Annual report pursuant to section 13 and 15(d)

Acquisitions/Purchase Price Accounting

v2.4.0.8
Acquisitions/Purchase Price Accounting
 12 Months Ended
Mar. 31, 2013
Acquisitions/Purchase Price Accounting
3. Acquisitions/Purchase Price Accounting

On August 14, 2012, the Company, entered into a Share Purchase Agreement (the “Purchase Agreement”) to acquire subsidiaries and certain assets of Logia Group, Ltd. (“Logia”), a leading mobile content development and management solutions provider of innovative mobile monetization solutions. On September 13, 2012, the Company completed the transactions contemplated by the Purchase Agreement. As a part of the transaction, the Company, through an acquisition entity, acquired all of the capital stock of three operating subsidiaries of Logia (Logia Content Development and Management Ltd. (“Logia Content”), Volas Entertainment Ltd. (“Volas”) and Mail Bit Logia (2008) Ltd. (Mail Bit), (collectively, the “Targets”)). In addition, the Company, by assignment to an acquisition entity, acquired from LogiaDeck Ltd. (formerly S.M.B.P. IGLOO Ltd.) (an affiliate of the Seller, “LogiaDeck”) the assets comprising the “LogiaDeck” software, which the Company has rebranded “Ignite”, and certain operator and other contracts related to the business of the Targets that were entered into by Logia.

Our Company is a comprehensive mobile content and service provider, and its many technology platforms including Digital Turbine (DT) allow media companies, mobile carriers, and their OEM handset partners to take advantage of multiple mobile operating systems across multiple networks, while maintaining individual branding and personalized, one-to-one relationships with each end-user. The purpose of the Logia acquisition was an effort to not only build on the Company’s current distribution network, but to enhance its mobile content infrastructure with the Ignite solution. The Ignite solution is a complete application management platform for Android devices.

The Company set up an Israeli acquisition/holding company, MDG to acquire the Targets and the LogiaDeck assets, which was capitalized through a combination of intercompany debt and the issuance of equity.

The purchase consideration for the transaction was comprised of cash and common stock of the Company and two tranches of “earn out” payments of cash and stock, as follows:

 

  (1) At closing $3,750 in cash (subject to working capital adjustments) and a number of shares of Company common stock having a value of $750, based on a 30-day volume weighted average price (VWAP) look back from the issuance date or 937,500 shares (the “Closing Shares”) was paid and issued, as applicable, to Logia and LogiaDeck (fair value on the date of grant was $788);

 

  (2) Two tranches, each comprised of a cash payment of $250 and a number of shares of Company common stock valued at $250 (based on a 30 day VWAP look back from the issuance date) (the “Earn Out Shares”), will be paid and issued, as applicable, to Logia upon satisfaction of various milestones, and subject to the terms and conditions, as set forth in the Purchase Agreement, totaling up to a number of shares of common stock having a value of $500 (valued as described) and $500 of cash if all milestones are achieved.

The Closing Shares and Earnout Shares are subject to a Registration Rights Agreement that provides for piggy back rights for 3 years and inclusion on the Company’s currently existing registration statement.

 

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the date of acquisition.

 

     Unaudited  

Cash

    $ 59   

Accounts receivable

      567   

Prepaid expenses and other assets

      86   

Customer relationships

      3,454   

Developed technology

      818   

Trade names / Trademarks

      143   

Non-compete agreements

      54   

Goodwill

      1,067   

Current liabilities

      (1,222 ) 

Long-term debt

      (35 ) 
  

 

 

  

Purchase price

    $ 4,991   
  

 

 

  

In addition to the value assigned to the acquired workforce, the Company recorded the excess of the purchase price over the estimated fair value of the assets acquired as an increase in goodwill. This goodwill arises because the purchase price reflects the strategic fit and resulting synergies that the acquired business brings to the Company’s existing operations. The Company has not yet obtained all information required to complete the purchase price allocation related to this acquisition. One of the purchase price allocation areas to be completed is the valuation of the deferred taxes for the acquisition. The initial allocation of excess purchase price is the result of a preliminary analysis performed, and is subject to revision upon finalization.

The Company believes with the acquisition of Logia it will be able to enhance existing products and create new industry-leading products, and also benefit from synergy savings through operational consolidation.

Goodwill has been recorded in our Israeli acquisition/holding company, MDG. The Company is in the process of evaluating goodwill that is deductible for tax purposes.

The initial accounting of the Logia acquisition is incomplete and subject to changes, which may result in significant changes to provisional amounts. The Company has recorded provisional amounts based upon management’s best estimate of the value as a result of preliminary analysis. Therefore, actual amounts recorded upon the finalization of the valuation of certain intangible assets may differ materially from the information presented in this Quarterly report on Form 10-Q.

The amortization period for the intangible assets is as follows:

 

     Remaining
Useful Life		  

Customer relationships

      10 years   

Developed technology

      5 years   

Trade names / Trademarks

      5 years   

Non-compete agreements

      4 years   

Goodwill

      Indefinite   

The operating results of the Targets are included in the accompanying consolidated statements of operations from the acquisition date. The Targets’ combined operating results from the acquisition date to March 31, 2013 are as follows:

 

     Unaudited  

Revenue

    $ 3,031   

Cost of goods sold

      1,118   
  

 

 

  

Gross profit

    $ 1,913   

Operating expenses

      1,255   
  

 

 

  

Income from operations

      658   

Non-operating expenses, net

      10   

Provision for income tax

      34   
  

 

 

  

Net income

    $ 614   
  

 

 

  

 

The pro forma financial information of the Company’s consolidated operations if the acquisition of the Targets had occurred as of April 1, 2011 is presented below.

 

     Unaudited
Twelve Months Ended March 31,		  
     2013     2012  

Revenues

    $ 8,689      $ 16,548   

Cost of goods sold

      4,188        10,138   
  

 

 

    

 

 

  

Gross profit

      4,501        6,410   

Operating expenses

      15,234        23,539   
  

 

 

    

 

 

  

Loss from operations

      (10,733 )      (17,129 ) 

Non-operating expense

      1,755        13,828   
  

 

 

    

 

 

  

Loss before provision for income taxes

      (12,488 )      (30,957 ) 

Provision for income taxes

      83        118   
  

 

 

    

 

 

  

Net loss

    $ (12,571 )    $ (31,075 ) 
  

 

 

    

 

 

  

Basic and diluted loss per share

    $ (0.71 )    $ (3.14 )