x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Delaware
|
22-2267658
|
(State
or Other Jurisdiction of Incorporation or Organization)
|
(I.R.S.
Employer Identification No.)
|
2121
Avenue of the Stars, Suite 2550, Los Angeles, CA
|
90067
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
Large
Accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
(do
not check if a smaller reporting company)
|
Smaller
reporting company x
|
Page
|
||
PART I - FINANCIAL
INFORMATION
|
||
Item
1.
|
Financial
Statements
|
|
Consolidated
Balance Sheets as of September 30, 2009 (Unaudited) and March 31,
2009
|
1
|
|
Consolidated
Statements of Operations (Unaudited) For the Three Month and the Six Month
Periods Ended September 30, 2009 and 2008
|
2
|
|
Consolidated
Statements of Cash Flows (Unaudited) For the Three Month and the Six Month
Periods September 30, 2009 and 2008
|
4
|
|
Notes
to the Unaudited Consolidated Financial Statements
|
5
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
31
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
38
|
Item
4T.
|
Controls
and Procedures
|
38
|
PART II - OTHER INFORMATION
|
||
Item
1.
|
Legal
Proceedings
|
39
|
Item 1A.
|
Risk
Factors
|
39
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
39
|
Item
3.
|
Defaults
Upon Senior Securities
|
39
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
39
|
Item
5.
|
Other
Information
|
39
|
Item
6.
|
Exhibits
|
39
|
40
|
Page(s)
|
||
Consolidated
Balance Sheets as of September 30, 2009 (Unaudited) and March 31,
2009
|
1
|
|
Consolidated
Statements of Operations (Unaudited) for the three months and the six
months ended September 30, 2009 and September 30, 2008
|
2
|
|
Consolidated
Statements of Stockholders’ Equity and Comprehensive Loss (Unaudited) for
the period ended September 30, 2009
|
3
|
|
Consolidated
Statements of Cash Flows (Unaudited) for the six months ended September
30, 2009 and September 30, 2008
|
4
|
|
Notes
to Unaudited Consolidated Financial Statements
|
5-31
|
September
30,
|
March
31,
|
|||||||
2009
|
2009
|
|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 2,807 | $ | 5,927 | ||||
Accounts
receivable, net of allowances of $177 and $174,
respectively
|
10,886 | 10,745 | ||||||
Prepaid
expenses and other current assets
|
961 | 1,334 | ||||||
Total
current assets
|
14,654 | 18,006 | ||||||
Property
and equipment, net
|
1,159 | 1,230 | ||||||
Intangible
assets, net
|
15,511 | 16,121 | ||||||
Goodwill
|
55,833 | 55,833 | ||||||
TOTAL
ASSETS
|
$ | 87,157 | $ | 91,190 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities
|
||||||||
Accounts
payable
|
$ | 7,365 | $ | 9,557 | ||||
Accrued
license fees
|
2,387 | 2,795 | ||||||
Accrued
compensation
|
603 | 592 | ||||||
Current
portion of long term debt
|
24,506 | 23,296 | ||||||
Other
current liabilities
|
4,463 | 5,899 | ||||||
Total
currrent liabilities
|
39,324 | 42,139 | ||||||
Other
long-term liabilities
|
- | 27 | ||||||
Total
liabilities
|
$ | 39,324 | 42,166 | |||||
Commitments
and contingencies (Note 15)
|
||||||||
Stockholders'
equity
|
||||||||
Preferred
stock
|
||||||||
Series
A convertible preferred stock at $0.0001 par value; 100,000 shares
authorized,issued and outstanding (liquidation preference of
$1,000,000)
|
100 | 100 | ||||||
Common
stock, $0.0001 par value: 100,000,000 shares authorized; 39,863,191 issued
and outstanding at September 30, 2009; 39,653,125 issued and
outstanding at March 31, 2009
|
4 | 4 | ||||||
Additional
paid-in capital
|
95,048 | 93,918 | ||||||
Accumulated
other comprehensive income/(loss)
|
(288 | ) | (129 | ) | ||||
Accumulated
deficit
|
(47,031 | ) | (44,869 | ) | ||||
Total
stockholders' equity
