UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-35958
DIGITAL TURBINE, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
 
22-2267658
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
1300 Guadalupe Street, Suite 302, Austin TX
 
78701
(Address of Principal Executive Offices)
 
(Zip Code)
(512) 387-7717
(Issuer’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ý    No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ý    No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of a “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)
Large Accelerated Filer
¨
Accelerated Filer
ý
 
 
 
 
Non-accelerated Filer
¨  (do not check if smaller reporting company)
Smaller Reporting Company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act).    Yes ¨    No ý
As of November 2, 2016, the Company had 66,634,006 shares of its common stock, $0.0001 par value per share, outstanding.




EXPLANATORY NOTE

Digital Turbine, Inc.  (the “Company”) is filing this Amendment No. 1 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 solely to include the conformed signatures of the Company’s officers on the signature page hereto. The conformed signatures were inadvertently omitted from the Company’s Quarterly Report on Form 10-Q that was filed with the Securities and Exchange Commission on November 9, 2016 (the “Form 10-Q”), although the Company’s officers manually signed the Form 10-Q prior to filing it with the Securities and Exchange Commission. In addition, in connection with the filing of this Amendment No. 1 to the Form 10-Q and pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, the currently dated certifications of the principal executive officer and principal financial officer of the Company are attached as exhibits hereto. Except as described above, this Amendment No. 1 to the Form 10-Q does not amend, update, or change the financial statements or any other items or disclosures contained in the Form 10-Q and does not otherwise reflect events occurring after the original filing date of the Form 10-Q.
Digital Turbine, Inc.
FORM 10-Q QUARTERLY REPORT FOR THE QUARTER ENDED September 30, 2016
TABLE OF CONTENTS
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1 (A).
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
 
 
 
 
 




PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Digital Turbine, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except par value and share amounts)
 
 
September 30, 2016
 
March 31, 2016
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
9,416

 
$
11,231

Restricted cash
 
321

 

Accounts receivable, net of allowances of $471 and $464, respectively
 
17,477

 
17,519

Deposits
 
152

 
213

Prepaid expenses and other current assets
 
515

 
583

Total current assets
 
27,881

 
29,546

Property and equipment, net
 
2,462

 
1,784

Cost method investment
 
999

 
999

Deferred tax assets
 
401

 
500

Intangible assets, net
 
8,729

 
12,490

Goodwill
 
76,621

 
76,621

TOTAL ASSETS
 
$
117,093

 
$
121,940

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable
 
$
20,071

 
$
15,300

Accrued license fees and revenue share
 
8,613

 
9,622

Accrued compensation
 
1,073

 
1,353

Short-term debt, net of debt issuance costs and discounts of $0 and $568, respectively
 

 
10,432

Other current liabilities
 
1,660

 
2,147

Total current liabilities
 
31,417

 
38,854

Convertible notes, net of debt issuance costs and discounts of $6,616 and $0, respectively
 
9,384

 

Convertible note embedded derivative liability
 
4,123

 

Warrant liability
 
1,363

 

Other non-current liabilities
 
835

 
815

Total liabilities
 
47,122

 
39,669

Stockholders' equity
 
 
 
 
Preferred stock
 
 
 
 
Series A convertible preferred stock at $0.0001 par value;
2,000,000 shares authorized, 100,000 issued and outstanding
(liquidation preference of $1,000)
 
100

 
100

Common stock
 
 
 
 
$0.0001 par value: 200,000,000 shares authorized;
67,368,462 issued and 66,634,006 outstanding at September 30, 2016;
67,019,703 issued and 66,284,606 outstanding at March 31, 2016;
 
8

 
8

Additional paid-in capital
 
297,929

 
295,423

Treasury stock (754,599 shares at September 30, 2016 and March 31, 2016)
 
(71
)
 
(71
)
Accumulated other comprehensive loss
 
(255
)
 
(202
)
Accumulated deficit
 
(227,740
)
 
(212,987
)
Total stockholders' equity
 
69,971

 
82,271

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 
$
117,093

 
$
121,940

The accompanying notes are an integral part of these consolidated financial statements.

3



Digital Turbine, Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

(in thousands, except per share amounts)
 
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Net revenues
 
$
22,832

 
$
20,734

 
$
46,871

 
$
39,420

Cost of revenues
 
 
 
 
 
 
 
 
License fees and revenue share
 
17,797

 
16,099

 
37,021

 
30,320

Other direct cost of revenues
 
1,882

 
4,558

 
3,762

 
6,749

Total cost of revenues
 
19,679

 
20,657

 
40,783

 
37,069

Gross profit
 
3,153

 
77

 
6,088

 
2,351

Operating expenses
 
 
 
 
 
 
 
 
Product development
 
3,117

 
2,406

 
5,952

 
5,160

Sales and marketing
 
1,528

 
1,468

 
2,972

 
2,750

General and administrative
 
4,815

 
4,347

 
9,920

 
9,736

Total operating expenses
 
9,460

 
8,221

 
18,844

 
17,646

Loss from operations
 
(6,307
)
 
(8,144
)
 
(12,756
)
 
(15,295
)
Interest and other expense, net
 
 
 
 
 
 
 
 
Interest expense, net
 
(622
)
 
(405
)
 
(1,304
)
 
(896
)
Foreign exchange transaction loss
 
(1
)
 
(13
)
 
(4
)
 
(12
)
Change in fair value of convertible note embedded derivative liability
 
(430
)
 

 
(430
)
 

Change in fair value of warrant liability
 
(140
)
 

 
(140
)
 

Loss on extinguishment of debt
 
(293
)
 

 
(293
)
 

Loss on disposal of fixed assets
 

 

 

 
(23
)
Other income
 
15

 
11

 
33

 
28

Total interest and other expense, net
 
(1,471
)
 
(407
)
 
(2,138
)
 
(903
)
Loss from operations before income taxes
 
(7,778
)
 
(8,551
)
 
(14,894
)
 
(16,198
)
Income tax provision / (benefit)
 
(437
)
 
(229
)
 
(141
)
 
243

Net loss
 
(7,341
)
 
(8,322
)
 
(14,753
)
 
(16,441
)
Other comprehensive income / (loss)
 
 
 
 
 
 
 
 
Foreign currency translation adjustment
 
(80
)
 
111

 
(53
)
 
62

Comprehensive loss
 
$
(7,421
)
 
$
(8,211
)
 
$
(14,806
)
 
$
(16,379
)
Basic and diluted net loss per common share
 
$
(0.11
)
 
$
(0.14
)
 
$
(0.22
)
 
$
(0.29
)
Weighted-average common shares outstanding, basic and diluted
 
66,457

 
57,274

 
66,358

 
57,328

The accompanying notes are an integral part of these consolidated financial statements.

