Edgar Filing: One Horizon Group, Inc.

ohgi_10qa.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A2

(Mark One)

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

For the quarterly period ended March 31, 2013

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

Commission File Number 000-10822

One Horizon Group, Inc.

(Exact name of registrant as specified in its charter)

Pennsylvania		25-1229323
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

Weststrasse 1, Baar
Switzerland		CH6340
(Address of principal executive offices)		(Zip Code)

+41-41-7605820

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
n/a		n/a

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $0.0001

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No þ

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¨ No þ

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. 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	þ
(Do not check if 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 ¨ No þ

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. As of May 30, 2013, 31,714,839 shares of the registrant’s common stock, par value $0.0001, were outstanding.

TABLE OF CONTENTS

Part I – FINANCIAL INFORMATION

Item 1	Financial Statements	F-1

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4

Item 3	Quantitative and Qualitative Disclosures about Market Risk	8

Item 4	Controls and Procedures	8

Part II – OTHER INFORMATION

Item 1	Legal Proceedings	9

Item 1A	Risk Factors	9

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	9

Item 3	Defaults Upon Senior Securities	9

Item 4	Mine Safety Disclosures	9

Item 5	Other Information	9

Item 6	Exhibits	10

	SIGNATURES	11

EXPLANATORY NOTE

One Horizon Group, Inc. (the "Company") is amending its Quarterly Report on Amendment No. 2 to Form 10-Q for the quarter ended March 31, 2013 (the “Amended Report”) to revise our originally filed Form 10-Q filed on May 20, 2013 and Amendment No.1 to Form 10-Q filed on May 30, 2013 ( collectively, the “Original Report”) to restate its consolidated financial statements as of March 31, 2013 and December 31, 2012 and for the three month periods ending March 31, 2013 and 2012 to correct errors related to the recognition of revenue from sales of perpetual licenses to larger, top-tier ("Tier 1") and other ("Tier 2) telecom entities. Contracts with Tier 1 entities typically require agreed-upon fixed payments over fixed future periods extending beyond one year. Contracts with Tier 2 entities have long-term variable payment terms based on customer usage. The Company historically recognized the present value of Tier 1 contracts at the time of delivery. Revenue from Tier 2 contracts was historically recognized over the initial 5-year term on a straight-line basis.

The Audit Committee subsequently determined that, as a result of applying the guidance in ASC 985-605-25-32, a portion of the revenue recognized at the time of the sale of perpetual licenses to certain Tier 1 entities should have been deferred and recognized in future periods. The conclusion was also reached that revenue from contracts with Tier 2 entities should be recognized based on the timing of when payments become due (which is based on usage) rather than on a straight-line basis. Accordingly, the Company’s previously released financial statements for the three months period ended March 31, 2013 and 2012 should no longer be relied upon.

The errors impacted accounts receivable and deferred revenue in the consolidated balance sheets as well as revenue and net income (loss) in the consolidated statements of operations. As a result, revenue and net income (loss) were misstated in the consolidated statements of operations for the three months ended March 31, 2013 and 2012 and accounts receivable and deferred revenue were misstated in the consolidated balance sheets as of March 31, 2013 and December 31, 2012. These errors were considered material to the consolidated financial statements. However, there is no change in the amount of revenue expected to be recognized over the life of the contracts, or in the amount and timing of cash collected under the master license contracts, just an adjustment to the accounting periods in which it is recognized. In addition, this adjustment is merely a change in accounting policy and will not affect the Company’s operations in terms of the way we conduct our business, our sales contracts, business model and practices, our products and services, or our relationships with customers.

This Amended Report does not reflect events occurring after the filing of the Original Report, nor does it modify or update those disclosures presented therein, except with regard to the modifications described in this Explanatory Note and the 1-for-600 reverse stock split which was approved by the Company’s shareholders in August 2013. As such, this Amended Report continues to speak as of May 30, 2013. Accordingly, this Amended Report should be read in conjunction with the Original Report and our other reports filed with the SEC subsequent to the filing of our Original Report, including any amendments to those filings.

In addition, pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as a result of this Amended Report, the certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, filed and furnished, respectively, as exhibits to the Original Report have been re-executed and re-filed as of the date of this Amended Report and are included as exhibits hereto.

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

The statements made in this Report, and in other materials that One Horizon Group, Inc. (the “Company”) has filed or may file with the Securities and Exchange Commission, in each case that are not historical facts, contain “forward-looking information” within the meaning of the Private Securities Litigation Reform Act of 1995, and Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended, which can be identified by the use of forward-looking terminology such as “may,” “will,” “anticipates,” “expects,” “projects,” “estimates,” “believes,” “seeks,” “could,” “should,” or “continue,” the negative thereof, and other variations or comparable terminology as well as any statements regarding the evaluation of strategic alternatives. These forward-looking statements are based on the current plans and expectations of management, and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements. Among these risks and uncertainties are the competition we face; our ability to adapt to rapid changes in the market for voice and messaging services; our ability to retain customers and attract new customers; our ability to establish and expand strategic alliances; governmental regulation and related actions and taxes in our international operations; increased market and competitive risks, including currency restrictions, in our international operations; risks related to the acquisition or integration of future businesses or joint ventures; our ability to obtain or maintain relevant intellectual property rights; intellectual property and other litigation that may be brought against us; failure to protect our trademarks and internally developed software; security breaches and other compromises of information security; our dependence on third party facilities, equipment, systems and services; system disruptions or flaws in our technology and systems; uncertainties relating to regulation of VoIP services; liability under anti-corruption laws; results of regulatory inquiries into our business practices; fraudulent use of our name or services; our ability to maintain data security; our dependence upon key personnel; our dependence on our customers' existing broadband connections; differences between our service and traditional phone services; our ability to obtain additional financing if required; our early history of net losses and our ability to maintain consistent profitability in the future. These and other matters the Company discusses in this Report, or in the documents it incorporates by reference into this Report, may cause actual results to differ from those the Company describes. The Company assumes no obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

ONE HORIZON GROUP, INC.

(formerly Intelligent Communication Enterprise Corporation)

Consolidated Balance Sheets

March 31, 2013 and December 31, 2012

(in thousands, except share data)

(unaudited)

	March 31,			December 31,
	2013			2012
Assets	(Restated)			(Restated)

Current assets:
Cash	$	460		$	699
Accounts receivable		1,908			977
Other assets		130			136
Total current assets		2,498			1,812


Property and equipment, net		324			350
Intangible assets, net		12,073			12,329
Other assets		126			-
Total assets	$	15,021		$	14,491

Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable	$	925		$	747
Accrued expenses		463			436
Accrued compensation		36			38
Income taxes		94			94
Amounts due to related parties		4,000			3,500

Current portion of long-term debt		59			59
Total current liabilities		5,577			4,874

Long-term liabilities

Long-term debt		207			219
Deferred income taxes		445			445
Mandatorily redeemable preferred shares		90			90
Total liabilities		6,319			5,628


Stockholders' Equity
Preferred stock:
$0.0001 par value, authorized 50,000,000;
no shares issued or outstanding
Common stock:
$0.0001 par value, authorized 200,000,000,000 shares;
issued and outstanding 31,563,000 shares (December 2012 30,845,844)		3			3
Additional paid-in capital		27,630			21,630
Stock subscriptions receivable		(6,500	)		(500	)
Accumulated deficit		(12,823	)		(12,725	)
Accumulated other comprehensive income		392			455
Total stockholders' equity		8,702			8,863
Total liabilities and stockholders' equity	$	15,021		$	14,491

See accompanying notes to consolidated financial statements.

