Notes to Unaudited Consolidated Financial Statements
December 31, 2016
(in thousands, except share and per share amounts)
1. Description of Business
Digital Turbine, through its subsidiaries, innovates at the convergence of media and mobile communications, delivering end-to-end products and solutions for mobile operators, application advertisers, device original equipment manufacturers ("OEMs") and other third parties to enable them to effectively monetize mobile content and generate higher value user acquisition. The Company operates its business in
two
reportable segments – Advertising and Content.
The Company's Advertising business is comprised of
two
businesses:
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Operator and OEM ("O&O"), an advertiser solution for unique and exclusive carrier and OEM inventory which is comprised of services including:
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Ignite™ ("Ignite"), a mobile device management platform with targeted application distribution capabilities,
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Discover™ ("Discover"), an intelligent application discovery platform, and
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Other professional services directly related to the Ignite platform.
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Advertiser and Publisher ("A&P"), a worldwide mobile user acquisition network which is comprised of services including:
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Syndicated network, and
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Real Time Bidding ("RTB" or "programmatic advertising").
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The Company's Content business is comprised of services including:
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Marketplace™ ("Marketplace"), an application and content store, and
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Pay™ ("Pay"), a content management and mobile payment solution.
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With global headquarters in Austin, Texas and offices in Durham, North Carolina, San Francisco, California, Singapore, Sydney, and Tel Aviv, Digital Turbine’s solutions are available worldwide.
Unless the context otherwise indicates, the use of the terms “we,” “our,” “us,” “Digital Turbine,” “DT,” or the “Company” refer to the collective business and operations of Digital Turbine, Inc. through its operating and wholly-owned subsidiaries, Digital Turbine USA, Inc. (“DT USA”), Digital Turbine (EMEA) Ltd. (“DT EMEA”), Digital Turbine Australia Pty Ltd (“DT APAC”), Digital Turbine Singapore Pte. Ltd. (“DT Singapore”), Digital Turbine Luxembourg S.a.r.l. (“DT Luxembourg”), Digital Turbine Germany, GmbH (“DT Germany”), and Digital Turbine Media, Inc. (“DT Media” or "DTM"). We refer to all the Company's subsidiaries collectively as "wholly-owned subsidiaries." We refer to Appia, Inc., a company we acquired on March 6, 2015, as “DT Media” or "DTM."
2. Liquidity
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("US GAAP"), which contemplate continuation of the Company as a going concern.
Our primary sources of liquidity have historically been issuance of common, preferred stock, or convertible debt. As of
December 31, 2016
, we had cash and cash equivalents totaling approximately
$5,705
. On September 28, 2016, the Company closed a private placement of
$16,000
aggregate principal amount of
8.75%
Convertible Senior Notes due 2020 (the “Notes”), netting cash proceeds to the Company of
$14,316
, after deducting the initial purchaser's discounts and commissions and the estimated offering expenses payable by Digital Turbine. The net proceeds from the issuance of the Notes were used to repay approximately
$11,000
of secured indebtedness, consisting of approximately
$3,000
to Silicon Valley Bank ("SVB") and
$8,000
to North Atlantic Capital ("NAC"), retiring both such debts in their entirety, and will otherwise be used for general corporate purposes and working capital. Refer to Note 7 Debt for more details. The Company believes that it has sufficient cash, cash equivalents, and capital resources to operate its business for at least the next twelve months.
Until the Company becomes cash flow positive, the Company anticipates that its primary source of liquidity will be cash on hand. In addition, the Company may raise additional capital through future equity or, subject to restrictions contained in the indenture for the Notes, debt financing to provide for greater flexibility to make acquisitions, make new investments in under-capitalized opportunities, or invest in organic opportunities. Additional financing may not be available on acceptable terms or at all. If the Company issues additional equity securities to raise funds, the ownership percentage of its existing stockholders would be reduced. New investors may demand rights, preferences, or privileges senior to those of existing holders of common stock.
In addition, the indenture for the Notes, and the related warrant agreement for the warrants issued in connection with the Notes, contain, among other protections, price-based anti-dilution rights. These rights could result in significant dilution to other stockholders in the event we were to complete certain types of financings at valuations below specified levels. At our January 2017 annual stockholders meeting, we received stockholder approval to issue the full amount of shares of our stock that could ultimately be issuable under the indenture for the Notes and the warrant agreement.
In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying consolidated balance sheet is dependent upon continued operations of the Company, which, in turn, is dependent upon the Company’s ability to generate positive cash flows from operations. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities, that might be necessary should the Company be unable to continue its existence.
3. Summary of Significant Accounting Policies
The significant accounting policies and recent accounting pronouncements were described in Note 4 of the consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended
March 31, 2016
. There have been no significant changes in or updates to the accounting policies since
March 31, 2016
, except as noted below.
Restricted Cash
Cash accounts that are restricted as to withdrawal or usage are presented as restricted cash. As of
December 31, 2016
and
March 31, 2016
, the Company had
$323
and
$0
, respectively, of restricted cash held by a bank in a collateral account as collateral to cover the Company's corporate credit cards as well as a letter of credit issued to guarantee a facility lease.
Debt Issuance Costs
In April 2015, the Financial Accounting Standards Board ("FASB") issued accounting guidance under ASU 2015-03 which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The guidance is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years; as such, the Company adopted this guidance in the quarter ended June 30, 2016. The Company has determined that adopting ASU 2015-03 did not have a significant impact on its consolidated results of operations, financial condition, and cash flows. Please refer to Note 7 Debt for more details.
Stock Compensation
In March 2016, the FASB issued Accounting Standards Codification ASU 2016-09 “Stock Compensation - Improvements to Employee Share-Based Payment Accounting” which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendment is effective for the Company for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is permitted. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period.
ASU 2016-09 requires the following:
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Accounting for Income Taxes:
All excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) should be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period.
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Classification of Excess Tax Benefits on the Statement of Cash Flows:
Excess tax benefits should be classified along with other income tax cash flows as an operating activity.
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Forfeitures:
An entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur.
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Minimum Statutory Tax Withholding Requirements:
The threshold to qualify for equity classification permits withholding up to the maximum statutory tax rates in the applicable jurisdictions.
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Classification of Employee Taxes Paid on the Statement of Cash Flows When an Employer Withholds Shares for Tax-Withholding Purposes:
Cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity.
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Practical Expedient—Expected Term:
A nonpublic entity can make an accounting policy election to apply a practical expedient to estimate the expected term for all awards with performance or service conditions that meet certain conditions.
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The Company will adopt ASU 2016-09 during the quarter ended June 30, 2017, and does not expect it will have a significant impact on its consolidated results of operations, financial condition and cash flows.
Fair Value of Financial Instruments
The Company measures certain financial assets and liabilities at fair value based on 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. Where available, fair value is based on or derived from observable market prices or other observable inputs. Where observable prices or inputs are not available, valuation techniques are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity.
The carrying amounts of certain financial instruments, such as cash equivalents, short term investments, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities. The fair value of the Notes issued on September 28, 2016 is determined using the residual method of accounting whereby, first, a portion of the proceeds from the issuance of the Notes is allocated to derivatives embedded in the Notes and the warrants issued in connection with the issuance of the Notes, and the proceeds so allocated are accounted for as a convertible note embedded derivative liability and warrant liability, respectively, and second, the remainder of the proceeds from the issuance of the Notes is allocated to the convertible notes, resulting in debt discount. The convertible notes are carried on the consolidated balance sheet on a historical cost basis, net of discounts and debt issuance costs.
The Company estimates the fair value of the convertible note embedded derivative liability and warrant liability using a lattice approach that incorporates a Monte Carlo simulation valuation model that considers the Company's future stock price, stock price volatility, probability of a change of control, and the trading information of the Company's common stock into which the Notes are or may become convertible.
Changes in the inputs into these valuation models have a significant impact on the estimated fair value of the convertible note embedded derivative liability and warrant liability. For example, a decrease (increase) in the stock price results in a decrease (increase) in the estimated fair value of the liabilities. The change in the fair value of the convertible note embedded derivative liability and warrant liability are primarily related to the change in price of the Company's underlying common stock and are reflected in the consolidated statements of operations and comprehensive loss as "Change in fair value of convertible note embedded derivative liability” and "Change in fair value of warrant liability." Refer to Note 8 "Fair Value Measurements" for more details.
Convertible Note Embedded Derivative Liability
Embedded derivatives that are required to be bifurcated from the underlying debt instrument (i.e. host) are accounted for and valued as a separate financial instrument. We evaluated the terms and features of the Notes issued on September 28, 2016 and identified embedded derivatives (i.e. conversion options that contain “make-whole interest” provisions, fundamental change provisions, or down round conversion price adjustment provisions) requiring bifurcation and accounting at fair value due to the economic and contractual characteristics of the embedded derivatives meeting the criteria for bifurcation and separate accounting. ASC 815-10-15-83 (c) states that if terms implicitly or explicitly require or permit net settlement, then it can readily be settled net by means outside the contract, or it provides for delivery of an asset that puts the recipient in a position not substantially different from net settlement. The conversion features related to the Notes consists of a “make-whole interest” provision, fundamental change provision, and down round conversion price adjustment provisions, which if the Notes were to be converted, would put the convertible note holder in a position not substantially different from net settlement. Given this fact pattern, the conversion features meet the definition of embedded derivatives and require bifurcation and accounting at fair value.
See Note 8, "Fair Value Measurements" of this report for a description of our embedded derivatives related to the Notes and information on the valuation model used to calculate the fair value of the embedded derivatives, otherwise called the
convertible note embedded derivative liability. Changes in the inputs into the valuation model may have a significant impact on the estimated fair value of the convertible note embedded derivative liability. For example, a decrease (increase) in the stock price results in a decrease (increase) in the estimated fair value of the liability. Change in the fair value of the liability is primarily attributable to the change in price of the underlying common stock of the Company and is reflected in our consolidated statements of operations as “Change in fair value of convertible note embedded derivative liability.”
Warrant Liability
The Company issued detachable warrants with the Notes issued on September 28, 2016. The Company accounts for its warrants issued in accordance with US GAAP accounting guidance under ASC 815 applicable to derivative instruments, which requires every derivative instrument within its scope to be recorded on the balance sheet as either an asset or liability measured at its fair value, with changes in fair value recognized in earnings. Based on this guidance, the Company determined that these warrants did not meet the criteria for classification as equity. Accordingly, the Company classified the warrants as long-term liabilities. The warrants are subject to re-measurement at each balance sheet date, with any change in fair value recognized as a component of other income (expense), net in the consolidated statements of operations. We estimated the fair value of these warrants at the respective balance sheet dates using a lattice approach that incorporates a Monte Carlo simulation that considers the Company's future stock price. Option pricing models employ subjective factors to estimate warrant liability; and, therefore, the assumptions used in the model are judgmental.
See Note 8, "Fair Value Measurements" of this report for a description of our warrant liability and information on the valuation model used to calculate the fair value of the warrant liability. Changes in the inputs into the valuation model may have a significant impact on the estimated fair value of the warrant liability. For example, a decrease (increase) in the stock price results in a decrease (increase) in the estimated fair value of the liability. The change in the fair value of the liability is primarily related to the change in price of the underlying common stock of the Company and is reflected in our consolidated statements of operations as “Change in fair value of warrant liability.”
