|
MANDALAY DIGITAL GROUP, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.
(Edgar Glimpses Via Acquire Media NewsEdge)
The following discussion should be read in conjunction with, and is qualified in
its entirety by, the Financial Statements and the Notes thereto included in this
report. This discussion contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Quarterly Report on Form
10-Q, the words "anticipate," "believe," "estimate," "expect", "will", "seeks",
"should", "could", "would", "may" and similar expressions, as they relate to our
management or us, are intended to identify such forward-looking statements. Our
actual results, performance or achievements could differ materially from those
expressed in, or implied by, these forward-looking statements as a result of a
variety of factors including those set forth under "Risk Factors" in our Annual
Report on Form 10-K, as amended, for the year ended March 31, 2012. Historical
operating results are not necessarily indicative of the trends in operating
results for any future period.
We do not undertake any obligation to update any forward-looking statements.
Accordingly, investors should use caution in relying on past forward-looking
statements, which are based on known results and trends at the time they are
made, to anticipate future results or trends.
Unless the context otherwise indicates, the use of the terms "we," "our", "us",
"Mandalay Digital" or the "Company" refer to the business and operations of
Mandalay Digital Group, Inc. through its operating and wholly-owned
subsidiaries, Digital Turbine, Inc. ("Digital Turbine") and Twistbox
Entertainment, Inc. ("Twistbox") and MDG Logia Holdings Ltd ("MDG").
Historical Operations of Mandalay Digital Group, Inc.
Mandalay Digital was originally incorporated in the State of Delaware on
November 6, 1998 under the name eB2B Commerce, Inc. On April 27, 2000, the
company merged into DynamicWeb Enterprises, Inc., a New Jersey corporation.
DynamicWeb Enterprises, Inc was the resulting entity, but it changed its name to
eB2B Commerce, Inc. On April 13, 2005, the Company changed its name to
Mediavest, Inc. On November 7, 2007, through a
merger, the Company reincorporated in the State of Delaware under the name
Mandalay Media, Inc. On May 12, 2010, the Company changed its name to NeuMedia,
Inc.
On February 6, 2012, the Company merged with a wholly-owned, newly-formed
subsidiary, changing its name to Mandalay Digital Group, Inc.
On October 27, 2004, and as amended on December 17, 2004, the Company filed a
plan for reorganization under Chapter 11 of the United States Bankruptcy Code in
the United States Bankruptcy Court for the Southern District of New York (the
"Plan of Reorganization"). Under the Plan of Reorganization, as completed on
January 26, 2005: (1) the Company's net operating assets and liabilities were
transferred to the holders of the secured notes in satisfaction of the principal
and accrued interest thereon; (2) $400,000 was transferred to a liquidation
trust and used to pay administrative costs and certain preferred creditors;
(3) $100,000 was retained by the Company to fund the expenses of remaining
public; (4) 3.5% of the new common stock of the Company (140,000 shares) was
issued to the holders of record of Mandalay Digital's preferred stock in
settlement of their liquidation preferences; (5) 3.5% of the new common stock of
the Company (140,000 shares) was issued to common stockholders of record as of
January 26, 2005 in exchange for all of the outstanding shares of the common
stock of the company; and (6) 93% of the new common stock of the Company
(3,720,000 shares) was issued to the sponsor of the Plan of Reorganization in
exchange for $500,000 in cash. Through January 26, 2005, the Company and its
subsidiaries were engaged in providing business-to-business transaction
management services designed to simplify trading between buyers and suppliers.
Prior to February 12, 2008, the Company was a public shell company with no
operations, was controlled by its significant stockholder, Trinad Capital Master
Fund, L.P.