4



Digital Turbine, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
 
 
Six Months Ended September 30,
 
 
2016
 
2015
Cash flows from operating activities
 
 

 
 

Net loss
 
$
(14,753
)
 
$
(16,441
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
Depreciation and amortization
 
4,199

 
6,850

Loss on disposal of fixed assets
 

 
23

Change in allowance for doubtful accounts
 
7

 
3

Amortization of debt discount
 
237

 
236

Amortization of debt issuance costs
 
444

 

Accrued interest
 
(91
)
 
(16
)
Stock-based compensation
 
2,310

 
2,524

Stock-based compensation for services rendered
 
166

 
600

Change in fair value of convertible note embedded derivative liability
 
430

 

Change in fair value of warrant liability
 
140

 

Loss on extinguishment of debt
 
293

 

Stock issued for settlement of liability
 

 
283

(Increase) / decrease in assets:
 
 
 
 
Restricted cash transferred to / (from) operating cash
 
(321
)
 
200

Accounts receivable
 
35

 
(2,313
)
Deposits
 
61

 
(1
)
Deferred tax assets
 
99

 

Deferred financing costs
 

 
(187
)
Prepaid expenses and other current assets
 
68

 
243

Increase / (decrease) in liabilities:
 
 
 
 
Accounts payable
 
4,771

 
5,177

Accrued license fees and revenue share
 
(1,009
)
 
2,336

Accrued compensation
 
(280
)
 
(597
)
Other current liabilities
 
(393
)
 
(585
)
Other non-current liabilities
 
20

 

Net cash used in operating activities
 
(3,567
)
 
(1,665
)

 
 
 
 
Cash flows from investing activities
 
 

 
 

Capital expenditures
 
(1,115
)
 
(610
)
Net cash used in investing activities
 
(1,115
)
 
(610
)

 
 
 
 
Cash flows from financing activities
 
 

 
 

Cash received in convertible notes issuance
 
16,000

 

Repayment of debt obligations
 
(11,000
)
 
(300
)
Payment of debt issuance costs
 
(2,091
)
 

Options exercised
 
11

 
49

Net cash provided / (used) in financing activities
 
2,920

 
(251
)

 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
 
(53
)
 
39


 
 
 
 
Net change in cash and cash equivalents
 
(1,815
)
 
(2,487
)

 
 
 
 
Cash and cash equivalents, beginning of period
 
11,231

 
7,069


 
 
 
 
Cash and cash equivalents, end of period
 
$
9,416

 
$
4,582


The accompanying notes are an integral part of these consolidated financial statements.

5



Digital Turbine, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
September 30, 2016
(in thousands, except share and per share amounts)
1.    Description of Business
Digital Turbine, through its subsidiaries, innovates at the convergence of media and mobile communications, delivering end-to-end products and solutions for mobile operators, application advertisers, device original equipment manufacturers ("OEMs") and other third parties to enable them to effectively monetize mobile content and generate higher value user acquisition. The Company operates its business in two reportable segments – Advertising and Content.
The Company's Advertising business is comprised of two businesses:
Operator and OEM ("O&O"), an advertiser solution for unique and exclusive carrier and OEM inventory which is comprised of services including:
Ignite™ ("Ignite"), a mobile device management platform with targeted application distribution capabilities,
Discover™ ("Discover"), an intelligent application discovery platform, 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 services including:
Syndicated network, and
Real Time Bidding ("RTB" or "programmatic advertising").
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 and preferred stock and convertible debt. As of September 30, 2016, we had cash and cash equivalents totaling approximately $9,416. On September 28, 2016, the Company closed a private placement of $16,000 aggregate principal amount of 8.75% Convertible Senior Notes due 2020 (the “Notes”), netting cash proceeds to the Company of $14,316, after deducting the initial purchaser's discounts and commissions and the estimated offering expenses payable by Digital Turbine. The net proceeds from the issuance of the Notes were used to repay approximately $11,000 of secured indebtedness, consisting of approximately $3,000 to Silicon Valley Bank ("SVB") and $8,000 to North Atlantic Capital ("NAC"), retiring both such debts in their entirety, and will otherwise be used for general corporate purposes and working capital. Refer to Note 7 Debt for more details. The Company believes that it has sufficient cash, cash equivalents, and capital resources to operate its business for at least the next twelve months.

6



Until the Company becomes cash flow positive, the Company anticipates that its primary source of liquidity will be cash on hand. In addition, the Company may raise additional capital through future equity or, subject to restrictions contained in the indenture for the Notes, debt financing to provide for greater flexibility to make acquisitions, make new investments in under-capitalized opportunities, or invest in organic opportunities, including RTB, integration of Content/Pay into advertising infrastructure, or new product development. 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 paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying consolidated balance sheet is dependent upon continued operations of the Company, which, in turn, is dependent upon the Company’s ability to generate positive cash flows from operations. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities, that might be necessary should the Company be unable to continue its existence.
3.    Summary of Significant Accounting Policies
The significant accounting policies and recent accounting pronouncements were described in Note 4 of the consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended March 31, 2016. There have been no significant changes in or updates to the accounting policies since March 31, 2016, except as noted below.
Restricted Cash
Cash accounts that are restricted to withdrawal or usage are presented as restricted cash. As of September 30, 2016 and March 31, 2016, the Company had $321 and $0, respectively, of restricted cash held by a bank in a collateral account as collateral to cover the Company's corporate credit cards as well as a letter of credit issued to guarantee a facility lease.
Debt Issuance Costs
In April 2015, the FASB issued accounting guidance which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability under ASU 2015-03. The guidance is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years; as such, the Company adopted this guidance in the quarter ended June 30, 2016. The Company has determined that adopting ASU 2015-03 did not have a significant impact on its consolidated results of operations, financial condition, and cash flows. Refer to Note 7 Debt for more details.
Stock Compensation
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification ASU 2016-09 “Stock Compensation - Improvements to Employee Share-Based Payment Accounting” which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendment is effective for the Company for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is permitted. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period.
ASU 2016-09 requires the following:
Accounting for Income Taxes: All excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) should be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period.
Classification of Excess Tax Benefits on the Statement of Cash Flows: Excess tax benefits should be classified along with other income tax cash flows as an operating activity.
Forfeitures: An entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur.
Minimum Statutory Tax Withholding Requirements: The threshold to qualify for equity classification permits withholding up to the maximum statutory tax rates in the applicable jurisdictions.