F-1

ONE HORIZON GROUP, INC.

(formerly Intelligent Communication Enterprise Corporation)

Consolidated Statements of Operations

For the three months ended March 31, 2013 and 2012

(in thousands, except per share data)

(unaudited)

	2013			2012
	(Restated)			(Restated)

Revenue	$	1,919		$	917

Cost of revenue - Hardware		7			51
- Amortization of software development costs		446			202
Gross margin		1,466			664

Expenses:
General and administrative		1,473			1,693
Depreciation		36			97
		1,509			1,790

Loss from operations		(43	)		(1,126	)

Other income and expense:
Interest expense		(5	)		(11	)
Interest expense - related parties		(50	)		(50	)

		(55	)		(61	)

Loss before income taxes		(98	)		(1,187	)

Income taxes		-			-


Net loss for the period	$	(98	)	$	(1,187	)

Earnings per share

Basic net income per share	$	0.00		$	(0.05	)

Diluted net income per share	$	0.00		$	(0.05	)

Weighted average number of shares outstanding
Basic		31,213			22,214
Diluted		31,213			22,214

See accompanying notes to consolidated financial statements.

F-2

ONE HORIZON GROUP, INC.
(formerly Intelligent Communication Enterprise Corporation)
Consolidated Statements of Comprehensive Income
For the three months ended March 31, 2013 and 2012
(in thousands)
(unaudited)

	2013			2012
	(Restated)			(Restated)

Net (loss) income	$	(98	)	$	(1,187	)
Other comprehensive income:
Foreign currency translation adjustment gain (loss)		(63	)		-

Total comprehensive income (loss)	$	(161	)	$	(1,187	)

See accompaying notes to consolidated financial statements

F-3

ONE HORIZON GROUP, INC.

(formerly Intelligent Communication Enterprise Corporation)

Consolidated Statements of Stockholders' Equity

For the three months ended March 31, 2013

(in thousands)

(unaudited)

	Common Stock				Additional Paid-in Capital		Accumulated Deficit			Subscriptions Receivable			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity
	Number of Shares		Amount


Balance December 31, 2012 (Restated)		30,846	$	3	$	21,630	$	(12,725	)	$	(500	)	$	455		$	8,863

Net loss (Restated)								(98)									(98)
Foreign currency translation adjustment														(63	)		(63	)
Common stock issued for subscription receivable		807		-		6,000					(6,000	)					-


Balance March 31, 2013 (Restated)		31,563	$	3	$	27,630	$	(12,823	)	$	(6,500	)	$	392		$	8,702

See accompanying notes to consolidated financial statements.

F-4

ONE HORIZON GROUP, INC.

(formerly Intelligent Communication Enterprise Corporation)

Consolidated Statements of Cash Flows

For the three months ended March 31, 2013 and 2012

(in thousands)

(unaudited)

	2013			2012
Cash provided by (used in) operating activities:	(Restated)			(Restated)

Operating activities:
Net income (loss) for the period	$	(98	)	$	(1,187	)

Adjustment to reconcile net income (loss) for the period to
net cash provided by (used in) operating activities:
Depreciation of property and equipment		36			97
Amortization of software development costs		446			202
Changes in operating assets and liabilities:

Accounts receivable		(931	)		(34	)
Other assets		6			(6	)
Accounts payable and accrued expenses		197			2,140

Income taxes		-			-

Net cash provided by (used in) operating activities		(344	)		1,212

Cash used in investing activities:

Acquisition of intangible assets		(245	)		(822	)
Acquisition of property and equipment		(12	)		-
Investments		(126	)

Net cash provided by (used in) investing activities		(383	)		(822	)

Cash provided by (used in) financing activities:

Increase (decrease) in long-term borrowing, net		(12	)		(400	)
Advances from related parties, net of repayment		500			-
Net checks issued in excess of funds		-			(361	)

Net cash provided by (used in) financing activities		488			(761	)

Decrease in cash during the period	$	(239	)	$	(371	)

Cash at beginning of the period		699			371

Cash at end of the period	$	460		$	-

Supplementary Information:

Interest paid	$	-		$	-
Income taxes paid		-			-

Non cash transactions:		-			-

Common stock issued for subscription receivable		6,000			-

See accompanying notes to consolidated financial statements.

F-5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2013

Note 1. Description of Business, Organization and Principles of Consolidation

Description of Business

One Horizon Group, Inc., (the “Company” or “Horizon”) develops proprietary software primarily in the Voice over Internet Protocol (VoIP) and bandwidth optimization markets (“Horizon Globex”) and provides it under perpetual license arrangements (“Master License”) throughout the world. The Company sells related user licenses and software maintenance services as well.

Organization

On November 30, 2012, the predecessor company “ICE” acquired all of the stock of One Horizon Group plc (“OHG”), a company incorporated in the United Kingdom through the issuance of 29,755,794 shares of common stock of the Company. Upon completion of this transaction the former shareholders of OHG controlled approximately 96% of the outstanding stock of the Company and OHG was deemed the acquiring entity The share exchange has been accounted for as a reverse acquisition. The historical combined financial statements of OHG form the consolidated financial statements presented. For accounting purposes ICE was considered to have been acquired as of November 30, 2012.

The consolidated financial statements reflect the deemed acquisition of ICE by OHG and the recognition of the 1,160,051 shares of common stock, with a fair value of $170,000, at November 30, 2012.

On December 31, 2012, the Company sold the operations of Global Integrated Media Limited and Modizo for the return of 70,000 shares of common stock with a fair value of $420,000. These companies were subsidiaries and divisions of ICE.

Interim Period Financial Statements

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the Securities and Exchange Commission’s instructions. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. The results of operations reflect interim adjustments, all of which are of a normal recurring nature and, in the opinion of management, are necessary for a fair presentation of the results for such interim period. The results reported in these interim consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. Certain information and note disclosure normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the six months ended December 31, 2012, as filed with the Securities and Exchange Commission on May 13, 2013 and the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the Securities and Exchange Commission on April 15, 2014.

Principles of Consolidation and Combination

The March 31, 2013 consolidated financial statements include the accounts of One Horizon Group, Inc. and its wholly owned subsidiaries OHG, Horizon Globex GmbH, Abbey Technology Gmb and One Horizon Hong Kong Limited.

The comparative statement of operations, comprehensive income and cash flows for the three months ended March 31, 2013 and 2012 include the combined accounts of One Horizon Group plc, Horizon Globex GmbH and Abbey Technology GmbH. These combined financial statements present the carve-out combined financial position and results of operations of OHG without including the accounts of Satcom Global, a former wholly-owned subsidiary of OHG, which was disposed of in October 2012. All revenues, expenses, gains and losses, assets and liabilities related to the Satcom Global business have been eliminated from these combined financial statements.

All significant intercompany balances and transactions have been eliminated.

F-6

Note 2. Restatement of Financial Statements

One Horizon Group, Inc. (the "Company") is amending its Quarterly Report on Form 10-Q/A2 for the quarter ended March 31, 2013 to restate its consolidated financial statements as of March 31, 2013 and December 31, 2012 and for the three month periods ending March 31, 2013 and 2012 to correct errors related to the recognition of revenue from sales of perpetual licenses to larger, top-tier ("Tier 1") and other ("Tier 2) telecom entities. Contracts with Tier 1 entities typically require agreed-upon fixed payments over fixed future periods extending beyond one year. Contracts with Tier 2 entities have long-term variable payment terms based on customer usage. The Company historically recognized the present value of Tier 1 contracts at the time of delivery. Revenue from Tier 2 contracts was historically recognized over the initial 5-year term on a straight-line basis.

