The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an
integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data and percentages)
NOTE 1 THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Glu Mobile Inc. (the Company or Glu) was incorporated in Nevada in May 2001 and reincorporated in the state of Delaware
in March 2007. The Company develops and publishes a portfolio of action/adventure and casual games designed to appeal to a broad cross section of the users of smartphones and tablet devices who download and make purchases within its games through
direct-to-consumer digital storefronts, such as the Apple App Store, Google Play Store, Amazon Appstore and others (Digital Storefronts). The Company creates games based on its own original intellectual property, as well as third-party
licensed brands.
The Company has incurred recurring losses from operations since inception and had an accumulated deficit of $252,211 as
of December 31, 2013. For the year ended December 31, 2013, the Company incurred a net loss of $19,909. The Company may incur additional losses and negative cash flows in the future. Failure to generate sufficient revenues, reduce spending
or raise additional capital could adversely affect the Companys ability to achieve its intended business objectives.
Basis of
Presentation
The Companys consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany balances
and transactions have been eliminated.
Use of Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles
(U.S. GAAP) requires the Companys management to make judgments, assumptions and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes. Management bases its estimates on
historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Significant estimates and
assumptions reflected in the financial statements include, but are not limited to, the estimated lives that we use for revenue recognition, the allowance for doubtful accounts, useful lives of property and equipment and intangible assets, income
taxes, fair value of stock awards issued and contingent consideration issued to Blammo shareholders, fair value of warrants issued, accounting for business combinations, and evaluating goodwill and long-lived assets for impairment. Actual results
may differ from these estimates and these differences may be material.
Revenue Recognition
The Company generates revenues through the sale of games on traditional feature phones and smartphones and tablets, such as Apples iPhone
and iPad and other mobile devices utilizing Googles Android operating system. Feature phone games are distributed primarily through wireless carriers and smartphone games are distributed primarily through Digital Storefronts.
Smartphone Revenue
The
Company distributes its games for smartphones and tablets to the end customer through Digital Storefronts. Within these Digital Storefronts, users can download the Companys free-to-play games and pay to acquire virtual currency which can be
redeemed in the game for virtual goods. The Company recognizes revenue, when persuasive evidence of an arrangement exists, the service has been provided to the user, the price paid by the user is fixed or determinable, and collectability is
reasonably assured. Determining whether and when some of these criteria have been satisfied requires judgments that may have a significant impact on the timing and amount of revenue the Company reports in each period. For the purposes of determining
when the service has been provided to the player, the Company has determined that an implied obligation exists to the paying user to continue displaying the purchased virtual goods within the game over the estimated average playing period of paying
players for the game, which represents the Companys best estimate of the estimated average life of virtual goods.
54
The Company sells both consumable and durable virtual goods and receives reports from the Digital
Storefronts, which breakdown the various purchases made from their games over a given time period. The Company reviews these reports to determine on a per-item basis whether the purchase was a consumable virtual good or a durable virtual good.
Consumable goods are items consumed at a predetermined time or otherwise have limitations on repeated use, while durable goods are items accessible to the user over an extended period of time. The Companys revenues from consumable virtual
goods have been immaterial over the previous three years and are one-time actions that can be purchased directly by the player through the Digital Storefront. The Company recognizes the revenues from these items immediately, since it believes that
the delivery obligation has been met and there are no further implicit or explicit performance obligations related to the purchase of that consumable virtual good. Revenues from durable virtual goods are generated through the purchase of virtual
coins by users through a Digital Storefront. Players convert the virtual coins within the game to durable virtual goods such as weapons, armor or other accessories to enhance their game-playing experience. The durable virtual goods remain in the
game for as long as the player continues to play. The Company believes this represents an implied service obligation, and accordingly, recognizes the revenues from the purchase of these durable virtual goods over the estimated average playing period
of paying users. Based on the Companys analysis, the estimated weighted average useful life of a paying user is approximately three months, and this estimate has been consistent since the Companys initial analysis. If a new game is
launched and only a limited period of paying player data is available, then the Company also considers other qualitative factors, such as the playing patterns for paying users for other games with similar characteristics. While the Company believes
its estimates to be reasonable based on available game player information, it may revise such estimates in the future as the games operation periods change. Any adjustments arising from changes in the estimates of the lives of these virtual
goods would be applied prospectively on the basis that such changes are caused by new information indicating a change in game player behavior patterns. Any changes in the Companys estimates of useful lives of these virtual goods may result in
revenues being recognized on a basis different from prior periods and may cause its operating results to fluctuate.
The Company
also has relationships with certain advertising service providers for advertisements within smartphone games and revenue from these advertising providers is generated through impressions, clickthroughs, banner ads and offers. Revenue is recognized
as advertisements are delivered and reported to the Company, an executed contract exists, the price is fixed or determinable and collectability has been reasonably assured. Delivery generally occurs when the advertisement has been displayed or the
offer has been completed by the user. The fee received for certain offer advertisements that result in the user receiving virtual currency for redemption within a game are deferred and recognized over the average playing period of paying users.
Feature Phone Revenue
The Companys feature phone revenues are derived primarily by licensing software products in the form of mobile games. The Company
distributes its products primarily through mobile telecommunications service providers (carriers), which market the games to end users. License fees are usually billed by the carrier upon download of the game by the end user and are
generally billed monthly. Revenues are recognized from the Companys games when persuasive evidence of an arrangement exists, the game has been delivered, the fee is fixed or determinable, and the collection of the resulting receivable is
probable. Management considers a signed license agreement to be evidence of an arrangement with a carrier and a clickwrap agreement to be evidence of an arrangement with an end user. For these licenses, the Company defines delivery as
the download of the game by the end user.
Other Estimates and Judgments
The Company estimates revenues from carriers and Digital Storefronts in the current period when reasonable estimates of these amounts can be
made. Certain carriers and Digital Storefronts provide reliable interim preliminary reporting and others report sales data within a reasonable time frame following the end of each month, both of which allow the Company to make reasonable estimates
of revenues and therefore to recognize revenues during the reporting period. Determination of the appropriate amount of revenue recognized involves judgments and estimates that the Company believes are reasonable, but it is possible that actual
results may differ from the Companys estimates. When the Company receives the final reports, to the extent not received within a reasonable time frame following the end of each month, the Company records any differences between estimated
revenues and actual revenues in the reporting period when the Company determines the actual amounts. Historically, the revenues on the final revenue report have not differed significantly from the reported revenues for the period.
Principal Agent Considerations
In
accordance with ASC 605-45,
Revenue Recognition: Principal Agent Considerations,
the Company evaluates its carrier and Digital Storefront agreements in order to determine whether or not it is acting as the principal or as an agent
when selling its games, which it considers in determining if revenue should be reported gross or net. The Company primarily uses Digital Storefronts for distributing its smartphone games, whereas carriers are used for distribution of the
Companys feature phone games. Key indicators that the Company evaluates to reach this determination include:
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the terms and conditions of the Companys contracts with the carriers and the Digital Storefronts;
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the party responsible for billing and collecting fees from the end-users, including the resolution of billing disputes;
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55
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whether the Company is paid a fixed percentage of the arrangements consideration or a fixed fee for each game or transaction;
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the party which sets the pricing with the end-user, has the credit risk and provides customer support; and
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the party responsible for the fulfillment of the game and that determines the specifications of the game.
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Based on the evaluation of the above indicators, the Company determined that it is generally acting as a principal and is the primary obligor
to end-users for smartphone games distributed through digital storefronts and therefore recognizes revenue related to these arrangements on a gross basis. For feature phone games, the Company concluded that the carriers are the primary obligor and
therefore recognizes revenue for the amounts due from the carriers on a net basis.
Deferred Platform Commissions and Royalties
Digital Storefronts retain platform commissions and fees on each purchase made by the paying players through the Digital
Storefront. The Company is also obligated to pay ongoing licensing fees in the form of royalties related to the games developed based on intellectual property licensed from third parties. Additionally, certain smartphone games sold through digital
storefronts require the revenue to be deferred due to an implied obligation to the paying player to continue displaying the purchased virtual goods within the game over the estimated average playing period of paying players for the game. As revenues
from sales to paying players through Digital Storefronts are deferred, the related direct and incremental platform commissions and fees as well as third party royalties are also deferred and reported in Prepaid expenses and other on the
consolidated balance sheets. The deferred platform commissions and royalties are recognized in the consolidated statements of operations in Cost of revenues in the period in which the related sales are recognized as revenues.
Cash and Cash Equivalents
The Company considers all investments purchased with an original or remaining maturity of three months or less at the date of purchase to be
cash equivalents. The Company deposits cash and cash equivalents with financial institutions that management believes are of high credit quality. Deposits held with financial institutions often exceed the amount of insurance on these deposits.
Restricted Cash
Restricted cash consists of deposits related to letters of credit to secure obligations under the Companys operating lease agreements.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and accounts
receivable.
The Company derives its accounts receivable from revenues earned from customers or through Digital Storefronts located in the
U.S. and other locations outside of the U.S. The Company performs ongoing credit evaluations of its customers and the Digital Storefronts financial condition and, generally, requires no collateral from its customers or the
Digital Storefronts. The Company bases its allowance for doubtful accounts on managements best estimate of the amount of probable credit losses in the Companys existing accounts receivable. The Company reviews past due balances over a
specified amount individually for collectability on a monthly basis. It reviews all other balances quarterly. The Company charges off accounts receivable balances against the allowance when it determines that the amount will not be recovered.
The following table summarizes the revenues from customers or aggregate purchases through Digital Storefronts in excess of 10% of the
Companys revenues:
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Year Ended December 31,
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2013
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2012
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2011
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Apple
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50.1
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%
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41.3
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%
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26.5
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%
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Google
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19.2
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20.3
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Tapjoy
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10.7
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11.6
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At December 31, 2013, Apple accounted for 46.3%, and Jirbo (dba AdColony) and Google each accounted for
11.1% of total accounts receivable. At December 31, 2012, Apple accounted for 44.3%, Kontagent, Inc. (successor-in-interest to Medium Entertainment, dba PlayHaven, with which Kontagent merged in December 2013) accounted for 13.2% and Google
accounted for 10.8% of total accounts receivable. No other customer or Digital Storefront represented more than 10% of the Companys total accounts receivable as of these dates.
56
Fair Value
The Company accounts for fair value in accordance with ASC 820,
Fair Value Measurements and Disclosures
(ASC 820). Fair
value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses a three tier hierarchy, which prioritizes
the inputs used in measuring fair value as follows:
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 that are supported by little or no market activity and that are significant to the fair
value of the assets or liabilities.
The first two levels in the hierarchy are considered observable inputs and the last is considered
unobservable. The Companys cash and cash equivalents, which were held in operating bank accounts, are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations or
alternative pricing sources with reasonable levels of price transparency. Level 3 liabilities consist of acquisition-related non-current liabilities for contingent consideration (i.e., earnouts). Please refer to Note 4 for further details.
Prepaid or Guaranteed Licensor Royalties
The Companys royalty expenses consist of fees that it pays to branded content owners for the use of their intellectual property,
including trademarks and copyrights, in the development of the Companys games. Royalty-based obligations are either paid in advance and capitalized on the balance sheet as prepaid royalties or accrued as incurred and subsequently paid. These
royalty-based obligations are expensed to cost of revenues at the greater of the revenues derived from the relevant game multiplied by the applicable contractual rate or an effective royalty rate based on expected net product sales. Advanced license
payments that are not recoupable against future royalties are capitalized and amortized over the lesser of the estimated life of the branded title or the term of the license agreement.
The Companys contracts with some licensors include minimum guaranteed royalty payments, which are payable regardless of the ultimate
volume of sales to end users. In accordance with ASC 460-10-15,
Guarantees
(ASC 460), the Company recorded a minimum guaranteed liability of $433 and zero as of December 31, 2013 and 2012, respectively. When no significant
performance remains with the licensor, the Company initially records each of these guarantees as an asset and as a liability at the contractual amount. The Company believes that the contractual amount represents the fair value of the liability. When
significant performance remains with the licensor, the Company records royalty payments as an asset when actually paid and as a liability when incurred, rather than upon execution of the contract. The Company classifies minimum royalty payment
obligations as current liabilities to the extent they are contractually due within the next twelve months.
Each quarter, the Company
evaluates the realization of its royalties as well as any unrecognized guarantees not yet paid to determine amounts that it deems unlikely to be realized through product sales. The Company uses estimates of revenues, cash flows and net margins to
evaluate the future realization of prepaid royalties and guarantees. This evaluation considers multiple factors, including the term of the agreement, forecasted demand, game life cycle status, game development plans, and current and anticipated
sales levels, as well as other qualitative factors such as the success of similar games and similar genres on mobile devices for the Company and its competitors and/or other game platforms (e.g., consoles, personal computers and Internet) utilizing
the intellectual property and whether there are any future planned theatrical releases or television series based on the intellectual property. To the extent that this evaluation indicates that the remaining prepaid and guaranteed royalty payments
are not recoverable, the Company records an impairment charge to cost of revenues in the period that impairment is indicated. The Company recorded impairment charges to cost of revenues of $435, zero, and $531 during the years ended
December 31, 2013, 2012, and 2011, respectively.
57
Goodwill and Intangible Assets
In accordance with ASC 350,
Intangibles-Goodwill and Other
(ASC 350), the Companys goodwill is not amortized but
is tested for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Under ASC 350, the Company performs the annual impairment review of its goodwill
balance as of September 30. This impairment review involves a multiple-step process as follows:
Step 0 The Company evaluates
qualitative factors and overall financial performance to determine whether it is necessary to perform the first step of the two-step goodwill test. This step is referred to as Step 0. Step 0 involves, among other qualitative factors,
weighing the relative impact of factors that are specific to the reporting unit as well as industry and macroeconomic factors. After assessing those various factors, if it is determined that it is more likely than not that the fair value of a
reporting unit is less than its carrying amount, then the entity will need to proceed to the first step of the two-step goodwill impairment test.