|
47,833 | 49,024 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 87,157 | $ | 91,190 |
3
Months Ended
|
3
Months Ended
|
6
Months Ended
|
6
Months Ended
|
|||||||||||||
September
30
|
September
30
|
September
30
|
September
30
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
revenues
|
$ | 10,141 | $ | 5,003 | $ | 20,224 | $ | 10,349 | ||||||||
Cost
of revenues
|
||||||||||||||||
License
fees
|
857 | 1,785 | 1,876 | 3,934 | ||||||||||||
Other
direct cost of revenues
|
2,149 | 102 | 3,986 | 204 | ||||||||||||
Total
cost of revenues
|
3,006 | 1,887 | 5,862 | 4,138 | ||||||||||||
Gross
profit
|
7,135 | 3,116 | 14,362 | 6,211 | ||||||||||||
Operating
expenses
|
||||||||||||||||
Product
development
|
1,358 | 1,800 | 2,780 | 3,567 | ||||||||||||
Sales
and marketing
|
3,024 | 1,004 | 6,405 | 2,283 | ||||||||||||
General
and administrative
|
2,956 | 2,559 | 5,344 | 5,372 | ||||||||||||
Amortization
of intangible assets
|
177 | 137 | 354 | 274 | ||||||||||||
Total
operating expenses
|
7,515 | 5,500 | 14,883 | 11,496 | ||||||||||||
Loss
from operations
|
(380 | ) | (2,384 | ) | (521 | ) | (5,285 | ) | ||||||||
Interest
and other income/(expense)
|
||||||||||||||||
Interest
income
|
3 | 44 | 7 | 121 | ||||||||||||
Interest
expense
|
(737 | ) | (468 | ) | (1,406 | ) | (952 | ) | ||||||||
Foreign
exchange transaction gain/(loss)
|
139 | (57 | ) | 294 | 73 | |||||||||||
Other
income / (expense)
|
154 | (102 | ) | 149 | (187 | ) | ||||||||||
Interest
and other income/(expense)
|
(441 | ) | (583 | ) | (956 | ) | (945 | ) | ||||||||
Loss
from operations before income taxes
|
(821 | ) | (2,967 | ) | (1,477 | ) | (6,230 | ) | ||||||||
Income
tax provision
|
(380 | ) | (74 | ) | (685 | ) | (148 | ) | ||||||||
Net
loss
|
$ | (1,201 | ) | $ | (3,041 | ) | $ | (2,162 | ) | $ | (6,378 | ) | ||||
Comprehensive
loss
|
$ | (1,563 | ) | $ | (3,147 | ) | $ | (2,321 | ) | $ | (6,494 | ) | ||||
Basic
and diluted net loss per common share
|
$ | (0.03 | ) | $ | (0.09 | ) | $ | (0.05 | ) | $ | (0.20 | ) | ||||
Weighted
average common shares outstanding, basic and diluted
|
39,863 | 32,423 | 39,836 | 32,377 |
Accumulated
|
||||||||||||||||||||||||||||||||||||
Additional
|
Other
|
|||||||||||||||||||||||||||||||||||
Common
Stock
|
Preferred
Stock
|
Paid-In
|
Comprehensive
|
Accumulated
|
Comprehensive
|
|||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Income/(Loss)
|
Deficit
|
Total
|
Loss
|
||||||||||||||||||||||||||||
Balance
at March 31, 2009
|
39,653,125 | $ | 4 | 100,000 | $ | 100 | $ | 93,918 | $ | (129 | ) | $ | (44,869 | ) | $ | 49,024 | ||||||||||||||||||||
Net
Loss
|
(961 | ) | (961 | ) | (961 | ) | ||||||||||||||||||||||||||||||
Foreign
currency translation gain/(loss)
|
203 | 203 | 203 | |||||||||||||||||||||||||||||||||
Issuance
of common stock as part of compensation
|
210,066 | 172 | 172 | |||||||||||||||||||||||||||||||||
Deferred
stock-based compensation
|
311 | 311 | ||||||||||||||||||||||||||||||||||
Comprehensive
loss
|
$ | (758 | ) | |||||||||||||||||||||||||||||||||
Balance
at June 30, 2009
|
39,863,191 | $ | 4 | 100,000 | $ | 100 | $ | 94,401 | $ | 74 | $ | (45,830 | ) | $ | 48,749 | |||||||||||||||||||||
Net
Loss
|
(1,201 | ) | (1,201 | ) | (1,201 | ) | ||||||||||||||||||||||||||||||
Foreign
currency translation gain/(loss)
|
(362 | ) | (362 | ) | (362 | ) | ||||||||||||||||||||||||||||||
Issuance
of warrants to vendor for services rendered
|
134 | 134 | ||||||||||||||||||||||||||||||||||
Deferred
stock-based compensation
|
513 | 513 | ||||||||||||||||||||||||||||||||||
Comprehensive
loss
|
$ | (1,563 | ) | |||||||||||||||||||||||||||||||||
Balance
at September 30, 2008
|
