Filed pursuant to Rule 424(b)(3)
Commission File No.: 333-214321

PROSPECTUS SUPPLEMENT NO. 2 DATED AUGUST 21, 2017
(to Prospectus dated January 31, 2017)
DIGITAL TURBINE, INC.


On August 7, 2017, the Company filed with the Securities and Exchange Commission our Quarterly Report on Form 10-Q for the period ended June 30, 2017. The purpose of this Prospectus Supplement No. 2 is to attach our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 as Appendix A. The exhibits filed with the Quarterly Report are attached to Appendix A to this filing.

In connection with the offering (the “Offering”) of up to $16 million of the Company’s 8.75% Convertible Notes due 2020 (the “notes”), warrants to purchase 4,355,600 shares of the Company’s common stock expiring in 2020 (the “warrants”), and 16,085,840 shares of the Company’s common stock underlying the notes and the warrants by certain selling security holders, the Company has filed with the Securities and Exchange Commission (“SEC”) a registration statement (the “Registration Statement”) on Form S-1 (No. 333-214321) (which also was a registration statement filed by certain subsidiary guarantors named therein), as amended, which was declared effective on January 31, 2017. A prospectus covering the Offering was filed with the SEC on January 23, 2017 in connection with the last amendment prior to effectiveness (as supplemented from time to time, the “Prospectus”).

ANY POTENTIAL INVESTORS IN THE SECURITIES OF THE COMPANY ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT CAREFULLY AND IN THEIR ENTIRETY BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE OFFERING.

This Prospectus Supplement and the Prospectus are required to be delivered by the selling security holders of the above-referenced securities or by certain of their transferees, pledges, donees or their successors in connection with the offer and sale of the above-referenced securities.

The information contained herein, including the information attached hereto, supplements and supersedes, in part, the information contained in the Prospectus. This Prospectus Supplement should be read in conjunction with the Prospectus and all prior prospectus supplements, and is qualified by reference to the Prospectus and all prior prospectus supplements except to the extent that the information in this Prospectus Supplement supersedes the information contained in the Prospectus or any prior prospectus supplement.

You may obtain a copy of the Registration Statement, the Prospectus, this Prospectus Supplement and all prior prospectus supplements, as well as other filings containing information about the Company, without charge, at the SEC's Internet site (http://www.sec.gov). Copies of the Registration Statement, the Prospectus and this Prospectus Supplement can also be obtained, without charge, from the Company's corporate website at www.digitalturbine.com, or by directing a request to the Company, Attention: Investor Relations, 1300 Guadalupe Street, Suite 302, Austin, TX 78701.

In addition to the documents described above, the Company files annual, quarterly and current reports, proxy statements and other information with the SEC, which are available at the SEC's website at www.sec.gov or at the Company's website at www.digitalturbine.com.

The information contained in, or that can be accessed through, the Company's website is deemed not to be a part of this filing.

THIS FILING IS FOR INFORMATION PURPOSES ONLY AND FOR UPDATING SOLELY TO THE EXTENT PERMITTED BY SEC RULES AND INTERPRETATIONS AND SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SECURITIES, NOR SHALL THERE BE ANY SALE OF SECURITIES IN ANY JURISDICTION IN WHICH SUCH SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH JURISDICTION.


Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.




APPENDIX A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
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, a smaller reporting, or an emerging growth company. See definitions of a “large accelerated filer,” “accelerated filer,”, “smaller reporting company”, and "emerging growth 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
¨
 
 
 
 
Emerging Growth Company
¨

 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
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 July 31, 2017, the Company had 66,609,711 shares of its common stock, $0.0001 par value per share, outstanding.




Digital Turbine, Inc.
FORM 10-Q QUARTERLY REPORT FOR THE QUARTER ENDED June 30, 2017
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)
 
 
June 30, 2017
 
March 31, 2017
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash
 
$
6,302

 
$
6,149

Restricted cash
 
331

 
331

Accounts receivable, net of allowances of $671 and $597, respectively
 
20,136

 
16,554

Deposits
 
121

 
121

Prepaid expenses and other current assets
 
582

 
510

Total current assets
 
27,472

 
23,665

Property and equipment, net
 
2,453

 
2,377

Deferred tax assets
 
352

 
352

Intangible assets, net
 
3,975

 
4,565

Goodwill
 
76,621

 
76,621

TOTAL ASSETS
 
$
110,873

 
$
107,580

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable
 
$
20,263

 
$
19,868

Accrued license fees and revenue share
 
9,952

 
8,529

Accrued compensation
 
1,267

 
1,073

Secured line of credit, net of debt issuance costs and discounts of $307 and $0, respectively
 
1,943

 

Other current liabilities
 
1,773

 
1,304

Total current liabilities
 
35,198

 
30,774

Convertible notes, net of debt issuance costs and discounts of $5,975 and $6,315, respectively
 
10,025

 
9,685

Convertible note embedded derivative liability
 
4,526

 
3,218

Warrant liability
 
1,540

 
1,076

Other non-current liabilities
 
849

 
782

Total liabilities
 
52,138

 
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; 67,342,084 issued and 66,607,628 outstanding at June 30, 2017; 67,329,262 issued and 66,594,807 outstanding at March 31, 2017.
 