Step 1 The Company compares the fair value of each of its reporting units to the carrying value including goodwill of that unit.
For each reporting unit where the carrying value, including goodwill, exceeds the units fair value, the Company moves on to step 2. If a units fair value exceeds the carrying value, no further work is performed and no impairment charge
is necessary.
Step 2 The Company performs an allocation of the fair value of the reporting unit to its identifiable tangible
and intangible assets (other than goodwill) and liabilities. This allows the Company to derive an implied fair value for the units goodwill. The Company then compares the implied fair value of the reporting units goodwill with the
carrying value of the units goodwill. If the carrying amount of the units goodwill is greater than the implied fair value of its goodwill, an impairment charge would be recognized for the excess.
In 2013 and 2011, the Company did not record any goodwill impairment charges as the fair values of the reporting units exceeded their
respective carrying values. In 2012, the Company concluded that a portion of the goodwill attributed to the APAC reporting unit was impaired and recorded a $3,613 impairment charge.
Purchased intangible assets with finite lives are amortized using the straight-line method over their useful lives ranging from one to nine
years and are reviewed for impairment in accordance with ASC 360,
Property, Plant and Equipment
(ASC 360).
Long-Lived Assets
The Company evaluates its long-lived assets, including property and equipment and intangible assets with finite lives, for impairment whenever
events or changes in circumstances indicate that the carrying value of these assets may not be recoverable in accordance with ASC 360. Factors considered important that could result in an impairment review include significant underperformance
relative to expected historical or projected future operating results, significant changes in the manner of use of acquired assets, significant negative industry or economic trends, and a significant decline in the Companys stock price for a
sustained period of time. The Company recognizes impairment based on the difference between the fair value of the asset and its carrying value. Fair value is generally measured based on either quoted market prices, if available, or a discounted cash
flow analysis.
Property and Equipment
The Company states property and equipment at cost. The Company computes depreciation or amortization using the straight-line method over
the estimated useful lives of the respective assets or, in the case of leasehold improvements, the lease term of the respective assets, whichever is shorter.
The depreciation and amortization periods for the Companys property and equipment are as follows:
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Computer equipment
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Three years
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Computer software
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Three years
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Furniture and fixtures
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Three years
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Leasehold improvements
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Shorter of the estimated useful life or remaining term of lease
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Research and Development Costs
The Company charges costs related to research, design and development of products to research and development expense as incurred. The types of
costs included in research and development expenses include salaries, contractor fees and allocated facilities costs.
58
Software Development Costs
The Company applies the principles of ASC 985-20,
Software-Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed
(ASC 985-20). ASC 985-20 requires that software development costs incurred in conjunction with product development be charged to research and development expense until technological feasibility is established. Thereafter, until the
product is released for sale, software development costs must be capitalized and reported at the lower of unamortized cost or net realizable value of the related product. The Company has adopted the tested working model approach to
establishing technological feasibility for its games. Under this approach, the Company does not consider a game in development to have passed the technological feasibility milestone until the Company has completed a model of the game that contains
essentially all the functionality and features of the final game and has tested the model to ensure that it works as expected. To date, the Company has not incurred significant costs between the establishment of technological feasibility and the
release of a game for sale; thus, the Company has expensed all software development costs as incurred. The Company considers the following factors in determining whether costs can be capitalized: the uncertainty regarding a games
revenue-generating potential and its historical practice of canceling games at any stage of the development process.
Internal Use
Software
The Company recognizes internal use software development costs in accordance with ASC 350-40,
Intangibles-Goodwill and
Other-Internal Use Software
(ASC 350-40). Thus, the Company capitalizes software development costs, including costs incurred to purchase third-party software, beginning when it determines certain factors are present including, among
others, that technology exists to achieve the performance requirements and/or buy versus internal development decisions have been made. The Company capitalized certain internal use software costs totaling approximately $249, $1,598 and $1,787 during
the years ended December 31, 2013, 2012, and 2011, respectively. The estimated useful life of costs capitalized is generally three years. During the years ended December 31, 2013, 2012 and 2011, the amortization of capitalized software
costs totaled approximately $1,097, $1,014 and $507, respectively. Capitalized internal use software development costs are included in property and equipment, net.
Income Taxes
The
Company accounts for income taxes in accordance with ASC 740,
Income Taxes
(ASC 740), which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been
included in its financial statements or tax returns. Under ASC 740, the Company determines deferred tax assets and liabilities based on the temporary difference between the financial statement and tax bases of assets and liabilities using the
enacted tax rates in effect for the year in which it expects the differences to reverse. The Company establishes valuation allowances when necessary to reduce deferred tax assets to the amount it expects to realize.
The Company accounts for uncertain tax positions in accordance with ASC 740, which requires companies to adjust their financial statements to
reflect only those tax positions that are more-likely-than-not to be sustained. ASC 740 prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected
to be taken in income tax returns. The Companys policy is to recognize interest and penalties related to unrecognized tax benefits in income tax expense.
Restructuring
The
Company accounts for costs associated with employee terminations and other exit activities in accordance with ASC 420,
Exit or Disposal Cost Obligations
(ASC 420). The Company records employee termination benefits as an operating
expense when it communicates the benefit arrangement to the employee and it requires no significant future services, other than a minimum retention period, from the employee to earn the termination benefits. In addition, termination benefits related
to international employees are recognized when the amount of such termination benefits becomes estimable and payment is probable.
Stock-Based Compensation
The Company applies the fair value provisions of ASC 718,
Compensation-Stock Compensation
(ASC 718). ASC 718 requires
the recognition of compensation expense, using a fair-value based method, for costs related to all share-based payments including stock options and restricted stock units (RSUs). ASC 718 requires companies to estimate the fair value of
stock-option awards on the grant date using an option pricing model. The fair value of stock options and stock purchase rights granted pursuant to the Companys equity incentive plans and 2007 Employee Stock Purchase Plan (ESPP),
respectively, is determined using the Black-Scholes valuation model. The determination of fair value is affected by the stock price, as well as assumptions regarding subjective and complex variables such as expected employee exercise behavior and
expected stock price volatility over the expected term of the award. Generally, these assumptions are based on historical information and judgment is required to determine if historical trends may be indicators of future outcomes. Employee
stock-based compensation expense is calculated based on awards ultimately expected to vest and is reduced for estimated forfeitures. Forfeitures are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates and
an adjustment to stock-based compensation expense will be recognized at that time. Changes to the assumptions used in the Black-Scholes option valuation calculation and the forfeiture rate, as well as future equity granted or assumed through
acquisitions could significantly impact the compensation expense the Company recognizes. The cost of RSUs is determined using the fair value of the Companys common stock based on the quoted closing price of the Companys common stock on
the date of grant, and is reduced for estimated forfeitures. The compensation cost for all share-based payment awards is amortized on a straight-line basis over the requisite service period.
59
The Company has elected to use the with and without approach as described in
determining the order in which tax attributes are utilized. As a result, the Company will only recognize a tax benefit from stock-based awards in additional paid-in capital if an incremental tax benefit is realized after all other tax attributes
currently available to the Company have been utilized. In addition, the Company has elected to account for the indirect effects of stock-based awards on other tax attributes, such as the research tax credit, through its statement of operations.
The Company accounts for equity instruments issued to non-employees in accordance with the provisions of ASC 718 and ASC 505-50.
Advertising Expenses
The Company expenses the production costs of advertising, including direct response advertising, the first time the advertising takes place.
Advertising expense was $18,308, $12,124 and $6,114 in the years ended December 31, 2013, 2012 and 2011, respectively.
Comprehensive Loss
Comprehensive loss consists of two components, net loss and other comprehensive income/(loss). Other comprehensive income/(loss) refers to
revenues, expenses, gains and losses that under GAAP are recorded as an element of stockholders equity but are excluded from net loss. The Companys other comprehensive income/(loss) included foreign currency translation adjustments from
those subsidiaries not using the U.S. dollar as their functional currency, and a reclassification to net loss from the write-off of cumulative translation adjustment.
Foreign Currency Translation
In preparing its consolidated financial statements, the Company translated the financial statements of its foreign subsidiaries from their
functional currencies, the local currency, into U.S. Dollars. This process resulted in unrealized exchange gains and losses, which are included as a component of accumulated other comprehensive loss within stockholders deficit. However, if the
functional currency is deemed to be the U.S. Dollar, any gain or loss associated with the translation of these financial statements would be included within the Companys consolidated statements of operations.
Cumulative foreign currency translation adjustments include any gain or loss associated with the translation of a subsidiarys financial
statements when the functional currency of a subsidiary is the local currency. If the Company disposes of any of its subsidiaries, any cumulative translation gains or losses would be realized and recorded within the Companys consolidated
statement of operations in the period during which the disposal occurs. If the Company determines that there has been a change in the functional currency of a subsidiary relative to the U.S. Dollar, any translation gains or losses arising after
the date of change would be included within the Companys consolidated statement of operations.
Business Combination
The Company applies the accounting standard related to business combinations, ASC 805,
Business Combinations
(ASC
805). The standard requires recognition of assets acquired, liabilities assumed, and contingent consideration at their fair value on the acquisition date with subsequent changes recognized in earnings; requires acquisition-related expenses and
restructuring costs to be recognized separately from the business combination and expensed as incurred; requires in-process research and development to be capitalized at fair value as an indefinite-lived intangible asset until completion or
abandonment; and requires that changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period be recognized as a component of provision for taxes.
The Company accounts for acquisitions of entities or assets that include inputs and processes and have the ability to create outputs as
business combinations. The purchase price of the acquisition is allocated to tangible assets, liabilities, and identifiable intangible assets acquired based on their estimated fair values. The excess of the purchase price over those fair values is
recorded as goodwill. Acquisition-related expenses and restructuring costs are expensed as incurred. While the Company uses its best estimates and assumptions as a part of the purchase price allocation process to accurately value assets acquired and
liabilities assumed at the business combination date, these estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the preliminary purchase price allocation period, which may be up to one year from the
business combination date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. After the preliminary purchase price allocation period, the Company records adjustments to
assets acquired or liabilities assumed subsequent to the purchase price allocation period in its operating results in the period in which the adjustments were determined.
60
Recent Accounting Pronouncements
In February 2013, the FASB issued ASU 2013-2,
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
. This
guidance requires the presentation of the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income, but only if the item reclassified is required under U.S. GAAP to be reclassified to
net income in its entirety in the same reporting period. The guidance is effective for fiscal years beginning after December 15, 2012. During the year ended December 31, 2013, the Company adopted this guidance and reclassified the
accumulated translation adjustment related to its Brazilian subsidiary out of accumulated other comprehensive income to restructuring charge in the Companys consolidated statement of operations upon the substantially complete liquidation of
the entity.
In July 2013, the FASB issued ASU 2013-11,
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss
Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists
. Under this guidance, an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred
tax asset for a net operating loss carryforward. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. This accounting guidance will not have a material impact on the
Companys consolidated financial statements once adopted.
NOTE 2 NET LOSS PER SHARE
The Company computes basic net loss per share by dividing its net loss for the period by the weighted average number of
common shares outstanding during the period less the weighted average unvested common shares subject to restrictions by the Company.
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Year Ended December 31,
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2013
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|
2012
|
|
|
2011
|
|
Net loss
|
|
$
|
(19,909
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)
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|
$
|
(20,459
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)
|
|
$
|
(21,101
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)
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Basic and diluted shares:
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|
Weighted average common shares outstanding
|
|
|
71,543
|
|
|
|
64,932
|
|
|
|
57,834
|
|
Weighted average unvested common shares subject to restrictions
|
|
|
(90
|
)
|
|
|
(614
|
)
|
|
|
(316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to compute basic and diluted net loss per share
|
|
|
71,453
|
|
|
|
64,318
|
|
|
|
57,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted
|
|
$
|
(0.28
|
)
|
|
$
|
(0.32
|
)
|
|
$
|
(0.37
|
)
|
The following weighted average outstanding options, RSUs, and warrants to purchase common stock and unvested
shares of common stock subject to restrictions have been excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have had an anti-dilutive effect:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Warrants to purchase common stock
|
|
|
3,310
|
|
|
|
4,187
|
|
|
|
5,344
|
|
Unvested common shares subject to restrictions
|
|
|
90
|
|
|
|
614
|
|
|
|
316
|
|
Options to purchase common stock
|
|
|
10,646
|
|
|
|
10,321
|
|
|
|
8,112
|
|
RSUs
|
|
|
936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,982
|
|
|
|
15,122
|
|
|
|
13,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 3 BUSINESS COMBINATIONS
Acquisition of GameSpy Industries, Inc.
On August 2, 2012, the Company completed the acquisition of GameSpy Industries, Inc. (GameSpy) pursuant to an Agreement and
Plan of Merger (the GameSpy Merger Agreement) by and among the Company, Galileo Acquisition Corp., a California corporation and wholly owned subsidiary of the Company (Galileo), IGN Entertainment, Inc. (IGN) and
GameSpy. GameSpy, which is based in California, provides technology and services for multiplayer and server-based gaming. The Company acquired GameSpy as part of its efforts to enhance the monetization and retention of the Companys players by
incorporating GameSpys expertise in community functionality, synchronous multiplayer and asynchronous player versus player mechanics into the Companys games.
