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ONE HORIZON GROUP, INC. - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
[April 15, 2014]

ONE HORIZON GROUP, INC. - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion and analysis should be read in conjunction with our financial statements and notes thereto included elsewhere in this Report. Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") includes a comparison of the year ended December 31, 2013 to the comparable period of 2012, and a comparison of the unaudited six month period ending December 31, 2013 to the restated audited six month transition period ending December 31, 2012. MD&A also includes a comparison of the restated year ended June 30, 2012 to the restated year ended June 30, 2011.The financial statements and MD&A include information of One Horizon UK for the relevant periods, except for the period following the Share Exchange, for which period the information presented is that of the combined Company.



Overview Operating through our wholly-owned subsidiaries, Horizon Globex GmbH and Abbey Technology GmbH, our operations include the licensing of software to telecommunications operators and the development of software application platforms that optimize mobile voice, instant messaging and advertising communications over the Internet. Both subsidiaries do this by using proprietary software techniques that use internet bandwidth more efficiently than other technologies that are unable to provide a low-bandwidth solution. The Horizon Platform is a bandwidth-efficient Voice over Internet Protocol platform for smartphones and also provides optimized data applications including messaging and mobile advertising. We license our software solutions to telecommunications network operators and service providers in the mobile, fixed line and satellite communications markets. We are an ISO 9001 and ISO 20000-1 certified company with assets and operations in Switzerland, the United Kingdom, China, India, Singapore and Hong Kong.

We have developed a mobile application, "Horizon Call," which enables highly bandwidth-efficient VoIP calls over a smartphone using a 2G/EDGE, 3G, 4G/LTE, WiFi or WiMax connection. Our Horizon Call application is currently available for iPhones and for Android handsets.


Unlike other mobile VoIP applications, Horizon Call creates a business-to-business solution for mobile operators. It is a software solution that telecommunications operators license, brand and deploy. Mobile operators decide how to integrate Horizon Call within their portfolio and how to offer it commercially. Horizon Call can be customized according to each mobile operators' own branding. It helps them to manage rising traffic volumes while combating the competitive threat to their voice telephony revenues from other mobile VoIP applications by giving its mobile data customers a more efficient mobile VoIP solution that adds value to their mobile data network.

16 -------------------------------------------------------------------------------- We believe that emerging markets represent a key opportunity for Horizon Call because there are significant markets with high population density, high penetration of mobile phones, congested mobile cellular networks and high growth in the adoption of smartphones. These factors will put increased pressure on mobile operators to manage their network availability.

In this context, the Company is forming a number of joint ventures with local partners in the region to seize upon this opportunity. As of the date of this report, we have formed joint ventures in India, Russia and China We plan to continue to develop our products in areas with high population density, high penetration of mobile phones, congested mobile cellular networks and high growth in the adoption of smartphones. We expect to form joint ventures when local regulations prevent us from accessing a particular market directly.

We plan to fund this proposed expansion through debt financing, cash from operations and potential equity financing. However, we may not be able to obtain additional financing at acceptable terms, or at all, and, as a result, our ability to continue to improve and expand our software products and to expand our business could be adversely affected.

Recent Developments During the twelve months ended December 31, 2013, the Company completed seven new master licensing agreements, two with tier one telecommunication operators in Asia and five with tier two telecommunication operators in Europe and Asia.

In December 2013, Ishuo, a company controlled by us, agreed to invest in a joint venture in China, Leixin for 45% of its equity interest. Leixin will service the country's fast-growing smart phone market by deploying One Horizon's Internet optimization technology in conjunction with the Leiqiang 95131 area code number range througout China. The Leixin smart phone app will be able to provide various optimized internet value added services to its mobile subscribers including but not limited to voice and social media services including text, picture, video and geo-location messaging. These value added services are made possible through the creation of a "Virtual SIM" that utilizes the 95131 area code number range and One Horizon's proprietary communication software, an industry first. The "Virtual SIM" will be deployed via a Leixin-branded smart phone app that will also make use of the One Horizon on-line payment service to enable the purchase of call and message credits as well as the purchase and sharing of Stickers, Emojis & Emoticons. Combined with One Horizon's location aware mobile advertising services, the Leixin branded smart phone app is expected to drive multiple revenue streams from the supply of its value-added services. Leixin will seek to acquire 100 million new app subscribers for the Leixin branded smartphone app over a three-year period and expects to achieve industry average revenues per user (ARPU) for similar social media apps.

