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 June 30, 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: 000-10822

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)

_____________________________________________________

(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 o 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 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	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 August 13, 2013, 31,569,946 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	7

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	10

Item 4.	Controls and Procedures	10

Part II – OTHER INFORMATION

Item 1.	Legal Proceedings	11

Item 1A.	Risk Factors	11

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	11

Item 3.	Defaults Upon Senior Securities	11

Item 4.	Mine Safety Disclosures	11

Item 5.	Other Information	11

Item 6.	Exhibits	11

	SIGNATURES	12

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 June 30, 2013 (the “Amended Report”) to revise our originally filed Form 10-Q filed on August 14, 2013 and Amendment No. 1 to Form 10-Q filed on August 15, 2013 (collectively, the “Original Report”) to restate its consolidated financial statements as of June 30, 2013 and December 31, 2012, and for the three and six month period ending June 30, 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 and 6 month periods ended June 30, 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 and six ended June 30, 2013 and 2012 and accounts receivable and deferred revenue were misstated in the consolidated balance sheets as of June 30, 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 August 15, 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 (the “Exchange Act”), 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 Voice over Internet Protocol (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)
Condensed Consolidated Balance Sheets
June 30, 2013 and December 31, 2012
(in thousands, except share data)

(unaudited)	June 30,			December 31,
	2013			2012
	(restated)			(restated)
Assets

Current assets:
Cash	$	1,944		$	699
Accounts receivable		3,113			977
Other assets		222			136
Total current assets		5,279			1,812


Property and equipment, net		378			350
Intangible assets, net		12,469			12,329
Other assets		31			-
Total assets	$	18,157		$	14,491

Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable	$	944		$	747
Accrued expenses		1,044			436
Accrued compensation		54			38
Income taxes		94			94
Amounts due to related parties		4,000			3,500

Current portion of long-term debt		65			59
Total current liabilities		6,201			4,874

Long-term liabilities

Long term debt, net of current portion		215			219
Deferred income taxes		445			445
Mandatorily redeemable preferred shares		90			90
Total liabilities		6,951			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 shares
issued and outstanding 31,754,000 shares (December 2012 30,845,844)		3			3
Additional paid-in capital		28,470			21,630
Stock subscriptions receivable		(3,400	)		(500	)
Accumulated deficit		(14,728	)		(12,725	)
Accumulated other comprehensive income		405			455
Total One Horizon Group, Inc. stockholders' equity		10,750			8,863
Non-controlling interest		456			-
Total stockholders' equity		11,206			8,863

Total liabilities and stockholders' equity	$	18,157		$	14,491

See accompanying notes to condensed consolidated financial statements.

F-1

ONE HORIZON GROUP, INC.

(formerly Intelligent Communication Enterprise Corporation)

Condensed Consolidated Statements of Operations

For the three and six months ended June 30, 2013 and 2012

(in thousands)

(unaudited)

	Three Months ended June 30,						Six Months ended June 30,
	2013			2012			2013			2012
	(restated)			(restated)			(restated)			(restated)



Revenue	$	1,253		$	717		$	3,172		$	1,634

Cost of revenue - Hardware		481			14			488			65
- Amortization of software development costs		404			841			850			1,043
Gross margin		368			(138	)		1,834			526

Expenses:
General and administrative		2,221			1,614			3,694			3,307
Depreciation		39			721			75			818


		2,260			2,335			3,769			4,125

Loss from operations		(1,892	)		(2,473	)		(1,935	)		(3,599	)

Other income and expense:
Interest expense		(7	)		(54	)		(12	)		(65	)
Interest expense - related parties		(50	)		(50	)		(100	)		(100	)
Foreign exchange		-			-			-			5
		(57	)		(104	)		(112	)		(160	)

Loss before income taxes		(1,949	)		(2,577	)		(2,047	)		(3,759	)

Income taxes expense (benefit)		-			-			-			-

Net loss for the period		(1,949	)		(2,577	)		(2,047	)		(3,759	)

Net loss attributable to the non-controlling interest		(44	)		-			(44	)		-

Net loss for the period attributable to One Horizon Group, Inc.	$	(1,905	)	$	(2,577	)	$	(2,003	)	$	(3,759	)


Earnings (loss) per share attributable to One Horizon Group, Inc. shareholders

Basic net income per share	$	(0.06	)	$	(0.12	)	$	(0.06	)	$	(0.17	)

Diluted net income per share	$	(0.06	)	$	(0.12	)	$	(0.06	)	$	(0.17	)

Weighted average number of shares outstanding
Basic		31,676			22,235			31,446			22,220
Diluted		31,676			22,235			31,446			22,220

See accompanying notes to condensed consolidated financial statements.

F-2

ONE HORIZON GROUP, INC.

