (end of Note 14) was filed against one of our subsidiaries, Single Touch Interactive, Inc.

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Item 2 - 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 Single Touch's financial statements and the related notes thereto. The Management's Discussion and Analysis may contain “forward-looking statements.” Any statements that are not statements of historical fact are forward-looking statements.

These statements are based on the current expectations, forecasts, and assumptions of our management and are subject to various risks and uncertainties that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements. Forward-looking statements are sometimes identified by language such as “believes,” “anticipates,” “estimates,” “expects,” “plans,” “intends,” “projects,” “future” and similar expressions and may also include references to plans, strategies, objectives, and anticipated future performance as well as other statements that are not strictly historical in nature.

The risks, uncertainties, and other factors that could cause our actual results to differ materially from those expressed or implied in this Quarterly Report on Form 10-Q include:

	●		our ability to successfully retain and sell additional services to our existing clients and obtain new clients;
	●		our reliance on primarily a single client and the continued use by such client of our services with favorable pricing terms;
	●		changes in laws and regulations related to the communication services we provide to or through our clients;
	●		the failure of our outsourced data center services providers to provide the anticipated levels of service;
	●		any significant slowdown or failure of our systems or error in the performance of our services;
	●		our failure to keep pace with changes in technology and the demands of our clients;
	●		the ability to attract and retain key personnel;
	●		our ability to obtain additional financing at favorable rates to maintain and develop our operations; and
	●		competitive conditions in our industry.

There may be other factors that may cause our actual results to differ materially from the forward-looking statements. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. Readers should carefully consider this information as well the risks and other uncertainties described in our other filings made with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on forward-looking statements. They reflect opinions, assumptions, and estimates only as of the date they were made, and we undertake no obligation to publicly update or revise any forward-looking statements in this Quarterly Report on Form 10-Q, whether as a result of new information, future events or circumstances, or otherwise.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We have identified the following accounting policies that we believe are key to an understanding of ours financial statements. These are important accounting policies that require management’s most difficult, subjective judgments.

Revenue Recognition

Revenue is recognized in accordance with Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements, as revised by SAB No. 104. As such, the Company recognizes revenue when persuasive evidence of an arrangement exists, title transfer has occurred, the price is fixed or readily determinable and collectability is probable. Sales are recorded net of sales discounts.

Non-monetary Consideration Issued for Services

We value all services rendered in exchange for our common stock at the quoted price of the shares issued at date of issuance or at the fair value of the services rendered, whichever is more readily determinable. All other services provided in exchange for other non-monetary consideration are valued at either the fair value of the services received or the fair value of the consideration relinquished, whichever is more readily determinable.

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

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Conventional Convertible Debt

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

Software Development Costs

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

Fair Value Measurement

The Company complies with the provisions of ASC No. 820-10 (ASC 820-10), “Fair Value Measurements and Disclosures.” ASC 820-10 relates to financial assets and financial liabilities. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (GAAP), and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions.

ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820-10 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions that are developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820-10 are described below:

Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.

Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Overview

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

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

Our business has focused on leveraging our solution in the areas of messaging/notifications and Abbreviated Dial Codes. These solutions are enhanced when we deploy imbedded advertisements, sponsorship and couponing.

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“For the first time in history with near 322 million wireless subscribers in the USA, wireless penetration exceeds the U.S. population” (1)

“One billion smartphones will be shipped globally this year” (2)

“Americans now spend an average of 158 minutes every day on their smartphones and tablets” (3)

We have developed and are deploying advertisements, sponsorships and couponing within our product offerings. This development is significant in that our per-message revenue increases significantly for each message that includes an advertisement or sponsorship. We see these expanded offerings, including those not based directly on messaging volume, as important steps in our continued program to creating both consumer and advertiser demand for our mobile media platform, accessing mobile notifications, advertisements, sponsorships, coupons and commerce transactions from the mobile phone.

The company now provides FollowMe® a location based mobile ad service. FollowMe® enables advertisers to deliver targeted ads in App to the smartphones of people within close proximity of a specific location. This service is offered by partnering with TheMobile Audience, a mobile demand side platform (DSP) that enables programmatic buying of mobile media across multiple real-time bidding (RTB) networks.

