Summary of Significant Accounting Policies |
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies |
Basis of Presentation
The
financial statements have been prepared in accordance with GAAP and
pursuant to the rules and regulations of the Securities and
Exchange Commission (“SEC”) for quarterly and annual
financial statements. The financial statements, in the
opinion of management, include all adjustments necessary for a fair
statement of the results of operations, financial position and cash
flows for each period presented.
Principles of Consolidation
The
consolidated financial statements include the accounts of the
Company and our wholly-owned subsidiaries. All material
intercompany balances and transactions have been eliminated in
consolidation. Discontinued operations have been treated in
accordance with Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification
(“ASC”) 205-20, Discontinued
Operations.
Revenue Recognition
The
Company’s revenues are derived primarily by licensing
material and software in the form of products (Image Galleries,
Wallpapers, video, WAP Site access, Mobile TV), developing and
maintaining carrier platforms, mobile advertising, and mobile
games. License arrangements with the end user can be on a perpetual
or subscription basis.
A
perpetual license gives an end user the right to use the product,
image or game on the registered handset on a perpetual basis. A
subscription license gives an end user the right to use the
product, image or game on the registered handset for a limited
period of time, ranging from a few days to as long as one
month.
The
Company either markets and distributes its products directly to
consumers, or distributes products through mobile
telecommunications service providers (“carriers”), in
which case the carrier markets the product, images or games to end
users. License fees for perpetual and subscription licenses are
usually billed upon download of the product, image or game by the
end user. In the case of subscription licenses, many subscriber
agreements provide for automatic renewal until the subscriber
opts-out, while others provide opt-in renewal. In either case,
subsequent billings for subscription licenses are generally billed
monthly. The Company applies the provisions of FASB ASC 985-605,
Software Revenue
Recognition, to all transactions.
Revenues
are recognized from the Company’s products, images and games
when persuasive evidence of an arrangement exists, the product,
image or game has been delivered, the fee is fixed or determinable,
and the collection of the resulting receivable is probable. For
both perpetual and subscription licenses, management considers a
license agreement to be evidence of an arrangement with a carrier
or aggregator and a “clickwrap” agreement to be
evidence of an arrangement with an end user. For these licenses,
the Company defines delivery as the download of the product, image
or game by the end user.
The
Company estimates revenues from carriers in the current period when
reasonable estimates of these amounts can be made. Most carriers
only provide detailed sales transaction data on a one to two month
lag. Estimated revenue is treated as unbilled receivables until the
detailed reporting is received and the revenues can be billed. Some
carriers provide reliable interim preliminary reporting and others
report sales data within a reasonable time frame following the end
of each month, both of which allow the Company to make reasonable
estimates of revenues and therefore to recognize revenues during
the reporting period when the end user licenses the product, image
or game. Determination of the appropriate amount of revenue
recognized involves judgments and estimates that the Company
believes are reasonable, but it is possible that actual results may
differ from the Company’s estimates. The Company’s
estimates for revenues include consideration of factors such as
preliminary sales data, carrier-specific historical sales trends,
volume of activity on company monitored sites, seasonality, time
elapsed from launch of services or product lines, the age of games
and the expected impact of newly launched games, successful
introduction of newer and more advanced handsets, promotions during
the period and economic trends. When the Company receives the final
carrier reports, to the extent not received within a reasonable
time frame following the end of each month, the Company records any
differences between estimated revenues and actual revenues in the
reporting period when the Company determines the actual amounts.
Revenues earned from certain carriers may not be reasonably
estimated. If the Company is unable to reasonably estimate the
amount of revenues to be recognized in the current period, the
Company recognizes revenues upon the receipt of a carrier revenue
report and when the Company’s portion of licensed revenues
are fixed or determinable and collection is probable. To monitor
the reliability of the Company’s estimates, management, where
possible, reviews the revenues by country, by carrier and by
product line on a regular basis to identify unusual trends such as
differential adoption rates by carriers or the introduction of new
handsets. If the Company deems a carrier not to be creditworthy,
the Company defers all revenues from the arrangement until the
Company receives payment and all other revenue recognition criteria
have been met.