(formerly Intelligent Communication Enterprise Corporation)

Condensed Consolidated Statements of Comprehensive Income (Loss)

For the three and six months ended June 30, 2013 and 2012

(in thousands)

(unaudited)

	Three Months ended June 30,						Six Months ended June 30,
	2013			2012			2013			2012
	(restated)			(restated)			(restated)			(restated)

Net loss	$	(1,949	)	$	(2,577	)	$	(2,047	)	$	(3,759	)
Other comprehensive income (loss):
Foreign currency translation adjustment gain (loss)		13			-			(50	)		-
Comprehensive loss		(1,936	)		(2,577	)		(2,097	)		(3,759	)

Comprehensive income (loss) attributable to the non-controlling interest		(44	)		-			(44	)		-

Total comprehensive loss	$	(1,892	)	$	(2,577	)	$	(2,053	)	$	(3,759	)

See accompanying notes to condensed consolidated financial statements

F-3

ONE HORIZON GROUP, INC.

(formerly Intelligent Communication Enterprise Corporation)

Consolidated Statement of Stockholders' Equity

For the six months ended June 30, 2013

(in thousands)

(unaudited)

	Common Stock				Additional Paid-in Capital		Accumlated (Deficit)			Subscriptions Receivable			Accumulated Other Comprehensive Income (Loss)			Non-controlling Interest			Total Equity
	Number of Shares		Amount



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

Sale of subsidiary shares to non-controlling interest in exchange for software with a fair value of $500																	500			500
Net income (loss) (restated)								(2,003	)								(44	)		(2,047)
Foreign currency translations adjustment														(50	)					(50	)

Common stock issued for stock subscription receivable		807		-		6,000					(2,900	)								3,100
Common stock issued for services received		101		-		593														593
Warrants issued for services received						247														247


Balance June 30, 2013 (restated)		31,754	$	3	$	28,470	$	(14,728	)	$	(3,400	)	$	405		$	456		$	11,206

See accompanying notes to condensed consolidated financial statements.

F-4

ONE HORIZON GROUP, INC.
(formerly Intelligent Communication Enterprise Corporation)
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2013 and 2012
(in thousands)
(unaudited)

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

Operating activities:
Net income (loss) for the period	$	(2,003	)	$	(3,759	)

Adjustment to reconcile net income (loss) for the period to
net cash provided by (used in) operating activities:
Depreciation of property and equipment		75			818
Amortization of intangible assets		850			1,043
Common stock issued for services received		593			-
Warrants issued for services received		247			-
Net income (loss) attributable to non-controlling interest		(44	)		-
Changes in operating assets and liabilities:

Accounts receivable		(2,181	)		(754	)
Other assets		(86	)		(22	)
Accounts payable and accrued expenses		821			(288	)

Income taxes		-			-

Net cash provided by (used in) operating activities		(1,728	)		(2,962	)

Cash used in investing activities:

Acquisition of intangible assets		(494	)		(2,263	)
Acquisition of property and equipment		(104	)		(28	)
Other assets		(31	)		-

Net cash (used in) investing activities		(629	)		(2,291	)

Cash provided by (used in) financing activities:

Increase (decrease) in long-term borrowing, net		2			(815	)
Proceeds from issuance of common stock		3,100			5,750
Advances from related parties, net of repayment		500			-
Net checks issued in excess of funds		-			(53	)

Net cash provided by (used in) financing activities		3,602			4,882

Increase (decrease) in cash during the period	$	1,245		$	(371	)

Cash at beginning of the period		699			371

Cash at end of the period	$	1,944		$	-

See accompanying notes to condensed consolidated financial statements.

F-5

ONE HORIZON GROUP, INC.
(formerly Intelligent Communication Enterprise Corporation)
Condensed Consolidated Statements of Cash Flows (continued)
For the six months ended June 30, 2013 and 2012
(in thousands)
(unaudited)

Supplementary Information:

	2013		2012
	(restated)		(restated)
Interest paid	$	-	$	-
Income taxes paid		-		-

Non-cash transactions:
Common stock issued for subscription receivable		2,900		-
Common stock issued for services received		593
Warrants issued, and vested, for services received		49
Contribution of software for non-controlling interest in exchange for software with a fair value of $500		500

See accompanying notes to condensed consolidated financial statements.

F-6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 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 June 30, 2013 consolidated financial statements include the accounts of One Horizon Group, Inc. and its wholly owned subsidiaries OHG, Horizon Globex GmbH, Abbey Technology Gmb, One Horizon Hong Kong Limited and Horizon Network Technology Co. Ltd.

F-7

The comparative statement of operations, comprehensive income and cash flows for the six months ended June 30, 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 group of former wholly-owned subsidiaries of OHG, which were 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.

Note 2. Restatement of Financial Statements

One Horizon Group, Inc. (the "Company") is amending its Quarterly reported on Form 10-Q/A for the quarter ended June 30, 2013 to restate its consolidated financial statements as of June 30, 2013 and December 31, 2012 and for the three and six month period ending June 30, 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 and six months ended June 30, 2013 and 2012. Accounts receivable and deferred revenue were misstated in the consolidated balance sheet as of June 30, 2013 and December 31, 2012. These errors were considered material to the consolidated financial statements. The effect of these errors on the consolidated results of operations for the three and six months ended June 30, 2013 was to reduce revenues by $1.84 million and $2.94 million and increase the net loss by $1.65 million and reduce net income by $2.65 million, respectively. Revenues for the three and six months ended June 30, 2012 were reduced by $1.55 million and $2.92 million and the net loss was increased by $1.49 million and $2.85 million, respectively.