7



Classification of Employee Taxes Paid on the Statement of Cash Flows When an Employer Withholds Shares for Tax-Withholding Purposes: Cash paid by an employer when directly withholding shares for taxwithholding purposes should be classified as a financing activity.
Practical Expedient—Expected Term: A nonpublic entity can make an accounting policy election to apply a practical expedient to estimate the expected term for all awards with performance or service conditions that meet certain conditions.
Intrinsic Value: A nonpublic entity can make a one-time accounting policy election to switch from measuring all liability-classified awards at fair value to intrinsic value.
The Company is evaluating the impact of the adoption on the consolidated financial statements.
Fair Value of Financial Instruments
The Company measures certain financial assets and liabilities at fair value based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Where available, fair value is based on or derived from observable market prices or other observable inputs. Where observable prices or inputs are not available, valuation techniques are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity.
The carrying amounts of certain financial instruments, such as cash equivalents, short term investments, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities. The fair value of the convertible notes issued on September 28, 2016 is determined using the residual method of accounting where-by the portion of the proceeds so allocated to the embedded derivatives and warrants issued is accounted for as a derivative liability and warrant liability, respectively, and the remainder of the proceeds is allocated to the convertible notes, resulting in debt discount. The convertible notes are carried on the consolidated balance sheet on a historical cost basis, net of discounts and debt issuance costs.
The Company estimates the fair value of the embedded derivatives for the convertible notes and warrant liability using a lattice approach that incorporates a Monte Carlo simulation valuation model that considers the Company's future stock price, stock price volatility, probability of a change of control and the trading information of the Company's common stock into which the notes are or may become convertible.
Changes in the inputs into these valuation models have a significant impact on the estimated fair value of the embedded derivatives. For example, a decrease (increase) in the stock price results in a decrease (increase) in the estimated fair value of the embedded derivatives. The change in the fair value of the bifurcated embedded derivatives and warrant liability are primarily related to the change in price of the Company's underlying common stock and are reflected in the consolidated statements of operations and comprehensive loss as "Change in fair value of convertible note embedded derivative liability” and "Change in fair value of warrant liability." Refer to Note 8 "Fair Value Measurements" for more details.
Convertible Note Embedded Derivative Liability
Embedded derivatives that are required to be bifurcated from the underlying debt instrument (i.e. host) are accounted for and valued as a separate financial instrument. We evaluated the terms and features of our convertible notes issued on September 28, 2016 and identified embedded derivatives (conversion options that contain “make-whole interest” provisions, fundamental change provisions, or down round conversion price adjustment provisions) requiring bifurcation and accounting at fair value 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, 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.
See Note 8, "Fair Value Measurements" of this report for a description of our embedded derivatives related to the convertible notes and information on the valuation model used to calculate the fair value of the embedded derivatives. Changes in the inputs into the valuation model may have a significant impact on the estimated fair value of the embedded derivatives. For example, a decrease (increase) in the stock price results in a decrease (increase) in the estimated fair value of the embedded derivatives. The changes in the fair value of the bifurcated embedded derivatives are 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 convertible note embedded derivative liability.”

8



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.
See Note 8, "Fair Value Measurements" of this report for a description of our warrant liability and information on the valuation model used to calculate the fair value of the warrant liability. Changes in the inputs into the valuation model may have a significant impact on the estimated fair value of the warrant liability. For example, a decrease (increase) in the stock price results in a decrease (increase) in the estimated fair value of the warrant liability. The change 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.”
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and our wholly-owned subsidiaries. All material inter-company balances and transactions have been eliminated in consolidation.
Interim Consolidated Financial Information
The accompanying consolidated financial statements of Digital Turbine, Inc. should be read in conjunction with the consolidated financial statements and accompanying notes filed with the U.S. Securities and Exchange Commission ("SEC") in Digital Turbine, Inc.'s Annual Report on Form 10-K for the fiscal year ended March 31, 2016, as amended. The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments of a normal recurring nature considered necessary to fairly state the financial position of Digital Turbine, Inc. and its consolidated subsidiaries at September 30, 2016, the results of its operations and corresponding comprehensive loss, and its cash flows for the three and six months ended September 30, 2016 and 2015. The results of operations for the interim period are not necessarily indicative of the results that may be expected for the year ending March 31, 2017.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and accounts receivable. A significant portion of the Company’s cash is held at one major financial institution that the Company's management has assessed to be of high credit quality. The Company has not experienced any losses in such accounts.
The Company mitigates its credit risk with respect to accounts receivable by performing credit evaluations and monitoring advertisers' and carriers' accounts receivable balances. As of September 30, 2016, one major Content customer represented approximately 10.3% of the Company’s net accounts receivable balance and one major Advertising customer represented approximately 21.1% of the Company’s net accounts receivable balance. As of March 31, 2016, the previously mentioned major Content customer represented 15.6% of the Company’s net accounts receivable balance and the previously mentioned major Advertising customer represented 5.5% of the Company's net accounts receivable balance.
With respect to revenue concentration, the Company defines a customer as an advertiser or a carrier that is a distinct source of revenue and is legally bound to pay for the services that the Company delivers on the advertiser’s or carrier's behalf. 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. During the three and six months ended September 30, 2016, the previously mentioned major Content customer represented 21.3% and 27.3%, respectively, of net revenues, the previously mentioned major Advertising customer represented 16.7% and 12.1%, respectively,

9



of net revenues, and another major Advertising customer represented 13.7% and 10.2%, respectively, of net revenues. During the three and six months ended September 30, 2015, the previously mentioned major Content customer represented 29.2% and 29.4%, respectively, of net revenues, the previously mentioned major Advertising customer represented 0.4% and 1.5%, respectively, of net revenues, and the previously mentioned second major Advertising customer represented 8.0% and 8.3%, respectively, of net revenues.
4.    Accounts Receivable
 
 
September 30, 2016
 
March 31, 2016
Billed
 
$
11,332

 
$
13,220

Unbilled
 
6,616

 
4,763

Allowance for doubtful accounts
 
(471
)
 
(464
)
Accounts receivable, net
 
$
17,477

 
$
17,519

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 September 30, 2016 and March 31, 2016 are expected to be billed and collected within twelve months.
The Company recorded $28 and $405 of bad debt expense during the three and six months ended September 30, 2016, respectively. The Company recorded $164 of bad debt expense during the three and six months ended September 30, 2015.
5.    Property and Equipment
 
 
September 30, 2016
 
March 31, 2016
Computer-related equipment
 
$
3,680

 
$
2,775

Furniture and fixtures
 
22

 
33

Leasehold improvements
 
246

 
74

 
 
3,948

 
2,882

Accumulated depreciation
 
(1,486
)
 
(1,098
)
Property and equipment, net
 
$
2,462

 
$
1,784

Depreciation expense for the three and six months ended September 30, 2016 was $223 and $437, respectively, and $51 and $101 for the three and six months ended September 30, 2015, respectively.
6.    Intangible Assets
The components of intangible assets at September 30, 2016 and March 31, 2016 were as follows:
 
 
As of September 30, 2016
 
 
Cost
 
Accumulated Amortization
 
Net
Software
 
$
11,544

 
$
(6,192
)
 
$
5,352

Trade name / trademark
 
380

 
(380
)
 

Customer list
 
11,300

 
(8,016
)
 
3,284

License agreements
 
355

 
(262
)
 
93

Total
 
$
23,579

 
$
(14,850
)
 
$
8,729


10



 
 
As of March 31, 2016
 
 
Cost
 
Accumulated Amortization
 
Net
Software
 
$
11,544

 
$
(4,949
)
 
$
6,595

Trade name / trademark
 
380

 
(380
)
 

Customer list
 
11,300

 
(5,534
)
 
5,766

License agreements
 
355

 
(226
)
 
129

Total
 
$
23,579

 
$
(11,089
)
 
$
12,490

The Company has included amortization of acquired intangible assets directly attributable to revenue-generating activities in cost of revenues; thus, all intangible amortization is included in cost of revenues.
The Company recorded amortization expense of $1,882 and $3,762 during the three and six months ended September 30, 2016, respectively, and $4,558 and $6,749 during the three and six months ended September 30, 2015, respectively. The decrease in amortization expense year-over-year was primarily attributable to the following reductions to intangible assets during fiscal 2016: 1) recorded during December 2015 a $1,874 reduction to the cost basis of internal use software acquired in the Appia Inc. transaction due to the Company licensing technology in the Sift agreement that was specifically tied to such software, and 2) recorded during September 2015 a $2,404 accelerated amortization expense and subsequent write-off for customer relationship intangible assets related to our September 2012 acquisition of Logia Mobile Ltd.
Based on the amortizable intangible assets as of September 30, 2016, we estimate amortization expense for the next five years to be as follows:
Twelve Month Period Ending September 30,
 
