Notes to Consolidated Financial Statements (Unaudited)
December 31, 2017
(in thousands, except share and per share amounts)
1. Description of Business
Digital Turbine, through its subsidiaries, operates 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:
|
|
|
|
•
|
Operator and OEM ("O&O"), an advertiser solution for unique and exclusive carrier and original equipment manufacturer ("OEM") inventory which is comprised of services including:
|
|
|
|
|
◦
|
Ignite™ ("Ignite"), a mobile device management platform with targeted application distribution capabilities, and
|
|
|
|
|
◦
|
Other professional services directly related to the Ignite platform.
|
|
|
|
|
•
|
Advertiser and Publisher ("A&P"), a worldwide mobile user acquisition network which is comprised of the Syndicated network service.
|
The Company's Content business is comprised of services including:
|
|
|
|
•
|
Marketplace™ ("Marketplace"), an application and content store, and
|
|
|
|
|
•
|
Pay™ ("Pay"), a content management and mobile payment solution.
|
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 stock, preferred stock, and debt. As of
December 31, 2017
, we had cash and restricted cash totaling approximately
$7,214
.
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.
On May 23, 2017, the Company entered into a Business Finance Agreement (the "Credit Agreement") with Western Alliance Bank (the "Bank"). The Credit Agreement provides for a
$5,000
total facility. Refer to Note 7 "Debt" for more details.
The Company anticipates that its primary sources of liquidity will continue be cash on hand, cash provided by operations, and the remaining credit available under the Credit Agreement. In addition, the Company may raise additional capital through future equity or, subject to restrictions contained in the indenture for the Notes and the Credit Agreement, 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 view of the matters described in the preceding paragraphs, 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. The Company believes that it has sufficient cash and capital resources to operate its business for at least the next twelve months from the issuance date of this quarterly report on Form 10-Q.
3. Summary of Significant Accounting Policies
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, 2017
, 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, 2017
, the results of its operations and corresponding comprehensive loss, and its cash flows for the
nine months ended December 31, 2017
and
2016
. 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. 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, 2018
.
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, 2017
. There have been no significant changes in or updates to the accounting policies since
March 31, 2017
. Only new accounting pronouncements, pertinent to the Company, issued subsequent to the issuance of our Annual Report are described below.
Recently Issued Accounting Pronouncements
In August 2017, the FASB issued Accounting Standard Update 2017-12: Targeted Improvements to Accounting for Hedging Activities. This update makes more financial and non-financial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. This guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted upon its issuance. The amendments in this update should be applied on a modified retrospective basis except for the presentation and disclosure guidance which is required prospectively. The Company will adopt ASU 2017-12 during the quarter ended June 30, 2019, and is currently assessing the impact of the future adoption of this standard on its consolidated results of operations, financial condition and cash flows.
In July 2017, the FASB issued ASU 2017-11, Accounting for Certain Financial Instruments with Down Round Features, which addresses the complexity of accounting for certain financial instruments with down round features under current guidance criterion. With this new update, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. This guidance is to be applied retrospectively for instruments outstanding as of the adoption date. This guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2018. Early application is permitted. The Company will adopt ASU 2017-11 during the quarter ended June 30, 2019, and does not expect the impact of this ASU to have a material impact on its consolidated results of operations, financial condition and cash flows.
In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation, which modifies the scope of share-based payment award modification accounting in an effort to provide clarity and reduce diversity in practice under old guidance. Under this new standard, an entity should apply modification accounting (Topic 718) unless specific criterion related to fair value, vesting conditions, and equity/liability classification are all met. This guidance is to be applied prospectively for awards modified on or after the adoption date. This guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2017. Early application is permitted. The Company will adopt ASU 2017-09 during the quarter ended June 30, 2018, and does not expect the impact of this ASU to have a material impact on its consolidated results of operations, financial condition and cash flows.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. Additionally, ASU 2014-09 requires enhanced disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In July 2015, the FASB decided to delay the effective date of ASU 2014-09 by one year. The deferral results in the new revenue standard being effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. ASU 2014-09, as amended, is effective using either the full retrospective or modified retrospective transition approach for fiscal years, and for interim periods within those years. In 2016 and 2017, the FASB has issued several accounting standards updates to clarify certain topics within ASU 2014-09. The Company will adopt ASU 2014-09, and its related clarifying ASUs, during the quarter ended June 30, 2018. Further, the Company is currently determining the impact of the standard on its consolidated results of operations, financial condition and cash flows.
Other authoritative guidance issued by the FASB (including technical corrections to the FASB Accounting Standards Codification), the American Institute of Certified Public Accountants, and the SEC did not, or are not expected to have a material effect on the Company’s consolidated financial statements.
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, 2017
, one major Advertising customers and one Content customer represented approximately
20.8%
and
15.7%
, respectively, of the Company’s net accounts receivable balance. As of
March 31, 2017
, two major customers represented
11.2%
and
10.7%
of the Company's net accounts receivable balance, both within the Advertising business.
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, 2017
, Singapore Telecommunications Limited, a Content customer represented
20.5%
and
19.4%
of net revenues, respectively; Oath Inc., an Advertising customer represented
14.0%
and
13.4%
of net revenues, respectively; Telstra Corporation Limited, a Content customer represented
13.6%
and
12.7%
of net revenues, respectively; and Machine Zone, Inc., an Advertising customer represented
10.6%
and
10.5%
of net revenues, respectively. During the
three and nine months ended December 31, 2016
, Telstra Corporation Limited, a Content customer represented
16.2%
and
23.7%
of net revenues, respectively, Oath Inc., an Advertising customer, represented
16.2%
and
13.4%
of net revenues, respectively, and Jam City Inc., an Advertising customer represented
13.9%
and
11.4%
of net revenues, respectively
The Company partners with mobile carriers and OEMS to deliver applications on our Ignite platform through the carrier network. During the
three and nine months ended December 31, 2017
, Verizon Wireless, a carrier partner, generated
29.6%
and
30.9%
of our net revenues, respectively; while AT&T Inc., a carrier partner, primarily through its Cricket subsidiary, generated
24.0%
and
19.0%
of our net revenue, respectively. During the
three and nine months ended December 31, 2016
, Verizon Wireless, generated
32.9%
and
26.6%
of our net revenues, respectively.
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.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make certain estimates that impact the reported amounts in the consolidated financial statements and accompanying notes. These estimates are recurring in nature and relate to transactions occurring in the normal course of business. In the opinion of management these are appropriate estimates for arrangements to be settled at a later date based on the fact and circumstances available at the time of filing. Actual results could differ materially from those estimates.
4. Accounts Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
March 31, 2017
|
|
|
|
(Unaudited)
|
|
|
|
Billed
|
|
$
|
19,236
|
|
|
$
|
9,367
|
|
|
Unbilled
|
|
14,099
|
|
|
7,784
|
|
|
Allowance for doubtful accounts
|
|
(841
|
)
|
|
(597
|
)
|
|
Accounts receivable, net
|
|
$
|
32,494
|
|
|
$
|
16,554
|
|
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, 2017
and
March 31, 2017
are expected to be billed and collected within twelve months.
The Company recorded
$21
and
$256
of bad debt expense during the
three and nine months ended December 31, 2017
, respectively. The Company recorded
$123
and
$528
of bad debt expense during the
three and nine months ended December 31, 2016
, respectively.