The consolidated financial statements have been restated as follows. The errors had no impact on the Company's consolidated net cash flows from 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 June 30, 2013
	As previously
	Reported			Adjustments			As Restated
Assets

Accounts receivable, current portion	$	12,201			(9,088	)	$	3,113

Total current assets		14,367			(9,088	)		5,279

Accounts receivable, net of current portion		35,963			(35,963	)		-

Total assets	$	63,208			(45,051	)	$	18,157

Liabilities and Stockholders' Equity

Current portion of deferred revenue	$	9,000			(9,000	)	$	-

Income Taxes		1,404			(1,310	)		94

Total current liabilities		16,511			(10,310	)		6,201

Deferred revenue		23,950			(23,950	)		-

Total liabilities		41,211			(34,260	)		6,951

Accumulated deficit		(3,937	)		(10,791	)		(14,728	)

Total stockholders' equity		21,997			(10,791	)		11,206

Total liabilities and stockholders' equity	$	63,208			(45,051	)	$	18,157

F-8

	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 June 30, 2013
	As previously
	Reported			Adjustments			As Restated
Revenue	$	3,095			(1,842	)	$	1,253

Cost of revenue		481			404			885
Gross margin		2,614			(2,246	)		368

Expenses		2,664			(404	)		2,260

Income (loss) from operations		(50	)		(1,842	)		(1,892	)

Other income and expense		(57	)		-			(57	)

Income (loss) from operations before income taxes		(107	)		(1,842	)		(1,949	)

Income taxes		(10	)		10			-

Income (loss) from operations		(97	)		(1,852	)		(1,949	)

Net income (loss) attributable to non-controlling interest		(44	)		-			(44	)

Net income (loss) for the period attributable to One Horizon Group	$	(53	)		(1,852	)	$	(1,905	)

Earning per share:
Basic	$	(0.00	)		(0.06)		$	(0.06	)
Diluted	$	(0.00	)		(0.06)		$	(0.06	)

F-9

	Consolidated Statements of Operations
	(in thousands)

	Six Months Ended June 30, 2013
	As previously
	Reported			Adjustments			As Restated
Revenue	$	6,108			(2,936	)	$	3,172

Cost of revenue		488			850			1,338
Gross margin		5,620			(3,786	)		1,834

Expenses		4,619			(850	)		3,769

Income (loss) from operations		1,001			(2,936	)		(1,935	)

Other income and expense		(112	)		-			(112	)

Income (loss) from operations before income taxes		889			(2,936	)		(2,047	)

Income taxes		90			(90	)		-

Income (loss) from continuing operations		799			(2,846	)		(2,047	)

Net income (loss) attributable to non-controlling interest		(44	)		-			(44	)

Net income (loss) for the period attributable to One Horizon Group	$	843			(2,846	)	$	(2,003	)

Earning per share:
Basic	$	(0.00	)		(0.06	)	$	(0.06	)
Diluted	$	(0.00	)		(0.06	)	$	(0.06	)

	Consolidated Statements of Operations
	(in thousands)

	Three Months Ended June 30, 2012
	As previously
	Reported			Adjustments			As Restated
Revenue	$	2,262			(1,545	)	$	717

Cost of revenue		14			841			855
Gross margin		2,248			(2,387	)		(138	)

Expenses		3,176			(841	)		2,335

Income (loss) from operations		(928	)		(1,545	)		(2,473	)

Other income and expense		(104	)		--			(104	)

Income (loss) from operations before income taxes		(1,032	)		(1.545	)		(2,577	)

Income taxes		53			(53	)		-

Income (loss) from operations		(1,085	)		(1,492	)		(2,577	)

Earning per share:
Basic	$	(0.00	)		(0.12	)	$	(0.12	)
Diluted	$	(0.00	)		(0.12	)	$	(0.12	)

F-10

	Consolidated Statements of Operations
	(in thousands)

	Six Months Ended June 30, 2012
	As previously
	Reported			Adjustments			As Restated
Revenue	$	4,554			(2,920	)	$	1,634

Cost of revenue		65			1,043			1,108
Gross margin		4,489			(3,963	)		526

Expenses		5,168			(1,043	)		4.125

Income (loss) from operations		(679	)		(2,920	)		(3,599	)

Other income and expense		(160	)		-			(160	)

Income (loss) from operations before income taxes		(839	)		(2,920	)		(3,759	)

Income taxes		69			(69	)		-

Income (loss) from operations		(908	)		(2,851	)		(3,759)

Earning per share:
Basic	$	(0.00	)		(0.17	)	$	(0.17	)
Diluted	$	(0.00	)		(0.17	)	$	(0.17	)

	Consolidated Statements of Comprehensive Income
	(in thousands)

	Three months ended June 30, 2013
	As previously
	Reported			Adjustments			As Restated

Net income (loss)	$	(97)		$	(1,852	)	$	(1,949)