29
--------------------------------------------------------------------------------
Table of Contents
SUMMARY OF THE TWISTBOX MERGER
The Company entered into an Agreement and Plan of Merger on December 31, 2007,
as subsequently amended by the Amendment to Agreement and Plan of Merger dated
February 12, 2008 (the "Merger Agreement"), with Twistbox Acquisition, Inc., a
Delaware corporation and a wholly-owned subsidiary of the Company ("Merger
Sub"), Twistbox Entertainment, Inc. ("Twistbox"), and Adi McAbian and Spark
Capital, L.P., as representatives of the stockholders of Twistbox, pursuant to
which Merger Sub would merge with and into Twistbox, with Twistbox as the
surviving corporation (the "Merger"). The Merger was completed on February 12,
2008.
Pursuant to the Merger Agreement, upon the completion of the Merger, each
outstanding share of Twistbox common stock, $0.001 par value per share, on a
fully-converted basis, with the conversion on a one-for-one basis of all issued
and outstanding shares of the Series A Convertible Preferred Stock of Twistbox
and the Series B Convertible Preferred Stock of Twistbox, $0.01 par value per
share (the "Twistbox Preferred Stock"), converted automatically into and became
exchangeable for Company common stock in accordance with certain exchange ratios
set forth in the Merger Agreement. In addition, by virtue of the Merger, each
outstanding Twistbox option to purchase Twistbox common stock issued pursuant to
the Twistbox 2006 Stock Incentive Plan (the "Plan") was assumed by the Company,
subject to the same terms and conditions as were applicable under such Plan
immediately prior to the Merger, except that (a) the number of shares of Company
common stock issuable upon exercise of each Twistbox option was determined by
multiplying the number of shares of Twistbox common stock that were subject to
such Twistbox option immediately prior to the Merger by 0.72967 (the "Option
Conversion Ratio"), rounded down to the nearest whole number; and (b) the per
share exercise price for the shares of Mandalay Digital common stock issuable
upon exercise of each Twistbox option was determined by dividing the per share
exercise price of Twistbox common stock subject to such Twistbox option, as in
effect prior to the Merger, by the Option Conversion Ratio, subject to any
adjustments required by the Internal Revenue Code. As part of the Merger, the
Company also assumed all unvested Twistbox options. The Merger consideration
consisted of an aggregate of up to 12,325,000 shares of Company common stock,
which included the conversion of all shares of Twistbox capital stock and the
reservation of 2,144,700 shares of Company common stock required for assumption
of the vested Twistbox options. The Company reserved an additional 318,772
shares of Company common stock required for the assumption of the unvested
Twistbox options. All warrants to purchase shares of Twistbox common stock
outstanding at the time of the Merger were terminated on or before the effective
time of the Merger.
Upon the completion of the Merger, all shares of the Twistbox capital stock were
no longer outstanding and were automatically canceled and ceased to exist, and
each holder of a certificate representing any such shares ceased to have any
rights with respect thereto, except the right to receive the applicable merger
consideration. Additionally, each share of the Twistbox capital stock held by
Twistbox or owned by Merger Sub, the Company or any subsidiary of Twistbox or
the Company immediately prior to the Merger, was canceled and extinguished as of
the completion of the Merger without any conversion or payment in respect
thereof. Each share of common stock, $0.001 par value per share, of Merger Sub
issued and outstanding immediately prior to the Merger was converted upon
completion of the Merger into one validly issued, fully paid and non-assessable
share of common stock, $0.001 par value per share, of the surviving corporation.