5. Property and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
March 31, 2017
|
|
|
|
(Unaudited)
|
|
|
|
Computer-related equipment
|
|
$
|
5,452
|
|
|
$
|
4,133
|
|
|
Furniture and fixtures
|
|
116
|
|
|
116
|
|
|
Leasehold improvements
|
|
143
|
|
|
143
|
|
|
Property and equipment, gross
|
|
5,711
|
|
|
4,392
|
|
|
Accumulated depreciation
|
|
(3,018
|
)
|
|
(2,015
|
)
|
|
Property and equipment, net
|
|
$
|
2,693
|
|
|
$
|
2,377
|
|
Depreciation expense for the
three and nine months ended December 31, 2017
was
$350
and
$986
, respectively; and
$248
and
$685
for the
three and nine months ended December 31, 2016
, respectively. Depreciation expense in the
three and nine months ended December 31, 2017
includes
$261
and
$803
, respectively, related to internal use assets included in General and Administrative Expense and
$89
and
$184
, respectively, related to internally developed software to be sold, leased, or otherwise marketed included in Other Direct Costs of Revenue. Depreciation expense in the prior year comparative periods related exclusively to internal use assets and is included in General and Administrative Expense.
6. Intangible Assets
The components of intangible assets at
December 31, 2017
and
March 31, 2017
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
|
Cost
|
|
Accumulated Amortization
|
|
Net
|
|
Software
|
|
$
|
11,544
|
|
|
$
|
(9,781
|
)
|
|
$
|
1,763
|
|
|
Trade name / trademark
|
|
380
|
|
|
(380
|
)
|
|
—
|
|
|
Customer list
|
|
11,300
|
|
|
(10,238
|
)
|
|
1,062
|
|
|
License agreements
|
|
355
|
|
|
(336
|
)
|
|
19
|
|
|
Total
|
|
$
|
23,579
|
|
|
$
|
(20,735
|
)
|
|
$
|
2,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017
|
|
|
|
Cost
|
|
Accumulated Amortization
|
|
Net
|
|
Software
|
|
$
|
11,544
|
|
|
$
|
(8,191
|
)
|
|
$
|
3,353
|
|
|
Trade name / trademark
|
|
380
|
|
|
(380
|
)
|
|
—
|
|
|
Customer list
|
|
11,300
|
|
|
(10,152
|
)
|
|
1,148
|
|
|
License agreements
|
|
355
|
|
|
(291
|
)
|
|
64
|
|
|
Total
|
|
$
|
23,579
|
|
|
$
|
(19,014
|
)
|
|
$
|
4,565
|
|
The Company has included amortization of acquired intangible assets directly attributable to revenue-generating activities in cost of revenues; since all of our acquired intangible assets are directly attributable to revenue-generating activities, all intangible amortization is included in cost of revenues.
The Company recorded amortization expense of
$549
and
$1,721
, respectively, during the
three and nine months ended December 31, 2017
, and
$1,878
and
$5,640
, respectively, during the
three and nine months ended December 31, 2016
. The decrease in amortization expense over the comparative three and nine month periods was primarily attributable to advertiser and publisher relationships acquired in the Appia Inc. transaction being fully amortized and the write-off of certain assets during fiscal year 2017.
Based on the amortizable intangible assets as of
December 31, 2017
, we estimate amortization expense for the next five years to be as follows:
|
|
|
|
|
|
|
|
|
Year Ending March 31,
|
|
Amortization Expense
|
|
2018
|
|
$
|
549
|
|
|
2019
|
|
1,375
|
|
|
2020
|
|
114
|
|
|
2021
|
|
114
|
|
|
2022
|
|
114
|
|
|
Thereafter
|
|
578
|
|
|
Total
|
|
$
|
2,844
|
|
7. Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
March 31, 2017
|
|
|
|
(Unaudited)
|
|
|
|
Short-term debt
|
|
|
|
|
|
Secured line of credit, net of debt issuance costs of $247 and $0, respectively
|
|
$
|
1,653
|
|
|
$
|
—
|
|
|
Total short-term debt
|
|
$
|
1,653
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
March 31, 2017
|
|
|
|
(Unaudited)
|
|
|
|
Long-term debt
|
|
|
|
|
|
Convertible notes, net of issuance costs and discounts of $2,881 and $6,315, respectively
|
|
$
|
5,751
|
|
|
$
|
9,685
|
|
|
Total long-term debt
|
|
$
|
5,751
|
|
|
$
|
9,685
|
|
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 a registration statement on Form 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. 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.
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 and supplemented (the "Indenture"), between Digital Turbine, Inc., US Bank National Association, as trustee, and certain wholly-owned subsidiaries of the Company, specifically, DT USA, DT Media, DT EMEA, 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.
Unless stockholder approval is obtained as required by NASDAQ rules, the Company will not have the right to issue shares of common stock as payment of the Early Conversion Payment, if the aggregate number of shares issued (and any other transaction aggregated for such purpose) after giving effect to such conversion or payment, as applicable, would exceed
19.99%
of the number of shares of the Company’s common stock outstanding as of the Conversion date (or the "Notes Exchange Cap"). The Company will pay cash in lieu of any shares that would otherwise be deliverable in excess of the Notes Exchange Cap. The required stockholder approval was originally obtained at our annual meeting of stockholders held in January 2017. Due to the supplemental indenture entered in May 2017, a new stockholder approval was required to issue shares in excess of the Notes Exchange Cap, and such new stockholder approval was obtained at our annual meeting of stockholders held in January 2018. Please see the proxy statement for our 2018 annual meeting of stockholders for more information about the effect of the stockholder approval and our ability to issues shares of stock to satisfy our obligations under the Indenture and the warrants issued in connection with the Notes.
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, retiring such debt in its entirety, and will otherwise be used for general corporate purposes and working capital.
In May 2017, the Company entered a supplemental indenture and warrant amendment, described in its Current Report on Form 8-K filed May 24, 2017, which provided for a 30 day stock price measurement period to determine whether or not there would be any change to the conversion price or exercise price of the Company’s outstanding convertible notes or related warrants. The measurement period concluded on September 20, 2017, with no change to the existing
$1.364
per share conversion or exercise price of our convertible notes or related warrants.
During September 2017, holders of
$6,000
of Notes elected to convert such Notes. These Notes were extinguished by issuing shares of common stock, based on the applicable conversion price of
$1.364
per share, plus additional shares of common stock and cash to satisfy the early conversion payments required by the Indenture. Associated with this conversion, gross debt net of debt discount and capitalized debt issuance costs of
$1,579
and
$621
, respectively, was extinguished for a net debt extinguishment of
$3,800
. In total,
5,043,018
shares of common stock were issued and
$247
in cash was paid to settle these positions. This resulted in an adjustment of approximately
$7,187
to additional paid in capital to reflect the shares issued upon conversion. A loss on extinguishment of debt of
$882
was recorded as a result of the difference in carrying value of the debt, inclusive of the associated debt discount and capitalized debt issuance costs, compared to the fair market value of the consideration given comprising both common stock issued and cash paid. The proportionate amount of the underlying derivative instrument was also extinguished as calculated on the respective conversion dates in September 2017. See Note 8. "Fair Value Measurements" for more information.