The Company's decision to restate the aforementioned financial statements was made as a result of management's identification of errors related to the recognition of revenue from sales of perpetual licenses to certain Tier 1 and Tier 2 telecom entities. Management subsequently determined, and the Audit Committee of the Board of Directors adopted management's conclusion that, as a result of applying the guidance in ASC 985-605-25-32, a portion of the revenue recognized at the time of the sale of perpetual licenses to certain Tier 1 entities should have been deferred and recognized in future periods as payments became due. The conclusion was also reached that revenue from contracts with Tier 2 entities should have been recognized based on the timing of when payments became due (which is based on usage). The errors impacted accounts receivable and deferred revenue in the consolidated balance sheets as well as revenue in the consolidated statements of operations. As a result, revenue and net income were misstated in the consolidated statements of operations for the three months ended March 31, 2013 and 2012. Accounts receivable and deferred revenue were misstated in the consolidated balance sheet as of March 31, 2013 and December 31, 2012. The effect of these errors on the consolidated results of operations for the three months ended March 31, 2013 was to reduce revenues by $1.09 million and net income by $994,000. Revenues for the three months ended March 31, 2012 were reduced by $1.37 million and net income was reduced by $1.36 million.

The consolidated financial statements have been restated as follows. The errors had no impact on the Company's consolidated net cash flows from operating, investing and financing activities. The Company has also reclassified amortization of software development costs from the prior presentation as operating expenses to cost of revenue.

	Consolidated Balance Sheet
	(in thousands)

	As of March 31, 2013
	As previously
	Reported			Adjustments			As Restated
Assets

Accounts receivable, current portion	$	8,752			(6,844	)	$	1,908

Total current assets		9,342			(6,844	)		2,498

Accounts receivable, net of current portion		31,512			(31,512	)		-

Total assets	$	53,377			(38,356	)	$	15,021

Liabilities and Stockholders' Equity

Current portion of deferred revenue	$	7,600			(7,600	)	$	-

Income taxes		1,411			(1,317	)		94

Total current liabilities		14,494			(8,917	)		5,577

Deferred revenue		20,500			(20,500	)		-

Total liabilities		35,736			(29,417	)		6,319

Accumulated deficit		(3,884	)		(8,939	)		(12,823	)

Total stockholders' equity		17,641			(8,939	)		8,702

Total liabilities and stockholders' equity	$	53,377			(38,356	)	$	15,021

F-7

	Consolidated Balance Sheet
	(in thousands)

	As of December 31, 2012
	As previously
	Reported			Adjustments			As Restated
Assets

Accounts receivable, current portion	$	5,899			(4,922	)	$	977

Total current assets		6,734			(4,922	)		1,812

Accounts receivable, net of current portion		26,263			(26,263	)		-

Total assets	$	45,676			(31,185	)	$	14,491

Liabilities and Stockholders' Equity

Current portion of deferred revenue	$	6,000			(6,000	)	$	-

Income taxes		1,332			(1,238	)		94

Total current liabilities		12,114			(7,240	)		4,874

Deferred revenue		16,000			(16,000	)		-

Total liabilities		28,868			(23,240	)		5,628

Accumulated deficit		(4,780	)		(7,945	)		(12,725	)

Total stockholders' equity		16,808			(7,945	)		8,863

Total liabilities and stockholders' equity	$	45,676			(31,185	)	$	14,491

	Consolidated Statements of Operations
	(in thousands)

	Three Months Ended March 31, 2013
	As previously
	Reported			Adjustments			As Restated
Revenue	$	3,013			(1,094	)	$	1,919

Cost of revenue		7			446			453
Gross margin		3,006			(1,540	)		1,466

Expenses		1,955			(446	)		1,509

Income (loss) from operations		1,051			(1,094	)		(43	)

Other income and expense		(55	)		-			(55	)

Income (loss) from operations before income taxes		996			(1,094	)		(98	)

Income taxes		100			(100	)		-

Net income (loss) for the period	$	896			(994	)	$	(98	)

Earning per share:
Basic	$	0.00					$	(0.00	)
Diluted	$	0.00					$	(0.00	)

F-8

	Consolidated Statements of Operations
	(in thousands)

	Three Months Ended March 31, 2012
	As previously
	Reported			Adjustments			As Restated
Revenue	$	2,292			(1,375	)	$	917

Cost of revenue		51			202			253
Gross margin		2,241			1,577			664

Expenses		1,992			(202	)		1,790

Income from operations		249			(1,375	)		(1,126	)

Other income and expense		(61	)		-			(61	)

Income (loss)from operations before income taxes		188			(1,375	)		(1,187	)

Income taxes		16			(16	)		-

Net income for the period	$	172			(1,359	)	$	(1,187	)

Earning per share:
Basic	$	-			(0.05	)	$	(0.05	)
Diluted	$	-			(0.05	)	$	(0.05	)

	Consolidated Statements of Comprehensive Income
	(in thousands)

	Three months ended March 31, 2013
	As previously
	Reported		Adjustments			As Restated

Net income (loss)	$	896	$	(994	)	$	(98)

Comprehensive income (loss)		833		(994	)		(161)

	Consolidated Statements of Comprehensive Income
	(in thousands)

	Three months ended March 31, 2012
	As previously
	Reported		Adjustments			As Restated

Net income	$	172	$	(1,359	)	$	(1,187)

Comprehensive income		172		(1,359	)		(1,187)

F-9

	Consolidated Statements of Cash Flows
	(in thousands)

	Three months ended March 31, 2013
	As previously
	Reported			Adjustments			As Restated
Cash provided by (used in) operating activities:

Operating activities
Net income (loss)	$	896			(994	)		(98	)
Changes in operating assets and liabilities:
Accounts receivable		(8,102	)		7,171			(931	)
Deferred revenue		6,100			(6,100	)		-
Income taxes		79			(79	)		-
Net cash provided by (used in) operating activities	$	(344	)		-			(344	)

	Consolidated Statements of Cash Flows
	(in thousands)

	Three months ended March 31, 2012
	As previously
	Reported			Adjustments			As Restated
Cash provided by (used in) operating activities:

Operating activities
Net income	$	172			(1,359	)		(1,187	)
Changes in operating assets and liabilities:
Accounts receivable		(11,709	)		11,675			(34	)
Deferred revenue		10,300			(10,300	)		-
Income Taxes		16			(16	)		-
Net cash provided by (used in) operating activities	$	1,212			-			1,212

Note 3. Summary of Significant Accounting Policies

Basis of Accounting and Presentation

These consolidated and combined financial statements have been prepared in conformity with accounting principles generally accepted in the United States. The financial position, results of operations and cash flows of the Company as of and for the three months ended March 31, 2013 and 2012 have been derived from the Company’s historical accounting records and are presented as a combined group. The combined financial statements do not include revenues, expenses, assets and liabilities of the former Satcom Global business which was operated through separate corporate subsidiaries. Management of the Company considers the basis on which the expenses have been allocated to the combined group to be a reasonable reflection of the utilization of the services provided to or received from during the periods presented.

