# Digital Turbine, Inc.: Form 10-Q for the period ended Jun 30, 2018

- Company: [Digital Turbine, Inc.](/companies/apps.md) (CIK 317788)
- Form: 10-Q
- Filed: 2018-08-09
- Accepted by EDGAR: Aug 9, 2018, 16:35 ET
- Period: 2018-06-30
- Accession: 0001628280-18-010954
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/317788/000162828018010954/q1fy201910-qdocument.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/317788/000162828018010954/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2018-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Cost of revenue | 3 months, 2018-04-01 to 2018-06-30 | $15.7m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2018-04-01 to 2018-06-30 | $6.4m | us-gaap:GrossProfit |
| Research and development | 3 months, 2018-04-01 to 2018-06-30 | $3.1m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2018-04-01 to 2018-06-30 | −$1.3m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2018-04-01 to 2018-06-30 | −$36.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2018-04-01 to 2018-06-30 | $484.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2018-04-01 to 2018-06-30 | $0.01 | us-gaap:EarningsPerShareBasicAndDiluted |
| Diluted shares (weighted) | 3 months, 2018-04-01 to 2018-06-30 | 79,598,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2018-04-01 to 2018-06-30 | −$3.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2018-06-30 | $8.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2018-06-30 | $33.7m | us-gaap:AssetsCurrent |
| Total assets | at 2018-06-30 | $80.2m | us-gaap:Assets |
| Current liabilities | at 2018-06-30 | $41.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2018-06-30 | $51.4m | us-gaap:Liabilities |
| Long-term debt | at 2018-06-30 | $4.0m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2018-06-30 | $28.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 30,548 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 Quarterly Report on Form 10-Q (the “Report”). The following discussion 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. Forward-looking statements 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, 2018, as well as those described elsewhere in this Report and in our other public filings. The risks included are not exhaustive, and additional factors could adversely affect our business and financial performance. We operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. 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. This Report and all subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

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

### Company Overview

Digital Turbine, through its subsidiaries, operates 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 one reporting segment – Advertising.

The Company's Advertising business consists of Operator and OEM ("O&O"), an advertiser solution for unique and exclusive carrier and OEM inventory, which is comprised of services including:

- Ignite™ ("Ignite"), a mobile device management platform with targeted application distribution capabilities, and
- Other products and professional services directly related to the Ignite platform.

Prior to the sale of the A&P Assets described below under Note 4. Discontinued Operations, the O&O reporting segment also included the A&P Assets as an operating segment within O&O.

### Advertising

#### O&O Business

The Company's O&O business is an advertiser solution for unique and exclusive carrier and OEM inventory, which is comprised of Ignite and other professional services directly related to the Ignite platform.

Ignite is a mobile application management software that enables mobile operators and OEMs to control, manage, and monetize applications installed at the time of activation and over the life of a mobile device. Ignite allows mobile operators to personalize the app activation experience for customers and monetize their home screens via Cost-Per-Install or CPI arrangements, Cost-Per-Placement or CPP arrangements, and/or Cost-Per-Action or CPA arrangements with third-party advertisers. There are several different delivery methods available to operators and OEMs on first boot of the device: Wizard, Silent, or Software Development Kit ("SDK"). Optional notification features are available throughout the life cycle of the device, providing operators additional opportunity for advertising revenue streams. The Company has launched Ignite with mobile operators and OEMs in North America, Latin America, Europe, Asia-Pacific, India, and Israel.

### Disposition of the Content Reporting Segment and A&P Business

On April 29, 2018, the Company entered into two distinct disposition agreements with respect to selected assets owned by our subsidiaries.

DT APAC and DT Singapore (together, “Pay Seller”), each wholly-owned subsidiaries of the Company, entered into an Asset Purchase Pay Agreement (the “Pay Agreement”), dated as of April 23, 2018, with Chargewave Ptd Ltd (“Pay Purchaser”) to sell certain assets (the “Pay Assets”) owned by the Pay Seller related to the Company’s Direct Carrier Billing business. The Pay Purchaser is principally owned and controlled by Jon Mooney, an officer of the Pay Seller. At the closing of the asset sale, Mr. Mooney was no longer employed by the Company or Pay Seller. As consideration for this asset sale, Digital Turbine is entitled to receive certain license fees, profit-sharing, and equity participation rights as outlined in the Company’s Form 8-K filed May 1, 2018 with the Securities and Exchange Commission. The transaction was completed subsequent to period end on July 1, 2018 with an effective date of July 1, 2018. With the sale of these assets, the Company has determined that is will exit the reporting segment of the business previously referred to as the Content business.