Amortization Expense
2017
 
$
4,731

2018
 
2,156

2019
 
974

2020
 
121

2021
 
57

Thereafter
 
690

Total
 
$
8,729


11



7.    Debt
 
 
September 30, 2016
 
March 31, 2016
Short-term debt
 
 
 
 
Revolving line of credit, principal
 
$

 
$
3,000

Secured debenture, net of debt issuance costs and discounts of $0 and $568, respectively
 

 
7,432

Total short-term debt
 
$

 
$
10,432

 
 
September 30, 2016
 
March 31, 2016
Long-term debt
 
 
 
 
Convertible notes, net of debt issuance costs and discounts of $6,616 and $0, respectively
 
$
9,384

 
$

Total long-term debt
 
$
9,384

 
$

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 (the “Notes”), 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 the long-term debt at $11,084, the 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 unaudited 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 convertible notes is determined using the residual method of accounting where-by the portion of the proceeds so allocated to the embedded derivatives and warrants issued is accounted for as the convertible note embedded derivative liability and warrant liability, respectively (see Note 8. "Fair Value Measurements for more information), and the remainder of the proceeds is allocated to the convertible notes, resulting in debt discount. 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. The convertible notes will remain on the consolidated balance sheet at historical costs. If we or the note holders elect not to settle the debt through conversion, we must settle the Notes at face value at $16,000. Therefore, the liability component will be accreted up to the face value of the Notes, which will result in additional non-cash interest expense being recognized within the consolidated statements of operations and comprehensive loss through the Notes maturity date.
As of September 30, 2016, the outstanding principal on the Notes was $16,000, the unamortized debt issuance costs and discount were $6,616, and the net carrying amount of the liability was $9,384, which was recorded as long-term debt within the consolidated balance sheet.
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 (the "Indenture"), between Digital Turbine, Inc., US Bank National Association, as trustee, and certain wholly-owned subsidiaries of the Company, specifically Digital Turbine, Inc. as the parent Company, DT USA, DT Media, and DT APAC (collectively referred to as the "Guarantors"). The Notes are senior unsecured obligations of the Company, and bear interest at a rate of 8.75% per year, payable semiannually in arrears on March 15th and September 15th of each year, beginning on March 15, 2017. The Notes are unconditionally guaranteed 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

12



have been made on the notes being converted from the date of conversion until September 23, 2019 (an “Early Conversion Payment”). We may pay the Early Conversion Payment in cash or, subject to certain equity-related conditions set forth in the Indenture, in shares of our common stock.
The Company may redeem the Notes, for cash, in whole or in part, at any time after September 23, 2018, at a redemption price equal to $1 per $1 principal amount of the notes to be redeemed plus accrued and unpaid interest, if any, to, but excluding, the date of redemption, plus an additional payment (payable in cash or stock) equivalent to the amount of, and subject to equivalent terms and conditions applicable for, an Early Conversion Payment had the notes been converted on the date of redemption, if (1) the closing price of our common shares on the NASDAQ Capital Market has exceeded 200% of the conversion price then in effect (but disregarding the effect on such price from certain anti-dilution adjustments) for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending within the five trading days immediately preceding the date on which we provide the redemption notice, (2) for the 15 consecutive trading days following the last trading day on which the closing price of our common shares was equal to or greater than 200% of the conversion price in effect (but disregarding the effect on such price from certain anti-dilution adjustments) on such trading day for the purpose of the foregoing clause, the closing price of our common shares remains equal to or greater than 150% of the conversion price in effect (but disregarding the effect on such price from certain anti-dilution adjustments) on the given trading day and (3) we are in compliance with certain other equity-related conditions as set forth in the Indenture.
If we undergo a fundamental change (as described below), holders may require us to purchase the Notes in whole or in part for cash at a price equal to 120% of the principal amount of the Notes to be purchased plus any accrued and unpaid interest, including additional interest, if any, to, but excluding, the repurchase date. Conversions that occur in connection with a fundamental changes 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.

13



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.
In the event of a fundamental change, as set forth in the Warrant Agreement, the holders can elect to exercise their warrants or to receive an amount of cash under a Black-Scholes calculation of the value of such warrants.
The Company received net cash proceeds of $14,316, after deducting the initial purchaser's discounts and commissions and the estimated offering expenses payable by Digital Turbine. The net proceeds from the issuance of the Notes were used to repay $11,000 of secured indebtedness, consisting of approximately $3,000 to SVB and $8,000 to NAC, retiring both such debts in their entirety, and will otherwise be used for general corporate purposes and working capital.
On July 15, 2016, prior to the payoff of the $8,000 debt with NAC, DTM and North Atlantic entered into a Fourth Amendment to Common Stock Purchase Warrant dated March 6, 2015, where DTM agreed to pay North Atlantic the amount of $75 as consideration to extend the warrant vesting date (the "Retirement Date") to August 29, 2016.
On August 12, 2016, prior to the payoff of the $3,000 debt with SVB, DTM and SVB entered into a Letter Agreement modifying amending the Third Amended and Restated Loan and Security Agreement dated June 11, 2015, whereby the Company agreed to pay SVB the amount of $15 as consideration to extend the maturity date of the debt to September 28, 2016.
On August 26, 2016, prior to the payoff of the $8,000 debt with NAC, DTM and North Atlantic entered into a Fifth Amendment to Common Stock Purchase Warrant dated March 6, 2015, where DTM agreed to pay North Atlantic the amount of $50 as consideration to extend the Retirement Date to September 28, 2016.
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 as of September 28, 2016
Financial Liabilities
 
 
 
 
 
 
 
 
Convertible note embedded derivative liability
 
$

 
$

 
$
3,693

 
$
3,693

Warrant liability
 
$

 
$

 
$
1,223

 
$
1,223

Total
 
$

 
$

 
$
4,916

 
$
4,916

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the liability. Fair value of the convertible notes issued on September 28, 2016 is determined using the residual method of accounting where-by the portion of the proceeds so allocated to the embedded derivatives and warrants issued is accounted for as the convertible note embedded derivative liability and warrant liability, respectively, and the remainder of the proceeds is allocated to the convertible notes, resulting in debt discount. The convertible notes will remain on the consolidated balance sheet at historical costs. 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. Refer to Note 7. "Debt" for more information.