During December 2017, holders of
$1,368
of Notes elected to convert such Notes. These Notes were extinguished by issuing shares of common stock, based on the applicable conversion price of
$1.364
per share, plus additional shares of common stock and cash to satisfy the early conversion payments required by the Indenture. Associated with this conversion, gross debt net of debt discount and capitalized debt issuance costs of
$328
and
$129
, respectively, was extinguished amounting to a net debt extinguishment of
$911
. In total,
1,149,424
shares of common stock were issued to settle these positions. This resulted in an adjustment of approximately
$2,074
to additional paid in capital to reflect the shares issued upon conversion. A loss on extinguishment of debt of
$284
was recorded as a result of the difference in carrying value of the debt, inclusive of the associated debt discount and capitalized debt issuance costs, compared to the fair market value of the consideration given comprising of the issuance of common stock. The proportionate amount of the underlying derivative instrument was also extinguished as calculated on the respective conversion dates in December 2017. See Note 8. "Fair Value Measurements" for more information.
As of
December 31, 2017
, the outstanding principal on the Notes was
$8,632
, the unamortized debt issuance costs and debt discount in aggregate was
$2,881
, and the net carrying amount of the Notes was
$5,751
, which was recorded as long-term debt within the consolidated balance sheet. The Company recorded
$195
and
$875
, respectively, of aggregate debt discount and debt issuance cost amortization during the
three and nine months ended December 31, 2017
, and
$288
and
$969
, respectively, for the
three and nine months ended December 31, 2016
.
Senior Secured Credit Facility
On May 23, 2017, the Company entered a Business Finance Agreement (the “Credit Agreement”) with Western Alliance Bank (the “Bank”). The Credit Agreement provides for a
$5,000
total facility.
The amounts advanced under the Credit Agreement mature in
two
(
2
) years, and accrue interest at the following rates and bear the following fees:
(1) Wall Street Journal Prime Rate +
1.25%
(currently approximately
5.25%
), with a floor of
4.0%
.
(2) Annual Facility Fee of
$45.5
.
(3) Early termination fee of
0.5%
if terminated during the first year.
The obligations under the Credit Agreement are secured by a perfected first position security interest in all assets of the Company and its subsidiaries, subject to partial (
65%
) pledges of stock of non-US subsidiaries. The Company’s subsidiaries Digital Turbine USA and Digital Turbine Media are co-borrowers.
In addition to customary covenants, including restrictions on payments (subject to specified exceptions), and restrictions on indebtedness (subject to specified exceptions), the Credit Agreement requires the Company to comply with the following financial covenants, measured on a monthly basis:
(1) Maintain a Current Ratio of at least
0.65
, defined as unrestricted cash plus accounts receivable, divided by all current liabilities.
(2) Revenue must exceed
85%
of projected quarterly revenue.
As of
December 31, 2017
, the Company was in compliance with the covenants of the Credit Agreement.
The Credit Agreement required that at least two-thirds (2/3rds) of the holders of the Notes at all times be subject to subordination agreements with the Bank. The Company obtained the consent of the holders of at least two-thirds (2/3rds) of the Notes, which were held by a small number of institutional investors. In consideration for such consents, the Company entered into a Second Supplemental Indenture, dated May 23, 2017 (the “Supplemental Indenture”) to the Indenture, and also entered into a First Amendment, dated May 23, 2017 (the “Warrant Amendment”) to the Warrant Agreement. The Supplemental Indenture and Warrant Amendment provided for a 30 day stock price measurement period to determine whether or not there would be any change to the conversion price or exercise price of the Company’s outstanding convertible notes or related warrants. The measurement period concluded on September 20, 2017, with no change to the existing
$1.364
per share conversion or exercise price of our convertible notes or related warrants.
The Credit Agreement contains other customary covenants, representations, indemnities and events of default.
At
December 31, 2017
, the gross outstanding principle on the Credit Agreement was
$1,900
which is presented, net of capitalized debt issuance costs of
$247
, as net secured short-term line of credit of
$1,653
.
Interest Expense
Inclusive of the Notes issued on September 28, 2016 and the Credit Agreement entered into on May 23, 2017 during the current fiscal year, and the Notes and the NAC subordinated debenture which was retired in full on September 28, 2016 during the prior fiscal year, the Company recorded
$251
and
$940
, respectively, of interest expense during the
three and nine months ended December 31, 2017
and
$437
and
$1,060
, respectively, for the
three and nine months ended December 31, 2016
.
Additionally, aggregate debt discount and debt issuance cost amortization related to the Notes, detailed in the paragraph above, is reflected on the Consolidated Statement of Operations as interest expense. Inclusive of this amortization of
$195
and
$875
recorded during the
three and nine months ended December 31, 2017
, respectively, and the
$288
and
$969
recorded during the
three and nine months ended December 31, 2016
, respectively, the Company recorded
$446
and
$1,815
of total interest expense for the
three and nine months ended December 31, 2017
, respectively, and
$725
and
$2,029
of total interest expense for the
three and nine months ended December 31, 2016
, respectively.
8. 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 at Inception
|
|
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. Considerable judgment is necessary to interpret market data and determine an estimated fair value. The use of different market assumptions or valuation methods may have a material effect on the estimated fair values. 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 an original 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, 2017
and
March 31, 2017
, the Company’s financial assets and financial liabilities 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 December 31, 2017
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
Convertible note embedded derivative liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,896
|
|
|
$
|
5,896
|
|
|
Warrant liability
|
|
—
|
|
|
—
|
|
|
3,602
|
|
|
3,602
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,498
|
|
|
$
|
9,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance as of March 31, 2017
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
Convertible note embedded derivative liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,218
|
|
|
$
|
3,218
|
|
|
Warrant liability
|
|
—
|
|
|
—
|
|
|
1,076
|
|
|
1,076
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,294
|
|
|
$
|
4,294
|
|
Convertible Note Embedded Derivative Liability
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.
During September 2017 and December 2017, holders of
$6,000
and
$1,368
of the Notes, respectively, elected to convert such Notes. At December 31, 2017, aggregate principal amount of
$8,632
remained outstanding and is reflected on the balance sheet, net of debt issuance costs and discounts of
$2,881
, in the amount of
$5,751
. Refer to Note 7 "Debt - Convertible Notes" and Note 10 "Capital Stock Transactions" for more details.
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 March 31, 2017
|
|
$
|
3,218
|
|
|
Change in fair value of convertible note embedded derivative liability
|
|
6,310
|
|
|
Derecognition on extinguishment or conversion
|
|
(3,632
|
)
|
|
Balance at December 31, 2017
|
|
$
|
5,896
|
|
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. During the
three months ended December 31, 2017
, the Company recorded a loss from change in fair value of convertible note embedded derivative liability of
$1,658
due to the increase in the Company's closing stock price during the current quarter from
$1.51
to
$1.79
, offset by the extinguishment of
$1,368
of Notes, and the underlying derivative instruments, during the current quarter. During the
nine months ended December 31, 2017
, the Company recorded a loss from change in fair value of convertible note embedded derivative liability of
$6,310
due to the increase in the Company's closing stock price during the current fiscal year from
$0.94
to
$1.79
, offset by the derecognition of
$3,632
of derivative liability on the extinguishment of
$7,368
of Notes, and the underlying derivative instruments, during the fiscal year. During the
three and nine months ended December 31, 2016
, the Company recorded a gain from change in fair value of convertible note embedded derivative liability of
$2,853
and
$2,423
, respectively, due to the decrease in the Company's closing stock price from
September 30, 2017
to
December 31, 2016
from
$1.05
to
$0.68
, and a decrease in the Company's closing stock price from inception of the issuance of the Notes from September 28, 2016 to
December 31, 2016
from
$0.99
to
$0.68
, respectively.