Statement of Cash Flows
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash payments", which provides guidance on how cash receipts
and cash payments related to eight specific cash flow issues are presented and classified in the statement of cash flows, with the objective of reducing the existing diversity in practice. The update is effective for annual periods beginning after December 15, 2017, which for Digital Turbine would be April 1, 2018. Early adoption is permitted. We do not expect adoption of ASU 2016-15 to have a material impact on our consolidated financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and our wholly-owned subsidiaries. All material inter-company balances and transactions have been eliminated in consolidation.
Interim Consolidated Financial Information
The accompanying consolidated financial statements of Digital Turbine, Inc. should be read in conjunction with the consolidated financial statements and accompanying notes filed with the U.S. Securities and Exchange Commission ("SEC") in Digital Turbine, Inc.'s Annual Report on Form 10-K for the fiscal year ended
March 31, 2016
, as amended. The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments of a normal recurring nature considered necessary to fairly state the financial position of Digital Turbine, Inc. and its consolidated subsidiaries at
December 31, 2016
, the results of its operations and corresponding comprehensive loss, and its cash flows for the
three and nine months ended December 31, 2016
and
2015
. The results of operations for the interim period are not necessarily indicative of the results that may be expected for the fiscal year ending
March 31, 2017
.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and accounts receivable. A significant portion of the Company’s cash is held at one major financial institution that the
Company's management has assessed to be of high credit quality. The Company has not experienced any losses in such accounts.
The Company mitigates its credit risk with respect to accounts receivable by performing credit evaluations and monitoring advertisers' and carriers' accounts receivable balances. The Company counts all advertisers and carriers within a single corporate structure as one customer, even in cases where multiple brands, branches, or divisions of an organization enter into separate contracts with the Company. As of
December 31, 2016
, one major Advertising customer represented approximately
22.4%
of the Company’s net accounts receivable balance. As of
March 31, 2016
, one major Content customer represented
15.6%
of the Company’s net accounts receivable balance, and the previously mentioned major Advertising customer represented
5.5%
of the Company's net accounts receivable balance.
With respect to revenue concentration, the Company defines a customer as an advertiser or a carrier that is a distinct source of revenue and is legally bound to pay for the services that the Company delivers on the advertiser’s or carrier's behalf. During the
three and nine months ended December 31, 2016
, the previously mentioned major Advertising customer represented
16.2%
and
13.4%
, respectively, of net revenues, another major Advertising customer represented
13.9%
and
11.4%
, respectively, of net revenues, and another major Content customer represented
16.2%
and
23.7%
, respectively, of net revenues. During the
three and nine months ended December 31, 2015
, the previously mentioned major Advertising customer represented
1.9%
and
1.6%
, respectively, of net revenues, the previously mentioned second major Advertising customer represented
9.3%
and
8.7%
, respectively, of net revenues, and the previously mentioned major Content customer represented
22.0%
and
26.6%
, respectively, of net revenues.
The Company may not continue to receive significant revenues from any of these or from other large customers. A reduction or delay in operating activity from any of the Company’s significant customers, or a delay or default in payment by any significant customer could materially harm the Company’s business and prospects. Because of the Company’s significant customer concentration, its net sales and operating income could fluctuate significantly due to changes in political or economic conditions, or the loss, reduction of business, or less favorable terms for any of the Company's significant customers.
4. Accounts Receivable
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December 31, 2016
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March 31, 2016
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Billed
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$
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10,684
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$
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13,220
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Unbilled
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9,176
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4,763
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Allowance for doubtful accounts
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(594
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)
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(464
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)
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Accounts receivable, net
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$
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19,266
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$
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17,519
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Billed accounts receivable represent amounts billed to customers that have yet to be collected. Unbilled accounts receivable represent revenue recognized, but billed after period end. All unbilled receivables as of
December 31, 2016
and
March 31, 2016
are expected to be billed and collected within twelve months.
The Company recorded
$123
and
$528
of bad debt expense during the
three and nine months ended December 31, 2016
, respectively. The Company recorded
$45
and
$209
of bad debt expense during the
three and nine months ended December 31, 2015
, respectively.
5. Property and Equipment
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December 31, 2016
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March 31, 2016
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Computer-related equipment
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$
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3,830
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|
|
$
|
2,775
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Furniture and fixtures
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|
46
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|
33
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|
Leasehold improvements
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144
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74
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|
Property and equipment, gross
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4,020
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|
2,882
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Accumulated depreciation
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(1,540
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)
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(1,098
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)
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Property and equipment, net
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$
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2,480
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|
|
$
|
1,784
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Depreciation expense for the
three and nine months ended December 31, 2016
was
$248
and
$685
, respectively, and
$52
and
$153
for the
three and nine months ended December 31, 2015
, respectively.
6. Investments
On December 28, 2015, DTM entered into a license agreement with Sift Media, Inc. ("Sift"), granting a non-exclusive perpetual license to certain of DTM’s intellectual property, software, in exchange for
9.9%
of Sift’s preferred stock and a cash payment of
$1,000
. The
9.9%
investment in Sift was valued at
$999
and is carried at cost. Our investment in Sift is accounted for under the cost method.
On December 28, 2016, the Company sold the cost method investment in Sift back to the current owners of Sift for cash proceeds of
$999
.
7. Intangible Assets
The components of intangible assets at
December 31, 2016
and
March 31, 2016
were as follows:
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As of December 31, 2016
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Cost
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Accumulated Amortization
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Net
|
Software
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$
|
11,544
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|
|
$
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(6,818
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)
|
|
$
|
4,726
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|
Trade name / trademark
|
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380
|
|
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(380
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)
|
|
—
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|
Customer list
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11,300
|
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|
(9,257
|
)
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2,043
|
|
License agreements
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355
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|
(274
|
)
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|
81
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Total
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$
|
23,579
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|
$
|
(16,729
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)
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$
|
6,850
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|
As of March 31, 2016
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Cost
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|
Accumulated Amortization
|
|
Net
|
Software
|
|
$
|
11,544
|
|
|
$
|
(4,949
|
)
|
|
$
|
6,595
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|
Trade name / trademark
|
|
380
|
|
|
(380
|
)
|
|
—
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|
Customer list
|
|
11,300
|
|
|
(5,534
|
)
|
|
5,766
|
|
License agreements
|
|
355
|
|
|
(226
|
)
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|
129
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|
Total
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$
|
23,579
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|
$
|
(11,089
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)
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$
|
12,490
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The Company has included amortization of acquired intangible assets directly attributable to revenue-generating activities in cost of revenues; thus, all intangible amortization is included in cost of revenues.
The Company recorded amortization expense of
$1,878
and
$5,640
during the
three and nine months ended December 31, 2016
, respectively, and
$1,704
and
$8,453
during the
three and nine months ended December 31, 2015
, respectively. The decrease in amortization expense year-over-year was primarily attributable to the following reductions to intangible assets during fiscal 2016: 1) recorded during December 2015 a
$1,874
reduction to the cost basis of internal use software acquired in
the Appia Inc. transaction due to the Company licensing technology in the Sift agreement that was specifically tied to such software, and 2) recorded during September 2015 a
$2,404
accelerated amortization expense and subsequent write-off for customer relationship intangible assets related to our September 2012 acquisition of Logia Mobile Ltd.
Based on the amortizable intangible assets as of
December 31, 2016
, we estimate amortization expense for the next five years to be as follows:
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Twelve Month Period Ending December 31,
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Amortization Expense
|
2017
|
|
$
|
3,476
|
|
2018
|
|
1,971
|
|
2019
|
|
570
|
|
2020
|
|
114
|
|
2021
|
|
114
|
|
Thereafter
|
|
605
|
|
Total
|
|
$
|
6,850
|
|
8. Debt
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|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
March 31, 2016
|
Short-term debt
|
|
|
|
|
Revolving line of credit, principal
|
|
$
|
—
|
|
|
$
|
3,000
|
|
Secured debenture, net of debt issuance costs and discounts of $0 and $568, respectively
|
|
—
|
|
|
7,432
|
|
Total short-term debt
|
|
$
|
—
|
|
|
$
|
10,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
March 31, 2016
|
Long-term debt
|
|
|
|
|
Convertible notes, net of debt issuance costs and discounts of $6,540 and $0, respectively
|
|
$
|
9,460
|
|
|
$
|
—
|
|
Total long-term debt
|
|
$
|
9,460
|
|
|
$
|
—
|
|
Convertible Notes
On September 28, 2016, the Company sold to BTIG, LLC (the "Initial Purchaser"),
$16,000
aggregate principal amount of
8.75%
convertible notes maturing on September 23, 2020, unless converted, repurchased or redeemed in accordance with their terms prior to such date. The
$16,000
aggregate principal received from the issuance of the Notes was initially allocated between long-term debt at
$11,084
, the convertible note embedded derivative liability at
$3,693
(see Note 8. "Fair Value Measurements" for more information), and the warrant liability at
$1,223
(see Note 8. "Fair Value Measurements" for more information), within the consolidated balance sheet. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the liability. Fair value of the Notes is determined using the residual method of accounting whereby, first, a portion of the proceeds from the issuance of the Notes is allocated to derivatives embedded in the Notes and the warrants issued in connection with the issuance of the Notes, and the proceeds so allocated are accounted for as a convertible note embedded derivative liability and warrant liability, respectively (see Note 8. "Fair Value Measurements for more information), and second, the remainder of the proceeds from the issuance of the Notes is allocated to the convertible notes, resulting in an original issue debt discount amounting to
$4,916
. As of the close of the issuance of the Notes on September 28, 2016, the Company incurred
$1,700
in debt issuance costs directly related to the issuance of the Notes, which in accordance with ASU 2015-03, the Company has recorded these costs as a direct reduction to the face value of the Notes and will amortize this amount over the life of the Notes as a component of interest expense on the consolidated statement of operation and comprehensive loss. During the three months ended December 31, 2016, the Company further incurred
$212
in costs directly associated with the issuance of the Notes, for the preparation and filing of the S-1 to register the underlying common stock related to the Notes issued and related Warrants issued along with the Notes, which was required to be done in accordance with the Indenture (as defined below). The convertible notes will remain on the consolidated balance sheet at historical cost, accreted up for the amount of cumulative amortization of the debt discount over the life of the debt. If we or the note holders elect not to settle the debt through conversion, we must settle the Notes at face value at
$16,000
. Therefore, the liability component will be accreted up to the face value of the Notes, which will result in additional non-cash interest expense being recognized within the consolidated statements of operations and comprehensive loss through the Notes maturity date.
As of December 31, 2016, the outstanding principal on the Notes was
$16,000
, the unamortized debt issuance costs and debt discount in aggregate was
$6,540
, and the net carrying amount of the Notes was
$9,460
, which was recorded as long-term debt within the consolidated balance sheet. Inclusive of the Notes issued on September 28, 2016 and the NAC subordinated debenture which was retired in full on September 28, 2016, the Company recorded
$288
and
$969
of aggregate debt discount and debt issuance cost amortization during the
three and nine months ended December 31, 2016
, respectively, and
$219
and
$509
for
three and nine months ended December 31, 2015
, respectively. Inclusive of the Notes issued on September 28, 2016 and the NAC subordinated debenture which was retired in full on September 28, 2016, the Company recorded
$437
and
$1,060
of interest expense during the
three and nine months ended December 31, 2016
, respectively, and
$252
and
$858
for
three and nine months ended December 31, 2015
, respectively.