During the third quarter of fiscal year 2013, we continued to expand the applications of our mobile software and related marketing efforts in promising emerging markets. During the quarter ending September 30, 2013, we completed the Microsoft Lync interconnectivity of Horizon Call.

In November 2013, we announced the addition of a GPS tracking and advertising service to the One Horizon App software suite. The feature is designed to help in locating lost phones, allow operators to deliver relevant advertisements dynamically to subscribers, and enable subscribers to record and share their movements through social media.

In September 2013, we opened a new software research and development office, employing three experienced software engineers in the Nexus Innovation Centre on the campus of the University of Limerick in Ireland. This on campus R&D office is focused on the research of the core software architecture as opposed to the mobile application developments and a lot of engineering and academics surrounding is required. We believe we will benefit from Irish Software Foundation's creative thinking and further advance ourselves in research of our unique mobile VOIP solutions.

17 -------------------------------------------------------------------------------- In August 2013, we launched our online Global Phone Credit service add-on. This service provides a complete Internet shop-front that performs the cash collection, credit card management and cash reconciliation services for all Horizon service providers that wish to avail themselves of it. This Horizon technology component seamlessly works alongside any legacy operator credit top-up services such as scratch-cards. The Horizon service provider can now also promote the GPC on-line payment portal allowing their subscribers to pay for their in-App credit using their credit card or a PayPal account. The GPC service works in conjunction with the Horizon Global Exchange product suite.

In July 2013, we released our VoIP technology as a software-library for smartphone App developers. The Horizon software library allows smartphone app developers to integrate the Horizon VoIP optimizations with their current and their future apps. Apps such as on-line gaming can now carry the gamer's voice in a high-quality and reliable way especially while on wireless networks such as 3G, bringing a new level of mobility to games that benefit from voice communications. Another use for the library is in the plethora of existing VoIP apps that currently employ inefficient SIP protocols. App-based gaming developers can now upgrade their users' voice-communication experience by deploying Horizon and integrating the Horizon software library in their apps. The Horizon software library works in conjunction with the Horizon Global Exchange product suite. A software license is required for the Horizon Global Exchange and for the Horizon software-library.

On May 20, 2013, we announced the launch of new social networking features in its Horizon Call app on Android, enabling service providers to further differentiate themselves from over-the-top ("OTT") players by offering innovative, integrated mobile Voice, Messaging and Advertising services over Internet Protocol ("IP").

The new features, available for Android devices today, are integrated in the One Horizon Group suite of optimized mobile applications already leveraged by leading service providers globally. Our mobile Voice, Messaging and Advertising over IP communication software platform is based on its Horizon SmartPacket™ technology, which reduces bandwidth consumption and latency to offer higher quality of service and longer uninterrupted call durations compared to other mobile voice over IP ("VoIP") solutions.

On February 18, 2013, we entered into a Subscription Agreement dated February 18, 2013 and an Amendment to Subscription Agreement dated as of February 18, 2013 (collectively, the "Subscription Agreement") with a non-U.S. shareholder of us (the "Investor"), pursuant to which (i) we agreed to sell, and the Investor agreed to purchase, an aggregate of 806,451 shares of our Common Stock, for an aggregate consideration of $6,000,000 (the "Purchase Price") or $7.44 per share, and (ii) we agreed to issue a common stock purchase warrant (the "Warrant") to the Investor exercisable for three years to purchase 403,225 shares of Common Stock at an exercise price of $7.44 per share. The Purchase Price is payable in three equal installments of $2,000,000 on March 31, 2013, June 30, 2013 and September 30, 2013, respectively, with an accrued interest at a rate of three percent (3%) per annum and is secured by a pledge by the Investor to us of the Shares pro rata.

On August 30, 2013, we entered into an amended and restated Subscription Agreement (the "Amended Subscription Agreement") and an amended and restated warrant (the "Amended Warrant") with the Investor. The Amended Subscription Agreement and Amended Warrant reduced the exercise price per share of Common Stock purchasable under the Warrant to $5.94 per share, and the Amended Subscription Agreement required the third installment of the Purchase Price to be paid by September 16, 2013, instead of September 30, 2013. No other terms of the Subscription Agreement or Warrant were amended. The three installments of the Purchase Price were paid on time by the Investor.

