UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10−Q

(Mark One)

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

For the quarterly period ended: ~~September~~March 3031, ~~2012~~2013

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to _____________

Commission File Number: 000-25108

UNILAVA CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Wyoming		80-0568736
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

353 Sacramento Street, Suite 1500

San Francisco, CA 94111

(Address of principal executive offices, Zip Code)

(415) 321-3490

(Registrant’s telephone number, including area code)

N/A

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o

Non-accelerated filer	o	Smaller reporting company	x
(Do not check if a smaller reporting company)

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

The number of shares outstanding of each of the issuer’s classes of common stock, as of ~~October~~May 3115, ~~2012~~2013 is as follows:

Class of Securities		Shares Outstanding
Common stock, no par value		100,051,107

Quarterly Report on Form 10-Q

~~September~~Three 30Months Ended March 31, ~~2012~~2013

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

		Page(s)
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2021
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
PART II OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	(Removed and Reserved)	30
Item 5.	Other Information	3031
Item 6.	Exhibits	31
	Signatures	32

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

The accompanying consolidated balance sheet of Unilava Corporation at ~~September~~March 3031, ~~2012~~2013, the consolidated statements of operations and comprehensive loss for the three ~~and nine~~ months ended ~~September~~March 3031, 2012 and 2011 and the consolidated statements of cash flows for the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012, have been prepared by the Company's management, in conformity with principles generally accepted in the United States of America. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included in these condensed statements and all such adjustments are of a normal recurring nature.

UNILAVA CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~SIX~~THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, ~~2012~~2013 AND ~~2011~~2012

Financial Statements		Page(s)

	Consolidated Balance Sheets (Unaudited)	4

	Consolidated Statements of Operations and Comprehensive Loss (Unaudited)	5

	Consolidated Statements of Cash Flows (Unaudited)	6

	Notes to Consolidated Financial Statements (Unaudited)	7-19

UNILAVA CORPORATION AND SUBSIDIARIES

Unilava Corporation and Subsidiaries
Consolidated Balance Sheets

	March 31,			December 31,
	2013			2012
ASSETS	(unaudited)
CURRENT ASSETS
Cash	$	-		$	-
Certificates of deposit		28,127			28,119
Accounts receivable, net		244,398			246,438
Other current assets		123			(24	)

Total current assets		272,648			274,533

Fixed assets, net		1,483,418			1,510,822
Goodwill		767,873			767,873
Other assets		110,074			110,091

TOTAL ASSETS	$	2,634,013		$	2,663,319

LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Bank overdraft	$	79,131		$	79,242
Accounts payable and accrued expenses		3,634,194			3,301,044
Accounts payable and accrued expenses - related party		180,625			180,625
Deferred rent - current		23,061			37,261
Line of credit		1,651,633			1,651,633
Notes payable		2,014,332			2,072,927
Notes payable - related party		1,039,709			881,008

TOTAL CURRENT LIABILITIES		8,622,685			8,203,740

Deferred rent - non current		-			-
TOTAL LIABILITIES		8,622,685			8,203,740

STOCKHOLDERS' DEFICIT
Preferred stock, no par value 5,000,000 shares authorized; issued and outstanding 0 and 0 outstanding at March 31, 2013 and December 31, 2012, respectively.		-			-

Common stock, no par value 120,000,000 shares authorized; issued but not outstanding 100,052,888 and 100,052,888, respectively; issued and outstanding 100,051,107 and 100,051,107 at March 31, 2013 and December 31, 2012, respectively.		1,519,074			1,519,074
Common stock payable		-			-
Treasury stock, 1,781 and 1,781 shares at March 31, 2013 and December 31, 2012, respectively		-			-
Accumulated deficit		(7,382,020	)		(6,953,739	)
Accumulated other comprehensive loss
(Foreign translation adjustment)		(63,895	)		(61,795	)

STOCKHOLDERS' DEFICIT OF UNILAVA		(5,926,841	)		(5,496,460	)
Non-controlling interest		(61,831	)		(43,960	)

TOTAL STOCKHOLDERS' DEFICIT		(5,988,672	)		(5,540,420	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	2,634,013		$	2,663,319

SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	September 30,			December 31,
	2012			2011
ASSETS
CURRENT ASSETS
Cash	$	-		$	51,704
Certificates of deposit		28,110			28,078
Accounts receivable, net		289,923			320,587
Other current assets		26			5,409
Total current assets		318,059			405,778
Fixed assets, net		1,545,981			1,651,953
Goodwill		767,873			767,873
Other assets		127,959			95,306
TOTAL ASSETS	$	2,759,872		$	2,920,910
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
	$	39,577		$	-
Accounts payable and accrued expenses		3,346,412			2,718,824
Accounts payable and accrued expenses – related party		180,625			141,001
Deferred rent - current		51,461			47,099
Line of credit		1,507,176			1,507,176
Notes payable		2,070,069			1,694,075
Notes payable - related party		879,613			699,477
TOTAL CURRENT LIABILITIES		8,074,933			6,807,652
Deferred rent - non current		-			40,684
TOTAL LIABILITIES	$	8,074,933		$	6,848,336
STOCKHOLDERS' DEFICIT
Preferred stock, no par value 5,000,000 shares authorized; issued and outstanding 0 and 0 outstanding at September 30, 2012 and December 31, 2011, respectively.		-			-
Common stock, no par value 120,000,000 shares authorized; issued but not outstanding 100,052,888 and 100,052,888, respectively; issued and outstanding 100,051,107 and 100,051,107 at September 30, 2012 and December 31, 2011, respectively.		1,519,074			1,519,074
Common stock payable		-			-
Treasury stock, 1,781 and 1,781 shares at September 30, 2012 and December 31, 2011, respectively		-			-
Accumulated deficit		(6,751,762	)		(5,370,761	)
Accumulated other comprehensive loss
(Foreign translation adjustment)		(63,792	)		(63,974	)
STOCKHOLDERS' DEFICIT OF UNILAVA		(5,282,280	)		(3,915,661	)
Non-controlling interest		(32,781	)		(11,765	)
TOTAL STOCKHOLDERS' DEFICIT		(5,315,061	)		(3,927,426	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	2,759,872		$	2,920,910

See accompanying notes to the unaudited consolidated financial statements.

UNILAVA CORPORATION AND SUBSIDIARIES

Unilava Corporation and Subsidiaries
Unaudited Consolidated Statements of Operations


	For the three months ended
	March 31,
	2013			2012
Revenue	$	763,896		$	820,887
Cost of revenue		412,650			389,062
Gross profit		351,246			431,825

Costs and Expenses
Salaries and payroll taxes		270,533			332,055
Selling, general & administrative		419,678			444,819
Depreciation		33,899			36,716
Goodwill impairment		-			-
Total costs and expenses		724,110			813,590

Loss from operations		(372,864	)		(381,765	)

Other Income (Expense)
Interest income		20			17
Other income		1			42,122
Gain on disposal of assets		-			-
Interest expense		(73,309	)		(135,197	)
Other expense		-			(10,000	)
Total other income (expense)		(73,288	)		(103,058	)

Loss before non-controlling interest		(446,152	)		(484,823	)
Net loss allocable to non-controlling interest		17,871			8,632
Net loss	$	(428,281	)	$	(476,191	)

Comprehensive loss:
Foreign currency translation adjustment		(2,100	)		(1,447	)
Total comprehensive loss	$	(430,381	)	$	(477,638	)


Net loss per common share:
Basic	$	(0.00	)	$	(0.00	)
Weighted average common shares outstanding:
Basic		100,051,107			100,051,107

SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Revenue	$	1,596,250		$	871,594		$	2,417,137		$	2,696,907
Cost of revenue		877,073			400,150			1,266,135			1,296,124
Gross profit		719,177			471,444			1,151,002			1,400,783
Costs and Expenses
Salaries and payroll taxes		562,313			315,624			894,368			1,075,263
Selling, general & administrative		770,380			349,838			1,215,199			1,098,391
Depreciation and amortization		69,925			37,987			106,641			116,667
Total costs and expenses		1,402,618			703,449			2,216,208			2,290,321
Loss from operations		(683,441	)		(232,005	)		(1,065,206	)		(889,538	)
Other Income (Expense)
Interest income		40			2			57			50
Other income		24,103			160,355			66,225			160,552
Interest expense		(253,694	)		(132,817	)		(388,891	)		(353,643	)
Other expense		10,000			(409	)		-			(409	)
Total other income (expense)		(219,551	)		27,131			(322,609	)		(193,450	)
Loss before non-controlling interest		(902,992	)		(204,874	)		(1,387,815	)		(1,082,988	)
Net loss allocable to non-controlling interest		12,382			(22,413	)		21,014			12,027
Net loss	$	(890,610	)	$	(227,287	)	$	(1,366,801	)	$	(1,070,961	)
Comprehensive loss:
Foreign currency translation adjustment	$	1,265		$	2,181		$	(182	)	$	2,953
Total comprehensive loss	$	(889,345	)	$	(225,106	)	$	(1,366,983	)	$	(1,068,008	)
Net loss per common share:
Basic	$	(0.01	)	$	(0.00	)	$	(0.01	)	$	(0.01	)
Weighted average common shares outstanding:
Basic		100,051,107			100,051,107			100,051,107			100,051,107

See accompanying notes to the unaudited consolidated financial statements.

UNILAVA CORPORATION AND SUBSIDIARIES

Unilava Corporation and Subsidiaries
Unaudited Consolidated Statements of Cash Flows

	For the three months ended
	March 31,
	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(428,281	)	$	(476,191	)
Adjustments to reconcile net loss
to net cash used in operating activities:
Shares to be issued for services		-			-
Depreciation and amortization		32,617			36,716
Change in deferred rent		(14,200	)		(11,415	)
Net loss allocated to non-controlling interest		(17,871	)		(8,632	)
Gain from sale of equipment		-			-
Impairment of goodwill		-			-
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable		2,040			6,033
Other current assets		(147	)		4,853
Other assets		17			(204	)
Accounts payable and accrued expenses		333,150			295,833
Accounts payable and accrued expenses - related party		-			26,413

CASH USED IN OPERATING ACTIVITIES		(92,675	)		(126,594	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Interest earned on certificates of deposit		(8	)		(10	)
Purchase of certificates of deposit		-			-
Proceeds from the sale of towers		-			-
Purchase of furniture and equipment		(5,212	)		(636	)

CASH USED IN INVESTING ACTIVITIES		(5,220	)		(646	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft		(111	)		-
Proceeds from notes payable		-			52,985
Repayment of notes payable		(58,595	)
Proceeds from line of credit		-			-
Repayment of line of credit		-			-
Proceeds from related party notes payable		158,701			52,542
Repayment of related party notes payable		-			(5,585	)

CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		99,995			99,942

EFFECT OF EXCHANGE RATE CHANGES ON CASH		(2,100	)		1,447
Net DECREASE IN CASH		(0	)		(25,851	)
CASH, beginning of period		-			51,704
CASH, end of period	$	(0	)	$	25,853