The Company sold the Notes to the Initial Purchaser at a purchase price of
92.75%
of the principal amount. The initial purchaser also received an additional
250,000
warrants on the same terms as the warrants issued with the Notes (as detailed below) and has the right to receive
2.5%
of any cash consideration received by the Company in connection with a future exercise of any of the warrants issued with the Notes. The Notes were issued under an Indenture dated September 28, 2016, as amended on January 31, 2017 (the "Indenture"), between Digital Turbine, Inc., US Bank National Association, as trustee, and certain wholly-owned subsidiaries of the Company, specifically Digital Turbine, Inc. as the parent Company, DT USA, DT Media, and DT APAC (collectively referred to as the "Guarantors"). The Notes are senior unsecured obligations of the Company, and bear interest at a rate of
8.75%
per year, payable semiannually in arrears on March 15th and September 15th of each year, beginning on March 15, 2017. The Notes are unconditionally guaranteed by the Guarantors as to the payment of principal, premium, if any, and interest on a senior unsecured basis. The Notes were issued with an initial conversion price equal to
$1.364
per share of the Company's common stock, subject to proportional adjustment for adjustments to outstanding common stock and anti-dilution provisions in case of dividends or distributions, stock split or combination, or if the Company issues or sells shares of common stock at a price per share less than the conversion price on the trading day immediately preceding such issuance of sale.
With respect to any conversion prior to September 23, 2019, in addition to the shares deliverable upon conversion, holders of the Notes will be entitled to receive a payment equal to the remaining scheduled payments of interest that would have been made on the notes being converted from the date of conversion until September 23, 2019 (an “Early Conversion Payment”). We may pay the Early Conversion Payment in cash or, subject to certain equity-related conditions set forth in the Indenture, in shares of our common stock.
The Company may redeem the Notes, for cash, in whole or in part, at any time after September 23, 2018, at a redemption price equal to
$1
per $1 principal amount of the notes to be redeemed plus accrued and unpaid interest, if any, to, but excluding, the date of redemption, plus an additional payment (payable in cash or stock) equivalent to the amount of, and subject to equivalent terms and conditions applicable for, an Early Conversion Payment had the notes been converted on the date of redemption, if (1) the closing price of our common shares on the NASDAQ Capital Market has exceeded
200%
of the conversion price then in effect (but disregarding the effect on such price from certain anti-dilution adjustments) for at least
20
trading days (whether or not consecutive) during any
30
consecutive trading day period (including the last trading day of such period) ending within the
five
trading days immediately preceding the date on which we provide the redemption notice, (2) for the
15
consecutive trading days following the last trading day on which the closing price of our common shares was equal to or greater than
200%
of the conversion price in effect (but disregarding the effect on such price from certain anti-dilution adjustments) on such trading day for the purpose of the foregoing clause, the closing price of our common shares remains equal to or greater than
150%
of the conversion price in effect (but disregarding the effect on such price from certain anti-dilution adjustments) on the given trading day and (3) we are in compliance with certain other equity-related conditions as set forth in the Indenture.
If we undergo a fundamental change (as described below), holders may require us to purchase the Notes in whole or in part for cash at a price equal to
120%
of the principal amount of the Notes to be purchased plus any accrued and unpaid interest, including additional interest, if any, to, but excluding, the repurchase date. Conversions that occur in connection with a fundamental change may entitle the holder to receive an increased number of shares of common stock issuable upon such conversion, depending on the date of such fundamental change and the valuation of the Company’s common stock related thereto. A fundamental change is defined as follows:
|
|
•
|
a “person” or “group” within the meaning of Section 13(d) of the Exchange Act other than the Company, the Company’s Subsidiaries or the Company’s or the Company’s Subsidiaries’ employee benefit plans files a Schedule TO or any schedule, form or report under the Exchange Act disclosing that such person or group has become the direct or indirect “beneficial owner,” as defined in Rule 13d-3 under the Exchange Act, of the Company’s common equity representing more than
50%
of the voting power of all outstanding classes of the Company’s common equity entitled to vote generally in the election of the Company’s directors;
|
|
|
•
|
consummation of (A) any share exchange, consolidation or merger involving the Company pursuant to which the Common Stock will be converted into cash, securities or other property or (B) any sale, lease or other transfer in one transaction or a series of transactions of all or substantially all of the consolidated assets of the Company and the Company’s Subsidiaries, taken as a whole, to any person other than one or more of the Company’s Subsidiaries; provided, however, that a share exchange, consolidation or merger transaction described in clause (A) above in which the holders of more than
50%
of all shares of Common Stock entitled to vote generally in the election of the Company’s directors immediately prior to such transaction own, directly or indirectly, more than
50%
of all shares of Common Stock entitled to vote generally in the election of the directors of the continuing or surviving entity or
|
the parent entity thereof immediately after such transaction in substantially the same proportions (relative to each other) as such ownership immediately prior to such transaction will not, in either case, be a Fundamental Change;
|
|
•
|
the Company’s shareholders approve any plan or proposal for the liquidation or dissolution of the Company; or
|
|
|
•
|
the Common Stock (or other Capital Stock into which the Notes are then convertible pursuant to the terms of this Indenture) ceases to be listed on any of The New York Stock Exchange, The NASDAQ Global Select Market, The NASDAQ Global Market, The NASDAQ Capital Market or The NYSE MKT (or their respective successors) (each, an “ Eligible Market ”).
|
Subject to limited exceptions, the Indenture prohibits us from incurring additional indebtedness at any time while the Notes remain outstanding.
Each purchaser of the Notes also received warrants to purchase
256.60
shares of the Company's common stock for each $1 in Notes purchased, or up to
4,105,600
warrants in aggregate, in addition to the
250,000
warrants issued to the initial purchaser, as described above. The warrants were issued under a Warrant Agreement (the "Warrant Agreement"), dated as of September 28, 2016, between Digital Turbine, Inc. and US Bank National Association, as the warrant agent.
The warrants are immediately exercisable on the date of issuance at an initial exercise price of
$1.364
per share and will expire on September 23, 2020. The exercise price is subject to proportional adjustment for adjustments to outstanding common stock and anti-dilution provisions in case of dividends or distributions, stock split or combination, or if the Company issues or sells shares of common stock at a price per share less than the conversion price on the trading day immediately preceding such issuance of sale. Certain caps on the number of shares that could be issued under the Notes and the Warrants were effectively lifted by our stockholders approving the full issuance of all potentially issuable shares at our January 2017 annual meeting of stockholders.
In the event of a fundamental change, as set forth in the Warrant Agreement, the holders can elect to exercise their warrants or to receive an amount of cash under a Black-Scholes calculation of the value of such warrants.
The Company received net cash proceeds of
$14,316
, after deducting the initial purchaser's discounts and commissions and the estimated offering expenses payable by Digital Turbine. The net proceeds from the issuance of the Notes were used to repay
$11,000
of secured indebtedness, consisting of approximately
$3,000
to SVB and
$8,000
to NAC, retiring both such debts in their entirety, and will otherwise be used for general corporate purposes and working capital.
On July 15, 2016, prior to the payoff of the
$8,000
debt with NAC, DTM and North Atlantic entered into a Fourth Amendment to Common Stock Purchase Warrant dated March 6, 2015, where DTM agreed to pay North Atlantic the amount of
$75
as consideration to extend the warrant vesting date (the "Retirement Date") to August 29, 2016.
On August 12, 2016, prior to the payoff of the
$3,000
debt with SVB, DTM and SVB entered into a Letter Agreement modifying amending the Third Amended and Restated Loan and Security Agreement dated June 11, 2015, whereby the Company agreed to pay SVB the amount of
$15
as consideration to extend the maturity date of the debt to September 28, 2016.
On August 26, 2016, prior to the payoff of the
$8,000
debt with NAC, DTM and North Atlantic entered into a Fifth Amendment to Common Stock Purchase Warrant dated March 6, 2015, where DTM agreed to pay North Atlantic the amount of
$50
as consideration to extend the Retirement Date to September 28, 2016.
9. Fair Value Measurements
The inputs to the valuation techniques used to measure fair value are classified into the following categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The Company’s financial liabilities as of the issuance date of the convertible notes on the initial measurement date of September 28, 2016 are presented below at fair value and were classified within the fair value hierarchy as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance as of September 28, 2016
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
Convertible note embedded derivative liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,693
|
|
|
$
|
3,693
|
|
Warrant liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,223
|
|
|
$
|
1,223
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,916
|
|
|
$
|
4,916
|
|
The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the liability. Fair value of the Notes is determined using the residual method of accounting whereby, first, a portion of the proceeds from the issuance of the Notes is allocated to derivatives embedded in the Notes and the warrants issued in connection with the issuance of the Notes, and the proceeds so allocated are accounted for as a convertible note embedded derivative liability and warrant liability, respectively, and second, the remainder of the proceeds from the issuance of the Notes is allocated to the convertible notes, resulting in debt discount amounting to
$4,916
. The convertible notes will remain on the consolidated balance sheet at historical cost, accreted up for the amount of cumulative amortization of the debt discount over the life of the debt. The method of determining the fair value of the convertible note embedded derivative liability and warrant liability are described subsequently in this note. Market risk associated with the convertible note embedded derivative liability and warrant liability relates to the potential reduction in fair value and negative impact to future earnings from an increase in price of the Company's common stock. Please refer to Note 7. "Debt" for more information.
The carrying amounts of certain financial instruments, such as cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities.
As of
December 31, 2016
, the Company’s financial assets and financial liabilities are presented below at fair value and were classified within the fair value hierarchy as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance as of December 31, 2016
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
Convertible note embedded derivative liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,270
|
|
|
$
|
1,270
|
|
Warrant liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
426
|
|
|
$
|
426
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,696
|
|
|
$
|
1,696
|
|
Convertible Note Embedded Derivative Liability
On September 28, 2016, the Company sold to BTIG, LLC (the "Initial Purchaser"),
$16,000
principal amount of
8.75%
convertible notes maturing on September 23, 2020 (the “Notes”), unless converted, repurchased, or redeemed in accordance with their terms prior to such date. We evaluated the terms and features of our convertible notes and identified embedded derivatives (conversion options that contain “make-whole interest” provisions, fundamental change provisions, or down round conversion price adjustment provisions; collectively called the "convertible note embedded derivative liability") requiring bifurcation and accounting at fair value because the economic and contractual characteristics of the embedded derivatives met the criteria for bifurcation and separate accounting. ASC 815-10-15-83 (c) states that if terms implicitly or explicitly require or permit net settlement, then it can readily be settled net by means outside the contract, or it provides for delivery of an asset that puts the recipient in a position not substantially different from net settlement. The conversion features related to the convertible notes consists of a “make-whole interest” provision, fundamental change provision, and down round conversion price adjustment provisions, which if the convertible notes were to be converted, would put the convertible note holder in a position not substantially different from net settlement. Given this fact pattern, the conversion features meet the definition of embedded derivatives and require bifurcation and accounting at fair value.
The convertible note embedded derivative liability represent the fair value of the conversion option, fundamental change provision, and "make-whole" provisions, as well as the down round conversion price adjustment or conversion rate adjustment provisions of the convertible notes. There is no current observable market for these types of derivatives and, as such, the Company determined the fair value of the derivative liability using a lattice approach that incorporates a Monte Carlo
simulation valuation model. A Monte Carlo simulation valuation model considers the Company's future stock price, stock price volatility, probability of a change of control and the trading information of the Company's common stock into which the notes are or may become convertible. The Company marks the derivative liability to market at the end of each reporting period due to the conversion price not being indexed to the Company's own stock.
Changes in the fair value of the convertible note embedded derivative liability is reflected in our consolidated statements of operations as “Change in fair value of convertible note embedded derivative liability.”
