Annual report pursuant to Section 13 and 15(d)

Discontinued Operations

v3.20.1
Discontinued Operations
 12 Months Ended
Mar. 31, 2020
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued Operations
Discontinued Operations
On April 29, 2018, the Company entered into two distinct disposition agreements with respect to selected assets owned by our subsidiaries.
DT APAC and DT Singapore (together, “Pay Seller”), each wholly owned subsidiaries of the Company, entered into an Asset Purchase Pay Agreement (the “Pay Agreement”), dated as of April 23, 2018, with Chargewave Ptd Ltd (“Pay Purchaser”) to sell certain assets (the “Pay Assets”) owned by the Pay Seller related to the Company’s Direct Carrier Billing business. The Pay Purchaser is principally owned and controlled by Jon Mooney, an officer of the Pay Seller. At the closing of the asset sale, Mr. Mooney was no longer employed by the Company or Pay Seller. As consideration for this asset sale, Digital Turbine is entitled to receive certain license fees, profit-sharing, and equity participation rights as outlined in the Company’s Form 8-K filed on May 1, 2018 with the SEC. The transaction was completed on July 1, 2018 with an effective date of July 1, 2018. With the sale of these assets, the Company has determined that it will exit the segment of the business previously referred to as the Content business.
In accordance with the Pay Agreement, the Company assigned and transferred a material contract to the Pay Purchaser. Subsequent to the closing of the transaction associated with the Pay Agreement, the Company received notification from the Pay Purchaser that the partner to the material contract had terminated the contract with the Pay Purchaser. Due to the material contract being terminated, the Company has determined that the estimated earn out from the Pay Purchaser to be $0. As all the assets being transferred had been fully impaired prior to the closing of the transaction, the gain/loss on sale related to the Pay Agreement transaction is currently estimated at $0. Furthermore, the Company retained certain receivables and payables for content delivered for the benefit of the partner to the material contract, where these certain receivables and payables were all recognized prior to the closing of the Pay Agreement. These amounts were presented as assets and liabilities held for disposal in prior presented periods. As of March 31, 2020, the Company has determined there to be uncertainty surrounding the collectability of the receivables due to a breakdown in ongoing discussions with the business partner. We have determined that the amounts recorded are more likely than not to be uncollectible due to disputes surrounding the content delivered, furthermore the related payables would also be contractually withheld unless payment is received at a later date. At this time, the Company has reserved for all balances remaining, both receivables and payables, related to the discontinued operations of the Pay business. The total impact to the Company if all of the remaining receivables and payables are subsequently collected is immaterial. These fully reserved assets and liabilities remain on our books as of March 31, 2020.
DT Media, a wholly-owned subsidiary of the Company, entered into an Asset Purchase Agreement (the “A&P Agreement”), dated as of April 28, 2018, with Creative Clicks B.V. (the “A&P Purchaser”) to sell business relationships with various advertisers and publishers (the “A&P Assets”) related to the Company’s Advertising and Publishing business. As consideration for this asset sale, we are entitled to receive a percentage of the gross profit derived from these customer agreements, for a period of three years, as outlined in the Company’s Form 8-K filed on May 1, 2018 with the SEC. The transaction was completed on June 28, 2018 with an effective date of June 1, 2018. With the sale of these assets, the Company has determined that it will exit the operating segment of the business previously referred to as the A&P business, which was previously part of Advertising, the Company's sole continuing reporting unit. No gain or loss on sale was recognized related to this divestiture. All transferred assets and liabilities, with the exception of goodwill, were fully amortized prior to entering into the sales agreement. As the consideration given by the purchaser was already materially determined at March 31, 2018, goodwill was impaired to the estimated future cash flows of the divested business, which was effectively the purchase price. With the consummation of the sale, the remaining goodwill asset was netted against the purchase price receivable for a net impact of $0 on the Consolidated Statement of Operations for the year ended March 31, 2019.
These dispositions have allowed the Company to benefit from a streamlined business model, simplified operating structure, and enhanced management focus.
The following table summarizes the financial results of our discontinued operations for all periods presented herein:
Condensed Statements of Operations and Comprehensive Loss
For Discontinued Operations
(in thousands, except per share amounts)
 
 
Year ended March 31,
 
 
2020
 
2019
 
2018
Net revenues
 
—

 
3,970

 
48,877

Total cost of revenues
 
(1,202
)
 
1,788

 
42,950

Gross profit
 
1,202

 
2,182

 
5,927

Product development
 
60

 
732

 
2,194

Sales and marketing
 
—

 
350

 
1,444

General and administrative
 
1,433

 
2,671

 
1,835

Income / (loss) from operations
 
(291
)
 
(1,571
)
 