Supplemental disclosure of non-cash investing and financing activities:
Interest paid	$	-		$	52,984
Taxes paid	$	-		$	-

SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the Nine Months Ended
	September 30,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,366,801	)	$	(1,070,961	)
Adjustments to reconcile net loss
to net cash used in operating activities:
Shares to be issued for services		-			-
Depreciation and amortization		106,641			116,667
Change in deferred rent		(36,322	)		(29,602	)
Net loss allocated to non-controlling interest		(21,016	)		(12,027	)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable		30,664			122,092
Other current assets		5,383			(3,644	)
Other assets		(32,653	)		4,935
Accounts payable and accrued expenses		627,588			211,900
Accounts payable and accrued expenses – related party		39,624			21,760
CASH USED IN OPERATING ACTIVITIES		(646,892	)		(638,880	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Interest earned on certificates of deposit		(32	)		-
Redemption of certificates of deposit		-			50,820
Purchase of furniture and equipment		(669	)		(199	)
CASH USED IN (PROVIDED BY) INVESTING ACTIVITIES		(701	)		50,621
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft		39,577			3,870
Proceeds from notes payable		375,994			404,899
Proceeds from line of credit		-			284
Repayment of line of credit		-			(350,903	)
Proceeds from related party notes payable		197,742			457,000
Repayment of related party notes payable		(17,606	)		(14,119	)
CASH PROVIDED BY FINANCING ACTIVITIES		595,707			501,031
EFFECT OF EXCHANGE RATE CHANGES ON CASH		182			(2,594	)
NET DECREASE IN CASH		(51,704	)		(89,822	)
CASH, beginning of period		51,704			89,822
CASH, end of period	$	-		$	-
Interest paid	$	186,456		$	290,525
Taxes paid	$	-		$	-

See accompanying notes to the unaudited consolidated financial statements.

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~(UNAUDITED)~~FOR THE THREE MONTHS ENDED MARCH 31, 2013

Note 1 - Organization

Unilava Corporation, a Wyoming corporation, was formerly known as IWI Holding Limited (“IWI”), and was engaged in the international jewelry business through a US subsidiary. IWI went public via an initial public offering in 1994, and disposed of the subsidiary on December 31, 2007. On September 21, 2009, IWI entered into an Agreement pursuant to which IWI acquired all of the outstanding shares of Telava Networks, Inc., a Nevada corporation (“TelavaNV”), in exchange for 55 million shares of common stock. In addition, preferred stock of IWI which had been issued in 1994 totaling 3,644,880 shares were converted into 45 million shares of common stock. In connection with the closing of the acquisition, the TelavaNV management was appointed as the members of IWI management, the name of IWI was changed to Unilava, Corporation (“Unilava or the “Company””) and the corporation was reincorporated from the British Virgin Islands to Wyoming via Articles of Continuation.

The Company consists of several subsidiaries which make up the consolidated financial statements. The parent company is Unilava Corporation which is a holding company for the operating subsidiaries. Local Area Yellow Pages has significant operating revenue. Telava Wireless has significant assets. Local Info Pages has overseas operations in Korea. Telava Acquisitions is insignificant to the Company financial position and operating results. Telava Mobile has minimal assets and operations. IBFA has significant assets, liabilities and revenue.

TelavaNV, a privately owned company, was incorporated in Nevada on July 23, 2003 as Local Area Yellow Pages to provide advertising and directory listings for small and medium sized businesses on its internet website in a “Yellow Pages” format. The Company provides those services to its subscribers for a monthly fee. These services are provided primarily to small and medium sized businesses throughout the United States. On July 10, 2007, Local Area Yellow Pages amended its Articles of Incorporation to change the name of the corporation to Telava Networks, Inc. (“TelavaNV”) for the purpose of launching its network to provide the next generation fixed and mobile WiMAX broad band solutions to small and medium businesses, public safety organizations, and others in various markets through its network. TelavaNV continues its Yellow Pages operations while, at the same time, expanding its WiMAX network. During the ~~nine~~three months ended ~~September~~March 3031, 2012, nearly 421% of the Company’s revenues have been generated by its Yellow Pages business.

On January 19, 2006, TelavaNV formed Local Info Pages, Inc. (“LIP”), headquartered in Seoul, South Korea, as a wholly owned subsidiary of TelavaNV. LIP is one of the leading direct marketing and business service companies in Korea. LIP connects advertisers to targeted audiences through its network advertising products and services. On January 3, 2007, the Company acquired a website which brings value to the Company because of its large customer base which enables the Company to target and market its products to those customers. Another division of LIP is the second largest coupon company in South Korea which enables advertisers to directly reach consumers with branded media products, coupons and other advertisements. Many consumers depend on the Company to deliver the best values in town via direct and online coupons. For advertisers, LIP offers business advertising solutions by enabling them to sell their products and services in person, online or through the mail.

On May 17, 2006, TelavaNV formed Telava Wireless, Inc. (“Telava Wireless”) as a subsidiary for the purpose of entering the mobile WiMAX broad band solutions market. On November 6, 2006, the Company acquired 40 microwave towers in exchange for 25% of Telava Wireless.

On September 11, 2007, TelavaNV formed Telava Acquisitions, Inc. as a wholly owned subsidiary for the purpose of acquiring other related businesses.

On January 16, 2008, Telava Acquisitions, Inc. (“Telava”) a Delaware corporation and IBFA Acquisition Company, LLC (“IBFA”) a Michigan corporation and James Grabowski and Casimir Wojciechowski (the “Members”) entered into a Membership Interest Purchase Agreement (“MIPA”) whereby Telava agreed to purchase (the “Acquisition”) 100% of IBFA member interests from the Members for a purchase price of $2,250,000 subject to certain conditions such as a Management Agreement described below. An initial $1,750,000 was paid in fiscal year 2008 with $500,000 deferred and payable at the rate of $25,000 to $50,000 per month based on a specific calculation. During 2009, the Company paid $272,750 of deferred payments. The remaining $227,750 was subject to “True-up” provisions as of the effective date of the Acquisition on January 11, 2009 (See discussion below). Upon final settlement, ~~the~~The Company received concessions totaling $177,578 and made final payments totaling $95,172. Payment made related to the organization totaled $2,117,922. The cost of acquisition totaling ~~$1,835,873 has been entirely allocated to Goodwill which represents the overall cost of acquisition in excess of the fair value of tangible assets and identifiable intangible assets.~~

On November 12, 2008, TelavaNV formed Telava Mobile, Inc. (“TM”) as a 80% majority-owned subsidiary for the purpose of entering the mobile services businesses offering prepaid mobile calling cards and unlimited mobile services throughout the United States of America.

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~(UNAUDITED)~~FOR THE THREE MONTHS ENDED MARCH 31, 2013

Note 1 – Organization (Continued)

$1,835,873 has been entirely allocated to Goodwill which represents the overall cost of acquisition in excess of the fair value of tangible assets and identifiable intangible assets.

Note 2 – Going Concern

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplate continuation of the Company as a going concern. The Company has recently sustained operating losses and has an accumulated deficit of $67,~~737~~382,~~562~~020 at ~~September~~March 3031, ~~2012~~2013. In addition, the Company has negative working capital of $78,~~756~~350,~~874~~037 at ~~September~~March 3031, ~~2012~~2013.

The Company has and will continue to use significant capital to grow and acquire market share. These factors raise substantial doubt about the ability of the Company to continue as a going concern. In this regard, management is proposing to raise any necessary additional funds not provided by operations through loans or through sales of their common stock. There is no assurance that the Company will be successful in raising this additional capital or in achieving profitable operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.

Note 3 - Summary of Significant Accounting Policies

Basis of Presentation

The unaudited consolidated financial statements include the accounts of Unilava Corporation and its subsidiaries, Telava Networks, Inc. (100% owned), Telava Acqusitions, Inc. (100% owned), Telava Wireless, Inc. (75% owned), Telava Mobile, Inc. (80% owned), Local Info Pages, Inc. (100% owned Korea-based entity) and IBFA Acqusitions LLC (100% owned) which are 100% consolidated in the financial statements as adjusted for various minority interests. All material intercompany accounts and transactions have been eliminated. All significant intercompany transactions and balances are eliminated on consolidation.

The accompanying unaudited consolidated financial statements as of ~~September~~March 3031, ~~2012~~2013 and for the three ~~and nine~~ month periods ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012 have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. In the opinion of management, these unaudited consolidated interim financial statements include all adjustments and disclosures considered necessary to a fair statement of the results for the interim periods presented. All adjustments are of a normal recurring nature. The results of operations for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2012~~2013 are not necessarily indicative of the results for the full fiscal year ending December 31, ~~2012~~2013.

You should read this discussion in conjunction with the consolidated financial statements, accompanying notes and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, ~~2011~~2012.

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~(UNAUDITED)~~FOR THE THREE MONTHS ENDED MARCH 31, 2013

Note 3 - Summary of Significant Accounting Policies (Continued)

Fair Value of Financial Instruments

Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures , requires disclosing fair value to the extent practicable for financial instruments that are recognized or unrecognized in the balance sheet. Fair value of financial instruments is the amount at which the instruments could be exchanged in a current transaction between willing parties. The Company considers the carrying amounts of cash, restricted cash, accounts receivable, related party and other receivables, accounts payable, notes payable, related party and other payables, customer deposits, and short term loans approximate their fair values because of the short period of time between the origination of such instruments and their expected realization. The Company considers the carrying amount of long term bank loans to approximate their fair values based on the interest rates of the instruments and the current market rate of interest.

Level 1 The preferred inputs to valuation efforts are “quoted prices in active markets for identical assets or liabilities,” with the caveat that the reporting entity must have access to that market. Information at this level is based on direct observations of transactions involving the same assets and liabilities, not assumptions, and thus offers superior reliability. However, relatively few items, especially physical assets, actually trade in active markets.

Level 2 FASB acknowledged that active markets for identical assets and liabilities are relatively uncommon and, even when they do exist, they may be too thin to provide reliable information. To deal with this shortage of direct data, the board provided a second level of inputs that can be applied in three situations.

Level 3 If inputs from levels 1 and 2 are not available, FASB acknowledges that fair value measures of many assets and liabilities are less precise. The board describes Level 3 inputs as “unobservable,” and limits their use by saying they “shall be used to measure fair value to the extent that observable inputs are not available.” This category allows “for situations in which there is little, if any, market activity for the asset or liability at the measurement date”. Earlier in the standard, FASB explains that “observable inputs” are gathered from sources other than the reporting company and that they are expected to reflect assumptions made by market participants.

Foreign Currency Adjustments

The financial position and results of operations of the Company’s foreign subsidiary, LIP, is measured using the foreign subsidiary’s local currency as the functional currency. Revenues and expenses of the subsidiary have been translated into U.S. dollars at average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the balance sheet date. The resulting translation gain and loss adjustments are recorded as a separate component of stockholders’ equity, unless there is a sale or complete liquidation of the underlying foreign investments.