As part of the Merger, the Company agreed to guarantee up to $8,250,000 of
Twistbox's outstanding debt to ValueAct SmallCap Master Fund L.P. ("ValueAct" or
"VAC"), with certain amendments. On July 30, 2007, Twistbox had entered into a
Securities Purchase Agreement by and among Twistbox, the Subsidiary Guarantors
(as defined therein) and ValueAct, pursuant to which ValueAct purchased a note
in the amount of $16,500,000 (the "ValueAct Note" or the "VAC Note") and a
warrant which entitled ValueAct to purchase from Twistbox up to a total of
2,401,747 shares of Twistbox's common stock (the "Warrant"). Twistbox and
ValueAct also entered into a Guarantee and Security Agreement by and among
Twistbox, each of the subsidiaries of Twistbox, the Investors, as defined
therein, and ValueAct, as collateral agent, pursuant to which the parties agreed
that the ValueAct Note would be secured by substantially all of the assets of
Twistbox and its subsidiaries (the "VAC Note Security Agreement"). In connection
with the Merger, the Warrant was terminated and we issued two warrants in place
thereof to ValueAct to purchase shares of our common stock. One of such warrants
entitled ValueAct to purchase up to a total of 1,092,622 shares of our common
stock at an exercise price of $7.55 per share. The other warrant entitled
ValueAct to purchase up to a total of 1,092,621 shares of our common stock at an
initial exercise price of $5.00 per share, which, if not exercised in full by
February 12, 2009, would have been permanently increased to an exercise price of
$7.55 per share. Both warrants were scheduled to expire on July 30, 2011. The
warrants were subsequently modified on October 23, 2008 and cancelled on
June 21, 2010, as set forth below. We also entered into a Guaranty (the
"ValueAct Note Guaranty") with ValueAct whereby the Company agreed to guarantee
Twistbox's payment to ValueAct of up to $8,250,000 of principal under the
ValueAct Note in accordance with the terms, conditions and limitations contained
in the ValueAct Note, which was subsequently amended as set forth below. The
financial covenants of the ValueAct Note were also amended, pursuant to which
Twistbox was required to maintain a cash balance of not less than $2,500,000 at
all times and the Company is required to maintain a cash balance of not less
than $4,000,000 at all times. The ValueAct Note was subsequently amended and
restated as set forth below.
30--------------------------------------------------------------------------------
Table of Contents
SUMMARY OF THE AMV ACQUISITION
On October 23, 2008, the Company consummated the acquisition of 100% of the
issued and outstanding share capital of AMV Holding Limited, a United Kingdom
private limited company ("AMV") and 80% of the issued and outstanding share
capital of Fierce Media Limited, United Kingdom private limited company
(collectively the "Shares"). The acquisition of AMV is referred to herein as the
"AMV Acquisition". The aggregate purchase price (subject to adjustments as
provided in the stock purchase agreement) for the Shares consisted of
(i) $5,375,000 in cash; (ii) 4,500,000 shares of Company common stock, par value
$0.0001 per share; (iii) a secured promissory note in the aggregate principal
amount of $5,375,000 (the "AMV Note"); and (iv) additional earn-out amounts, if
any, based on certain targeted earnings as set forth in the stock purchase
agreement. The AMV Note was scheduled to mature on July 31, 2010, and bore
interest at an initial rate of 5% per annum, subject to adjustment as provided
therein.
In addition, also on October 23, 2008, in connection with the AMV Acquisition,
the Company, Twistbox and ValueAct entered into a Second Amendment to the
ValueAct Note, which among other things, provided for a payment-in-kind election
at the option of Twistbox, modified the financial covenants set forth in the
ValueAct Note to require that the Company and Twistbox maintain certain minimum
combined cash balances and provided for certain covenants with respect to the
indebtedness of the Company and its subsidiaries. Also on October 23, 2008, AMV
granted to ValueAct a security interest in its assets to secure the obligations
under the ValueAct Note. In addition, the Company and ValueAct entered into an
allonge to each of those certain warrants issued to ValueAct in connection with
the Merger, which, among other things, amended the exercise price of each of the
warrants to $4.00 per share.
In addition, also on October 23, 2008, the Company entered into a Securities
Purchase Agreement with certain investors identified therein (the "Investors"),
pursuant to which the Company agreed to sell to the Investors in a private
offering an aggregate of 1,685,394 shares of common stock and warrants to
purchase 842,697 shares of common stock for gross proceeds to the Company of
$4,500,000. The warrants have a five year term and an exercise price of $2.67
per share. The funds were held in an escrow account pursuant to an Escrow
Agreement, dated October 23, 2008 and were released to the Company on or about
November 8, 2008.