Comprehensive income (loss)		(84	)		(1,852	)		(1,936)

	Consolidated Statements of Comprehensive Income
	(in thousands)

	Six months ended June 30, 2013
	As previously
	Reported		Adjustments			As Restated

Net income (loss)	$	799	$	(2,846	)	$	(2,047)

Comprehensive income (loss)		793		(2,846	)		(2,053)

F-11

	Consolidated Statements of Comprehensive Income
	(in thousands)

	Three months ended June 30, 2012
	As previously
	Reported				Adjustments				As Restated

Net income (loss)		$	(1,085	)		$	(1,492	)		$	(2,577	)

Comprehensive income (loss)			(1,085	)			(1,492	)			(2,577	)

	Consolidated Statements of Comprehensive Income
	(in thousands)

	Six months ended June 30, 2012
	As previously
	Reported				Adjustments				As Restated

Net income (loss)		$	(908	)		$	(2,851	)		$	(3,759	)

Comprehensive income (loss)			(908	)			(2,851	)			(3,759	)

	Consolidated Statements of Cash Flows
	(in thousands)

	Six months ended June 30, 2013
	As previously
	Reported				Adjustments			As Restated
Cash provided by (used in) operating activities:

Operating activities
Net income		$	843			(2,846	)		(2,003	)
Changes in operating assets and liabilities:
Accounts receivable			(16,047	)		13,866			(2,181	)
Deferred revenue			10,950			(10,950	)		-
Income Taxes			72			(72	)		-
Net cash provided by (used in) operating activities		$	(1,728	)		-			(1,728	)

	Consolidated Statements of Cash Flows
	(in thousands)

	Six months ended June 30, 2012
	As previously
	Reported			Adjustments			As Restated
Cash provided by (used in) operating activities:

Operating activities
Net income	$	(908	)		(2,851	)		(3,759	)
Changes in operating assets and liabilities:
Accounts receivable		(20,368	)		19,614			(754	)
Deferred revenue		16,600			(16,600	)		-
Income Taxes		163			(163	)		-
Net cash provided by (used in) operating activities	$	(2,962	)		-			(2,962	)

F-12

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 six months ended June 30, 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, the United Kingdom and China, 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.

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, Singapore, Hong Kong and China 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 and $218,000 for doubtful accounts at both June 30, 2013 and December 31, 2012. 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. At June 30, 2013 and December 31, 2012, three customers accounted for 25% 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.

F-13

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.

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 six months ended June 30, 2013 and 2012, software development costs of $494,000, and $2,263,000, respectively, have been capitalized.

Impairment of Other 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 six months ended June 30, 2013 and 2012, the Company identified no impairment losses related to the Company’s long-lived assets.

F-14

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 June 30, 2013, the Company had no sales contracts for which revenue had been recognized since inception of the arrangements.

F-15

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 six months ended June 30, 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 six months ended June 30, 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.

F-16

Because tax laws are complex and subject to different interpretations, significant judgment is required. 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.

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)

	June 30
	Three months				Six months
	2013		2012		2013		2012

Basic		31,676		22,235		31,446		22,220
Incremental shares under stock compensation plans		2,478		1,528		2,353		1,528

Potentially dilutive		34,154		23,763		33,799		23,748

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.

F-17

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.

Note 4. China Operations

During the six months ended June 30, 2013 the Company incorporated a subsidiary company in China, Horizon Network Technology Co. Ltd. (‘HNT’) though which the Company will sell licenses for software to users both in China and internationally. The Company contributed $1,500,000 for 75% of the equity and software, with a fair value of $500,000, was contributed by non-related parties for the remaining 25% of equity in HNT.

The results of operations, assets, liabilities and cash flows of HNT have been consolidated in the accompanying condensed consolidated financial statements with the non-controlling interest disclosed separately.

Note 5. Property and Equipment, net

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

	June 30			December 31
	2013			2012

Leasehold improvements	$	265		$	265
Motor vehicle		120			120
Equipment		278			177
		663			562
Less accumulated depreciation		(285	)		( 212	)

Property and equipment, net	$	378		$	350

F-18

Note 6. Intangible Assets

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

	June 30			December 31
	2013			2012

Horizon software	$	16,575		$	16,085
ZTE software		493			-
Customer relationships		885			885
		17,953			16,970
Less accumulated amortization		(5,484	)		( 4,641	)

Intangible assests, net	$	12,469		$	12,329

Amortization of intangible assets for each of the next five years is estimated to be $1,600,000 per year

Note 7. Long-term Debt

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

	June 30			December 31
	2013			2012

Vehicle loan	$	61		$	67
Equipment loan		29			-
Office term loan		190			211
		280			278
Less current portion		(65	)		( 59	)

BalaBalance	$	215		$	219

Note 8. Related-Party Transactions

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

	June 30		December 31
	2013		2012

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

F-19

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 six months ended June 30, 2013 and 2012 interest of $100,000 and $100,000, 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, at any time 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 for each loan so repaid.

●

during the year ended June 30, 2011, 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 $200,000 has been recognized in each of the six months ended June 30, 2013 and 2012. The Company owns a cost based investment interest of 18% of the voting capital of the customer.