8

 
8

Additional paid-in capital
 
300,453

 
299,580

Treasury stock (754,599 shares at June 30 and March 31, 2017)
 
(71
)
 
(71
)
Accumulated other comprehensive loss
 
(329
)
 
(321
)
Accumulated deficit
 
(241,426
)
 
(237,251
)
Total stockholders' equity
 
58,735

 
62,045

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 
$
110,873

 
$
107,580

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

4



Digital Turbine, Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
(in thousands, except per share amounts)
 
 
Three Months Ended June 30,
 
 
2017
 
2016
Net revenues
 
$
26,120

 
$
24,039

Cost of revenues
 
 
 
 
License fees and revenue share
 
18,881

 
19,224

Other direct cost of revenues
 
623

 
1,880

Total cost of revenues
 
19,504

 
21,104

Gross profit
 
6,616

 
2,935

Operating expenses
 
 
 
 
Product development
 
2,758

 
2,835

Sales and marketing
 
1,558

 
1,444

General and administrative
 
3,824

 
5,105

Total operating expenses
 
8,140

 
9,384

Loss from operations
 
(1,524
)
 
(6,449
)
Interest and other income / (expense), net
 
 
 
 
Interest expense, net
 
(707
)
 
(682
)
Foreign exchange transaction loss
 
(144
)
 
(3
)
Change in fair value of convertible note embedded derivative liability
 
(1,308
)
 

Change in fair value of warrant liability
 
(464
)
 

Other income
 
3

 
18

Total interest and other income / (expense), net
 
(2,620
)
 
(667
)
Income / (loss) from operations before income taxes
 
(4,144
)
 
(7,116
)
Income tax provision
 
31

 
296

Net income / (loss)
 
$
(4,175
)
 
$
(7,412
)
Other comprehensive income / (loss)
 
 
 
 
Foreign currency translation adjustment
 
(8
)
 
27

Comprehensive income / (loss)
 
$
(4,183
)
 
$
(7,385
)
Basic and diluted net loss per common share
 
$
(0.06
)
 
$
(0.11
)
Weighted-average common shares outstanding, basic and diluted
 
66,599

 
66,286

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

5



Digital Turbine, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
 
 
Three Months Ended June 30,
 
 
2017
 
2016
Cash flows from operating activities
 
 

 
 

Net loss
 
$
(4,175
)
 
$
(7,412
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
Depreciation and amortization
 
888

 
2,094

Change in allowance for doubtful accounts
 
75

 
(109
)
Amortization of debt discount and debt issuance costs
 
353

 
342

Accrued interest
 
344

 
1

Stock-based compensation
 
788

 
1,223

Restricted shares and warrants compensation for services rendered
 
76

 
80

Change in fair value of convertible note embedded derivative liability
 
1,308

 

Change in fair value of warrant liability
 
464

 

(Increase) / decrease in assets:
 
 
 
 
Accounts receivable
 
(3,656
)
 
1,980

Deposits
 

 
66

Prepaid expenses and other current assets
 
(72
)
 
89

Increase / (decrease) in liabilities:
 
 
 
 
Accounts payable
 
395

 
(169
)
Accrued license fees and revenue share
 
1,423

 
419

Accrued compensation
 
194

 
(72
)
Other current liabilities
 
124

 
372

Other non-current liabilities
 
67

 

Net cash used in operating activities
 
(1,404
)
 
(1,096
)

 
 
 
 
Cash flows from investing activities
 
 

 
 

Capital expenditures
 
(374
)
 
(472
)
Net cash used in investing activities
 
(374
)
 
(472
)

 
 
 
 
Cash flows from financing activities
 
 

 
 

Proceeds from short-term borrowings
 
2,250

 

Payment of debt issuance costs
 
(320
)
 
(280
)
Options exercised
 
9

 
2

Net cash provided by (used in) financing activities
 
1,939

 
(278
)

 
 
 
 
Effect of exchange rate changes on cash
 
(8
)
 
27


 
 
 
 
Net change in cash
 
153

 
(1,819
)

 
 
 
 
Cash, beginning of period
 
6,149

 
11,231


 
 
 
 
Cash, end of period
 
$
6,302

 
$
9,412

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

6



Digital Turbine, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 2017
(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 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 June 30, 2017, we had cash and restricted cash totaling approximately $6,633.
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.