18 --------------------------------------------------------------------------------Critical Accounting Policies and Estimates Our 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, or GAAP. Our significant accounting policies are described in notes accompanying the consolidated financial statements. The preparation of the consolidated financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. Estimates are based on information available as of the date of the financial statements, and accordingly, actual results in future periods could differ from these estimates. Significant judgments and estimates used in the preparation of the consolidated financial statements apply critical accounting policies described in the notes to our consolidated financial statements.

We consider our recognition of revenues, accounting for the consolidation of operations, accounting for stock-based compensation, accounting for intangible assets and related impairment analyses, accounting for equity transactions, and accounting for acquisitions to be most critical in understanding the judgments that are involved in the preparation of our consolidated financial statements.

Additionally, we consider certain judgments and estimates to be significant, including those relating to the timing of revenue recognition from the sales of perpetual licenses to certain Tier 1 and Tier 2 telecom entities, those relating to the determination of vendor specific objective evidence ("VSOE") for purposes of revenue recognition, useful lives for amortization of intangibles, determination of future cash flows associated with impairment testing of long-lived assets, determination of the fair value of stock options and other assessments of fair value. We base our estimates on historical experience, current conditions and on other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates and assumptions.

Our significant accounting policies are summarized in Note 3 of our audited financial statements as of December 31, 2013. Note 2 of our audited financial statements as of December 31, 2013 discusses our restatement of previously issued financial statements to correct errors related to the recognition of revenue from sales of perpetual licenses to certain larger, top-tier ("Tier 1") and other ("Tier 2") telecom clients. Our previously disclosed Revenue Recognition accounting policy has been modified to address these errors. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.

Revenue Recognition The Company recognizes revenue when it is realized or realizable and earned.

Prior to recognizing revenue the Company establishes persuasive evidence of a sales arrangement for each type of revenue transaction based on a signed contract with the customer, verifies that delivery has occurred or services have been rendered, that the price is fixed and determinable, and collectability is reasonably assured.

? Software and licenses - revenue from sales of perpetual licenses to customers when payments for the licenses are fixed is recognized at the inception of the arrangement, unless the payment term exceeds one year and then only if the presumption that the license fee is not fixed or determinable can be overcome, presuming all other relevant revenue recognition criteria are met. If the presumption cannot be overcome, revenue is recognized as payments from the customer become due. Revenue from sales of perpetual licenses when payments for the licenses are payable over a period exceeding a year and those payments are variable based on customer usage is recognized as payments from the customer become due. The Company regards a "top-tier" telecom entity as a tier 1 carrier which has a direct connection to the Internet and the networks it uses to deliver voice and data services as well as a financially strong balance sheet and good credit rating..

? Revenue for user licenses purchased by customers is recognized when the user license is delivered.

? Revenue for maintenance services is recognized over the period of delivery of the services.

19-------------------------------------------------------------------------------- We enter into arrangements under which a customer purchases a combination of software licenses, maintenance services and post-contract customer support ("PCS"). As a result, judgment is sometimes required to determine the appropriate accounting, including how the price should be allocated among the deliverable elements if there are multiple elements. PCS may include rights to upgrades, when and if available, support, updates and enhancements. When vendor specific objective evidence ("VSOE") of fair value exists for all elements in a multiple element arrangement, revenue is allocated to each element based on the relative fair value of each of the elements. VSOE of fair value is established by the price charged when the same element is sold separately. Accordingly, the judgments involved in assessing the fair values of various elements of an agreement can impact the recognition of revenue in each period. Changes in the allocation of the sales price between deliverables might impact the timing of revenue recognition, but would not change the total revenue recognized on the contract. When elements such as software and services are contained in a single arrangement, or in related arrangements with the same customer, we allocate revenue to each element based on its relative fair value, provided that such element meets the criteria for treatment as a separate unit of accounting. In the absence of fair value for a delivered element, revenue is first allocated to the fair value of the undelivered elements and then allocated to the residual delivered elements. In the absence of fair value for an undelivered element, the arrangement is accounted for as a single unit of accounting, resulting in a delay of revenue recognition for the delivered elements until the undelivered elements are fulfilled. No sales arrangements to date include undelivered elements for which VSOE does not exist.

For purposes of revenue recognition for perpetual licenses, the Company considers payment terms exceeding one year as a presumption that the fee in the transaction is not fixed or determinable. This presumption however, may be overcome if persuasive evidence demonstrates that the Company has a business practice of extending payment terms and has been successful in collecting under the original terms, without providing any concessions. In doing so, the Company considers if the arrangement is sufficiently similar to historical arrangements in terms of similar customers and products is assessing whether there is evidence of a history of successful collection.