The market-based assumptions and estimates used in valuing the convertible note embedded derivative liability include amounts in the following amounts:
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Stock price volatility
|
70
|
%
|
|
Probability of change in control
|
1.75
|
%
|
|
Stock price (per share)
|
$1.79
|
|
Expected term
|
2.75 years
|
|
|
Risk-free rate (1)
|
1.94
|
%
|
|
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 March 31, 2017
|
|
$
|
1,076
|
|
|
Change in fair value of warrant liability
|
|
2,526
|
|
|
Balance at December 31, 2017
|
|
$
|
3,602
|
|
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 increasing during the
three and nine months ended December 31, 2017
, from
$1.51
to
$1.79
and
$0.94
to
$1.79
, respectively, this had the impact during the
three and nine months ended December 31, 2017
of recording a loss from change in fair value of the warrant liability of
$898
and
$2,526
, respectively. During the
three and nine months ended December 31, 2016
, the Company recorded a gain from change in fair value of the warrant liability of
$937
and
$797
, respectively, due to the decrease in the Company's closing stock price from
September 30, 2017
to
December 31, 2016
from
$1.05
to
$0.68
, and a decrease in the Company's closing stock price from inception of the issuance of the Notes on September 28, 2016 to
December 31, 2016
from
$0.99
to
$0.68
, respectively.
The market-based assumptions and estimates used in valuing the warrant liability include amounts in the following amounts:
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Stock price volatility
|
70
|
%
|
|
Probability of change in control
|
1.75
|
%
|
|
Stock price (per share)
|
$1.79
|
|
Expected term
|
2.75 years
|
|
|
Risk-free rate (1)
|
1.94
|
%
|
|
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.
9. 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
9,033,506
and
9,665,123
remained available for future grants as of
December 31, 2017
and
March 31, 2017
, respectively. The change over the comparative period represents stock option grants, stock option forfeitures/cancellations, and restricted shares of common stock of
1,338,778
,
972,299
, and
265,138
, 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, 2017
|
|
9,735,778
|
|
|
$
|
2.56
|
|
|
7.95
|
|
$
|
801
|
|
|
Granted
|
|
1,338,778
|
|
|
1.17
|
|
|
|
|
|
|
Forfeited / Cancelled
|
|
(972,299
|
)
|
|
1.91
|
|
|
|
|
|
|
Exercised
|
|
(182,769
|
)
|
|
1.05
|
|
|
|
|
|
|
Options Outstanding, December 31, 2017
|
|
9,919,488
|
|
|
2.48
|
|
|
7.36
|
|
4,977
|
|
|
Vested and expected to vest (net of estimated forfeitures) at December 31, 2017 (a)
|
|
8,984,997
|
|
|
2.63
|
|
|
7.19
|
|
4,228
|
|
|
Exercisable, December 31, 2017
|
|
5,065,645
|
|
|
$
|
3.81
|
|
|
5.97
|
|
$
|
1,196
|
|
(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, 2017
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, 2017
. 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, 2017
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
|
|
|
2.23
|
|
7,652
|
|
|
$
|
0.24
|
|
|
$0.51 - 1.00
|
|
3,202,046
|
|
|
$
|
0.73
|
|
|
8.82
|
|
520,025
|
|
|
$
|
0.71
|
|
|
$1.01 - 1.50
|
|
2,832,305
|
|
|
$
|
1.27
|
|
|
8.42
|
|
1,215,155
|
|
|
$
|
1.31
|
|
|
$1.51 - 2.00
|
|
446,000
|
|
|
$
|
1.55
|
|
|
8.95
|
|
148,622
|
|
|
$
|
1.51
|
|
|
$2.01 - 2.50
|
|
253,779
|
|
|
$
|
2.43
|
|
|
3.08
|
|
220,445
|
|
|
$
|
2.42
|
|
|
$2.51 - 3.00
|
|
908,756
|
|
|
$
|
2.61
|
|
|
6.19
|
|
818,757
|
|
|
$
|
2.62
|
|
|
$3.51 - 4.00
|
|
907,384
|
|
|
$
|
3.96
|
|
|
5.75
|
|
850,507
|
|
|
$
|
3.96
|
|
|
$4.01 - 4.50
|
|
831,566
|
|
|
$
|
4.14
|
|
|
5.45
|
|
763,443
|
|
|
$
|
4.14
|
|
|
$4.51 - 5.00
|
|
60,000
|
|
|
$
|
4.65
|
|
|
5.24
|
|
60,000
|
|
|
$
|
4.65
|
|
|
$5.01 and over
|
|
470,000
|
|
|
$
|
16.32
|
|
|
1.01
|
|
461,039
|
|
|
$
|
16.53
|
|
|
|
|
9,919,488
|
|
|
|
|
|
|
5,065,645
|
|
|
|
Other information pertaining to stock options for the Stock Plans for the
nine months ended December 31, 2017
and
2016
, as stated in the table below, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2017
|
|
2016
|
|
Total fair value of options vested
|
|
$
|
2,750
|
|
|
$
|
2,250
|
|
|
Total intrinsic value of options exercised (a)
|
|
$
|
101
|
|
|
$
|
8
|
|
(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, 2017
and
2016
.
During the
nine months ended December 31, 2017
and
2016
, the Company granted options to purchase
1,338,778
and
1,525,500
shares of its common stock, respectively, to employees with weighted-average grant-date fair values of
$1.17
and
$0.64
, respectively.
At
December 31, 2017
and
2016
, there was
$2,691
and
$5,706
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
2.04
and
2.27
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 for options granted during the
nine months ended December 31, 2017
are presented below.
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Risk-free interest rate
|
|
1.8% to 2.4%
|
|
Expected life of the options
|
|
5.69 to 9.43 years
|
|
Expected volatility
|
|
68% to 73%
|
|
Expected dividend yield
|
|
—%
|
|
Expected forfeitures
|
|
20%
|
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, 2017
and
2016
, which includes both stock options and restricted stock, was
$891
and
$2,520
, respectively, and $
1,118
and
$3,611
, respectively. Please refer to Note 10. "Capital Stock Transactions" regarding restricted stock.
10. 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
For the
nine months ended December 31, 2017
, the Company issued
182,769
shares of common stock for the exercise of employee options.
In December 2017, in connection with the redemption of
$1,368
of the Notes, the Company issued
1,149,414
shares to the holders of those Notes in exchange for the extinguishment of the Notes. Refer to Note 7 "Debt" and Note 8 "Fair Value Measurements" for more details.
In September 2017, in connection with the redemption of
$6,000
of the Notes, the Company issued
5,043,018
shares to the holders of those Notes in exchange for the extinguishment of the Notes. 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, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Warrants Outstanding
|
|
Weighted-Average Exercise Price
|
|
Outstanding as of March 31, 2017
|
|
5,003,813
|
|
|
1.62
|
|
|
Issued
|
|
—
|
|
|
—
|
|
|
Exercised
|
|
—
|
|
|
—
|
|
|
Expired
|
|
(166,070
|
)
|
|
3.50
|
|
|
Outstanding as of December 31, 2017
|
|
4,837,743
|
|
|
1.56
|
|
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 2017, the Company issued
265,138
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
$289
.
With respect to time condition RSAs, the Company expensed
$74
and
$224
during the
three and nine months ended December 31, 2017
, and
$92
and
$258
during
three and nine months ended December 31, 2016
, respectively.