7



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. The amounts advanced under the Credit Agreement mature in two years and accrue interest at prime plus 1.25% subject to a 4.00% floor, with the prime rate defined as the prime rate published in the Wall Street Journal. The Credit Facility also carries an annual facility fee of $45.5, and an 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. 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 certain monthly financial covenants. Refer to Note 7 Debt for more details.
In addition, the indenture for the Notes, and the related warrant agreement for the warrants issued in connection with the Notes, contain, among other protections, price-based anti-dilution rights. These rights could result in significant dilution to other stockholders in the event we were to complete certain types of financings at valuations below specified levels. At our January 2017 annual stockholders meeting, we received stockholder approval to issue the full amount of shares of our stock that could ultimately be issuable under the indenture for the Notes and the warrant agreement. However, as a result of the modification of our indenture for the Notes and related modification of the warrant agreement in connection with soliciting consent for incurrence of the Credit Agreement, the January 2017 stockholder approval no longer applies and we would need to receive a new stockholder approval in order to issue the full amount of shares of our stock that could ultimately be issuable under the indenture for the Notes and the warrant agreement. We are required to seek such stockholder approval.
Until the Company becomes cash flow positive, the Company anticipates that its primary sources of liquidity will continue be cash on hand 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 June 30, 2017, the results of its operations and corresponding comprehensive loss, and its cash flows for the three months ended June 30, 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.

8



Recently Issued Accounting Pronouncements
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 March 31, 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.
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 June 30, 2017, two major Advertising customers represented approximately 15.5% and 10.1% , 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 months ended June 30, 2017, Singapore Telecommunications Limited, a Content customer represented 17.1% of net revenues; AOL Inc., an Advertising customer represented 12.0% of net revenues; Telstra Corporation Limited, a Content customer represented 11.4% of net revenues; and Machine Zone, Inc., an Advertising customer represented 10.2% of net revenues. During the three months ended June 30, 2016, Telstra Corporation Limited, a Content customer represented 32.9% of net revenues, and Jam City Inc., an Advertising customer represented 11.0% of net revenues.
The Company partners with mobile carriers and OEMS to deliver applications on our Ignite platform through the carrier network. During the three months ended June 30, 2017, Verizon Wireless, a carrier partner, generated 33.0% of our net revenues; while AT&T Inc., a carrier partner, primarily through its Cricket subsidiary, generated 14.0% of our net revenue. During the three months ended June 30, 2016, Verizon Wireless, generated 18.9% of our net revenues.
The Company may not continue to receive significant revenues from any of these or from other large customers. A reduction or delay in operating activity from any of the Company’s significant customers, or a delay or default in payment by any significant customer could materially harm the Company’s business and prospects. Because of the Company’s significant customer concentration, its net sales and operating income could fluctuate significantly due to changes in political or economic conditions, or the loss, reduction of business, or less favorable terms for any of the Company's significant customers.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make certain estimates that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.


9



4.    Accounts Receivable
 
 
June 30, 2017
 
March 31, 2017
 
 
(Unaudited)
 
 
Billed
 
$
11,843

 
$
9,367

Unbilled
 
8,964

 
7,784

Allowance for doubtful accounts
 
(671
)
 
(597
)
Accounts receivable, net
 
$
20,136

 
$
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 June 30, 2017 and March 31, 2017 are expected to be billed and collected within twelve months.
The Company recorded $79 of bad debt expense during the three months ended June 30, 2017. The Company recorded $377 of bad debt expense during the three months ended June 30, 2016.
5.    Property and Equipment
 
 
June 30, 2017
 
March 31, 2017
 
 
(Unaudited)
 
 
Computer-related equipment
 
$
4,516

 
$
4,133

Furniture and fixtures
 
108

 
116

Leasehold improvements
 
143

 
143

Property and equipment, gross
 
4,767

 
4,392

Accumulated depreciation
 
(2,314
)
 
(2,015
)
Property and equipment, net
 
$
2,453

 
$
2,377

Depreciation expense for the three months ended June 30, 2017 was $298, and $214 for the three months ended June 30, 2016, respectively. Depreciation expense in the current period includes $265 related to internal use assets included in General and Administrative Expense and $33 related to internally developed software to be sold, leased, or otherwise marketed included in Other Direct Costs of Revenue. Depreciation expense in the prior comparative period related exclusively to internal use assets and is included in General and Administrative Expense.
6.    Intangible Assets
The components of intangible assets at June 30, 2017 and March 31, 2017 were as follows:
 
 
As of June 30, 2017
 
 
(Unaudited)
 