On August 14, 2009, the Company and ValueAct entered into a Second Allonge to
Warrant to Purchase 1,092,621 shares of the Company's common stock (the "Second
Allonge"), which amended that certain warrant to purchase 1,092,621 shares of
the Company's common stock, issued to ValueAct on February 12, 2008, as amended
(the "ValueAct Warrant"). Pursuant to the Second Allonge, the exercise price of
the ValueAct Warrant decreased from $4.00 per share to the lesser of $1.25 per
share, or the exercise price per share for any warrant to purchase shares of the
Company's common stock issued by the Company to certain other parties. In
addition, also on August 14, 2009, the Company, Twistbox and ValueAct entered
into a Third Amendment to the ValueAct Note. Pursuant to the Third Amendment,
the maturity date was changed to July 31, 2010 and the interest rate of the
ValueAct Note increased from 10% to 12.5%.
On January 25, 2010, Mandalay Digital, Twistbox and ValueAct entered into a
Waiver to Senior Secured Note (the "Waiver"), pursuant to which ValueAct agreed
to waive certain provisions of the ValueAct Note. Pursuant to the Waiver,
subject to Twistbox's compliance with certain conditions set forth in the
Waiver, certain rights to prepay the ValueAct Note were extended from
January 31, 2010 to March 1, 2010. In addition, subject to Twistbox's compliance
with certain conditions set forth in the Waiver, the timing obligation of the
Company and Twistbox to comply with the cash covenant set forth in the ValueAct
Note was extended to March 1, 2010 and the minimum cash balance by which
Twistbox and Mandalay Digital must maintain was increased to $1,600,000.
On February 25, 2010, Twistbox received a letter (the "Letter") from ValueAct
alleging certain events of default with respect to the ValueAct Note. The Letter
claimed that an event of default had occurred and was continuing under the
ValueAct Note as result of certain alleged defaults, including the failure to
provide weekly evidence of compliance with certain of Twistbox's and the
Company's covenants under the ValueAct Note, the failure to comply with
limitations on certain payments by the Company and each of its subsidiaries, and
the failure of Twistbox and the Company to maintain minimum cash balances in
deposit accounts of each of Twistbox and the Company. The Letter also claimed
that the Waiver had ceased to be effective as a result of the alleged failure of
Mandalay Digital to comply with the conditions set forth in the Waiver. On
May 10, 2010, Twistbox received from ValueAct a Notice of Event of Default and
Acceleration ("Notice") in which ValueAct stated that an event of default had
occurred under the ValueAct Note as a result of Twistbox's and Mandalay
Digital's failure to comply with the cash balance covenant under the ValueAct
Note and, therefore, ValueAct accelerated all outstanding amounts payable by
Twistbox under the ValueAct Note. In connection with the Notice, ValueAct
instituted an administration proceeding in the United Kingdom against AMV.
On June 21, 2010, the Company sold all of the operating subsidiaries of AMV to
an entity controlled by ValueAct and certain of AMV's founders in exchange for
the release of $23,231,000 of secured indebtedness, comprising of a release of
all amounts due and payable under the AMV Note and all amounts due and payable
under the VAC Note except for $3,500,000 in principal (the "Restructure"). In
connection with the Restructure, the ValueAct Note (as amended and restated, the
"Amended ValueAct Note"), the Value Act Security Agreement and the Value Act
Guaranty were amended and restated in their entirety. In addition, all warrants
and common stock of the Company held by ValueAct were cancelled and all warrants
and common stock of the Company held by AMV founders Nate MacLeitch and Jonathan
Cresswell were repurchased by the Company for a price of $0.02 per share.
31--------------------------------------------------------------------------------
Table of Contents
The Amended ValueAct Note matures on June 21, 2013 and bears interest at 10%
payable in cash semi-annually in arrears on each January 1 and July 1 that the
Amended ValueAct Note is outstanding. Twistbox may prepay the Amended ValueAct
Note in whole or in part at any time without penalty. Notwithstanding the
foregoing, at any time on or prior to January 1, 2012, Twistbox may, at its
option, in lieu of making any cash payment of interest, elect that the amount of
any interest due and payable on any interest payment date on or prior to
January 1, 2012 be added to the principal due under the Amended ValueAct Note.