“Location based mobile marketing is forecasted to be the fastest growing segment of the advertising industry over the next several years, growing at almost 50% annually to a market size of $2.8 billion by 2015” (4)

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

We have a portfolio of intellectual property relevant to our industry related to mobile search, commerce, advertising and streaming media. This portfolio represents our many years’ innovation in the wireless industry through patented technology developed by us, as well as patented technology we purchased from Microsoft and others.

We have law firms engaged to protect our patented technology rights against unauthorized users and infringers. We have sent letters of notification to several companies making them aware of our patent portfolio and have commenced litigation.

We have assigned 16 of our 18 and all of our intellectual property rights to Single Touch R&D IP, Inc a wholly owned subsidiary that will conduct all research, development, patent filings, patent maintenance and that will continue to identify, notify, and, where circumstances warrant, enforce against companies we believe may be infringing on the intellectual property protected by our growing patent portfolio under the guidance of our Executive Chairman and our Board of Directors.

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

Throughout our history our operations have been constrained by our ability to raise funds, and our liquidity has been an ongoing issue. We have received debt and equity investments both from insiders and from private investors. We have always had negative cash flows from operations and net operating losses, although the size of the net operating losses has been magnified by a variety of non-cash accounting charges. As we expand operational activities, we may continue to experience operating losses and/or negative cash flows from operations and may be required to obtain additional financing to fund operations. There can be no assurance that we will be able obtain additional financing, if at all or upon terms that will be acceptable to us.

Our operating history makes predictions of future operating results difficult to ascertain. Our revenue is concentrated with a single customer. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in our stage of development. Such risks include, but are not limited to, an evolving business model and the management of growth. To address these risks we must, among other things, diversify our customer base, implement and successfully execute our business and marketing strategy, continue to develop and upgrade technology and products, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.

	(1)	Source: June 2012 CTIA Semi Annual Wireless Survey
	(2)	Source: Gartner report 4/4/13
	(3)	Source: Flurry report 4/13/13
	(4)	BIA/Kelsey local media ad revenue forecast 3/18/13

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Results of Operations

Results of Operations for the Three Months Ended March 31, 2013 and 2012

During the three months ended June 30, 2013, the Company had an increase in revenue of approximately 21% over revenue generated during the quarter ended June 30, 2012 ($1,924,472 in 2013 compared to $1,585,195 in 2012). The growth, all of which is organic, is attributable to continuing mobile adoption and new programs for existing and new client relationships. The Company’s net loss for the fiscal quarter ended June 30, 2013 was $1,263,035. This is higher than the net loss incurred during the fiscal quarter ended June 30, 2012 of $970,738. Under the metrics employed by management to evaluate the underlying business explained below, Adjusted EBITDA, that underlying loss, $255,015 for the quarter ended June 30, 2013, was $101,281 less than that for the quarter ended June 30, 2012.

We define Adjusted EBITDA as consolidated operating income before depreciation, amortization of intangible assets, stock-based compensation, and special charges. We use Adjusted EBITDA to evaluate the underlying performance of our business, and a summary of Adjusted EBITDA, reconciling GAAP amounts (i.e., items reported in accordance with U.S. Generally Accepted Accounting Principles) to Adjusted EBITDA amounts (i.e., items included within Adjusted EBITDA as defined directly above) for the fiscal quarters ended June 30, 2013 and 2012 follows:

	For the Three Months Ended June 30,

	2013									2012									GAAP					Adjusted EBITDA
				Adjust-			Adjusted						Adjust-			Adjusted			Change					Change
	GAAP			ments			EBITDA			GAAP			ments			EBITDA			$			%		$			%

Revenue
Wireless Applications	$	1,924,472					$	1,924,472		$	1,585,195					$	1,585,195		$	339,277		21	%	$	339,277		21	%