 
Cost
 
Accumulated Amortization
 
Net
Software
 
$
11,544

 
$
(8,737
)
 
$
2,807

Trade name / trademark
 
380

 
(380
)
 

Customer list
 
11,300

 
(10,181
)
 
1,119

License agreements
 
355

 
(306
)
 
49

Total
 
$
23,579

 
$
(19,604
)
 
$
3,975


10



 
 
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; thus, all intangible amortization is included in cost of revenues.
The Company recorded amortization expense of $590 during the three months ended June 30, 2017, and $1,880 during the three months ended June 30, 2016, respectively. The decrease in amortization expense year-over-year was primarily attributable to customer 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 June 30, 2017, we estimate amortization expense for the next five years to be as follows:
Year Ending March 31,
 
Amortization Expense
2018
 
$
2,076

2019
 
1,009

2020
 
143

2021
 
114

2022
 
114

Thereafter
 
519

Total
 
$
3,975


11



7.    Debt
 
 
June 30, 2017
 
March 31, 2017
 
 
(Unaudited)
 
 
Short-term debt
 
 
 
 
Secured line of credit, net of issuance costs of $307 and $0, respectively
 
$
1,943

 
$

Total short-term debt
 
$
1,943

 
$

 
 
June 30, 2017
 
March 31, 2017
 
 
(Unaudited)
 
 
Long-term debt
 
 
 
 
Convertible notes, net of issuance costs and discounts of $5,975 and $6,315, respectively
 
$
10,025

 
$
9,685

Total long-term debt
 
$
10,025

 
$
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 the S-1 to register the underlying common stock related to the Notes issued and related Warrants issued along with the Notes, which was required to be done in accordance with the Indenture (as defined below). The convertible notes will remain on the consolidated balance sheet at historical cost, accreted up for the amount of cumulative amortization of the debt discount over the life of the debt. If we or the note holders elect not to settle the debt through conversion, we must settle the Notes at face value at $16,000. Therefore, the liability component will be accreted up to the face value of the Notes, which will result in additional non-cash interest expense being recognized within the consolidated statements of operations and comprehensive loss through the Notes maturity date.
As of June 30, 2017, the outstanding principal on the Notes was $16,000, the unamortized debt issuance costs and debt discount in aggregate was $5,975, and the net carrying amount of the Notes was $10,025, which was recorded as long-term debt within the consolidated balance sheet. The Company recorded $353 of aggregate debt discount and debt issuance cost amortization during the three months ended June 30, 2017, and $342 for the three months ended June 30, 2016. Inclusive of the Notes issued on September 28, 2016 and the NAC subordinated debenture which was retired in full on September 28, 2016, the Company recorded $354 of interest expense during the three months ended June 30, 2017 and $340 for the three months ended June 30, 2016.

12



The Company sold the Notes to the Initial Purchaser at a purchase price of 92.75% of the principal amount. The initial purchaser also received an additional 250,000 warrants on the same terms as the warrants issued with the Notes (as detailed below) and has the right to receive 2.5% of any cash consideration received by the Company in connection with a future exercise of any of the warrants issued with the Notes. The Notes were issued under an Indenture dated September 28, 2016, as amended on January 31, 2017 (the "Indenture"), between Digital Turbine, Inc., US Bank National Association, as trustee, and certain wholly-owned subsidiaries of the Company, specifically Digital Turbine, Inc. as the parent Company, DT USA, DT Media, and DT APAC (collectively referred to as the "Guarantors"). The Notes are senior unsecured obligations of the Company, and bear interest at a rate of 8.75% per year, payable semiannually in arrears on March 15th and September 15th of each year, beginning on March 15, 2017. The Notes are unconditionally guaranteed by the Guarantors as to the payment of principal, premium, if any, and interest on a senior unsecured basis. The Notes were issued with an initial conversion price equal to $1.364 per share of the Company's common stock, subject to proportional adjustment for adjustments to outstanding common stock and anti-dilution provisions in case of dividends or distributions, stock split or combination, or if the Company issues or sells shares of common stock at a price per share less than the conversion price on the trading day immediately preceding such issuance of sale.
With respect to any conversion prior to September 23, 2019, in addition to the shares deliverable upon conversion, holders of the Notes will be entitled to receive a payment equal to the remaining scheduled payments of interest that would have been made on the notes being converted from the date of conversion until September 23, 2019 (an “Early Conversion Payment”). We may pay the Early Conversion Payment in cash or, subject to certain equity-related conditions set forth in the Indenture, in shares of our common stock.
The Company may redeem the Notes, for cash, in whole or in part, at any time after September 23, 2018, at a redemption price equal to $1 per $1 principal amount of the notes to be redeemed plus accrued and unpaid interest, if any, to, but excluding, the date of redemption, plus an additional payment (payable in cash or stock) equivalent to the amount of, and subject to equivalent terms and conditions applicable for, an Early Conversion Payment had the notes been converted on the date of redemption, if (1) the closing price of our common shares on the NASDAQ Capital Market has exceeded 200% of the conversion price then in effect (but disregarding the effect on such price from certain anti-dilution adjustments) for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending within the five trading days immediately preceding the date on which we provide the redemption notice, (2) for the 15 consecutive trading days following the last trading day on which the closing price of our common shares was equal to or greater than 200% of the conversion price in effect (but disregarding the effect on such price from certain anti-dilution adjustments) on such trading day for the purpose of the foregoing clause, the closing price of our common shares remains equal to or greater than 150% of the conversion price in effect (but disregarding the effect on such price from certain anti-dilution adjustments) on the given trading day and (3) we are in compliance with certain other equity-related conditions as set forth in the Indenture.