The following is a summary of restricted stock awards and activities for all vesting conditions for the
nine months ended December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted-Average Grant Date Fair Value
|
|
Unvested restricted stock outstanding as of March 31, 2017
|
|
139,318
|
|
|
1.10
|
|
|
Granted
|
|
265,138
|
|
|
1.09
|
|
|
Vested
|
|
(205,602
|
)
|
|
1.10
|
|
|
Cancelled
|
|
—
|
|
|
—
|
|
|
Unvested restricted stock outstanding as of December 31, 2017
|
|
198,854
|
|
|
1.09
|
|
All restricted shares, vested and unvested, cancellable and not cancelled, have been included in the outstanding shares as of
December 31, 2017
.
At
December 31, 2017
, there was
$169
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.
11.
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, 2017
and
2016
, 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,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Net loss
|
|
$
|
(3,799
|
)
|
|
$
|
(2,586
|
)
|
|
$
|
(14,432
|
)
|
|
$
|
(17,339
|
)
|
|
Weighted-average common shares outstanding, basic and diluted
|
|
72,148
|
|
|
66,634
|
|
|
68,575
|
|
|
66,416
|
|
|
Basic and diluted net loss per common share
|
|
$
|
(0.05
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.26
|
)
|
|
Common stock equivalents excluded from net loss per diluted share because their effect would have been anti-dilutive
|
|
3,294
|
|
|
123
|
|
|
1,677
|
|
|
218
|
|
12.
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, 2017
, a tax benefit of
$84
and
$937
, respectively, resulted in an effective tax rate of
2.2%
and
6.1%
, respectively. Differences in the tax provision and the statutory rate are primarily due to changes in the valuation allowance. The tax benefit reported in the current year is largely due to the true up of an estimate resulting from the finalization of a transfer pricing study.
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 statutory rate are primarily due to changes in the valuation allowance.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the Tax Act). The Tax Act significantly revises the future ongoing U.S. corporate income tax by, among other things, lowering U. S. corporate income tax rate from 35% to 21% and implementing a territorial tax system. As the Company has a March 31 fiscal year-end, the lower corporate income tax rate will be phased in, resulting in a U.S. statutory federal rate of approximately
31.5%
for the fiscal year ending March 31, 2018, and 21 % for subsequent fiscal years.
Since the Company has a valuation allowance recorded against all of its U.S. federal deferred tax assets the change in U.S. federal statutory tax rate and the related remeasurement of U.S. federal deferred tax assets and liabilities had no impact on the Company’s third quarter income tax provision.
The new U.S. tax law also requires corporations to include in income a deemed repatriation of foreign earnings and profits previously unremitted to the U.S. and pay a repatriation tax for the move to a territorial system, whether or not the foreign subsidiaries repatriate cash or property to the U.S. The payment of the repatriation tax can be spread over eight years with the first installment due April 15, 2018. Since the Company’s foreign corporate subsidiaries have a net deficit in earnings and profits no transition tax accrual is required or expected.
As a result of the valuation allowance against U.S. deferred tax assets and the Company’s U.S. federal and state NOL carryovers, the Company does not anticipate the changes in U.S. tax law to impact its annual effective tax rate in future periods for which the valuation allowance remains.
13. 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 any that are identified below, and, unlrss otherwise stated below, 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.
No legal matters or other proceedings requiring disclosure or accrual exist at this time.
14. 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, 2017
and
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2017
|
|
Three Months Ended December 31, 2016
|
|
|
|
Content
|
|
Advertising
|
|
Total
|
|
Content
|
|
Advertising
|
|
Total
|
|
Net revenues
|
|
$
|
13,830
|
|
|
$
|
24,201
|
|
|
$
|
38,031
|
|
|
$
|
6,073
|
|
|
$
|
16,212
|
|
|
$
|
22,285
|
|
|
Loss from operations
|
|
(1,146
|
)
|
|
550
|
|
|
(596
|
)
|
|
(1,229
|
)
|
|
(4,181
|
)
|
|
(5,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31, 2017
|
|
Nine Months Ended December 31, 2016
|
|
|
|
Content
|
|
Advertising
|
|
Total
|
|
Content
|
|
Advertising
|
|
Total
|
|
Net revenues
|
|
$
|
31,544
|
|
|
$
|
60,498
|
|
|
$
|
92,042
|
|
|
$
|
24,929
|
|
|
$
|
44,227
|
|
|
$
|
69,156
|
|
|
Loss from operations
|
|
(3,254
|
)
|
|
(116
|
)
|
|
(3,370
|
)
|
|
(3,980
|
)
|
|
(14,186
|
)
|
|
(18,166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth geographic information on our net revenues for the
three and nine months ended December 31, 2017
and
2016
. Net revenues by geography are based on the billing addresses of our customers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
2017
|
|
2016
|
|
Net revenues
|
|
|
|
|
|
United States and Canada
|
|
$
|
11,715
|
|
|
$
|
8,197
|
|
|
Europe, Middle East, and Africa
|
|
2,757
|
|
|
3,575
|
|
|
Asia Pacific and China
|
|
22,436
|
|
|
9,746
|
|
|
Mexico, Central America, and South America
|
|
1,123
|
|
|
767
|
|
|
Consolidated net revenues
|
|
$
|
38,031
|
|
|
$
|
22,285
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31,
|
|
|
|
2017
|
|
2016
|
|
Net revenues
|
|
|
|
|
|
United States and Canada
|
|
$
|
27,200
|
|
|
$
|
23,677
|
|
|
Europe, Middle East, and Africa
|
|
7,642
|
|
|
11,380
|
|
|
Asia Pacific and China
|
|
53,384
|
|
|
32,700
|
|
|
Mexico, Central America, and South America
|
|
3,816
|
|
|
1,399
|
|
|
Consolidated net revenues
|
|
$
|
92,042
|
|
|
$
|
69,156
|
|
|
|
|
|
|
|
15. 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, as amended and supplemented to date, between Digital Turbine, Inc., US Bank National Association, as trustee, and certain wholly-owned subsidiaries of the Company, specifically, DT USA, DT Media, DT EMEA, 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, 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 includes:
(1) Consolidated balance sheets as of
December 31, 2017
and
March 31, 2017
; consolidated statements of operations for the
three and nine months ended December 31, 2017
and
2016
; and consolidated statements of cash flows for the
nine months ended December 31, 2017
and
2016
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, 2017
or
2016
.