The following table provides a reconciliation of the beginning and ending balances for the convertible note embedded derivative liability measured at fair value using significant unobservable inputs (Level 3):
|
|
|
|
|
|
|
|
Level 3
|
Balance at September 28, 2016 (inception of issuance of the Notes)
|
|
$
|
3,693
|
|
Change in fair value of convertible note embedded derivative liability
|
|
$
|
(2,423
|
)
|
Balance at December 31, 2016
|
|
$
|
1,270
|
|
Due to the valuation of the derivative liability being highly sensitive to the trading price of the Company's stock, the increase and decrease in the trading price of the Company's stock has the impact of increasing the (loss) and gain, respectively. Due to the Company's closing stock price decreasing during the days of September 28, 2016 (inception of issuance of the Notes) to December 31, 2016 with a decrease from
$0.99
to
$0.68
, this had the impact during the
nine months ended December 31, 2016
of recording a gain from change in fair value of convertible note embedded derivative liability of
$2,423
.
Due to the Company's closing stock price decreasing during the days of September 30, 2016 to December 31, 2016 with a decrease from
$1.05
to
$.68
, this had the impact during the
three months ended December 31, 2016
of recording a gain from change in fair value of convertible note embedded derivative liability of
$2,853
.
The market-based assumptions and estimates used in valuing the convertible note embedded derivative liability include amounts in the following amounts:
|
|
|
|
|
December 31, 2016
|
Stock price volatility
|
70
|
%
|
Probability of change in control
|
1.75
|
%
|
Stock price (per share)
|
$0.68
|
Expected term
|
3.75 years
|
|
Risk-free rate (1)
|
1.63
|
%
|
Assumed early conversion/exercise price (per share)
|
$2.73
|
(1) The Monte Carlo simulation assumes the continuously compounded equivalent (CCE) interest rate of
1.0%
based on the average of the 3-year and 5-year U.S. Treasury securities as of the valuation date.
Changes in valuation assumptions can have a significant impact on the valuation of the convertible note embedded derivative liability. For example, all other things being equal, a decrease/ increase in our stock price, probability of change of control, or stock price volatility decreases/increases the valuation of the liabilities, whereas a decrease/increase in risk-free interest rates increases/decreases the valuation of the liabilities.
Warrant Liability
The Company issued detachable warrants with the convertible notes issued on September 28, 2016. The Company accounts for its warrants issued in accordance with US GAAP accounting guidance under ASC 815 applicable to derivative instruments, which requires every derivative instrument within its scope to be recorded on the balance sheet as either an asset or liability measured at its fair value, with changes in fair value recognized in earnings. Based on this guidance, the Company determined that these warrants did not meet the criteria for classification as equity. Accordingly, the Company classified the warrants as long-term liabilities. The warrants are subject to re-measurement at each balance sheet date, with any change in fair value recognized as a component of other income (expense), net in the statements of operations. We estimated the fair value of these warrants at the respective balance sheet dates using a lattice approach that incorporates a Monte Carlo simulation that considers the Company's future stock price. Option pricing models employ subjective factors to estimate warrant liability; and, therefore, the assumptions used in the model are judgmental.
Changes in the fair value of the warrant liability is primarily related to the change in price of the underlying common stock of the Company and is reflected in our consolidated statements of operations as “Change in fair value of warrant liability.”
The following table provides a reconciliation of the beginning and ending balances for the warrant liability measured at fair value using significant unobservable inputs (Level 3):
|
|
|
|
|
|
|
|
Level 3
|
Balance at September 28, 2016 (inception of issuance of the Notes)
|
|
$
|
1,223
|
|
Change in fair value of warrant liability
|
|
$
|
(797
|
)
|
Balance at December 31, 2016
|
|
$
|
426
|
|
Due to the valuation of the derivative liability being highly sensitive to the trading price of the Company's stock, the increase and decrease in the trading price of the Company's stock has the impact of increasing the (loss) and gain, respectively. Due to the Company's closing stock price decreasing during the days of September 28, 2016 to December 31, 2016 with a decrease from
$0.99
to
$0.68
, this had the impact during the
nine months ended December 31, 2016
of recording a gain from change in fair value of warrant liability of
$797
.
Due to the Company's closing stock price decreasing during the days of September 30, 2016 to December 31, 2016 with an decreasing from
$1.05
to
$.68
, this had the impact during the
three months ended December 31, 2016
of recording a gain from change in fair value of warrant liability of
$937
.
The market-based assumptions and estimates used in valuing the warrant liability include amounts in the following amounts:
|
|
|
|
|
December 31, 2016
|
Stock price volatility
|
70
|
%
|
Probability of change in control
|
1.75
|
%
|
Stock price (per share)
|
$0.68
|
Expected term
|
3.75 years
|
|
Risk-free rate (1)
|
1.63
|
%
|
Assumed early conversion/exercise price (per share)
|
$2.73
|
(1) The Monte Carlo simulation assumes the continuously compounded equivalent (CCE) interest rate of
1.0%
based on the average of the 3-year and 5-year U.S. Treasury securities as of the valuation date.
Changes in valuation assumptions can have a significant impact on the valuation of the warrant liability. For example, all other things being equal, a decrease/increase in our stock price, probability of change of control, or stock price volatility decreases/increases the valuation of the liabilities, whereas a decrease/increase in risk-free interest rates increases/decreases the valuation of the liabilities.
10. Description of Stock Plans
Employee Stock Plan
The Company is currently issuing stock awards under the Amended and Restated Digital Turbine, Inc. 2011 Equity Incentive Plan (the “2011 Plan”), which was approved and adopted by our stockholders by written consent on May 23, 2012. No future grants will be made under the previous plan, the 2007 Employee, Director and Consultant Stock Plan (the “2007 Plan”). The 2011 Plan and 2007 Plan are collectively referred to as "Digital Turbine's Incentive Plans." In the year ended March 31, 2015, in connection with the acquisition of Appia, the Company assumed the Appia, Inc. 2008 Stock Incentive Plan (the “Appia Plan”). Digital Turbine’s Incentive Plans and the Appia Plan are all collectively referred to as the “Stock Plans.”
The 2011 Plan provides for grants of stock-based incentive awards to our and our subsidiaries’ officers, employees, non-employee directors, and consultants. Awards issued under the 2011 Plan can include stock options, stock appreciation rights (“SARs”), restricted stock, and restricted stock units (sometimes referred to individually or collectively as “Awards”). Stock options may be either “incentive stock options” (“ISOs”), as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or non-qualified stock options (“NQSOs”).
The 2011 Plan reserves
20,000,000
shares for issuance, of which
11,882,869
and
11,886,707
remained available for future grants as of
December 31, 2016
and
March 31, 2016
, respectively. The change over the comparative period represents stock option grants, stock option forfeitures/cancellations, and restricted shares of common stock of
1,525,500
,
1,853,025
, and
331,363
, respectively.
Stock Option Agreements
Stock options granted under Digital Turbine's Stock Plans typically vest over a
three
-to-
four
year period. These options, which are granted with option exercise prices equal to the fair market value of the Company’s common stock on the date of grant, generally expire up to
ten years
from the date of grant. In the year ended March 31, 2015, in connection with the Appia acquisition, the Company exchanged stock options previously granted under the Appia Plan for options to purchase shares of the Company’s common stock under the 2011 Plan. These assumed Appia options typically vest over a period of
four years
and generally expire within
ten years
from the date of grant. Compensation expense for all stock options is recognized on a straight-line basis over the requisite service period.
Stock Option Activity
The following table summarizes stock option activity for the Stock Plans for the periods or as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted Average
Exercise Price (per share)
|
|
Weighted Average
Remaining Contractual
Life (in years)
|
|
Aggregate Intrinsic
Value (in thousands)
|
Options Outstanding, March 31, 2016
|
|
7,824,395
|
|
|
$
|
3.61
|
|
|
8.24
|
|
$
|
110
|
|
Granted
|
|
1,525,500
|
|
|
1.02
|
|
|
|
|
|
Forfeited / Cancelled
|
|
(1,853,025
|
)
|
|
3.02
|
|
|
|
|
|
Exercised
|
|
(18,038
|
)
|
|
0.64
|
|
|
|
|
|
Options Outstanding, December 31, 2016
|
|
7,478,832
|
|
|
3.22
|
|
|
7.62
|
|
21
|
|
Vested and expected to vest (net of estimated forfeitures) at December 31, 2016 (a)
|
|
6,007,522
|
|
|
3.56
|
|
|
7.48
|
|
16
|
|
Exercisable, December 31, 2016
|
|
3,275,088
|
|
|
$
|
4.97
|
|
|
5.99
|
|
$
|
8
|
|
(a) For options vested and expected to vest, options exercisable, and options outstanding, the aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between Digital Turbine's closing stock price on
December 31, 2016
and the exercise price multiplied by the number of in-the-money options) that would have been received by the option holders, had the holders exercised their options on
December 31, 2016
. The intrinsic value changes based on changes in the price of the Company's common stock.
Information about options outstanding and exercisable at
December 31, 2016
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Exercise Price
|
|
Number of Shares
|
|
Weighted-Average Exercise Price
|
|
Weighted-Average Remaining Life (Years)
|
|
Number of Shares
|
|
Weighted-Average Exercise Price
|
$0.00 - 0.50
|
|
7,652
|
|
|
$
|
0.24
|
|
|
3.23
|
|
7,652
|
|
|
$
|
0.24
|
|
$0.51 - 1.00
|
|
607,624
|
|
|
$
|
0.66
|
|
|
8.10
|
|
132,621
|
|
|
$
|
0.65
|
|
$1.01 - 1.50
|
|
2,659,599
|
|
|
$
|
1.32
|
|
|
9.17
|
|
226,111
|
|
|
$
|
1.23
|
|
$1.51 - 2.00
|
|
260,502
|
|
|
$
|
1.51
|
|
|
8.35
|
|
102,045
|
|
|
$
|
1.51
|
|
$2.01 - 2.50
|
|
253,779
|
|
|
$
|
2.43
|
|
|
4.08
|
|
187,112
|
|
|
$
|
2.41
|
|
$2.51 - 3.00
|
|
1,051,977
|
|
|
$
|
2.61
|
|
|
7.62
|
|
743,696
|
|
|
$
|
2.63
|
|
$3.51 - 4.00
|
|
1,205,856
|
|
|
$
|
3.95
|
|
|
7.53
|
|
757,154
|
|
|
$
|
3.95
|
|
$4.01 - 4.50
|
|
901,843
|
|
|
$
|
4.14
|
|
|
6.72
|
|
610,572
|
|
|
$
|
4.14
|
|
$4.51 - 5.00
|
|
60,000
|
|
|
$
|
4.65
|
|
|
6.24
|
|
60,000
|
|
|
$
|
4.65
|
|
$5.01 and over
|
|
470,000
|
|
|
$
|
16.32
|
|
|
2.01
|
|
448,125
|
|
|
$
|
16.83
|
|
|
|
7,478,832
|
|
|
|
|
|
|
3,275,088
|
|
|
|
Other information pertaining to stock options for the Stock Plans for the nine months ended, as stated in the table below, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
Total fair value of options vested
|
|
$
|
2,250
|
|
|
$
|
4,050
|
|
Total intrinsic value of options exercised (a)
|
|
$
|
8
|
|
|
$
|
3
|
|
(a) The total intrinsic value of options exercised represents the total pre-tax intrinsic value (the difference between the stock price at exercise and the exercise price multiplied by the number of options exercised) that was received by the option holders who exercised their options during the
nine months ended December 31, 2016
and
2015
.
During the
nine months ended December 31, 2016
and
2015
, the Company granted options to purchase
1,525,500
and
3,336,650
shares of its common stock, respectively, to employees with weighted-average grant-date fair values of
$0.64
and
$2.05
, respectively.