●	during the six months ended June 30, 2012, a company owned by a director and officer of the Company provided services in the amounts of $125,000.

Note 9. Share Capital

Preferred Stock

The Company’s authorized capital includes 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 June 30, 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.

Common Stock

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

F-20

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 six months ended June 30, 2013, the Company:

●	issued 5,000 shares of common stock for services received with a fair value of $30,000.

●	issued 62,543 shares of common stock for services received with a fair value of $562,891.

●	issued 806,451 shares of common stock for subscription receivable of $6 million, of which $3.1 million was collected as of June 30, 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 350,280 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 the issued 1,160,050 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 $70,000 being proceeds received on the disposal of shares of Global Interactive Media Limited and the Modizo business.

Stock Purchase Warrants

At June 30, 2013, the Company had reserved 1,750,129 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
62,543	7.20	May 2018

There were 465,769 warrants issued and none exercised during the six months ended June 30, 2013.

Note 10. Stock-Based Compensation

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

A summary of the Company’s stock options as of June 30, 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 June 30, 2013		652,121	$	0.66

F-21

At June 30, 2013, 652,120 shares of common stock were reserved for outstanding options.

		Number		Average		Number		Intrinsic
		Outstanding		Remaining		Exercisable		Value
		at		Contractual		at		at
		June 30,		Life		June 30,		June 30,
Exercise Price		2013		(Years)		2013		2013
$	0.51		5,748		2.33		5,748	$	45,175
	0.53		291,900		7.00		291,900		2,294,334
	0.53		291,900		9.50		-		-
	1.82		29,722		1.83		29,722		196,168
	1.95		31,851		3.00		31,851		210,902

At June 30, 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 six months ended June 30, 2013 and 2012

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 62,543 shares of the Company’s Common Stock, subject to vesting, at an exercise price of $0.012 per share, with 12,508 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. The fair value of each option granted is estimated at the date of grant using the Black-Scholes option-pricing model. The warrants were valued at roughly $247,000, with $49,000 recognized as expense during the six months ended June 30, 2013. The assumptions used in calculating the fair value of the options granted were: risk-free interest rate of 5.0%, a 2.5 year expected life, a dividend yield of 0.0%, and a stock price of volatility factor of 89%.

Note 11. Commitments and Contingencies

The Company has an agreement with a consultant 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 $72,000 and $49,000, for the six months ended June 30, 2013 and 2012, respectively. Future lease commitments are as follows for the years ended December 31:

2013 $36,000

2014 $72,000

2015 $72,000

2016 $72,000

2017 $72,000

F-22

Note 12. Subsequent Events

Subsequent to June 30, 2013 the Company

●	issued 333,333 shares of common stock

As of August 6, 2013, the Company approved a 600-for-1 reverse stock split (the “Reverse Stock Split”) of its issued and outstanding common stock, to reduce the number of authorized shares of Common Stock to 200,000,000 shares, and to reduce the number of authorized shares of Preferred Stock to 50,000,000 shares. The Reverse Stock Split will be effected by the filing of an amendment to the Company’s Articles of Incorporation with the Department of State of the Commonwealth of Pennsylvania.

As of June 30, 2013, and after giving effect to the Reverse Stock Split, the Company’s authorized and outstanding capital stock would be as follows:

Common

Stock

Authorized

but

Unissued

and

Outstanding

Authorized

Available

Common

Preferred

Common

Preferred

Capital

for Future

Stock

Issuance

Pre-Reverse Stock Split

18,918,967,819

250,000,000,000

150,000,000

250,150,000,000

231,231,032,181

Post 600-for-1 Reverse Split

31,531,613

200,000,000

50,000,000

250,000,000

218,468,387

Accounting Consequences

The par value of Common Stock would be unchanged at $0.0001 per share after the Reverse Stock Split. As a result, on the effective date of the Reverse Stock Split, the shareholders equity on our balance sheet attributable to the Company’s Common Stock would be reduced proportionately based on the reverse stock split ratio of 1-for-600 and the additional paid-in capital account would be credited with the amount by which the shareholders equity would be reduced.

After the stock split, net income or loss per share, and other per share amounts would be increased as there would be fewer shares of our Common Stock outstanding. In future financial statements, net income or loss per share and other per share amounts for periods ended before the reverse stock split would be re-presented to give retroactive effect to the reverse split.