In the event of a Fundamental Change (as defined therein) of Twistbox, the
holder of the Amended ValueAct Note will have the right for a period of thirty
days to require Twistbox to repurchase the Amended ValueAct Note at a price
equal to 100% of the outstanding principal and all accrued and unpaid interest.
Also on June 21, 2010, for purposes of capitalizing the Company, the Company
sold and issued $2,500,000 of Senior Secured Convertible Notes due June 21, 2013
(the "New Senior Secured Notes" or the "Senior Debt") to certain significant
stockholders. The New Senior Secured Notes have a three year term and bear
interest at a rate of 10% per annum payable in arrears semi-annually.
Notwithstanding the foregoing, at any time on or prior to the 18th month
following the original issue date of the New Senior Secured Notes, the Company
may, at its option, in lieu of making any cash payment of interest, elect that
the amount of any interest due and payable on any interest payment date on or
prior to the 18th month following the original issue date of the New Senior
Secured Notes be added to the principal due under the New Senior Secured Notes.
The accrued and unpaid principal and interest due on the New Senior Secured
Notes are convertible at any time at the election of the holder into shares of
Company common stock at a conversion price of US $0.15 per share, subject to
adjustment. The New Senior Secured Notes are secured by a first lien on
substantially all of the assets of the Company and its subsidiaries. The Amended
ValueAct Note is subordinated to the New Senior Secured Notes.
Each purchaser of a New Senior Secured Note also received a warrant ("Warrant")
to purchase shares of common stock of the Company at an exercise price of $0.25
per share, subject to adjustment. For each $1.00 of New Senior Secured Notes
purchased, the purchaser received a Warrant to purchase 3.33 shares of common
stock of the Company. Each Warrant has a five year term.
The Merger and the AMV Acquisition both included the issuance of common stock as
all or part of the consideration. Based on the trading price of the common stock
as of the acquisition dates, the total consideration was approximately $67.5
million for the Merger and approximately $22.2 million for the AMV Acquisition.
On December 16, 2011 the Amended ValueAct Note was purchased by Taja, LLC
("Taja") and immediately amended to remove certain negative covenants (as
amended, the "Taja Note").
32
--------------------------------------------------------------------------------
Table of Contents
SUMMARY OF LOGIA ACQUISITION
On August 14, 2012, the Company entered into a Share Purchase Agreement to
acquire subsidiaries and assets of Logia Group, Ltd. ("Seller"), Logia is a
leading mobile content development and management solutions provider of
innovative mobile solutions to top-tier mobile operators and content providers.
The Logia acquisition was completed on September 13, 2012. As a part of the
transaction, the Company, through an Israeli acquisition company that it formed
named "MDG Logia Holdings LTD" ("Logia Holdings") acquired all of the capital
stock of Logia Content Development and Management Ltd., Volas Entertainment Ltd.
and Mail Bit Logia (2008) Ltd., each of which was formerly an operating
subsidiary of Seller, and is now an operating subsidiary of Logia Holdings. In
addition, the Company acquired, by assignment to Logia Holdings, the assets
comprising the "LogiaDeck" software, which has been rebranded "Ignite", and
certain operator and other contracts related to the business being sold by
Seller, from S.M.B.P. IGLOO Ltd., an affiliate of Seller.