At
December 31, 2016
and
2015
, there was
$5,706
and
$11,492
of total unrecognized stock-based compensation expense, respectively, net of estimated forfeitures, related to unvested stock options expected to be recognized over a weighted-average period of
2.27
and
2.77
years, respectively.
Valuation of Awards
For stock options granted under Digital Turbine’s Stock Plans, the Company typically uses the Black-Scholes option pricing model to estimate the fair value of stock options at grant date. The Black-Scholes option pricing model incorporates various assumptions, including volatility, expected term, risk-free interest rates, and dividend yields. The assumptions utilized in this model during
three and nine months ended December 31, 2016
are presented below.
|
|
|
|
|
|
December 31, 2016
|
Risk-free interest rate
|
|
1.06% to 1.69%
|
Expected life of the options
|
|
5.69 to 9.93 years
|
Expected volatility
|
|
86% to 130%
|
Expected dividend yield
|
|
—%
|
Expected forfeitures
|
|
10% to 35%
|
Expected volatility is based on a blend of implied and historical volatility of the Company's common stock over the most recent period commensurate with the estimated expected term of the Company’s stock options. The Company uses this blend of implied and historical volatility, as well as other economic data, because management believes such volatility is more representative of prospective trends. The expected term of an award is based on historical experience and on the terms and conditions of the stock awards granted to employees.
Total stock compensation expense for the Company’s Stock Plans for the
three and nine months ended December 31, 2016
, which includes both stock options and restricted stock, was
$1,118
and
$3,611
, respectively. Total stock compensation expense for the Company's Stock Plans for the
three and nine months ended December 31, 2015
, which includes both stock options and restricted stock, was
$1,404
and
$4,528
, respectively. Please refer to Note 11 regarding restricted stock.
11. Capital Stock Transactions
Preferred Stock
There are
2,000,000
shares of Series A Convertible Preferred Stock,
$0.0001
par value per share (“Series A”), authorized and
100,000
shares issued and outstanding, which are currently convertible into
20,000
shares of common stock. The Series A holders are entitled to: (1) vote on an equal per share basis as common stock, (2) dividends paid to the common stock holders on an if-converted basis and (3) a liquidation preference equal to the greater of
$10
per share of Series A (subject to adjustment) or such amount that would have been paid to the common stock holders on an if-converted basis.
Common Stock and Warrants
On June 9, 2016, the Company issued
30,000
warrants to a third party for services rendered. The warrants are immediately exercisable on the date of issuance at an initial exercise price of
$1.08
per share and will expire on June 9, 2021.
In July 2016, the Company issued
13,826
shares of common stock for the exercise of options assumed by the Company as part of the acquisition of DT Media (Appia, Inc.) during March 2015.
On September 28, 2016, in connection with the issuance of the Notes, the Company issued
250,000
and
4,105,600
warrants to the initial purchaser and holders of the Notes, respectively. The warrants are immediately exercisable on the date of issuance at an initial exercise price of
$1.364
per share and will expire on September 23, 2020. The exercise price is subject to proportional adjustment for adjustments to outstanding common stock and anti-dilution provisions in case of dividends or distributions, stock split or combination, or if the Company issues or sells shares of common stock at a price per share less than the conversion price on the trading day immediately preceding such issuance of sale. Refer to Note 7 "Debt" and Note 8 "Fair Value Measurements" for more details.
The following table provides activity for warrants issued and outstanding during the
nine months ended December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
Number of Warrants Outstanding
|
|
Weighted-Average Exercise Price
|
Outstanding as of March 31, 2016
|
|
2,085,356
|
|
|
2.78
|
|
Issued
|
|
4,385,600
|
|
|
1.36
|
|
Exercised
|
|
—
|
|
|
—
|
|
Cancelled
|
|
(400,000
|
)
|
|
0.01
|
|
Expired
|
|
(60,000
|
)
|
|
2.15
|
|
Outstanding as of December 31, 2016
|
|
6,010,956
|
|
|
1.94
|
|
With respect to warrants for services rendered, the Company expensed
$0
and
$19
during the
three and nine months ended December 31, 2016
, respectively, and recorded no warrant expense during
three and nine months ended December 31, 2015
.
Restricted Stock Agreements
From time to time, the Company enters into restricted stock agreements (“RSAs”) with certain employees, directors, and consultants. The RSAs have performance conditions, market conditions, time conditions, or a combination thereof. In some cases, once the stock vests, the individual is restricted from selling the shares of stock for a certain defined period, from
three
months to
two
years, depending on the terms of the RSA. As reported in our Current Reports on Form 8-K filed with the SEC on February 12, 2014 and June 25, 2014, the Company adopted a Board Member Equity Ownership Policy that supersedes any post-vesting lock-up in RSAs that are applicable to people covered by the policy, which includes the Company’s Board of Directors and Chief Executive Officer.
Service and Time Condition RSAs
Awards of restricted stock are grants of restricted stock that are issued at no cost to the recipient. The cost of these awards is determined using the fair market value of the Company’s common stock on the date of the grant. Compensation expense for restricted stock awards with a service condition is recognized on a straight-line basis over the requisite service period.
In August 2016, the Company issued
331,363
restricted shares to its directors for services. The shares vest over
one
year. The fair value of the shares on the date of issuance was
$364
. With respect to time condition RSAs, the Company expensed
$92
and
$258
during the
three and nine months ended December 31, 2016
, respectively, and
$123
and
$723
during
three and nine months ended December 31, 2015
, respectively.
The following is a summary of restricted stock awards and activities for all vesting conditions for the
nine months ended December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted-Average Grant Date Fair Value
|
Unvested restricted stock outstanding as of March 31, 2016
|
|
110,046
|
|
|
1.45
|
|
Granted
|
|
331,363
|
|
|
1.10
|
|
Vested
|
|
(192,887
|
)
|
|
1.62
|
|
Cancelled
|
|
—
|
|
|
—
|
|
Unvested restricted stock outstanding as of December 31, 2016
|
|
248,522
|
|
|
1.10
|
|
All restricted shares, vested and unvested, cancellable and not cancelled, have been included in the outstanding shares as of
December 31, 2016
.
At
December 31, 2016
, there was
$212
of unrecognized stock-based compensation expense, net of estimated forfeitures, related to non-vested restricted stock awards expected to be recognized over a weighted-average period of approximately
0.58
years.
12.
Net Loss Per Share
Basic net loss per share is calculated by dividing net loss by the weighted-average number of shares of common stock outstanding during the period, less shares subject to repurchase, and excludes any dilutive effects of employee stock-based awards in periods where the Company has net losses. Because the Company had net losses for the
three and nine months ended December 31, 2016
and
three and nine months ended December 31, 2015
, all potentially dilutive shares of common stock were determined to be anti-dilutive, and accordingly, were not included in the calculation of diluted net loss per share.
The following table sets forth the computation of net loss per share of common stock (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Nine Months Ended December 31,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net loss
|
|
$
|
(2,586
|
)
|
|
$
|
(5,763
|
)
|
|
$
|
(17,339
|
)
|
|
$
|
(22,204
|
)
|
Weighted-average common shares outstanding, basic and diluted
|
|
66,634
|
|
|
65,979
|
|
|
66,416
|
|
|
60,201
|
|
Basic and diluted net loss per common share
|
|
$
|
(0.04
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.37
|
)
|
Common stock equivalents excluded from net loss per diluted share because their effect would have been anti-dilutive
|
|
123
|
|
|
674
|
|
|
218
|
|
|
1,473
|
|
13.
I
ncome Taxes
Our provision for income taxes as a percentage of pre-tax earnings (“effective tax rate”) is based on a current estimate of the annual effective income tax rate, adjusted to reflect the impact of discrete items. In accordance with ASC 740, jurisdictions forecasting losses that are not benefited due to valuation allowances are not included in our forecasted effective tax rate.
During the
three and nine months ended December 31, 2016
, a tax expense of
$300
and
$159
, respectively, resulted in an effective tax rate of
(13.1)%
and
(0.9)%
, respectively. Differences in the tax provision and the statutory rate are primarily due to changes in the valuation allowance. The tax expense reported in the third quarter is largely due to changes in transfer pricing estimates.
During the
three and nine months ended December 31, 2015
, a tax expense of $
3
and
$246
, respectively, resulted in an effective tax rate of
(0.1)%
and
(0.1)%
, respectively. Differences in the tax provision and statutory rate are primarily due to changes in the valuation allowance.
14. Commitments and Contingencies
Legal Matters
The Company may be involved in various claims, suits, assessments, investigations, and legal proceedings that arise from time to time in the ordinary course of its business, including those identified below, and we do not believe that these proceedings and claims would reasonably be expected to have a material adverse effect on our financial position, results of operations or cash flows. The Company accrues a liability when it is both probable that a liability has been incurred, and the amount of the loss can be reasonably estimated. The Company reviews these accruals at least quarterly, and adjusts them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel, and other relevant information. To the extent new information is obtained and the Company's views on the probable outcomes of claims, suits, assessments, investigations, or legal proceedings change, changes in the Company's accrued liabilities would be recorded in the period in which such determination is made. For some matters, the amount of liability is not probable or the amount cannot be reasonably estimated, and therefore, accruals have not been made. In those cases, we assess whether there is at least a reasonable possibility that a loss, or additional losses, may have been incurred. If there is a reasonable possibility that a loss or additional loss may have been incurred for such proceedings, we disclose the estimate of the amount of loss or possible range of loss, or disclose that an estimate of loss cannot be made, as applicable.
The following is a discussion of the Company's significant legal matters and other proceedings.
Coral Tell Ltd. Matter
On May 30, 2013, a class action suit in the amount of NIS
19,200
, or approximately
$5,300
, was filed in the Tel-Aviv Jaffa District Court against Coral Tell Ltd., an Israeli company that owns and operates a website offering advertisements. Coral Tell Ltd. is currently being sued in a class action lawsuit regarding phone call overages, and has served a third-party notice against Logia and
two
additional companies for our alleged involvement in facilitating the overages. The suit relates to a service offered by the Coral Tell website, enabling advertisers to display a virtual cellular number in the advertisement instead of their real cellular number. The plaintiff claims that calls were charged for the connection time between
two
segments of the call, instead of the second segment alone; that the caller was charged even if the advertiser did not answer the call (as the charge began upon initiation of the first segment); and that the caller was charged for text messages sent to the advertiser, although the service did not support delivery of text messages. We have no contractual relationship with this company. We believe the lawsuit is without merit and a finding of liability on our part remote. After conferring with advisors and counsel, management believes that the ultimate liability, if any, in aggregate will not be material to the financial position or results or operations of the Company for any future period.
The Company does not believe there is a probable and estimable claim. Accordingly, the Company has not accrued any liability.
15. Segment and Geographic Information
The Company manages its business in three operating segments: O&O, A&P, and Content. The
three
operating segments have been aggregated into
two
reportable segments: Advertising and Content. Our chief operating decision maker does not evaluate operating segments using asset information. The Company has considered guidance in Accounting Standards Codification (ASC) 280 in reaching its conclusion with respect to aggregating its operating segments into
two
reportable segments. Specifically, the Company has evaluated guidance in ASC 280-10-50-11 and determined that aggregation is consistent with the objectives of ASC 280 in that aggregation into
two
reportable segments allows users of our financial statements to view the Company’s business through the eyes of management based upon the way management reviews performance and makes decisions. Additional factors that were considered included: whether or not the operating segments have similar economic characteristics, the nature of the products/services under each operating segment, the nature of the production/go-to-market process, the type and geographic location of our customers, and the distribution of our products/services.