13



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.

14



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. Fifty percent of the availability of the total facility was originally subject to EX-IM Bank approval. The approval has been received.
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 June 30, 2017, the Company was in compliance with the covenants of the Credit Agreement.
The Credit Agreement requires that at least two-thirds (2/3rds) of the holders of the Notes at all times be subject to subordination agreements with the Bank, which were obtained in connection with the solicitation of consents for the Second Supplemental Indenture described below.
The Credit Agreement contains other customary covenants, representations, indemnities and events of default.
Second Supplemental Indenture and Warrant Amendment.
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 order to obtain a waiver of the covenant in the Indenture regarding incurrence of secured debt. 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 , dated September 28, 2016, with US Bank as warrant agent (the “Warrant Agreement”), related to the Warrants that were issued in connection with the Notes in September 2017.
The principal changes effected by the Supplemental Indenture are as follows:
From and after the determination of the Measured Price (as defined below), the Conversion Rate (as defined in the Indenture) of the Notes shall be adjusted to be equal to $1 divided by the Measured Price, subject to adjustment as set forth in the Indenture.

15



“Measured Price” means the dollar amount calculated as follows: (A) If the sum of (i) the simple average of the Daily VWAP (as defined in the Indenture) for the Company’s Common Stock for all of the consecutive VWAP Trading Days (as defined in the Indenture) that occur during a measurement period (essentially, the period between the 90th and 120th days after the effective date of the Second Supplemental Indenture) plus (ii) ten percent (10%) of the amount determined under clause (i) (the “Measured Sum”) is greater than or equal to $1.00 but less than or equal to $1.364 (which is the original conversion price of the Notes immediately prior to the Second Supplemental Indenture and at original issuance), then the Measured Price shall be the Measured Sum; (B) if the Measured Sum is less than $1.00, then the Measured Price shall be $1.00; and (C) if the Measured Sum is greater than $1.364, then the Measured Price shall be $1.364.
The principal changes effected by the Warrant Amendment are as follows:
From and after the determination of the Measured Price (as defined in the same manner as described above), the Exercise Price (as defined in the Warrant Agreement) shall be adjusted to be equal to such Measured Price, subject to adjustment as set forth in the Warrant Agreement.
Accordingly, the Company expects to determine the changes, if any, to the Conversion Rate of the Notes and the Exercise Price of the Warrants by the end of September 2017. The Company currently intends to announce any such changes by a Current Report on Form 8-K. Depending on the resulting Measure Price, the number of shares of Common Stock issuable under the Notes and Warrants could be increased. An issuance cap of 19.9% applies to any such increase, however the Company is obligated to seek stockholder approval so that such cap, if approval is obtained, would not then apply.

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 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.

16



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 June 30, 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 (in thousands):
 
 
Level 1
 
Level 2
 
Level 3
 
Balance as of June 30, 2017
 
 
 
 
 
 
 
 
(Unaudited)
Financial Liabilities
 
 
 
 
 
 
 
 
Convertible note embedded derivative liability
 
$

 
$

 
$
4,526

 
$
4,526

Warrant liability
 
$

 
$

 
$
1,540

 
$
1,540

Total
 
$

 
$

 
$
6,066

 
$
6,066

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

17



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
 
$
1,308

Balance at June 30, 2017
 
$
4,526

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 quarter ended June 30, 2017, from $0.99 to $1.03, this had the impact during the three months ended June 30, 2017 of recording a loss from change in fair value of convertible note embedded derivative liability of $1,308.
The market-based assumptions and estimates used in valuing the convertible note embedded derivative liability include amounts in the following amounts:
 
June 30, 2017
Stock price volatility
70
%
Probability of change in control
1.75
%
Stock price (per share)
$1.03
Expected term
3.25 years

Risk-free rate (1)
1.56
%
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.”