The reporting currency of the Company is the United States dollar. Assets and liabilities of operations other than those denominated in U.S. dollars, primarily in Switzerland and the United Kingdom, are translated into United States dollars at the rate of exchange at the balance sheet date. Revenues and expenses are translated at the average rate of exchange throughout the period. Gains or losses from these translations are reported as a separate component of other comprehensive income (loss) until all or a part of the investment in the subsidiaries is sold or liquidated. The translation adjustments do not recognize the effect of income tax because the Company expects to reinvest the amounts indefinitely in operations.

Transaction gains and losses that arise from exchange-rate fluctuations on transactions denominated in a currency other than the functional currency are included in general and administrative expenses.

F-10

Cash

Cash and cash equivalents include bank demand deposit accounts and highly liquid short term investments with maturities of three months or less when purchased. Cash consists of checking accounts held at financial institutions in the United Kingdom, Switzerland and Singapore which, at times, balances may exceed insured limits. The Company has not experienced any losses related to these balances, and management believes the credit risk to be minimal.

Accounts Receivable

Accounts receivable result primarily from sale of software and licenses to customers and are recorded at their principal amounts. Receivables are considered past due once they exceed the terms of the sales transaction. When necessary, the Company provides an allowance for doubtful accounts that is based on a review of outstanding receivables, historical collection information, and current economic conditions. There was an allowance of $218,000 for doubtful accounts at both March 31, 2013 and December 31, 2012, respectively. Receivables are generally unsecured. Account balances are charged off against the allowance when the Company determines it is probable the receivable will not be recovered. The Company does not have off-balance sheet credit exposure related to its customers. As of March 31, 2013 and December 31, 2012, three customers accounted for 30% and 33%, respectively, of the accounts receivable balance. Long-term payment terms for Master Licenses are provided to customers on an interest free basis, typically over five years.

Payments due from customers beyond one year are recorded as long term at their net present value, to the extent revenue has been recorded as described. Accounts receivable includes amounts that are due for which revenue has not been recognized. Such amounts are recorded as deferred income, classified as current or long term liabilities, based on the expectation of revenue to be recognized and collections to be received.

Property and Equipment

Property and equipment is primarily comprised of leasehold property improvements, motor vehicles and equipment that are recorded at cost and depreciated or amortized using the straight-line method over their estimated useful lives as follows: motor vehicles – 5 years, equipment – between 3 and 5 years, leasehold property improvements, over the lesser of the estimated remaining useful life of the asset or the remaining term of the lease.

Repairs and maintenance are charged to expense as incurred. Expenditures that substantially increase the useful lives of existing assets are capitalized.

Fair Value Measurements

Fair value is defined as the exchange price that will be received for an asset or paid to transfer a liability (an exit price) in the principal. Valuation techniques used to measure fair value should maximize the use of observable inputs and minimize the use of unobservable inputs. To measure fair value, the Company uses the following fair value hierarchy based on three levels of inputs, of which the first two are considered to be observable and the third unobservable:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs are supported by little or no market activity and are significant to the fair value of the assets or liabilities.

F-11

Intangible Assets

Intangible assets include software development costs and customer relationships. Customer relationships are amortized on a straight-line basis over their estimated useful lives of five years. Amortization of capitalized software development costs is computed using the greater of (a) the ratio of the product’s current gross revenues to the total of current and expected gross revenues or (b) the straight-line method, computed by dividing the remaining unamortized cost by the estimated economic life of the product. The Company periodically evaluates whether changes have occurred that would require revision of the remaining estimated useful life.

The Company expenses software development costs as incurred until technological feasibility has been established, at which time those costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. The Company has determined that after technological feasibility for software products is reached, the Company continues to address all high-risk development issues through coding and testing prior to the release of the products to customers. The amortization of these costs is included in cost of revenue over the estimated life of the products.

During the three months ended March 31, 2013 and 2012, software development costs of $245,000, and $770,000, respectively, have been capitalized.

Impairment of Long-Lived Assets

The Company evaluates the recoverability of its property and equipment and other long-lived assets, including software development costs and customer relationships, whenever events or changes in circumstances indicate impairment may have occurred. An impairment loss is recognized when the net book value of such assets exceeds the estimated future undiscounted cash flows attributed to the assets or the business to which the assets relate. Impairment losses, if any, are measured as the amount by which the carrying value exceeds the fair value of the assets. During the three months ended March 31, 2013 and 2012, respectively, the Company identified no impairment losses related to the Company’s long-lived assets.

Revenue Recognition

The Company recognizes revenue when it is realized or realizable and earned. The Company establishes persuasive evidence of a sales arrangement for each type of revenue transaction based on a signed contract with the customer and that delivery has occurred or services have been rendered, the price is fixed and determinable, and collectability is reasonably assured.

●	Software licenses – revenue from sales of perpetual licenses to customers when payments for the licenses are fixed is recognized at the inception of the arrangement, unless the payment term exceeds one year and then only if the presumption that the license fee is not fixed or determinable can be overcome, presuming all other relevant revenue recognition criteria are met. If the presumption cannot be overcome, revenue is recognized as payments from the customer become due. Revenue from sales of perpetual licenses when payments for the licenses are payable over a period exceeding a year, and those payments are variable based on customer usage, are recognized as payments from the customer become due.

●	Revenues for user licenses purchased by customers is recognized when the user license is delivered.

●	Revenues for maintenance services are recognized over the period of delivery of the services.

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

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

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

If the presumption cannot be overcome due to a lack of such evidence, revenue is recognized as payments become due, assuming all other revenue recognition criteria has been met. Through March 31, 2013, the Company had no sales contracts for which revenue had been recognized since inception of the arrangements.

F-12

Leases

Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.

Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.

Advertising Expenses

It is the Company’s policy to expense advertising costs as incurred. No advertising costs were incurred during each of the three months ended March 31, 2013 and 2012.

Research and Development Expenses

Research and development expenses include all direct costs, primarily salaries for Company personnel and outside consultants, related to the development of new products, significant enhancements to existing products, and the portion of costs of development of software required to be expensed. Research and development costs are charged to operations as incurred with the exception of those software development costs that may qualify for capitalization. The Company incurred no research and development costs in the three months ended March 31, 2013 and 2012, respectively.

Income Taxes

Deferred income tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities, operating loss, and tax credit carryforwards, and are measured using the enacted income tax rates and laws that will be in effect when the differences are expected to be recovered or settled. Realization of certain deferred income tax assets is dependent upon generating sufficient taxable income in the appropriate jurisdiction. The Company records a valuation allowance to reduce deferred income tax assets to amounts that are more likely than not to be realized. The initial recording and any subsequent changes to valuation allowances are based on a number of factors (positive and negative evidence). The Company considers its actual historical results to have a stronger weight than other, more subjective, indicators when considering whether to establish or reduce a valuation allowance.

The Company continually evaluates its uncertain income tax positions and may record a liability for any unrecognized tax benefits resulting from uncertain income tax positions taken or expected to be taken in an income tax return. Estimated interest and penalties are recorded as a component of interest expense and other expense, respectively.

Because tax laws are complex and subject to different interpretations, significant judgment is required when making certain determinations with regard to the Company’s tax positions. As a result, the Company makes certain estimates and assumptions in: (1) calculating its income tax expense, deferred tax assets, and deferred tax liabilities; (2) determining any valuation allowance recorded against deferred tax assets; and (3) evaluating the amount of unrecognized tax benefits, as well as the interest and penalties related to such uncertain tax positions. The Company’s estimates and assumptions may differ significantly from tax benefits ultimately realized.