DT Media (the “A&P Seller”), a wholly-owned subsidiary of the Company, entered into an Asset Purchase Agreement (the “A&P Agreement”), dated as of April 28, 2018, with Creative Clicks B.V. (the “A&P Purchaser”) to sell business relationships with various advertisers and publishers (the “A&P Assets”) related to the Company’s Advertising and Publishing business. As consideration for this asset sale, we are entitled to receive a percentage of the gross profit derived from these customer agreements for a period of three years as outlined in the Company’s Form 8-K filed May 1, 2018 with the Securities and Exchange Commission. The transaction was completed on June 28, 2018 with an effective date of June 1, 2018. With the sale of these assets, the Company has determined that is will exit the operating segment of the business previously referred to as the A&P business, which was previously part of the Advertising segment, the Company's sole continuing reporting segment.

These dispositions will allow the Company to benefit from a streamlined business model, simplified operating structure, and enhanced management focus. Additionally, the Company expects to be able to generate additional cash via the announced transactions that can be re-invested into key O&O growth initiatives.

### Discontinued Operations

As a result of the dispositions, the results of operations from our Content reporting segment and A&P business within the Advertising reporting segment are reported as “Net loss from discontinued operations, net of taxes” and the related assets and liabilities are classified as “held for disposal" in the consolidated financial statements in Item 8 of this report. The Company has recast prior period amounts presented within this report to provide visibility and comparability. All discussion herein, unless otherwise noted, refers to our remaining operating segment after the dispositions, the O&O business.

All discussions in this Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations relate to continuing operations.

### RESULTS OF OPERATIONS

### (unaudited)

*(in thousands, except per share amounts)*

|  | Three Months Ended June 30, 2018 | 2017 | % of Change |
| --- | ---: | ---: | ---: |
| Net revenues | $22,112 | $15,153 | 45.9% |
| License fees and revenue share | 15,216 | 9,592 | 58.6% |
| Other direct cost of revenues | 507 | 409 | 24.0% |
| Gross profit | 6,389 | 5,152 | 24.0% |
| Total operating expenses | 7,649 | 6,669 | 14.7% |
| Loss from operations | (1,260) | (1,517) | (16.9)% |
| Interest income / (expense) | (319) | (707) | (54.9)% |
| Foreign exchange transaction gain / (loss) | 8 | (63) | (112.7)% |
| Change in fair value of convertible note embedded derivative liability | 1,620 | (1,308) | (223.9)% |
| Change in fair value of warrant liability | 1,570 | (464) | (438.4)% |
| Other income / (expense) | (127) | 3 | (4,333.3)% |
| Income / (loss) from continuing operations before income taxes | 1,492 | (4,056) | (136.8)% |
| Income tax provision / (benefit) | (36) | 31 | (216.1)% |
| Net income / (loss) from continuing operations, net of taxes | 1,528 | (4,087) | (137.4)% |
| Net income / (loss) | $484 | $(4,175) | (111.6)% |
| Basic and diluted net income / (loss) per common share | $0.02 | $(0.06) | (133.3)% |
| Weighted-average common shares outstanding, basic | 76,204 | 66,599 | 14.4% |
| Weighted-average common shares outstanding, diluted | 79,598 | 66,599 | 19.5% |

### Comparison of the three months ended June 30, 2018 and 2017

### Net Revenues

During the three months ended June 30, 2018, there was an approximately $6,959 or 45.9% increase in overall revenue as compared to the three months ended June 30, 2017.

The Company's O&O business is an advertiser solution for unique and exclusive carrier and OEM inventory. During the three months ended June 30, 2018, the main revenue driver for the O&O business was the Ignite platform. Ignite is a mobile application management software that enables mobile operators and OEMs to control, manage, and monetize applications installed at the time of activation and over the life of a mobile device. This increase in Ignite net revenue was attributable to increased demand for the Ignite service, driven primarily by increased CPI and CPP revenue from advertising partners across existing commercial deployments of Ignite with carrier partners as well as expanded distribution with new carrier partners and the deployment of new Ignite services and products.

During the three months ended June 30, 2018, Oath Inc. represented 29.0% of net revenues. During the three months ended June 30, 2017, Oath Inc. represented 20.8% of net revenues, Machine Zone Inc. represented 17.5% of net revenues, and Cheetah Mobile Inc. represented 10.8% of net revenues, respectively.