Operating Expenses
Royalties and Application Costs	$	804,937					$	804,937		$	776,881					$	776,881		$	28,056		4	%	$	28,056		4	%
Research and Development	$	13,264					$	13,264		$	17,236					$	17,236		$	(3,972	)	-23	%	$	(3,972	)	-23	%
Compensation expense (including							$	-								$	-
stock-based compensation)	$	764,559		$	(144,244	)	$	620,315	*	$	959,195		$	(290,528	)	$	668,667	*	$	(194,636	)	-20	%	$	(48,352	)	-7	%
Depreciation and amortization	$	163,292		$	(163,292	)	$	-		$	179,534		$	(179,534	)	$	-		$	(16,242	)	-9	%
General and administrative (including							$	-								$	-
stock-based compensation)	$	950,488		$	(209,517	)	$	740,971		$	478,707		$	-		$	478,707		$	471,781		99	%	$	262,264		55	%
	$	2,696,540		$	(517,053	)	$	2,179,487		$	2,411,553		$	(470,062	)	$	1,941,491		$	284,987		12	%	$	237,996		12	%

Loss from Operations/Adjusted EBITDA	$	(772,068	)	$	517,053		$	(255,015	)	$	(826,358	)	$	470,062		$	(356,296	)	$	54,290		-7	%	$	101,281		-28	%

Royalties and Application Costs represent the direct out-of-pocket costs associated with revenue. Royalties and Application Costs vary substantially in line with revenue and totaled $804,937 in 2013, compared to $776,881 in 2012, an increase of only 4%. Royalties and Application Costs as a percentage of revenue decreased by 7%, from 49% to 42% from the quarter ended June 30, 2012 to that for 2013, attributable to the composition of message types, vendor re-negotiations, and taking in-house a number of formerly outsourced services, such as part of our colocation facilities.

Research and Development expense decreased from $17,236 in 2012 to $13,264 in 2013 while adjusted Compensation expense decreased from $668,667 to $620,315. The small decrease to the former reflects the variance throughout any given fiscal year of the innovation process and newly placed emphasis on monetization of existing intellectual property (“IP”) rather than the creation of new IP. Similarly, reduced adjusted Compensation expense represents a more targeted focus on the expansion of our existing mobile messaging and marketing business, as well as efficiencies gained from staff and from the expanded management team now in its second year with the Company.

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General and administrative expenses for the quarter ended June 30, 2013 and 2012, both on a GAAP and on an Adjusted EBITDA basis, consist of the following:

	For the Three Months Ended June 30,

	2013								2012							GAAP					Adjusted EBITDA
			Adjust-			Adjusted					Adjust-		Adjusted			Change					Change
	GAAP		ments			EBITDA			GAAP		ments		EBITDA			$			%		$			%

Professional Fees	$	400,835				$	400,835	*	$	143,217			$	143,217	*	$	257,618		180	%	$	257,618		180	%
Travel	$	48,286				$	48,286		$	82,006			$	82,006		$	(33,720	)	-41	%	$	(33,720	)	-41	%
Consulting expense	$	344,986	$	(209,517	)	$	135,469	*	$	125,345			$	125,345	*	$	219,641		175	%	$	10,124		8	%
Office rent	$	53,820				$	53,820		$	52,966			$	52,966		$	854		2	%	$	854		2	%
Insurance expense	$	51,665				$	51,665		$	33,565			$	33,565		$	18,100		54	%	$	18,100		54	%
Equipment lease	$	-				$	-						$	-		$	-				$	-
Trade shows	$	1,250				$	1,250		$	2,949			$	2,949		$	(1,699	)			$	(1,699	)
Telephone	$	14,093				$	14,093		$	14,565			$	14,565		$	(472	)	-3	%	$	(472	)	-3	%
Office expense	$	19,289				$	19,289		$	8,554			$	8,554		$	10,735		125	%	$	10,735		125	%
Other	$	16,264				$	16,264		$	15,540			$	15,540		$	724		5	%	$	724		5	%
Total General and Administrative Expenses	$	950,488	$	(209,517	)	$	740,971		$	478,707	$	-	$	478,707		$	471,781		99	%	$	262,264		55	%

* Adjustments for each of these items represents the elimination of stock-based compensation included within the GAAP expense amount to arrive at the Adjusted EBITDA amount.

The increase in adjusted Professional Fees, from $143,217 in 2012 to $400,835 in 2013, reflects amounts paid to external attorneys, who have been engaged to represent us in litigation and other IP initiatives we have commenced and with increased efforts relating to our compliance and filings for our most recent financings and past financings.

