Digital Turbine, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Acquisitions and Disposals

Acquisitions and Disposals

12 Months Ended

Mar. 31, 2016

Mirror Image Access

On April 12, 2013, Digital Turbine acquired all of the issued and outstanding stock of Mirror Image Australia Holdings, which directly or indirectly owns subsidiaries Mirror Image Access (Australia) Pty Ltd, MIA Technology Australia Pty Ltd and MIA Technology IP Pty Ltd.

The purpose of the acquisition was an effort not only to build on the Company’s current distribution network, but to enhance its mobile content infrastructure with the intellectual property acquired in the purchase.

The acquisition of was capitalized through a combination of intercompany debt and the issuance of equity.

The purchase consideration for the transaction was comprised of cash, a note, and common stock of the Company, as follows:

(1) At closing AUD 1,220 in cash, translated to $1,287 for U.S. GAAP reporting purposes;

(2) Convertible Note payable of AUD 2,280, translated to $2,404;

(3) Shares of common stock of the Company (the “Closing Shares”) equivalent to AUD 3,500, translated to $3,691 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 piggyback rights for 3 years and were included on the Company’s Form S-3 filed August 30, 2013, and subsequently made effective on October 31, 2013.

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



Cash	$	513
Accounts receivable	2,809
Prepaid expenses and other assets	896
Property, plant and equipment	300
Customer relationships	1,600
Developed technology	3,400
Trade names/trademarks	54
Library	300
Goodwill	2,654
Accounts payable	(1,151		)
Accrued liabilities	(2,890		)
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. In the fiscal year ended March 31, 2014, the Company recorded an impairment charge of $54 to write down trade names pursuant to its decision to rename and rebrand trade names associated with Logia and MIA. In the period ended June 30, 2014, the Company finalized the purchase price allocation which resulted in an adjustment from intangibles to goodwill of $1,472.

The amortization period for the intangible assets acquired in the MIA transaction is as follows:



		Remaining Useful Life
Customer relationships		14 years
Developed technology		5 years
Trade names/trademarks		5 years
Library		5 years
Goodwill		Indefinite

Xyologic Mobile Analysis

On October 9, 2014, the Company acquired certain intellectual property assets of Xyologic Mobile Analysis, GmbH ("XYO"), related to mobile application recommendation, search and discovery. The Company has completed the integration of the acquired technology into the DT Discover software solution.

The acquisition was effected pursuant to an Asset Purchase Agreement dated October 8, 2014 (the “Asset Purchase Agreement”). The aggregate purchase price was US $2,500, paid in cash, subject to a twelve (12) month hold-back of US $375, which acts as partial security for potential future indemnification claims. During April 2016, the Company reached a settlement with the sellers of XYO, whereby the Company was relieved of the $375 liability.

The purchase price fair values have been allocated to goodwill of $1,000 and developed technology of $1,500. The Company finalized the purchase price allocation in the year ended March 31, 2015.

Appia, Inc.

On March 6, 2015, the Company completed the merger of Appia, Inc. into its wholly owned subsidiary, DT Media Merger Sub, Inc. The surviving entity was renamed Digital Turbine Media, Inc. (“DT Media”). Under the Merger Agreement, the Company is to issue shares of its common stock in exchange for all of Appia Inc's outstanding common and preferred stock and warrants.

The number of shares that were issued by the Company is subject to adjustment based on Appia Inc's working capital and net indebtedness as of the closing date of the merger. Based on Appia Inc's working capital and net indebtedness as of March 6, 2015, the Company issued 18,883,723 shares of its common stock and reserved 245,955 of its common stock for Appia Inc's equity awards outstanding at the closing date that are assumed by the Company and converted into equity awards for Digital Turbine common stock. Vested equity awards held by Appia Inc's employees and service providers are considered part of the purchase price; accordingly, the estimated purchase price includes an estimated fair value of equity awards to be issued by the Company of approximately $633. The value of the Company’s common stock used to estimate the purchase price was $3.94 per share, the closing price on March 6, 2015. The following table summarizes the final fair values of the assets acquired and liabilities assumed at the date of acquisition, based on information available as of March 31, 2016. These final fair values differ from the estimated fair values reflected in the pro forma financial information included in the Company’s previously filed S-4 to the availability of additional and updated information. In the year ended March 31, 2016, the Company adjusted the purchase price allocation of DT Media due to the finalization of the working capital adjustment, which resulted in a net decrease in goodwill of $126, from $69,438 down to $69,312 as detailed in the table below.

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



Cash	$	1,363
Accounts receivable	7,364
Prepaid expenses and other assets	171
Property, plant and equipment	229
Developed technology	7,700
Advertiser relationships	6,500
Publisher relationships	3,200
Trade names/trademarks	380
Goodwill	69,312
Accounts payable	(5,179		)
Accrued expenses	(4,531		)
Debt	(11,600		)
Purchase price	$	74,909

The amortization period for the intangible assets acquired in the DT Media transaction is as follows:



		Useful Life
Developed technology		4 years
Trade names/trademarks		2 years
Publisher relationships		2 years
Advertiser relationships		2 years
Goodwill		Indefinite

The pro forma financial information of the Company’s consolidated operations if the acquisition of DT Media, Inc. had occurred as of April 1, 2013 is presented below.



	Unaudited Year Ended March 31,
	2015		2014
Revenues	$	57,978	$	73,533
Cost of goods sold	45,580		52,638
Gross profit	12,398		20,895
Operating expenses	43,644		37,072
Loss from operations	31,246		16,177
Non-operating expense	3,372		1,950
Provision for income taxes	541		864
Net loss	$	35,159	$	18,991
Basic and diluted loss per share	$	0.90	$	0.49

The operating results of DT Media are included in the accompanying consolidated statements of operations from the acquisition date. The combined consolidated operating results from the acquisition date to March 31, 2015 are included in the table below. The combined consolidated operating results for fiscal 2016 include a full year of operating results of DT Media.



	Unaudited
Revenues	$	3,251
Cost of goods sold	3,227
Gross profit	24
Operating expenses	1,194
Loss from operations	1,170
Non-operating expense	113
Provision for income taxes	—
Net loss	$	1,283

TWISTBOX

On February 13, 2014, the Company sold its wholly-owned subsidiary, Twistbox, and its subsidiaries.

The Company sold Twistbox for $0.001 at closing plus potential future payments from the buyer (seller earn-out) related to contracts assumed by the buyer and contracts sourced by the Company post-closing. Under the stock purchase agreement, the buyers assumed net liabilities of $2,300, while the Company left $100 in the Twistbox bank account, and took financial responsibility for the French and German employees and the facility lease in Germany. The Company indemnified the buyer for any losses that may result from select liabilities assumed by the buyer up to $336 for a period of eighteen months following the closing. This amount, along with other liabilities related to accrued compensation, total $440.

In accordance with FASB ASC 205-20, Discontinued Operations, the operating results and net assets and liabilities related to Twistbox were reclassified as of February 13, 2014 and reported as discontinued operations in the accompanying consolidated financial statements.

The Company recorded a loss on the sale of $1,502.

The following is a summary of the assets and liabilities of the discontinued operations as of February 13, 2014:



Working capital, net of cash	$	2,833
Accounts receivable	436
Prepaid expenses	49
Deposits	16
Property, plant and equipment	32
Intangible assets	228
Goodwill	142
Accounts payable	(1,394		)
Accrued liabilities	(840		)
Loss on sale, net of taxes	$	1,502