The Company partners with mobile carriers and OEMS to deliver applications on our Ignite platform through the carrier network. During the three months ended June 30, 2018, Verizon Wireless, a carrier partner, generated 50.7%, while AT&T Inc., a carrier partner, including its Cricket subsidiary, generated 37.9% of our net revenue. During the three months ended June 30, 2017, Verizon Wireless, generated 55.9%, while AT&T Inc., a carrier partner, primarily through its Cricket subsidiary, generated 24.2% of our net revenue, respectively.

A reduction or delay in operating activity from these customers or partners, or a delay or default in payment by these customers, could materially harm the Company’s business and prospects. The Company expects to maintain these relationships and does not expect to experience material reductions or delays in operating activity with these customers or partners.

### Gross Margin

*(in thousands)*

|  | Three Months Ended June 30, 2018 | 2017 | % of Change |
| --- | ---: | ---: | ---: |
| Gross margin $ | $6,389 | $5,152 | 24.0% |
| Gross margin % | 28.9% | 34.0% | (15.0)% |

Total gross margin, inclusive of the impact of other direct costs of revenues (including amortization of intangibles), was approximately $6,389 or 28.9% for the three months ended June 30, 2018 versus approximately $5,152 or 34.0% for the three months ended June 30, 2017. The increase in gross margin dollars of $1,237 or 24.0% is primarily attributable to an increase in Carrier and Advertiser demand in the O&O business. Decrease in gross margin percentage of 15.0% is primarily attributable to higher percentage partner revenue share as certain revenue partners continue to reach volume thresholds.

### Operating Expenses

*(in thousands)*

|  | Three Months Ended June 30, 2018 | 2017 | % of Change |
| --- | ---: | ---: | ---: |
| Product development | $3,109 | $2,174 | 43.0% |
| Sales and marketing | 1,836 | 1,137 | 61.5% |
| General and administrative | 2,704 | 3,358 | (19.5)% |
| Total operating expenses | $7,649 | $6,669 | 14.7% |

Total operating expenses for the three months ended June 30, 2018 and 2017 were approximately $7,649 and $6,669, respectively, an increase of approximately $980 or 14.7% over the comparative period.

Product development expenses include the development and maintenance of the Company's product suite. Expenses in this area are primarily a function of personnel. Product development expenses for the three months ended June 30, 2018 and 2017 were approximately $3,109 and $2,174, respectively, an increase of approximately $935 or 43.0% over the comparative period. The increase in costs over the comparative three-month period was primarily a function of recently hired incremental personnel and hosting expenses associated with development activity.

Sales and marketing expenses represent the costs of sales and marketing personnel, advertising and marketing campaigns, and campaign management. Sales and marketing expenses for the three months ended June 30, 2018 and 2017 were approximately $1,836 and $1,137, respectively, an increase of approximately $699 or 61.5% over the comparative period. The increase in sales and marketing expenses over the comparative three-month period was primarily attributable to increased travel expenses related to the Company's continued expansion of its global footprint and increased commissions associated with the sales team generating more revenue through new and existing advertising relationships.

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. General and administrative expenses for the three months ended June 30, 2018 and 2017 were approximately $2,704 and $3,358, respectively, a decrease of approximately $654 or 19.5% over the comparative period. The decrease over the comparative three-month period is primarily attributable to lower legal, accounting, and professional consulting costs.

### Interest and Other Income / (Expense)

*(in thousands)*

|  | Three Months Ended June 30, 2018 | 2017 | % of Change |
| --- | ---: | ---: | ---: |
| Interest income / (expense) | $(319) | $(707) | (54.9)% |
| Foreign exchange transaction gain / (loss) | 8 | (63) | (112.7)% |
| Change in fair value of convertible note embedded derivative liability | 1,620 | (1,308) | (223.9)% |
| Change in fair value of warrant liability | 1,570 | (464) | (438.4)% |
| Other income / (expense) | (127) | 3 | (4,333.3)% |
| Total interest and other income / (expense), net | $2,752 | $(2,539) | (208.4)% |

Total interest and other income / (expense), net, for the three months ended June 30, 2018 and 2017 were approximately $2,752 and $(2,539), respectively, an increase in other income of approximately $5,291 or 208.4% over the comparative period. The increase in other income over the comparative three-month period is primarily attributable to the change in fair value of convertible note embedded derivative liability and the change in fair value of warrant liability. Interest and other income / (expense), net, includes net interest expense, foreign exchange transaction gain / (loss), change in fair value of convertible note embedded derivative liability, change in fair value of warrant liability, and other ancillary income / (expense) earned or incurred by the Company.