454

Loss on impairment of goodwill
 
—

 
—

 
(34,045
)
Interest and other income / (expense), net
 
(89
)
 
(137
)
 
431

Loss from discontinued operations before income taxes
 
(380
)
 
(1,708
)
 
(33,160
)
Income tax provision / (benefit)
 
—

 
—

 
—

Loss from discontinued operations, net of taxes
 
(380
)
 
(1,708
)
 
(33,160
)
Foreign currency translation adjustment
 
—

 
—

 
—

Comprehensive loss
 
(380
)
 
(1,708
)
 
(33,160
)
Basic and diluted net loss per common share
 
$
—

 
$
(0.02
)
 
$
(0.47
)
Weighted-average common shares outstanding, basic
 
84,594

 
77,440

 
70,263

Weighted-average common shares outstanding, diluted
 
89,558

 
77,440

 
70,263


Notes on the impairment of goodwill for discontinued operations
We perform an annual impairment assessment in the fourth quarter of each year, or more frequently if indicators of potential impairment exist, to determine whether it is more likely than not that the fair value of a reporting unit in which goodwill resides is less than its carrying value. Qualitative factors considered in this assessment include industry and market considerations, overall financial performance, and other relevant events and factors affecting the reporting unit. During the fiscal year ended March 31, 2018, in connection with the planned sale of the Content reporting unit and the A&P business within the Advertising reporting segment, we performed a full analysis of the carrying value of the associated goodwill. Since the impairment assessment concluded, based on the future cash flows of the businesses, that it is more likely than not that the fair value is less than its carrying value, we performed the first step of the goodwill impairment test, which compares the fair value of the reporting unit to its carrying value. The carrying value of the net assets assigned to the aforementioned reporting units exceeded the fair value of the reporting units, therefore the associated goodwill was impaired. The impairment recorded above represents the results of this assessment.
Based on the results of the annual impairment tests performed during the fourth quarter of fiscal 2018, the Company recorded an impairment of approximately $34,045 at March 31, 2018 which is detailed in the table above. No remaining goodwill remains related to the discontinued reporting units.
Details on assets and liabilities classified as held for disposal in the accompanying consolidated balance sheets are presented in the following table:
 
 
Year ended March 31,
 
 
2020
 
2019
Assets held for disposal
 
 
 
 
Accounts receivable, net of allowances of $0 and $1,589, respectively
 
$
—

 
$
1,883

Property and equipment, net
 
—

 
143

Total assets held for disposal
 
$
—

 
$
2,026

 
 
 
 
 
Liabilities held for disposal
 
 
 
 
Accounts payable
 
$
—

 
$
3,158

Accrued license fees and revenue share
 
—

 
537

Accrued compensation
 
—

 
226

Other current liabilities
 
—

 
3

Total liabilities held for disposal
 
$
—

 
$
3,924


The following table provides reconciling cash flow information for our discontinued operations:
 
 
Year ended March 31,
 
 
2020
 
2019
 
2018
Cash flows from operating activities
 
 
 
 
 
 
Net loss from discontinued operations, net of taxes
 
$
(380
)
 
$
(1,708
)
 
$
(33,160
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
 
 
Depreciation and amortization
 
19

 
279

 
1,037

Change in allowance for doubtful accounts
 
(1,589
)
 
1,011

 
194

Loss on disposal of fixed assets
 
109

 
—

 
—

Stock-based compensation
 
—

 
37

 
189

Impairment of intangible assets
 
—

 
—

 
1,065

Impairment of goodwill
 
—

 
—

 
34,045

(Increase) / decrease in assets:
 
 
 
 
 
 
Accounts receivable
 
3,472

 
5,119

 
(1,928
)
Goodwill
 
—

 
309

 
—

Prepaid expenses and other current assets
 
—

 
54

 
8

Increase / (decrease) in liabilities:
 
 
 
 
 
 
Accounts payable
 
(3,158
)
 
(5,631
)
 
708

Accrued license fees and revenue share
 
(537
)
 
(2,522
)
 
(2,459
)
Accrued compensation
 
(226
)
 
(303
)
 
(24
)
Other current liabilities
 
(3
)
 
(346
)
 
25

Other non-current liabilities
 
—

 
—

 
(24
)
Cash used in operating activities
 
(2,293
)
 
(3,701
)
 
(324
)
 
 
 
 
 
 
 
Cash flows from investing activities
 
 
 
 
 
 
Capital expenditures
 
—

 
—

 
(142
)
Cash used in investing activities
 
—

 
—

 
(142
)
 
 
 
 
 
 
 
Cash used in discontinued operations
 
$
(2,293
)
 
$
(3,701
)
 
$
(466
)