Pursuant to the terms of the GameSpy Merger Agreement, the Company issued to IGN, as GameSpys sole shareholder, in exchange for all of
the issued and outstanding shares of GameSpy capital stock, a total of 600 shares of the Companys common stock, for consideration of approximately $2,796, based on the $4.66 closing price of the Companys common stock on The NASDAQ Global
Market on August 2, 2012; 90 shares of which continue to be held in escrow as security pending resolution of an indemnification claim made by the Company under the GameSpy Merger Agreement. In addition, the Company, GameSpy and IGN entered into
a Transition Services Agreement, pursuant to which IGN will provide to the Company and GameSpy certain backend data center transition services related to GameSpys private cloud storage infrastructure for up to two years following the
acquisition.
61
The allocation of the GameSpy purchase price was based upon valuations for certain assets
acquired and liabilities assumed. The valuation was based upon calculations and valuations, and the Companys estimates and assumptions are subject to change as the Company obtains additional information for its estimates during the respective
measurement periods (up to one year from the acquisition date). The following table summarizes the fair values of assets acquired and liabilities assumed at the date of acquisition:
|
|
|
|
|
Assets acquired:
|
|
|
|
|
Cash
|
|
$
|
913
|
|
Accounts receivable, net
|
|
|
1,695
|
|
Property and equipment
|
|
|
485
|
|
Intangible assets:
|
|
|
|
|
Customer contracts and related relationships
|
|
|
250
|
|
Titles, content and technology
|
|
|
1,300
|
|
Goodwill
|
|
|
1,096
|
|
|
|
|
|
|
Total assets acquired
|
|
|
5,739
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
Other accrued liabilities
|
|
|
(689
|
)
|
Deferred revenue
|
|
|
(1,684
|
)
|
Deferred tax liability
|
|
|
(570
|
)
|
|
|
|
|
|
Total liabilities acquired
|
|
|
(2,943
|
)
|
|
|
|
|
|
Net acquired assets
|
|
$
|
2,796
|
|
|
|
|
|
|
Acquisition-related intangibles included in the above table are finite-lived and are being amortized on a
straight-line basis over their estimated lives of two to three years, which approximates the pattern in which the economic benefits of the intangible assets are expected to be realized.
In connection with the acquisition of GameSpy, the Company recorded net deferred tax liabilities of $570, with a corresponding adjustment to
goodwill. These deferred taxes were primarily related to identifiable intangible assets and net operating losses.
The Company allocated
the residual value of $1,096 to goodwill. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. In accordance with ASC 350,
Intangibles Goodwill and Other
(ASC 350), goodwill will not be amortized but will be tested for impairment at least annually. Goodwill created as a result of the GameSpy acquisition is not deductible for tax purposes.
Acquisition of Griptonite, Inc.
On August 2, 2011, the Company completed the acquisition of Griptonite, Inc., a Washington corporation (Griptonite) and
formerly a wholly owned subsidiary of Foundation 9 Entertainment, Inc., a Delaware corporation (Foundation 9), pursuant to an Agreement and Plan of Merger, as amended on August 15, 2011 (the Merger Agreement), by and
among the Company, Granite Acquisition Corp., a Washington corporation and wholly owned subsidiary of the Company (Sub), Foundation 9 and Griptonite. Pursuant to the terms of the Merger Agreement, Sub merged with and into Griptonite in a
statutory reverse triangular merger (the Merger), with Griptonite surviving the Merger as a wholly owned subsidiary of the Company. Griptonite, which is based in Bellevue, Washington, is a developer of games for advanced platforms,
including handheld devices. The Company acquired Griptonite to increase its studio development capacity and augment its existing development efforts to accelerate the introduction of new titles on smartphones and tablets.
In connection with the Merger, the Company issued to Foundation 9, as Griptonites sole shareholder, in exchange for all of the issued
and outstanding shares of Griptonite capital stock, a total of 6,106 shares of the Companys common stock, for consideration of approximately $28,088, using the $4.60 closing price of the Companys common stock on The NASDAQ Global Market
on August 2, 2011. 600 of the initial shares that were held in escrow to satisfy potential indemnification claims under the Merger Agreement were released on November 2, 2012. In addition, the Company may be required to issue additional
shares (not to exceed 5,302 shares) or in specified circumstances pay additional cash (i) in satisfaction of indemnification obligations in the case of breaches of the Companys and Subs representations, warranties and covenants in
the Merger Agreement or (ii) pursuant to potential working capital adjustments.
62
The allocation of the Griptonite purchase price was based upon valuations for certain assets
acquired and liabilities assumed. The following table summarizes the fair values of assets acquired and liabilities assumed at the date of acquisition:
|
|
|
|
|
Assets acquired:
|
|
|
|
|
Cash
|
|
$
|
10,300
|
|
Accounts receivable
|
|
|
1,558
|
|
Prepaid and other current assets
|
|
|
1,028
|
|
Property and equipment
|
|
|
796
|
|
Other long term assets
|
|
|
33
|
|
Intangible assets:
|
|
|
|
|
Non-compete agreements
|
|
|
3,200
|
|
Developed Technology
|
|
|
2,500
|
|
Goodwill
|
|
|
12,670
|
|
|
|
|
|
|
Total assets acquired
|
|
|
32,085
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
Accounts payable and other accrued liabilities
|
|
|
(1,226
|
)
|
Deferred tax liability and other long-term liabilities
|
|
|
(2,771
|
)
|
|
|
|
|
|
Total liabilities
|
|
|
(3,997
|
)
|
|
|
|
|
|
Net acquired assets
|
|
$
|
28,088
|
|
|
|
|
|
|
Acquisition-related intangibles included in the above table are finite-lived and are being amortized on a
straight-line basis over their estimated lives ranging from three months to two years which approximates the pattern in which the economic benefits of the intangible assets are realized.
The Company allocated the residual value of $12,670 to goodwill. Goodwill represents the excess of the purchase price over the fair value of
the net tangible and intangible assets acquired. In accordance with ASC 350, goodwill will not be amortized but will be tested for impairment at least annually. Goodwill created as a result of the Griptonite acquisition is not deductible for tax
purposes.
Assumption of Griptonite Lease
In connection with the Merger, the Company assumed lease obligations related to the premises located in Kirkland, Washington (the Prior
Griptonite Lease). The Griptonite Lease covered approximately 54 rentable square feet and terminated on September 30, 2013. As part of the 2011 purchase accounting adjustments for Griptonite, the Company eliminated the existing deferred
rent balance and recorded a fair value adjustment to reflect the current market value of the unfavorable operating lease commitment. The fair value of the unfavorable operating lease obligation was zero and $477, respectively, as of
December 31, 2013 and 2012. This lease terminated in September 2013 and the Company entered into a new lease in Bellevue, Washington, which has been included in the future lease obligations disclosed in Note 7.
Acquisition of Blammo Games Inc.
On August 1, 2011, the Company completed the acquisition of Blammo Games Inc. (Blammo), by entering into a Share Purchase
Agreement (the Share Purchase Agreement) by and among the Company, Blammo and each of the owners of the outstanding share capital of Blammo (the Sellers). Blammo is a developer of freemium games located in Toronto, Canada.
Pursuant to the terms of the Share Purchase Agreement, the Company purchased from the Sellers all of the issued and outstanding share
capital of Blammo (the Share Purchase), and in exchange for such Blammo share capital, the Company (i) issued to the Sellers, in the aggregate, 1,000 shares of the Companys common stock (the Initial Shares), which
resulted in initial consideration of $5,070 using the $5.07 closing price of the Companys common stock on The NASDAQ Global Market on August 1, 2011, and (ii) agreed to issue to the Sellers, in the aggregate, up to an additional
3,313 shares of the Companys common stock (the Additional Shares) if Blammo achieves certain Net Revenue targets, as more fully described in Note 4. 100 of the Initial Shares that were held in escrow to satisfy potential
indemnification claims under the Share Purchase Agreement were released on August 1, 2012.
63
The allocation of the Blammo purchase price was based upon valuations for certain assets acquired
and liabilities assumed. The following table summarizes the fair values of assets acquired and liabilities assumed at the date of acquisition:
|
|
|
|
|
Assets acquired:
|
|
|
|
|
Cash and other assets
|
|
$
|
69
|
|
Intangible assets:
|
|
|
|
|
Non-compete agreements
|
|
|
1,400
|
|
In-process research and development
|
|
|
300
|
|
Goodwill
|
|
|
4,309
|
|
|
|
|
|
|
Total assets acquired
|
|
|
6,078
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
Accounts payable and other accrued liabilities
|
|
|
(287
|
)
|
Other long-term liabilities
|
|
|
(721
|
)
|
|
|
|
|
|
Total liabilities
|
|
|
(1,008
|
)
|
|
|
|
|
|
Net acquired assets
|
|
$
|
5,070
|
|
|
|
|
|
|
Acquisition-related intangibles included in the above table are finite-lived and are being amortized on a
straight-line basis over their estimated lives ranging from one to four years which approximates the pattern in which the economic benefits of the intangible assets are realized.
In connection with the acquisition of Blammo, in 2011, the Company recorded net deferred tax liabilities of $416, with a corresponding
adjustment to goodwill. These deferred taxes were primarily related to identifiable intangible assets and net operating losses.
The
Company allocated the residual value of $4,309 to goodwill. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. In accordance with ASC 350, goodwill will not be amortized but
will be tested for impairment at least annually. Goodwill created as a result of the Blammo acquisition is not deductible for tax purposes.
Valuation Methodology
The Company
engaged a third-party valuation firm to aid management in its analyses of the fair value of GameSpy, Griptonite and Blammo. All estimates, key assumptions and forecasts were either provided by or reviewed by the Company. While the Company chose to
utilize a third-party valuation firm, the fair value analyses and related valuations represent the conclusions of management and not the conclusions or statements of any third party.
Intangible assets acquired consist of non-compete agreements, customer contracts, acquired technology and in-process research and
development (IPR&D).
The Blammo and Griptonite non-compete agreements were valued using the loss of income method, which
is an income approach. Two separate cash flows were prepared, one to model the cash flow with the non-compete agreements in place, and one without the agreements. The difference between the debt-free cash flow of the two models was then discounted
to present value using the discount rate of 25%.
In the valuation of Griptonites developed technology, the replacement cost method
of the cost approach was used. Although the Company does not expect to use the acquired technology, it was deemed likely that a market participant would perceive value in acquiring and integrating these technologies into their own platforms. The
value was determined based on the engineering costs to replace or recreate the developed technology. Key assumptions used included, work hours to recreate, costs per month and remaining total and economic life.
As of the valuation date, Blammo was in the process of developing one game, which was launched in December 2011. The Company estimated that
the majority of the revenues associated with this game would be generated in 2012 and 2013. The fair value was calculated using the multi-period excess earning method of the income approach, and significant assumptions used included the discount
rate, forecasted revenues, forecasted cost of goods sold and forecasted operating expense. The Company capitalized approximately $300 of IPR&D costs associated with the above game at the acquisition date. These costs were reclassified
to
Titles, Content and Technology
in the fourth quarter of 2011 upon launch of the game and amortized over the estimated life of the game of two years.
In the valuation of GameSpy customer contracts, these contracts were valued over their remaining terms, which included consideration of
moderate anticipated renewals and is consistent with market participant considerations. These contracts were fair valued using the Multi-Period Excess Earnings (MPEE) method of the income approach and key assumptions used included:
projected revenue and operating expenses for GameSpys remaining contracts, the remaining contractual period of the contracts and a discount rate of 14%. The Company valued developed technology using the replacement cost method of the cost
approach and based on the perceived value that a market participant would ascribe to the GameSpy technology, which allows for hosting multi-player games on mobile devices and other platforms. Key assumptions used included fully burdened headcount
spending information. As of the valuation date, the fair value of GameSpys deferred revenue was $1,684, which reflects the costs including hosting fees, salaries and benefits, equipment and facilities to support the contractual obligations
associated with these revenues, plus a market participant margin. The deferred revenue will be recognized on a straight-line basis over 24 months.
64
Pro Forma Financial Information (unaudited)
The results of operations for GameSpy, Griptonite and Blammo and the estimated fair market values of the assets acquired and liabilities
assumed have been included in the Companys consolidated financial statements since the date of each acquisition. During 2011, Griptonite contributed approximately $825 to the Companys net revenue and increased net losses by $9,511. The
results of the acquisitions resulted in an increase to the Companys net loss due to lower revenue generated from the work-for-hire contracts that were substantially completed during 2011 and due to the amortization of acquired identified
intangible assets.
The unaudited pro forma financial information in the table below summarizes the combined results of the Companys
operations and those of Griptonite for the periods shown as if the acquisition of Griptonite had occurred on January 1, 2011. The pro forma financial information includes the business combination accounting effects of the acquisition, including
amortization charges from acquired intangible assets. The pro forma financial information presented below is for informational purposes only, and is subject to a number of estimates, assumptions and other uncertainties. In addition, the pro forma
financial information presented below does not include the unaudited financial information of Blammo and GameSpy, since these were not material.
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2011
|
|
Total pro forma revenues
|
|
$
|
84,704
|
|
Pro forma net loss
|
|
|
(21,256
|
)
|
Pro forma net loss per share basic and diluted
|
|
|
(0.35
|
)
|
All of the goodwill related to the GameSpy, Blammo and Griptonite transactions was assigned to the
Companys Americas reporting unit. See Note 6 for additional information related to the changes in the carrying amount of goodwill.
NOTE 4 FAIR VALUE MEASUREMENTS
Fair Value Measurements
The Companys cash and cash equivalents, which were held in operating bank accounts, are classified within Level 1 of the fair value
hierarchy because they are valued using quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. As of December 31, 2013 and December 31, 2012, the Company had $28,496
and $22,325, respectively, in cash and cash equivalents. In addition, the Companys restricted cash is classified within Level 1 of the fair value hierarchy. The carrying value of accounts receivable and payables approximates fair value due to
the short time to expected receipt of payment or cash.