14



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 September 30, 2016, the Company’s financial assets and financial liabilities are presented below at fair value and were classified within the fair value hierarchy as follows (in thousands):
 
 
Level 1
 
Level 2
 
Level 3
 
Balance as of September 30, 2016
Financial Liabilities
 
 
 
 
 
 
 
 
Convertible note embedded derivative liability
 
$

 
$

 
$
4,123

 
$
4,123

Warrant liability
 
$

 
$

 
$
1,363

 
$
1,363

Total
 
$

 
$

 
$
5,486

 
$
5,486

Convertible Note Embedded Derivative Liability
On September 28, 2016, the Company sold to BTIG, LLC (the "Initial Purchaser"), $16,000 principal amount of 8.75% convertible notes maturing on September 23, 2020 (the “Notes”), unless converted, repurchased or redeemed in accordance with their terms prior to such date. We evaluated the terms and features of our convertible notes and identified embedded derivatives (conversion options that contain “make-whole interest” provisions, fundamental change provisions, or down round conversion price adjustment provisions; collectively called the "convertible note embedded derivative liability") requiring bifurcation and accounting at fair value because the economic and contractual characteristics of the embedded derivatives met the criteria for bifurcation and separate accounting. ASC 815-10-15-83 (c) states that if terms implicitly or explicitly require or permit net settlement, it can readily be settled net by means outside the contract, or it provides for delivery of an asset that puts the recipient in a position not substantially different from net settlement. The conversion features related to the convertible notes consists of a “make-whole interest” provision, fundamental change provision, and down round conversion price adjustment provisions, which if the convertible notes were to be converted, would put the convertible note holder in a position not substantially different from net settlement. Given this fact pattern, the conversion features meet the definition of embedded derivatives and require bifurcation and accounting at fair value.
The convertible note embedded derivative liability represent the fair value of the conversion option, fundamental change provision, and "make-whole" provisions, as well as the down round conversion price adjustment or conversion rate adjustment provisions of the convertible notes. There is no current observable market for these types of derivatives and, as such, the Company determined the fair value of the derivative liability using a lattice approach that incorporates a Monte Carlo simulation valuation model. A Monte Carlo simulation valuation model considers the Company's future stock price, stock price volatility, probability of a change of control and the trading information of the Company's common stock into which the notes are or may become convertible. The Company marks the derivative liability to market at the end of each reporting period due to the conversion price not being indexed to the Company's own stock.
Changes in the fair value of the convertible note embedded derivative liability is reflected in our consolidated statements of operations as “Change in fair value of convertible note embedded derivative liability.”
The following table provides a reconciliation of the beginning and ending balances for the convertible note embedded derivative liability measured at fair value using significant unobservable inputs (Level 3):
 
 
Level 3
Balance at September 28, 2016
 
$
3,693

Change in fair value of convertible note embedded derivative liability
 
$
430

Balance at September 30, 2016
 
$
4,123


The market-based assumptions and estimates used in valuing the convertible note embedded derivative liability include amounts in the following amounts:

15



 
September 30, 2016
 
September 28, 2016
Stock price volatility
70
%
 
70
%
Probability of change in control
1.75
%
 
1.75
%
Stock price (per share)
$1.05
 
$0.99
Expected term
4 years

 
4 years

Risk-free rate (1)
1.00
%
 
1.00
%
Assumed early conversion/exercise price (per share)
$2.73
 
$2.73

(1) The Monte Carlo simulation assumes the continuously compounded equivalent (CCE) interest rate of 1.0% based on the average of the 3-year and 5-year U.S. Treasury securities as of the valuation date. 
Changes in valuation assumptions can have a significant impact on the valuation of the convertible note embedded derivative liability. For example, all other things being equal, a decrease/ increase in our stock price, probability of change of control, or stock price volatility decreases/increases the valuation of the liabilities, whereas a decrease/increase in risk-free interest rates increases/decreases the valuation of the liabilities.
Warrant Liability
The Company issued detachable warrants with the convertible notes issued on September 28, 2016. The Company accounts for its warrants issued in accordance with US GAAP accounting guidance under ASC 815 applicable to derivative instruments, which requires every derivative instrument within its scope to be recorded on the balance sheet as either an asset or liability measured at its fair value, with changes in fair value recognized in earnings. Based on this guidance, the Company determined that these warrants did not meet the criteria for classification as equity. Accordingly, the Company classified the warrants as long-term liabilities. The warrants are subject to re-measurement at each balance sheet date, with any change in fair value recognized as a component of other income (expense), net in the statements of operations. We estimated the fair value of these warrants at the respective balance sheet dates using a lattice approach that incorporates a Monte Carlo simulation that considers the Company's future stock price. Option pricing models employ subjective factors to estimate warrant liability; and, therefore, the assumptions used in the model are judgmental.
Changes in the fair value of the warrant liability is primarily related to the change in price of the underlying common stock of the Company and is reflected in our consolidated statements of operations as “Change in fair value of warrant liability.”
The following table provides a reconciliation of the beginning and ending balances for the warrant liability measured at fair value using significant unobservable inputs (Level 3):
 
 
Level 3
Balance at September 28, 2016
 
$
1,223

Change in fair value of warrant liability
 
$
140

Balance at September 30, 2016
 
$
1,363


The market-based assumptions and estimates used in valuing the warrant liability include amounts in the following amounts:
 
September 30, 2016
 
September 28, 2016
Stock price volatility
70
%
 
70
%
Probability of change in control
1.75
%
 
1.75
%
Stock price (per share)
$1.05
 
$0.99
Expected term
4 years

 
4 years

Risk-free rate (1)
1.00
%
 
1.00
%
Assumed early conversion/exercise price (per share)
$2.73
 
$2.73

16




(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, 2016, in connection with the acquisition of Appia, the Company assumed the Appia, Inc. 2008 Stock Incentive Plan (the “Appia Plan”). Digital Turbine’s Incentive Plans and the Appia Plan are all collectively referred to as the “Stock Plans.”
The 2011 Plan provides for grants of stock-based incentive awards to our and our subsidiaries’ officers, employees, non-employee directors, and consultants. Awards issued under the 2011 Plan can include stock options, stock appreciation rights (“SARs”), restricted stock, and restricted stock units (sometimes referred to individually or collectively as “Awards”). Stock options may be either “incentive stock options” (“ISOs”), as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or non-qualified stock options (“NQSOs”).
The 2011 Plan reserves 20,000,000 shares for issuance, of which 11,379,298 and 11,886,707 remained available for future grants as of September 30, 2016 and March 31, 2016, respectively. The change over the comparative period represents stock option grants, stock option forfeitures/cancellations, and restricted shares of common stock of 1,037,000, 860,954, and 331,363, respectively.
Stock Option Agreements
Stock options granted under Digital Turbine's Incentive 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.

17



Stock Option Activity
The following table summarizes stock option activity for the Stock Plans for the periods or as of the dates indicated:
 
 
Number of
Shares
 
Weighted Average
Exercise Price (per share)
 
Weighted Average
Remaining Contractual
Life (in years)
 
Aggregate Intrinsic
Value (in thousands)
Options Outstanding, March 31, 2016
 
7,824,395

 
$
3.61

 
8.24
 
$
110

Granted
 
1,037,000

 
1.13

 
 
 
 
Forfeited / Cancelled
 
(860,954
)
 
0.64

 
 
 
 
Exercised
 
(18,038
)
 
2.96

 
 
 
 
Options Outstanding, September 30, 2016
 
7,982,403

 
3.37

 
7.94
 
65

Vested and expected to vest (net of estimated forfeitures) at September 30, 2016 (a)
 
6,413,005

 
3.69

 
7.67
 
64

Exercisable, September 30, 2016
 
3,498,410

 
$
5.04

 
6.50
 
$
61

(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 September 30, 2016 and the exercise price multiplied by the number of in-the-money options) that would have been received by the option holders, had the holders exercised their options on September 30, 2016. The intrinsic value changes based on changes in the price of the Company's common stock.
Information about options outstanding and exercisable at September 30, 2016 is as follows:
 