Cash and Cash Equivalents

This includes all short-term highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less. The Company has a restricted cash balance of $28,~~110~~127 and $28,~~078~~119 on ~~September~~March 3031, ~~2012~~2013 and December 31, ~~2011~~2012, respectively, which is comprised of Certificates of Deposit. The restricted cash is held in certificates of deposit at various banking institutions. The Company is expected to maintain the amounts in the certificates of deposit per agreements with certain vendors.

Accounts Receivable

Accounts receivable are reported at the customers' outstanding balances less any allowance for doubtful accounts. Interest is not accrued on overdue accounts receivable. The Company evaluates receivables on a regular basis for potential reserve.

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~(UNAUDITED)~~FOR THE THREE MONTHS ENDED MARCH 31, 2013

Note 3 - Summary of Significant Accounting Policies (Continued)

Fixed Assets

Fixed assets are stated at cost. Major renewals and improvements are charged to the asset accounts while replacements, maintenance and repairs, which 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.

The Company depreciates its fixed assets on a straight line basis at the following rates:

Microwave towers	25 years

Computer equipment	5 years

Furniture and equipment	7 years

Software	3 years

Leasehold improvements	5 years

Long-lived Assets

Accounting for the Impairment or Disposal of Long-Lived Assets 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 not be recovered. The Company assesses recoverability of the carrying value of an asset by estimating the fair value of the asset. If the fair value is 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. The Company has never recognized an impairment charge.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets arising from an acquisition of a business are periodically assessed for impairment rather than amortized on a straight-line basis. Accordingly, the Company annually reviews the carrying value of this goodwill and other intangible assets to determine whether impairment, as measured by fair market value, may exist. Specifically, goodwill and other intangible asset impairment is determined using a two-step process. The first step of the goodwill and other intangible asset impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount. If the fair value of a reporting unit exceeds its carrying amount, then the goodwill and other intangible assets of the reporting unit are not considered to be impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the impairment test is performed to measure the amount of impairment loss, if any. The second step of the impairment test compares the implied fair value of the reporting unit's goodwill and other intangible assets with their carrying amount. If the carrying amount of the reporting unit's goodwill and other intangible assets exceeds their implied fair value, then an impairment loss is recognized in an amount equal to that excess. ~~Goodwill consisted of $767,873 as of September 30, 2012 and December 31, 2011 as a result of the IBFA purchase as disclosed in the Company’s December 31, 2011 Form 10-K.~~

Goodwill consisted of $767,873 as of March 31, 2012 and December 31, 2011 as a result of the IBFA purchase as disclosed in the Company’s December 31, 2011 Form 10-K.

Accounting for Share-Based Compensation

The Company records stock based compensation in accordance with the guidance in ASC Topic 505 and 718 which requires the Company to recognize expenses related to the fair value of its employee stock option awards. This eliminates accounting for share-based compensation transactions using the intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.

The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 718-10 and the conclusions reached by the FASB ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~(UNAUDITED)~~FOR THE THREE MONTHS ENDED MARCH 31, 2013

Note 3 - Summary of Significant Accounting Policies (Continued)

Accounting for Share-Based Compensation (Continued)

Revenue Recognition

Telava NV and LIP : The Company’s revenue is generated by customer subscriptions of directory and advertising services. Revenue is billed and recognized monthly for services subscribed in that specific month. The Company utilizes outside billing companies to transmit billing data, much of which is forwarded to Local Exchange Carriers (“LEC’s”) that provide local telephone service.

LEC Billing : When a customer subscribes to the Company’s service, an electronic customer file is created which is the basis for the billing. The Company submits gross billings electronically to third party billing aggregators. These billing aggregators compile and format electronic customer files and forward the billing records to the appropriate LEC’s. The billing for our service flows through to monthly bills of the individual LEC customers. The LEC’s collect the Company’s billing and remit amounts to the billing aggregators, which in turn remit funds to the Company. The following are significant accounting estimates and assumptions used in the revenue recognition process with respect to these billings.

Customer refunds : The Company’s customer refund policy allows the customer to request a refund if they are not satisfied with the service within the first 30 days of the subscription. The Company accrues for refunds based on historical experience of refunds as a percentage of new billings in that 30-day period. Customer refunds historically have been insignificant and therefore there is no reserve against gross revenue.

Non-paying customers : There are customers who may not pay the fee for our services even though the Company believes they are valid subscribers. Included in cost of services is an accrual for estimated non-paying customers that are recorded at the time of billing.

Dilution : The Company recognizes revenue during the month for which the service is provided based on net billings accepted by the billing aggregators and recognizes revenue only for accepted records. However, subsequent to this acceptance, there are instances in the LEC billing process where a customer cannot be billed due to changes in telephone numbers, telephone carriers, data synchronization issues, etc. These amounts that ultimately cannot be billed, as well as certain minor billing adjustments by the LEC’s, are commonly referred to as “dilution.” Such unbillable accounts and chargebacks are estimated at the time of billing and charged against net revenues.

Fees : Both the billing aggregator and the LEC charge processing fees. Additionally, the LEC charges fees for responding to billing inquiries by its customers, processing refunds, and other customer-related services. Such fees are estimated at the time of billing and charged to cost of services.

Revenue for billings to certain customers are billed directly by the Company and not through the LEC’s, is recognized based on estimated future collections. The Company continuously reviews this estimate for reasonableness based on its collection experience.

Telava Wireless : Leasing revenue for towers are recognized on a monthly basis based on the terms and conditions of the lease agreements.

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2013

Note 3 - Summary of Significant Accounting Policies (Continued)

Revenue Recognition (Continued)

LIP : Printing revenue for coupon books are recognized as services are performed.

IBFA: Wireless services and wireline voice and data communication services. Revenue is recognized at the time of delivery of the products or services, and the collectibility is reasonably assured. The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent.

Service revenue includes the value of all telecommunications services provided, net of free usage allocations and discounts. Revenue is recognized when earned, and are net of the share of other foreign and local carriers and content providers, if any, under existing correspondence and interconnection and settlement agreements.

Revenue is stated at amounts billed or invoiced and accrued to subscribers or other carriers and content providers, taking into consideration the bill cycle cut-off (for postpaid subscribers), and charges against preloaded airtime value (for prepaid subscribers), and excludes value-added tax (VAT) and overseas communication tax.

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 3 - Summary of Significant Accounting Policies (Continued)

Advertising Costs

The Company incurs advertising costs that are not considered direct response advertising and are expensed when incurred. For the three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011, the Company incurred approximately $727 and $4,398, respectively, in marketing and advertising expense. For the nine months ended September 30,~~ 2012 ~~and 2011~~, the Company incurred approximately $~~1,531~~22 and $1738,~~354,~~ respectively, in marketing and advertising expense.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on differences between financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. A valuation allowance is established against deferred tax assets that do not meet the criteria for recognition. In the event the Company were to determine that it would be able to realize deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the provision for income taxes.

The Company follows the accounting guidance which provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax provisions must meet a more-likely-than-not recognition threshold at the effective date to be recognized initially and in subsequent periods.

Also included is guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2013

Note 3 - Summary of Significant Accounting Policies (Continued)

Earnings Per Common Share

The Company reports both basic and diluted earnings per share. Basic earnings per share are calculated using the weighted average number of common shares outstanding in the period. Diluted earnings per share includes potentially dilutive securities such as outstanding options and warrants using the “treasury stock” method and convertible securities using the “if-converted” method. For the ~~nine~~ three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012, there were no potential common equivalent shares used in the calculation of dilutive weighted average common shares outstanding as the effect would be anti-dilutive because of the net loss.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates made in connection with the accompanying financial statements include the estimate of dilution and fees associated with LEC billings and the estimated reserve for doubtful accounts receivable.

Other Comprehensive Income (Loss)

Comprehensive income /(loss) consists of net income and other gains and losses affecting stockholders’ equity that, under generally accepted accounting principles are excluded from net income. For the Company, such items consist solely of foreign currency translation gains and losses.

12Recent Accounting Pronouncements

The Company has evaluated the recent accounting pronouncements through May 2013 and believes that none of them will have a material effect on the Company’s financial statements.

Recently Adopted Accounting Guidance

On July 1, 2011, we adopted guidance issued by the Financial Accounting Standards Board (“FASB”) on disclosure requirements related to fair value measurements. The guidance requires the disclosure of roll-forward activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). Adoption of this new guidance did not have a material impact on our financial statements.

On January 1, 2012, we adopted guidance issued by the FASB on accounting and disclosure requirements related to fair value measurements. The guidance limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts. Additionally, the guidance expands the disclosures on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to changes in unobservable inputs. Adoption of this new guidance did not have a material impact on our financial statements.

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~(UNAUDITED)~~FOR THE THREE MONTHS ENDED MARCH 31, 2013

Note 3 - Summary of Significant Accounting Policies (Continued)

Recent Accounting ~~Pronouncements~~Guidance Not Yet Adopted

In December 2011, the FASB issued guidance enhancing disclosure requirements about the nature of an entity’s right to offset and related arrangements associated with its financial instruments and derivative instruments. The ~~Company~~new ~~has~~guidance ~~evaluated~~requires the ~~recent~~disclosure ~~accounting~~of ~~pronouncements~~the ~~through~~gross ~~August~~amounts ~~2012~~subject to rights of set-off, amounts offset in accordance with the accounting standards followed, and ~~believes~~the related net exposure. In January 2013, the FASB clarified that ~~none~~the scope of ~~them~~this guidance applies to derivatives, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset or subject to an enforceable master netting arrangement, or similar agreements. The new guidance will ~~have~~be aeffective for us beginning July 1, 2013. We do not expect material ~~effect~~impacts on ~~the~~our ~~Company’s~~ financial statements upon adoption.

In February 2013, the FASB issued guidance on disclosure requirements for items reclassified out of AOCI. This new guidance requires entities to present (either on the face of the income statement or in the notes) the effects on the line items of the income statement for amounts reclassified out of AOCI. The new guidance will be effective for us beginning July 1, 2013. Other than requiring additional disclosures, we do not anticipate material impacts on our financial statements upon adoption.

In March 2013, the FASB issued guidance on a parent’s accounting for the cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. This new guidance requires that the parent release any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The new guidance will be effective for us beginning July 1, 2014. We are currently studing what effect, if any, this accounting will have on our financial statements.

Concentrations of Credit Risk

The Company has maintained balances in excess of federally insured limits from time to time during the fiscal year. Management periodically reviews the adequacy and strength of the financial institutions and deems this to be an acceptable risk.