In order to determine the Company's historical experience is based on sufficiently similar arrangements, the Company considers the various factors, including the types of customers and products, product life cycle, elements included in the arrangement, length of payment terms and economics of license arrangement.

If the presumption cannot be overcome due to a lack of such evidence, revenue is recognized as payments become due, assuming all other revenue recognition criteria have been met. As a result, revenue from Tier 1 entities, which require agreed-upon fixed payments over fixed future periods extending beyond one year is recognized as payments become due rather than at the inception of the arrangement, and revenue from Tier 2 entities is recognized when payments become due (which is based on useage), rather than on a straight-line basis over the term of the contract. The Company does not have any sales contracts for which the presumption has been overcome and for which revenue has been recognized at the inception of the arrangement.

As of December 31, 2013, the following table sets forth the value of all existing contracts as it related to master licenses and the amount of revenue recognized to date as well as the revenue recognized during the 12 months ended December 31, 2013. This table represents the contract value for the sale of the master license, excluding other revenues recognized under the terms of the contract for maintenance, user licenses, and other sales.

Master License Customer Type Balance Revenue Revenue Contract Value to be recognized for 12 months recognized to date ending 12/31/2013 Tier 1 $ 13,425,000 $ 10,012,500 $ 3,412,500 $ 1,912,500 Tier 2 49,000,000 44,521,419 4,478,581 2,852,979 Total $ 62,425,000 $ 54,533,919 $ 7,891,081 $ 4,765,479 In addition to the above Revenue recognized from Master Licenses of approximately $4,765,000, the Company also recognized $456,000 from the sale of Hardware and $3,885,000 from the sale of user licenses, consultancy and maintenance services." Divestiture On October 25, 2012, One Horizon UK sold its Satcom Global business. Because the Satcom business was discontinued prior to the Share Exchange, the operations of Satcom Global have been excluded from the Company's historical financial statement presentation of its fiscal years ended June 30, 2012 and 2011, and for the six-month period ended December 31, 2012. These historical financial statements are presented on a "carve out" basis, as described more fully in the notes to the financial statements. The financial statements presented are of those companies that constituted the consolidated entity at the date of the consummation of the Share Exchange, consisting of three legal entities: One Horizon UK and its subsidiaries Abbey Technology and Horizon Globex.

20 --------------------------------------------------------------------------------Change in Fiscal Year On February 13, 2013, following the Share Exchange, the Company filed a Current Report on Form 8-K disclosing that the board of directors of the Company approved a change to the Company's fiscal year end from June 30 to December 31.

As a result of this change, in addition to the financial information for the years ended December 31, 2013 and June 30, 2012, this Annual Report on Form 10-K includes the financial information for the six-month transition period from July 1, 2012 to December 31, 2012.

Results of Operations The following table sets forth information from our statements of operations for the year ended December 31, 2013 and 2012. The information for the year ended December 31, 2012 has been adjusted to reflect the restatement discussed in Note 2.

Comparison of year ended December 31, 2013 and 2012 (in thousands) For the Year Ended December 31, Year to Year Comparison 2013 2012 Increase/ Percentage (audited) (unaudited) (decrease) Change Revenue $ 9,106 $ 10,414 $ (1,308) (13 %) Cost of revenue Hardware 545 186 359 1930 % Amortization of software development costs 1,908 1,828 80 (4 %) 2,453 2,014 Gross margin 6,653 8,400 (1,747) (21 %) Operating Expenses General and administrative 6,706 7,114 (408) (6 %) Depreciation 166 891 (725) (81 %) Total Operating Expenses 6,872 8,005 (1,133) (14 %) Income from Operations (219) 395 (611) (156 %) Other Income(Expense) Interest expense (322) (252) (70) (28 %) Foreign Exchange (loss) gain , net (158) 21 (179) (852 %) Interest income 1 1 0 0 Income for continuing operations before income taxes (698) 165 (863) (523 %) Income taxes - - - - Net Income for the year (698) 165 (863) (523 %) 21-------------------------------------------------------------------------------- Revenue: Our revenue for the year ended December 31, 2013 was approximately $9.1 million as compared to approximately $10.4 million for the year ended December 31, 2012, an decrease of roughly $1.3 million, or 13% The decrease was largely due to a one off sale of billing software totaling $5.0 million which is unlikely to recur, without that exceptional item revenue increased by approximately $3.8 million for the 12 months ending December 31, 2013, going forward management expects revenue to increase due to growth in sales of the Horizon Platform following the development of the GSM application, Horizon Call.