18



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
 
$
464

Balance at June 30, 2017
 
$
1,540

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 months ended June 30, 2017, from $0.99 to $1.03, this had the impact during the three months ended June 30, 2017 of recording a loss from change in fair value of convertible note embedded derivative liability of $464.
The market-based assumptions and estimates used in valuing the warrant liability include amounts in the following amounts:
 
June 30, 2017
Stock price volatility
70
%
Probability of change in control
1.75
%
Stock price (per share)
$1.03
Expected term
3.25 years

Risk-free rate (1)
1.56
%
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 9,861,846 and 9,665,123 remained available for future grants as of June 30, 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 326,500, 523,223, and 0, respectively.

19



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
 
326,500

 
1.00

 
 
 
 
Forfeited / Cancelled
 
(523,223
)
 
2.33

 
 
 
 
Exercised
 
(12,822
)
 
0.75

 
 
 
 
Options Outstanding, June 30, 2017
 
9,526,233

 
2.52

 
7.84
 
1,063

Vested and expected to vest (net of estimated forfeitures) at June 30, 2017 (a)
 
8,387,723

 
2.72

 
7.65
 
848

Exercisable, June 30, 2017
 
3,699,003

 
$
4.53

 
6.01
 
$
131

(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 June 30, 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 June 30, 2017. The intrinsic value changes based on changes in the price of the Company's common stock.
Information about options outstanding and exercisable at June 30, 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

 
2.74
 
7,652

 
$
0.24

$0.51 - 1.00
 
3,476,123

 
$
0.73

 
9.31
 
350,113

 
$
0.67

$1.01 - 1.50
 
2,384,892

 
$
1.32

 
8.73
 
398,465

 
$
1.22

$1.51 - 2.00
 
210,500

 
$
1.51

 
8.35
 
102,125

 
$
1.51

$2.01 - 2.50
 
253,779

 
$
2.43

 
3.58
 
203,779

 
$
2.42

$2.51 - 3.00
 
920,034

 
$
2.62

 
6.97
 
735,370

 
$
2.63

$3.51 - 4.00
 
895,854

 
$
3.96

 
6.86
 
700,046

 
$
3.96

$4.01 - 4.50
 
847,399

 
$
4.14

 
6.18
 
687,078

 
$
4.14

$4.51 - 5.00
 
60,000

 
$
4.65

 
5.74
 
60,000

 
$
4.65

$5.01 and over
 
470,000

 
$
16.32

 
1.51
 
454,375

 
$
16.68

 
 
9,526,233

 
 
 
 
 
3,699,003

 
 

20



Other information pertaining to stock options for the Stock Plans for the three months ended June 30, 2017 and 2016, as stated in the table below, is as follows:
 
 
June 30,
 
 
2017
 
2016
Total fair value of options vested
 
$
597

 
$
1,265

Total intrinsic value of options exercised (a)
 
$
4

 
$
3

(a) The total intrinsic value of options exercised represents the total pre-tax intrinsic value (the difference between the stock price at exercise and the exercise price multiplied by the number of options exercised) that was received by the option holders who exercised their options during the three months ended June 30, 2017 and 2016.
During the three months ended June 30, 2017 and 2016, the Company granted options to purchase 326,500 and 345,000 shares of its common stock, respectively, to employees with weighted-average grant-date fair values of $1.00 and $1.05, respectively.
At June 30, 2017 and 2016, there was $3,491 and $8,103 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 2.07 and 2.46 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 three months ended June 30, 2017 are presented below.

 
June 30, 2017
Risk-free interest rate
 
 1.8% to 2.3%
Expected life of the options
 
 5.69 to 9.93 years
Expected volatility
 
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 months ended June 30, 2017, and 2016, which includes both stock options and restricted stock, was $864 and $1,303, 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.

21



Common Stock and Warrants
The following table provides activity for warrants issued and outstanding during the three months ended June 30, 2017:
 
 
Number of Warrants Outstanding
 
Weighted-Average Exercise Price
Outstanding as of March 31, 2017
 
5,003,813

 
1.62

Issued
 

 

Exercised
 

 

Expired
 
(71,428
)
 
3.50

Outstanding as of June 30, 2017
 
4,932,385

 
1.59

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.
With respect to time condition RSAs, the Company expensed $76 during the three months ended June 30, 2017, and $80 during three months ended June 30, 2016, respectively.
The following is a summary of restricted stock awards and activities for all vesting conditions for the three months ended June 30, 2017:
 
 
Number of Shares
 
Weighted-Average Grant Date Fair Value
Unvested restricted stock outstanding as of March 31, 2017
 
139,318

 
1.10

Granted
 

 

Vested
 
(69,659
)
 
1.10

Cancelled
 

 

Unvested restricted stock outstanding as of June 30, 2017
 
69,659

 
1.10

All restricted shares, vested and unvested, cancellable and not cancelled, have been included in the outstanding shares as of June 30, 2017.
At June 30, 2017, there was $27 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 0.08 years.