The following table sets forth segment information on our net revenues and loss from operations for the
three and nine months ended December 31, 2016
and
three and nine months ended December 31, 2015
, respectively. During fiscal 2016 the Company changed its methodology for how corporate operating expenses are allocated to the Company's Advertising and Content operating segments, as the new method of allocation is deemed by management to be a more accurate representation of how the expenses relate to the operations and development of the Advertising and Content segments. Corporate operating expenses in fiscal 2015 were previously allocated between the Advertising and Content segments based on employee headcount. Corporate operating expenses in fiscal 2016 are now being allocated based on the percentage of revenue between Advertising and Content for the Company as a whole. Prior period fiscal 2015 figures presented have been updated to reflect these changes and are comparable to the fiscal 2016 figures presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Content
|
|
Advertising
|
|
Total
|
Three months ended December 31, 2016
|
|
|
|
|
|
|
Net revenues
|
|
$
|
6,073
|
|
|
$
|
16,212
|
|
|
$
|
22,285
|
|
Loss from operations
|
|
(1,229
|
)
|
|
(4,181
|
)
|
|
(5,410
|
)
|
Three months ended December 31, 2015
|
|
|
|
|
|
|
Net revenues
|
|
6,642
|
|
|
17,447
|
|
|
24,089
|
|
Loss from operations
|
|
$
|
(1,083
|
)
|
|
$
|
(4,182
|
)
|
|
$
|
(5,265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Content
|
|
Advertising
|
|
Total
|
Nine months ended December 31, 2016
|
|
|
|
|
|
|
Net revenues
|
|
$
|
24,929
|
|
|
$
|
44,227
|
|
|
$
|
69,156
|
|
Loss from operations
|
|
(3,980
|
)
|
|
(14,186
|
)
|
|
(18,166
|
)
|
Nine months ended December 31, 2015
|
|
|
|
|
|
|
Net revenues
|
|
20,782
|
|
|
42,727
|
|
|
63,509
|
|
Loss from operations
|
|
$
|
(6,600
|
)
|
|
$
|
(13,960
|
)
|
|
$
|
(20,560
|
)
|
The following table sets forth geographic information on our net revenues for the
three and nine months ended December 31, 2016
and
2015
. Net revenues by geography are based on the billing addresses of our customers. During the
three and nine months ended December 31, 2016
, one major Advertising customer represented
16.2%
and
13.4%
, respectively, of net revenues, another major Advertising customer represented
13.9%
and
11.4%
, respectively, of net revenues, and a major Content customer represented
16.2%
and
23.7%
, respectively, of net revenues. During the
three and nine months ended December 31, 2015
, the previously mentioned major Advertising customer represented
1.9%
and
1.6%
, respectively, of net revenues, the previously mentioned second major Advertising customer represented
9.3%
and
8.7%
, respectively, of net revenues, and the previously mentioned major Content customer represented
22.0%
and
26.6%
, respectively, of net revenues.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
2016
|
|
2015
|
Net revenues
|
|
|
|
|
United States and Canada
|
|
$
|
8,197
|
|
|
$
|
9,062
|
|
Europe, Middle East, and Africa
|
|
3,575
|
|
|
5,159
|
|
Asia Pacific and China
|
|
9,746
|
|
|
9,769
|
|
Mexico, Central America, and South America
|
|
767
|
|
|
99
|
|
Consolidated net revenues
|
|
$
|
22,285
|
|
|
$
|
24,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31,
|
|
|
2016
|
|
2015
|
Net revenues
|
|
|
|
|
United States and Canada
|
|
$
|
23,677
|
|
|
$
|
22,330
|
|
Europe, Middle East, and Africa
|
|
11,380
|
|
|
11,851
|
|
Asia Pacific and China
|
|
32,700
|
|
|
28,979
|
|
Mexico, Central America, and South America
|
|
1,399
|
|
|
349
|
|
Consolidated net revenues
|
|
$
|
69,156
|
|
|
$
|
63,509
|
|
16. Guarantor and Non-Guarantor Financial Statements
On September 28, 2016, the Company sold to the Initial Purchaser,
$16,000
principal amount of
8.75%
convertible notes maturing on September 23, 2020, unless converted, repurchased or redeemed in accordance with their terms prior to such date. The Notes were issued under the Indenture, between Digital Turbine, Inc., US Bank National Association, as trustee, and certain wholly-owned subsidiaries of the Company, specifically Digital Turbine, Inc. as the parent Company, DT USA, DT Media, and DT APAC. Given the Notes are unconditionally guaranteed as to the payment of principal, premium, if any, and interest on a senior unsecured basis by
four
of the wholly-owned subsidiaries of the Company, the Company is required by SEC Reg S-X 210.3-10 to include, in a footnote, condensed consolidating financial information for the same periods with a separate column for:
|
|
•
|
The subsidiary guarantors on a combined basis;
|
|
|
•
|
Any other subsidiaries of the parent company on a combined basis;
|
|
|
•
|
Consolidating adjustments; and
|
|
|
•
|
The total consolidated amounts.
|
The following consolidated financial information and condensed consolidated financial information include:
(1) Condensed consolidated balance sheets as of
December 31, 2016
and
March 31, 2016
; consolidated statements of operations for the
three and nine months ended December 31, 2016
and
2015
; and condensed consolidated statements of cash flows for the
nine months ended December 31, 2016
and
2015
of (a) Digital Turbine, Inc. as the parent, (b) the guarantor subsidiaries, (c) the non-guarantor subsidiaries, and (d) Digital Turbine, Inc. on a consolidated basis; and
(2) Elimination entries necessary to consolidate Digital Turbine, Inc., as the parent, with its guarantor and non-guarantor subsidiaries.
Digital Turbine, Inc. owns 100% of all of the guarantor subsidiaries, and as a result, in accordance with Rule 3-10(d) of Regulation S-X promulgated by the SEC, no separate financial statements are required for these subsidiaries as of and for the
three and nine months ended December 31, 2016
or
2015
.
Condensed Consolidated Balance Sheet
as of
December 31, 2016
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated Total
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,477
|
|
|
$
|
4,136
|
|
|
$
|
92
|
|
|
$
|
—
|
|
|
$
|
5,705
|
|
Restricted cash
|
|
156
|
|
|
167
|
|
|
—
|
|
|
—
|
|
|
323
|
|
Accounts receivable, net of allowances of $594 and $464, respectively
|
|
5
|
|
|
18,215
|
|
|
1,046
|
|
|
—
|
|
|
19,266
|
|
Deposits
|
|
—
|
|
|
114
|
|
|
16
|
|
|
—
|
|
|
130
|
|
Prepaid expenses and other current assets
|
|
418
|
|
|
134
|
|
|
1
|
|
|
—
|
|
|
553
|
|
Intercompany receivable, net
|
|
125,783
|
|
|
—
|
|
|
—
|
|
|
(125,783
|
)
|
|
—
|
|
Total current assets
|
|
127,839
|
|
|
22,766
|
|
|
1,155
|
|
|
(125,783
|
)
|
|
25,977
|
|
Property and equipment, net
|
|
66
|
|
|
2,357
|
|
|
57
|
|
|
—
|
|
|
2,480
|
|
Cost method investment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Deferred tax assets
|
|
288
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
288
|
|
Intangible assets, net
|
|
2
|
|
|
3,884
|
|
|
2,964
|
|
|
—
|
|
|
6,850
|
|
Goodwill
|
|
—
|
|
|
70,377
|
|
|
6,244
|
|
|
—
|
|
|
76,621
|
|
TOTAL ASSETS
|
|
128,195
|
|
|
99,384
|
|
|
10,420
|
|
|
(125,783
|
)
|
|
112,216
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
1,595
|
|
|
18,005
|
|
|
209
|
|
|
—
|
|
|
19,809
|
|
Accrued license fees and revenue share
|
|
—
|
|
|
8,719
|
|
|
191
|
|
|
—
|
|
|
8,910
|
|
Accrued compensation
|
|
33
|
|
|
1,079
|
|
|
—
|
|
|
—
|
|
|
1,112
|
|
Other current liabilities
|
|
1,877
|
|
|
374
|
|
|
(625
|
)
|
|
—
|
|
|
1,626
|
|
Intercompany payable, net
|
|
—
|
|
|
109,479
|
|
|
16,304
|
|
|
(125,783
|
)
|
|
—
|
|
Total current liabilities
|
|
3,505
|
|
|
137,656
|
|
|
16,079
|
|
|
(125,783
|
)
|
|
31,457
|
|
Convertible notes, net of debt issuance costs and discounts of $6,540 and $0, respectively
|
|
9,460
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,460
|
|
Convertible note embedded derivative liability
|
|
1,270
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,270
|
|
Warrant liability
|
|
426
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
426
|
|
Other non-current liabilities
|
|
1,007
|
|
|
90
|
|
|
—
|
|
|
—
|
|
|
1,097
|
|
Total liabilities
|
|
15,668
|
|
|
137,746
|
|
|
16,079
|
|
|
(125,783
|
)
|
|
43,710
|
|
Stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
Series A convertible preferred stock at $0.0001 par value;
2,000,000 shares authorized, 100,000 issued and outstanding
(liquidation preference of $1,000)
|
|
100
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
100
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
$0.0001 par value: 200,000,000 shares authorized;
67,368,462 issued and 66,634,006 outstanding at December 31, 2016;
67,019,703 issued and 66,284,606 outstanding at March 31, 2016;
|
|
8
|
|
|
|
|
|
|
|
|
—
|
|
|
8
|
|
Additional paid-in capital
|
|
299,045
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
299,045
|
|
Treasury stock (754,599 shares at December 31, 2016 and March 31, 2016)
|
|
(71
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(71
|
)
|
Accumulated other comprehensive loss
|
|
(70
|
)
|
|
(1,421
|
)
|
|
1,241
|
|
|
—
|
|
|
(250
|
)
|
Accumulated deficit
|
|
(186,485
|
)
|
|
(36,941
|
)
|
|
(6,900
|
)
|
|
—
|
|
|
(230,326
|
)
|
Total stockholders' equity
|
|
112,527
|
|
|
(38,362
|
)
|
|
(5,659
|
)
|
|
—
|
|
|
68,506
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
128,195
|
|
|
$
|
99,384
|
|
|
$
|
10,420
|
|
|
$
|
(125,783
|
)
|
|
$
|
112,216
|
|
Condensed Consolidated Balance Sheet
as of
March 31, 2016
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated Total
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
6,712
|
|
|
4,466
|
|