Travel expense was roughly halved over the two periods, from $82,006 in 2012 to $48,286 in 2013, reflecting more focused new business and IP monetization efforts. Adjusted Consulting expense increased $10,124 over the two periods. Outside counsel, management, and consultants are regularly engaged both in active IP monetization efforts, as well as with the development of our existing, underlying business. Insurance expense increased $18,100, and Office Expenses expense increased $10,735. An increased Board size and composition of outside directors, together with a growing business and market capitalization, precipitated the former while more time and materials spent in the office than traveling precipitated the latter.

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Results of Operations for the Nine Months Ended June 30, 2013 and 2012:

Revenues increased 20%, from $4,729,691 for the nine months ended June 30, 2012 to $5,680,586 for the nine months ended June 30, 2013. Net loss increased from $2,265,272 from the earlier period to $4,567,479 for the later period, but the loss on an Adjusted EBITDA basis was essentially unchanged, a reduction of $15,606. A table summarizing Loss from Operations and Adjusted EBITDA for the two nine-month periods follows:

	For the Nine Months Ended June 30,

	2013									2012									GAAP					Adjusted EBITDA
				Adjust-			Adjusted						Adjust-			Adjusted			Change					Change
	GAAP			ments			EBITDA			GAAP			ments			EBITDA			$			%		$			%

Revenue
Wireless Applications	$	5,680,586		$	-		$	5,680,586		$	4,729,691		$	-		$	4,729,691		$	950,895		20	%	$	950,895		20	%

Operating Expenses
Royalties and Application Costs	$	2,465,270		$	-		$	2,465,270		$	2,194,512		$	-		$	2,194,512		$	270,758		12	%	$	270,758		12	%
Research and Development	$	46,020		$	-		$	46,020		$	70,486		$	-		$	70,486		$	(24,466	)	-35	%	$	(24,466	)	-35	%
Compensation expense (including
stock-based compensation)	$	3,155,100		$	(1,253,964	)	$	1,901,136		$	2,332,979		$	(290,528	)	$	2,042,451	*	$	822,121		35	%	$	(141,315	)	-7	%
Depreciation and amortization	$	478,226		$	(478,226	)	$	-		$	498,609		$	(498,609	)	$	-		$	(20,383	)	-4	%
General and administrative (including
stock-based compensation)	$	3,024,170		$	(696,760	)	$	2,327,410		$	1,587,120		$	(90,022	)	$	1,497,098	*	$	1,437,050		91	%	$	830,312		55	%
	$	9,168,786		$	(2,428,950	)	$	6,739,836		$	6,683,706		$	(879,159	)	$	5,804,547		$	2,485,080		37	%	$	935,289		16	%

Loss from Operations/Adjusted EBITDA	$	(3,488,200	)	$	2,428,950		$	(1,059,250	)	$	(1,954,015	)	$	879,159		$	(1,074,856	)	$	(1,534,185	)	79	%	$	15,606		-1	%

Royalties and Application Costs increased 12% over the two periods. The lesser rate of growth in these costs reflects operating leverage, partially fixed costs that do not increase with volume, some vendor renegotiations, and taking in-house certain operations, such as part of our co-location operations.

Adjusted Compensation expense was reduced $141,315 (7%) over the two periods, reflecting staffing more focused on key strategic initiatives, emphasizing IP monetization and management and development of new business.

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A table of General and administrative for the two nine-month periods follows:

	For the Nine Months Ended June 30,

	2013								2012								GAAP					Adjusted EBITDA
			Adjust-			Adjusted					Adjust-			Adjusted			Change					Change
	GAAP		ments			EBITDA			GAAP		ments			EBITDA			$			%		$			%