### Interest Expense, Net

Interest expense is generated from the $16,000 aggregate principal amount of 8.75% Convertible Notes due 2020 (the “Notes”), issued on September 28, 2016, and from our business finance agreement (the “Credit Agreement”) with Western Alliance Bank (the “Bank”). The Credit Agreement provides for a $5,000 total facility. Interest income consists of interest income earned on our cash. Interest expense, net, is primarily attributable to 1) fees related to the obtainment of debt (recorded as debt issuance costs and expensed as a component of interest expense over the life of the debt); 2) interest expense incurred on the Notes at a stated interest rate of 8.75%, and interest expense incurred on the Credit Agreement at approximately 6.25% (Wall Street Journal Prime Rate + 1.25%); and 3) amortization of debt discount related to the Notes, which are expensed as a component of interest expense over the life of the debt. Inclusive of the Notes issued on September 28, 2016 and the Credit Agreement entered into on May 23, 2017, the Company recorded $319 and $707 of interest expense during the three months ended June 30, 2018 and 2017, respectively, inclusive of debt discount and debt issuance cost amortization. The decrease in interest expense is primarily due to lower principle debt outstanding as a function of the conversion of some of our Notes between the comparative periods.

### Gain From Change in Fair Value of Convertible Note Embedded Derivative Liability

The Company accounts for the convertible note embedded derivative liability in accordance with US GAAP accounting guidance under ASC 815 applicable to derivative instruments, which requires every derivative instrument within its scope to be recorded on the balance sheet as either an asset or liability measured at its fair value, with changes in fair value recognized in earnings.

Due to the valuation of the derivative liability being highly sensitive to the trading price of the Company's stock, the increase and decrease in the trading price of the Company's stock has the impact of increasing the loss and gain, respectively. During the three months ended June 30, 2018, the Company recorded a gain from change in fair value of convertible note embedded derivative liability of $1,620 due to the decrease in the Company's closing stock price during the current quarter from $2.01 at March 31, 2018 to $1.51 at June 30, 2018. During the three months ended June 30, 2017, the Company recorded a loss from change in fair value of convertible note embedded derivative liability of $1,308 due to the increase in the Company's closing stock price from March 31, 2017 to June 30, 2017 of $0.94 to $1.03.

### Gain From Change in Fair Value of Warrant Liability

The Company accounts for the warrants issued in connection with the above-noted sale of Notes to the Initial Purchaser in accordance with US GAAP accounting guidance under ASC 815 applicable to derivative instruments, which requires every derivative instrument within its scope to be recorded on the balance sheet as either an asset or liability measured at its fair value, with changes in fair value recognized in earnings. Based on this guidance, the Company determined that these warrants did not meet the criteria for classification as equity. Accordingly, the Company classified the warrants as long-term liabilities. The warrants are subject to re-measurement at each balance sheet date, with any change in fair value recognized as a component of other income (expense), net, in the statements of operations.

Due to the valuation of the derivative liability being highly sensitive to the trading price of the Company's stock, the increase and decrease in the trading price of the Company's stock has the impact of increasing the loss and gain, respectively. During the three months ended June 30, 2018, the Company recorded a gain from change in fair value of warrant liability of $1,570 due to the decrease in the Company's closing stock price during the current quarter from $2.01 at March 31, 2018 to $1.51 at June 30, 2018. During the three months ended June 30, 2017, the Company recorded a loss from change in fair value of warrant liability of $464 due to the increase in the Company's closing stock price from March 31, 2017 to June 30, 2017 of $0.94 to $1.03.

