3.	Acquisitions/Purchase Price Accounting

Logia

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 DT EMEA, 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, DT EMEA 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 187,500 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 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.

 

MIA

On April 12, 2013, Mandalay Digital Group, Inc. (the “Company”), through its indirect wholly owned subsidiary Digital Turbine Australia Pty Ltd (“DT Australia”), acquired all of the issued and outstanding stock of Mirror Image International Holdings Pty Ltd (“MIAH”). MIAH owns direct or indirect subsidiaries Mirror Image Access (Australia) Pty Ltd (MIA), MIA Technology Australia Pty Ltd (MIATA) and MIA Technology IP Pty Ltd (together the MIAH, the “MIA Group”). From this point forward the Company refers to the MIA Group as “MIA”.

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 MIA acquisition was an effort to, not only build on the Company’s current distribution network, but to enhance its mobile content infrastructure with the IP acquired in the purchase. The Company expects to be able to realize synergies from its ability to export Sphere, MIA’s content management system, to customers outside of Australia as well as be able to import DT’s products and services to MIA’s current customer base. The company will be integrating its Digital Turbine IQ product with Sphere to provide an end-to-end solution for carriers looking to sell mobile content. In addition, the Company plans to market MIA’s third party API product, “DT Pay”, to markets outside of Australia leveraging DT’s existing customers. DT Pay is an application programming interface (API) that integrates between mobile carriers billing infrastructure and content publishers to facilitate mobile commerce. DT Pay allows the publishers and the carriers to monetize those applications by allowing the content to be billed directly to the consumer via their carrier bill.

The Company set up an Australian acquisition/holding company, DT Australia to acquire the Targets and the IP, 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, as follows:

 

(1)

At closing AUD 1,220,000, translated to $1,286,490 for US GAAP reporting purposes;

 

(2)

Convertible Note payable of AUD 2,280,000, translated to $2,404,260;

 

(3)

Shares of common stock of the Company (the “Closing Shares”) equivalent to AUD 3,500,000, translated to $3,690,750 and under the agreement, converted to shares at $3.65 per share, or 1,011,164 shares of the common stock of the Company. The closing price of the stock on that day was $4.40 per share, for a total value of $4,449.

The Closing 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		$	514
Accounts receivable			2,809
Prepaid expenses and other assets			896
Property, Plant and Equipment			300
Customer relationships			652
Developed technology			5,820
Library			300
Trade names / Trademarks			54
Goodwill			1,182
Accounts payable			(1,151	)
Accrued liabilities			(2,891	)
Accrued compensation			(345	)
Purchase price		$	8,140

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 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 MIA 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 Australia acquisition/holding company, DT Australia. The Company is in the process of evaluating goodwill that is deductible for tax purposes.

The initial accounting of the MIA 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			14 years
Developed technology			5 years
Trade names / Trademarks			5 years
Library			5 years
Goodwill			Indefinite

The operating results of MIA are included in the accompanying consolidated statements of operations from the acquisition date. The Targets’ combined operating results from the acquisition date to September 30, 2013 are as follows:

 

		Unaudited
Revenue		$	9,089
Cost of goods sold			6,267
Gross profit		$	2,822
Operating expenses			2,306
Income from operations			516
Non-operating (income) / expense, net			(14	)
Provision for income tax			129
Net income		$	401

The pro forma financial information of the Company’s consolidated operations if the acquisition of MIA had occurred as of April 1, 2012 is presented below.

 

		Unaudited Six Months Ended September 30,
		2013				2012
Revenues		$	12,553			$	9,314
Cost of goods sold			7,462				4,822
Gross profit			5,091				4,492
Operating expenses			12,514				10,205
Income/(loss) from operations			(7,423	)			(5,713	)
Non-operating expense			2,533				1,186
Income/(loss) before provision for income taxes			(9,956	)			(6,899	)
Provision for income taxes			106				74
Net income/(loss)		$	(10,062	)		$	(6,973	)
Basic and diluted earnings per share		$	0.44			$	(0.41	)