# Digital Turbine, Inc.: Form 10-Q for the period ended Jun 30, 2015

- Company: [Digital Turbine, Inc.](/companies/apps.md) (CIK 317788)
- Form: 10-Q
- Filed: 2015-08-10
- Accepted by EDGAR: Aug 10, 2015, 17:28 ET
- Period: 2015-06-30
- Accession: 0001628280-15-006417
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/317788/000162828015006417/apps10-qx06302015.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/317788/000162828015006417/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2015-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2015-04-01 to 2015-06-30 | $18.7m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2015-04-01 to 2015-06-30 | $16.4m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2015-04-01 to 2015-06-30 | $2.3m | us-gaap:GrossProfit |
| Research and development | 3 months, 2015-04-01 to 2015-06-30 | $2.8m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2015-04-01 to 2015-06-30 | −$7.2m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2015-04-01 to 2015-06-30 | −$8.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2015-04-01 to 2015-06-30 | −$0.14 | us-gaap:EarningsPerShareBasicAndDiluted |
| Operating cash flow | 3 months, 2015-04-01 to 2015-06-30 | −$359.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2015-06-30 | $6.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2015-06-30 | $19.7m | us-gaap:AssetsCurrent |
| Total assets | at 2015-06-30 | $120.3m | us-gaap:Assets |
| Current liabilities | at 2015-06-30 | $28.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2015-06-30 | $35.3m | us-gaap:Liabilities |
| Long-term debt | at 2015-06-30 | $7.2m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2015-06-30 | $3.5m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2015-06-30 | $85.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 21,990 characters.

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 report Quarterly Report on Form 10-Q (the “Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1993, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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 Report, 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, for the fiscal year ended March 31, 2015. 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 made in this Report. 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”, “Digital Turbine”, “DT”, or the “Company” refer to the collective business and operations of Digital Turbine, Inc. through its operating and wholly-owned subsidiaries, Digital Turbine USA, Inc. (“DT USA”), Digital Turbine (EMEA) Ltd. (“DT EMEA”), Digital Turbine Australia

Pty Ltd (“DT APAC”), Digital Turbine Singapore Pte Ltd (“DT Singapore”), Digital Turbine Luxembourg S.a.r.l. (“DT Luxembourg”), Digital Turbine Germany, GmbH (“DT Germany”), and Digital Turbine Media, Inc. (“DT Media”).

All numbers are in thousands, except share and per share amounts.

### Company Overview

Digital Turbine, through its subsidiaries, innovates at the convergence of media and mobile communications, delivering end-to-end products and solutions for mobile operators, application advertisers, device OEMs and other third parties to enable them to effectively monetize mobile content and generate higher value user acquisition. The Company operates its business in two reportable segments - Advertising and Content.

The Company's Advertising business is comprised of products including:

- DT Ignite™, a mobile device management solution with targeted application distribution capabilities,
- DT IQ™, a customized user experience and application discovery tool,
- DT Media, an advertiser solution for unique and exclusive carrier and OEM inventory, and
- Appia Core, a leading worldwide mobile user acquisition network.

The Company's Content business is comprised of products including:

- DT Marketplace™, an application and content store, and
- DT Pay™, a content management and mobile payment solution.

With global headquarters in Austin, Texas and offices in Durham, North Carolina, Berlin, Singapore, Sydney and Tel Aviv, Digital Turbine’s solutions are available worldwide.

### Advertising

DT Ignite is a mobile application management software that is pre-installed on devices to enable mobile operators and OEMs to control, manage and monetize the applications that are installed on mobile devices. DT Ignite allows mobile operators to customize the out-of-the-box experience for customers and monetize their home screens via Cost-Per-Install or CPI arrangements, Cost-Per-Placement or CPP arrangements, and Cost-Per-Action or CPA arrangements with third party application developers. Applications can be installed silently or with notification, on first boot or later in the lifecycle of the device, allowing mobile operators and OEMs to participate in an advertising revenue stream. The Company has launched DT Ignite with mobile operators and OEMs in North America, Europe, Asia Pacific, India and Israel.