For the three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012, ~~approximately 1~~approximately20.226% and 5.41% of the Company's net sales were made to customers outside the United States. ~~For the nine months ended September 30, 2012 and 2011, approximately 4.0% and 2.5% of the Company's net sales were made to customers outside the United States.~~

Reclassification

Certain reclassifications have been made to prior years’ financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or accumulated deficit. ~~The Company reclassified $141,001 accounts payable to accounts payable – related party.~~

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2013

Note 4 – Accounts Receivable

The Company provides billing information to a third party billing company for the majority of its monthly billings. Billings submitted are “filtered” by this billing company and the LEC’s. Net accepted billings are recognized as revenue and accounts receivable. The billing company remits payments to the Company on the basis of cash ultimately received from the LEC’s by the billing company. The billing company and LEC’s charge fees for services, which are netted against the gross accounts receivable balance. The billing companies also apply holdbacks to the remittance for potentially uncollectible accounts. These dilution amounts will vary due to numerous factors and the Company may not be certain as to the actual amounts of dilution on any specific billing submittal until several months after that submittal. The Company estimates the amount of these charges and holdbacks based on historical experience and subsequent information received from the billing companies. The Company also estimates uncollectible account balances and provides an allowance for such estimates. As of ~~September~~March 3031, ~~2012~~2013 and ~~December 31~~2012, ~~2011,~~ the amount reserved for uncollectible account balances is $~~882~~726 and $45,~~465~~023, respectively.

The billing companies retain certain holdbacks that may not be collected by the Company for a period extending beyond one year. The balances are charged to bad debt expense. However, when true-up balances occur with the LEC after six to eighteen months, the money received will be classified as revenue to offset current bad debt expenses.

The Company experiences significant dilution of its gross billings by the billing company. The Company negotiates collections with the billing companies on the basis of the contracted terms and historical experience. The Company’s cash flow may be affected by holdbacks, fees, and other matters, which are determined by the LEC’s and the billing company. The Company processes its billings through the primary billing company.

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 5 – Fixed Assets

Property and equipment consisted of the following at ~~September~~March 3031, ~~2012~~2013 and December 31, ~~2011~~2012:

	September 30, 2012			December 31, 2011
	March 31, 2013			December 31, 2012
Microwave towers	$	1,949,019		$	1,949,019
Computer equipment		~~226~~232,~~265~~863			226,265
Furniture & equipment		~~118~~113,~~413~~163			~~117~~114,~~106~~549
Software		35,858			35,858
Tenant improvements		186,949			186,949
		2,516,504			2,515,197
		2,517,852			2,512,640
Accumulated depreciation		(~~970~~1,~~523~~034,434	)		(~~863~~1,~~304~~001,818	)
Fixed assets, net	$	1,~~545~~483,~~981~~418		$	1,~~651~~510,~~953~~822

Depreciation expense for the three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012 was $3433,~~654~~899 and $3736,~~987~~716, respectively.

~~Depreciation expense for the nine months ended September 30, 2012 and 2011 was $106,641 and $116,667, respectively.~~15

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2013

Note 6 – Line of Credit and Notes Payable

As of ~~September~~March 3031, ~~2012~~2013, the amount, maturity date and term of each of our loans were as follows:

Lender	Principal Amount		Interest Rate			Maturity Date
Thermo Credit LLC	$	1,~~507~~651,~~176~~632		17.00	%	January 17, 2011
AHAP		40,000	Various			Upon Demand
Brilliant Capital		~~888~~836,~~893~~420		8.00	%	Upon Demand
InfoCity, LLC and Others		1,~~141~~137,~~176~~911		8.00	%	Upon Demand
Dr. Dicken Yung (related party)		~~218~~267,~~746~~763		0.00	%	Upon Demand
Baldwin Yung (related party)		~~382~~432,~~000~~500		0.00	%	Upon Demand
Boaz Yung (related party)		1,125		0.00	%	Upon Demand
Cherie Yung (related party)		~~277~~320,~~742~~300		0.00	%	Upon Demand
	$	4,~~456~~687,~~858~~651

As of December 31, ~~2011~~2012, the amount, maturity date and term of each of our loans were as follows:

Lender	Principal Amount		Interest Rate			Maturity Date
Thermo Credit LLC	$	1,~~507~~651,~~176~~632		17.00	%	January 17, 2011
AHAP		40,000		8.00	%	Upon Demand
Brilliant Capital		~~574~~838,~~899~~920		8.00	%	Upon Demand
InfoCity, LLC and Others		1,~~079~~140,~~176~~976		8.00	%	Upon Demand
Dr. Dicken Yung (related party)		~~176~~213,~~352~~289		0.00	%	Upon Demand
Baldwin Yung (related party)		~~387~~382,000		0.00	%	Upon Demand
Boaz Yung (related party)		1,125		0.00	%	Upon Demand
Cherie Yung (related party)		~~135~~280,~~000~~300		0.00	%	Upon Demand
	$	34,~~900~~548,~~728~~242

We have a $2,000,000 revolving line of credit with the Thermo Credit LLC, pursuant to a credit agreement, dated July 17, 2010, between the Company and the bank. This revolving line of credit is guaranteed/secured by the all of the assets of the Company including cash, accounts receivable and fixed assets (See Note 4 Accounts Receivable and Note 5 Fixed Assets). The credit agreement had certain debt covenants that the Company did not comply with during the ~~quarter~~quarters ended ~~September~~March 3031, 2012 and ~~the year ended December 31,~~ 2011. The first covenant was that the Company must maintain a ratio of cash flow to scheduled principal payments plus all accrued interest payments on funded debt of not less than 1 to 1 as of the end of each fiscal quarter. The second covenant was that the Company must maintain a tangible net worth of not less than $0 as of the last day of each fiscal quarter. The credit agreement terminated on January 17, 2011, the line is in default and as such cash proceeds from the Company’s receivables and sale of assets have been directed to serve as collateral. (See Note 12, Subsequent Events)

1416

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~(UNAUDITED)~~FOR THE THREE MONTHS ENDED MARCH 31, 2013

Note 7 – Stockholders’ Equity (Deficit)

Preferred Stock

The Company has authorized 5,000,000 shares of no par value preferred stock available for issuance. No shares of preferred stock are outstanding as of ~~September~~March 3031, ~~2012~~2013. Commensurate with the merger, the Company converted the former IWI Holdings outstanding Preferred Stock of 3,664,880 shares into 45,000,000 shares of common stock.

Common Stock

The authorized common stock is 120,000,000 shares at no par value. As of ~~September~~March 3031, ~~2012~~2013 and December 31, ~~2011~~2012, the Company had 100,052,888 and 100,052,888 shares of common stock issued but not outstanding, respectively. The Company had 100,051,107 and 100,051,107 shares of common stock issued and outstanding, respectively. As of ~~September~~March 3031, ~~2012~~2013 and December 31, ~~2011~~2012, the Company had 1,781 and 1,781 shares of treasury stock.

During the year ended December 31, 2009, the Company issued 52,888 shares of common stock and 3,644,880 shares of preferred related to the reverse merger with IWI Holding Limited.

On September 8, 2011, the Company agreed to issue 3,500,000 shares of common stock to the directors of the Company valued at the fair market value of the shares totaling $35,000. As of September 30, 2012, the shares have not been issued.

Note 8 – Segment Reporting

Our segments are various subsidiaries that offer different products and services over various technology platforms and are managed accordingly. We analyze our various operating segments based on segment income before income taxes. The customers and assets of our reportable segments are predominantly in the United States. We have four reportable segments: (1) Advertising Solutions, (2) Wireless, (3) Wireline, and (4) Other.

The Advertising Solutions segment includes the operations of Telava Networks, Inc. (100% owned) and Local Info Pages, Inc. (100% owned Korea-based entity).

The Wireless segment includes the operations of Telava Wireless, Inc. (75% owned) and Telava Mobile, Inc. (80% owned).

The Wireline segment includes the operations of IBFA Acquisitions (100% owned).

The Other segment includes results from all corporate operations.

In the following tables, we show how our segment results are reconciled to our consolidated results reported in accordance with GAAP. The Advertising Solutions, Wireless and Wireline and Other columns represent the segment results of each such operating segment. The consolidation and elimination column adds in those line items that we manage on a consolidated basis only. This column also eliminates any intercompany transactions included in each segment’s results. In the Segment assets line item, we have eliminated the value of our investments in our fully consolidated subsidiaries and the intercompany financing assets as these have no impact to the segments’ operations.

1517

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~(UNAUDITED)~~FOR THE THREE MONTHS ENDED MARCH 31, 2013

Note 8 – Segment Reporting (Continued)

For the three months ended ~~September~~March 3031, ~~2012~~2013

	Advertising Solutions			Wireless			Wireline		Other			Elimination			Consolidated
Revenue from external customers	$	~~114~~172,~~245~~299		$	~~265~~160,~~635~~555		$	~~480~~431,~~461~~042	$	-		$	(1-	)	$	~~860~~763,~~340~~896
Cost of revenue		644,~~935~~372			~~178~~175,~~496~~391			~~233~~232,~~888~~886		-			1-			~~477~~412,~~320~~650
Gross profit		~~172~~167,~~331~~927			87(14,~~139~~837	)		~~246~~198,~~573~~155		-			(2-	)		~~383~~351,~~020~~246
Operations and support expenses		~~407~~500,~~636~~452			2123,~~859~~136			~~187~~163,~~084~~595		383,~~586~~028			(1-	)		~~655~~690,~~164~~211
Depreciation and amortization		14,~~960~~205			19,323			371		-			-			3433,~~654~~899
Total segment operating expenses		~~422~~514,~~596~~657			4142,~~182~~458			~~187~~163,~~455~~967		383,~~586~~028			(1-	)		~~689~~724,~~818~~110
Segment operating income		(~~250~~346,~~265~~730	)		45(57,~~957~~295	)		5934,~~118~~189		(383,~~586~~028	)		(1-	)		(~~306~~372,~~798~~864	)
Total other income (expense)		(~~109~~48,~~279~~118	)		(16,~~516~~159	)		~~2,188~~17		-			(1-	)		(~~123~~64,~~608~~261	)
Net loss allocable to minorty interest					(1,062	)										(1,062	)
Net loss allocable to minority interest		-			17,871			-		-			-			17,871
Segment income before income taxes	$	(~~359~~394,~~544~~848	)	$	28(55,~~379~~582	)	$	6034,~~306~~206	$	(383,~~586~~028	)	$	(2-	)	$	(~~431~~419,~~468~~253	)
Segment assets	$	2,~~317~~066,~~063~~110		$	1,~~572~~536,~~727~~567		$	1347,~~030,537~~992	$	~~(731~~682,000	)	$	(21,~~199~~998,~~301~~655	)	$	2,~~720~~634,~~295~~015