The Company purchased the stock and assets sold by Seller and its affiliate with
cash and common stock of the Company and two tranches of "earn out" payments of
cash and stock, comprised of (1) $3,750,000 in cash at closing (subject to
working capital adjustments) and Company common stock having a value of
$750,000, based on a 30 day volume weighted average price (VWAP) look back from
the issuance date (the "Closing Shares"), or 937,500 shares of common stock,
with a fair value of $788 on the date of grant, and (2) two tranches, each
comprised of a cash payment of $250,000 and a number of shares of Company common
stock valued at $250,000 (based on a 30 day VWAP look back from the issuance
date) (the "Earn Out Shares"), which will be paid and issued, as applicable, to
Seller 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 $500,000 and $500,000 of cash if all
milestones are achieved. All of the stock of the Company issued is 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. See
Exhibits 10.1 and 10.2 of this quarterly report on Form 10-Q for copies of the
Purchase Agreement and the Registration Rights Agreement. The acquired business
of the Targets and Ignite are collectively referred to as "Logia" in this
quarterly report.
The initial accounting of the Logia 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.
Company Overview
From February 12, 2008 to October 23, 2008, our sole operations were those of
our wholly-owned subsidiary, Twistbox. In October 2008, we acquired AMV Holding
Limited and its subsidiaries, a mobile media and marketing company. On June 21,
2010, we sold AMV Holding Limited and its subsidiaries.
Twistbox is a global, mobile data services company primarily focused on enabling
and optimizing the development, distribution and billing of content and
applications across mobile networks. Operating since 2003, Twistbox publishes
content in over 28 countries with distribution representing more than five
hundred million subscribers. Twistbox has developed an intellectual property
portfolio that includes worldwide or territory exclusive mobile rights to
content, a proprietary publishing platform that includes tools to automate
device management and billing of content and applications; a mobile games
development and distribution platform that automates the porting of mobile games
and applications to over 1,500 handset models; a content ratings system adopted
by certain major wireless carriers to assist with the responsible deployment of
age-verified programming and services; a suite of value added billing
technologies that allow for in-application billing, and Digital Rights
Management (DRM) solutions. Twistbox has leveraged its intellectual property and
carrier-class technology to secure direct distribution and/or enabling
agreements with leading mobile operators throughout Europe, North America and
Latin America, including, among others, Vodafone, Telefonica, Orange, and SFR.
Twistbox maintains a global distribution agreement with Vodafone. Through this
relationship, in certain markets Twistbox serves as one of Vodafone's exclusive
category portal managers. Twistbox has similar exclusive agreements with other
operators in selected territories.
Twistbox's target customers are the lucrative, tech-savvy 18 to 40 year old
demographic. This group is a leading consumer group of new mobile handsets and
represents more than 50% of mobile content consumption revenue globally.
In December 2011, the Company purchased the assets of Digital Turbine. With the
acquisition and integration of the assets of Digital Turbine, the Company will
be able to provide an end-to-end, modular platform to the Company's existing
carrier customers. The combined DT offering allows new and existing customers to
choose from a fully outsourced, smart mobile ecosystem to more efficient,
modular components that can be integrated with different operating systems to
provide to the end user a more unified experience of mobile content across
search, discovery, billing, and delivery. Innovative aspects of the Digital
Turbine platform include the ability for carriers and OEMs to analyze the data
presented to their end-users while giving them a more efficient way of finding
and purchasing content.
33
--------------------------------------------------------------------------------
Table of Contents
In September 2012, the Company completed the Logia transaction. Logia is a
mobile content development and management solutions provider of innovative
mobile solutions to top-tier operators and content providers. It provides
solutions for top-tier mobile operators and content providers, including device
application management solutions, white label app and media stores, in-app
payment solutions, app-based value added services, and mobile social music and
TV offerings. Logia operates in more than 20 countries, and provides services to
more than 50 leading mobile carriers. It has relationships with over 500 app
developers and content vendors and well as agreements with unique mobile
platforms and service providers. Our strategy is to combine Logia mobile
solutions, carrier relationships and global distribution capabilities with the
Digital Turbine user experience to provide a 'best-in-class', end-to-end
solution for the Company's carrier partners to fully monetize their mobile
content catalogs as well as third-party offerings.