DT IQ enables application and content discovery, both organic and sponsored, in a variety of user interfaces. The core of the product suite is the DT IQ engine which provides application recommendations to the device end user blended with sponsored ads. The DT IQ AppDeck product is centered purely around application discovery and is presented in a visual feed-based User Interface. The DT IQ App Drawer product organizes applications for device end users by category and provides contextual application recommendations. DT IQ Search is a User Experience and User Interface that enable device end users to search and discover content from various sources including social media, search engines, and applications. Monetization for DT IQ Search is through increased content sales while AppDeck and App Drawer monetize through the display of and recommendation of applications via the same commercial models as DT Ignite. DT IQ has been deployed with mobile operators across North America and Asia Pacific.

DT Media is an advertiser solution for unique and exclusive carrier and OEM on-device home screen inventory.

Appia Core is a leading worldwide mobile user acquisition network. Its mobile user acquisition platform is a demand side platform, or DSP. This platform allows mobile advertisers to engage with the right customers for their applications at the right time to gain them as customers. Appia Core accesses mobile ad inventory through publishers including direct developer relationships, mobile websites, mobile carriers and mediated relationships; as well as purchasing inventory through exchanges using real-time bidding. The advertising revenue generated by Appia Core’s platform is shared with publishers according to contractual rates in the case of direct or mediated relationships. When inventory is accessed using real-time bidding, Appia Core buys inventory at a rate determined by the marketplace. Since inception, Appia Core has delivered over 100 million application installs for hundreds of advertisers.

### Content

DT Marketplace is currently one of the Company’s primary revenue generating products. DT Marketplace can be sold as an application storefront that manages the retailing of mobile content including features such as merchandising, product placements, reporting, pricing, promotions, and distribution of digital goods. DT Marketplace also includes the distribution and licensing of content across multiple content categories including music, applications, wallpapers, eBooks, and games. DT Marketplace is deployed with many operators across multiple countries including Australia and Philippines.

DT Pay is currently one of the Company’s primary revenue generating products. DT Pay is an Application Programming Interface (API) that integrates billing infrastructure between mobile operators and content publishers to facilitate mobile commerce. Increasingly, mobile content publishers want to go directly to consumers to sell their content rather than sell through traditional distributors such as Google Play or the Apple Application Store. DT Pay allows publishers and carriers to monetize those applications by allowing the content to be billed directly to the consumer via carrier billing. DT Pay has been launched in Australia, Singapore, and the Philippines.

### RESULTS OF OPERATIONS

*(in thousands, except per share amounts)*

|  | 3 Months Ended June 30, 2015 | 3 Months Ended June 30, 2014 | % of Change |
| --- | ---: | ---: | ---: |
| Revenues | $18,686 | $5,554 | 236.4% |
| Cost of revenues | 14,221 | 3,796 | 274.6% |
| Other direct cost of revenues (amortization of intangibles) | 2,191 | 344 | 536.9% |
| Gross profit | 2,274 | 1,414 | 60.8% |
| SG&A | 9,425 | 6,094 | 54.7% |
| Operating loss | (7,151) | (4,680) | 52.8% |
| Interest income / (expense), net | (491) | 3 | (16,466.7)% |
| Foreign exchange transaction gain / (loss) | 1 | (6) | 116.7% |
| Gain / (loss) on disposal of fixed assets | (23) | 2 | (1,250.0)% |
| Loss on settlement of debt | — | (10) | (100.0)% |
| Other income | 17 | 9 | 88.9% |
| Loss before income taxes | (7,647) | (4,682) | 63.3% |
| Income tax provision / (benefit) | 472 | (72) | 755.6% |
| Net loss, net of taxes | $(8,119) | $(4,610) | 76.1% |
| Diluted net loss per common share: |  |  |  |
| Net loss | (0.14) | (0.12) | 16.7% |
| Weighted average common shares outstanding, basic and diluted | 57,388 | 37,424 | 53.3% |