F-23

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 unaudited, restated consolidated financial statements for the three and six months ended June 30, 2013 and notes thereto contained elsewhere in this Report, and our Annual report on Form 10-K for the year ended December 31, 2013, including the consolidated financial statements and notes thereto. 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

We develop and license software that optimizes internet-based communications. We believe that our proprietary software uses internet bandwidth more efficiently and at less cost than other internet communication technologies. It represents a comprehensive solution for telecommunications operators seeking to compete with other companies’ Voice over Internet Protocol (“VoIP”) services, as well as for businesses and others seeking to minimize their communications costs. Our software products include the Horizon Call App, our bandwidth-efficient VoIP app for Android and iPhone smartphones, and the Horizon Desktop App, our Windows-based desktop app with bandwidth-efficient VoIP, instant messaging, web-browsing and email functions. We offer our software to telecommunications network operators and other enterprises utilizing mobile, fixed line and satellite communications. We also sell related hardware, including our Horizon VoIP PBX, Horizon VoIP Switch, and Horizon Captive Portal devices. We are an ISO 9001 and ISO 20000-1 certified company with assets and operations in Switzerland, the United Kingdom, China, India, Singapore and Hong Kong. We have developed a mobile application, “Horizon Call,” which enables highly bandwidth-efficient VoIP calls over a smartphone using a 2G/EDGE, 3G, 4G/LTE, WiFi or WiMax connection. Our Horizon Call application is currently available for iPhones and for Android handsets.

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

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

During the second quarter of fiscal year 2013, we continued to expand the applications of our mobile software and related marketing efforts in promising emerging markets. During the quarter, we worked to complete the Microsoft Lync interconnectivity of Horizon Call. We also entered into a joint venture with a subsidiary of ZTE Corporation (“ZTE”), to sell licenses for our software to international operators and Chinese enterprises and consumers. In order to facilitate this joint venture, we incorporated a subsidiary company in China. We contributed $1,500,000 for 75% of the equity in the subsidiary, and ZTE contributed certain property use rights with a fair value of $500,000 for the remaining 25% of equity in HNT.

During the six months ended June 30, 2013, the Company completed four new master licensing agreements with tier two telecommunication operators in Europe and Asia. Typically, these agreements take at least six to ten months before they begin generating cash flow.

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

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 and to retail consumers in China. Management also expects profitability to increase as revenue is expected to increase more than new operating costs related to public company expenses.

Results of Operations

Comparison of Three Months Ended June 30, 2013 and 2012

The following table sets forth key components of our results of operations for the periods indicated.

(All amounts, other than percentages, in thousands of U.S. dollars)

	Three Months Ended June 30,				Change
	2013 (restated)		2012 (restated)			Increase/ (decrease)			Percentage Change

Revenue	$	1,253	$	717		$	536			74.8	%

Cost of revenue		885		855			30			3.5

Gross margin		368		(138)			506

Operating expenses:

General and administrative		2,221		1,614			607			37.0
Depreciation		39		721			(682)			(94.6)

Total operating expenses		2,260		2,335			(75)			(3.0)

Income (loss) from operations		(1,892)		(2,473)			(581	)

Other income (expense)
Interest expense		(7)		(54)			(47)			(87.0)
Interest expense – related parties		(50)		(50)			-			-

Income (Loss) before income taxes		(1,949)		(2,577)			628

Income taxes (recovery)		-		-			-			-
Net (loss) for period		(1,949)		(2,577)			628

Net (loss) attributable to non-controlling interest		(44)					(44)

Net (loss) attributable to One Horizon Group, Inc.		(1,905)		(2,577)			672

Revenue: Our revenue for the three months ended June 30, 2013 was approximately $1.25 million as compared to approximately $717,000 for the three months ended June 30, 2012, an increase of $536,000, or 74.8%. 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 $885,000 for the three months ended June 30, 2013, or 70.6% of sales, compared to cost of revenue of $855,000, or 119.2% of sales for the three months ended June 30, 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 Margin: Gross margin for the three months ended June 30, 2013 was approximately $368,000 as compared to gross loss of $138,000 for the three months ended June 30, 2012, an increase of $506,000. The main reason for the increase in gross margin is the growth in business and the smartphone market globally, as well as the Company’s ability to capitalize on market opportunities by entering areas with high population density, high penetration of mobile phones, congested mobile cellular networks and high growth in the adoption of smartphones.

Operating Expenses: Operating expenses, including general and administrative expenses and depreciation were approximately $2,260,000 for the three months ended June 30, 2013 as compared to $2,335,000 for the three months ended June 30, 2012. The operating expenses represented 180% of sales for the three months ended June 30, 2013 as compared to 326% of sales for the same period in 2012. Going forward, management expects operating costs to rise due to various public company-related expenses including share-based compensation, and various legal, accounting and consulting services. The operating expenses for the three months ended June 30, 2013 included various public company expenses including stock-based compensation, and various legal and consulting services. The stock compensation expenses included approximately $593,000 for 62,5435 restricted shares issued as partial consideration with an advisory firm to provide certain business and corporate development services and roughly $247,000 for warrants issued to an investor relations firm. These are one-time non-cash charges related to management efforts to develop corporate governance and capital markets strategies as well as investor and public relation programs for the company’s entry into the U.S. public markets.

Net Loss: Net loss for the three months ended June 30, 2013 was approximately $1.91million as compared to net loss of $2.58 million for the same period in 2012. The reduction in net loss reflected the growth in the business and sales.

$44,000 of the net loss,for the three months ended June 30, 2013, was attributable to the non-controlling interest in our China joint venture. The remaining portion of net loss of $1,905,000 for the three months ended June 30, 2013 was attributable to the stockholders of the Company.