39,863,191 | $ | 4 | 100,000 | $ | 100 | $ | 95,048 | $ | (288 | ) | (47,031 | ) | $ | 47,833 |
6
Months Ended
|
6
Months Ended
|
|||||||
September
30,
|
September
30,
|
|||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
loss
|
$ | (2,162 | ) | (6,378 | ) | |||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
and amortization
|
853 | 642 | ||||||
Allowance
for doubtful accounts
|
3 | (45 | ) | |||||
Stock-based
compensation
|
996 | 1,966 | ||||||
Warrants
issued as compensation for services
|
134 | - | ||||||
(Increase)
/ decrease in assets:
|
||||||||
Accounts
receivable
|
(290 | ) | 4 | |||||
Prepaid
expenses and other current assets
|
327 | (22 | ) | |||||
Increase
/ (decrease) in liabilities:
|
||||||||
Accounts
payable
|
(2,230 | ) | 2,022 | |||||
Accrued
license fees
|
(429 | ) | (1,020 | ) | ||||
Accrued
compensation
|
(9 | ) | 58 | |||||
Other
liabilities
|
(331 | ) | (750 | ) | ||||
Net
cash used in operating activities
|
(3,138 | ) | (3,523 | ) | ||||
Cash
flows from investing activities
|
||||||||
Purchase
of property and equipment
|
(172 | ) | (120 | ) | ||||
Transaction
costs related to merger with Twistbox
|
- | (59 | ) | |||||
Net
cash used in investing activities
|
(172 | ) | (179 | ) | ||||
Effect
of exchange rate changes on cash and cash equivalents
|
190 | (112 | ) | |||||
Net
decrease in cash and cash equivalents
|
(3,122 | ) | (3,814 | ) | ||||
Cash
and cash equivalents, beginning of period
|
5,927 | 10,936 | ||||||
Cash
and cash equivalents, end of period
|
$ | 2,807 | 7,122 | |||||
Supplemental
disclosure of cash flow information:
|
||||||||
Taxes
paid
|
109 | 148 |
1.
|
Organization
|
2.
|
Summary
of Significant Accounting Policies
|
|
•
|
wireless
subscribers directly contract with the carriers, which have most of the
service interaction
and are generally viewed as the primary obligor by the
subscribers;
|
|
•
|
carriers
generally have significant control over the types of content that they
offer to their subscribers;
|
|
•
|
carriers
are directly responsible for billing and collecting fees from their
subscribers, including the resolution of billing
disputes;
|
|
•
|
carriers
generally pay the Company a fixed percentage of their revenues or a fixed
fee for each game;
|
|
•
|
carriers
generally must approve the price of the Company’s content in advance of
their sale to subscribers, and the Company’s more significant carriers
generally have the ability to set the ultimate price charged to their
subscribers; and
|
|
•
|
the
Company has limited risks, including no inventory risk and limited credit
risk
|
3
Months Ended
|
3
Months Ended
|
6
Months Ended
|
6
Months Ended
|
|||||||||||||
September
30
|
September
30
|
September
30
|
September
30
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Potentially
dilutive shares
|
100 | 2,300 | 100 | 3,695 |
3.
|
Liquidity
|
4.
|
Fair
Value Measurements
|
Fair Value Measurement as of September
30, 2009
|
||||||||||||||||
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Description
|
$
|
$
|
$
|
$
|
||||||||||||
Cash
and cash equivalents
|
2,807 | 2,807 | - | - |
5.
|
Balance
Sheet Components
|
September
30,
|
March
31,
|
|||||||
2009
|
2009
|
|||||||
(unaudited)
|
||||||||
Accounts
receivable
|
$ | 11,063 | $ | 10,919 | ||||
Less:
allowance for doubtful accounts
|
$ | (177 | ) | (174 | ) | |||
$ | 10,886 | $ | 10,745 |
September
30,
|
March
31,
|
|||||||
2009
|
2009
|
|||||||
(unaudited)
|
||||||||
Equipment
|
$ | 1,318 | $ | 1,192 | ||||
Furniture
& fixtures
|
432 | 386 | ||||||
Leasehold
improvements
|
140 | 140 | ||||||
1,890 | 1,718 | |||||||
Accumulated
depreciation
|
(731 | ) | (488 | ) | ||||
$ | 1,159 | $ | 1,230 |
6.