### Comparison of the Three Months Ended June 30, 2015 and 2014.

### Revenues

*(In thousands)*

| Revenues by type: | Three Months Ended June 30, 2015 | 2014 | % of Change |
| --- | ---: | ---: | ---: |
| Content | $7,070 | $4,875 | 45.0% |
| Advertising | 11,616 | 679 | 1,610.8% |
| Total | $18,686 | $5,554 | 236.4% |

20

During the three months ended June 30, 2015, there was approximately $13,132 or 236.4% increase in revenue overall, as compared to the three months ended June 30, 2014. During the three month period ended June 30, 2015, we experienced growth in both the content and advertising businesses with the advertising growth stemming from both organic growth in DT Ignite and a full quarter of Appia Core revenue. The increase in the Content business was driven primarily from growth in DT Pay as the service was launched with additional customers in Australia, as well as new geographies such as Singapore. This growth was offset by a moderate decline in DT Marketplace as our contract in Israel was terminated during the period ended June 30, 2015. Organic growth in advertising was driven primarily by CPI and CPP revenue from new advertising partners' commercial deployments across DT Ignite and DT IQ with new carrier partners and amounts earned from carrier partners related to software customization and integration. Inorganic growth in advertising was driven by the inclusion of a full quarter of Appia Core.

### Gross Margins

*(In thousands)*

| Gross margin by type | Three Months Ended June 30, 2015 | 2014 | % of Change |
| --- | ---: | ---: | ---: |
| Content Gross Margin $ | $798 | $968 | (17.6)% |
| Content Gross Margin % | 11.3% | 19.9% |  |
| Advertising Gross Margin $ | $1,476 | $446 | 230.9% |
| Advertising Gross Margin % | 12.7% | 65.7% |  |
| Total Gross Margin $ | $2,274 | $1,414 | 60.8% |
| Total Gross Margin % | 12.2% | 25.5% |  |

Gross profit, inclusive of the impact of other direct cost of revenues (amortization of intangibles), was approximately $2,274 or 12.2% for the three months ended June 30, 2015, versus approximately $1,414 or 25.5% for the three months ended June 30, 2014. The quarter over quarter change in total gross margin was due primarily to the increase in intangible assets associated with the Appia transaction during Q4 2015 with increased amortization expense being incurred during the three months ended June 30, 2015 compared to the three months ended June 30, 2014, at $2,191 and $344, respectively.

The decrease in Content gross profit and gross margin was due primarily to a mix shift from DT Marketplace to DT Pay, which carries a lower gross margin.

Advertising gross profit increased due to the inclusion of a full quarter of Appia. Advertising gross margin decreased due to the increase in amortization expense associated with the Appia transaction as well as inclusion of Appia Core revenues which carry a lower gross margin that DT Media.

### Operating Expenses

*(In thousands)*

|  | Three Months Ended June 30, 2015 | 2014 | % of Change |
| --- | ---: | ---: | ---: |
| Product development expenses | $2,754 | $1,959 | 40.6% |
| Sales and marketing expenses | 1,282 | 761 | 68.5% |
| General and administrative expenses | 5,389 | 3,374 | 59.7% |
| Total Operating Expenses | $9,425 | $6,094 | 54.7% |

Product development expenses include campaign management, the development and maintenance of the DT product suite, including Appia Core, as well as the costs to support DT Pay and DT Marketplace through the optimization of content for consumption on a mobile phone. Expenses in this area are primarily a function of personnel.

Sales and marketing expenses represent the costs of sales and marketing personnel, and advertising and marketing campaigns. Sales and marketing expenses have increased with bringing products to market.

General and administrative expenses represent management, finance and support personnel costs in both the parent and subsidiary companies, which include professional and consulting costs, in addition to other costs such as rent, stock based compensation and depreciation expense.