For the three months ended ~~September~~March 3031, ~~2011~~2012

	Advertising Solutions			Wireless			Wireline		Other			Elimination			Consolidated
Revenue from external customers	$	~~191~~213,~~806~~097		$	6884,~~894~~466		$	~~475~~523,~~210~~324	$	-		$	-		$	~~735~~820,~~910~~887
Cost of revenue		6864,~~784~~094			8160,~~309~~672			~~249~~264,~~660~~296		-			-			~~399~~389,~~753~~062
Gross profit		~~123~~149,~~022~~003			~~(12~~23,~~415)~~794			~~225~~259,~~550~~028		-			-			~~336~~431,~~157~~825
Operations and support expenses		~~456~~504,~~221~~074			2112,~~068~~956			~~194~~257,~~848~~726		52,~~391~~118			1-			~~642~~776,~~530~~874
Depreciation and amortization		1517,~~577~~022			19,~~322~~323			~~372~~371		-			-			3536,~~271~~716
Total segment operating expenses		~~471~~521,~~798~~096			4032,~~390~~279			~~195~~258,~~220~~097		52,~~391~~118			1-			~~712~~813,~~800~~590
Segment operating income		(~~348~~372,~~776~~093	)		(528,~~805~~485	)		~~30,330~~931		(52,~~391~~118	)		(1-	)		(~~376~~381,~~643~~765	)
Total other income (expense)		(9786,~~178~~907	)		1(16,~~237~~166	)		-15		-			-			(95103,~~941~~058	)
Net loss allocable to minority interest		-			138,~~442~~632			-		-			-			138,~~442~~632
Segment income before income taxes	$	(~~445~~459,~~954~~000	)	$	(3816,~~126~~019	)	$	~~30,330~~946	$	(52,~~391~~118	)	$	(1-	)	$	(~~459~~476,~~142~~191	)
Segment assets	$	2,~~564~~556,~~739~~929		$	1,~~526~~566,~~627~~936		$	1,~~031~~026,~~261~~961	$	44(676	)	$	(2,~~326~~301,~~286~~842	)	$	2,~~796~~848,~~385~~308

1618

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~(UNAUDITED)~~FOR THE THREE MONTHS ENDED MARCH 31, 2013

Note 89 – ~~Segment Reporting (Continued)~~Commitments

~~For~~A portion of our facilities are under operating leases that expire at various dates through 2014. Rent expense was $157,140 and $149,187 for the ~~nine~~three months ended ~~September~~March 3031, 2013 and 2012, respectively.

	Advertising Solutions			Wireless			Wireline		Other			Elimination			Consolidated
Revenue from external customers	$	519,148		$	418,995		$	1,478,995	$	-		$	(1	)	$	2,417,137
Cost of revenue		197,814			320,476			747,844		-			1			1,266,135
Gross profit		321,334			98,519			731,151		-			(2	)		1,151,002
Operations and support expenses		1,367,933			55,883			639,658		46,095			(2	)		2,109,567
Depreciation and amortization		47,560			57,968			1,114		-			(1	)		106,641
Gain on disposal of asset		-			-			-		-			-			-
Goodwill impaiment		-			-			-		-			-			-
Total segment operating expenses		1,415,493			113,851			640,772		46,095			(3	)		2,216,208
Segment operating income		(1,094,159	)		(15,332	)		90,379		(46,095	)		1			(1,065,206	)
Total other income (expense)		(293,384	)		(31,447	)		2,223		-			(1	)		(322,609	)
Net loss allocable to minorty interest					21,014											21,014
Segment income before income taxes	$	(1,387,543	)	$	(25,765	)	$	92,602	$	(46,095	)	$	-		$	(1,366,801	)
Segment assets	$	2,317,063		$	1,572,727		$	1,030,537	$	(731	)	$	(2,199,301	)	$	2,720,295

Minimum rental commitments under all non-cancelable leases with an initial term in excess of one year were as follows as of March 31, 2013:

For the nine months ended September 30, 2011

Year Payable	Amount
2013		$	437,003
2014			247,043
2015			27,910
2016 and Thereafter			7,910
Total		$	1,070,448

	Advertising Solutions			Wireless			Wireline		Other			Elimination			Consolidated
Revenue from external customers	$	804,378		$	119,595		$	1,772,935	$	-		$	-		$	2,696,907
Cost of revenue		245,567			160,601			889,957		-			-			1,296,124
Gross profit		558,811			(41,006	)		882,978		-			-			1,400,783
Operations and support expenses		1,415,232			59,300			685,615		13,506			3			2,173,654
Depreciation and amortization		55,590			59,963			1,114		-			-			116,667
Total segment operating expenses		1,470,821			119,263			686,729		13,506			3			2,290,321
Segment operating income		(912,010	)		(160,269	)		196,249		(13,506	)		(3	)		(889,538	)
Total other income (expense)		(305,028	)		111,578			-		-			-			(193,450	)
Net loss allocable to minority interest		-			12,027			-		-			-			12,027
Segment income before income taxes	$	(1,217,038	)	$	(36,664	)	$	196,249	$	(13,506	)	$	(3	)	$	(1,070,961	)
Segment assets	$	2,636,662		$	1,682,023		$	2,124,165	$	137		$	(2,319,468	)	$	4,123,519

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 9 – Commitments

A portion of our facilities are under operating leases that expire at various dates through 2014. Rent expense was $143,552 and $136,024 for the three months ended September 30, 2012 and 2011, respectively. Rent expense was $431,444 and $407,206 for the nine months ended September 30, 2012 and 2011, respectively.

Minimum rental commitments under all non-cancelable leases with an initial term in excess of one year were as follows as of September 30, 2012:

Year Payable	Amount
2012		$	280,109
2013			221,352
2014 and Thereafter			7,763
Total		$	509,224

Note 10 – Litigation

~~Telava~~As ~~Networks~~of v.March ~~Pacific~~31, ~~EIH~~2013, we had no material pending legal proceedings, except for the following.

OnVermont ~~April~~Attorney ~~26,~~General ~~2012,~~Investigation ~~Pacific~~Against ~~EIH~~Local ~~Sacramento~~Area ~~Corporation~~Yellow Pages (“~~The Company’s Landlord at 353 Sacramento in San Francisco~~LAYP”) and the Company, entered into a Stipulation of Entry for Judgment and Order thereon at the Superior Court of California, County of San Francisco to stipulate and agree to settle lease payments owed in the amount of $136,528 and $1,150 in attorney fees. As of September 30, 2012, the Company is current on its rental payments and in good terms with the Landlord.

The Vermont Attorney General ~~Investigation~~has van active investigation into the business practices of LAYP focusing on whether certain notices and a three day right to cancel were provided to customers. The ~~Local~~Vermont ~~Area~~Attorney ~~Yellow~~General ~~Pages~~has (“proposed to settle if, LAYP”) will agree to issue a full refund to all Vermont customers whose telephone bills were charged and a payment of $10,000 in civil penalties and injunctive relief. The amount for the full refund to all Vermont customers is estimated approximately $65,000. The suit was filed in the Superior Court of Vermont.

The Vermont Attorney General has an active investigation into the business practices of LAYP focusing on whether certain notices and a three day right to cancel were provided to customers. The Vermont Attorney General has proposed to settle if, LAYP will agree to issue a full refund to all Vermont customers whose telephone bills were charged and a payment of $10,000 in civil penalties and injunctive relief. The amount for the full refund to all Vermont customers is estimated at approximately $65,000. The suit was filed in the Superior Court of Vermont. The Company has accrued for the contingent liability.

Illinois Agricultural Association v. IBFA Acquisition Co. LLC (“IBFA”) and Telava Acquisitions, LLC

The Illinois Agricultural Association (IAA) ~~claimed~~claims that IBFA and Telava Acquisitions, LLC ~~had~~has past due referral fees in the amount of approximately $95,000. We have denied the allegations and ~~defended~~are defending our position in arbitration. The matter ~~was~~is in the discovery stage and a hearing ~~was~~has been set for ~~September~~June 2011. The suit was filed with the American Arbitration Association – Commercial Dispute Unit of Illinois. On September 8, 2011, the AAA granted the award to IAA in the amount of $118,971.11 in full settlement of the case. ~~The Company has accrued for the contingent liability.~~

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2013

Note 10 – Litigation (continued)

Chen v. Unilava Corporation, et al.

In ~~September~~June 2010, Chris Chen, former Executive Vice President of Sales, filed a lawsuit against Unilava Corporation and Local Area Yellow Pages, Inc. (“LAYP”) Mr. Chen seeks $49,613 in unpaid wages, $12,000 in statutory waiting time penalties and 4,300,000 shares of common stock or the fair market value of the common stock and attorneys’ fees. In July 2010, Unilava and LAYP filed a cross-complaint seeking compensatory damages of no less than $3,000,000, punitive damages and attorneys’ fees. The Court has ordered the parties to participate in mediation and they are in the process of selecting a mediator. In September ~~2011~~, both parties entered into an agreement to settle the case ~~for~~with prejudice. Unilava Corporation and LAYP had to pay damages of approximately $50,000. ~~with~~The ~~prejudice~~company recorded an unpaid balance of $11,111 as of December 31, 2012.

McLane v. Unilava Corporation, et al.

In February 2011, Caron McLane, former employee, filed a lawsuit against Unilava Corporation and Local Area Yellow Pages, Inc. (“LAYP”) and ~~claimes~~claims that she was wrongly terminated by the company. Ms. McLane seeks for damages for the wrongly termination claims. The company intends to vigorously defend the case and does not intend to settle the case with Ms. McLane. The Company has not accrued for the contingent liability. On September 11, 2012, the Superior Court of the State of California- County of San Francisco ruled in favor of the Company and had ordered to dismiss the case with prejudice.

UNILAVA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 11 – Related Party Transactions

As of ~~March~~December 31, 2012, Dicken Yung, Chairman, had a loan balance of $~~170~~213,~~766~~289 and $430,~~945~~211 as outstanding accounts payable which is still owed by the Company. The amounts are due on demand and bear no interest. During the ~~six~~three months ended ~~September~~March 3031, ~~2012~~2013, the Company ~~received additional financing of $55,000 and~~ repaid $1219,~~605~~080. As of ~~September~~March 3031, ~~2012~~2013, the balance owed was $~~218~~267,~~746~~763 and $3033,~~125~~583.

As of ~~March~~December 31, 2012, Baldwin Yung, CEO, had a loan balance of $~~387~~382,000 and $4745,~~705~~564 as outstanding accounts payable which is still owed by the Company. The amounts are due on demand and bear no interest. As of ~~September~~March 3031, ~~2012~~2013, the balance owed was $~~382~~432,~~000~~500 and $4548,~~564~~063.

As of ~~March~~December 31, 2012, Boaz Yung, EVP, had a loan balance of $1,125 and $109,~~084~~875 as outstanding accounts payable which is still owed by the Company. The amounts are due on demand and bear no interest. As of ~~September~~March 3031, 2012, the balance owed was $1,125 and $109,~~172~~875.

As of ~~March~~December 31, 2012, Cherie Yung, Director, had a loan balance of $~~170~~280,~~000~~300 and $6694,~~184~~731, as outstanding accounts payable which is still owed by the Company. During the three months ended March 31, 2013, Ms. Yung loaned an additional $40,000 to the Company. The amounts are due on demand and bear no interest. As of ~~September~~March 3031, ~~2012~~2013, the balance owed was $~~260~~320,~~000~~300 and $82107,~~212~~440.

There were no other related party transactions in ~~2012~~2013.

Note 12 – Subsequent Events

The Company has an outstanding line of credit facility with Thermo Credit LLC (“Thermo Credit”) which is currently in default.