|
53
|
|
|
—
|
|
|
11,231
|
|
Restricted cash
|
|
—
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Accounts receivable, net of allowances of $464
|
|
24
|
|
|
17,369
|
|
|
126
|
|
|
—
|
|
|
17,519
|
|
Deposits
|
|
—
|
|
|
80
|
|
|
133
|
|
|
—
|
|
|
213
|
|
Prepaid expenses and other current assets
|
|
331
|
|
|
239
|
|
|
13
|
|
|
—
|
|
|
583
|
|
Intercompany receivable, net
|
|
111,909
|
|
|
|
|
|
|
|
|
(111,909
|
)
|
|
—
|
|
Total current assets
|
|
118,976
|
|
|
22,154
|
|
|
325
|
|
|
(111,909
|
)
|
|
29,546
|
|
Property and equipment, net
|
|
53
|
|
|
1,690
|
|
|
41
|
|
|
—
|
|
|
1,784
|
|
Cost method investment
|
|
—
|
|
|
999
|
|
|
—
|
|
|
—
|
|
|
999
|
|
Deferred tax assets
|
|
500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
500
|
|
Intangible assets, net
|
|
—
|
|
|
8,660
|
|
|
3,830
|
|
|
—
|
|
|
12,490
|
|
Goodwill
|
|
—
|
|
|
70,377
|
|
|
6,244
|
|
|
—
|
|
|
76,621
|
|
TOTAL ASSETS
|
|
119,529
|
|
|
103,880
|
|
|
10,440
|
|
|
(111,909
|
)
|
|
121,940
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
1,255
|
|
|
13,997
|
|
|
48
|
|
|
—
|
|
|
15,300
|
|
Accrued license fees and revenue share
|
|
—
|
|
|
9,549
|
|
|
73
|
|
|
—
|
|
|
9,622
|
|
Accrued compensation
|
|
(544
|
)
|
|
1,800
|
|
|
97
|
|
|
—
|
|
|
1,353
|
|
Short-term debt, net of debt issuance costs and discounts of $568
|
|
—
|
|
|
10,432
|
|
|
—
|
|
|
—
|
|
|
10,432
|
|
Deferred tax liabilities
|
|
—
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other current liabilities
|
|
1,648
|
|
|
1,237
|
|
|
(738
|
)
|
|
—
|
|
|
2,147
|
|
Intercompany payable, net
|
|
—
|
|
|
95,732
|
|
|
16,177
|
|
|
(111,909
|
)
|
|
—
|
|
Total current liabilities
|
|
2,359
|
|
|
132,747
|
|
|
15,657
|
|
|
(111,909
|
)
|
|
38,854
|
|
Other non-current liabilities
|
|
815
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
815
|
|
Total liabilities
|
|
3,174
|
|
|
132,747
|
|
|
15,657
|
|
|
(111,909
|
)
|
|
39,669
|
|
Stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
Series A convertible preferred stock at $0.0001 par value;
2,000,000 shares authorized, 100,000 issued and outstanding
(liquidation preference of $1,000)
|
|
100
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
100
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
$0.0001 par value: 200,000,000 shares authorized;
67,019,703 issued and 66,284,606 outstanding at March 31, 2016;
|
|
8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
Additional paid-in capital
|
|
295,423
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
295,423
|
|
Treasury stock (754,599 shares at March 31, 2016)
|
|
(71
|
)
|
|
|
|
|
—
|
|
|
—
|
|
|
(71
|
)
|
Accumulated other comprehensive loss
|
|
26
|
|
|
(1,394
|
)
|
|
1,166
|
|
|
—
|
|
|
(202
|
)
|
Accumulated deficit
|
|
(179,131
|
)
|
|
(27,473
|
)
|
|
(6,383
|
)
|
|
—
|
|
|
(212,987
|
)
|
Total stockholders' equity
|
|
116,355
|
|
|
(28,867
|
)
|
|
(5,217
|
)
|
|
—
|
|
|
82,271
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
119,529
|
|
|
103,880
|
|
|
10,440
|
|
|
(111,909
|
)
|
|
121,940
|
|
Consolidated Statement of Operations and Comprehensive Loss
for the
three months ended December 31, 2016
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated Total
|
Net revenues
|
|
—
|
|
|
30,897
|
|
|
751
|
|
|
(9,363
|
)
|
|
22,285
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
License fees and revenue share
|
|
—
|
|
|
26,176
|
|
|
226
|
|
|
(9,363
|
)
|
|
17,039
|
|
Other direct cost of revenues
|
|
—
|
|
|
1,589
|
|
|
289
|
|
|
—
|
|
|
1,878
|
|
Total cost of revenues
|
|
—
|
|
|
27,765
|
|
|
515
|
|
|
(9,363
|
)
|
|
18,917
|
|
Gross profit
|
|
—
|
|
|
3,132
|
|
|
236
|
|
|
—
|
|
|
3,368
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
Product development
|
|
15
|
|
|
3,082
|
|
|
16
|
|
|
—
|
|
|
3,113
|
|
Sales and marketing
|
|
77
|
|
|
1,558
|
|
|
48
|
|
|
—
|
|
|
1,683
|
|
General and administrative
|
|
2,468
|
|
|
1,444
|
|
|
70
|
|
|
—
|
|
|
3,982
|
|
Total operating expenses
|
|
2,560
|
|
|
6,084
|
|
|
134
|
|
|
—
|
|
|
8,778
|
|
Income / (loss) from operations
|
|
(2,560
|
)
|
|
(2,952
|
)
|
|
102
|
|
|
—
|
|
|
(5,410
|
)
|
Interest and other income / (expense), net
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
(674
|
)
|
|
(51
|
)
|
|
—
|
|
|
—
|
|
|
(725
|
)
|
Foreign exchange transaction loss
|
|
—
|
|
|
(9
|
)
|
|
|
|
|
—
|
|
|
(9
|
)
|
Change in fair value of convertible note embedded derivative liability
|
|
2,853
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,853
|
|
Change in fair value of warrant liability
|
|
937
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
937
|
|
Loss on extinguishment of debt
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other income / (expense)
|
|
22
|
|
|
46
|
|
|
—
|
|
|
—
|
|
|
68
|
|
Total interest and other income / (expense), net
|
|
3,138
|
|
|
(14
|
)
|
|
—
|
|
|
—
|
|
|
3,124
|
|
Income / (loss) from operations before income taxes
|
|
578
|
|
|
(2,966
|
)
|
|
102
|
|
|
—
|
|
|
(2,286
|
)
|
Income tax provision / (benefit)
|
|
300
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
300
|
|
Net gain / (loss)
|
|
278
|
|
|
(2,966
|
)
|
|
102
|
|
|
—
|
|
|
(2,586
|
)
|
Other comprehensive income / (loss)
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
Comprehensive income / (loss)
|
|
283
|
|
|
(2,966
|
)
|
|
102
|
|
|
—
|
|
|
(2,581
|
)
|
Consolidated Statement of Operations and Comprehensive Loss
for the
nine months ended December 31, 2016
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated Total
|
Net revenues
|
|
—
|
|
|
90,839
|
|
|
1,331
|
|
|
(23,014
|
)
|
|
69,156
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
License fees and revenue share
|
|
—
|
|
|
76,600
|
|
|
474
|
|
|
(23,014
|
)
|
|
54,060
|
|
Other direct cost of revenues
|
|
—
|
|
|
4,774
|
|
|
866
|
|
|
—
|
|
|
5,640
|
|
Total cost of revenues
|
|
—
|
|
|
81,374
|
|
|
1,340
|
|
|
(23,014
|
)
|
|
59,700
|
|
Gross profit
|
|
—
|
|
|
9,465
|
|
|
(9
|
)
|
|
—
|
|
|
9,456
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
Product development
|
|
24
|
|
|
8,967
|
|
|
74
|
|
|
—
|
|
|
9,065
|
|
Sales and marketing
|
|
159
|
|
|
4,468
|
|
|
28
|
|
|
—
|
|
|
4,655
|
|
General and administrative
|
|
9,562
|
|
|
4,516
|
|
|
(176
|
)
|
|
—
|
|
|
13,902
|
|
Total operating expenses
|
|
9,745
|
|
|
17,951
|
|
|
(74
|
)
|
|
—
|
|
|
27,622
|
|
Income / (loss) from operations
|
|
(9,745
|
)
|
|
(8,486
|
)
|
|
65
|
|
|
—
|
|
|
(18,166
|
)
|
Interest and other income / (expense), net
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
(680
|
)
|
|
(1,349
|
)
|
|
—
|
|
|
—
|
|
|
(2,029
|
)
|
Foreign exchange transaction loss
|
|
—
|
|
|
(9
|
)
|
|
(4
|
)
|
|
—
|
|
|
(13
|
)
|
Change in fair value of convertible note embedded derivative liability
|
|
2,423
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,423
|
|
Change in fair value of warrant liability
|
|
797
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
797
|
|
Loss on extinguishment of debt
|
|
(293
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(293
|
)
|
Other income / (expense)
|
|
52
|
|
|
49
|
|
|
—
|
|
|
—
|
|
|
101
|
|
Total interest and other income / (expense), net
|
|
2,299
|
|
|
(1,309
|
)
|
|
(4
|
)
|
|
—
|
|
|
986
|
|
Income / (loss) from operations before income taxes
|
|
(7,446
|
)
|
|
(9,795
|
)
|
|
61
|
|
|
—
|
|
|
(17,180
|
)
|
Income tax provision / (benefit)
|
|
159
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
159
|
|
Net income / (loss)
|
|
(7,605
|
)
|
|
(9,795
|
)
|
|
61
|
|
|
—
|
|
|
(17,339
|
)
|
Other comprehensive income / (loss)
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
(48
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(48
|
)
|
Comprehensive income / (loss)
|
|
(7,653
|
)
|
|
(9,795
|
)
|
|
61
|
|
|
—
|
|
|
(17,387
|
)
|
Consolidated Statement of Operations and Comprehensive Loss
for the
three months ended December 31, 2015
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated Total
|
Net revenues
|
|
—
|
|
|
29,641
|
|
|
58
|
|
|
(5,610
|
)
|
|
24,089
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
License fees and revenue share
|
|
—
|
|
|
24,154
|
|
|
25
|
|
|
(5,610
|
)
|
|
18,569
|
|
Other direct cost of revenues
|
|
—
|
|
|
1,815
|
|
|
(111
|
)
|
|
—
|
|
|
1,704
|
|
Total cost of revenues
|
|
—
|
|
|
25,969
|
|
|
(86
|
)
|
|
(5,610
|
)
|
|
20,273
|
|
Gross profit
|
|
—
|
|
|
3,672
|
|
|
144
|
|
|
—
|
|
|
3,816
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
Product development
|
|
(23
|
)
|
|
2,654
|
|
|
107
|
|
|
—
|
|
|
2,738
|
|
Sales and marketing
|
|
38
|
|
|
1,616
|
|
|
22
|
|
|
—
|
|
|
1,676
|
|
General and administrative
|
|
2,744
|
|
|
1,727
|
|
|
196
|
|
|
—
|
|
|
4,667
|
|
Total operating expenses
|
|
2,759
|
|
|
5,997
|
|
|
325
|
|
|
—
|
|
|
9,081
|
|
Loss from operations
|
|
(2,759
|
)
|
|
(2,325
|
)
|
|
(181
|
)
|
|
—
|
|
|
(5,265
|
)
|
Interest and other income / (expense), net
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
1
|
|
|
(567
|
)
|
|
95
|
|
|
—
|
|
|
(471
|
)
|
Foreign exchange transaction loss
|
|
(2
|
)
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
Loss on disposal of fixed assets
|
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
Other income / (expense)
|
|
(3
|
)
|
|
90
|
|
|
(95
|
)
|
|
—
|
|
|
(8
|
)
|
Total interest and other income / (expense), net
|
|
(4
|
)
|
|
(491
|
)
|
|
—
|
|
|
—
|
|
|
(495
|
)
|
Loss from operations before income taxes
|
|
(2,763
|
)
|
|
(2,816
|
)
|
|
(181
|
)
|
|
—
|
|
|
(5,760
|
)
|
Income tax provision / (benefit)
|
|
87
|
|
|
(84
|
)
|
|
—
|
|
|
—
|
|
|
3
|
|
Net loss
|
|
(2,850
|