Total operating expenses for the three months ended June 30, 2015 and 2014 were approximately $9,425 and $6,094, an increase of approximately $3,331 or 54.7%. The primary quarter over quarter increase in expenses related to the inclusion of a full quarter of Appia's operating expenses during the three months ended June 30, 2015. Additionally, the Company's investment in offices in Germany and Singapore contributed to the quarter over quarter increase in product development expenses through additional headcount being added in those regions. The quarter over quarter increase in general and administrative expenses was primarily due to the increase in stock-based compensation expense of $727, from $894 to $1,621 during the three months ended June 30, 2014 and 2015, respectively.

### Other Income and Expenses

*(In thousands)*

|  | Three Months Ended June 30, 2015 | 2014 | % of Change |
| --- | ---: | ---: | ---: |
| Interest and other (expense) | $(491) | $3 | (16,466.7)% |
| Foreign exchange transaction gain / (loss), net | 1 | (6) | 116.7% |
| Gain / (loss) on disposal of fixed assets | (23) | 2 | (1,250.0)% |
| Loss on settlement of debt | — | (10) | (100.0)% |
| Other income | 17 | 9 | 88.9% |
| Total Operating Expenses | $(496) | $(2) | (24,700.0)% |

Interest and other expense includes interest expense, gain / (loss) on disposal of fixed assets, loss on settlement of debt, and other ancillary costs incurred by the Company. These expenses were significantly higher in the three months ended June 30, 2015 primarily due to interest expense incurred on the credit facility in place during the period, whereas the Company did not have a credit facility in place during the three months ended June 30, 2014.

### Liquidity and Capital Resources

### Selected Financial Information

*(In thousands)*

|  | Period Ended June 30, 2015 | March 31, 2015 |
| --- | ---: | ---: |
| Cash and cash equivalents | $6,180 | $7,069 |
| Restricted cash | 200 | 200 |
| **Current Portion of Long Term Debt** |  |  |
| Term loan, principal | $450 | $600 |
| Revolving line of credit, principal | 3,000 | 3,000 |
| Total Current Portion of Long Term Debt | 3,450 | 3,600 |
| **Long Term Debt** |  |  |
| Subordinated secured debenture, net of debt discount of $793 and $910, respectively | $7,207 | $7,090 |
| Total Debt | 10,657 | 10,690 |
| **Working capital:** |  |  |
| Current assets | 19,723 | 20,192 |
| Current liabilities | 28,057 | 23,952 |
| Working capital | $(8,334) | $(3,760) |

### Working Capital

Cash and cash equivalents and restricted cash totaled approximately $6,380 and approximately $7,269 at June 30, 2015 and March 31, 2015, respectively. Current assets totaled approximately $19,723 and approximately $20,192 at June 30, 2015 and 2014, respectively. As of June 30, 2015 and March 31, 2015, we had approximately $12,659 and $12,174, respectively, in accounts receivable. Our working capital deficit as of June 30, 2015 and March 31, 2015 was $8,334 and $3,760, with the increase in working capital deficit being primarily due working capital management with a focus on accounts receivable collections and utilizing the full payment terms on our accounts payable.

Our primary sources of liquidity have historically been issuance of common and preferred stock and convertible debt. The Company did not raise any financing through equity issuance in fiscal year 2015. The Company filed a shelf registration covering $100,000 of primary securities, which would enable the Company to raise additional capital. The registration statement was declared effective by the SEC on April 24, 2015, and provides the Company flexibility to consider and pursue capital raising alternatives. The Company believes that it will have sufficient resources to continue operations through June 30, 2016; however, additional capital would likely be needed to pursue new opportunities of inorganic growth not currently in our main business plans. As of June 30, 2015, we had cash and cash equivalents and restricted cash totaling approximately $6,380. Additionally, the Company currently has a $5,000 revolving credit facility in place with Silicon Valley Bank, which it uses to fund working capital requirements, as needed. As of June 30, 2015, the Company also had $450 outstanding on its term loan and $3,000 outstanding on its revolving credit facility with Silicon Valley Bank, both of which are included in current liabilities.