Cost of Revenue: Cost of revenue was approximately $2.4 million, for the year ended December 31, 2013, compared to cost of sales on the same basis of approximately $2.0 million, for the year ended December 31, 2012. Our cost of sales is primarily composed of the costs of ancillary hardware sold with the Horizon Platform together with the amortization of software development costs.

Gross Profit: Gross profit for the year ended December 31, 2013 was approximately $6.7 million as compared to $8.4 million for the year ended December 31, 2012. Our gross profits decreased by 21% from 2012 to 2013. The main reason for the decrease was due to the to a one off sale of billing software totaling $5.0 million which is unlikely to recur,. Going forward, Management expects gross profit to begin to grow as the smartphone market continues to expand globally, coupled with our belief that the Company will be able to capitalize on market opportunities by entering areas with high population density, high penetration of mobile phones, congested mobile cellular networks and high growth in the adoption of smartphones.

Going forward, management believes that gross profit will improve if sales continue to increase, although there can be no assurance of such.

Operating Expenses: Operating expenses, including general and administrative expenses and depreciation were approximately $6.9 million, or 75% of sales for the year ended December 31, 2013 as compared to approximately $8.0 million, or 77% of sales for the same period in 2012, a decrease of approximately $1.1 million. The decrease was due to one off none cash items including shares issued as management bonuses which occurred in 2012 but not in 2013. Going forward, management expects these costs to rise due to various public company-related expenses including share-based compensation, and various legal, accounting and consulting services.

The costs in 2012 included a non cash bonus paid in shares (value $1.2m) to two officers (see last year's 10K in the remuneration note) Net Income/Loss: Net loss for the year ended December 31, 2013 was approximately $698,000 as compared to a net income of $165,000 for the same period in 2012. The increase in net loss reflected was mainly due to the one off sale of billing software which occurred in 2012 and did not recur in 2013. Going forward, management expects net income to increase if the company is able to capitalize on market opportunities by entering areas with high population density, high penetration of mobile phones, congested mobile cellular networks and high growth in the adoption of smartphones.

Non-Controlling Interest: The non-controlling interest holders in our China joint venture were attributed their 25% share of the net loss of the joint venture in the amount of $104,000 for the year ended December 31, 2013. The remaining portion of net loss of $138,000 for the twelve months ended December 31, 2013 was attributable to the stockholders of the Company.

22--------------------------------------------------------------------------------Going forward, management believes the Company will continue to grow the business and increase profitability if we are successful in selling the Horizon Platform solution to new telecommunications company customers globally.

Foreign Currency Translation Adjustment: Our reporting currency is the U.S.

dollar. Our local currencies, Swiss Francs, Euro, British pounds and Chinese Renminbi, are our functional currencies. Results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate as quoted by http://www.oanda.com/currency/historical-rates/ at the end of the period.

Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of shareholders' equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Currency translation adjustments resulting from this process are included in accumulated other comprehensive income in the consolidated statement of shareholders' equity and amounted to approximately $682,000 for the year ended December 31, 2013.

The following table sets forth information from our statements of operations for the six months ended December 31, 2012 and 2011.

Comparison of six month ended December 31, 2012 and 2011 (in thousands) For the Six Months Ended December 31, Year to Year Comparison 2012 2011 Increase/ (restated) (unaudited) (decrease) Percentage Change Revenue $ 6,959 $ 668 $ 6,291 1,062 % Cost of revenue (including amortization of software development costs) 994 627 367 58 % Gross margin 5,965 41 5,924 N/A Operating Expenses General and administrative 4,023 1,263 2,760 218 % Depreciation 73 66 7 10 % Total Operating Expenses 4,096 1,329 2,767 208 % Income (loss) from Operations 1,869 (1,288) 3,157 N/A % Other Income(Expense) Interest expense (87) (53) (34) (64 %) Foreign Exchange gain , net 16 44 (28) (63 %) Interest income 1 0 (1 ) N/A Income for continuing operations before income taxes 1,799 (1,297) 3,096 N/A Income taxes (recovery) - 0 - N/A Net (Loss) Income for period 1,799 (1,297) 3,096 N/A Revenue: Our revenue for the six months ended December 31, 2012 was approximately $6.7 million as compared to approximately $0.7 million for the six months ended December 31, 2011, an increase of $6.3 million, or 1,062%. The increase in our revenue was significantly due to the growth in sales of the Horizon Platform following the development of the GSM application, Horizon Call, which was completed in November 2011. The Company expects sales to continue to grow as more companies sign up for the Horizon Platform.