)
|
|
(2,732
|
)
|
|
(181
|
)
|
|
—
|
|
|
(5,763
|
)
|
Other comprehensive income / (loss)
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
(65
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(65
|
)
|
Comprehensive loss
|
|
(2,915
|
)
|
|
(2,732
|
)
|
|
(181
|
)
|
|
—
|
|
|
(5,828
|
)
|
Consolidated Statement of Operations and Comprehensive Loss
for the
nine months ended December 31, 2015
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated Total
|
Net revenues
|
|
—
|
|
|
74,227
|
|
|
192
|
|
|
(10,910
|
)
|
|
63,509
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
License fees and revenue share
|
|
—
|
|
|
59,733
|
|
|
66
|
|
|
(10,910
|
)
|
|
48,889
|
|
Other direct cost of revenues
|
|
—
|
|
|
7,980
|
|
|
473
|
|
|
|
|
|
8,453
|
|
Total cost of revenues
|
|
—
|
|
|
67,713
|
|
|
539
|
|
|
(10,910
|
)
|
|
57,342
|
|
Gross profit
|
|
—
|
|
|
6,514
|
|
|
(347
|
)
|
|
—
|
|
|
6,167
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
Product development
|
|
(582
|
)
|
|
8,038
|
|
|
442
|
|
|
—
|
|
|
7,898
|
|
Sales and marketing
|
|
(166
|
)
|
|
4,474
|
|
|
118
|
|
|
—
|
|
|
4,426
|
|
General and administrative
|
|
8,840
|
|
|
5,061
|
|
|
502
|
|
|
—
|
|
|
14,403
|
|
Total operating expenses
|
|
8,092
|
|
|
17,573
|
|
|
1,062
|
|
|
—
|
|
|
26,727
|
|
Loss from operations
|
|
(8,092
|
)
|
|
(11,059
|
)
|
|
(1,409
|
)
|
|
—
|
|
|
(20,560
|
)
|
Interest and other income / (expense), net
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
1
|
|
|
(1,273
|
)
|
|
(95
|
)
|
|
—
|
|
|
(1,367
|
)
|
Foreign exchange transaction loss
|
|
(3
|
)
|
|
(17
|
)
|
|
—
|
|
|
—
|
|
|
(20
|
)
|
Loss on disposal of fixed assets
|
|
(21
|
)
|
|
(10
|
)
|
|
—
|
|
|
—
|
|
|
(31
|
)
|
Other income / (expense)
|
|
17
|
|
|
(8
|
)
|
|
11
|
|
|
—
|
|
|
20
|
|
Total interest and other income / (expense), net
|
|
(6
|
)
|
|
(1,308
|
)
|
|
(84
|
)
|
|
—
|
|
|
(1,398
|
)
|
Loss from operations before income taxes
|
|
(8,098
|
)
|
|
(12,367
|
)
|
|
(1,493
|
)
|
|
—
|
|
|
(21,958
|
)
|
Income tax provision / (benefit)
|
|
246
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
246
|
|
Net loss
|
|
(8,344
|
)
|
|
(12,367
|
)
|
|
(1,493
|
)
|
|
—
|
|
|
(22,204
|
)
|
Other comprehensive income / (loss)
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
Comprehensive loss
|
|
(8,347
|
)
|
|
(12,367
|
)
|
|
(1,493
|
)
|
|
—
|
|
|
(22,207
|
)
|
Condensed Consolidated Statement of Cash Flows
for the
nine months ended December 31, 2016
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated Total
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
(7,605
|
)
|
|
(9,795
|
)
|
|
61
|
|
|
—
|
|
|
(17,339
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
9
|
|
|
5,518
|
|
|
798
|
|
|
—
|
|
|
6,325
|
|
Change in allowance for doubtful accounts
|
|
—
|
|
|
130
|
|
|
—
|
|
|
—
|
|
|
130
|
|
Amortization of debt discount
|
|
213
|
|
|
237
|
|
|
—
|
|
|
—
|
|
|
450
|
|
Amortization of debt issuance costs
|
|
74
|
|
|
445
|
|
|
—
|
|
|
—
|
|
|
519
|
|
Accrued interest
|
|
388
|
|
|
(91
|
)
|
|
—
|
|
|
—
|
|
|
297
|
|
Stock-based compensation
|
|
3,335
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,335
|
|
Stock-based compensation for services rendered
|
|
276
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
276
|
|
Change in fair value of convertible note embedded derivative liability
|
|
(2,423
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,423
|
)
|
Change in fair value of warrant liability
|
|
(797
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(797
|
)
|
Loss on extinguishment of debt
|
|
293
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
293
|
|
(Increase) / decrease in assets:
|
|
|
|
|
|
|
|
|
|
|
Restricted cash transferred to / (from) operating cash
|
|
—
|
|
|
(323
|
)
|
|
—
|
|
|
—
|
|
|
(323
|
)
|
Accounts receivable
|
|
19
|
|
|
(976
|
)
|
|
(920
|
)
|
|
—
|
|
|
(1,877
|
)
|
Deposits
|
|
—
|
|
|
(34
|
)
|
|
117
|
|
|
—
|
|
|
83
|
|
Deferred tax assets
|
|
212
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
212
|
|
Prepaid expenses and other current assets
|
|
(86
|
)
|
|
104
|
|
|
12
|
|
|
—
|
|
|
30
|
|
Increase / (decrease) in liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
340
|
|
|
4,003
|
|
|
166
|
|
|
—
|
|
|
4,509
|
|
Accrued license fees and revenue share
|
|
—
|
|
|
(830
|
)
|
|
118
|
|
|
—
|
|
|
(712
|
)
|
Accrued compensation
|
|
576
|
|
|
(720
|
)
|
|
(97
|
)
|
|
—
|
|
|
(241
|
)
|
Other current liabilities
|
|
(34
|
)
|
|
(862
|
)
|
|
78
|
|
|
—
|
|
|
(818
|
)
|
Other non-current liabilities
|
|
1,927
|
|
|
(1,370
|
)
|
|
(274
|
)
|
|
—
|
|
|
283
|
|
Net cash used in operating activities
|
|
(3,283
|
)
|
|
(4,564
|
)
|
|
59
|
|
|
—
|
|
|
(7,788
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(3
|
)
|
|
(1,358
|
)
|
|
(20
|
)
|
|
—
|
|
|
(1,381
|
)
|
Proceeds from sale of cost method investment in Sift
|
|
—
|
|
|
999
|
|
|
—
|
|
|
—
|
|
|
999
|
|
Net cash used in investing activities
|
|
(3
|
)
|
|
(359
|
)
|
|
(20
|
)
|
|
—
|
|
|
(382
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
Cash received from issuance of convertible notes
|
|
—
|
|
|
16,000
|
|
|
—
|
|
|
—
|
|
|
16,000
|
|
Repayment of debt obligations
|
|
—
|
|
|
(11,000
|
)
|
|
—
|
|
|
—
|
|
|
(11,000
|
)
|
Payment of debt issuance costs
|
|
(1,912
|
)
|
|
(407
|
)
|
|
—
|
|
|
—
|
|
|
(2,319
|
)
|
Options exercised
|
|
11
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11
|
|
Net cash provided in financing activities
|
|
(1,901
|
)
|
|
4,593
|
|
|
—
|
|
|
—
|
|
|
2,692
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
(48
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
(5,235
|
)
|
|
(330
|
)
|
|
39
|
|
|
—
|
|
|
(5,526
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
6,712
|
|
|
4,466
|
|
|
53
|
|
|
—
|
|
|
11,231
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
1,477
|
|
|
4,136
|
|
|
92
|
|
|
—
|
|
|
5,705
|
|
Condensed Consolidated Statement of Cash Flows
for the
nine months ended December 31, 2015
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated Total
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
(8,344
|
)
|
|
(12,367
|
)
|
|
(1,493
|
)
|
|
—
|
|
|
(22,204
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
7
|
|
|
8,126
|
|
|
473
|
|
|
—
|
|
|
8,606
|
|
Loss on disposal of fixed assets
|
|
|
|
|
31
|
|
|
—
|
|
|
—
|
|
|
31
|
|
Change in allowance for doubtful accounts
|
|
—
|
|
|
26
|
|
|
—
|
|
|
—
|
|
|
26
|
|
Amortization of debt issuance costs
|
|
—
|
|
|
355
|
|
|
—
|
|
|
—
|
|
|
355
|
|
Accrued interest
|
|
—
|
|
|
(14
|
)
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
Stock-based compensation
|
|
3,805
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,805
|
|
Stock-based compensation for services rendered
|
|
723
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
723
|
|
Stock issued for settlement of liability
|
|
283
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
283
|
|
(Increase) / decrease in assets:
|
|
|
|
|
|
|
|
|
|
|
Restricted cash transferred to / (from) operating cash
|
|
200
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
200
|
|
Accounts receivable
|
|
—
|
|
|
(4,472
|
)
|
|
(123
|
)
|
|
—
|
|
|
(4,595
|
)
|
Deposits
|
|
8
|
|
|
(62
|
)
|
|
(15
|
)
|
|
—
|
|
|
(69
|
)
|
Deferred financing costs
|
|
—
|
|
|
(174
|
)
|
|
—
|
|
|
—
|
|
|
(174
|
)
|
Prepaid expenses and other current assets
|
|
(243
|
)
|
|
327
|
|
|
(44
|
)
|
|
—
|
|
|
40
|
|
Increase / (decrease) in liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
(990
|
)
|
|
6,759
|
|
|
(41
|
)
|
|
—
|
|
|
5,728
|
|
Accrued license fees and revenue share
|
|
—
|
|
|
3,312
|
|
|
24
|
|
|
—
|
|
|
3,336
|
|
Accrued compensation
|
|
(1,129
|
)
|
|
275
|
|
|
17
|
|
|
—
|
|
|
(837
|
)
|
Other current liabilities
|
|
(2,254
|
)
|
|
383
|
|
|
1,171
|
|
|
—
|
|
|
(700
|
)
|
Net cash used in operating activities
|
|
(7,934
|
)
|
|
2,505
|
|
|
(31
|
)
|
|
—
|
|
|
(5,460
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
—
|
|
|
(1,007
|
)
|
|
—
|
|
|
—
|
|
|
(1,007
|
)
|
Net cash proceeds from cost method investment in Sift
|
|
—
|
|
|
875
|
|
|
—
|
|
|
—
|
|
|
875
|
|
Net cash used in investing activities
|
|
—
|
|
|
(132
|
)
|
|
—
|
|
|
—
|
|
|
(132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
Repayment of debt obligations
|
|
—
|
|
|
(450
|
)
|
|
—
|
|
|
—
|
|
|
(450
|
)
|
Options exercised
|
|
51
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
51
|
|
Stock issued for cash in stock offering, net
|
|
12,627
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,627
|
|
Net cash provided in financing activities
|
|
12,678
|
|
|
(450
|
)
|
|
—
|
|
|
—
|
|
|
12,228
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
(26
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
4,718
|
|
|
1,923
|
|
|
(31
|
)
|
|
—
|
|
|
6,610
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
4,156
|
|
|
2,827
|
|
|
86
|
|
|
—
|
|
|
7,069
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
8,874
|
|
|
4,750
|
|
|
55
|
|
|
—
|
|
|
13,679
|
|
17. Related-Party Transactions
On December 28, 2015, DT Media entered into a license agreement with respect to certain of DTM’s intellectual property assets with Sift, in exchange for
9.9%
of Sift’s newly-issued Preferred Stock and a cash payment of
$1,000
. On December 28, 2016, the Company sold the cost method investment in Sift back to the current owners of Sift for cash proceeds of
$999
. In association with the sale of the investment, Bill Stone, CEO of Digital Turbine, stepped down from his position as a Director of Sift.
18. Subsequent Events
None.