As described above, the net loss for the three months ended June 30, 2013 included approximately $840,000 of stock based compensation expenses related to the issuing of shares and warrants to outside advisors. Without these stock compensation expenses, net loss on a non-GAAP basis attributable to the stockholders of the Company would have been roughly $867,000 for the three months ended June 30, 2013.

Comparison of Six Months Ended June 30, 2013 and 2012

The following table sets forth key components of our results of operations for the periods indicated.

(All amounts, other than percentages, in thousands of U.S. dollars)

	Six Months Ended June 30,						Change
	2013			2012			Increase/ (decrease)			Percentage Change
	(restated)			(restated)
Revenue	$	3,172		$	1,634		$	1,538			94.1	%

Cost of revenue		1,338			1,108			230			20.7

Gross margin		1,834			526			1,308			248.7

Operating expenses:

General and administrative		3,694			3,307			387			12.0
Depreciation		75			818			(743	)		(90.8	)
											)
Total operating expenses		3,769			4,125			(356	)		(8.74	)

Income (loss) from operations		(1,935	)		(3,599	)		1,644

Other income (expense)
Interest expense		(12	)		(65	)		(53	)		(81.5	)
Interest expense – related parties		(100	)		(100	)		-			-
Foreign exchange gain , net					5			(5	)		(100.0	)

Income before income taxes		(2,047	)		(3,759	)		1,712

Income taxes (recovery)		-			-			-
Net (loss) income for period		(2,047	)		(3,759	)		1,712

Net income (loss) attributable to non-controlling interest		(44	)					(44	)

Net income (loss) attributable to One Horizon Group, Inc.		(2,003	)		(3,759	)		1,756

Revenue: Our revenue for the six months ended June 30, 2013 was approximately $3,172,000 as compared to approximately $1,634,000 for the six months ended June 30, 2012, an increase of $1,538,000, or 94.1%. 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 $1,338,000 for the six months ended June 30, 2013, or 42.1% of sales, compared to cost of revenue of $1,108,000, or 67.8% of sales for the six months ended June 30, 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 Margin: Gross margin for the six months ended June 30, 2013 was approximately $1,834,000 as compared to $526,000 for the six months ended June 30, 2012, an increase of 248.7%. The main reason for the increase in gross margin is the growth in business and the smartphone market globally, as well as the Company’s ability to capitalize on market opportunities by entering areas with high population density, high penetration of mobile phones, congested mobile cellular networks and high growth in the adoption of smartphones.

Operating Expenses: Operating expenses, including general and administrative expenses and depreciation were approximately $3,769,000 for the six month periods ended June 30, 2013 as compared to $4,125,000 for the six months ended June 30, 2012. Operating expenses represented 118.9% of sales for the six months ended June 30, 2013 as compared to 252.4% of sales for the same period in 2012. Going forward, management expects operating costs to rise due to various public company-related expenses including share-based compensation, and various legal, accounting and consulting services. The operating expenses for the three months ended June 30, 2013 included various public company expenses including stock-based compensation, and various legal and consulting services. The stock compensation expenses included approximately $593,000 for 62,543 restricted shares issued as partial consideration with an advisory firm to provide certain business and corporate development services and roughly $247,000 for warrants issued to an investor relations firm. These are one-time non-cash charges related to management efforts to develop corporate governance and capital markets strategies as well as investor and public relation programs for the company’s entry into the US public markets.

Net Income (Loss) Net loss for the six months ended June 30, 2013 was approximately $2,047,000 as compared to net loss of $3,759,000 for the same period in 2012. The decrease in net loss reflected the growth in the business and sales.

$44,000 of net loss, for the six months ended June 30, 2013, was attributable to the non-controlling interest in our China joint venture. The remaining portion of net loss for the six months ended June 30, 2013 of $2,003,000, representing 75% of net loss for the period, was attributable to the stockholders of the Company.

As described above, the net loss for the six months ended June 30, 2013 included approximately $840,000 of stock based compensation expenses related to the issuing of shares and warrants to outside advisors. Without these stock compensation expenses, net loss on a non-GAAP basis attributable to the stockholders of the Company would have been roughly $965,000 for the six months ended June 30, 2013.

About Non-GAAP Financial Measures

In addition to One Horizon Group’s unaudited condensed consolidation financial results developed in accordance with United States Generally Accepted Accounting Principles ("GAAP"), the Company also provides a Non-GAAP financial measure for the second quarter of 2013, Non-GAAP net income attributable to stockholders, which excludes the non cash equity compensation expenses from its comparable GAAP measure. The Company believes that this Non-GAAP financial measure provides investors with another method for assessing One Horizon Group’s operating results in a manner that is focused on the performance of its ongoing operations and excludes non cash equity compensation expenses incurred for outside advisors. Readers are cautioned not to view Non-GAAP results on a stand-alone basis or as a substitute for results under GAAP, or as being comparable to results reported or forecasted by other companies, and should refer to the reconciliation of GAAP results with Non-GAAP results below. The Company believes that both management and investors benefit from referring to these Non-GAAP financial measures in assessing the performance of One Horizon Group and when planning and forecasting future periods. The accompanying table contains detail on the GAAP financial measures that are most directly comparable to Non-GAAP financial measures and the related reconciliation between these financial measures.