23 -------------------------------------------------------------------------------- Cost of Revenue: Cost of revenue was approximately $994,000 for the six months ended December 31, 2012, compared to cost of sales of $627,000 together with the amortization of software development costs, for the six months ended December 31, 2011. Our cost of sales is primarily composed of the costs of ancillary hardware sold with the Horizon Platform.

Gross Profit: Gross profit for the six months ended December 31, 2012 was approximately $6.0 million as compared to $0.04 million for the six months ended December 31, 2011. Our gross profits increased by $5.9 million from 2011 to 2012. The main reason for the increase in gross profit is the one off sale of proprietary billing software amounting to $5.0 million.

Going forward, management believes that gross profit will improve if sales continue to increase, although there can be no assurance of such.

Operating Expenses: Operating expenses, including general and administrative expenses, depreciation, and amortization of intangibles, were approximately $4.1 million, or 58.9% of sales for the six months ended December 31, 2012 as compared to $1.3 million, or 199% of sales for the same period in 2011, an increase of approximately $2.7 million. The increase was due to costs related to adding resources to deal with the new customers in both data handling and the account management roles. Going forward, management expects these costs to rise due to various public company-related expenses including share-based compensation, and various legal, accounting and consulting services.

Net Income: Net income for the six months ended December 31, 2012 was approximately $1.7 million as compared to a loss of $1.3 million for the same period in 2011. The increase in net income reflected the one off sale of billing sofware amounting to $5.0 million.

Going forward, management believes the Company will continue to grow the business and increase profitability if we are successful in selling the Horizon Platform solution to new telecommunications company customers globally.

Foreign Currency Translation Adjustment: Our reporting currency is the U.S.

dollar. Our local currencies, Swiss Francs, Euro, British pounds and Chinese Renminbi, are our functional currencies. Results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate as quoted by http://www.oanda.com/currency/historical-rates/ at the end of the period.

Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of shareholders' equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Currency translation adjustments resulting from this process are included in accumulated other comprehensive income in the consolidated statement of shareholders' equity and amounted to approximately $16,000 for the six months ended December 31, 2012.

24--------------------------------------------------------------------------------The following table sets forth information from our statements of operations for the years ended June 30, 2012 and 2011.

Comparison of years ended June 30, 2012 and 2011 For the Year Ended June 30 Year to Year Comparison 2012 2011 Increase/ (restated) (restated) (decrease) Percentage Change Revenue $ 2,612 $ 901 $ 1,711 190 % Cost of revenue (including amortization of software development cost) 1,735 1,514 221 15 % Gross margin 877 (613) 1,490 N/A Operating Expenses General and administrative 4,570 1,911 2,659 139 % Depreciation 884 321 563 175 % Total Operating Expenses 5,454 2,232 3,222 144 % Income from Operations (4,577) (2,845) (1,732) N/A Other Income(Expense) Interest expense (218) (173) (45) (26 %) Foreign Exchange gain , net 49 (2) 51 100 % Gain on acquisition of subsidiary 0 476 (476 ) (100 %) Loss for continuing operations before income taxes (4,746) (2,544) (2,202) N/A Income taxes (recovery) - (316) (316) Net Loss for period (4,746) (2,228) (2,510) N/A Revenue: Our revenue for the year ended June 30, 2012 was approximately $2.6 million as compared to $0.9 million for the year ended June 30, 2011, an increase of $1.7 million, or 190%. The increase in our revenue was due to the growth in sales of the Horizon Platform following the development of the GSM application, Horizon Call, which was completed in November, 2011. We expect sales to continue to grow as more companies sign up for the Horizon Platform.

Cost of Revenue: Cost of revenue was approximately $1.7 million for the year ended June 30, 2012, compared to cost of sales of $1.5 million, of sales for the year ended June 30, 2011. Our cost of sales is primarily composed of the costs of ancillary hardware sold with the Horizon Platform together with the amortization of software development costs.