Consolidated Balance Sheet
as of
December 31, 2017
(Unaudited)
(in thousands, except par value and share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidated Total
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
176
|
|
|
$
|
6,094
|
|
|
$
|
613
|
|
|
$
|
6,883
|
|
|
Restricted cash
|
|
156
|
|
|
175
|
|
|
—
|
|
|
331
|
|
|
Accounts receivable, net of allowance of $841
|
|
—
|
|
|
31,857
|
|
|
637
|
|
|
32,494
|
|
|
Deposits
|
|
34
|
|
|
117
|
|
|
4
|
|
|
155
|
|
|
Prepaid expenses and other current assets
|
|
299
|
|
|
239
|
|
|
13
|
|
|
551
|
|
|
Total current assets
|
|
665
|
|
|
38,482
|
|
|
1,267
|
|
|
40,414
|
|
|
Property and equipment, net
|
|
64
|
|
|
2,614
|
|
|
15
|
|
|
2,693
|
|
|
Deferred tax assets
|
|
593
|
|
|
|
|
|
|
|
|
593
|
|
|
Intangible assets, net
|
|
1
|
|
|
1,565
|
|
|
1,278
|
|
|
2,844
|
|
|
Goodwill
|
|
—
|
|
|
70,377
|
|
|
6,244
|
|
|
76,621
|
|
|
TOTAL ASSETS
|
|
$
|
1,323
|
|
|
$
|
113,038
|
|
|
$
|
8,804
|
|
|
$
|
123,165
|
|
|
INTERCOMPANY
|
|
|
|
|
|
|
|
|
|
Intercompany payable/receivable, net
|
|
120,223
|
|
|
(104,874
|
)
|
|
(15,349
|
)
|
|
—
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
791
|
|
|
$
|
27,307
|
|
|
$
|
306
|
|
|
$
|
28,404
|
|
|
Accrued license fees and revenue share
|
|
—
|
|
|
12,369
|
|
|
488
|
|
|
12,857
|
|
|
Accrued compensation
|
|
2,057
|
|
|
1,393
|
|
|
6
|
|
|
3,456
|
|
|
Short-term debt, net of debt issuance costs and discounts of $247
|
|
1,653
|
|
|
—
|
|
|
—
|
|
|
1,653
|
|
|
Other current liabilities
|
|
1,002
|
|
|
(516
|
)
|
|
1,358
|
|
|
1,844
|
|
|
Total current liabilities
|
|
5,503
|
|
|
40,553
|
|
|
2,158
|
|
|
48,214
|
|
|
Convertible notes, net of debt issuance costs and discounts of $3,491
|
|
5,751
|
|
|
—
|
|
|
—
|
|
|
5,751
|
|
|
Convertible note embedded derivative liability
|
|
5,896
|
|
|
—
|
|
|
—
|
|
|
5,896
|
|
|
Warrant liability
|
|
3,602
|
|
|
—
|
|
|
—
|
|
|
3,602
|
|
|
Other non-current liabilities
|
|
—
|
|
|
51
|
|
|
—
|
|
|
51
|
|
|
Total liabilities
|
|
20,752
|
|
|
40,604
|
|
|
2,158
|
|
|
63,514
|
|
|
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; 74,079,153 issued and 73,344,697 outstanding at December 31, 2017.
|
|
10
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
Additional paid-in capital
|
|
311,621
|
|
|
—
|
|
|
—
|
|
|
311,621
|
|
|
Treasury stock (754,599 shares at December 31, 2017)
|
|
(71
|
)
|
|
—
|
|
|
—
|
|
|
(71
|
)
|
|
Accumulated other comprehensive loss
|
|
(18
|
)
|
|
(1,443
|
)
|
|
1,135
|
|
|
(326
|
)
|
|
Accumulated deficit
|
|
(210,848
|
)
|
|
(30,997
|
)
|
|
(9,838
|
)
|
|
(251,683
|
)
|
|
Total stockholders' equity
|
|
100,794
|
|
|
(32,440
|
)
|
|
(8,703
|
)
|
|
59,651
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
121,546
|
|
|
$
|
8,164
|
|
|
$
|
(6,545
|
)
|
|
$
|
123,165
|
|
Consolidated Balance Sheet
as of
March 31, 2017
(Unaudited)
(in thousands, except par value and share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidated Total
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
258
|
|
|
$
|
5,333
|
|
|
$
|
558
|
|
|
$
|
6,149
|
|
|
Restricted cash
|
|
156
|
|
|
175
|
|
|
—
|
|
|
331
|
|
|
Accounts receivable, net of allowance of $597
|
|
—
|
|
|
15,740
|
|
|
814
|
|
|
16,554
|
|
|
Deposits
|
|
—
|
|
|
121
|
|
|
—
|
|
|
121
|
|
|
Prepaid expenses and other current assets
|
|
282
|
|
|
226
|
|
|
2
|
|
|
510
|
|
|
Total current assets
|
|
696
|
|
|
21,595
|
|
|
1,374
|
|
|
23,665
|
|
|
Property and equipment, net
|
|
64
|
|
|
2,296
|
|
|
17
|
|
|
2,377
|
|
|
Deferred tax assets
|
|
352
|
|
|
—
|
|
|
—
|
|
|
352
|
|
|
Intangible assets, net
|
|
—
|
|
|
2,647
|
|
|
1,918
|
|
|
4,565
|
|
|
Goodwill
|
|
—
|
|
|
70,377
|
|
|
6,244
|
|
|
76,621
|
|
|
TOTAL ASSETS
|
|
$
|
1,112
|
|
|
$
|
96,915
|
|
|
$
|
9,553
|
|
|
$
|
107,580
|
|
|
INTERCOMPANY
|
|
|
|
|
|
|
|
|
|
Intercompany payable/receivable, net
|
|
123,800
|
|
|
(107,348
|
)
|
|
(16,452
|
)
|
|
—
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,023
|
|
|
$
|
18,697
|
|
|
$
|
148
|
|
|
$
|
19,868
|
|
|
Accrued license fees and revenue share
|
|
—
|
|
|
8,312
|
|
|
217
|
|
|
8,529
|
|
|
Accrued compensation
|
|
32
|
|
|
1,041
|
|
|
—
|
|
|
1,073
|
|
|
Other current liabilities
|
|
794
|
|
|
510
|
|
|
—
|
|
|
1,304
|
|
|
Total current liabilities
|
|
1,849
|
|
|
28,560
|
|
|
365
|
|
|
30,774
|
|
|
Convertible notes, net of debt issuance costs and discounts of $6,315
|
|
9,685
|
|
|
—
|
|
|
—
|
|
|
9,685
|
|
|
Convertible note embedded derivative liability
|
|
3,218
|
|
|
—
|
|
|
—
|
|
|
3,218
|
|
|
Warrant liability
|
|
1,076
|
|
|
—
|
|
|
—
|
|
|
1,076
|
|
|
Other non-current liabilities
|
|
695
|
|
|
87
|
|
|
—
|
|
|
782
|
|
|
Total liabilities
|
|
16,523
|
|
|
28,647
|
|
|
365
|
|
|
45,535
|
|
|
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; 67,329,262 issued and 66,594,806 outstanding at March 31, 2017
|
|
8
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
Additional paid-in capital
|
|
299,580
|
|
|
—
|
|
|
—
|
|
|
299,580
|
|
|
Treasury stock (754,599 shares at March 31, 2017)
|
|
(71
|
)
|
|
—
|
|
|
—
|
|
|
(71
|
)
|
|
Accumulated other comprehensive loss
|
|
—
|
|
|
(1,704
|
)
|
|
1,383
|
|
|
(321
|
)
|
|
Accumulated deficit
|
|
(191,228
|
)
|
|
(37,376
|
)
|
|
(8,647
|
)
|
|
(237,251
|
)
|
|
Total stockholders' equity
|
|
108,389
|
|
|
(39,080
|
)
|
|
(7,264
|
)
|
|
62,045
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
124,912
|
|
|
$
|
(10,433
|
)
|
|
$
|
(6,899
|
)
|
|
$
|
107,580
|
|
Consolidated Statement of Operations and Comprehensive Loss
for the
three months ended December 31, 2017
(Unaudited)
(in thousands, except par value and share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Elimination
|
|
Consolidated Total
|
|
Net revenues
|
|
$
|
—
|
|
|
$
|
56,730
|
|
|
$
|
470
|
|
|
$
|
(19,169
|
)
|
|
$
|
38,031
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
License fees and revenue share
|
|
—
|
|
|
46,598
|
|
|
290
|
|
|
(19,169
|
)
|
|
27,719
|
|
|
Other direct cost of revenues