 
Options Outstanding
 
Options Exercisable
Exercise Price
 
Number of Shares
 
Weighted-Average Exercise Price
 
Weighted-Average Remaining Life (Years)
 
Number of Shares
 
Weighted-Average Exercise Price
$0.00 - 0.50
 
8,065

 
$
0.24

 
3.48
 
8,065

 
$
0.24

$0.51 - 1.00
 
159,923

 
$
0.70

 
6.50
 
136,136

 
$
0.65

$1.01 - 1.50
 
2,852,559

 
$
1.29

 
2.96
 
165,056

 
$
1.26

$1.51 - 2.00
 
316,055

 
$
1.51

 
9.10
 
74,250

 
$
1.51

$2.01 - 2.50
 
253,776

 
$
2.43

 
4.33
 
187,109

 
$
2.41

$2.51 - 3.00
 
1,162,456

 
$
2.62

 
8.01
 
657,341

 
$
2.61

$3.51 - 4.00
 
1,332,314

 
$
3.95

 
8.18
 
780,976

 
$
3.95

$4.01 - 4.50
 
1,367,255

 
$
4.20

 
7.08
 
984,477

 
$
4.22

$4.51 - 5.00
 
60,000

 
$
4.65

 
6.49
 
60,000

 
$
4.65

$5.01 and over
 
470,000

 
$
16.32

 
2.26
 
445,000

 
$
16.90

 
 
7,982,403

 
 
 
 
 
3,498,410

 
 
Other information pertaining to stock options for the Stock Plans for the six months ended, as stated in the table below, is as follows:
 
 
September 30,
 
 
2016
 
2015
Total fair value of options vested
 
2,452

 
2,847

Total intrinsic value of options exercised (a)
 
8

 
110

(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 six months ended September 30, 2016 and 2015.
During the six months ended September 30, 2016 and 2015, the Company granted options to purchase 1,037,000 and 1,216,900 shares of its common stock, respectively, to employees with weighted-average grant-date fair values of $0.82 and $2.53, respectively.

18



At September 30, 2016 and 2015, there was $6,731 and $10,668 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 2.31 and 2.37 years, respectively.
Valuation of Awards
For stock options granted under Digital Turbine’s Incentive Plans, the Company typically uses the Black-Scholes option pricing model to estimate the fair value of stock options at grant date. The Black-Scholes option pricing model incorporates various assumptions, including volatility, expected term, risk-free interest rates, and dividend yields. The assumptions utilized in this model during three and six months ended September 30, 2016 are presented below.

 
September 30, 2016
Risk-free interest rate
 
 1.06% to 1.69%
Expected life of the options
 
 5.69 to 9.93 years
Expected volatility
 
 86% to 130%
Expected dividend yield
 
—%
Expected forfeitures
 
 10% to 35%
Expected volatility is based on a blend of implied and historical volatility of the Company's common stock over the most recent period commensurate with the estimated expected term of the Company’s stock options. The Company uses this blend of implied and historical volatility, as well as other economic data, because management believes such volatility is more representative of prospective trends. The expected term of an award is based on historical experience and on the terms and conditions of the stock awards granted to employees.
Total stock compensation expense for the Company’s Stock Plans for the three and six months ended September 30, 2016, which includes both stock options and restricted stock, was $1,173 and $2,476, respectively. Total stock compensation expense for the Company's Stock Plans for three and six months ended September 30, 2015, which includes both stock options and restricted stock, was $1,503 and $3,123, respectively. See Note 10 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
On June 9, 2016, the Company issued 30,000 warrants to a third party for services rendered. The warrants are immediately exercisable on the date of issuance at an initial exercise price of $1.08 per share and will expire on June 9, 2021.
In July 2016, the Company issued 13,826 shares of common stock for the exercise of options assumed by the Company as part of the acquisition of DT Media (Appia, Inc.) during March 2015.
On September 28, 2016, in connection with the issuance of the Notes, the Company issued 250,000 and 4,105,600 warrants to the initial purchaser and holders of the Notes, respectively. The warrants are immediately exercisable on the date of issuance at an initial exercise price of $1.364 per share and will expire on September 23, 2020. The exercise price is subject to proportional adjustment for adjustments to outstanding common stock and anti-dilution provisions in case of dividends or distributions, stock split or combination, or if the Company issues or sells shares of common stock at a price per share less than the conversion price on the trading day immediately preceding such issuance of sale. Refer to Note 7 "Debt" and Note 8 "Fair Value Measurements" for more details.

19



The following table provides activity for warrants issued and outstanding during the six months ended September 30, 2016:
 
 
Number of Warrants Outstanding
 
Weighted-Average Exercise Price
Outstanding as of March 31, 2016
 
2,085,356

 
2.78

Issued
 
4,385,600

 
1.36

Exercised
 

 

Cancelled
 
(400,000
)
 
0.01

Expired
 
(60,000
)
 
2.15

Outstanding as of September 30, 2016
 
6,010,956

 
1.94

Restricted Stock Agreements
From time to time, the Company enters into restricted stock agreements (“RSAs”) with certain employees, directors, and consultants. The RSAs have performance conditions, market conditions, time conditions, or a combination thereof. In some cases, once the stock vests, the individual is restricted from selling the shares of stock for a certain defined period, from three months to two years, depending on the terms of the RSA. As reported in our Current Reports on Form 8-K filed with the SEC on February 12, 2014 and June 25, 2014, the Company adopted a Board Member Equity Ownership Policy that supersedes any post-vesting lock-up in RSAs that are applicable to people covered by the policy, which includes the Company’s Board of Directors and Chief Executive Officer.
Service and Time Condition RSAs
Awards of restricted stock are grants of restricted stock that are issued at no cost to the recipient. The cost of these awards is determined using the fair market value of the Company’s common stock on the date of the grant. Compensation expense for restricted stock awards with a service condition is recognized on a straight-line basis over the requisite service period.
In August 2016, the Company issued 331,363 restricted shares to its directors for services. The shares vest over one year. The fair value of the shares on the date of issuance was $364. With respect to time condition RSAs, the Company expensed $86 and $166 during the three and six months ended September 30, 2016, respectively, and $273 and $600 during three and six months ended September 30, 2015, respectively.
The following is a summary of restricted stock awards and activities for all vesting conditions for the six months ended September 30, 2016:
 
 
Number of Shares
 
Weighted-Average Grant Date Fair Value
Unvested restricted stock outstanding as of March 31, 2016
 
110,046

 
1.45

Granted
 
331,363

 
1.10

Vested
 
(110,046
)
 
1.99

Cancelled
 

 

Unvested restricted stock outstanding as of September 30, 2016
 
331,363

 
1.10

All restricted shares, vested and unvested, cancellable and not cancelled, have been included in the outstanding shares as of September 30, 2016.
At September 30, 2016, there was $305 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 0.83 years.