Unaudited Reconciliation of GAAP to Non-GAAP Measures

ONE HORIZON GROUP, INC.

Unaudited Reconciliation of GAAP to Non-GAAP

Three months ended June 30, 2013

	GAAP				(1)	Non-GAAP

Income (loss) attributable to stockholders	$	(1,905,000	)	$	840,000	$	(1,065,000	)

(1) Non cash equity compensation for the Company’s capital markets advisors

ONE HORIZON GROUP, INC.

Unaudited Reconciliation of GAAP to Non-GAAP

Six months ended June 30, 2013

	GAAP				(1)	Non-GAAP

Income (loss) attributable to stockholders	$	(2,003,000	)	$	840,000	$	(1,163,000	)

(1) Non cash equity compensation for the Company’s capital markets advisors

Liquidity and Capital Resources

Six Months Ended June 30, 2013 and June 30, 2012

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

	For the Six Months Ended June 30 (in thousands)
	2013		2012
Net cash provided by (used in) operating activities	$	(1,728)	$	(2,962)
Net cash (used in) investing activities		(629)		(2,291)
Net cash provided (used in) by financing activities		3,602		4,882
Net increase (decrease) in cash and cash equivalents		1,245		(371)
Cash and cash equivalents at beginning of the period		699		371
Cash and cash equivalents at end of the period	$	1,944	$	-

Net cash used in operating activities was approximately $1,728,000 for the six months ended June 30, 2013 as compared to net cash used of $2,962,000 for the same period in 2012. The reduction in cash used by operations was primarily due to the reduction in cash used for accounts receivable, and increase in net income for the period.

Net cash used in investing activities was approximately $629,000 and $2,291,000 for the six months ended June 30, 2013 and 2012, respectively. Net cash used in investing activities was primarily focused on capitalized software development costs and the acquisition of property and equipment. The reduction in cash used by investing activities was primarily due a reduction in the net cash used for capitalized software development costs compared to the prior period.

Net cash provided by financing activities amounted to $3,602,000 for the six months ended June 30, 2013 as compared to cash provided of $4,882,000 for the six months ended June 30, 2012. Cash provided by financing activities in 2013 was primarily due to proceeds from subscriptions for common stock and advances from related parties. Cash provided by financing activities in 2012 was primarily due to proceeds from subscriptions for common stock.

Our working capital deficit as of June 30, 2013 was approximately ($.922) million, as compared to a working capital deficit of approximately (3.072) million as of December 31, 2012. The increase in working capital was primarily due to the increase in cash resulting from loans from related parties totaling $3.6 million received during the period, together with the increase in accounts receivable associated with the increase in revenues

During the six months ended June 30, 2013, the Company received approximately $3.1 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 our report on Form 10-KT for the transition period from July 1, 2012 to December 31, 2012. On July 1, 2013 $1.1 million was received and the balance of the subscription funds totaling $1.8 million are expected to be received in September 2013.

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 are material to the Company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

(a) 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 Exchange Act, such as this report, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’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 June 30, 2013, pursuant to Rule 13a-15(b) under the Exchange Act.. 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 June 30, 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 June 30, 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.

(b) 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 June 30, 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 June 30, 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

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. We are currently not aware of any legal proceedings or claims that would require disclosure under Item 103 of Regulation S-K. 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.

ITEM 1A. RISK FACTORS

Not applicable.

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

On April 15, 2013, we entered into an advisory agreement with a consulting firm to provide us with certain business and corporate development services. As partial consideration, we issued the consulting firm 62,543 shares of common stock.

On May 1, 2013, we entered into an amendment to an agreement with an investor relations firm to provide us with certain investor relations and other services. Pursuant to this agreement, we issued the firm a warrant to purchase up to 62,543 shares of common stock subject to vesting, at an exercise price of $0.0120 per share. The warrant vests in five equal installments on each of May 1, 2013, July 15, 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. The warrant is exercisable for five years.

In June 2013, we issued 833 shares of common stock to an individual as compensation for certain business development and related services that were performed from November 1, 2012 to April 30, 2013 pursuant to an agreement. This issuance was the last portion of a total of 5,000 shares issued to the individual under the agreement during the six months ended June 30, 2013.

Each of the issuances of our equity securities described above was made in reliance on the exemption from registration under the Securities Act of 1933, or the Securities Act, set forth in Section 4(a)(2) of the Securities Act, as a transaction not constituting a public offering of securities because the securities were issued privately without general solicitation or advertising. No selling commissions were paid in connection with the sale of securities described above.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

The information included in Part II, Item 2 of this report is incorporated by reference into this item.

There have been no material changes to the procedures by which shareholders may recommend nominees to our board of directors since our last disclosure of such procedures in our Definitive Information Statement on Schedule 14C filed with the Securities and Exchange Commission on June 26, 2013.

ITEM 6. EXHIBITS

Exhibit Number		Description
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, Exhibits 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