F-13

Net Income per Share

Basic earnings per share of common stock is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted earnings per share of common stock reflects the maximum potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and would then share in the net income of the company. Common shares issuable are considered outstanding as of the original approval date for purposes of earnings per share computations. (in thousands)

	March 31
	2013		2012

Basic		31,213		22,214
Incremental shares under stock compensation plans		2,217		1,531
Incr				-
Potentially Diluted		33,430		23,745

Accumulated Other Comprehensive Income (Loss)

Other comprehensive income (loss), as defined, includes net income, foreign currency translation adjustment, and all changes in equity (net assets) during a period from non-owner sources. To date, the Company has not had any significant transactions that are required to be reported in other comprehensive income (loss), except for foreign currency translation adjustments.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management 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 consolidated financial statements and the reported amounts of revenues and expenses during the fiscal year. The Company makes estimates for, among other items, useful lives for depreciation and amortization, determination of future cash flows associated with impairment testing for long-lived assets, determination of the fair value of stock options and warrants, determining fair values of assets acquired and liabilities assumed in business combinations, valuation allowance for deferred tax assets, allowances for doubtful accounts, and potential income tax assessments and other contingencies. The Company bases its estimates on historical experience, current conditions, and other assumptions that it believes to be reasonable under the circumstances. Actual results could differ from those estimates and assumptions.

Financial Instruments

The Company has the following financial instruments: cash, amounts due to related parties, and long-term debt. The carrying value of cash and long-term debt approximates their fair value due to their liquidity or their short-term nature as valued consistent with the use of level 2 inputs. The fair value of amounts due to related parties is not determinable.

Share-Based Compensation

The Company accounts for stock-based awards at fair value on date of grant and recognition of compensation over the service period for awards expected to vest. The fair value of stock options is determined using the Black-Scholes valuation model, which is consistent with the Company’s valuation techniques previously utilized for options in footnote disclosures.

F-14

Note 4. Property and Equipment, net

Property and equipment consist of the following: (in thousands)

	March 31			December 31
	2013			2012

Leasehold improvements	$	265		$	265
Motor vehicle		120			120
Equipment		187			177
		572			562
Less accumulated depreciation		(248	)		( 212	)

Property and equipment, net	$	324		$	350

Note 5. Intangible Assets

Intangible assets consist primarily of software development costs and customer and relationships. (in thousands)

	March 31			December 31
	2013			2012

Horizon software	$	16,266		$	16,085
Customer relationships		885			885
		17,151			16,970
Less accumulated amortization		(5,078	)		( 4,641	)

Intangible assets, net	$	12,073		$	12,329

Amortization of intangible assets for each of the next five years is estimated to be $1,500,000 per year.

Note 6. Long-term Debt

Long – term liabilities consist of the following (in thousands)

	March 31			December 31
	2013			2012

Vehicle loan	$	66		$	67
Office term loan		200			211

		266			278
Less current portion		(59	)		( 59	)

Balance	$	207		$	219

F-15

Note 7. Related-Party Transactions

Amounts due to related parties include the following: (in thousands)

	March 31		December 31
	2013		2012

Loans due to stockholders	$	4,000	$	3,500

Loans due to stockholders include:

	●	loans advanced during 2011 totaling $2,000,000 which are unsecured and have an interest rate of 10%. During the three months ended March 31, 2013 and 2012 interest of $50,000 and $50,000, respectively, has been accrued.

	●	loans advanced by two officers and directors during 2012 totaling $1,500,000 which are unsecured and have an interest rate of 0.21%. The loans are due on or before December 31, 2014, and can be repaid in cash or shares of ordinary shares of OHG at an exchange price of $1.50 per share.

	●	convertible loans advanced in January 2013 from two officers and directors in the amount of $250,000 each. These convertible loans bear an interest rate of 0.21% and are repayable on or before January 22 2014. The Company has the option to repay the loans at any time, without penalty, in cash or shares of common stock of the Company at a price of $0.0086 per share. If the Company elects to repay the convertible loans in full by the issuance of shares, the Company will issue 48,650 shares of common stock.

	●	The Company entered into a sales contract, in the normal course of business with a customer in which the Company holds an equity interest. The customer purchased perpetual software license with total commitment of $2.0 million, of which $100,000 has been recognized in each of the three months ended March 31, 2013 and 2012. The Company owns a cost based investment interest of 18% of the voting capital of the customer.

	●	During the three months ended March 31, 2012, a company owned by a director and officer of the Company provided services in the amount of $125,000.

Note 8. Share Capital

Preferred Stock

The Company’s authorized capital included 150,000,000 shares of preferred stock of $0.0001 par value. The designation of rights including voting powers, preferences, and restrictions shall be determined by the Board of Directors before the issuance of any shares.

On August 6, 2013 the shareholders approved the reduction of the authorized preferred stock to 50 million with the par value remaining unchanged at $0.0001 per preferred share.

No shares of preferred stock are issued and outstanding as of March 31, 2013, and December 31, 2012.

Mandatorily Redeemable Preferred Shares (Deferred Stock)

The Company’s subsidiary OHG is authorized to issue 50,000 shares of deferred stock, par value of £1.These shares are non-voting, non-participating, redeemable and have been presented as a long-term liability.

F-16

Common Stock

The Company is authorized to issue 200 million shares of common stock, par value of $0.0001.

On August 6, 2013, the shareholders approved the reduction of the authorized common stock to 200 million, with the par value remaining unchanged at $0.0001 per common share, and the consolidation of the issued and outstanding common stock on the basis of one new share for each 600 shares, effective upon approval of the regulatory authorities. The Company’s common stock was consolidated effective as of August 29, 2013

The application of this stock consolidation has been shown retroactively in these condensed consolidated financial statements.

During the three months ended March 31, 2013, the Company:

●	issued 806,452 shares of common stock for subscription receivable of $6 million, of which $2.79 million was collected as of May 16, 2013. The outstanding balance is secured by a pledge of the shares, pro-rata to amount owing, and carries an interest rate of 3%.

During the six months ended December 31, 2012, the Company:

●	issued 195,573 shares of common stock for cash proceeds of $502,000

●	issued 1,459,500 shares of common stock for subscription receivable of $500,000.

●	issued 3,502,800 shares of common stock for services received from related parties with a fair value of $1,200,000

●	issued 145,950 shares of common stock for services received with a fair value of $50,000

●	accounted for the reverse acquisition of Intelligent Communication Enterprise Corporation and subsidiaries and issued 1,160,051 shares of common stock with a fair value of $341,000.

●	returned to treasury for cancellation 70,000 shares of common stock with a fair value of $420,000 being proceeds received on the disposal of shares of Global Interactive Media Limited and the Modizo business.

Stock Purchase Warrants

At March 31, 2013, the Company had reserved 1,687,586 shares of its common stock for the following outstanding warrants:

Number of Warrants	Exercise Price	Expiry

1,167,600	$ nil	no expiry date
116,760	0.86	no expiry date
403,226	5.94	January 2018

There were 403,226 warrants issued and none exercised during the three months ended March 31, 2013.

Note 9. Stock-Based Compensation

Although the Company does not have a formal stock option plan, it issues stock options to directors, employees, advisors, and consultants.