20



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 six months ended September 30, 2016 and three and six months ended September 30, 2015, all potentially dilutive shares of common stock were determined to be anti-dilutive, and accordingly, were not included in the calculation of diluted net loss per share.
The following table sets forth the computation of net loss per share of common stock (in thousands, except per share amounts):
 
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Net loss
 
(7,341
)
 
(8,322
)
 
(14,753
)
 
(16,441
)
Weighted-average common shares outstanding, basic and diluted
 
66,457

 
57,274

 
66,358

 
57,328

Basic and diluted net loss per common share
 
$
(0.11
)
 
$
(0.14
)
 
$
(0.22
)
 
$
(0.29
)
Common stock equivalents excluded from net loss per diluted share because their effect would have been anti-dilutive
 
156

 
559

 
81

 
836

12.    Income 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 six months ended September 30, 2016, tax benefit of $437 and $141, respectively, resulted in an effective tax rate of 5.6% and 1.0%, 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 second quarter is largely due to changes in transfer pricing estimates.
During the three and six months ended September 30, 2015, a tax benefit of $229, and a tax expense of $243, respectively, resulted in an effective tax rate of 2.7% and (1.50)%, respectively. Differences in the tax provision and statutory rate are primarily due to changes in the valuation allowance.
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 those identified below, and we do not believe that these proceedings and claims would reasonably be expected to have a material adverse effect on our financial position, results of operations or cash flows. The Company accrues a liability when it is both probable that a liability has been incurred, and the amount of the loss can be reasonably estimated. The Company reviews these accruals at least quarterly, and adjusts them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel, and other relevant information. To the extent new information is obtained and the Company's views on the probable outcomes of claims, suits, assessments, investigations, or legal proceedings change, changes in the Company's accrued liabilities would be recorded in the period in which such determination is made. For some matters, the amount of liability is not probable or the amount cannot be reasonably estimated, and therefore, accruals have not been made. In those cases, we assess whether there is at least a reasonable possibility that a loss, or additional losses, may have been incurred. If there is a reasonable possibility that a loss or additional loss may have been incurred for such proceedings, we disclose the estimate of the amount of loss or possible range of loss, or disclose that an estimate of loss cannot be made, as applicable.

21



The following is a discussion of the Company's significant legal matters and other proceedings.
Coral Tell Ltd. Matter
On May 30, 2013, a class action suit in the amount of NIS 19,200, or approximately $5,300, was filed in the Tel-Aviv Jaffa District Court against Coral Tell Ltd., an Israeli company that owns and operates a website offering advertisements. Coral Tell Ltd. is currently being sued in a class action lawsuit regarding phone call overages, and has served a third-party notice against Logia and two additional companies for our alleged involvement in facilitating the overages. The suit relates to a service offered by the Coral Tell website, enabling advertisers to display a virtual cellular number in the advertisement instead of their real cellular number. The plaintiff claims that calls were charged for the connection time between two segments of the call, instead of the second segment alone; that the caller was charged even if the advertiser did not answer the call (as the charge began upon initiation of the first segment); and that the caller was charged for text messages sent to the advertiser, although the service did not support delivery of text messages. We have no contractual relationship with this company. We believe the lawsuit is without merit and a finding of liability on our part remote. After conferring with advisors and counsel, management believes that the ultimate liability, if any, in aggregate will not be material to the financial position or results or operations of the Company for any future period.
The Company does not believe there is a probable and estimable claim. Accordingly, the Company has not accrued any liability.
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 six months ended September 30, 2016 and three and six months ended September 30, 2015, respectively. During fiscal 2016 the Company changed its methodology for how corporate operating expenses are allocated to the Company's Advertising and Content operating segments, as the new method of allocation is deemed by management to be a more accurate representation of how the expenses relate to the operations and development of the Advertising and Content segments. Corporate operating expenses in fiscal 2015 were previously allocated between the Advertising and Content segments based on employee headcount. Corporate operating expenses in fiscal 2016 are now being allocated based on the percentage of revenue between Advertising and Content for the Company as a whole. Prior period fiscal 2015 figures presented have been updated to reflect these changes and are comparable to the fiscal 2016 figures presented.
 
 
Content
 
Advertising
 
Total
Three months ended September 30, 2016
 
 
 
 
 
 
Net revenues
 
$
7,626

 
$
15,206

 
$
22,832

Loss from operations
 
(1,346
)
 
(4,961
)
 
(6,307
)
Three months ended September 30, 2015
 
 
 
 
 
 
Net revenues
 
7,070

 
13,664

 
20,734

Loss from operations
 
$
(3,512
)
 
$
(4,632
)
 
$
(8,144
)

22



 
 
Content
 
Advertising
 
Total
Six months ended September 30, 2016
 
 
 
 
 
 
Net revenues
 
$
18,856

 
$
28,015

 
$
46,871

Loss from operations
 
(2,751
)
 
(10,005
)
 
(12,756
)
Six months ended September 30, 2015
 
 
 
 
 
 
Net revenues
 
14,140

 
25,280

 
39,420

Loss from operations
 
$
(5,517
)
 
$
(9,778
)
 
$
(15,295
)
The following table sets forth geographic information on our net revenues for the three and six months ended September 30, 2016 and 2015. Net revenues by geography are based on the billing addresses of our customers. During the three and six months ended September 30, 2016, one major Content customer represented 21.3% and 27.3%, respectively, of net revenues, one major Advertising customer represented 16.7% and 12.1%, respectively, of net revenues, and another major Advertising customer represented 13.7% and 10.2%, respectively, of net revenues. During the three and six months ended September 30, 2015, the previously mentioned major Content customer represented 29.2% and 29.4%, respectively, of net revenues, the previously mentioned major Advertising customer represented 0.4% and 1.5%, respectively, of net revenues, and the previously mentioned second major Advertising customer represented 8.0% and 8.3%, respectively, of net revenues.
 
 
Three Months Ended September 30,
 
 
2016
 
2015
Net revenues
 
 
 
 
     United States and Canada
 
$
8,811

 
$
6,133

     Europe, Middle East, and Africa
 
4,047

 
3,395

     Asia Pacific and China
 
9,558

 
11,144

     Mexico, Central America, and South America
 
416

 
62

Consolidated net revenues
 
$
22,832

 
$
20,734

 
 
Six Months Ended September 30,
 
 
2016
 
2015
Net revenues
 
 
 
 
     United States and Canada
 
$
15,480

 
$
13,267

     Europe, Middle East, and Africa
 
7,805

 
6,693

     Asia Pacific and China
 
22,954

 
19,210

     Mexico, Central America, and South America
 
632

 
250

Consolidated net revenues
 
$
46,871

 
$
39,420

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, between Digital Turbine, Inc., US Bank National Association, as trustee, and certain wholly-owned subsidiaries of the Company, specifically Digital Turbine, Inc. as the parent Company, DT USA, DT Media, and DT APAC. Given the Notes are unconditionally guaranteed as to the payment of principal, premium, if any, and interest on a senior unsecured basis by the wholly-owned subsidiaries of the Company, the Company is required by SEC Reg S-X 210.3-10 to include, in a footnote, condensed consolidating financial information for the same periods with a separate column for:
The parent company;
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.