RESULTS OF OPERATIONS
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
December 31, December 31, December 31, December 31, % of
2012 2011 2012 2011 Change
(in thousands)
Revenues $ 2,049 $ 1,957 5 % $ 4,252 $ 5,788 -27 %
Cost of revenues 927 790 17 % 1,975 2,057 -4 %
Gross profit 1,122 1,167 -4 % 2,277 3,731 -39 %
SG&A 4,701 7,282 -35 % 11,341 11,002 3 %
Operating loss (3,579 ) (6,115 ) -41 % (9,064 ) (7,271 ) 25 %
Interest expense, net (536 ) (1,693 ) -68 % (1,490 ) (2,438 ) -39 %
Foreign exchange
transaction loss (18 ) (71 ) -75 % (52 ) (54 ) -4 %
Loss on change in fair
value of accrued derivative
liabilities - (49 ) -100 % (22 ) (76 ) -72 %
Gain / (loss) on settlement
of liability (4 ) 1,082 -100 % (4 ) 1,323 -100 %
Loss on change on valuation
of long term contingent
liability (44 ) - 100 % (44 ) - 100 %
Loss before income taxes (4,181 ) (6,846 ) -39 % (10,676 ) (8,516 ) 25 %
Income tax provision (33 ) (32 ) 3 % (66 ) (64 ) 3 %
Net loss $ (4,214 ) $ (6,878 ) -39 % $ (10,742 ) $ (8,580 ) 25 %
Basic and Diluted net
income / (loss) per common
share: (0.05 ) (0.16 ) -71 % (0.12 ) (0.21 ) -40 %
Basic and Diluted weighted
average shares outstanding 88,987 41,966 112 % 86,917 41,808 108 %
Comparison of the Three and Nine Months Ended December 31, 2012 and 2011
Revenues
Three Months Ended December 31, % of Nine Months Ended December 31, % of
2012 2011 Change 2012 2011 Change
(In thousands) (In thousands)
Revenues by type:
Services $ 1,193 $ 461 159 % $ 1,902 $ 930 105 %
Content-Games 46 76 -40 % 147 391 -63 %
Content-Other 808 904 -10 % 1,275 3,273 -61 %
Advertising 2 516 -100 % 928 1,194 -22 %
Total $ 2,049 $ 1,957 5 % $ 4,252 $ 5,788 -27 %
Games revenue-the decline in revenue largely reflects a strategic decision to
curtail investment in development of new games for carrier sales, along with the
loss of on-deck placement with US carriers. In addition, we are no longer
selling mobile advertising. This was offset by higher platform and services fees
due the addition of Logia revenues. Games revenue includes both licensed and
internally developed games for use on mobile phones.
34--------------------------------------------------------------------------------
Table of Contents
The revenue decline for Other Content is the result of multiple factors.
Revenues were also affected by the increase in the use of smart phones over
feature phones, which hinder the carriers' ability to monetize content revenues
effectively. Revenues have also been impacted by outsourcing at the carrier
level. Other content includes a broad range of licensed and internally developed
products delivered in the form of WAP, Video, Wallpaper and Mobile.
Cost of Revenues
Three Months Ended December 31, % of Nine Months Ended December 31, % of
2012 2011 Change 2012 2011 Change
(In thousands) (In thousands)
Cost of revenues:
License fees $ 190 $ 733 -74 % $ 957 $ 1,885 -49 %
Other direct cost of revenues 737 57 1193 % 1,018 172 492 %
Total cost of revenues $ 927 $ 790 17 % $ 1,975 $ 2,057 -4 %
Revenues $ 2,049 $ 1,957 5 % $ 4,252 $ 5,788 -27 %
Gross margin 54.7 % 59.6 % 53.5 % 64.5 %
License fees represent costs payable to content providers for use of their
intellectual property in products sold. Other direct cost of revenues has
increased due to the amortization of intangible assets from the Logia
acquisition, and because Logia revenues are service-based, rather than content
based, and contains costs to support and maintain services income.