Professional Fees	$	1,178,327	$	(1,894	)	$	1,176,433	*	$	491,995	$	(30,281	)	$	461,714	*	$	686,332		139	%	$	714,719		155	%
Travel	$	297,173	$	-		$	297,173		$	301,233	$	-		$	301,233		$	(4,060	)	-1	%	$	(4,060	)	-1	%
Consulting expense	$	1,106,330	$	(694,866	)	$	411,464	*	$	399,165	$	(59,741	)	$	339,424	*	$	707,165		177	%	$	72,040		21	%
Office rent	$	161,460	$	-		$	161,460		$	151,402	$	-		$	151,402		$	10,058		7	%	$	10,058		7	%
Insurance expense	$	126,864	$	-		$	126,864		$	93,615	$	-		$	93,615		$	33,249		36	%	$	33,249		36	%
Equipment lease	$	-	$	-		$	-		$	-	$	-		$	-		$	-				$	-
Trade shows	$	19,577	$	-		$	19,577		$	18,944	$	-		$	18,944		$	633		3	%	$	633		3	%
Telephone	$	42,038	$	-		$	42,038		$	45,594	$	-		$	45,594		$	(3,556	)	-8	%	$	(3,556	)	-8	%
Office expense	$	44,126	$	-		$	44,126		$	26,472	$	-		$	26,472		$	17,654		67	%	$	17,654		67	%
Other	$	48,275	$	-		$	48,275		$	58,700	$	-		$	58,700		$	(10,425	)	-18	%	$	(10,425	)	-18	%
Total General and Administrative Expenses	$	3,024,170	$	(696,760	)	$	2,327,410		$	1,587,120	$	(90,022	)	$	1,497,098		$	1,437,050		91	%	$	830,312		55	%

* Adjustment represents the elimination of stock-based compensation recorded in accordance with GAAP but not considered in the calculation of Adjusted EBITDA.

Adjusted General and administrative expense increased $830,312 (55%) over the two periods. An increase in adjusted professional fees of $714,719, or 155%, represented the large majority of this and is comprised of legal fees for IP monetization efforts and registering all recent offerings and keeping current registrations for all prior ones. The rise in adjusted Consulting expense of $72,040, or 21% was related to capital markets outreach programs.

Liquidity and Capital Resources

At June 30, 2013, we had total assets of $5,563,439 and total liabilities of $5,317,972. As of September 30, 2012, we had total assets of $5,569,755 and total liabilities of $4,661,117. The increase in assets is negligible but its component changes are notable. Cash has been reduced largely due to increases in Accounts Receivable (normal for a growing business), Prepaid Expenses (largely the prepaid two-year consulting agreement with Peltz Capital Management LLC), and Software License (the buy-out of the Anywhere license.)

The $656,855 increase in liabilities in the nine months since September 30, 2012 is largely due to the increase in Accounts payable ($587,844) with the balance attributable to our Convertible debenture issuances and redemptions. The increase in Accounts Payable is largely related to our IP monetization efforts and is attributable to attorneys’ fees payable under favorable timelines. During the nine months ended June 30, 2013 cash used in operating activities totaled $972,164. The most notable adjustment, when reconciling Net loss to Net cash used in operating activities, was the $1,950,724 non-cash charge for Stock-based compensation, which reduced Net loss for GAAP purposes but which we exclude from the calculation of Adjusted EBITDA.

Cash used in investing activities for the nine months ended June 30, 2013 totaled $1,002,784, of which $298,726 represented the capitalized internal costs of our software development, $87,761 represented capitalized legal fees incurred in the process of applying for various patents on our technology, $16,297 represented purchases of physical equipment, and $600,000 was part of the Anywhere settlement. We continue to invest in physical equipment and IP that will separate us from competitors and allow us to continue to expand our mobile communications/advertising offering, and with the Anywhere payment and settlement all parties that might otherwise have made related claims are foreclosed from doing so.

Cash provided from financing activities for the nine months ended June 30, 2013 amounted to $483,125. The Company received $688,000 through the issuance of the final tranche of convertible debt and related warrants of its $3,000,000 most recent private placement and paid $48,475 in cash relating to that placement. The Company also received $131,100 from share issuances. We paid the final $87,500 remaining on our patent purchase obligation and repaid $200,000 of principal, together with $20,000 of interest, to the one note holder from our first $2,000,000 private placement. This note holder converted its note at a time when the conversion price ($0.50 per share) was less than our stock price, and all other such note holders from that placement have either converted such notes into shares or elected to amend and extend their notes. We had an overall net decrease in cash for the period of $1,491,823; the cash balance at the beginning of the current fiscal year was $2,157,707 while the cash balance at the end of this nine-month period was $665,884.

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During the nine months ended June 30, 2012 cash used in operating activities totaled $1,705,659. Accounts receivable increased by $190,644 while Accounts payable decreased $478,443 during that earlier period.