23



The following consolidated financial information and condensed consolidated financial information include:
(1) Condensed consolidated balance sheets as of September 30, 2016 and March 31, 2016; consolidated statements of operations for the three and six months ended September 30, 2016 and 2015; and condensed consolidated statements of cash flows for the six months ended September 30, 2016 and 2015 of (a) Digital Turbine, Inc. as the parent, (b) the guarantor subsidiaries, (c) the non-guarantor subsidiaries, and (d) Digital Turbine, Inc. on a consolidated basis; and
(2) Elimination entries necessary to consolidate Digital Turbine, Inc., as the parent, with its guarantor and non-guarantor subsidiaries.
Digital Turbine, Inc. owns 100% of all of the guarantor subsidiaries, and as a result, in accordance with Rule 3-10(d) of Regulation S-X promulgated by the SEC, no separate financial statements are required for these subsidiaries as of and for the three and six months ended September 30, 2016 or 2015.

24



Condensed Consolidated Balance Sheet
as of September 30, 2016
(dollars in thousands)
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated Total
ASSETS
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
3,546

 
$
5,815

 
$
55

 
$

 
$
9,416

Restricted cash
 

 
321

 

 

 
321

Accounts receivable, net of allowances of $471
 
7

 
17,035

 
435

 

 
17,477

Deposits
 

 
116

 
36

 

 
152

Prepaid expenses and other current assets
 
380

 
130

 
5

 

 
515

Total current assets
 
3,933

 
23,417

 
531

 

 
27,881

Property and equipment, net
 
69

 
2,333

 
60

 

 
2,462

Cost method investment
 

 
999

 

 

 
999

Deferred tax assets
 
401

 

 

 

 
401

Intangible assets, net
 
1

 
5,475

 
3,253

 

 
8,729

Goodwill
 

 
75,621

 
1,000

 

 
76,621

TOTAL ASSETS
 
4,404

 
107,845

 
4,844

 

 
117,093

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
1,488

 
18,559

 
24

 

 
20,071

Accrued license fees and revenue share
 

 
8,330

 
283

 

 
8,613

Accrued compensation
 
38

 
1,035

 

 

 
1,073

Other current liabilities
 
1,606

 
789

 
(735
)
 

 
1,660

Total current liabilities
 
3,132

 
28,713

 
(428
)
 

 
31,417

Convertible notes, net of debt issuance costs and discounts of $6,616
 
9,384

 

 

 

 
9,384

Convertible note embedded derivative liability
 
4,123

 

 

 

 
4,123

Warrant liability
 
1,363

 

 

 

 
1,363

Other non-current liabilities
 
835

 

 

 

 
835

Total liabilities
 
18,837

 
28,713

 
(428
)
 

 
47,122

Stockholders' equity
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
 
 
 
 
 
 
 
 
 
Series A convertible preferred stock at $0.0001 par value;
2,000,000 shares authorized, 100,000 issued and outstanding
(liquidation preference of $1,000)
 
100

 

 

 

 
100

Common stock
 
 
 
 
 
 
 
 
 
 
$0.0001 par value: 200,000,000 shares authorized;
67,368,462 issued and 66,634,006 outstanding at September 30, 2016
 
8

 

 

 

 
8

Additional paid-in capital
 
297,929

 

 

 

 
297,929

Treasury stock (754,599 shares at September 30, 2016)
 
(71
)
 

 

 

 
(71
)
Accumulated other comprehensive loss
 
16

 
(583
)
 
312

 

 
(255
)
Accumulated deficit
 
(186,766
)
 
(38,742
)
 
(2,232
)
 

 
(227,740
)
Total stockholders' equity
 
111,216

 
(39,325
)
 
(1,920
)
 

 
69,971

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 
$
130,053

 
$
(10,612
)
 
$
(2,348
)
 
$

 
$
117,093


25



Condensed Consolidated Balance Sheet
as of March 31, 2016
(dollars in thousands)
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated Total
ASSETS
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
6,712

 
4,466

 
53

 

 
11,231

Restricted cash
 

 


 

 

 

Accounts receivable, net of allowances of $464
 
24

 
17,369

 
126

 

 
17,519

Deposits
 

 
133

 
80

 

 
213

Prepaid expenses and other current assets
 
331

 
239

 
13

 

 
583

Total current assets
 
7,067

 
22,207

 
272

 


 
29,546

Property and equipment, net
 
53

 
1,690

 
41

 

 
1,784

Cost method investment
 

 
999

 

 

 
999

Deferred tax assets
 
500

 

 

 

 
500

Intangible assets, net
 

 
8,660

 
3,830

 

 
12,490

Goodwill
 

 
70,377

 
6,244

 

 
76,621

TOTAL ASSETS
 
7,620

 
103,933

 
10,387

 

 
121,940

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
1,255

 
14,002

 
43

 

 
15,300

Accrued license fees and revenue share
 

 
9,549

 
73

 

 
9,622

Accrued compensation
 
(544
)
 
1,800

 
97

 

 
1,353

Short-term debt, net of debt issuance costs and discounts of $568
 
7,432

 
3,000

 

 

 
10,432

Deferred tax liabilities
 

 


 

 

 

Other current liabilities
 
152

 
737

 
1,258

 

 
2,147

Total current liabilities
 
8,295

 
29,088

 
1,471

 

 
38,854

Other non-current liabilities
 
815

 

 

 

 
815

Total liabilities
 
9,110

 
29,088

 
1,471

 

 
39,669

Stockholders' equity
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
 
 
 
 
 
 
 
 
 
Series A convertible preferred stock at $0.0001 par value;
2,000,000 shares authorized, 100,000 issued and outstanding
(liquidation preference of $1,000)
 
100

 

 

 

 
100

Common stock
 
 
 
 
 
 
 
 
 
 
$0.0001 par value: 200,000,000 shares authorized;
67,019,703 issued and 66,284,606 outstanding at March 31, 2016;
 
8

 

 

 

 
8

Additional paid-in capital
 
295,423

 

 

 

 
295,423

Treasury stock (754,599 shares at March 31, 2016)
 
(71
)
 


 

 

 
(71
)
Accumulated other comprehensive loss
 
26

 
(440
)
 
212

 

 
(202
)
Accumulated deficit
 
(179,131
)
 
(31,231
)
 
(2,625
)
 

 
(212,987
)
Total stockholders' equity
 
116,355

 
(31,671
)
 
(2,413
)
 

 
82,271

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 
125,465

 
(2,583
)
 
(942
)
 

 
121,940


26



Consolidated Statement of Operations and Comprehensive Loss
for the three months ended September 30, 2016
(dollars in thousands)
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated Total
Net revenues
 

 
30,338

 
462

 
(7,968
)
 
22,832

Cost of revenues
 
 
 
 
 
 
 
 
 
 
License fees and revenue share
 

 
25,547

 
218

 
(7,968
)
 
17,797

Other direct cost of revenues
 

 
1,594

 
288

 

 
1,882

Total cost of revenues
 

 
27,141

 
506

 
(7,968
)
 
19,679

Gross profit
 

 
3,197

 
(44
)
 

 
3,153

Operating expenses
 
 
 
 
 
 
 
 
 
 
Product development
 
9

 
3,079

 
29

 

 
3,117

Sales and marketing
 
42

 
1,480

 
6

 

 
1,528

General and administrative
 
3,083

 
1,704

 
28

 

 
4,815

Total operating expenses
 
3,134

 
6,263

 
63

 

 
9,460

Income / (loss) from operations
 
(3,134
)
 
(3,066
)
 
(107
)<