Gross Margin: Gross margin for the year ended June 30, 2012 was approximately $877,000 as compared to loss of ($613,000) for the year ended June 30, 2011. The main reason for the increase in gross margin is the growth in business and the smartphone market globally, as well as the Company's ability to capitalize on market opportunities by entering areas with high population density, high penetration of mobile phones, congested mobile cellular networks and high growth in the adoption of smartphones.

25 --------------------------------------------------------------------------------Going forward, management believes that gross margin will increase to the extent we are successful in our efforts to grow our sales.

Operating Expenses: Operating expenses, including general and administrative expenses and depreciation, were approximately $5.4 million, or 208% of sales for the year June 30, 2012, as compared to $2.2 million, or 248% of sales for the same period in 2011. Overall, operating expenses increased by approximately $3.2 million. The increase was due to costs related to adding additional resources to deal with the new customers in both data handling and the account management roles. Going forward, management expects overall costs to rise due to various public company-related expenses including share-based compensation, and various legal, accounting and consulting services.

Interest Expense: For the year ended June 30, 2012, interest expense was approximately $218,000 as compared to interest expense of approximately $173,000 for 2011. The increase of $35,000 or 20.2% in interest expense is mainly due to the increase in cost of capital charged by HSBC prior to the redemption of the facilities with the bank in October, 2012.

Net Income: Net loss for the year ended June 30, 2012 was approximately $4.6 million as compared to $2.8 million for the same period in 2011. The increase in losses reflected the increase in operating expenditures of the business.

Going forward, management believes the Company will continue to grow the business and increase profitability as the Horizon Platform solution is taken up by new telecommunications company customers globally.

Foreign Currency Translation Adjustment: Our reporting currency is the U.S.

dollar. Our local currencies, Swiss Francs and British pounds, are our functional currencies. Results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate as quoted by http://www.oanda.com/currency/historical-rates/ at the end of the period.

Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of shareholders' equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Currency translation adjustments resulting from this process are included in accumulated other comprehensive income in the consolidated statement of shareholders' equity and amounted to approximately $455,000 for the year ended June 30, 2012 and $nil for the same period in 2011.

Liquidity and Capital Resources Years Ended December 31, 2013 and December 31, 2012 The following table sets forth a summary of our approximate cash flows for the periods indicated: For the Years Ended December 31 (in thousands) 2012 2013 (unaudited) Net cash provided by (used in) operating activities (3,760 ) (3,795 ) Net cash used in investing activities (1,365 ) (2,722 ) Net cash provided by financing activities 6,496 6,845 26-------------------------------------------------------------------------------- Net cash used by operating activities was approximately $3.7 million for the year ended December 31, 2013 as compared to approximately $3.8 million for the same period in 2012. The decrease in cash used by operations was primarily due to the increase in cash generated from sales, which offset (and reduced) the overall cash used by operating activities.

Net cash used in investing activities was approximately $1.4 million and $2.7 million for the years ended December 31, 2013 and 2012, respectively. Net cash used in investing activities was primarily focused on investment in software development costs.

Net cash provided by financing activities amounted to approximately $6.5 million for 2013 and $6.8 million for 2012. Cash provided by financing activities in 2013 was primarily due to the advances from related parties and proceeds from the sale of common stock. Cash used by financing activities in 2012 was primarily due to proceeds from sale of common stock and loan from related parties less the reduction in long term bank borrowing.

Our working capital deficiency, excluding the current portion of deferred income (attributable to licensing fees to be realized over time), as of December 31, 2013, was approximately $1.7 million, as compared to working capital of approximately $620,000 for the same period in 2012.

Six Months Ended December 31, 2012 and December 31, 2011 The following table sets forth a summary of our approximate cash flows for the periods indicated: For the Six Months Ended December 31 (in thousands) 2012 2011 (restated) (unaudited) Net cash provided by (used in) operating activities $ (833 ) $ (1,201 ) Net cash used in investing activities (431 ) (850 ) Net cash provided by financing activities 1,963 1,640 Net cash used by operating activities was approximately $833,000 for the six months ended December 31, 2012, as compared to $1,201,000 for the same period in 2011. The decrease in cash used by operations was primarily due to the increase in cash generated from sales, which offset (and reduced) the overall cash used by operating activities.

Net cash used in investing activities was approximately $431,000 and $850,000 for the six months ended December 31, 2012 and 2011, respectively. Net cash used in investing activities was primarily focused on acquisitions of intangible assets and property and equipment. Same comment as above.