Operating Expenses
Three Months Ended December 31, % of Nine Months Ended December 31, % of
2012 2011 Change 2012 2011 Change
(In thousands) (In thousands)
Product development expenses $ 577 $ 430 34 % $ 1,308 $ 1,578 -17 %
Sales and marketing expenses 329 204 61 % 647 660 -2 %
General and administrative expenses 3,795 6,648 -43 % 9,386 8,764 7 %
Product development expenses have historically included the costs to build, edit
and optimize content formats for consumption on a mobile phone. Expenses in this
area are primarily driven by personnel costs. Due to strategic changes in the
focus of our development business as well as the consolidation of the device
operating systems within the marketplace, headcount had been reduced over prior
periods. However we anticipate growth in production development expenses in
Digital Turbine and Logia due to projected revenue growth.
Sales and marketing expenses represent the costs of sales and marketing
personnel, and advertising and marketing campaigns. Selling costs, including our
headcount were reduced over the past year, but has increased as we prepare
Digital Turbine to enter the market and with the addition of the Logia business.
General and administrative expenses represent management, finance and support
personnel costs in both the parent and subsidiary companies, which include
professional and consulting costs, and other costs such as stock based
compensation, rent, and depreciation expense. The increase period-to-period is
mostly due to an increase in stock based compensation expense to management, as
well as hiring additional management and consulting personnel, and the addition
of the Logia business.
35
--------------------------------------------------------------------------------
Table of Contents
Other Income and Expenses
Three Months Ended December 31, % of Nine Months Ended December 31, % of
2012 2011 Change 2012 2011 Change
(In thousands) (In thousands)
Interest and other (expense) $ (536 ) $ (1,693 ) -68 % $ (1,490 ) $ (2,438 ) -39 %
Foreign exchange transaction gain /
(loss) $ (18 ) $ (71 ) -75 % $ (52 ) $ (54 ) -4 %
Change in fair value of warrant
derivative liabilities gain / (loss) $ - $ (49 ) -100 % $ (22 ) $ (76 ) -72 %
Gain / (loss) on settlement of debt $ (4 ) $
1,082 -100 % $ (4 ) $ 1,323 -100 %
Gain / (loss) on change in valuation
of contingent liability $ 43 $ - 100 % $ 43 $ - 100 %
Interest and other income/(expense) includes interest income on invested funds,
interest expense related to the Senior Secured Note and the Taja Note, changes
in the fair market value of derivatives, and foreign exchange transaction gains.
Financial Condition
Assets
Our current assets totaled $4.6 million and $10.1 million at December 31, 2012
and March 31, 2012, respectively. Total assets were $14.4 million and $14.8
million at December 31, 2012 and March 31, 2012, respectively. The decrease in
current assets is primarily due to cash paid for the acquisition of Logia,
offset by the increase in accounts receivable and prepaid expenses, an increase
in deposits due to the issuance of shares of the Company as a non-refundable
deposit for a potential acquisition, and goodwill and intangible assets based on
the valuation of Logia.
Liabilities and Working Capital
At December 31, 2012, our total liabilities were $11.3 million, compared to $9.1
million at March 31, 2012. The change in liabilities was mainly due to the
amortization of debt discount, the exercise of warrants that were derivative
liabilities, offset by an increase in accounts payable, mainly due to the
acquisition of Logia. The Company had negative working capital of $4.2 million
at December 31, 2012, as compared to positive working capital of $4.1 million at
March 31, 2012, which is a net change of $8.4 million. This is due mainly to the
movement of the Senior Secured Notes from long term debt to short term debt,
representing $2.8 million at December 31, 2012, as well as the purchase of
Logia, which has used $4.7 million for purchase price and capital infusion. The
Company expects a return on the Logia investment over the course of the next
fiscal year.
[ Back To asia.tmcnet.com's Homepage 's Homepage ]
|
Internet Telephony Magazine
Click here to read latest issue
CUSTOMER 
Cloud Computing Magazine
Click here to read latest issue
M2M Evolution Magazine
Call Center/CRM
Info Tech 
IP Communications 
Mobile 
Green 
Satellite 
Robotics 