In
accordance with FASB ASC 605-45, Reporting Revenue Gross as a
Principal Versus Net as an Agent, the Company recognizes as
revenues the amount the carrier reports as payable upon the sale of
the Company’s products, images or games. The Company has
evaluated its carrier agreements and has determined that it is not
the principal when selling its products, images or games through
carriers. Key indicators that it evaluated to reach this
determination include:
For
direct to consumer business, revenue is earned by delivering a
product or service directly to the end user of that product or
service. In those cases, the Company records as revenue the amount
billed to that end user and recognizes the revenue when persuasive
evidence of an arrangement exists, the product, image or game has
been delivered, the fee is fixed or determinable, and the
collection of the resulting receivable is probable. Substantially
all of our discontinued operations represents direct to consumer
business.
Net Loss per Common Share
Basic
loss per common share is computed by dividing net loss attributable
to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted net loss per share is
computed by dividing net loss attributable to common stockholders
by the weighted average number of common shares outstanding for the
period plus dilutive common stock equivalents, using the treasury
stock method. All stock options, warrants, convertible notes, and
convertible Series A Preferred Stock were excluded from the diluted
loss per share calculation due to their anti-dilutive
effect. Potentially dilutive shares from
stock options, warrants, convertible notes, and convertible Series
A preferred stock were as follows:
Comprehensive Loss
Comprehensive
income consists of two components, net income and other
comprehensive income. Other comprehensive income refers to gains
and losses that under generally accepted accounting principles are
recorded as an element of stockholders’ equity but are
excluded from net income. The Company’s other comprehensive
income currently includes only foreign currency translation
adjustments.
Cash and Cash Equivalents
The
Company considers all highly liquid short-term investments
purchased with a maturity of three months or less to be cash
equivalents.
Accounts Receivable
The
Company maintains reserves for potential credit losses on accounts
receivable. Management reviews the composition of accounts
receivable and analyzes historical bad debts, customer
concentrations, customer credit worthiness, current economic trends
and changes in customer payment patterns to evaluate the adequacy
of these reserves.
Content Provider Licenses
Content Provider License Fees
The
Company’s royalty expenses consist of fees that it pays to
branded content owners for the use of their intellectual property
in the development of the Company’s games and other content,
and other expenses directly incurred in earning revenue.
Royalty-based obligations are either accrued as incurred and
subsequently paid, or in the case of content acquisitions, paid in
advance and capitalized on our balance sheet as prepaid license
fees. These royalty-based obligations are expensed to cost of
revenues either at the applicable contractual rate related to that
revenue or over the estimated life of the content acquired. Minimum
guarantee license payments that are not recoupable against future
royalties are capitalized and amortized over the lesser of the
estimated life of the branded title or the term of the license
agreement.
Minimum Guarantee License Fees
The
Company at times may enter into contracts with licensors that
include minimum guaranteed royalty payments, which are payable
regardless of the ultimate volume of sales to end users. Each
quarter, the Company evaluates the realization of its royalties as
well as any unrecognized guarantees not yet paid to determine
amounts that it deems unlikely to be realized through product
sales. The Company uses estimates of revenues, and share of the
relevant licensor to evaluate the future realization of future
royalties and guarantees. This evaluation considers multiple
factors, including the term of the agreement, forecasted demand,
product life cycle status, product development plans, and current
and anticipated sales levels, as well as other qualitative factors.
To the extent that this evaluation indicates that the remaining
future guaranteed royalty payments are not recoverable, the Company
records an impairment charge to cost of revenues and a liability in
the period that impairment is indicated.
Content Acquired
At
times the Company may pay amounts to third party content providers
as part of an agreement to make content available to the Company
for a term or in perpetuity, without a revenue
share. These amounts would be capitalized and included
in the balance sheet as prepaid expenses, and would then be
expensed over the estimated life of the content
acquired.
Software Development Costs
The
Company applies the principles of FASB ASC 985-20, Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed
(“ASC 985-20”). ASC 985-20 requires that software
development costs incurred in conjunction with product development
be charged to research and development expense until technological
feasibility is established. Thereafter, until the product is
released for sale, software development costs must be capitalized
and reported at the lower of unamortized cost or net realizable
value of the related product.