Net cash provided by financing activities amounted to roughly $2.0 million for 2012 and $1.64 million for 2011. Cash provided by financing activities in 2012 was primarily due to the advances from related parties and proceeds from the sale of common stock. Cash used by financing activities in 2011 was primarily due to proceeds from sale of common stock and loan from related parties less the reduction in long term bank borrowing.

27 -------------------------------------------------------------------------------- Year ended June 30, 2012 and 2011 See comments above The following table sets forth a summary of our approximate cash flows for the periods indicated: For the Year Ended June 30, (in thousands) 2012 2011 Net cash provided by (used in) operating activities $ (2,895 ) $ 5,363 Net cash used in investing activities (3,622 ) (2,661 ) Net cash provided by financing activities 6,517 (2,702 ) Net cash used by operating activities was approximately $2.9 million for the year ended June 30, 2012 as compared to net cash provided by operating activities of $5.4 million for the same period in 2011. The significant increase in cash used by operations was primarily due to increase in accounts receivable during the year.

Net cash used in investing activities was approximately $3.6 million and $2.7 million for the years ended June 30, 2012 and 2011, respectively. Net cash used in investing activities was primarily focused on acquisitions of intangible assets and property and equipment, and in 2011 the acquisition of Abbey Technology GmbH.

Net cash provided by financing activities amounted to approximately $6.5 million for year ended June 30, 2012 and cash used of $2.7 million for year ended June 30, 2011. Cash provided by financing activities in 2012 was primarily due to the advances from related parties and proceeds from the sale of common stock. Cash used by financing activities in 2011 was primarily due to repayment of long term debt and payment of dividends.

Our working capital deficiency, excluding the current portion of deferred income (attributable to licensing fees to be realized over time), as of June 30, 2012, was approximately $7.3 million, as compared to a working capital deficiency of approximately $6.1 million for the same period in 2011.

Going forward, we intend to rely on the sales of our products and services, as well as on the sale of securities to, and loans from, existing stockholders and new investors, to meet our cash requirements.

On January 22, 2013, Messrs. White and Collins each made a loan to the Company of $250,000 (each, a "Loan"). In exchange for each Loan, the Company issued to each of Messrs. White and Collins a promissory note, in the initial principal amount of each Loan. Each Loan bears interest at the rate of 0.21% per annum, must be repaid in one year, and is prepayable without penalty at the option of the Company at any time following its issuance in cash or in shares of its common stock, at the rate of $5.16 per share. On January 21, 2014, the Company and each of Messers. White and Collins agreed to extend the due date to repay each Loan to January 21, 2015.

On February 18, 2013, the Company entered into a Subscription Agreement dated February 18, 2013 and an Amendment to Subscription Agreement dated as of February 18, 2013 (collectively, the "Subscription Agreement") with a non-U.S.

shareholder of the Company (the "Investor"), pursuant to which (i) the Company agreed to sell, and the Investor agreed to purchase, an aggregate of 806,451 shares of the Company's Common Stock, for an aggregate consideration of $6,000,000 (the "Purchase Price") or $7.44 per share, and (ii) the Company agreed to issue a common stock purchase warrant (the "Warrant") to the Investor exercisable for three years to purchase 403,225 shares of Common Stock at an exercise price of $7.44 per share. The Purchase Price was payable in three equal installments of $2,000,000 on March 31, 2013, June 30, 2013 and September 30, 2013, respectively, and accrued interest at a rate of three percent (3%) per annum and was secured by a pledge by the Investor to the Company of the Shares pro rata.

28-------------------------------------------------------------------------------- On August 30, 2013, the Company entered into an amended and restated Subscription Agreement (the "Amended Subscription Agreement") and an amended and restated warrant (the "Amended Warrant") with the Investor. The Amended Subscription Agreement and Amended Warrant reduced the exercise price per share of Common Stock purchasable under the Warrant to $5.94 per share, and the Amended Subscription Agreement required the third installment of the Purchase Price to be paid by September 16, 2013, instead of September 30, 2013. No other terms of the Subscription Agreement or Warrant were amended. All three installments of the Purchase Price were paid on time by the Investor.

We may seek to sell common or preferred stock in private placements. We have no commitments from anyone to purchase our common or preferred stock or to loan funds. We cannot assure that we will be able to raise additional funds at terms acceptable to us or to do so at a cost economically viable.

Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on its financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

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