The Company signed a Memorandum of Understanding on December 7, 2009 to acquire an 80% interest in China Dragon Telecom Limited ("China Dragon Telecom") and its affiliates based in Hong Kong, China. The negotiations and execution of definitive agreements, regulatory approval and the performance of other customary conditions iswas expected to be completed byin ~~the end of~~ 2012 due to additional audit procedures that are needed to issue the audited financials of China Dragon Telecom. As of ~~September~~March 3031, ~~2012~~2013, China Dragon Telecom was still being audited by an accounting firm.

1920

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Special Note Regarding Forward Looking Statements

Statements contained herein include “forward-looking statements” within the meaning of such term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the factors described in the section captioned “Risk Factors” below. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements include, among other things, statements relating to:

	·	our anticipated growth strategies and our ability to manage the expansion of our business operations effectively;
	·	our dependence on the growth of our target market in the areas in which we do business; and
	·	our ability to maintain or increase our market share in the competitive markets in which we do business.

Also, forward-looking statements represent our estimates and assumptions only as of the date hereof. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

Use of Terms

Except as otherwise indicated by the context, references herein to “Unilava,” “we,” “us,” “our,” “our Company,” or “the Company” are to the combined business of Unilava Corporation, a Wyoming corporation, and its consolidated subsidiaries, Telava Networks, Inc. (100% owned), Telava Acqusitions, Inc. (100% owned), Telava Wireless, Inc. (75% owned), Telava Mobile, Inc. (80% owned), Local Info Pages, Inc. (100% owned Korea-based entity) and IBFA Acqusitions LLC (100% owned) which are 100% consolidated in the financial statements as adjusted for various minority interests. In addition, unless the context otherwise requires:

	·	“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
	·	“IBFA” refers to IBFA Acquisitions LLC, a Michigan limited liability company and wholly owned subsidiary of the Company;
	·	“LIP” refers to Local Info Pages, Inc., a Korean corporation and wholly owned subsidiary of Telava Networks;
	·	“SEC” refers to the Securities and Exchange Commission;
	·	“Securities Act” refers to the Securities Act of 1933, as amended;
	·	“Telava Acquisitions” refers to Telava Acquisitions, Inc., a Delaware corporation and wholly owned subsidiary of the Company;
	·	“Telava Networks” refers to Telava Networks, Inc., a Nevada corporation and wholly owned subsidiary of the Company;
	·	“Telava Mobile” refers to Telava Mobile, Inc., a Delaware corporation and 80% owned subsidiary of the Company;
	·	“Telava Wireless” refers to Telava Wireless, Inc., a Wyoming corporation and 75% owned subsidiary of Telava Networks; and
	·	“U.S. dollars,” “dollars” and “$” refer to the legal currency of the United States.

2021

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -– continued

Overview of Our Business

Unilava Corporation, a Wyoming corporation, was formerly known as IWI Holding Limited (“IWI”), and was engaged in the international jewelry business through a US subsidiary. IWI went public via an initial public offering in 1994, and disposed of the subsidiary on December 31, 2007. On September 21, 2009, IWI entered into an Agreement pursuant to which IWI acquired all of the outstanding shares of Telava Networks, Inc., a Nevada corporation (“Telava Networks”), in exchange for 55 million shares of stock. In addition, certain preferred stock of IWI which had been issued in 1994 for 3,644,880 was converted into 45 million shares of common stock. In connection with the closing of the acquisition, the Telava management was appointed as the members of IWI management, the name of IWI was changed to Unilava Corporation (“Unilava” or the “Company”) and the corporation was reincorporated from the British Virgin Islands to Wyoming via Articles of Continuation.

Unilava, with its operations primarily conducted by its subsidiaries, provides a variety of communications services, products, and equipment that address the needs of small and medium sized enterprise businesses and consumers under the Unilava corporate brand which includes our retail brands consisting of TelavaTM, CountryconnectTM, TelavaTM Mobile, Local Area Yellow Pages, Ttoore, Counia, and Nationwide Roadside Assistance. We are licensed to provide long distance services in 41 States and local phone services in 11 States. Through our carrier-grade microwave wireless broadband infrastructure and broadband Internet access partners, we offer mobile and high-definition IP-hosted voice services to residential, small and medium enterprises. We deliver small business a comprehensive and integrated suite of fee-based online and mobile advertising and web services. Headquartered in San Francisco, we have regional offices in Chicago, Seoul, Hong Kong, and Beijing.

Our goal is to become a leading provider of communications services in the United States and the world. We offer our services and products to consumers, businesses, and other providers in the U.S. and worldwide. The services and products that we offer vary by market, and include: wireless communications, local exchange services, long-distance services, data/broadband and Internet services, video services telecommunications equipment, wholesale services and directory advertising and publishing. We group our operating subsidiaries as follows, corresponding to our operating segments for financial reporting purposes:

	·	Wireless subsidiaries provide both wireless voice and data communications services across the U.S. and, through agreements, in a substantial number of foreign countries;
	·	Wireline subsidiaries provide primarily landline voice and data communication services, high-speed broadband and voice services;
	·	Advertising solutions subsidiaries publish Local Area Yellow Pages directories and sell directory advertising and Internet-based advertising and local search; and
	·	Other subsidiaries provide results from all corporate and other operations.

~~Second~~First Quarter Financial Performance Highlights

The following summarizes certain key financial information for the first fiscal quarter ~~ended~~of ~~September 30, 2012~~2013.

· Total Sales : Total Sales was $~~860~~763,~~340~~896 for the three months ended ~~September~~March 3031, ~~2012~~2013, a decrease of $1156,~~254~~991, or 17%, from $~~871~~820,~~594~~887 for the same period last year.

· Gross Profit and Margin : Gross profit was $~~383~~351,~~020~~246 for the three months ended ~~September~~March 3031, ~~2012~~2013, a decrease of $8880,~~424~~579, or 19%, from $~~471~~431,~~444~~825 for the same period last year. Gross margin was 4546% for the three months ended ~~September~~March 3031, ~~2012~~2013, as compared to 5453% for the same period last year.

· Net Loss: Net loss was $~~431~~428,~~468~~281 for the three months ended ~~September~~March 3031, ~~2012~~2013, an increase of $~~204~~47,~~181~~910, or approximately 9010%, from $~~227~~476,~~287~~191 for the same period of last year.

· Basic net income per share : Basic net ~~income~~loss per share was approximately $0.00 for the three months ended ~~September~~March 3031, ~~2012~~2013, as compared to approximately $0.00 for the same period last year.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

Results of Operations

Comparison of Three Months Ended September 30, 2012 and 2011

The following table shows key components of our results of operations during the three months ended September 30, 2012 and 2011, in both dollars and as a percentage of our total sales.

U.S. dollars, except percentages	Three Months Ended September 30, 2012						Three Months Ended September 30, 2011
				Percent of						Percent of
	Dollars			Total Sales			Dollars			Total Sales
Total sales	$	860,340			100	%	$	871,594			100	%
Cost of sales		477,320			55	%		440,150			46	%
Gross profit		383,020			45	%		471,444			54	%
Salaries and payroll		246,980			29	%		315,624			36	%
Depreciation and amortization		34,654			4	%		37,987			4	%
Selling, general and administrative expenses		408,184			47	%		349,838			40	%
Income (loss) from operations		(306,798	)		(36)	%		(232,005	)		(27	)%
Other income (expense)		(123,608	)		(14)	%		27,543			3	%
Loss before non-controlling interest		(430,406	)		(50)	%		(204,462	)		(23	)%
Net loss allocable to non-controlling interest		(1,026	)		0	%		22,413			3	%
Net loss	$	(431,468	)		(50)	%	$	(226,875	)		(26	)%

Total sales . Our total sales decreased 1% to $860,340 in the three months ended September 30, 2012 from $871,594, in the same period last year, primarily as a result of a decrease in sales in our online advertising business and attrition of customer base of a subsidiary.

Cost of sales . Our cost of sales increased 17% to $477,320 in the three months ended September 30, 2012, from $400,150 in the same period last year, mainly due to a decrease in sales and an increase in costs associated with our launching of new products and our marketing campaign and training costs for our underperforming marketing centers during the 2012 period.

Gross profit and gross profit margin . Our gross profit decreased 19% to $383,020 in the three months ended September 30, 2012, from $471,444 in the same period last year. The gross profit margin (gross profit as a percentage of total sales) was 45% for the three months ended September 30, 2012 and 54% for the three months ended September 30, 2011. The decrease in the gross profit margin was primarily due to a decrease in overall sales.

Salaries and payroll. Our salaries and payroll expenses decreased 22% to $246,980 in the three months ended September 30, 2012 from $315,624 in the same period last year, mainly due to a reduction in personnel and related payroll expenses during the 2012 period.

Selling, general and administrative expenses . Our selling, general and administrative expenses increased 17% to $408,184 in the three months ended September 30, 2012, from $349,838 in the same period last year, mainly due to an increase in legal expense in connection with our operations.

Other income and expenses . Interest expense decreased 5% to $126,861 in the three months ended September 30, 2012, from $132,817 in the same period in 2011, primarily due to an decrease in loan interest payments associated with the Thermo Credit LLC loan. Increase in other income was due to the write off of open checks pertaining to a settlement with a former employee.

Net loss . As a result of the foregoing reasons, net loss increased 90% to $431,468 in the three months ended September 30, 2012, from $227,287 in the same period last year.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

~~Segment~~Results ~~Data~~of Operations

~~Net~~Comparison ~~loss~~of ~~for~~Three ~~the~~Months ~~advertising~~Ended ~~solutions~~March ~~segment decreased 3% to ($359~~31,~~544)~~ in2013 ~~the three months ended September 30, 2012, from ($372,377) in the same period last year, mainly due to a decrease in sales, less efforts in direct marketing~~ and ~~higher attrition ratio.~~2012

~~Total~~The ~~assets~~following ~~for~~table ~~the~~shows ~~advertising~~key ~~solutions~~components ~~segment~~of ~~decreased~~our ~~12%~~results toof ~~$2,317,063~~operations asduring ofthe ~~September~~three ~~30,~~months ~~2012~~ended ~~from~~March $231,~~636,662~~ as2013 ofand ~~September 30~~2012, ~~2011,~~in ~~mainly~~both ~~due~~dollars toand ~~decrease~~as ~~in receivables~~a ~~from~~percentage ~~intercompany~~of ~~accounts~~our total sales.

Net income for the wireless segment decreased 58% to $28,379 in the three months ended September 30, 2012, from net income of $68,191 in the same period last year, mainly due to cancelations of co-location agreements.