F-17

A summary of the Company’s stock options as of March 31, 2013, is as follows:

	Number of		Weighted Average
	Options		Exercise Price

Outstanding at June 30, 2012		360,221	$	0.77
Options issued		291,900		0.53
Outstanding at December 31, 2012 and March 31, 2013		652,121	$	0.66

The following table summarizes stock options outstanding at March 31, 2013:

		Number		Average		Number		Intrinsic
		Outstanding		Remaining		Exercisable		Value
		at		Contractual		at		at
		March 31,		Life		March 31,		March 31,
Exercise Price		2013		(Years)		2013		2013
$	0.51		5,748		2.58		5,748	$	37,934
	0.53		291,900		7.25		291,900		1,926,540
	0.53		291,900		9.75		-		-
	1.82		29,722		2.08		29,722		196,168
	1.95		32,851		3.25		32,851		79,129

At March 31, 2013, 652,121 shares of common stock were reserved for outstanding options.

The fair value of each option granted is estimated at the date of grant using the Black-Scholes option-pricing model. The assumptions used in calculating the fair value of the options granted were: risk-free interest rate of 5.0%, a 3 year expected life, a dividend yield of 0.0%, and a stock price volatility factor of 40%

There were no options issued or exercised during the three months ended March 31, 2013 and 2012, respectively.

Note 10. Commitments and Contingencies

The Company has an agreement with an employee to pay for certain services to be provided during 2013 by the issuance of options to purchase 291,900 shares of common stock of the Company at December 31, 2013.

Lease Commitments

The Company incurred total rent expense of $40,000 and $49,000, for the three months ended March 31, 2013 and 2012, respectively. Future lease commitments are as follows:

2013 $54,000

2014 $72,000

2015 $72,000

2016 $72,000

2017 $72,000

Note 11. Subsequent Events

Subsequent to March 31, 2013 the Company

	●	in April, 2013, received $2.79 million of subscription receivable in respect of a $6.0 million investment in the Company’s securities pursuant to a subscription agreement signed in February 2013 and reported in the Form 10-K. The balance of the subscription funds are expected to be received in June and September 2013 under the terms of the agreement.

	●	paid the remaining $1.4 million for our 75% equity interest in Horizon Network Technology Co., Ltd, a Chinese joint venture with ZTE Corporation.

	●	in April, 2013, entered into an advisory agreement with a consulting firm to provide business and corporate development services to the Company. Pursuant to the agreement dated April 15, 2013, the Company issued 62,543 shares of common stock.

	●	in May, 2013, signed an amendment to its agreement with an investor relations firm, pursuant to which the Company issued the firm a warrant to purchase up to 62,545 shares of the Company’s Common Stock, subject to vesting, at an exercise price of $7.20 per share, with 15,636 shares vesting on each of May 1, 2013, October 15, 2013, January 15, 2014, and April 14, 2014. Exercise of the warrants is also subject to certain performance metrics set forth in the warrant.

F-18

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

The following discussion provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto contained elsewhere in this Report. The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements. See “Cautionary Note Concerning Forward-Looking Statements.”

Overview

Business

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

On November 30, 2012, the Company (then known as Intelligent Communication Enterprise Corporation (“ICE Corp.”)), and One Horizon Group PLC, a public limited company incorporated in the United Kingdom (“One Horizon UK”), consummated a share exchange (the “Share Exchange”), pursuant to which ICE Corp. will acquire all of the issued and outstanding shares of One Horizon UK from One Horizon UK’s then existing shareholders in exchange for 29,755,794 shares of ICE Corp.’s common stock. To date, the Company has acquired 99% of the outstanding shares of One Horizon UK pursuant to the Share Exchange. Under the terms of the Share Exchange, each One Horizon UK shareholder received 175.14 shares of ICE Corp.’s common stock for each issued and outstanding share of One Horizon UK stock. As a result of the Share Exchange, One Horizon UK is now a subsidiary of the Company, with former One Horizon UK shareholders holding approximately 96% of the issued and outstanding shares of ICE Corp. Having received share exchange acceptances in excess of 90% of the One Horizon UK shares, the Company intends to exercise its rights in accordance with Sections 974 to 991 (inclusive) of the Companies Act 2006 to acquire compulsorily the remaining One Horizon UK shares in respect of which acceptances have not been received to date. The transaction has been accounted for as a reverse acquisition, whereby ICE Corp. is the legal acquirer and One Horizon UK is the legal acquiree and accounting acquirer. On December 27, 2012, the Company changed its name to One Horizon Group, Inc.

To record the accounting effects of the reverse acquisition, the assets and liabilities of One Horizon UK (the accounting acquirer) are recognized and measured at their precombination carrying amounts. The assets and liabilities of ICE Corp. (the accounting acquiree) are recognized and measured consistent with accounting for business combinations, including recognition of fair values, effective as of November 30, 2012, the date of the Share Exchange transaction.

Pre-Share Exchange

The Company was incorporated in Pennsylvania in 1972 as Coratomic, Inc. It changed its name to Biocontrol Technology, Inc. in 1986; BICO, Inc. in 2000; Mobiclear Inc. in 2006; and Intelligent Communication Enterprise Corporation in 2009.

One Horizon UK

One Horizon UK, was incorporated in the United Kingdom on March 8, 2004. Prior to the Share Exchange, the consolidated financial statements of One Horizon UK for its fiscal years ended June 30, 2012 and 2011 consisted of two main business segments: (1) the Horizon Globex business segment including One Horizon UK and two of its subsidiaries, Abbey Technology and Horizon Globex; and (2) the Satcom Global business segment. However, the Satcom Global business was sold on October 25, 2012 as it became unprofitable. One the same day, Abbey Technology sold certain satellite billing software utilized in the Satcom Global business to the same purchaser. The entire purchase price for the software was paid by means of an offset against amounts owed by Abbey Technology and its affiliates to Satcom Global FZE, an entity acquired by the purchaser in connection with the purchase of the Satcom Global business.

Prior to the Share Exchange, the consolidated financial statements of One Horizon UK for its fiscal years ended June 30, 2012 and 2011 consisted of two main business segments, the Horizon Globex business segment and Satcom Global business. In those historical financial statements, the financial results of the Horizon Globex business segment consisted of the financial results of the One Horizon UK and two of its subsidiaries, Abbey Technology and Horizon Globex. The Satcom Global business was sold in October 2012, prior to the Share Exchange. In the historical financial statement presentation of the UK Operating Company for its fiscal years ended June 30, 2012 and 2011, the operations of Satcom Global have been retrospectively restated for treatment as discontinued operations.

Satcom Global was maintained in seperate legal entities, all of which were sold in their entirety prior to the Share Exchange transaction. The Satcom Global distribution business represented a dissimilar business form the Horizon Globex software business. As a distribution business, Satcom Global had a different revenue and expense model (high volume and low gross margin), included different products and product marketing strategies, sold to different customers, purchased from different vendors, and had different management and operational personnel. The results of the Satcom Global business is not an indicator of Company management's past performance as all of the operational staff and management of the Satcom Global business remained with that business and are now employed by the purchasers of the Satcom Global business.

Abbey Technology, founded in 1999 by our director and Chief Technology Officer, Brian Collins, is a software development company and licenses proprietary software solutions for the banking sector. The Horizon software platform was invented/developed in Abbey Technology by Brian Collins and Claude Dziedzic. Mr. Collins and Dziedzic have irrevocably assigned the patent for the Horizon Platform to Abbey Technology. Abbey Technology was subsequently acquired by One Horizon UK in September 2010.

One Horizon Hong Kong is a subsidiary of One Horizon UK, and was formed in 2012. One Horizon Hong Kong currently holds the Company’s equity interest in the Chinese joint venture.

Unless otherwise noted, references to “we” or “us” in this Report include the Company (post-Share Exchange) and all of its subsidiaries.