Cash used in investing activities during the nine months ended June 30, 2012 totaled $494,617, of which $321,345 represented the capitalized internal costs of our software development, $29,370 represented equipment purchases, and $113,902 represented capitalized legal fees incurred in the process of applying for various patents on our technology.

Cash provided by financing activities amounted to $2,230,500 in that earlier nine-month period ended June 30, 2012. The Company received $1,500,000 from unrelated parties and $500,000 from a director for the first $2,000,000 private placement. The Company also received $318,000 from share issuances and paid $87,500 on a prior patent purchase obligation. We had an overall net increase in cash for the earlier nine-month period of $30,224; the cash balance at October 1, 2011 was $523,801 while the cash balance at June 30, 2012 was $554,025.

Over the next twelve months we believe that existing capital and anticipated funds from operations may be sufficient to sustain our current level of operations. Inasmuch as the Company is pursuing the monetization of its IP, which plans are subject to change, additional external financing relating to such efforts will be required. In addition, increased acceleration in our organic business and/or other economic influences might also necessitate other financing. There can be no assurance that we will be able obtain additional financing, if at all or upon terms that will be acceptable to us. There can, moreover, be no assurance of when, if ever, our operations become profitable.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements or financing activities with special purpose entities.

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

Not required for Smaller Reporting Companies.

Item 4 - Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s Principal Executive Officer and Principal Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in the reports that we file or submit under the Exchange Act reports is (1) recorded, processed, summarized and reported within the periods specified in the Commission’s rules and forms, and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

We have not made a change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended June 30, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Internal control systems, no matter how well designed and operated, have inherent limitations. Therefore, even a system which is determined to be effective cannot provide absolute assurance that all control issues have been detected or prevented. Our systems of internal controls are designed to provide reasonable assurance with respect to financial statement preparation and presentation.

Under the oversight of the Audit Committee, Management will continue to review and make any changes it deems necessary to the overall design of the Company’s internal control over financial reporting, including implementing improvements in policies and procedures. We are committed to a proper internal control environment and will continue to implement measures to improve the Company’s internal control over financial reporting in response to our continued operational development.

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PART II - OTHER INFORMATION

Item 1 - Legal Proceedings

On February 21, 2012, we filed a complaint against Zoove Corporation in the United States District Court, Northern District of California. The complaint alleges patent infringement, in which we seek preliminary and permanent injunctive relief as well as damages resulting from Zoove’s infringement of U.S. Patent No. 7,813,716 and U.S. Patent No. 8,041,341. We filed our Claim Construction Brief on December 20, 2012. A claim construction hearing was held on February 20, 2013. A Claim Construction Order was entered by the Judge on July 17, 2013. We believe the Order was predominantly favorable. We have a case management conference scheduled for August 26, 2013.

On July 29, 2012, one of our subsidiaries, Single Touch Interactive, Inc., was named as co-defendant in Elizabeth Ibey v. Wal-Mart Stores Inc. and Single Touch Interactive Inc., pending in the United States District Court, Southern District of California. The plaintiff alleges that our subsidiary violated the Telephone Consumer Protection Act and that unspecified others were similarly harmed. The Plaintiff seeks damages and injunctive relief. We are presently evaluating the allegations and preparing our answer to the complaint.

Item 1A - Risk Factors

Not required for Smaller Reporting Companies.

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

No disclosure required.

Item 3 - Defaults Upon Senior Securities

No disclosure required.

Item 4 – Mine Safety Disclosures

No disclosure required.

Item 5 - Other Information

No disclosure required.

Table of Contents

Item 6 - Exhibits

Index to Exhibits

Exhibit No.		Description
31.1*		Certification of Principal Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
31.2*		Certification of Principal Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
32.1*		Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS**		XBRL Instance Document.
101.SCH**		XBRL Taxonomy Extension Schema Document.
101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB**		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document.

*	Filed herewith

**	Furnished herewith

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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Single Touch Systems Inc.


Date: August 6, 2013	By:	/s/ James Orsini
		James Orsini, CEO and President
		Principal Executive Officer

Date: August 6, 2013	By:	/s/ John Quinn
		John Quinn, Chief Financial Officer
		Principal Financial Officer