The
Company has adopted the “tested working model” approach
to establishing technological feasibility for its products and
games. Under this approach, the Company does not consider a product
or game in development to have passed the technological feasibility
milestone until the Company has completed a model of the product or
game that contains essentially all the functionality and features
of the final game and has tested the model to ensure that it works
as expected. To date, the Company has not incurred significant
costs between the establishment of technological feasibility and
the release of a product or game for sale; thus, the Company has
expensed all software development costs as incurred. The Company
considers the following factors in determining whether costs can be
capitalized: the emerging nature of the mobile market; the gradual
evolution of the wireless carrier platforms and mobile phones for
which it develops products and games; the lack of pre-orders or
sales history for its products and games; the uncertainty regarding
a product’s or game’s revenue-generating potential; its
lack of control over the carrier distribution channel resulting in
uncertainty as to when, if ever, a product or game will be
available for sale; and its historical practice of canceling
products and games at any stage of the development
process.
Product Development Costs
The
Company charges costs related to research, design and development
of products to product development expense as incurred. The types
of costs included in product development expenses include salaries,
contractor fees and allocated facilities costs.
Advertising Expenses
The
Company expenses the production costs of advertising, including
direct response advertising, the first time the advertising takes
place. Advertising expense for continuing operations was $2 and $13
in the three months ended September 30, 2011 and 2010,
respectively, and $6 and $24 in the six months ended
September 30, 2011 and 2010, respectively. Advertising expense for
discontinued operations was $0 and $0 in the three months ended
September 30, 2011 and 2010 and $0 and $956
in the six ended September 30, 2011 and 2010,
respectively.
Restructuring
The
Company accounts for costs associated with employee terminations
and other exit activities in accordance with FASB ASC
420-10,
Accounting for Costs Associated with Exit or Disposal
Activities. The Company records employee termination
benefits as an operating expense when it communicates the benefit
arrangement to the employee and it requires no significant future
services, other than a minimum retention period, from the employee
to earn the termination benefits.
Fair Value of Financial Instruments
As
of September 30, 2011 and March 31, 2011, the carrying value of
cash and cash equivalents, accounts receivable, prepaid expenses
and other current assets, accounts payable, accrued license fees,
accrued compensation and other current liabilities approximates
fair value due to the short-term nature of such instruments. The
carrying value of long-term debt approximates fair value as the
related interest rates approximate rates currently available to the
Company.
Foreign Currency Translation
The
Company uses the United States dollar for financial reporting
purposes. Assets and liabilities of foreign operations
are translated using current rates of exchange prevailing at the
balance sheet date. Equity accounts have been translated at their
historical exchange rates when the capital transaction
occurred. Statement of Operations amounts are translated
at average rates in effect for the reporting period. The foreign
currency translation adjustment gains of $47 and $138 in the six
months ended September 30, 2011 and September 30, 2010,
respectively, have been reported as a components of comprehensive
loss in the consolidated statements of stockholders’ equity
and comprehensive loss. Translation gains or losses are shown as a
separate component of stockholders’ equity.
Concentrations of Credit Risk
Financial
instruments which potentially subject us to concentration of credit
risk consist principally of cash and cash equivalents, and accounts
receivable. We have placed cash and cash equivalents with a single
high credit-quality institution. Most of our sales are made
directly to large national mobile phone operators in the countries
that we operate. We have a significant level of business and
resulting significant accounts receivable balance with one operator
and therefore have a high concentration of credit risk with that
operator. We perform ongoing credit evaluations of our customers
and maintain an allowance for potential credit losses. As of
September 30, 2011, one major customer represented approximately
46% of our gross accounts receivable outstanding, and 45% of gross
accounts receivable outstanding as of September 30, 2010. This
customer accounted for 44% of our gross revenues in the period
ended September 30, 2011; and 51% in the period ended September 30,
2010.
Property and Equipment
Property
and equipment is stated at cost. Depreciation and
amortization is calculated using the straight-line method over the
estimated useful lives of the related assets. Estimated useful
lives are the lesser of 8 to 10 years or the term of the lease for
leasehold improvements and 5 years for other assets.