22



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 months ended June 30, 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 June 30,
 
 
2017
 
2016
Net income / (loss)
 
$
(4,175
)
 
$
(7,412
)
Weighted-average common shares outstanding, basic and diluted
 
66,599

 
66,286

Basic and diluted net loss per common share
 
$
(0.06
)
 
$
(0.11
)
Common stock equivalents excluded from net loss per diluted share because their effect would have been anti-dilutive
 
1,033

 
770

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 months ended June 30, 2017, a tax expense of $31 resulted in an effective tax rate of (0.7)%. Differences in the tax provision and the statutory rate are primarily due to changes in the valuation allowance. The tax expense reported in the current quarter is largely due to changes in transfer pricing estimates.
During the three months ended June 30, 2016, a tax expense of $296 resulted in an effective tax rate of (4.2)%. Differences in the tax provision and statutory rate are primarily due to changes in the valuation allowance.

23



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.
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. On June 19, 2017 the District Court approved a settlement agreement between the plaintiff and defendant, and dismissed the third-party notices (Logia included). The defendant may appeal the dismissal of the third-party notices. 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 months ended June 30, 2017 and 2016.

24



 
 
Content
 
Advertising
 
Total
Three months ended June 30, 2017
 
 
 
 
 
 
Net revenues
 
$
7,930

 
$
18,190

 
$
26,120

Loss from operations
 
(1,102
)
 
(422
)
 
(1,524
)
Three months ended June 30, 2016
 
 
 
 
 
 
Net revenues
 
11,230

 
12,809

 
24,039

Loss from operations
 
$
(1,405
)
 
$
(5,044
)
 
$
(6,449
)
The following table sets forth geographic information on our net revenues for the three months ended June 30, 2017 and 2016. Net revenues by geography are based on the billing addresses of our customers.
 
 
Three Months Ended June 30,
 
 
2017
 
2016
Net revenues
 
 
 
 
     United States and Canada
 
$
7,193

 
$
6,669

     Europe, Middle East, and Africa
 
2,534

 
3,758

     Asia Pacific and China
 
14,755

 
13,396

     Mexico, Central America, and South America
 
1,638

 
216

Consolidated net revenues
 
$
26,120

 
$
24,039


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 four of the wholly-owned subsidiaries of the Company, the Company is required by SEC Reg S-X 210.3-10 to include, in a footnote, condensed consolidating financial information for the same periods with a separate column for:
The 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.
The following consolidated financial information and condensed consolidated financial information include:
(1) Condensed consolidated balance sheets as of June 30, 2017 and March 31, 2017; consolidated statements of operations for the three months ended June 30, 2017 and 2016; and condensed consolidated statements of cash flows for the three months ended June 30, 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 months ended June 30, 2017 or 2016.

25



Condensed Consolidated Balance Sheet
as of June 30, 2017 (Unaudited)
(in thousands, except par value and share amounts)
 
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidated Total
ASSETS
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
Cash
 
$
254

 
$
5,962

 
$
86

 
$
6,302

Restricted cash
 
156

 
175

 

 
331

Accounts receivable, net of allowance of $671
 

 
19,121

 
1,015

 
20,136

Deposits
 

 
121

 

 
121

Prepaid expenses and other current assets
 
333

 
245

 
4

 
582

Total current assets
 
743

 
25,624

 
1,105

 
27,472

Property and equipment, net
 
58

 
2,378

 
17

 
2,453

Deferred tax assets
 
352

 

 

 
352

Intangible assets, net
 

 
2,270

 
1,705

 
3,975

Goodwill
 

 
70,377

 
6,244

 
76,621

TOTAL ASSETS
 
$
1,153

 
$
100,649

 
$
9,071

 
$
110,873

INTERCOMPANY
 
 
 
 
 
 
 
 
Intercompany payable/receivable, net
 
124,468

 
(108,411
)
 
(16,057
)
 

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
Accounts payable
 
$
1,259

 
$
18,770

 
$
234

 
$
20,263

Accrued license fees and revenue share
 

 
9,761

 
191

 
9,952

Accrued compensation
 
34

 
1,233

 

 
1,267

Short-term debt, net of debt issuance costs and discounts of $307
 
1,943

 

 

 
1,943

Other current liabilities
 
1,248

 
525

 

 
1,773

Total current liabilities
 
4,484

 
30,289

 
425

 
35,198

Convertible notes, net of debt issuance costs and discounts of $5,975
 
10,025

 

 

 
10,025

Convertible note embedded derivative liability
 
4,526

 

 

 
4,526

Warrant liability
 
1,540

 

 

 
1,540

Other non-current liabilities
 
770

 
79

 

 
849

Total liabilities
 
21,345

 
30,368

 
425

 
52,138

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; 67,342,084 issued and 66,607,628 outstanding at June 30, 2017.
 