|
|
—
|
|
|
437
|
|
|
214
|
|
|
—
|
|
|
651
|
|
|
Total cost of revenues
|
|
—
|
|
|
47,035
|
|
|
504
|
|
|
(19,169
|
)
|
|
28,370
|
|
|
Gross profit
|
|
—
|
|
|
9,695
|
|
|
(34
|
)
|
|
—
|
|
|
9,661
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
Product development
|
|
2
|
|
|
3,560
|
|
|
61
|
|
|
—
|
|
|
3,623
|
|
|
Sales and marketing
|
|
75
|
|
|
1,860
|
|
|
107
|
|
|
—
|
|
|
2,042
|
|
|
General and administrative
|
|
3,769
|
|
|
700
|
|
|
123
|
|
|
—
|
|
|
4,592
|
|
|
Total operating expenses
|
|
3,846
|
|
|
6,120
|
|
|
291
|
|
|
—
|
|
|
10,257
|
|
|
Income / (loss) from operations
|
|
(3,846
|
)
|
|
3,575
|
|
|
(325
|
)
|
|
—
|
|
|
(596
|
)
|
|
Interest and other expense, net
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
(446
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(446
|
)
|
|
Foreign exchange transaction gain / (loss)
|
|
—
|
|
|
34
|
|
|
1
|
|
|
—
|
|
|
35
|
|
|
Change in fair value of convertible note embedded derivative liability
|
|
(1,658
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,658
|
)
|
|
Change in fair value of warrant liability
|
|
(898
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(898
|
)
|
|
Loss on extinguishment of debt
|
|
(284
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(284
|
)
|
|
Other income / (expense)
|
|
27
|
|
|
(63
|
)
|
|
|
|
|
—
|
|
|
(36
|
)
|
|
Total interest and other expense, net
|
|
(3,259
|
)
|
|
(29
|
)
|
|
1
|
|
|
—
|
|
|
(3,287
|
)
|
|
Income / (loss) from operations before income taxes
|
|
(7,105
|
)
|
|
3,546
|
|
|
(324
|
)
|
|
—
|
|
|
(3,883
|
)
|
|
Income tax benefit
|
|
(88
|
)
|
|
6
|
|
|
(2
|
)
|
|
—
|
|
|
(84
|
)
|
|
Net income / (loss)
|
|
$
|
(7,017
|
)
|
|
$
|
3,540
|
|
|
$
|
(322
|
)
|
|
$
|
—
|
|
|
$
|
(3,799
|
)
|
|
Other comprehensive income / (loss)
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Comprehensive income / (loss)
|
|
$
|
(7,017
|
)
|
|
$
|
3,540
|
|
|
$
|
(322
|
)
|
|
$
|
—
|
|
|
$
|
(3,799
|
)
|
Consolidated Statement of Operations and Comprehensive Loss
for the
nine months ended December 31, 2017
(Unaudited)
(in thousands, except par value and share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Elimination
|
|
Consolidated Total
|
|
Net revenues
|
|
$
|
—
|
|
|
$
|
135,442
|
|
|
$
|
1,321
|
|
|
$
|
(44,721
|
)
|
|
$
|
92,042
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
License fees and revenue share
|
|
—
|
|
|
110,458
|
|
|
748
|
|
|
(44,721
|
)
|
|
66,485
|
|
|
Other direct cost of revenues
|
|
—
|
|
|
1,276
|
|
|
641
|
|
|
—
|
|
|
1,917
|
|
|
Total cost of revenues
|
|
—
|
|
|
111,734
|
|
|
1,389
|
|
|
(44,721
|
)
|
|
68,402
|
|
|
Gross profit
|
|
—
|
|
|
23,708
|
|
|
(68
|
)
|
|
—
|
|
|
23,640
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
Product development
|
|
14
|
|
|
9,113
|
|
|
91
|
|
|
—
|
|
|
9,218
|
|
|
Sales and marketing
|
|
249
|
|
|
4,810
|
|
|
229
|
|
|
—
|
|
|
5,288
|
|
|
General and administrative
|
|
8,487
|
|
|
3,700
|
|
|
317
|
|
|
—
|
|
|
12,504
|
|
|
Total operating expenses
|
|
8,750
|
|
|
17,623
|
|
|
637
|
|
|
—
|
|
|
27,010
|
|
|
Income / (loss) from operations
|
|
(8,750
|
)
|
|
6,085
|
|
|
(705
|
)
|
|
—
|
|
|
(3,370
|
)
|
|
Interest and other expense, net
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
(1,815
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,815
|
)
|
|
Foreign exchange transaction gain / (loss)
|
|
—
|
|
|
(183
|
)
|
|
1
|
|
|
—
|
|
|
(182
|
)
|
|
Change in fair value of convertible note embedded derivative liability
|
|
(6,310
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,310
|
)
|
|
Change in fair value of warrant liability
|
|
(2,526
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,526
|
)
|
|
Loss on extinguishment of debt
|
|
(1,166
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,166
|
)
|
|
Other income / (expense)
|
|
6
|
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total interest and other expense, net
|
|
(11,811
|
)
|
|
(189
|
)
|
|
1
|
|
|
—
|
|
|
(11,999
|
)
|
|
Income / (loss) from operations before income taxes
|
|
(20,561
|
)
|
|
5,896
|
|
|
(704
|
)
|
|
—
|
|
|
(15,369
|
)
|
|
Income tax benefit
|
|
(941
|
)
|
|
6
|
|
|
(2
|
)
|
|
—
|
|
|
(937
|
)
|
|
Net income / (loss)
|
|
$
|
(19,620
|
)
|
|
$
|
5,890
|
|
|
$
|
(702
|
)
|
|
$
|
—
|
|
|
$
|
(14,432
|
)
|
|
Other comprehensive income / (loss)
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
Comprehensive income / (loss)
|
|
$
|
(19,620
|
)
|
|
$
|
5,885
|
|
|
$
|
(702
|
)
|
|
$
|
—
|
|
|
$
|
(14,437
|
)
|
Consolidated Statement of Operations and Comprehensive Loss
for the
three months ended December 31, 2016
(Unaudited)
(in thousands, except par value and share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Elimination
|
|
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
|
|
|
Loss from operations
|
|
(2,560
|
)
|
|
(2,952
|
)
|
|
102
|
|
|
—
|
|
|
(5,410
|
)
|
|
Interest and other expense, net
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
(674
|
)
|
|
(51
|
)
|
|
—
|
|
|
—
|
|
|
(725
|
)
|
|
Foreign exchange transaction gain / (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 expense, net
|
|
3,138
|
|
|
(14
|
)
|
|
—
|
|
|
—
|
|
|
3,124
|
|
|
Loss from operations before income taxes
|
|
578
|
|
|
(2,966
|
)
|
|
102
|
|
|
—
|
|
|
(2,286
|
)
|
|
Income tax provision / (benefit)
|
|
300
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
300
|
|
|
Net loss
|
|
$
|
278
|
|
|
$
|
(2,966
|
)
|
|
$
|
102
|
|
|
$
|
—
|
|
|
$
|
(2,586
|
)
|
|
Other comprehensive income / (loss)
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
Comprehensive loss
|
|
$
|
283
|
|
|
$
|
(2,966
|
)
|
|
$
|
102
|
|
|
$
|
—
|
|
|
$
|
(2,581
|
)
|
Consolidated Statement of Operations and Comprehensive Loss
for the
nine months ended December 31, 2016
(Unaudited)
(in thousands, except par value and share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Elimination
|
|
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
|
|
|