Liabilities for Contingent Consideration
On May 16, 2013, the Company issued 742 shares of common stock to the former Blammo shareholders based on the Net Revenue that Blammo
achieved for its fiscal year ended March 31, 2013. Since the contingency related to the number of shares earned in connection with the target for the year ended March 31, 2013 was resolved and the number of shares became fixed as of
March 31, 2013, the fair value of these shares as then last remeasured in the amount of $2,263 has been presented in additional paid-in capital in the Companys consolidated balance sheet since March 31, 2013. The remaining Additional
Shares will be issued to the Sellers if, and to the extent that, Blammo achieves certain Net Revenue performance targets as follows: (i) for fiscal 2014 (April 1, 2013 through March 31, 2014), (a) 417 Additional Shares will be
issued to the Sellers if, and only in the event that, Blammo meets its Baseline Net Revenue goal for such fiscal year, and (b) up to an additional 833 Additional Shares will be issued to the Sellers to the extent that Blammo exceeds its
Baseline Net Revenue goal and meets its Upside Net Revenue goal for such fiscal year, and (ii) for fiscal 2015 (April 1, 2014 through March 31, 2015), (a) no Additional Shares will be issued to the Sellers if Blammo does not meet
its Baseline Net Revenue goal for such fiscal year and (b) up to 1,154 Additional Shares will be issued to the Sellers to the extent that Blammo exceeds its Baseline Net Revenue goal and meets its Upside Net Revenue goal for such fiscal year.
To the extent that Blammo meets its Baseline Net Revenue goal for a fiscal year but does not meet its Upside Net Revenue goal for such fiscal year, Additional Shares will be issued to the Sellers on a straight-line basis based on the amount by which
Blammo exceeded the Baseline Net Revenue goal. Blammos Baseline and Upside Net Revenue goals for fiscal 2014 and 2015 are as follows:
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Baseline Net Revenue
|
|
|
Upside Net Revenue
|
|
Fiscal 2014
|
|
$
|
5,500
|
|
|
$
|
10,000
|
|
Fiscal 2015
|
|
$
|
8,500
|
|
|
$
|
15,000
|
|
65
Three of the five Sellers are also employees of Blammo. If any of these employee Sellers
voluntarily terminates his employment with Blammo (other than because of a disability that prevents him from performing his job) or if the Company or Blammo terminates such Sellers employment for Cause (as defined in the Share Purchase
Agreement), then such Seller will be eligible to receive Additional Shares if and when such Additional Shares are earned as described above only with respect to the fiscal year in which such termination of employment occurs (and all previous fiscal
years to the extent applicable), but not with respect to any Additional Shares issued in any subsequent fiscal year. In such an event, the Additional Shares that such Seller would have otherwise received will be forfeited and will not be issued by
the Company or distributed to the other Sellers, but the other Sellers rights to receive Additional Shares will not otherwise be affected. The fair value of the contingent consideration issued to the three Sellers who are also employees of
Blammo is not considered part of the purchase price, since vesting is contingent upon these employees continued service during the earn-out periods. The Company records the contingent consideration issued to these employees as a compensation
expense over the earn-out period of one to three years. See Note 9 for further details. In accordance with ASC 805,
Business Combinations
, non-employee contingent consideration issued to the two Sellers who are not employees of Blammo
was recorded as part of the purchase accounting and is fair valued at each subsequent reporting period. The total fair value of the non-employee contingent consideration liability has been estimated at $68 and $412 as of December 31, 2013 and
December 31, 2012, respectively. During the years ended December 31, 2013 and 2012, the Company recorded fair value expense adjustments of $7 and $167, respectively, which represent the changes in fair value of the non-employee contingent
consideration for both respective periods. In accordance with ASC 805, changes in the fair value of non-employee contingent consideration are recognized in general and administrative expense in the Companys consolidated statements of
operations.
Level 3 liabilities consist of acquisition-related liabilities for contingent consideration (i.e., earnouts) related to the
acquisition of Blammo. As of December 31, 2012, the Company recorded a contingent consideration liability of $2,512, of which $1,855 was recorded as a current liability in accrued compensation as settlement was less than one year. As of
December 31, 2013, the Company recorded a contingent consideration liability of $427, of which $329 was recorded as a current liability in accrued compensation as settlement is less than one year. The Company uses a risk-neutral framework to
estimate the probability of achieving the revenue targets set forth above for each year. The fair value of the contingent consideration was determined using a digital option, which captures the present value of the expected payment multiplied by the
probability of reaching the revenue targets for each year. Key assumptions for the year ended December 31, 2013 included a discount rate of 35.0%, volatility of 35.0%, risk-free interest rates of between 0.07% and 0.19% and probability-adjusted
revenue levels. Key assumptions for the year ended December 31, 2012 included a discount rate of 35.0%, volatility of 38.0%, risk-free rates of between 0.05% and 0.28% and probability-adjusted revenue levels. Probability-adjusted revenue is a
significant input that is not observable in the market, which ASC 820 refers to as a Level 3 input.
NOTE 5 BALANCE SHEET COMPONENTS
Accounts Receivable
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Accounts receivable
|
|
$
|
18,764
|
|
|
$
|
12,313
|
|
Less: Allowance for doubtful accounts
|
|
|
(459
|
)
|
|
|
(432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,305
|
|
|
$
|
11,881
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable include amounts billed and unbilled as of the respective balance sheet dates, but net of
platform commissions to our digital storefronts.
The movement in the Companys allowance for doubtful accounts is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning of
|
|
|
|
|
|
|
|
|
End of
|
|
Description
|
|
Year
|
|
|
Additions
|
|
|
Deductions
|
|
|
Year
|
|
Year ended December 31, 2013
|
|
$
|
432
|
|
|
$
|
51
|
|
|
$
|
24
|
|
|
$
|
459
|
|
Year ended December 31, 2012
|
|
$
|
800
|
|
|
$
|
202
|
|
|
|
570
|
|
|
$
|
432
|
|
Year ended December 31, 2011
|
|
$
|
504
|
|
|
$
|
390
|
|
|
|
94
|
|
|
$
|
800
|
|
The Company had no significant write-offs or recoveries during the years ended December 31, 2013, 2012,
and 2011.
66
Prepaid expenses and other
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Deferred platform commission fees
|
|
|
4,516
|
|
|
|
2,680
|
|
Prepaid royalties
|
|
|
740
|
|
|
|
|
|
Prepaids and other
|
|
|
2,407
|
|
|
|
2,487
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,663
|
|
|
|
5,167
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Computer equipment
|
|
$
|
6,134
|
|
|
$
|
6,255
|
|
Furniture and fixtures
|
|
|
862
|
|
|
|
566
|
|
Software
|
|
|
6,290
|
|
|
|
6,304
|
|
Leasehold improvements
|
|
|
2,768
|
|
|
|
2,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,054
|
|
|
|
15,352
|
|
Less: Accumulated depreciation and amortization
|
|
|
(10,958
|
)
|
|
|
(10,326
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,096
|
|
|
$
|
5,026
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization for the years ended December 31, 2013, 2012 and 2011 were $2,707, $2,368
and $1,846, respectively.
Other Long-Term Liabilities
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Uncertain tax position obligations
|
|
$
|
890
|
|
|
$
|
3,859
|
|
Deferred income tax liability
|
|
|
122
|
|
|
|
647
|
|
Contingent earnout liability
|
|
|
98
|
|
|
|
657
|
|
Deferred rent and other
|
|
|
1,247
|
|
|
|
1,027
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,357
|
|
|
$
|
6,190
|
|
|
|
|
|
|
|
|
|
|
NOTE 6 GOODWILL AND INTANGIBLE ASSETS
Intangible Assets
The Companys intangible assets were acquired primarily in connection with the acquisitions of Macrospace in 2004, iFone in 2006, MIG in
2007, Superscape in 2008, Griptonite and Blammo in 2011 and GameSpy in 2012, as well as in connection with the purchase of the Deer Hunter trademark and brand assets from Atari, Inc. (Atari) in 2012. The carrying amounts and accumulated
amortization expense of the acquired intangible assets, including the impact of foreign currency exchange translation, at December 31, 2013 and December 31, 2012 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
|
|
Carrying
|
|
|
Amortization
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Amortization
|
|
|
Carrying
|
|
|
|
|
|
Value
|
|
|
Expense
|
|
|
Value
|
|
|
Value
|
|
|
Expense
|
|
|
Value
|
|
|
|
|
|
(Including
|
|
|
(Including
|
|
|
(Including
|
|
|
(Including
|
|
|
(Including
|
|
|
(Including
|
|
|
|
Estimated
|
|
Impact of
|
|
|
Impact of
|
|
|
Impact of
|
|
|
Impact of
|
|
|
Impact of
|
|
|
Impact of
|
|
|
|
Useful
|
|
Foreign
|
|
|
Foreign
|
|
|
Foreign
|
|
|
Foreign
|
|
|
Foreign
|
|
|
Foreign
|
|
|
|
Life
|
|
Exchange)
|
|
|
Exchange)
|
|
|
Exchange)
|
|
|
Exchange)
|
|
|
Exchange)
|
|
|
Exchange)
|
|
Intangible assets amortized to cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Titles, content and technology
|
|
2 yrs
|
|
$
|
12,851
|
|
|
|
(12,165
|
)
|
|
$
|
686
|
|
|
$
|
12,781
|
|
|
$
|
(11,518
|
)
|
|
$
|
1,263
|
|
Catalogs
|
|
1 yr
|
|
|
1,283
|
|
|
|
(1,283
|
)
|
|
|
|
|
|
|
1,257
|
|
|
|
(1,257
|
)
|
|
|
|
|
ProvisionX Technology
|
|
6 yrs
|
|
|
211
|
|
|
|
(211
|
)
|
|
|
|
|
|
|
207
|
|
|
|
(207
|
)
|
|
|
|
|
Carrier contract and related relationships
|
|
5 yrs
|
|
|
19,940
|
|
|
|
(19,645
|
)
|
|
|
295
|
|
|
|
19,585
|
|
|
|
(16,421
|
)
|
|
|
3,164
|
|
Licensed content
|
|
5 yrs
|
|
|
3,040
|
|
|
|
(3,040
|
)
|
|
|
|
|
|
|
2,952
|
|
|
|
(2,952
|
)
|
|
|
|
|
Service provider license
|
|
9 yrs
|
|
|
482
|
|
|
|
(324
|
)
|
|
|
158
|
|
|
|
467
|
|
|
|
(262
|
)
|
|
|
205
|
|
Trademarks
|
|
7 yrs
|
|
|
5,230
|
|
|
|
(1,480
|
)
|
|
|
3,750
|
|
|
|
5,225
|
|
|
|
(760
|
)
|
|
|
4,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,037
|
|
|
|
(38,148
|
)
|
|
|
4,889
|
|
|
|
42,474
|
|
|
|
(33,377
|
)
|
|
|
9,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets amortized to operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Emux Technology
|
|
6 yrs
|
|
|
1,368
|
|
|
|
(1,368
|
)
|
|
|
|
|
|
|
1,341
|
|
|
|
(1,341
|
)
|
|
|
|
|
Noncompete agreements
|
|
4 yrs
|
|
|
5,452
|
|
|
|
(4,742
|
)
|
|
|
710
|
|
|
|
5,187
|
|
|
|
(3,395
|
)
|
|
|
1,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,820
|
|
|
|
(6,110
|
)
|
|
|
710
|
|
|
|
6,528
|
|
|
|
(4,736
|
)
|
|
|
1,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangibles assets
|
|
|
|
$
|
49,857
|
|
|
$
|
(44,258
|
)
|
|
$
|
5,599
|
|
|
$
|
49,002
|
|
|
$
|
(38,113
|
)
|
|
$
|
10,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
The Company has included amortization of acquired intangible assets directly attributable to
revenue-generating activities in cost of revenues. The Company has included amortization of acquired intangible assets not directly attributable to revenue-generating activities in operating expenses. The Company acquired approximately $1,550 of
intangible assets as part of the GameSpy acquisition in the third quarter of 2012. The Company acquired approximately $7,400 of intangible assets as part of the Griptonite and Blammo acquisitions in the third quarter of 2011, which includes
approximately $300 of Blammo IPR&D that was reclassified as
Titles, Content and Technology
in the fourth quarter of 2011; see Note 3 for further details.
On April 1, 2012, the Company acquired from Atari its Deer Hunter trademark and associated domain names and also took a license to the
other intellectual property associated with the Deer Hunter brand for total consideration of $5,000 in cash. The license agreement pursuant to which the Company licensed the other intellectual property associated with the Deer Hunter brand has a
term equal to the longer of (i) 99 years and (ii) the expiration of the copyrights in and copyrightable elements of the Deer Hunter intellectual property assets. The acquisition price has been recorded as acquired intangible assets and
classified within
Trademarks
in the above table and will be amortized over the estimated useful life of seven years.
During the years ended December 31, 2013, 2012 and 2011, the Company recorded amortization expense in the amounts of $4,238, $3,783 and
$5,447, respectively, in cost of revenues. During the years ended December 31, 2013, 2012 and 2011, the Company recorded amortization expense in the amounts of $1,336, $1,980 and $825, respectively, in operating expenses. The Company recorded
no impairment charges during the years ended December 31, 2013, 2012 and 2011.
