3.	Acquisitions and Disposals

DT APAC

On April 12, 2013, Mandalay Digital, through its indirect wholly owned subsidiary DT APAC, 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 “MIA”).

The purpose of the DT APAC 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 acquisition of DT APAC 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 US 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 piggy back rights for 3 years and inclusion on the Company’s Form S-3 filed August 30, 2013, and subsequently made effective on October 31, 2013.

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

 

		Unaudited
Cash		$	513
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			1,389
Accounts payable			(1,151	)
Accrued liabilities			(2,890	)
Accrued compensation			(345	)
Purchase price		$	8,347

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.

Goodwill has been recorded in DT APAC. 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 Annual report on Form 10-K.

 

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

The operating results of DT APAC 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, 2014 are as follows:

 

		Unaudited
Revenue		$	19,973
Cost of goods sold			15,493
Gross profit			4,480
Operating expenses			5,292
Loss from operations			(812	)
Non-operating (income) / expense, net			1,560
Provision for income tax (income) / expense, net			(1,597	)
Net loss		$	(775	)

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

 

		Unaudited Twelve Months Ended March 31,
		2014				2013
Revenues		$	24,887			$	17,659
Cost of goods sold			16,879				10,375
Gross profit			8,008				7,284
Operating expenses			23,546				19,077
Income/(loss) from operations			(15,538	)			(11,793	)
Non-operating (income) / expense, net			3,446				3,065
Income/(loss) before provision for income taxes			(18,984	)			(14,858	)
Provision for income tax (income) / expense, net			(325	)			(77	)
Net income/(loss)		$	(18,659	)		$	(14,781	)
Basic and diluted earnings per share		$	(0.68	)		$	(0.84	)

TWISTBOX

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

The Company sold Twistbox for $1 dollar 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 $2.3 million dollars, while the Company left $100 in the Twistbox bank account, and took financial responsibility of the France 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 $1.5 million.

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

 

		Unaudited
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