Loss from operations
|
|
(9,745
|
)
|
|
(8,486
|
)
|
|
65
|
|
|
—
|
|
|
(18,166
|
)
|
|
Interest and other expense, net
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
(680
|
)
|
|
(1,349
|
)
|
|
—
|
|
|
—
|
|
|
(2,029
|
)
|
|
Foreign exchange transaction gain / (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 expense, net
|
|
2,299
|
|
|
(1,309
|
)
|
|
(4
|
)
|
|
—
|
|
|
986
|
|
|
Loss from operations before income taxes
|
|
(7,446
|
)
|
|
(9,795
|
)
|
|
61
|
|
|
—
|
|
|
(17,180
|
)
|
|
Income tax provision / (benefit)
|
|
159
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
159
|
|
|
Net loss
|
|
(7,605
|
)
|
|
(9,795
|
)
|
|
61
|
|
|
—
|
|
|
(17,339
|
)
|
|
Other comprehensive income / (loss)
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
(48
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(48
|
)
|
|
Comprehensive loss
|
|
(7,653
|
)
|
|
(9,795
|
)
|
|
61
|
|
|
—
|
|
|
(17,387
|
)
|
Consolidated Statement of Cash Flows
for the
nine months ended December 31, 2017
(Unaudited)
(in thousands, except par value and share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidated Total
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(19,620
|
)
|
|
$
|
5,890
|
|
|
$
|
(702
|
)
|
|
$
|
(14,432
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
—
|
|
|
2,093
|
|
|
614
|
|
|
2,707
|
|
|
Change in allowance for doubtful accounts
|
|
—
|
|
|
252
|
|
|
(8
|
)
|
|
244
|
|
|
Amortization of debt discount and debt issuance costs
|
|
875
|
|
|
—
|
|
|
—
|
|
|
875
|
|
|
Accrued interest
|
|
165
|
|
|
—
|
|
|
—
|
|
|
165
|
|
|
Stock-based compensation
|
|
2,296
|
|
|
—
|
|
|
—
|
|
|
2,296
|
|
|
Stock-based compensation for services rendered
|
|
224
|
|
|
—
|
|
|
—
|
|
|
224
|
|
|
Change in fair value of convertible note embedded derivative liability
|
|
6,310
|
|
|
—
|
|
|
—
|
|
|
6,310
|
|
|
Change in fair value of warrant liability
|
|
2,526
|
|
|
—
|
|
|
—
|
|
|
2,526
|
|
|
Loss on extinguishment of debt
|
|
1,166
|
|
|
—
|
|
|
—
|
|
|
1,166
|
|
|
(Increase) / decrease in assets:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
—
|
|
|
(16,370
|
)
|
|
186
|
|
|
(16,184
|
)
|
|
Deposits
|
|
(34
|
)
|
|
4
|
|
|
(4
|
)
|
|
(34
|
)
|
|
Deferred tax assets
|
|
(241
|
)
|
|
—
|
|
|
—
|
|
|
(241
|
)
|
|
Prepaid expenses and other current assets
|
|
(54
|
)
|
|
24
|
|
|
(11
|
)
|
|
(41
|
)
|
|
Increase / (decrease) in liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
(232
|
)
|
|
8,611
|
|
|
157
|
|
|
8,536
|
|
|
Accrued license fees and revenue share
|
|
—
|
|
|
4,055
|
|
|
273
|
|
|
4,328
|
|
|
Accrued compensation
|
|
2,024
|
|
|
353
|
|
|
6
|
|
|
2,383
|
|
|
Other current liabilities
|
|
3,666
|
|
|
(2,831
|
)
|
|
(450
|
)
|
|
385
|
|
|
Other non-current liabilities
|
|
(692
|
)
|
|
(39
|
)
|
|
—
|
|
|
(731
|
)
|
|
Intercompany movement of cash
|
|
(16
|
)
|
|
18
|
|
|
(2
|
)
|
|
—
|
|
|
Net cash provided by (used in) operating activities
|
|
(1,637
|
)
|
|
2,060
|
|
|
59
|
|
|
482
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(13
|
)
|
|
(1,294
|
)
|
|
(5
|
)
|
|
(1,312
|
)
|
|
Net cash used in investing activities
|
|
(13
|
)
|
|
(1,294
|
)
|
|
(5
|
)
|
|
(1,312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Proceeds from short-term borrowings
|
|
2,500
|
|
|
—
|
|
|
—
|
|
|
2,500
|
|
|
Payment of debt issuance costs
|
|
(346
|
)
|
|
—
|
|
|
—
|
|
|
(346
|
)
|
|
Options exercised
|
|
261
|
|
|
—
|
|
|
—
|
|
|
261
|
|
|
Stock issued for cash in stock offering, net
|
|
(847
|
)
|
|
—
|
|
|
—
|
|
|
(847
|
)
|
|
Net cash provided by financing activities
|
|
1,568
|
|
|
—
|
|
|
—
|
|
|
1,568
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
—
|
|
|
(5
|
)
|
|
1
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
(82
|
)
|
|
761
|
|
|
55
|
|
|
734
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
258
|
|
|
5,333
|
|
|
558
|
|
|
6,149
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
176
|
|
|
$
|
6,094
|
|
|
$
|
613
|
|
|
$
|
6,883
|
|
Consolidated Statement of Cash Flows
for the
nine months ended December 31, 2016
(Unaudited)
(in thousands, except par value and share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
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 and debt issuance costs
|
|
287
|
|
|
682
|
|
|
—
|
|
|
969
|
|
|
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 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 provided by (used in) operating activities
|
|
(3,283
|
)
|
|
(4,564
|
)
|
|
59
|
|
|
(7,788
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(3
|
)
|
|
(1,358
|
)
|
|
(20
|
)
|
|
(1,381
|
)
|
|
Net cash proceeds from 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
|
|
|
Proceeds from short-term borrowings
|
|
—
|
|
|
(11,000
|
)
|
|
—
|
|
|
(11,000
|
)
|
|
Payment of debt issuance costs
|
|
(1,912
|
)
|
|
(407
|
)
|
|
—
|
|
|
(2,319
|
)
|
|
Options exercised
|
|
11
|
|
|
—
|
|
|
—
|
|
|
11
|
|
|
Net cash provided by financing activities
|
|
(1,901
|
)
|
|
4,593
|
|
|
—
|
|
|
2,692
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
(48
|
)
|
|
—
|
|
|
—
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
(5,235
|
)
|
|
(330
|
)
|
|
39
|
|
|
(5,526
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
6,712
|
|
|
4,466
|
|
|
53
|
|
|
11,231
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
1,477
|
|
|
$
|
4,136
|
|
|
$
|
92
|
|
|
$
|
5,705
|
|
16. Subsequent Events
Subsequent to period end, Telstra Corporation Limited informed the Company that it did not plan to continue utilizing the Company's Pay service at the conclusion of the current contracted period which ends in March 2018. While this is not a discontinuation of all services provided to Telstra Corporation Limited by the Company, it will substantially impact the total activity between the two parties. The Company does not believe the non-renewal will have a material impact on its Consolidated Statement of Operations as the gross profit contribution resulting from the impacted revenue is nominal.