As of December 31, 2013, the total expected
future amortization related to intangible assets was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
Amortization
|
|
|
|
|
|
|
Included in
|
|
|
Included in
|
|
|
Total
|
|
|
|
Cost of
|
|
|
Operating
|
|
|
Amortization
|
|
Period Ending December 31,
|
|
Revenues
|
|
|
Expenses
|
|
|
Expense
|
|
2014
|
|
$
|
1,496
|
|
|
$
|
508
|
|
|
$
|
2,004
|
|
2015
|
|
|
1,021
|
|
|
|
202
|
|
|
|
1,223
|
|
2016
|
|
|
766
|
|
|
|
|
|
|
|
766
|
|
2017
|
|
|
714
|
|
|
|
|
|
|
|
714
|
|
2018 and thereafter
|
|
|
892
|
|
|
|
|
|
|
|
892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,889
|
|
|
$
|
710
|
|
|
$
|
5,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
The Company has goodwill attributable to its MIG, GameSpy, Blammo and Griptonite acquisitions as of December 31, 2013. The Company
attributed all of the goodwill resulting from the MIG acquisition to its Asia and Pacific (APAC) reporting unit. The Company acquired $17,044 and $1,031 of goodwill during 2011 and 2012 respectively as part of the GameSpy, Blammo and
Griptonite acquisitions, which was fully assigned to its Americas reporting unit; see Note 3 for further details. The Company had fully impaired in prior years all goodwill allocated to its EMEA reporting unit. The goodwill allocated to the Americas
reporting unit is denominated in U.S. Dollars (USD) and the goodwill allocated to the APAC reporting unit is denominated in Chinese Renminbi (RMB). As a result, the goodwill attributed to the APAC reporting unit is subject to
foreign currency fluctuations.
In the valuation of the goodwill balance for Griptonite, Blammo, MIG and GameSpy, the Company gave
consideration to the future economic benefits of other assets that were not individually identified or separately recognized. The acquired studio workforce for each of these acquisitions was estimated to have value, and since the acquired workforce
is not individually identified or separately recognized, it was subsumed within the goodwill recognized as part of each business combination. The Company further planned to leverage its preexisting contractual relationships with Digital Storefronts
to distribute new titles developed by the Griptonite and Blammo studios and the expected synergies are reflected in the value of the goodwill recognized. The Company also used the GameSpy acquired workforce and expertise to help in its development
efforts for its games-as-a-service technology platform, and these synergies are reflected in the value of goodwill recognized.
68
Goodwill by geographic region is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
|
Americas
|
|
|
EMEA
|
|
|
APAC
|
|
|
Total
|
|
|
Americas
|
|
|
EMEA
|
|
|
APAC
|
|
|
Total
|
|
Balance as of January 1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
42,946
|
|
|
$
|
25,354
|
|
|
$
|
24,251
|
|
|
$
|
92,551
|
|
|
$
|
41,915
|
|
|
$
|
25,354
|
|
|
$
|
24,220
|
|
|
$
|
91,489
|
|
Accumulated Impairment Losses
|
|
|
(24,871
|
)
|
|
|
(25,354
|
)
|
|
|
(22,886
|
)
|
|
|
(73,111
|
)
|
|
|
(24,871
|
)
|
|
|
(25,354
|
)
|
|
|
(19,273
|
)
|
|
|
(69,498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,075
|
|
|
|
|
|
|
|
1,365
|
|
|
|
19,440
|
|
|
|
17,044
|
|
|
|
|
|
|
|
4,947
|
|
|
|
21,991
|
|
Goodwill Acquired during the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,031
|
|
|
|
|
|
|
|
|
|
|
|
1,031
|
|
Effects of Foreign Currency Exchange
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
31
|
|
Impairment Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,613
|
)
|
|
|
(3,613
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of period ended:
|
|
|
18,075
|
|
|
|
|
|
|
|
1,410
|
|
|
|
19,485
|
|
|
|
18,075
|
|
|
|
|
|
|
|
1,365
|
|
|
|
19,440
|
|
Goodwill
|
|
|
42,946
|
|
|
|
25,354
|
|
|
|
24,296
|
|
|
|
92,596
|
|
|
|
42,946
|
|
|
|
25,354
|
|
|
|
24,251
|
|
|
|
92,551
|
|
Accumulated Impairment Losses
|
|
|
(24,871
|
)
|
|
|
(25,354
|
)
|
|
|
(22,886
|
)
|
|
|
(73,111
|
)
|
|
|
(24,871
|
)
|
|
|
(25,354
|
)
|
|
|
(22,886
|
)
|
|
|
(73,111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of period ended:
|
|
$
|
18,075
|
|
|
$
|
|
|
|
$
|
1,410
|
|
|
$
|
19,485
|
|
|
$
|
18,075
|
|
|
$
|
|
|
|
$
|
1,365
|
|
|
$
|
19,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with ASC 350, the Companys goodwill is not amortized but is tested for impairment on an
annual basis or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Under ASC 350, the Company performs the annual impairment review of its goodwill balance as of September 30 or
more frequently if triggering events occur.
The Company evaluates qualitative factors and overall financial performance to determine
whether it is necessary to perform the first step of the multiple-step goodwill test. This step is referred to as Step 0. Step 0 involves, among other qualitative factors, weighing the relative impact of factors that are specific to the
reporting unit as well as industry and macroeconomic factors. After assessing those various factors, if it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the entity will
need to proceed to the first step of the goodwill impairment test. ASC 350 requires a multiple-step approach to testing goodwill for impairment for each reporting unit annually, or whenever events or changes in circumstances indicate the fair value
of a reporting unit is below its carrying amount. The first step measures for impairment by applying the fair value-based tests at the reporting unit level. The second step (if necessary) measures the amount of impairment by applying the fair
value-based tests to individual assets and liabilities within each reporting unit. The fair value of the reporting units is estimated using a combination of the market approach, which utilizes comparable companies data, and/or the income
approach, which uses discounted cash flows.
The Company has three reporting units comprised of the 1) Americas, 2) EMEA and 3) APAC
regions. As of December 31, 2013, the Company had goodwill attributable to the APAC and Americas reporting units. The cash flows of these reporting units reflect the income and expenses of assets directly employed by, and liabilities related
to, the operations of the reporting unit, including revenue related to local contractual relationships, but excludes revenue related to global contractual relationships such as Digital Storefronts which are owned by the U.S. and allocated directly
to the Americas reporting unit. During the third quarter of 2013, the Company performed a Step 0 qualitative assessment for its Americas, EMEA, and APAC reporting units. Based on this assessment, the Company concluded that it was more likely than
not that the fair value of each of the reporting units was greater than their carrying amounts, and, as a result, did not proceed to further impairment testing. In 2012, the Company concluded that a portion of the goodwill attributed to the APAC
reporting unit was impaired and recorded a $3,613 impairment charge. In 2011, the Company did not record any goodwill impairment charges as the fair values of the reporting units exceeded their respective carrying values.
NOTE 7 COMMITMENTS AND CONTINGENCIES
Leases
The Company leases office space under non-cancelable operating facility leases with various expiration dates through September 2020. Rent
expense for the years ended December 31, 2013, 2012 and 2011 was $3,380, $2,704 and $2,237, respectively. The terms of the facility leases provide for rental payments on a graduated scale. The Company recognizes rent expense on a straight-line
basis over the lease period, and has accrued for rent expense incurred but not paid. The deferred rent balance was $1,131 and $632 at December 31, 2013 and 2012, respectively, and was included within other long-term liabilities.
In April 2013, the Company entered into a sublease for 29 square feet of office space for its new San Francisco headquarters. The term of the
sublease began on May 23, 2013 and will expire on March 31, 2018. The Company provided the sub-landlord a letter of credit in the amount of $1,230 to secure its obligations under the lease. Cash deposited as a security to the letter of
credit has been classified as restricted cash on the Companys consolidated balance sheet as of December 31, 2013.
In June
2013, the Company entered into a lease for 18 square feet of office space at its new location in Bellevue, Washington. The term of the lease began on September 23, 2013 and will expire on September 30, 2020, unless the Company exercises
its right to early terminate the lease effective as of September 30, 2017. The Company provided the landlord a letter of credit in the amount of $500 to secure its obligations under the lease and this amount has been classified as restricted
cash on the Companys consolidated balance sheet as December 31, 2013. In addition, the Company has provided the landlord with a guarantee of lease to guarantee the obligations under the new Griptonite lease.
69
At December 31, 2013, future minimum lease payments under non-cancelable operating leases
were as follows:
|
|
|
|
|
|
|
Minimum
|
|
|
|
Operating
|
|
|
|
Lease
|
|
Period Ending December 31,
|
|
Payments
|
|
2014
|
|
$
|
3,915
|
|
2015
|
|
|
4,032
|
|
2016
|
|
|
3,422
|
|
2017
|
|
|
2,668
|
|
2018
|
|
|
920
|
|
2019 and thereafter
|
|
|
982
|
|
|
|
|
|
|
|
|
$
|
15,939
|
|
|
|
|
|
|
Minimum Guaranteed Royalties and Developer Commitments
The Company has entered into license and publishing agreements with various owners of brands and other intellectual property to develop and
publish games for mobile devices. Pursuant to some of these agreements, the Company is required to pay minimum royalties or license fees over the term of the agreement regardless of actual game sales. Future minimum royalty payments as of
December 31, 2013 were $698.
The Company also from time to time contracts with various external software developers
(third-party developers) to design and develop its games. The Company advances funds to these third-party developers, in installments, payable upon the completion of specified development milestones. Future developer commitments as of
December 31, 2013 were $353, which are due over the next twelve months. These developer commitments reflect the Companys minimum cash obligations but do not necessarily represent the periods in which they will be expensed. The Company
expenses developer commitments as services are provided.
Income Taxes
As of December 31, 2013, unrecognized tax benefits and potential interest and penalties are classified within Other long-term
liabilities on the Companys consolidated balance sheets. As of December 31, 2013, the settlement of the Companys income tax liabilities could not be determined; however, the liabilities are not expected to become due within
the next 12 months.
Indemnification Arrangements
The Company has entered into agreements under which it indemnifies each of its officers and directors during his or her lifetime for certain
events or occurrences while the officer or director is or was serving at the Companys request in that capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is
unlimited; however, the Company has a director and officer insurance policy that limits its exposure and enables the Company to recover a portion of any future amounts paid. As a result of its insurance policy coverage, the Company believes the
estimated fair value of these indemnification agreements is minimal. Accordingly, the Company had recorded no liabilities for these agreements as of December 31, 2013 or 2012.
In the ordinary course of its business, the Company includes standard indemnification provisions in most of its license agreements with
carriers and other distributors. Pursuant to these provisions, the Company generally indemnifies these parties for losses suffered or incurred in connection with its games, including as a result of intellectual property infringement and viruses,
worms and other malicious software. The term of these indemnity provisions is generally perpetual after execution of the corresponding license agreement, and the maximum potential amount of future payments the Company could be required to make under
these indemnification provisions is generally unlimited. The Company has never incurred costs to defend lawsuits or settle indemnified claims of these types. As a result, the Company believes the estimated fair value of these indemnity provisions is
minimal. Accordingly, the Company had recorded no liabilities for these provisions as of December 31, 2013 or 2012.
Contingencies
From time to time, the Company is subject to various claims, complaints and legal actions in the normal course of business. The Company
assesses its potential liability by analyzing specific litigation and regulatory matters using available information. The Companys estimate of losses is developed in consultation with inside and outside counsel, which involves a subjective
analysis of potential results and outcomes, assuming various combinations of appropriate litigation and settlement strategies. After taking all of the above factors into account, the Company determines whether an estimated loss from a contingency
should be accrued by assessing whether a loss is deemed reasonably probable and the amount can be reasonably estimated. The Company further determines whether an estimated loss from a contingency should be disclosed by assessing whether a material
loss is deemed reasonably possible. Such disclosure will include an estimate of the additional loss or range of loss or will state that an estimate cannot be made.
70
In April 2013, Lodsys Group, LLC, a Texas limited liability company (Lodsys), filed a
complaint in the U.S. District Court for the Eastern District of Texas alleging that the Company has been infringing two of Lodsys patents, and sought unspecified damages, including treble damages for willful infringement, interest,
attorneys fees and such other costs as the Court may deem just and proper. On June 19, 2013, the Company filed an answer to Lodsyss complaint (i) denying all of Lodsyss claims, (ii) setting forth certain affirmative
defenses to Lodsyss claims and (iii) asserting counterclaims that the Company does not infringe the Lodsys patents and that the Lodsys patents are invalid. In December 2013, without admitting infringement or liability, the Company entered
into a patent sub-license agreement and a settlement agreement with Lodsys to settle the dispute for an immaterial amount. In January 2014 the Court dismissed the complaint against the Company with prejudice.
The Company does not believe it is party to any currently pending litigation, the outcome of which is reasonably likely to have a material
adverse effect on its operations, financial position or liquidity. However, the ultimate outcome of any litigation is uncertain and, regardless of outcome, litigation can have an adverse impact on the Company because of defense costs, potential
negative publicity, diversion of management resources and other factors.
NOTE 8 STOCKHOLDERS EQUITY
Common Stock
At December 31, 2013, the Company was authorized to issue 250,000 shares of common stock. As of December 31, 2013, the Company
had reserved 23,100 shares for future issuance under its stock plans and outstanding warrants.
Preferred Stock
At December 31, 2013, the Company was authorized to issue 5,000 shares of preferred stock.
Acquisitions
On
August 2, 2012, the Company issued an aggregate of 600 shares of its common stock to IGN in connection with the Companys acquisition of GameSpy.
On August 2, 2011, the Company issued an aggregate of 6,106 shares of its common stock to Foundation 9 in connection with the
Companys acquisition of Griptonite.