On June 11, 2015, our wholly owned subsidiary Digital Turbine Media, Inc., a Delaware corporation and Silicon Valley Bank, a California corporation entered into a Third Amended and Restated Loan and Security Agreement, pursuant to which Bank agreed to amend and restate the existing Second Amended and Restated Loan and Security Agreement to increase the revolving line of credit available under such facility from $3,500 to $5,000, to extend the maturity date under the facility to June 30, 2016, and to make certain other changes to the terms of the existing agreement.

### Cash Flow Summary

*(In thousands)*

| Consolidated Statement of Cash Flows Data: | Three Months Ended June 30, 2015 | 2014 | % of Change |
| --- | ---: | ---: | ---: |
| Capital expenditures | $318 | $32 | 893.8% |
| Cash flows used in operating activities | 359 | 3,135 | (88.5)% |
| Exercise of options | (10) | — | (100.0)% |
| Settlement of contingent liability | — | (10) | 100.0% |
| Repayment of debt obligations | 150 | — | 100.0% |
| Loss on exchange rate changes on cash and cash equivalents | $72 | $(39) | 284.6% |

### Operating Activities

For the three months ended June 30, 2015, cash used in operating activities was $359. The difference between net loss of $8,119 and net cash used in operating activities is comprised primarily of an increase in accounts receivable and deposits of approximately $359, an increase in accounts payable and other liabilities of approximately $3,129, and an increase in accrued license fees and revenue share, accrued compensation, and accrued interest of approximately $963, $76, and 87, respectively, and a decrease in prepaid expenses and other current assets of $70. These changes are related to the loss for the period, but excludes: depreciation and amortization and amortization of debt discount of approximately $2,241 and $117, respectively, stock-based compensation and stock-based compensation related to vesting of restricted stock for services of approximately $1,394 and $227, respectively, and the effect of a reduction in the allowance for doubtful accounts and an adjustment to increase goodwill for purchase price of Appia of $131 and $54, respectively.

For the three months ended June 30, 2014, cash used in operating activities was $3,135. The difference between net loss of $4,610 and net cash used in operating activities is comprised primarily of an increase in accounts receivable, deposits, and prepaid expenses of approximately $63, and an increase in accounts payable and accrued compensation of approximately $561 and $201, respectively, offset by a decrease in deferred tax assets of $3,156, and further offset by a decrease in accrued license fees and revenue share and other liabilities of approximately $757 and $2,886, respectively. These changes are related to the loss for the period, but exclude depreciation and amortization of approximately $369, as well as stock-based compensation and stock-based compensation related to vesting of restricted stock for services of approximately $818 and $76, respectively.

### Investing Activities

For the three months ended June 30, 2015, cash used in investing activities was approximately $318, which comprises capital expenditures made on internally developed software.

For the three months ended June 30, 2014, cash used in investing activities was approximately $22, which is due to capital expenditures made related to office equipment and furniture of $32 and a cash inflow of $10 related to the settlement of a contingent liability.

### Financing Activities

For the three months ended June 30, 2015, cash used in financing activities was approximately $140, which is primarily due to repayment of principal on the credit facility of approximately $150, offset by a negligible amount of proceeds received related to the exercise of options of approximately $10.

For the three months ended June 30, 2014, the Company had no cash flows from financing activities.

### Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not have any undisclosed borrowings or debt, and we have not entered into any synthetic leases. We believe, therefore, that we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

## Market risk

As filed, 1,071 characters.

We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business, primarily interest rate and foreign currency exchange risks.

### Foreign Currency Exchange Risk

We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. dollar, primarily the Australian dollar. While a portion of our sales are denominated in foreign currencies and then translated into the U.S. dollar, the vast majority of our media costs are billed in the U.S. dollar, causing both our revenue and, disproportionately, our operating loss and net loss to be impacted by fluctuations in the exchange rates. In addition, gains (losses) related to translating certain cash balances, trade accounts receivable balances and intercompany balances that are denominated in these currencies impact our net income (loss). As our foreign operations expand, our results may be more impacted by fluctuations in the exchange rates of the currencies in which we do business.