Goodwill and Indefinite Life Intangible Assets
Goodwill
represents the excess of cost over fair value of net assets of
businesses acquired. In accordance with FASB ASC 350-20
Goodwill and
Other Intangible Assets, the value assigned to goodwill and
indefinite lived intangible assets, including trademarks and
tradenames, is not amortized to expense, but rather they are
evaluated at least on an annual basis to determine if there are
potential impairments. If the fair value of the reporting unit is
less than its carrying value, an impairment loss is recorded to the
extent that the implied fair value of the reporting unit goodwill
is less than the carrying value. If the fair value of an indefinite
lived intangible (such as trademarks and trade names) is less than
its carrying amount, an impairment loss is recorded. Fair value is
determined based on discounted cash flows, market multiples or
appraised values, as appropriate. Discounted cash flow analysis
requires assumptions about the timing and amount of future cash
inflows and outflows, risk, the cost of capital, and terminal
values. Each of these factors can significantly affect the value of
the intangible asset. The estimates of future cash flows, based on
reasonable and supportable assumptions and projections, require
management’s judgment. Any changes in key assumptions about
the Company’s businesses and their prospects, or changes in
market conditions, could result in an impairment charge. Some of
the more significant estimates and assumptions inherent in the
intangible asset valuation process include: the timing and amount
of projected future cash flows; the discount rate selected to
measure the risks inherent in the future cash flows; and the
assessment of the asset’s life cycle and the competitive
trends impacting the asset, including consideration of any
technical, legal or regulatory trends.
Impairment of Long-Lived Assets and Finite Life
Intangibles
Long-lived
assets, including, intangible assets subject to amortization
primarily consisting of customer lists, license agreements and
software that have been acquired are amortized using the
straight-line method over their useful lives ranging from
three to ten years and are reviewed for impairment in accordance
with FASB ASC 360-10, Accounting for the Impairment
or Disposal of Long-Lived Assets, whenever events or changes
in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
future undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount
or fair value less costs to sell.
In
the period ended September 30, 2011 the Company determined that
there was no impairment of intangible assets. In the
year ended March 31, 2011, the Company determined that there was an
impairment of intangible assets, amounting to $4,482. In the year
ended March 31, 2010, the Company determined that there was an
impairment of intangible assets, amounting to $5,736. In performing
the related valuation analysis the Company used various valuation
methodologies including probability weighted discounted cash flows,
comparable transaction analysis, and market capitalization and
comparable company multiple comparison. The impairment is detailed
in Note 9 below.
Income Taxes
The
Company accounts for income taxes in accordance with FASB ASC
740-10, Accounting for Income
Taxes (“ASC 740-10”), which requires recognition
of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in its financial
statements or tax returns. Under ASC 740-10, the Company determines
deferred tax assets and liabilities for temporary differences
between the financial reporting basis and the tax basis of assets
and liabilities along with net operating losses, if it is more
likely than not the tax benefits will be realized using the enacted
tax rates in effect for the year in which it expects the
differences to reverse. To the extent a deferred tax
asset cannot be recognized, a valuation allowance is established if
necessary.
ASC
740-10 prescribes that a company should use a more-likely-than-not
recognition threshold based on the technical merits of the tax
position taken. Tax positions that meet the
“more-likely-than-not” recognition threshold should be
measured as the largest amount of the tax benefits, determined on a
cumulative probability basis, which is more likely than not to be
realized upon ultimate settlement in the financial statements. We
recognize interest and penalties related to income tax matters as a
component of the provision for income taxes. We do not currently
anticipate that the total amount of unrecognized tax benefits will
significantly change within the next 12 months.
Stock-based compensation
We
have applied FASB ASC 718 Share-Based Payment
(“ASC 718”) and accordingly, we record stock-based
compensation expense for all of our stock-based
awards.
Under
ASC 718, we estimate the fair value of stock options granted using
the Black-Scholes option pricing model. The fair value for awards
that are expected to vest is then amortized on a straight-line
basis over the requisite service period of the award, which is
generally the option vesting term. The amount of expense recognized
represents the expense associated with the stock options we expect
to ultimately vest based upon an estimated rate of forfeitures;
this rate of forfeitures is updated as necessary and any
adjustments needed to recognize the fair value of options that
actually vest or are forfeited are recorded.
The
Black-Scholes option pricing model, used to estimate the fair value
of an award, requires the input of subjective assumptions,
including the expected volatility of our common stock, interest
rates, dividend rates and an option’s expected life. As a
result, the financial statements include amounts that are based
upon our best estimates and judgments relating to the expenses
recognized for stock-based compensation.