### Liquidity and Capital Resources

### Selected Liquidity Information

*(unaudited)*

*(in thousands)*

|  | June 30, 2018 | March 31, 2018 |
| --- | ---: | ---: |
| Cash | $8,638 | $12,720 |
| Restricted cash | 331 | 331 |
| **Short-term debt** |  |  |
| Short-term debt, net of debt issuance costs of $163 and $205, respectively | 1,437 | 1,445 |
| Total short-term debt | $1,437 | $1,445 |
| **Long-term debt** |  |  |
| Convertible notes, net of debt issuance costs and discounts of $1,709 and $1,827, respectively | 3,991 | 3,873 |
| Total long-term debt | $3,991 | $3,873 |
| **Total debt** | $5,428 | $5,318 |
| **Working capital (1)** |  |  |
| Current assets | $29,268 | $31,002 |
| Current liabilities | 33,883 | 33,680 |
| Working capital (1) | $(4,615) | $(2,678) |

(1) Working capital number excludes assets and liabilities held for disposal on the balance sheet

### Working Capital

Cash and restricted cash totaled approximately $8,969 and $13,051 at June 30, 2018 and March 31, 2018, respectively, a decrease of approximately $4,082 or 31.3%. Current assets including assets held for disposal totaled $33,661 and $39,755 at June 30, 2018 and March 31, 2018, respectively, a decrease of approximately $6,094 or 15.3%. As of June 30, 2018 and March 31, 2018, the Company had approximately $19,346 and $17,050, respectively, in net accounts receivable, an increase of $2,296 or 13.5%. As of June 30, 2018 and March 31, 2018, the Company's working capital deficit was $4,615 and $2,678, respectively, an increase in working capital deficit of $1,937 or 72.3%. The decrease in working capital was primarily attributable to an increase in accrued license fees and revenue share of $3,259 and a decrease in cash of $4,082, offset by an increase in net accounts receivable of $2,296.

Our primary sources of liquidity have historically been issuances of common and preferred stock and debt. As of June 30, 2018, we had cash totaling approximately $8,638.

On September 28, 2016, the Company sold to an investment bank, as initial purchaser, $16,000 principal amount of Notes for net cash proceeds of $14,316, after deducting the initial purchaser's discounts and commissions and the estimated offering expenses payable by the Company. The net proceeds from the issuance of the Notes were used to repay $11,000 of secured indebtedness, consisting of approximately $3,000 to SVB and $8,000 to NAC, retiring both such debts in their entirety, and will otherwise be used for general corporate purposes and working capital (please refer to Note 8 - Debt for more details).

On May 23, 2017, the Company entered into a Business Finance Agreement (the "Credit Agreement") with Western Alliance Bank (the "Bank"). The Credit Agreement provides for a $5,000 total facility. The amounts advanced under the Credit Agreement mature in two years and accrue interest at prime-plus-1.25%, subject to a 4.00% floor, with the prime rate defined as that published in the Wall Street Journal. The Credit Facility also carries an annual facility fee of $45.5, and an early termination fee of 0.5% if terminated during the first year. The obligations under the Credit Agreement are secured by a perfected first position security interest in all assets of the Company and its subsidiaries, subject to partial pledges of stock of non-US subsidiaries. In addition to customary covenants, including restrictions on payments and restrictions on indebtedness, the Credit Agreement requires the Company to comply with certain financial covenants as described in Note 8 - Debt.

The Company believes that it has sufficient cash and capital resources to operate its business for at least twelve months from the issuance date of this quarterly report on Form 10-Q.

### Cash Flow Summary

*(in thousands)*

| Consolidated statement of cash flows data: | Three Months Ended June 30, 2018 | 2017 | % of Change |
| --- | ---: | ---: | ---: |
| Net cash used in operating activities - continuing operations | $(2,395) | $(1,608) | 48.9% |
| Capital expenditures | (411) | (365) | 12.6% |
| Proceeds from short-term borrowings | — | 2,250 | (100.0)% |
| Payment of debt issuance costs | — | (320) | (100.0)% |
| Options exercised | 39 | 9 | 333.3% |
| Repayment of debt obligations | (50) | — | (100.0)% |
| Effect of exchange rate changes on cash | — | (8) | (100.0)% |

42

### Operating Activities

During the three months ended June 30, 2018 and 2017, the Company's net cash used in operating activities from continuing operations was $2,395 and $1,608, respectively, a negative change of $787 or 48.9%. The increase in net cash used in operating activities was primarily attributable to the change in working capital accounts over the comparative periods.