On August 1, 2011, the Company issued an aggregate of 1,000 shares of its common stock to
the Sellers in connection with the Companys acquisition of Blammo.
See Note 3 Business Combinations for more
information about these acquisitions.
Shares Issues In Connection With the Blammo Earnout
On May 16, 2013, the Company issued 742 shares to the former Blammo shareholders based on the Net Revenue that Blammo achieved for its
fiscal year ended March 31, 2013. The fair value of this earnout amount has been presented in additional paid-in capital on the Companys consolidated balance sheet as of December 31, 2013.
Public Offerings
In September
2013, the Company sold in an underwritten public offering an aggregate of 7,245 shares of its common stock at a public offering price of $2.10 per share for net cash proceeds of approximately $13,985 after underwriting discounts and other offering
expenses. This public offering exhausted all of the securities that the Company was able to issue under its shelf registration statement that the SEC declared effective in December 2010.
In January 2011, the Company sold in an underwritten public offering an aggregate of 8,415 shares of its common stock at a public offering
price of $2.05 per share for net proceeds of approximately $15,661 after underwriting discounts and commissions and offering expenses. The underwriters of this offering were Roth Capital Partners, LLC, Craig-Hallum Capital Group LLC, Merriman
Capital, Inc. and Northland Capital Markets.
71
Warrants to Purchase Common Stock
In July 2013, the Company and MGM Interactive Inc. (MGM) entered into a warrant agreement that gives MGM the right to purchase up
to 3,333 shares of the Companys common stock at an exercise price of $3.00 per share (the Warrant), subject to certain adjustments for dividends, reorganizations and other common stock events. Of the 3,333 shares of the
Companys common stock underlying the Warrant, 333 shares were immediately vested and exercisable on the warrant agreement effective date and the remaining shares will vest and become exercisable based on conditions related to the Company
releasing mobile games based on mutually agreed upon intellectual property licensed by MGM to the Company. The Warrant expires on July 15, 2018. Under ASC 505, the Company estimated the fair value of the vested shares of the Warrant on the
grant date using the Black-Scholes option valuation model and the weighted average assumptions. Key assumptions for the year ended December 31, 2013 included an expected term of 5.0 years, volatility of 64.2%, risk-free interest rate of 1.5%
and a dividend yield of 0%. During the year ended December 31, 2013, 2013, the Company recorded $427 of non-cash warrant related expense in cost of revenues for warrant shares immediately vested upon signing of the agreement, as such vesting
was not tied to any game release nor to any specific intellectual property license.
During the years ended December 31, 2013, 2012,
and 2011, respectively, investors exercised warrants to purchase 2,886, 413, and 2,475 shares of the Companys common stock, and the Company received gross proceeds of $4,329, $619, and $3,711 in connection with these exercises. These exercised
warrants were issued by the Company in August 2010 in connection with a private placement transaction.
Warrants outstanding at
December 31, 2013 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
Exercise
|
|
|
of Shares
|
|
|
|
|
|
|
Price
|
|
|
Outstanding
|
|
|
|
Term
|
|
|
per
|
|
|
Under
|
|
Date of Issuance
|
|
(Years)
|
|
|
Share
|
|
|
Warrant
|
|
August 2010 - Warrants issued in private offering
|
|
|
5
|
|
|
$
|
1.50
|
|
|
|
974
|
|
July 2013 - Warrant issued to MGM
|
|
|
5
|
|
|
|
3.00
|
|
|
|
3,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 9 STOCK OPTION AND OTHER BENEFIT PLANS
2007 Equity Incentive Plan
In 2007, the Companys Board of Directors adopted, and the Companys stockholders approved, the 2007 Equity Incentive Plan (the
2007 Plan). The 2007 Plan permits the Company to grant stock options, RSUs, and other stock-based awards to employees, non-employee directors and consultants. In April 2013, the Companys Board of Directors approved, and in June
2013, the Companys stockholders approved, the amended and restated 2007 Equity Incentive Plan (the Amended 2007 Plan). The Amended 2007 Plan includes an increase of 7,200 shares in the aggregate number of shares of common stock
authorized for issuance under the plan. It also includes a fungible share provision, pursuant to which each share that is subject to a stock-based award that is not a full value award (restricted stock, RSUs, or other stock-based awards
where the price charged to the participant for the award is less than 100% of the fair market value) reduces the number of shares available for issuance by 1.39 shares. When a stock-based award that is not a full value award is cancelled, the
underlying shares are returned to the pool of shares available for grant at a ratio of 1.39 shares for each share cancelled.
The Company
may grant options under the 2007 Plan at prices no less than 85% of the estimated fair value of the shares on the date of grant as determined by its Board of Directors, provided, however, that (i) the exercise price of an incentive stock option
(ISO) or non-qualified stock options (NSO) may not be less than 100% or 85%, respectively, of the estimated fair value of the underlying shares of common stock on the grant date, and (ii) the exercise price of an ISO or
NSO granted to a 10% stockholder may not be less than 110% of the estimated fair value of the shares on the grant date. The fair value of the Companys common stock is determined by the last sale price of such stock on the NASDAQ Global Market
on the date of determination. The stock options granted to employees generally vest with respect to 25% of the underlying shares one year from the vesting commencement date and with respect to an additional 1/48 of the underlying shares per month
thereafter. Stock options granted during 2007 before October 25, 2007 have a contractual term of ten years and stock options granted on or after October 25, 2007 have a contractual term of six years.
As of December 31, 2013, 4,494 shares were available for future grants under the Amended 2007 Plan.
72
2007 Employee Stock Purchase Plan
In 2007, the Companys Board of Directors adopted and the Companys stockholders approved, the 2007 Employee Stock Purchase Plan (the
2007 Purchase Plan). The Company initially reserved 667 shares of its common stock for issuance under the 2007 Purchase Plan. On each January 1 for the first eight calendar years after the first offering date, the aggregate
number of shares of the Companys common stock reserved for issuance under the 2007 Purchase Plan will be increased automatically by the number of shares equal to 1% of the total number of outstanding shares of the Companys common stock
on the immediately preceding December 31, provided that the Board of Directors may reduce the amount of the increase in any particular year and provided further that the aggregate number of shares issued over the term of this plan may not
exceed 5,333. The 2007 Purchase Plan permits eligible employees, including employees of certain of the Companys subsidiaries, to purchase common stock at a discount through payroll deductions during defined offering periods. The price at which
the stock is purchased is equal to the lower of 85% of the fair market value of the common stock at the beginning of an offering period or after a purchase period ends.
In January 2009, the 2007 Purchase Plan was amended to provide that the Compensation Committee of the Companys Board of Directors may
fix a maximum number of shares that may be purchased in the aggregate by all participants during any single offering period (the Maximum Offering Period Share Amount). The Committee may raise or lower the Maximum Offering Period Share
Amount. The Committee established the Maximum Offering Period Share Amount of 500 shares for the offering period that commenced on February 15, 2009 and ended on August 14, 2009, and a Maximum Offering Period Share Amount of 200 shares for
each offering period thereafter. In October 2011, the Committee increased the Maximum Offering Period Share Amount for the offering period that started on August 22, 2011 and for each subsequent offering period to 300 shares.
As of December 31, 2013, 924 shares were available for issuance under the 2007 Purchase Plan.
2008 Equity Inducement Plan
In March 2008, the Companys Board of Directors adopted the 2008 Equity Inducement Plan (the Inducement Plan) to augment the
shares available under its existing 2007 Plan. The Company has not sought stockholder approval for the Inducement Plan. As such, awards under the Inducement Plan are granted in accordance with NASDAQ Listing Rule 5635(c)(4) and only to persons not
previously an employee or director of the Company, or following a bona fide period of non-employment, as an inducement material to such individuals entering into employment with the Company. The Inducement Plan initially permitted the Company to
grant only nonqualified stock options, but in 2013, the Compensation Committee of the Companys Board amended the Inducement Plan to permit the award of RSUs under the plan. The Company may grant NSOs under the Inducement Plan at prices less
than 100% of the fair value of the shares on the date of grant, at the discretion of its Board of Directors. The fair value of the Companys common stock is determined by the last sale price of such stock on the NASDAQ Global Market on the date
of determination.
As of December 31, 2013, 396 shares were reserved for future grants under the Inducement Plan.
Share-Based Awards Available for Grant
The calculation of share-based awards available for grant under the Amended 2007 Plan and the Inducement Plan for the year
ended December 31, 2013 is as follows:
|
|
|
|
|
|
|
Shares
|
|
|
|
Available
|
|
Balances at December 31, 2012
|
|
|
1,178
|
|
Increase in authorized shares
|
|
|
7,400
|
|
Share-based awards granted (1)
|
|
|
(6,359
|
)
|
Share-based awards canceled (2)
|
|
|
2,671
|
|
|
|
|
|
|
Balances at December 31, 2013
|
|
|
4,890
|
|
|
|
|
|
|
(1)
|
Under the terms of the Amended 2007 Plan, RSUs granted on or after June 6, 2013 reduce the number of shares available for grant by 1.39 shares for each share subject to an RSU award.
|
(2)
|
RSUs granted after June 6, 2013 that are forfeited and returned to the pool of shares available for grant increase the pool by 1.39 shares for each share subject to an RSU that is forfeited.
|
73
RSU Activity
A summary of the Companys RSU activity for the year ended December 31, 2013 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
|
Units
|
|
|
Grant Date
|
|
|
|
Outstanding
|
|
|
Fair Value
|
|
Awarded and unvested, December 31, 2012
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
2,747
|
|
|
|
2.90
|
|
Vested
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(169
|
)
|
|
|
2.74
|
|
|
|
|
|
|
|
|
|
|
Awarded and unvested, December 31, 2013
|
|
|
2,578
|
|
|
$
|
2.91
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units expected to vest, December 31, 2013
|
|
|
1,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Option Activity
The following table summarizes the Companys stock option activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
Number
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term (Years)
|
|
|
Value
|
|
Balances at December 31, 2010
|
|
|
6,928
|
|
|
|
2.02
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
4,925
|
|
|
|
3.66
|
|
|
|
|
|
|
|
|
|
Options canceled
|
|
|
(1,250
|
)
|
|
|
2.50
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(859
|
)
|
|
|
1.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2011
|
|
|
9,744
|
|
|
|
2.80
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
3,399
|
|
|
|
3.84
|
|
|
|
|
|
|
|
|
|
Options canceled
|
|
|
(1,416
|
)
|
|
|
3.89
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(806
|
)
|
|
|
1.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2012
|
|
|
10,921
|
|
|
|
3.07
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
2,937
|
|
|
|
2.70
|
|
|
|
|
|
|
|
|
|
Options canceled
|
|
|
(2,502
|
)
|
|
|
3.65
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(957
|
)
|
|
|
1.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2013
|
|
|
10,399
|
|
|
$
|
2.98
|
|
|
|
3.80
|
|
|
$
|
11,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and expected to vest at December 31, 2013
|
|
|
9,554
|
|
|
$
|
2.98
|
|
|
|
3.69
|
|
|
$
|
11,162
|
|
Options exercisable at December 31, 2013
|
|
|
5,636
|
|
|
$
|
2.96
|
|
|
|
2.98
|
|
|
$
|
7,457
|
|
At December 31, 2013, the options outstanding and currently exercisable by exercise price were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
Range of
|
|
|
|
|
Contractual
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Exercise
|
|
Number
|
|
|
Life
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
Prices
|
|
Outstanding
|
|
|
(in Years)
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
$0.42 - $ 1.21
|
|
|
1,688
|
|
|
|
1.95
|
|
|
$
|
1.13
|
|
|
|
1,612
|
|
|
$
|
1.12
|
|
$1.30 - $ 2.03
|
|
|
1,055
|
|
|
|
2.79
|
|
|
|
1.68
|
|
|
|
858
|
|
|
|
1.68
|
|
$2.26 - $ 2.74
|
|
|
1,363
|
|
|
|
5.29
|
|
|
|
2.49
|
|
|
|
185
|
|
|
|
2.38
|
|
$2.83 - $ 2.90
|
|
|
1,260
|
|
|
|
4.11
|
|
|
|
2.89
|
|
|
|
560
|
|
|
|
2.90
|
|
$2.91 - $ 2.91
|
|
|
1,121
|
|
|
|
5.67
|
|
|
|
2.91
|
|
|
|
13
|
|
|
|
2.91
|
|
$2.98 - $ 3.39
|
|
|
1,043
|
|
|
|
4.60
|
|
|
|
3.29
|
|
|
|
350
|
|
|
|
3.29
|
|
$3.47 - $ 4.30
|
|
|
1,459
|
|
|
|
3.46
|
|
|
|
3.99
|
|
|
|
881
|
|
|
|
3.94
|
|
$4.35 - $ 5.34
|
|
|
1,247
|
|
|
|
3.39
|
|
|
|
4.79
|
|
|
|
1,014
|
|
|
|
4.81
|
|
$5.70 - $ 11.66
|
|
|
156
|
|
|
|
3.01
|
|
|
|
11.06
|
|
|
|
156
|
|
|
|
11.06
|
|
$11.88 - $ 11.88
|
|
|
7
|
|
|
|
3.30
|
|
|
|
11.88
|
|
|
|
7
|
|
|
|
11.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.42 - $ 11.88
|
|
|
10,399
|
|
|
|
3.80
|
|
|
$
|
2.98
|
|
|
|
5,636
|
|
|
$
|
2.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has computed the aggregate intrinsic value amounts disclosed in the above table based on the
difference between the original exercise price of the options and the fair value of the Companys common stock of $3.88 per share at December 31, 2013. The total intrinsic value of awards exercised during the years ended December 31,
2013, 2012 and 2011 was $1,886, $2,114, and $2,065, respectively.