(28
)
 

 
36

 
8

Additional paid-in capital
 
300,453

 

 

 
300,453

Treasury stock (754,599 shares at June 30, 2017)
 
(71
)
 

 

 
(71
)
Accumulated other comprehensive loss
 

 
(1,709
)
 
1,380

 
(329
)
Accumulated deficit
 
(196,099
)
 
(37,347
)
 
(7,980
)
 
(241,426
)
Total stockholders' equity
 
104,355

 
(39,056
)
 
(6,564
)
 
58,735

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 
$
125,700

 
$
(8,688
)
 
$
(6,139
)
 
$
110,873


26



Condensed 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


27



Consolidated Statement of Operations and Comprehensive Loss
for the three months ended June 30, 2017 (Unaudited)
(in thousands, except par value and share amounts)
 
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Elimination
 
Consolidated Total
Net revenues
 
$

 
$
37,937

 
$
347

 
$
(12,164
)
 
$
26,120

Cost of revenues
 
 
 
 
 
 
 
 
 
 
License fees and revenue share
 

 
30,869

 
176

 
(12,164
)
 
18,881

Other direct cost of revenues
 

 
409

 
214

 

 
623

Total cost of revenues
 

 
31,278

 
390

 
(12,164
)
 
19,504

Gross profit
 

 
6,659

 
(43
)
 

 
6,616

Operating expenses
 
 
 
 
 
 
 
 
 
 
Product development
 
5

 
2,741

 
12

 

 
2,758

Sales and marketing
 
102

 
1,403

 
53

 

 
1,558

General and administrative
 
2,325

 
1,425

 
74

 

 
3,824

Total operating expenses
 
2,432

 
5,569

 
139

 

 
8,140

Income / (loss) from operations
 
(2,432
)
 
1,090

 
(182
)
 

 
(1,524
)
Interest and other income / (expense), net
 
 
 
 
 
 
 
 
 
 
Interest expense, net
 
(710
)
 
3

 

 

 
(707
)
Foreign exchange transaction loss
 

 
(144
)
 

 

 
(144
)
Change in fair value of convertible note embedded derivative liability
 
(1,308
)
 

 

 

 
(1,308
)
Change in fair value of warrant liability
 
(464
)
 

 

 

 
(464
)
Other income
 
3

 

 

 

 
3

Total interest and other income / (expense), net
 
(2,479
)
 
(141
)
 

 

 
(2,620
)
Income / (loss) from operations before income taxes
 
(4,911
)
 
949

 
(182
)
 

 
(4,144
)
Income tax provision
 
31

 

 

 

 
31

Net income / (loss)
 
$
(4,942
)
 
$
949

 
$
(182
)
 
$

 
$
(4,175
)
Other comprehensive income / (loss)
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment
 

 
(224
)
 
216

 

 
(8
)
Comprehensive income / (loss)
 
$
(4,942
)
 
$
725

 
$
34

 
$

 
$
(4,183
)


28



Consolidated Statement of Operations and Comprehensive Loss
for the three months ended June 30, 2016 (Unaudited)
(in thousands, except par value and share amounts)
 
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Elimination
 
Consolidated Total
Net revenues
 
$

 
$
29,604

 
$
118

 
$
(5,683
)
 
$
24,039

Cost of revenues
 
 
 
 
 
 
 
 
 
 
License fees and revenue share
 

 
24,877

 
30

 
(5,683
)
 
19,224

Other direct cost of revenues
 

 
1,805

 
75

 

 
1,880

Total cost of revenues
 

 
26,682

 
105

 
(5,683
)
 
21,104

Gross profit
 

 
2,922

 
13

 

 
2,935

Operating expenses
 
 
 
 
 
 
 
 
 
 
Product development
 

 
2,809

 
26

 

 
2,835

Sales and marketing
 
41

 
1,429

 
(26
)
 

 
1,444

General and administrative
 
4,012

 
1,395

 
(302
)
 

 
5,105

Total operating expenses
 
4,053

 
5,633

 
(302
)
 

 
9,384

Loss from operations
 
(4,053
)
 
(2,711
)
 
315

 

 
(6,449
)
Interest and other income / (expense), net
 
 
 
 
 
 
 
 
 
 
Interest expense, net
 

 
(682
)
 

 

 
(682
)
Foreign exchange transaction loss
 

 
(2
)
 
(1