## Controls and procedures

As filed, 5,788 characters.

This Report includes the certifications of our Chief Executive Officer and Chief Financial Officer required by Rule 13a-14 of the Securities Exchange Act of 1934 (the “Exchange Act”). See Exhibits 31.1 and 31.2. This Item 4 includes information concerning the controls and control evaluations referred to in those certifications.

### Background

As previously disclosed under “Part II - Item 9A - Controls and Procedures” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2015, management concluded that our internal control over financial reporting was not effective as of March 31, 2015 because of certain deficiencies that constituted material weaknesses in our internal control over financial reporting. Material weaknesses could result in material misstatements of substantially all of our financial statement accounts that would result in a material misstatement of our annual or interim consolidated financial statements that would not be prevented or detected on a timely basis.

Our management has been actively engaged in the implementation of remediation efforts to address the material weaknesses, as well as other identified areas of risk. For a complete description of management’s remediation plan, see “Part II - Item 9A - Controls and Procedures” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2015.

### Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosures.

In connection with the preparation of this Report, Digital Turbine’s management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation and the identification of certain material weaknesses in internal control over financial reporting, which we view as an integral part of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of June 30, 2015. Nevertheless, based on a number of factors, including the performance of additional procedures by management designed to ensure the reliability of our financial reporting, we believe that the consolidated financial statements in this Report fairly present, in all material respects, our financial position, results of operations, and cash flows as of the dates, and for the periods, presented, in conformity with GAAP.

### Management’s Plan for Remediation

Beginning in the third quarter of Fiscal 2015 and continuing through the date of this Report, we began the implementation of measures designed to remediate the identified material weaknesses, including the following:

1\. Hired a Chief Accounting Officer (CAO) on February 27, 2015.

2\. Implemented a limited version of SAP, the Company’s accounting ERP system with further enhancements as referred to in 9 below.

3\. Implemented a management representation letter in which key members of management and accounting/finance staff attest to certain questions related to the financial statements.

4\. Implemented a company-wide signature authority matrix which outlines requirements and signing authority for executing contracts.

5\. Expect to have one additional staff accountant on board in Asia Pacific prior to September 30, 2015.

6\. Consolidated all accounting related decisions under the direction of the CAO.

7\. Continue working with a third party to document and remediate weaknesses, and to structure the Company’s accounting/finance department to meet SOX 404 (b) requirements.

8\. Continue to utilize third party accounting experts to augment Company accounting staff as necessary.

9\. Finalize the system implementation related to SAP including a more automated consolidation system and additional functionality to reduce current manual processes.

10\. Implement a billing, disbursement and stock option accounting system and integrate with SAP.

11\. Document key accounting policies and internal control procedures for significant accounting areas with an emphasis on implementing additional documented review and approval procedures and automated controls within the Company’s accounting system.

12\. Evaluate accounting and finance headcount resources globally to ensure that resources are sufficient to meeting the accounting and finance requirements of the Company.

13\. Develop formal training related to key accounting policies, internal controls, and SEC compliance and deliver training to all key personnel which have a direct and indirect impact on the transactions underlying the financial statements.

14\. Implement Information Technology documentation and new controls that have an impact on financial reporting.

The remediation plan, once finally implemented and operational, is expected to result in the remediation of the identified material weaknesses in internal control over financial reporting.

### Changes in Internal Controls Over Financial Reporting

There was no change in our internal control over financial reporting during the first quarter of Fiscal 2016 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Filed Aug 10, 2015.
Source: SEC EDGAR, the filing index for accession 0001628280-15-006417. Last ingested by Listed: Nov 5, 2026, 12:38 ET. No prices; not investment advice.