74
Stock-Based Compensation
The Company recognizes stock-based compensation expense in accordance with ASC 718, and has estimated the fair value of each option award on
the grant date using the Black-Scholes option valuation model and the weighted average assumptions noted in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Dividend yield
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
Risk-free interest rate
|
|
|
0.82
|
%
|
|
|
0.60
|
%
|
|
|
1.06
|
%
|
Expected term (years)
|
|
|
4.00
|
|
|
|
4.00
|
|
|
|
4.02
|
|
Expected volatility
|
|
|
52
|
%
|
|
|
65
|
%
|
|
|
65
|
%
|
The Company based its expected volatility on its own historic volatility and the historical volatility of a
peer group of publicly traded entities. The expected term of options gave consideration to early exercises, post-vesting cancellations and the options six-year contractual term. The risk-free interest rate for the expected term of the option
is based on the U.S. Treasury Constant Maturity Rate as of the date of grant. The weighted-average fair value of stock options granted during the year ended December 31, 2013, 2012 and 2011 was $1.10, $1.90, and $1.81 per share, respectively.
The cost of RSUs is determined using the fair value of the Companys common stock based on the quoted closing price of the
Companys common stock on the date of grant. RSUs typically vest and are settled over approximately a four-year period with 25% of the shares vesting on or around the one-year anniversary of the grant date and the remaining shares vesting
quarterly thereafter. Compensation cost is amortized on a straight-line basis over the requisite service period.
The Company
calculated employee stock-based compensation expense based on awards ultimately expected to vest and reduced it for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates.
The following table summarizes the consolidated stock-based compensation
expense by line items in the consolidated statement of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Research and development
|
|
$
|
1,948
|
|
|
$
|
3,491
|
|
|
$
|
1,387
|
|
Sales and marketing
|
|
|
303
|
|
|
|
386
|
|
|
|
351
|
|
General and administrative
|
|
|
2,034
|
|
|
|
1,945
|
|
|
|
1,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
4,285
|
|
|
$
|
5,822
|
|
|
$
|
3,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above table includes compensation expense attributable to the contingent consideration potentially
issuable to the Blammo employees who were former shareholders of Blammo, which is recorded as research and development expense over the term of the earn-out periods, since these employees are primarily employed in product development. The Company
re-measures the fair value of the contingent consideration each reporting period and only records a compensation expense for the portion of the earn-out target that is likely to be achieved. In addition, the Company is exposed to potential continued
fluctuations in the fair market value of the contingent consideration in each reporting period, since re-measurement is impacted by changes in the Companys share price and the assumptions used by the Company. The Company estimated the total
fair value of this liability to be $368 and $2,242 as of December 31, 2013 and December 31, 2012, respectively; the amount as of December 31 2013 excludes the 2013 contingent consideration earnout that was classified into additional
paid-in capital. See Note 4 for further details. During the years ended December 31, 2013 and 2012, the Company recorded $171 and $1,549 of stock-based compensation expense, respectively, related to this contingent consideration.
Consolidated net cash proceeds from option exercises were $1,295, $1,357 and $1,633 for the year ended December 31, 2013, 2012 and 2011,
respectively. The Company realized no significant income tax benefit from stock option exercises during the year ended December 31, 2013, 2012 and 2011. As required, the Company presents excess tax benefits from the exercise of stock options,
if any, as financing cash flows rather than operating cash flows. As permitted by ASC 718, the Company has deferred the recognition of its excess tax benefit from non-qualified stock option exercises.
As of December 31, 2013, the Company had $4,998 of total unrecognized compensation expense, net of estimated forfeitures, related to
RSUs that will be recognized over a weighted-average period of approximately four years. As of December 31, 2013, the Company had $6,047 of total unrecognized compensation expense related to stock options, net of estimated
forfeitures. The unrecognized compensation expense excludes unvested Blammo stock-based contingent consideration expense, which will be recognized over a weighted average period of 2.63 years.
75
401(k) Defined Contribution Plan
The Company sponsors a 401(k) defined contribution plan covering all employees. The Company does not match the contributions made by its
employees.
NOTE 10 INCOME TAXES
The components of loss before income taxes by tax jurisdiction were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
United States
|
|
$
|
(21,820
|
)
|
|
$
|
(6,745
|
)
|
|
$
|
(25,159
|
)
|
Foreign
|
|
|
(932
|
)
|
|
|
(15,708
|
)
|
|
|
4,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
$
|
(22,752
|
)
|
|
$
|
(22,453
|
)
|
|
$
|
(20,487
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of income tax provision were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
State
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
(2
|
)
|
Foreign
|
|
|
2,294
|
|
|
|
913
|
|
|
|
(2,698
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,290
|
|
|
|
909
|
|
|
|
(2,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
497
|
|
|
|
1,452
|
|
State
|
|
|
|
|
|
|
64
|
|
|
|
211
|
|
Foreign
|
|
|
553
|
|
|
|
524
|
|
|
|
423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
553
|
|
|
|
1,085
|
|
|
|
2,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
497
|
|
|
|
1,452
|
|
State
|
|
|
(4
|
)
|
|
|
60
|
|
|
|
209
|
|
Foreign
|
|
|
2,847
|
|
|
|
1,437
|
|
|
|
(2,275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,843
|
|
|
$
|
1,994
|
|
|
$
|
(614
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The difference between the actual rate and the federal statutory rate was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Tax at federal statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State tax, net of federal benefit
|
|
|
|
|
|
|
0.3
|
|
|
|
1.0
|
|
Foreign rate differential
|
|
|
(0.1
|
)
|
|
|
(0.6
|
)
|
|
|
1.4
|
|
Research and development credit
|
|
|
5.1
|
|
|
|
|
|
|
|
2.1
|
|
Withholding taxes
|
|
|
(2.1
|
)
|
|
|
(0.3
|
)
|
|
|
(0.1
|
)
|
Goodwill impairment
|
|
|
|
|
|
|
(5.5
|
)
|
|
|
|
|
Stock-based compensation
|
|
|
(0.7
|
)
|
|
|
(2.7
|
)
|
|
|
(1.3
|
)
|
Non-deductible intercompany bad debt
|
|
|
0.3
|
|
|
|
(16.5
|
)
|
|
|
|
|
FIN 48 interest and release
|
|
|
14.6
|
|
|
|
10.0
|
|
|
|
(0.4
|
)
|
Other
|
|
|
1.6
|
|
|
|
(0.7
|
)
|
|
|
(0.4
|
)
|
Valuation allowance
|
|
|
(40.2
|
)
|
|
|
(9.1
|
)
|
|
|
(39.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
12.5
|
%
|
|
|
8.9
|
%
|
|
|
(3.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2012, the Companys United Kingdom subsidiary recognized an intercompany bad debt expense of
approximately $10,870 that is non-tax deductible for United Kingdom tax purposes.
76
Deferred tax assets and liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
|
US
|
|
|
Foreign
|
|
|
Total
|
|
|
US
|
|
|
Foreign
|
|
|
Total
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
$
|
554
|
|
|
$
|
1,685
|
|
|
$
|
2,239
|
|
|
$
|
571
|
|
|
$
|
1,501
|
|
|
$
|
2,072
|
|
Net operating loss carryforwards
|
|
|
36,299
|
|
|
|
10,552
|
|
|
|
46,851
|
|
|
|
32,795
|
|
|
|
12,207
|
|
|
|
45,002
|
|
Accruals, reserves and other
|
|
|
7,761
|
|
|
|
208
|
|
|
|
7,969
|
|
|
|
3,605
|
|
|
|
121
|
|
|
|
3,726
|
|
Foreign tax credit
|
|
|
6,348
|
|
|
|
|
|
|
|
6,348
|
|
|
|
6,086
|
|
|
|
|
|
|
|
6,086
|
|
Stock-based compensation
|
|
|
3,311
|
|
|
|
56
|
|
|
|
3,367
|
|
|
|
2,723
|
|
|
|
58
|
|
|
|
2,781
|
|
Research and development credit
|
|
|
4,245
|
|
|
|
|
|
|
|
4,245
|
|
|
|
2,839
|
|
|
|
|
|
|
|
2,839
|
|
Other
|
|
|
3,088
|
|
|
|
10
|
|
|
|
3,098
|
|
|
|
2,873
|
|
|
|
11
|
|
|
|
2,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$
|
61,606
|
|
|
$
|
12,511
|
|
|
$
|
74,117
|
|
|
$
|
51,492
|
|
|
$
|
13,898
|
|
|
$
|
65,390
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Macrospace, MIG and iFone intangible assets
|
|
$
|
|
|
|
$
|
(94
|
)
|
|
$
|
(94
|
)
|
|
$
|
|
|
|
$
|
(498
|
)
|
|
$
|
(498
|
)
|
GameSpy intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(506
|
)
|
|
|
|
|
|
|
(506
|
)
|
Blammo intangible assets
|
|
|
|
|
|
|
(129
|
)
|
|
|
(129
|
)
|
|
|
|
|
|
|
(261
|
)
|
|
|
(261
|
)
|
Griptonite intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(949
|
)
|
|
|
|
|
|
|
(949
|
)
|
Superscape intangible assets
|
|
|
(116
|
)
|
|
|
|
|
|
|
(116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
(9
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
(9
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
61,490
|
|
|
|
12,279
|
|
|
|
73,769
|
|
|
|
50,037
|
|
|
|
13,130
|
|
|
|
63,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less valuation allowance
|
|
|
(61,490
|
)
|
|
|
(12,294
|
)
|
|
|
(73,784
|
)
|
|
|
(50,037
|
)
|
|
|
(13,674
|
)
|
|
|
(63,711
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
|
|
|
$
|
(15
|
)
|
|
$
|
(15
|
)
|
|
$
|
|
|
|
$
|
(544
|
)
|
|
$
|
(544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has not provided deferred taxes on unremitted earnings attributable to foreign subsidiaries
because these earnings are intended to be reinvested indefinitely. No deferred tax asset was recognized since the Company does not believe the deferred tax asset will reverse in the foreseeable future. The amount of accumulated foreign earnings of
the Companys foreign subsidiaries total $2,206 as of December 31, 2013. If the Companys foreign earnings were repatriated, additional tax expense might result. The Company determined that the calculation of the amount of
unrecognized deferred tax liability related to these cumulative unremitted earnings attributable to foreign subsidiaries is not practicable. The Company recorded a release of its valuation allowance of zero, $562, and $1,702 during 2013, 2012, and
2011, respectively. The 2012 and 2011 release was associated with the acquisitions of GameSpy in August 2012 and Griptonite in 2011. Pursuant to ASC 805-740, changes in the Companys valuation allowance that stem from a business combination
should be recognized as an element of the Companys deferred income tax expense or benefit. The Company previously recognized a valuation allowance against its net operating loss carryforwards and determined that it should be able to utilize
the benefit of those net operating losses against the deferred tax liabilities of GameSpy and Griptonite; therefore, it has partially released its pre-existing valuation allowance. In accordance with ASC 740 and based on all available evidence on a
jurisdictional basis, the Company believes that, it is more likely than not that its deferred tax assets will not be utilized, and has recorded a full valuation allowance against its net deferred tax assets in each of its jurisdictions except for
one entity in China. The Company assesses on a periodic basis the likelihood that it will be able to recover its deferred tax assets. The Company considers all available evidence, both positive and negative, including historical levels of income or
losses, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. If it is not more likely than not that the Company expects
to recover its deferred tax assets, the Company will increase its provision for taxes by recording a valuation allowance against the deferred tax assets that it estimates will not ultimately be recoverable. The available negative evidence at
December 31, 2013 and 2012 included historical and projected future operating losses. As a result, the Company concluded that an additional valuation allowance of $10,073 and $696, net of the described releases, was required to reflect the
gross increase in its deferred tax assets prior to valuation allowance during 2013 and 2012, respectively. As of December 31, 2013 and 2012, the Company considered it more likely than not that its deferred tax assets would not be realized
with their respective carryforward periods.
At December 31, 2013, the Company has net operating loss carryforwards of approximately
$93,213 and $78,379 for federal and state tax purposes, respectively. These carryforwards will expire from 2014 to 2033. In addition, the Company has research and development tax credit carryforwards of approximately $5,168 for federal income tax
purposes and $4,077 for California tax purposes. The federal research and development tax credit carryforwards will begin to expire in 2022. The California state research credit will carry forward indefinitely. The Company has approximately $6,340
of foreign tax credits that will begin to expire in 2017, and approximately $12 of state alternative minimum tax credits that will carryforward indefinitely. The Companys ability to use its net operating loss carryforwards and federal and
state tax credit carryforwards to offset future taxable income and future taxes, respectively, may be subject to restrictions attributable to equity transactions that result in changes in ownership as defined by Internal Revenue Code
Section 382.
77
In addition, at December 31, 2013, the Company has net operating loss carryforwards of
approximately $47,364 for United Kingdom tax purposes that are all limited and can only offset a portion of the annual combined profits in the United Kingdom until the net operating losses are fully utilized.
A reconciliation of the total amounts of unrecognized tax benefits was as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Beginning balance
|
|
$
|
4,626
|
|
|
$
|
4,034
|
|
Reductions of tax positions taken during previous years
|
|
|
(725
|
)
|
|
|
(631
|
)
|
Additions based on uncertain tax positions related to the current period
|
|
|
1,149
|
|
|
|
410
|
|
Additions based on uncertain tax positions related to prior periods
|
|
|
1,449
|
|
|
|
813
|
|
Cumulative translation adjustment
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
6,538
|
|
|
$
|
4,626
|
|
|
|
|
|
|
|
|
|
|
The total unrecognized tax benefits as of December 31, 2013 and 2012 include approximately $4,623 and
$3,104, respectively of unrecognized tax benefits that have been netted against deferred tax assets. As of December 31, 2013, approximately $1,915 of unrecognized tax benefits, if recognized, would impact the Companys effective tax rate.