|
Description
of Stock Plans
|
Number
of
|
Weighted
Average
|
|||||||
Shares
|
Exercise
Price
|
|||||||
Outstanding
at December 31, 2006
|
- | - | ||||||
Granted
|
1,600 | $ | 2.64 | |||||
Canceled
|
- | - | ||||||
Exercised
|
- | - | ||||||
Outstanding
at December 31, 2007
|
1,600 | $ | 2.64 | |||||
Granted
|
2,752 | $ | 4.57 | |||||
Transferred
in from Twistbox
|
2,462 | $ | 0.64 | |||||
Canceled
|
(12 | ) | $ | 0.81 | ||||
Outstanding
at March 31, 2008
|
6,802 | $ | 2.70 | |||||
Granted
|
1,860 | $ | 2.67 | |||||
Canceled
|
(1,702 | ) | $ | 0.48 | ||||
Exercised
|
- | $ | 0.48 | |||||
Outstanding
at March 31, 2009
|
6,960 | $ | 2.51 | |||||
Granted
|
- | $ | - | |||||
Canceled
|
(380 | ) | $ | 0.81 | ||||
Exercised
|
- | $ | - | |||||
Outstanding
at September 30, 2009 (unaudited)
|
6,580 | $ | 2.51 | |||||
Exercisable
at September 30, 2009 (unaudited)
|
5,308 | $ | 2.27 |
Options
Granted
|
||||||||||
Three
Months Ended
|
Options
tranferred
|
|||||||||
September 30, 2008
|
Options Granted
|
from Twistbox
|
||||||||
Expected
life (years)
|
4 |
4
to 6
|
3
to 7
|
|||||||
Risk-free
interest rate
|
3.89 |
2.7%
to 3.89
|
%
|
2.03%
to 5.03
|
% | |||||
Expected
volatility
|
75.20 | % |
70%
to 75.2
|
%
|
70%
to 75
|
% | ||||
Expected
dividend yield
|
0 | % |
0
|
%
|
0
|
%
|
Options
outstanding
|
||||||||||||||||
Weighted
|
||||||||||||||||
Average
|
Weighted
|
|||||||||||||||
Remaining
|
Number
|
Average
|
Aggregate
|
|||||||||||||
Range
of
|
Contractual
Life
|
Outsanding
|
Exercise
|
Intrinsic
|
||||||||||||
Exercise
Price
|
(Years)
|
September
30, 2009
|
Price
|
Value
|
||||||||||||
$0
- $1.00
|
6.83 | 2,264 | $ | 0.64 | $ | 23,608 | ||||||||||
$2.00
- $3.00
|
8.58 | 2,616 | $ | 2.67 | $ | - | ||||||||||
$4.00
- $5.00
|
8.38 | 1,700 | $ | 4.75 | $ | - | ||||||||||
7.92 | 6,580 | $ | 2.51 | $ | 23,608 |
Options
Exercisable
|
||||||||||||||||
Weighted
|
||||||||||||||||
Average
|
Weighted
|
|||||||||||||||
Remaining
|
Options
|
Average
|
Aggregate
|
|||||||||||||
Range
of
|
Contractual
Life
|
Exercisable
|
Exercise
|
Intrinsic
|
||||||||||||
Exercise
Price
|
(Years)
|
September
30, 2009
|
Price
|
Value
|
||||||||||||
$0
- $1.00
|
6.81 | 2,206 | $ | 0.63 | $ | 23,541 | ||||||||||
$2.00
- $3.00
|
8.53 | 1,969 | $ | 2.66 | $ | - | ||||||||||
$4.00
- $5.00
|
8.38 | 1,133 | $ | 4.75 | $ | - | ||||||||||
7.78 | 5,308 | $ | 2.27 | 23,541 |
Weighted Average
|
||||||||
Number
of
|
Grant
Date
|
|||||||
Nonvested shares
|
Shares
|
Fair Value
|
||||||
Nonvested
at March 31, 2009
|
498,767 | $ | 0.85 | |||||
Granted
|
229,388 | $ | 0.89 | |||||
Vested
|
219,550 | $ | 0.86 | |||||
Nonvested
at June 30, 2009
|
508,605 | $ | 0.86 | |||||
Vested
|
233,955 | $ | 0.86 | |||||
Nonvested
at September 30, 2009
|
274,650 | $ | 0.86 | |||||
Forfeited
|
(81,333 | ) | $ | 0.88 |
3
Months Ended
|
3
Months Ended
|
6
Months Ended
|
6
Months Ended
|
|||||||||||||
September
30
|
September
30
|
September
30
|
September
30
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Product
development
|
$ | 3 | $ | 9 | $ | 6 | $ | 19 | ||||||||
Sales
and marketing
|
7 | 7 | 14 | 14 | ||||||||||||
General
and administrative
|
503 | 728 | 995 | 1,933 | ||||||||||||
$ | 513 | $ | 744 | $ | 1,014 | $ | 1,966 |
7.