Pre-Share Exchange Business of ICE Corp.

Prior to the Share Exchange, the Company had two operational businesses: Modizo, and Global Integrated Media Limited (GIM). The Modizo business consisted of a celebrity blogging application, while the GIM business consisted of custom publishing, advertising design, brand building, media representation, website design and development and market research programs. As the GIM and Modizo businesses did not fit within the Company’s business plan after the Share Exchange, both businesses were sold on December 31, 2012.

Results of Operations

Revenue: Our revenue for the three months ended March 31, 2013 was approximately $1.92 million as compared to approximately $0.92 million for the three months ended March 31, 2012, an increase of $1.0 million, or 109%. The increase in our revenue was due to the ongoing growth in sales of the Horizon Platform and licenses. The Company expects sales to continue to grow as more companies sign up for the Horizon Platform.

Cost of Revenue: Cost of revenue was approximately $453,000 for the three months ended March 31, 2013, or 24% of sales, compared to cost of revenue of $253,000, or 28% of sales for the three months ended March 31, 2012. Our cost of sales is primarily composed of the costs of ancillary hardware sold with the Horizon Platform together with the amortization of software development costs.

Gross Profit: Gross profit for the three months ended March 31, 2013 was approximately $1.47 million as compared to $664,000 for the three months ended March 31, 2012, an increase of 121%. The main reason for the increase in gross profit is the growth in business and the smartphone market globally, as well as the Company’s ability to capitalize on market opportunities by entering areas with high population density, high penetration of mobile phones, congested mobile cellular networks and high growth in the adoption of smartphones.

Operating Expenses: Operating expenses, including general and administrative expenses and depreciation were approximately $1.5 million and $1.8 million in the three month periods ended March 31, 2013 and 2012. The $1.5 million in operating expenses represented 78% of sales for the three months ended March 31, 2013 as compared to 195% of sales for the same period in 2012. Going forward, management expects these costs to rise due to various public company-related expenses including share-based compensation, and various legal, accounting and consulting services.

Net Loss: Net Loss for the three months ended March 31, 2013 was approximately $98,000 as compared to net loss of roughly $1.2 million for the same period in 2012. The decrease in net loss reflected the growth in the business and sales while overall operating expenses remained relatively unchanged for the same period in 2012 and 2013.

Going forward, management believes the Company will continue to grow the business and increase sales if we are successful in selling the Horizon Platform solution to new telecommunications company customers globally. Management also expects profitability to increase as revenue is expected to increase more than new operating costs related to public company expenses.

Foreign Currency Translation Adjustment: Our reporting currency is the U.S. dollar. Our local currencies, Swiss Francs and British pounds, are our functional currencies. Results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate as quoted by http://www.oanda.com/currency/historical-rates/ at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of shareholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Currency translation adjustments resulting from this process are included in accumulated other comprehensive income in the consolidated statement of shareholders' equity and amounted to approximately $63,000 for the three months ended March 31, 2013.

Liquidity and Capital Resources

Three Months Ended March 31, 2013 and March 31, 2012

The following table sets forth a summary of our approximate cash flows for the periods indicated:

	For the Three Months Ended March 31 (in thousands)
	2013			2012
Net cash provided by (used in) operating activities		(344	)		1,212
Net cash (used in) investing activities		(383	)		(822	)
Net cash provided by financing activities		488			(761	)

Net cash used by operating activities was approximately $344,000 for the three months ended March 31, 2013 as compared to net cash provided of $1.2 million for the same period in 2012. The increase in cash used by operations was primarily due to the increase in cash used for accounts receivable, which offset (and reduced) the overall cash used by operating activities.

Net cash used in investing activities was approximately $383,000 and $822,000 for the three months ended March 31, 2013 and 2012, respectively. Net cash used in investing activities was primarily focused on acquisitions of intangible assets and property and equipment.

Net cash provided by financing activities amounted to $488,000 for the three months ended March 31, 2013 as compared to a use of $761,000 for the three months ended March 31, 2012. Cash provided by financing activities in 2013 was primarily due to the advances from related parties. Cash used by financing activities in 2012 was primarily due to repayment in long term bank borrowing.

Our working capital as of March 31, 2013 was approximately a negative $3.1 million, as compared to negative working capital of approximately $3.1 million as of December 31, 2012.

In April, 2013, the Company received $2.79 million in respect of a $6.0 million investment in the Company’s securities pursuant to a subscription agreement signed in February 2013 and reported on the Form 10-K. The balance of the subscription funds are expected to be received in June and September 2013 under the terms of that agreement.

The Company paid an additional $1.4 million, the balance of its investment, $1.5 million, for its 75% equity stake in a joint venture in China with ZTE Corporation. ZTE Corporation, partner of our joint venture, Horizon Network Technology Co., Ltd, is the second largest mobile handset manufacturer in the world and the fourth largest telecommunications equipment supplier in the world. The Company is not a guarantor of any debt related to the joint venture. The investment is held in a subsidiary, One Horizon Hong Kong Limited.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to the Company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Smaller reporting companies are not required to provide the information required by this item.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), such as this Report, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our current chief executive officer and chief financial officer (our “Certifying Officers”), the effectiveness of our disclosure controls and procedures as of March 31, 2013, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, We are starting to implement remedial measures designed to address the ineffectiveness of our disclosure controls and procedures. At the time we originally filed this report, based on their evaluation, our Certifying Officers, concluded that, because of the material weaknesses in our internal control over financial reporting described below and the Company’s failure to file all Current Reports on Form 8-K required under the Exchange Act within their required time periods, as of March 31, 2013, our disclosure controls and procedures were not effective. As a result of certain events discussed below, as of the date of this Amended Report, management, including our Certifying Officers, confirmed that our disclosure controls and procedures are not effective, as of March 31, 2013 and December 31, 2013.

We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Management’s Report on Internal Control over Financial Reporting

At the time we originally filed this report, based on their evaluation, our Certifying Officers, concluded that, because of the material weaknesses in our internal control over financial reporting described below and the Company’s failure to file all Current Reports on Form 8-K required under the Exchange Act within their required time periods, as of March 31, 2013, our internal control over financial reporting was not effective. As a result of certain events discussed below, as of the date of this Amended Report, management, including our Certifying Officers, confirmed that our internal control over financial reporting was not effective as of March 31, 2013 and December 31, 2013.

On April 3, 2014, our Audit Committee, in consultation with management, concluded that we will restate our previously issued audited financial statements for the transitional period of six months ended December 31, 2012, and for 12 months ended June 30, 2012 included in the Company’s Annual Report on Form 10-K, and our unaudited financial statements for the quarterly periods ended March 31, 2013 and 2012, June 30, 2013 and 2012, and September 30, 2013 and 2012, included in the Company’s Quarterly Reports on Forms 10-Q, and the unaudited pro forma disclosures included in our Form 8-K/A filed with the SEC on February 7, 2013 (the “Relevant Periods”), to correct errors related to the recognition of revenue from sales of perpetual licenses Tier 1 and Tier 2 telecom entities. Contracts with Tier 1 entities typically require agreed-upon fixed payments over fixed future periods extending beyond one year. Contracts with Tier 2 entities have long-term variable payment terms based on customer usage. We historically recognized the present value of Tier 1 contracts at the time of delivery. Revenue from Tier 2 contracts was historically recognized over the initial 5-year term on a straight-line basis. As a result of the conclusion of the Audit Committee and its review of our controls and procedures, we identified a material weakness in the design and operating effectiveness of our internal controls over financial reporting relating to correctly recording the timing of revenue recognition for certain license fees as of December 31, 2013 Specifically, our policy of revenue recognition did not meet all the requirements of the relevant generally accepted accounting principles applicable to software sales. Consequently, effective controls did not to ensure that revenue for these types of software sales were appropriately recorded. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected. Previously, certain significant deficiencies in internal control over financial reporting had became evident to management that, in the aggregate, represent material weaknesses, including:

(i) Lack of sufficient independent directors. During the six months ended June 30, 2013, we had two independent directors on our board, which was comprised of five directors. These two independent directors, however, would not currently be deemed independent under NASDAQ for audit committee purposes.