During the three months ended June 30, 2018, net cash used in operating activities from continuing operations was $2,395, resulting from a net income of $1,528 offset by net non-cash expenses of $1,474, which included depreciation and amortization expense, change in the allowance for doubtful accounts, amortization of debt discount and debt issuance costs, stock option expense, stock-based compensation related to vesting of restricted stock for services, change in fair value of convertible note embedded derivative liability, and change in fair value of warrant liability of approximately $729, $278, $161, $463, $85, $(1,620), and $(1,570), respectively. Net cash used in operating activities during the three months ended June 30, 2018 was also impacted by the change in net working capital accounts as of June 30, 2018 compared to March 31, 2018, with a net increase in liabilities of approximately $213 (inclusive of accounts payable, accrued interest, accrued license fees and revenue share, accrued compensation, and other liabilities) offset by a net increase in current assets of approximately $2,662 (inclusive of accounts receivable and prepaid expenses and other current assets) over the comparative periods. The net increase in working capital liabilities of $219 was driven primarily by the decrease in accounts payable and accrued compensation, offset by increases in accrued interest, accrued license fees and revenue share mostly due to the timing of payments to our carrier partners, and other current liabilities. The net increase in working capital assets was driven primarily by the increase in accounts receivable of $2,574, mostly due to the timing of payments from our advertising and content customers.

### Investing Activities

For the three months ended June 30, 2018 and 2017, net cash used in investing activities from continuing operations was approximately $411 and $365, respectively, which is comprised of capital expenditures related mostly to internally developed software.

### Financing Activities

For the three months ended June 30, 2018, net cash used in financing activities was approximately $11, inclusive of $39 in proceeds from the exercise of stock options offset by cash paid for the settlement of debt of $50. For the three months ended June 30, 2017, net cash provided by financing activities was approximately $1,939, primarily due to proceeds from short-term borrowings of $2,250 and proceeds from the exercise of stock options of $9, offset by the payment of $320 in debt issuance costs.

As of June 30, 2018, our total contractual cash obligations were as follows:

*(in thousands)*

| Contractual cash obligations | Total | Payments Due by Period Within the Next 12 Months | 1 to 3 Years | 3 to 5 Years | More Than 5 Years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Convertible notes (a) | $5,700 | $— | $5,700 | $— | $— |
| Operating leases (b) | 5,811 | 1,217 | 2,014 | 1,776 | 804 |
| Employment agreements and other obligations (c) | 1,500 | 625 | 875 | — | — |
| Interest and bank fees | 1,403 | 590 | 813 | — | — |
| Uncertain tax positions (d) | — | — | — | — | — |
| Total contractual cash obligations | $14,414 | $2,432 | $9,402 | $1,776 | $804 |

(a) Convertible notes maturing on September 23, 2020 (the “Notes”), unless converted, repurchased, or redeemed in accordance with their terms prior to such date.

(b) Consists of operating leases for our office facilities.

(c) Consists of various employment agreements and severance agreements.

(d) We have approximately $917 in additional liabilities associated with uncertain tax positions that are not expected to be liquidated within the next twelve months. We are unable to reliably estimate the expected payment dates for these additional non-current liabilities.

### 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.

### Critical Accounting Policies and Judgments

Management’s discussion and analysis of our financial condition and results of operations is based on our unaudited financial statements. The preparation of these financial statements is based on the selection of accounting policies and the application of significant accounting estimates, some of which require management to make judgments, estimates, and assumptions that affect the amounts reported in the financial statements and notes. For more information regarding our critical accounting estimates and policies, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” of our Annual Report on Form 10-K for the year ended March 31, 2018.

## Market risk

As filed, 1,348 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.

### Interest Rate Fluctuation Risk

The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. Our cash and cash equivalents consist of cash and deposits which are not insensitive to interest rate changes.

### 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 U.S. dollars, the vast majority of our media costs are billed in U.S. dollars, causing both our revenue and, disproportionately, our operating loss and net loss to be impacted by fluctuations in exchange rates. In addition, gains/(losses) related to translating certain cash balances, trade accounts receivable balances, and inter-company 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, 3,199 characters.

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

### Evaluation of Disclosure Controls and Procedures

Under the supervision of and with the participation of our management, including our chief executive officer, who is our principal executive officer, and our chief financial officer, who is our principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. The term “disclosure controls and procedures,” as set forth in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this report, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective. As a result, the disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reporting within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding disclosure.

### Changes in Internal Controls Over Financial Reporting

There were no changes in our internal controls over financial reporting or in other factors identified in connection with the evaluation required by Exchange Act Rules 13a-15(d) or 15d-15(d) that occurred during the fiscal period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Filed Aug 9, 2018.
Source: SEC EDGAR, the filing index for accession 0001628280-18-010954. Last ingested by Listed: Nov 5, 2026, 12:38 ET. No prices; not investment advice.