|
Acquisitions/Purchase
Price Accounting
|
Cash
|
$ | 6,679 | ||
Accounts
receivable
|
4,966 | |||
Prepaid
expenses and other current assets
|
1,138 | |||
Property
and equipment
|
1,062 | |||
Other
long-term assets
|
361 | |||
Accounts
Payable, accrued license fees and accruals
|
(6,882 | ) | ||
Other
current liabilities
|
(814 | ) | ||
Accrued
license fees, long term portion
|
(2,796 | ) | ||
Long
term debt
|
(16,483 | ) | ||
Identified
Intangibles
|
19,905 | |||
Merger
related restructuring reserves
|
(1,034 | ) | ||
Goodwill
|
61,436 | |||
$ | 67,538 |
Cash
and cash equivalents
|
$ | 3,380 | ||
Accounts
receivable, net of allowances
|
9,087 | |||
Prepaid
expenses and other current assets
|
16 | |||
Property
and equipment, net
|
406 | |||
Accounts
payable
|
(10,391 | ) | ||
Bank
overdrafts
|
(1,902 | ) | ||
Other
current liabilities
|
(1,262 | ) | ||
Other
long term liabilities
|
(223 | ) | ||
Minority
interests
|
95 | |||
Identified
intangibles
|
1,368 | |||
Goodwill
|
22,456 | |||
$ | 23,030 |
3
months ended
|
6
months ended
|
|||||||
September
30,
|
September
30,
|
|||||||
2008
|
2008
|
|||||||
Revenues
|
$ | 14,296 | $ | 30,827 | ||||
Cost
of revenues
|
4,079 | 11,642 | ||||||
Gross
profit/(loss)
|
10,217 | 19,185 | ||||||
Operating
expenses net of interest income and other expense
|
12,642 | 23,015 | ||||||
Income
tax expense and minority interests
|
(197 | ) | (370 | ) | ||||
Net
loss
|
$ | (2,622 | ) | $ | (4,200 | ) | ||
Basic
and Diluted net loss per common share
|
$ | (0.07 | ) | $ | (0.11 | ) |
8.
|
Other
Intangible Assets
|
Balance
at March 31, 2009
|
$ | 16,121 | ||
Amortization
|
(305 | ) | ||
Balance
at June 30, 2009
|
15,816 | |||
Amortization
|
(305 | ) | ||
Balance
at September 30, 2009
|
$ | 15,511 |
September
30,
|
March
31,
|
|||||||
2009
|
2009
|
|||||||
(unaudited)
|
||||||||
Software
|
$ | 1,922 | $ | 1,922 | ||||
Trade
name / Trademark
|
9,824 | 9,824 | ||||||
Customer
list
|
4,378 | 4,378 | ||||||
License
agreements
|
886 | 886 | ||||||
Non-compete
agreements
|
323 | 323 | ||||||
17,333 | 17,333 | |||||||
Accumulated
amortization
|
(1,822 | ) | (1,212 | ) | ||||
$ | 15,511 | $ | 16,121 |
12 Months Ended September
30,
|
||||||||||||||||||||||||
2010
|
2011
|
2012
|
2013
|
2014
|
Thereafter
|
|||||||||||||||||||
Software
|
$ | 334 | $ | 334 | $ | 230 | $ | 230 | $ | 230 | $ | 85 | ||||||||||||
Customer
List
|
547 | 547 | 547 | 547 | 547 | 751 | ||||||||||||||||||
License
Agreements
|
177 | 177 | 177 | 65 | - | - | ||||||||||||||||||
Non-compete
agreements
|
162 | - | - | - | - | - | ||||||||||||||||||
$ | 1,220 | $ | 1,058 | $ | 954 | $ | 842 | $ | 777 | $ | 836 |
9.
|
Debt
|
September
30,
|
March
31,
|
|||||||
2009
|
2009
|
|||||||
(unaudited)
|
||||||||
Short
Term Debt
|
||||||||
Senior
secured note, inclusive of accrued interest net of discount of $98
and $247, respectively
|
$ | 18,389 | 17,351 | |||||
Deferred
purchase consideration inclusive of accrued interest
|
6,117 | 5,945 | ||||||
$ | 24,506 | $ | 23,296 |
10.
|
Related
Party Transactions
|