U.S. dollars, except percentages	Three Months Ended March 31, 2013						Three Months Ended March 31, 2012
				Percent of						Percent of
	Dollars			Total Sales			Dollars			Total Sales
Total sales	$	763,896			100	%	$	820,887			100	%
Cost of sales		412,650			54	%		389,062			47	%
Gross profit		351,246			46	%		431,825			53	%

Salaries and payroll		270,533			35	%		332,055			40	%
Depreciation and amortization		33,899			4	%		36,716			4	%
Selling, general and administrative expenses		419,678			55	%		444,819			54	%
Income (loss) from operations		(372,864	)		(49)	%		(381,765	)		(47)	)%

Other income (expense)		(73,288	)		(10)	%		(103,058	)		(13)	)%
Loss before non-controlling interest		(446,152	)		(58)	%		(484,823	)		(59)	)%
Net loss allocable to non-controlling interest		17,871			2	%		8,632			1	%
Net loss	$	(428,281	)		(56)	%	$	(476,191	)		(58)	)%

Total ~~assets~~Sales ~~for~~. ~~the~~Our ~~wireless~~total ~~segment~~sales decreased 97% to $1736,~~572,727~~896 in asthe ofthree ~~September~~months ~~30,~~ended ~~2012~~March 31, ~~from~~20123from $1820,~~682~~887 in the same period last year,~~023~~ primarily as a result of ~~September~~a ~~30,~~decrease ~~2011,~~in ~~mainly~~sales ~~due~~in toour ~~amortization~~online onadvertising ~~tower~~business ~~assets~~and attrition of customer base of a subsidiary.

~~Net~~Cost ~~income~~of ~~for~~sales ~~the~~. ~~wireline~~Our ~~segment~~cost ~~decreased~~of 24sales increased 6% to $61412,~~306~~650 in the three months ended ~~September~~March 3031, ~~2012~~2013, from $80389,~~914~~062 in the same period last year, mainly due to a an increase in ~~marketing~~costs ofassociated ~~wireless~~with our marketing campaign and ~~operating~~training costs for our underperforming marketing centers during the 2013 period.

~~Total~~Gross ~~assets~~profit ~~for~~and ~~the~~gross ~~wireline~~profit ~~segment~~margin . Our gross profit decreased 5119% to $1351,~~030,537~~246 asin ofthe ~~September~~three 30months ended March 31, ~~2012~~2013, from $2431,~~124,165~~825 in the same period last year. The gross profit margin (gross profit as a percentage of ~~September~~total ~~30,~~sales) ~~2011,~~was ~~mainly~~46% ~~due~~for tothe ~~impairment~~three ofmonths ~~goodwill~~ended ~~during~~March 31, 2013 and 53% for the ~~year~~three months ended ~~December~~March 31, ~~2011~~2012. The decrease in the gross profit margin was primarily due to a decrease in overall sales.

~~Comparison~~Salaries ofand ~~Nine~~payroll. Our ~~Months~~salaries ~~Ended~~and ~~September~~payroll 30expenses decreased 19% to $270,533 ~~2012~~in the three months ended March 31, 2013 from $332,055 in the same period last year, mainly due to a reduction in personnel and ~~2011~~related payroll expenses during the 2013 period.

~~The~~Selling, ~~following~~general ~~table~~and ~~shows~~administrative ~~key~~expenses ~~components~~. ofOur ~~our~~selling, ~~results~~general ofand ~~operations~~administrative ~~during~~expenses decreased 6% to $419,678 in the ~~six~~three months ended ~~September~~March 3031, ~~2012~~2013, ~~and~~from ~~2011~~$444, 819 in ~~both~~the ~~dollars~~same ~~and~~period aslast ayear, ~~percentage~~mainly due to an active management of our ~~total~~administrative ~~sales~~costs to eliminate unnecessary expenses in connection with our operations.

U.S. dollars, except percentages	Nine Months Ended September 30, 2012						Nine Months Ended September 30, 2011
				Percent of						Percent of
	Dollars			Total Sales			Dollars			Total Sales
Total sales	$	2,417,137			100	%	$	4,123,868			100	%
Cost of sales		1,266,135			52	%		1,813,329			44	%
Gross profit		1,151,002			48	%		2,310,539			56	%
Salaries and payroll		894,368			37	%		1,349,075			33	%
Depreciation and amortization		106,641			4	%		124,963			3	%
Selling, general and administrative expenses		1,215,199			50	%		1,665,507			40	%
Income (loss) from operations		(1,065,206	)		(44)	%		(829,006	)		(20	)%
Other income (expense)		(322,609	)		(13)	%		(137,506	)		(3	)%
Loss before non-controlling interest		(1,387,815	)		(57)	%		(966,512	)		(23	)%
Net loss allocable to non-controlling interest		21,014			1	%		25,315			1	%
Net loss	$	(1,366,801	)		(57)	%	$	(841,197	)		(23	)%

Other income and expenses . Interest expense decreased 46% to $73,309 in the three months ended March 31, 2013, from $135,197 in the same period in 2012, primarily due to an decrease in loan interest associated with the Thermo Credit LLC loan.

Total Sales . Our total sales decreased 10% to $2,417,137 in the nine months ended September 30, 2012 from $2,696,907, in the same period last year, primarily as a result of a decrease in sales in our online advertising business and attrition of customer base of a subsidiary.

Cost of sales . Our cost of sales decreased 2% to $1,266,135 in the nine months ended September 30, 2012, from $1,296,124 in the same period last year, mainly due to a decrease in sales and an increase in costs associated with our new product and our marketing campaign and training costs for our underperforming marketing centers during the 2012 period.

Gross profit and gross profit margin . Our gross profit decreased 18% to $1,151,002 in the nine months ended September 30, 2012, from $1,400,783 in the same period last year. The gross profit margin (gross profit as a percentage of total sales) was 48% for the nine months ended September 30, 2012 and 52% for the nine months ended September 30, 2011. The decrease in the gross profit margin was primarily due to a decrease in overall sales.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

Comparison of ~~Nine~~Three Months Ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012 - continued

~~Salaries~~Income ~~and~~taxes ~~payroll~~. ~~Our~~ ~~salaries~~Income ~~and~~taxes ~~payroll~~remained ~~expenses~~flat ~~decreased~~at ~~17%~~zero todollars ~~$894,368~~ in the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013 from ~~$1,075,263 in~~ the same period ~~last~~in ~~year~~2012, mainly due to arecurring ~~reduction in personnel and related payroll expenses during the 2012 period~~losses.

~~Selling,~~Net ~~general~~loss ~~and~~. ~~administrative~~As ~~expenses.~~a ~~Our~~result ~~selling,~~of ~~general~~the ~~and~~foregoing ~~administrative~~reasons, ~~expenses~~net ~~increased~~loss 11decreased 10% to $1428,~~215,199~~281 in the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013, from $1476,~~098,391~~ 191 in the same period last year~~, mainly due to an increase in legal expense in connection with our operations~~.

Other income and expenses . Interest expense increased 10% to $388,891 in the nine months ended September 30, 2012, from $353,643 in the same period in 2011, primarily due to an increase in loan interest associated with the Thermo Credit LLC loan. Increase in other income was due to the write off of open checks pertaining to a settlement with a former employee.

Net loss . As a result of the foregoing reasons, net loss increased 28% to $1,366,801 in the nine months ended September 30, 2012, from $1,070,961 in the same period last year.

Segment Data

Net (loss) for the advertising solutions segment ~~increased~~decreased 1413% to ($1394,~~387,543~~848) in the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013, from ($1459,~~217,039~~000) in the same period last year, mainly due to a decrease in sales, less efforts in direct marketing and higher attrition ratio.

Total assets for the advertising solutions segment decreased 1219% to $2,~~317~~066,~~063~~110 as of ~~September~~March 3031, ~~2012~~2013 from $2,~~636~~556,~~662~~929 as of ~~September~~March 3031, ~~2011~~2012, mainly due to decrease in receivables from intercompany accounts.

Net (loss) for the wireless segment ~~decreased~~increased 30246% to ($2555,~~765~~582) in the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013, from net loss of ($3616,~~664~~019) in the same period last year, mainly due to ~~cancelations~~increases ofin ~~co-location~~costs ~~agreements~~associated with the increased sales.

Total assets for the wireless segment decreased 91% to $1,~~572~~536,~~727~~567 as of ~~September~~March 3031, ~~2012~~2013, from $1,~~682~~566,~~023~~936 as of ~~September~~March 3031, ~~2011~~2012, mainly due to amortization on tower assets.

Net income for the wireline segment ~~decreased~~increased 533,515% to $9234,~~602~~206 in the ~~six~~three months ended ~~September~~March 3031, ~~2012~~2013, from $~~196,249~~946 in the same period last year, mainly due to an ~~increase~~decrease in marketing of wireless marketing and operating costs.

Total assets for the wireline segment decreased 5166% to $1347,~~030,537~~992 as of ~~September~~March 3031, ~~2012~~2013, from $21,~~124~~026,~~165~~961 as of ~~September~~March 3031, ~~2011~~2012, mainly due to impairment of goodwill during the year ended December 31, ~~2011~~2012.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

Liquidity and Capital Resources

As of ~~September~~March 3031, ~~2012~~2013, we had cash and cash equivalents of approximately $028,127. The following table provides a summary of our net cash flows from operating, investing, and financing activities. To date, we have financed our operations primarily through net cash flow from operations, augmented by short-term bank and personal borrowings and equity contributions by our shareholders.

U.S. Dollars	~~Nine~~Three Months Ended ~~September~~March 3031,
	2012			2011
	2013			2012
Net cash provided by (used in) operating activities	$	(~~646~~92,~~892~~675	)	$	(~~638~~126,~~880~~594	)
Net cash provided by (used in) investing activities		(~~701~~5,220	)		~~50,621~~(646	)
Net cash provided by (used in) financing activities		~~595~~99,~~707~~995			~~501~~99,~~031~~942
Net increase in cash and cash equivalents	$	(512,~~704~~100	)	$	(8925,~~822~~853	)

Operating Activities

Net cash used in operating activities was $~~646~~92,~~892~~675 in the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013, compared with $~~638~~126,~~880~~594 used in operating activities in the same period last year. Net loss after adjustment for noncash items was $1427,~~317,498~~735 in the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013. This decrease was primarily due to increased operating and legal costs of underperforming subsidiaries.

Investing Activities

Net cash used in investing activities in the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013 was $~~701~~5,220, compared with $~~50,621~~646 ~~provided~~used in investing activities in the same period last year. The ~~change~~increase was mainly due to purchases of equipment.

Financing Activities

Net cash provided by financing activities in the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013 was $~~595~~99,~~707~~995, compared with $~~501~~99,~~031~~942 of net cash provided by financing activities in the same period in ~~2011~~2012. The decrease in net cash provided by financing activities was mainly due to cash proceeds from unrelated third-party loans and proceeds from related party loans offset by a repayment of the related party loans.

Capital Expenditures

Our capital expenditures for the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012 were $~~669~~5,212 and $~~199~~636, respectively. As of ~~September~~March 3031, ~~2012~~2013, we had cash and cash equivalents of $028,127, primarily consisting of ~~cash on hand and~~ demand deposits.