Preferred Stock
The
Company applies the guidance enumerated in FASB
ASC 480-10, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity (“ASC 480-10”) when determining the
classification and measurement of preferred stock. Preferred shares
subject to mandatory redemption (if any) are classified as
liability instruments and are measured at fair value in accordance
with ASC 480-10. All other issuances of preferred stock are subject
to the classification and measurement principles of ASC 480-10.
Accordingly, the Company classifies conditionally redeemable
preferred shares (if any), which includes preferred shares that
feature redemption rights that are either within the control of the
holder or subject to redemption upon the occurrence of uncertain
events not solely within the Company’s control, as temporary
equity. At all other times, the Company classifies its preferred
shares in stockholders’ equity.
Use of Estimates
The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent asset and
liabilities at the date of the financial statements and reported
amounts of revenue and expenses during the period. Actual results
could differ from those estimates. The most significant estimates
relate to revenues for periods not yet reported by carriers,
liabilities recorded for future minimum guarantee payments under
content licenses, accounts receivable allowances, and stock-based
compensation expense.
Accounting Pronouncements
Recently
Adopted Accounting Pronouncements
In
December 2010, the FASB issued updated guidance on when and how to
perform certain steps of the periodic goodwill impairment test for
public entities that may have reporting units with zero or negative
carrying amounts. This guidance is effective for fiscal years, and
interim periods within those years, beginning after December 15,
2010, with early adoption prohibited. It is applicable to the
Company’s fiscal year beginning April 1, 2011. The Company
evaluated this guidance, and determined it doesn’t have a
material effect on its consolidated financial
statements.
In
December 2010, the FASB also issued guidance to clarify the
reporting of pro forma financial information related to business
combinations of public entities and to expand certain supplemental
pro forma disclosures. This guidance is effective prospectively for
business combinations that occur on or after the beginning of the
fiscal year beginning on or after December 15, 2010, with early
adoption permitted. It is applicable to the Company’s fiscal
year beginning April 1, 2011. The Company evaluated this guidance,
and determined it doesn’t have a material effect on its
consolidated financial statements.
Recently
Issued Accounting Pronouncements
In
May 2011, the FASB issued guidance to amend certain measurement and
disclosure requirements related to fair value measurements to
improve consistency with international reporting standards. This
guidance is effective prospectively for public entities for interim
and annual reporting periods beginning after December 15, 2011,
with early adoption by public entities prohibited, and is
applicable to the Company’s fiscal quarter beginning January
1, 2012. The Company is currently evaluating this
guidance, but does not expect its adoption will have a
material effect on its consolidated financial
statements.
In
June 2011, the FASB issued new guidance on the presentation of
comprehensive income that will require a company to present
components of net income and other comprehensive income in one
continuous statement or in two separate, but consecutive
statements. There are no changes to the components that are
recognized in net income or other comprehensive income under
current GAAP. This guidance is effective for fiscal years, and
interim periods within those fiscal years, beginning after December
15, 2011, with early adoption permitted. It is applicable to the
Company’s fiscal year beginning April 1, 2012. The Company is
currently evaluating this guidance, but does not expect its
adoption will have a material effect on its consolidated financial
statements.
In
September 2011, the Financial Accounting Standards Board (FASB)
issued amended accounting guidance related to goodwill impairment
testing. The new guidance provides the option to perform a
qualitative assessment by applying a more likely than not scenario
to determine whether the fair value of a reporting unit is less
than its carrying amount, which may then allow a company to skip
the annual two-step quantitative goodwill impairment test depending
on the determination. The amended guidance is effective for annual
and interim goodwill impairment tests performed for fiscal years
beginning after December 15, 2011. Earlier adoption is
permitted. Management does not expect the adoption of the amended
guidance to have a material impact on the Company’s
consolidated financial statements. The Company is
currently evaluating this guidance, but does not expect its
adoption will have a material effect on its consolidated financial
statements.
Other
recent authoritative guidance issued by the FASB (including
technical corrections to the FASB Accounting Standards
Codification), the American Institute of Certified Public
Accountants, and the SEC did not, or are not expected to have a
material effect on the Company’s consolidated financial
statements.
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