The remaining amount, if recognized, would adjust the Companys deferred tax assets which are subject to valuation allowance. At December 31, 2013, the Company anticipated that the liability for uncertain tax positions, excluding interest
and penalties, could decrease by approximately $1,278 within the next twelve months due to the expiration of certain statutes of limitation in foreign jurisdictions in which the Company does business.
The Companys policy is to recognize interest and penalties related to unrecognized tax benefits in income tax expense. The Company has
accrued $283 of interest and penalties on uncertain tax positions as of December 31, 2013, as compared to $2,348 as of December 31, 2012. Approximately $105, $182 and $248 of accrued interest and penalty expense related to estimated
obligations for unrecognized tax benefits was recognized during 2013, 2012 and 2011 respectively. During 2013, the Company released $2,441 of interest and penalties on uncertain tax positions due to the expiration of certain statutes of limitation
in foreign jurisdictions in which the Company does business.
The Company is subject to taxation in the United States and various foreign
jurisdictions. The material jurisdictions subject to examination by tax authorities are primarily the State of California, United States, United Kingdom, Canada, and China. The Companys federal and California tax returns are open by statute
for tax years 2002 and forward and could be subject to examination by the tax authorities. The statute of limitations for the Companys 2011 and 2012 tax returns for the various entities in the United Kingdom is expected to be closed in 2014.
The Companys China income tax returns are open by statute for tax years 2008 and forward.
NOTE 11 SEGMENT REPORTING
ASC 280,
Segment Reporting
(ASC 280), establishes standards for reporting information about operating
segments. It defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker, or decision-making group, in deciding how to allocate
resources and in assessing performance. The Companys chief operating decision-maker is its Chief Executive Officer. The Companys Chief Executive Officer reviews selected financial information on a geographic basis; however this
information is included within one operating segment for purposes of allocating resources and evaluating financial performance.
Accordingly, the Company reports as a single reportable segmentmobile games. For purpose of enterprise-wide disclosures, a breakdown of
the Companys total sales to customers in the feature phone and smartphone markets is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Feature phone
|
|
$
|
5,319
|
|
|
$
|
13,135
|
|
|
$
|
31,091
|
|
Smartphone
|
|
|
100,294
|
|
|
|
95,048
|
|
|
|
42,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
105,613
|
|
|
$
|
108,183
|
|
|
$
|
74,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
For purposes of enterprise-wide disclosures, the Company attributes revenues to geographic areas
based on the country in which the distributors, advertising service providers or carriers principal operations are located. In the case of Digital Storefronts, revenues are attributed to the geographic location where the end-user
makes the purchase. The Company generates its revenues in the following geographic regions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
United States of America
|
|
$
|
48,697
|
|
|
$
|
57,816
|
|
|
$
|
36,765
|
|
China
|
|
|
10,985
|
|
|
|
5,827
|
|
|
|
4,007
|
|
Americas, excluding the USA
|
|
|
5,430
|
|
|
|
5,051
|
|
|
|
6,528
|
|
EMEA
|
|
|
22,820
|
|
|
|
22,381
|
|
|
|
20,621
|
|
APAC, excluding China
|
|
|
17,681
|
|
|
|
17,108
|
|
|
|
6,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
105,613
|
|
|
$
|
108,183
|
|
|
$
|
74,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company attributes its long-lived assets, which primarily consist of property and equipment, to a country
primarily based on the physical location of the assets. Property and equipment, net of accumulated depreciation and amortization, summarized by geographic location was as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Americas
|
|
$
|
4,108
|
|
|
$
|
3,649
|
|
EMEA
|
|
|
899
|
|
|
|
1,092
|
|
APAC
|
|
|
89
|
|
|
|
285
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,096
|
|
|
$
|
5,026
|
|
|
|
|
|
|
|
|
|
|
NOTE 12 RESTRUCTURING
Restructuring information as of December 31, 2013 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
|
2012 and 2013
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Facilities
and other
|
|
|
Workforce
|
|
|
Facilities
and other
|
|
|
Facilities
and other
|
|
|
Total
|
|
Balance as of January 1, 2012
|
|
$
|
|
|
|
$
|
|
|
|
$
|
653
|
|
|
$
|
234
|
|
|
$
|
887
|
|
Charges to operations
|
|
|
|
|
|
|
1,371
|
|
|
|
|
|
|
|
|
|
|
|
1,371
|
|
Non cash adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges settled in cash
|
|
|
|
|
|
|
(1,367
|
)
|
|
|
(653
|
)
|
|
|
(234
|
)
|
|
|
(2,254
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2012
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Charges to operations
|
|
|
584
|
|
|
|
864
|
|
|
|
|
|
|
|
|
|
|
|
1,448
|
|
Non Cash Adjustments
|
|
|
(183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(183
|
)
|
Charges settled in cash
|
|
|
(401
|
)
|
|
|
(868
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2013
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2009, 2010, 2012, and 2013, the Companys management approved restructuring plans to improve the
effectiveness and efficiency of its operating model and reduce operating expenses around the world. The 2012 and 2013 restructuring plans included $584 of facility-related restructuring charges related to streamlining the Companys previous
facility in Kirkland, Washington, and additional costs associated with vacating the Companys Brazil office. In addition, the Company recorded a non-cash adjustment of $238 in respect of the cumulative translation adjustment related to the
Companys Brazilian subsidiary that was reclassified to net loss upon the substantial liquidation of the entity and is recognized in restructuring charge on the Companys consolidated income statement for the year ended December 31,
2013.
Since inception of the 2012 and 2013 restructuring plan through December 31, 2013, the Company incurred $2,235 of
restructuring charges relating to employee termination costs in its San Francisco, California, EMEA, APAC, Brazil, and Washington offices. During the year ended December 31, 2013, the Company recorded $864 of the 2012 and 2013 restructuring
plan charges relating to employee termination costs in its Brazil, San Francisco, China, Washington, and EMEA offices.
79
NOTE 13 QUARTERLY FINANCIAL DATA (unaudited, in thousands)
The following table sets forth unaudited quarterly consolidated statements of operations data for 2012 and 2013. The Company
derived this information from its unaudited consolidated financial statements, which it prepared on the same basis as its audited consolidated financial statements contained in this report. In its opinion, these unaudited statements include all
adjustments, consisting only of normal recurring adjustments that the Company considers necessary for a fair statement of that information when read in conjunction with the consolidated financial statements and related notes included elsewhere in
this report. The operating results for any quarter should not be considered indicative of results for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
2012
|
|
|
2013
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
Revenues
|
|
$
|
26,509
|
|
|
$
|
29,264
|
|
|
$
|
26,099
|
|
|
$
|
26,311
|
|
|
$
|
24,605
|
|
|
$
|
24,445
|
|
|
$
|
21,722
|
|
|
$
|
34,841
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Platform commissions, royalties and other
|
|
|
7,522
|
|
|
|
7,780
|
|
|
|
6,946
|
|
|
|
7,382
|
|
|
|
7,462
|
|
|
|
7,670
|
|
|
|
7,436
|
|
|
|
9,803
|
|
Impairment of prepaid royalties and guarantees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d)
|
|
|
435
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
753
|
|
|
|
932
|
|
|
|
1,025
|
|
|
|
1,073
|
|
|
|
1,074
|
|
|
|
1,078
|
|
|
|
1,082
|
|
|
|
1,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
8,275
|
|
|
|
8,712
|
|
|
|
7,971
|
|
|
|
8,455
|
|
|
|
8,536
|
|
|
|
8,748
|
|
|
|
8,953
|
|
|
|
10,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
18,234
|
|
|
|
20,552
|
|
|
|
18,128
|
|
|
|
17,856
|
|
|
|
16,069
|
|
|
|
15,697
|
|
|
|
12,769
|
|
|
|
24,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
15,033
|
|
|
|
15,697
|
(a)
|
|
|
9,979
|
|
|
|
13,566
|
|
|
|
11,630
|
|
|
|
11,224
|
|
|
|
11,405
|
|
|
|
12,618
|
|
Sales and marketing
|
|
|
4,375
|
|
|
|
4,701
|
|
|
|
5,545
|
|
|
|
6,272
|
|
|
|
5,008
|
|
|
|
5,143
|
|
|
|
5,361
|
(e)
|
|
|
10,608
|
|
General and administrative
|
|
|
4,366
|
|
|
|
4,556
|
|
|
|
2,466
|
|
|
|
3,356
|
|
|
|
3,919
|
|
|
|
3,852
|
|
|
|
3,617
|
|
|
|
4,162
|
|
Amortization of intangible assets
|
|
|
495
|
|
|
|
495
|
|
|
|
495
|
|
|
|
495
|
|
|
|
495
|
|
|
|
495
|
|
|
|
229
|
|
|
|
117
|
|
Impairment of goodwill
|
|
|
|
|
|
|
|
(c)
|
|
|
3,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charge
|
|
|
|
|
|
|
320
|
|
|
|
213
|
|
|
|
838
|
|
|
|
511
|
|
|
|
937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
24,269
|
|
|
|
25,769
|
|
|
|
22,311
|
|
|
|
24,527
|
|
|
|
21,563
|
|
|
|
21,651
|
|
|
|
20,612
|
|
|
|
27,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(6,035
|
)
|
|
|
(5,217
|
)
|
|
|
(4,183
|
)
|
|
|
(6,671
|
)
|
|
|
(5,494
|
)
|
|
|
(5,954
|
)
|
|
|
(7,843
|
)
|
|
|
(3,471
|
)
|
Interest and other income (expense), net
|
|
|
(366
|
)
|
|
|
210
|
|
|
|
(455
|
)
|
|
|
264
|
|
|
|
132
|
|
|
|
163
|
|
|
|
(155
|
)
|
|
|
(130
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(6,401
|
)
|
|
|
(5,007
|
)
|
|
|
(4,638
|
)
|
|
|
(6,407
|
)
|
|
|
(5,362
|
)
|
|
|
(5,791
|
)
|
|
|
(7,998
|
)
|
|
|
(3,601
|
)
|
Income tax benefit (provision)
|
|
|
(440
|
)(b)
|
|
|
2,019
|
(b)
|
|
|
1,075
|
|
|
|
(660
|
)
|
|
|
(135
|
)(f)
|
|
|
2,870
|
|
|
|
30
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,841
|
)
|
|
$
|
(2,988
|
)
|
|
|
(3,563
|
)
|
|
$
|
(7,067
|
)
|
|
$
|
(5,497
|
)
|
|
$
|
(2,921
|
)
|
|
$
|
(7,968
|
)
|
|
$
|
(3,523
|
)
|
|
|
|
|
|
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|
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|
|
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|
|
|
|
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|
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|
Net loss per share basic and diluted
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|
$
|
(0.11
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.05
|
)
|
(a)
|
Changes in the research and development expense from $15,033 in the first quarter of 2012 and $9,979 in the third quarter of 2012 was due primarily to changes in the fair market value of contingent consideration issued
to employees who are former shareholders of Blammo.
|
(b)
|
The income tax benefit of $2,019 in the second quarter of 2012 was due primarily to the release of uncertain tax positions in certain foreign jurisdictions due to the expiration of the statute of limitations. The income
tax benefit of $1,075 in the third quarter of 2012 was due primarily to the release of the GameSpy valuation allowance upon acquisition and changes in pre-tax income in certain foreign entities.
|
(c)
|
The goodwill impairment charge of $3,613 in the third quarter of 2012 was due to a decline in the estimated fair value of the APAC reporting unit attributable to an accelerated decline in the local feature phone
business and the recent restructuring of the Companys operations in the region.
|
(d)
|
The impairment of prepaid royalties and guarantees charge of $435 in the third quarter of 2013 was primarily due to a prepaid royalty impairment charge recorded for two of our third-party publishing titles.
|
(e)
|
Change in sales and marketing expense from $5,008 in the first quarter of 2013 to $10,608 in the fourth quarter of 2013 was due primarily to higher marketing expenses associated with promoting
Deer Hunter 2014
.
|
(f)
|
The income tax benefit of $2,870 in the second quarter of 2013 was due primarily to the release of uncertain tax positions due to the expiration of certain statutes of limitations in certain foreign jurisdictions.
|
NOTE 14 RELATED PARTY TRANSACTIONS
Hany Nada, one of the Companys directors, serves as one of the seven managing directors of Granite Global Ventures II
L.L.C., the general partner of each of Granite Global Ventures II L.P. and GGV II Entrepreneurs Fund L.P., which together beneficially owned approximately 6.88% of the Companys stock as of December 31, 2013. Hany Nada also serves as one
of the seven managing directors of GGV Capital IV L.L.C., the general partner of each of GGV Capital IV L.P. and GGV Capital IV Entrepreneurs Fund L.P. (together, GGV IV). GGV IV has an approximate 14.4% shareholding in Kontagent, Inc.
(successor-in-interest to Medium Entertainment, dba PlayHaven, with which Kontagent merged in December 2013). Mr. Nada was a member of PlayHavens board of directors at the time of GGV IVs investment in PlayHaven in the fourth
quarter of 2012, and has continued as a member of Kontagents Board of Directors. For the year ended December 31, 2013 and 2012, the Company generated revenues of $5,724 and $6,285, respectively, from Kontagent. As of December 31,
2013 and December 31, 2012, Kontagent accounted for 9.0% and 13.2%, respectively, of the Companys total accounts receivable balance.
80