To date, we have financed our operations primarily through cash flows from operations, augmented by short-term bank and personal loans and unrelated third-party loans. We believe that our cash on hand and cash flow from operations will meet a portion of our present cash needs and we will require additional cash resources, including loans, to meet our expected capital expenditures and working capital requirements for the next 12 months. We may, however, in the future, require additional cash resources due to changed business conditions, implementation of our strategy to expand our marketing efforts and increase brand awareness, or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Loan Commitments

As of ~~September~~March 3031, ~~2012~~2013, the amount, maturity date and term of each of our loans were as follows:

Lender	Principal Amount			Interest Rate			Maturity Date
Bank/Person(s)	Amount Outstanding		Interest Rate	Maturity Date
Thermo Credit LLC	$	1,~~507~~651,~~176~~632	17.00%	Jan 17, 2011	~~17.00~~	%	~~January 17, 2011~~
AHAP		40,000		Various			Upon Demand
Dr. Dicken Yung	$	267,763	0%	Upon demand
Brilliant Capital		888,893			8.00	%	Upon Demand
Baldwin Yung	$	432,500	0%	Upon demand
InfoCity, LLC and Others		1,141,176			8.00	%	Upon Demand
Boaz Yung	$	1,125	0%	Upon demand
Dr. Dicken Yung (related party)		218,746			0.00	%	Upon Demand
AHAP	$	40,000	8%	Upon demand
Baldwin Yung (related party)		382,000			0.00	%	Upon Demand
Brilliant Capital	$	836,420	8%	Upon demand
Boaz Yung (related party)		1,125			0.00	%	Upon Demand
InfoCity LLC and others	$	1,137,911	8%	Upon demand
Cherie Yung (related party)		277,742			0.00	%	Upon Demand
Cherie Yung	$	320,300	0%	Upon demand
	$	4,456,858
TOTAL	$	4,687,651

We have a $2,000,000 revolving line of credit with the Thermo Credit LLC, pursuant to a credit agreement, dated July 17, 2010, between the Company and the bank. This revolving line of credit is guaranteed/secured by the all of the assets of the Company including cash, accounts receivable and fixed assets. The credit agreement had certain debt covenants that the Company did not comply with during the year ended December 31, 2011 and the quarter ended ~~September~~March 3031, 2012. The first covenant was that the Company must maintain a ratio of cash flow to scheduled principal payments plus all accrued interest payments on funded debt of not less than 1-to-1 as of the end of each fiscal quarter. The second covenant was that the Company must maintain a tangible net worth of not less than $0 as of the last day of each fiscal quarter. The credit agreement terminated on January 17, 2011 and the Company is renegotiating the terms with the lender. Although the line of credit is currently in default status, the Company believes that a plan or an amendment of the facility can be negotiated.

Inflation

Inflation and changing prices have not had a material effect on our business, and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor price changes in the economies and industries in which we operate and continually maintain effective cost controls in operations.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, sales or expenses, results of operations, liquidity or capital expenditures, or capital resources that are material to an investment in our securities.

Seasonality

Our operating results and operating cash flows historically have not been subject to dramatic seasonal variations, although there is an increase in advertising and selling expenses when we begin sales of new products or services. New market opportunities or new product and new service introductions could change any perceived patterns, seasonal or operational.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS –- continued

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates, and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements.

Basis of Consolidation and Presentation. The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). In the opinion of management, the accompanying balance sheets, and statements of operations, and cash flows and include all adjustments, consisting only of normal recurring items, considered necessary to give a fair presentation of operating results for the periods presented. All material intercompany transactions and balances have been eliminated in consolidation.

Business Combinations. The Company adopted the accounting pronouncements relating to business combinations (primarily contained in ASC Topic 805 "Business Combinations"), including assets acquired and liabilities assumed arising from contingencies. These pronouncements established principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree as well as provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. In addition, these pronouncements eliminate the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement criteria and require an acquirer to develop a systematic and rational basis for subsequently measuring and accounting for acquired contingencies depending on their nature. Our adoption of these pronouncements will have an impact on the manner in which we account for any future acquisitions.

Use of estimates. The preparation of consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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 may differ from those estimates.

Allowance for doubtful accounts. The Company reduces gross trade accounts receivable by an allowance for doubtful accounts. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable. The Company reviews its allowance for doubtful accounts on a regular basis and all past due balances are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

· Impairment of long-lived assets. The Company reviews the carrying amount of its long-lived assets, including intangibles, for impairment, each reporting period. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is considered not recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flow. For periods ended ~~September~~March 3031, 2012 and December 31, 2011, the Company determined no impairment charges were necessary.

Property, plant and equipment, net. Property and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets. Any gain or loss arising on the sale or disposal of the asset is included in the income statement in the period the item is sold or otherwise disposed. Maintenance and repairs of property and equipment are charged to operations when incurred.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS –- continued

Recent Accounting Pronouncements

The Company has evaluated the recent accounting pronouncements through ~~August~~May ~~2012~~2013 and believes that none of them will have a material effect on the Company’s financial statements.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We have a $2,000,000 revolving line of credit with the Thermo Credit LLC, pursuant to a credit agreement, dated July 17, 2010, between the Company and the bank. This revolving line of credit is guaranteed/secured by the all of the assets of the Company including cash, accounts receivable and fixed assets. The credit agreement had certain debt covenants that the Company did not comply with during the quarters ended ~~September~~March 3031, ~~2012~~2013 and ~~the year ended December 31, 2011~~2012. The first covenant was that the Company must maintain a ratio of cash flow to scheduled principal payments plus all accrued interest payments on funded debt of not less than 1 to 1 as of the end of each fiscal quarter. The second covenant was that the Company must maintain a tangible net worth of not less than $0 as of the last day of each fiscal quarter. The credit agreement terminated on January 17, 2011., the line is in default and as such cash proceeds from the Company’s receivables and sale of assets have been directed to serve as collateral.

ITEM 4.

CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15(e), our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer and Chief Financial Officer, Mr. Baldwin Yung, of the effectiveness of the design and operation of our disclosure controls and procedures, as of ~~September~~March 3031, ~~2012~~2013. Based upon, and as of the date of this evaluation, Mr. Yung, determined that, for the reasons disclosed below, as of ~~September~~March 3031, ~~2012~~2013, and as of the date of this Report, our disclosure controls and procedures were not effective.

ITEM 4. CONTROLS AND PROCEDURES –- continued

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as based on framework established in Internal Control Integrated Framework issued by the committee of Sponsoring Organizations of the Treadway Commission (COSO) as of ~~September~~March 3031, ~~2012~~2013. During our management’s review of our internal control over financial reporting as of ~~September~~March 3031, ~~2012~~2013, our management identified the following material weaknesses in the company’s internal control over financial reporting:

Management’s ability to override procedures

Insufficient quarterly and annual financial closing procedures

Insufficient cutoff for recording revenue

Insufficient cutoff for recording payables

It is Management’s opinion that the above weaknesses exist due to the small size of operating staff and the current phase of operations. In an effort to remediate the identified material weakness and enhance our internal controls, we have initiated, or plan to initiate, the following measures:

We plan to increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us.

We will create a senior position to focus on financial reporting and standardizing and documenting our accounting procedures with the goal of increasing the effectiveness of the internal controls in preventing and detecting misstatements of accounting information.

We anticipate the costs of implementing these remediation initiatives will be approximately $50,000 to $100,000 a year in increased salaries and $50,000 to $100,000 a year in increased legal and accounting expenses. We anticipate that these initiatives will be at least partially, if not fully, implemented before the end of ~~2012~~2013. We also plan to test our updated controls and remediate our deficiencies by December 31, ~~2012~~2013.

Changes in Internal Control Over Financial Reporting

During the quarter ended ~~September~~March 3031, ~~2012~~2013, there were no changes in our internal control over financial reporting identified in connection with the evaluation performed during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS.

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. Below are legal proceedings or claims that we believe will not have a material adverse affect on our business, financial condition or operating results;

Telava Networks v Pacific EIH

On April 26, 2012, Pacific EIH Sacramento Corporation (“The Company’s Landlord at 353 Sacramento in San Francisco) and the Company, entered into a Stipulation of Entry for Judgment and Order thereon at the Superior Court of California, County of San Francisco to stipulate and agree to settle lease payments owed in the amount of $136,528 and $1,150 in attorney fees. As of September 30, 2012, the Company is current on its rental payments and in good terms with the Landlord.

Vermont Attorney General Investigation Against Local Area Yellow Pages (“LAYP”)

Illinois Agricultural Association v. IBFA Acquisition Co. LLC (“IBFA”) and Telava Acquisitions, LLC

The Illinois Agricultural Association (IAA) claimed that IBFA and Telava Acquisitions, LLC had past due referral fees in the amount of approximately $95,000. We denied the allegations and defended our position in arbitration. The matter was in the discovery stage and a hearing was set for ~~September~~June 2011. The suit was filed with the American Arbitration Association – Commercial Dispute Unit of Illinois. On September 8, 2011, the AAA granted the award to IAA in the amount of $118,971.11 in full settlement of the case.

Chen v. Unilava Corporation, et al.

In ~~September~~June 2010, Chris Chen, former Executive Vice President of Sales, filed a lawsuit against Unilava Corporation and Local Area Yellow Pages, Inc. (“LAYP”) Mr. Chen seeks $49,613 in unpaid wages, $12,000 in statutory waiting time penalties and 4,300,000 shares of common stock or the fair market value of the common stock and attorneys’ fees. In July 2010, Unilava and LAYP filed a cross-complaint seeking compensatory damages of no less than $3,000,000, punitive damages and attorneys’ fees. The Court has ordered the parties to participate in mediation. In September 2011, both parties entered into an agreement to settle the case for $50,000 with prejudice.

McLane v. Unilava Corporation, et al.

In February 2011, Caron McLane, former employee, filed a lawsuit against Unilava Corporation and Local Area Yellow Pages, Inc. (“LAYP”) and claims that she was wrongly terminated by the company. Ms. McLane seeks for damages for the wrongly termination claims. The company intends to vigorously defend the case and does not intend to settle the case with Ms. McLane. ~~On September 11, 2012, the Superior Court of the State of California- County of San Francisco ordered to dismiss the case with prejudice in favor of the Company.~~

ITEM 1.

RISK FACTORS.

Investors are directed to the “Risk Factors” section of our Annual Report on Form 10-K with the SEC on April 16, ~~2012~~2013. There have been no material changes to the risk factors disclosed therein.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

~~The Company is in default on its line of credit with Thermo Credit~~None.

ITEM 4.

MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5.

OTHER INFORMATION.

We have no information to disclose that was required to be in a report on Form 8-K during the period covered by this report, but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.

ITEM 6.

EXHIBITS.

The following exhibits are filed as part of this report or incorporated by reference:

Exhibit No.	Description
31.1	Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certifications of Principal Financial Officer furnished 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
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Extension Presentation Linkbase

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Extension Presentation Linkbase

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: December 18, 2012	UNILAVA CORPORATION
Date: May 20, 2013	UNILAVA CORPORATION
	By:	/s/ Baldwin Yung
		Baldwin Yung, Chief Executive Officer and Chief Financial Officer (Principal Executive, Financial and Accounting Officer)

EXHIBIT INDEX

Exhibit No.	Description
31.1	Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certifications of Principal Financial Officer furnished 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
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Extension Presentation Linkbase

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Extension Presentation Linkbase

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