(ii) Insufficient corporate governance policies. Although we have a code of ethics that provides broad guidelines for corporate governance, our corporate governance activities and processes are not always formally documented. Specifically, decisions made by the board to be carried out by management should be documented and communicated on a timely basis to reduce the likelihood of any misunderstandings regarding key decisions affecting our operations and management.

(iii) Insufficient segregation of duties in our finance and accounting functions due to limited personnel. During the year ended December 31, 2013 we had 6 on staff who performed nearly all aspects of our financial reporting process, including access to the underlying accounting records and systems, the ability to post and record journal entries, and responsibility for the preparation of the financial statements. This creates certain incompatible duties and a lack of review over the financial reporting process that would likely result in a failure to detect errors in spreadsheets, calculations, or assumptions used to compile the financial statements and related disclosures as filed with the Securities and Exchange Commission. These control deficiencies could result in a material misstatement to our interim or annual consolidated financial statements that would not be prevented or detected.

(iv) Lack of in-house US GAAP Expertise. Currently we do not have sufficient in-house expertise in US GAAP reporting. Instead, we rely very much on the expertise and knowledge of external financial advisors in US GAAP conversion.

(v) Maintenance of Accounting Records. We did not maintain a comprehensive set of financial records for the three months ended March 31, 2013. Certain receipts, disbursements and other transactions were recorded in the general ledger; however account reconciliations, journal entry forms or other supporting schedules were either missing or incomplete. Without adequate financial records, we may be unable to provide timely financial reporting and/or report inaccurate information.

As part of the communications respecting its audit procedures for the year ended December 31, 2013, our independent registered accountants, Peterson Sullivan, LLP (“Peterson Sullivan”), informed the board that these deficiencies constituted material weaknesses, as defined by Auditing Standard No. 5, “An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements and Related Independence Rule and Conforming Amendments,” established by the Public Company Accounting Oversight Board.

Plan for Remediation of Material Weaknesses

As soon as we learned of the material weakness (identified above) related to revenue recognition, we began taking steps intended to remediate this material weakness and to improve our control process and procedures with respect to revenue recognition in general as part of our efforts to become compliant with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. These activities included:

●	Implementing a revised accounting policy for our revenue recognition of certain software license fees;

●	Hiring outside consultants with specific expertise with revenue recognition to assist with a review of both current future and licensing agreements;

●	Establishing new policies, procedures and controls to ensure that the new revenue recognition policy is properly administered; and

●	To the extent necessary, evaluating the proper organizational structure and accounting personnel to ensure that we have the requisite knowledge and expertise of revenue recognition under standards of U.S. GAAP.

Aside from the measures discussed above and as of the date hereof, we have taken the following additional measures to remediate other material weaknesses:

●

We added accounting personnel to address issues of timeliness and completeness of our US GAAP financial reporting in the second and third quarter of 2013. With the additional accounting personnel, management believes that they are beginning to address the lack of in-house GAAP expertise and insufficient segregation of duties in our finance and accounting functions due to limited personnel. The increased staff also allowed us to maintain complete accounting records for the year ending December 31, 2013.

●

We have appointed additional independent directors. As a result, we currently have four independent directors on our board, which is comprised of seven directors. These four independent directors are deemed independent under Nasdaq Rule 5605(a)(2) and one of them qualifies as an “audit committee financial expert” as such term is defined in Regulation S-K Item 407(d)(5)(ii). In addition, we formed audit, compensation and nominating committees that would meet NASDAQ rules and guidelines. We believe that the formation of an independent audit committee will increase board oversight and help us begin to remediate certain internal weaknesses.

We are also in the process of designing and implementing additional remediation measures for our insufficient corporate governance policies and our ability to account for technical matters. Management intends to work with our newly formed Audit Committee and our Independent Registered Public Accounting Firm in 2014 towards identifying suitable actions and changes to certain internal polices to allow us to take appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies.

Changes in Internal Control over Financial Reporting

Except as disclosed above in our discussion of the restatement of revenues, there were no changes in our internal controls over financial reporting during the period ended December 31, 2013, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not a party to any material legal proceedings and no material legal proceedings have been threatened by us or, to the best of our knowledge, against us.

ITEM 1A. RISK FACTORS

Smaller reporting companies are not required to provide the information required by this item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In April 2013 we entered into an advisory agreement with a consulting firm to provide business and corporate development services to the Company. Upon the signing of the agreement on April 15, 2013, the Company agreed to issue 62,543 shares of common stock, which shares were valued at $9 per share or approximately $562,890 in the aggregate.

In May 2013, the Company signed an amendment to its agreement with an investor relations firm, pursuant to which the Company issued the firm a warrant to purchase up to 62,545 shares of the Company’s Common Stock, subject to vesting, at an exercise price of $7.2 per share, with 15,636 shares vesting on each of May 1, 2013, October 15, 2013, January 15, 2014 and April 14, 2014. Exercise of the warrants is also subject to certain performance metrics set forth in the warrant.

See also transactions reported in Current Reports on Form 8-K filed by the Company on January 28, 2013 and February 22, 2013, respectively.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit Number		Description
4.1		Common Stock Purchase Warrant dated May 1, 2013

10.1		Loan Agreement dated January 22, 2013 between the Company and Mark White

10.2		Loan Agreement dated January 22, 2013 between the Company and Brian Collins

10.3		Subscription Agreement, as amended, dated as of February 18, 2013 between the Company and Patrick Schildknecht

10.4		Advisory Agreement dated as of April 15, 2013 between the Company and TriPoint Global Equities, LLC

10.5		Engagement Letter dated April 22, 2013 between the Company and CCG Investor Relations

10.6		Letter Amendment dated May 1, 2013 to Engagement Letter dated April 22, 2013 between the Company and CCG Investor Relations.

31.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1+		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2+		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS**		XBRL Instance Document

101.SCH **		XBRL Taxonomy Schema

101.CAL **		XBRL Taxonomy Calculation Linkbase

101.DEF **		XBRL Taxonomy Definition Linkbase

101.LAB **		XBRL Taxonomy Label Linkbase

101.PRE **		XBRL Taxonomy Presentation Linkbase

** Furnished herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

+ In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are furnished and not filed.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ONE HORIZON GROUP, INC.

Date: May 2, 2014	By:	/s/ Mark White
		Mark White
		President and Principal Executive Officer

	ONE HORIZON GROUP, INC.

Date: May 2, 2014	/s/ Mark White
	Mark White President, Chief Executive Officer, and Director

Date: May 2, 2014	/s/ Martin Ward
	Martin Ward, Chief Financial Officer, Principal Finance and Accounting Officer and Director

Date: May 2, 2014	/s/ Brian Collins
	Brian Collins, Vice President, Chief Technology Officer and Director