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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Washington
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91-1628146
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(State of incorporation)
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(I.R.S. Employer Identification Number)
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1501 First Avenue South, Suite 600, Seattle, Washington, 98134
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, Par Value $0.001 per share
Preferred Share Purchase Rights
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The NASDAQ Stock Market
The NASDAQ Stock Market
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Large accelerated filer
¨
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Accelerated filer
þ
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Non-accelerated filer
¨
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Smaller reporting company
¨
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(Do not check if a smaller reporting company)
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Page
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PART I
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Item 1.
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Item 1A.
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Item 1B.
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Item 2.
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Item 3.
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Item 4.
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PART II
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Item 5.
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Item 6.
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Item 7.
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Item 7A.
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Item 8.
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Item 9.
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Item 9A.
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Item 9B.
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PART III
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Item 10.
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Item 11.
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Item 12.
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Item 13.
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Item 14.
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PART IV
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Item 15.
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||
•
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the expected benefits and other consequences of our growth plans, strategic initiatives, and restructurings;
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•
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our expected introduction, and related monetization, of new and enhanced products, services and technologies across our businesses;
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•
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future revenues, operating expenses, income and other taxes, tax benefits, net income (loss) per diluted share available to common shareholders, acquisition costs and related amortization, and other measures of results of operations;
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•
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the effects of our past acquisitions and expectations for future acquisitions and divestitures;
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•
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plans, strategies and expected opportunities for future growth, increased profitability and innovation;
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•
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the expected financial position, performance, growth and profitability of, and investment in, our businesses and the availability of resources;
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•
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the effects of legislation, regulations, administrative proceedings, court rulings, settlement negotiations and other factors that may impact our businesses;
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•
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the continuation and expected nature of certain customer relationships;
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•
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impacts of competition and certain customer relationships on the future financial performance and growth of our businesses;
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•
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our involvement in potential claims, legal proceedings and government investigations, and the potential outcomes and effects of such potential claims, legal proceedings and governmental investigations on our business, prospects, financial condition or results of operations;
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•
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the effects of U.S. and foreign income and other taxes on our business, prospects, financial condition or results of operations; and
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•
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the effect of economic and market conditions on our business, prospects, financial condition or results of operations.
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Item 1.
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Business
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Item 1A.
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Risk Factors
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•
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reduced prices or margins,
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•
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loss of current and potential customers, or partners and potential partners who distribute our products and services or who provide content that we distribute to our customers,
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•
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changes to our products, services, technologies, licenses or business practices or strategies,
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•
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lengthened sales cycles,
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•
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inability to meet demands for more rapid sales or development cycles,
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•
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industry-wide changes in content distribution to customers or in trends in consumer consumption of digital media products and services,
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•
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pressure to prematurely release products or product enhancements, or
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•
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degradation in our stature or reputation in the market.
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•
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Many of our contracts with carriers provide for revenue sharing arrangements, but we have limited control over the prices charged by the carriers for these services. Furthermore, most of these contracts do not provide for guaranteed minimum payments or usage levels. Because most of our carrier contracts are nonexclusive, it is possible that our carrier could purchase similar services from third parties and cease to use our services in the future. As a result, our revenue derived under carrier contracts could be substantially reduced depending on the pricing and usage decisions of the carriers.
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•
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Some of our contracts with carriers require us to incur significant set-up costs prior to the launch of services with that carrier In addition to current period costs, we may be required to record impairments or other charges in future periods related to our carrier contracts, which would negatively impact our results of operations.
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•
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Most of our contracts do not obligate the other party to market or distribute any of our offerings to their customers. Despite the lack of marketing commitments, revenue related to our offerings is, to a large extent, dependent upon the marketing and promotion activities of our carrier, and without this marketing we may not be able to generate the revenue or profit we anticipate from these contracts.
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•
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Many of our contracts are short term and many allow for early termination by the other party with or without cause. These contracts are therefore subject to renegotiation of pricing or other key terms that could be adverse to our interests and leave us vulnerable to non-renewal by the other party. The termination, expiration, or non-renewal of a contract could lead to a decrease in future revenues and may cause a decrease or uncertainty in the earnings that we report, adversely affecting our financial results.
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•
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Our intercarrier messaging services are used by various carrier partners within the U.S. and internationally. The revenue we earn from these services is derived from a revenue-sharing contract with our service partner, by which we receive a portion of the revenue they collect from their carrier customers for the use of our services. We have limited control over the prices charged by our service partner for our intercarrier messaging services, and the contract does not provide for guaranteed minimum payments or usage levels for our services. As a result, our revenue derived under our contract with our service partner for intercarrier messaging services could be substantially reduced depending on the pricing and usage decisions of the service partner.
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•
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periodic local or geographic economic downturns and unstable political conditions;
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•
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price and currency exchange controls;
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•
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fluctuation in the relative values of currencies;
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•
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difficulty in repatriating money, whether as a result of tax laws or otherwise;
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•
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compliance with current and changing tax laws, and the coordination of compliance with U.S. tax laws and the laws of any of the jurisdictions in which we do business;
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•
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difficulties protecting intellectual property;
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•
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compliance with labor laws and other laws governing employees;
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•
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local labor disputes;
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•
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changes in trading policies, regulatory requirements, tariffs and other barriers, or the termination or renegotiation of existing trade agreements;
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•
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impact of changes in immigration or other policies impacting our ability to attract, hire, and retain key talent; and
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•
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difficulties in managing a global enterprise, including staffing, collecting accounts receivable, and managing suppliers, distributors and representatives.
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•
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difficulties and expenses in assimilating the operations, products, technology, information systems, and/or personnel of the acquired company;
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•
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retaining key management or employees of the acquired company;
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•
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entrance into unfamiliar markets, industry segments, or types of businesses;
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•
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operating, managing and integrating acquired businesses in remote locations or in countries in which we have little or no prior experience;
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•
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diversion of management time and other resources from existing operations;
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•
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impairment of relationships with employees, affiliates, advertisers or content providers of our business or acquired business; and
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•
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assumption of known and unknown liabilities of the acquired company, including intellectual property claims.
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•
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elect or defeat the election of our directors;
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•
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amend or prevent amendment of our articles of incorporation or bylaws;
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•
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effect or prevent a merger, sale of assets or other corporate transaction; and
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•
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control the outcome of any other matter submitted to the shareholders for vote.
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•
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adopt a plan of merger;
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•
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authorize the sale, lease, exchange or mortgage of assets representing more than 50% of the book value of our assets prior to the transaction or on which our long-term business strategy is substantially dependent;
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•
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authorize our voluntary dissolution; or
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•
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take any action that has the effect of any of the above.
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Item 1B.
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Unresolved Staff Comments
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Item 2.
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Properties
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Location
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Area leased
(sq. feet)
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Lease expiration
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Seattle, Washington (1)
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86,000
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August 2024, with an option to
renew for two five-year periods
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Eindhoven, Netherlands (2)
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23,000
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June 2022
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(1)
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As of December 31, 2016, we have reduced our use of the facility by 69%. The space which we no longer occupy is currently under sublease for all or a portion of the remaining lease term. For further information, please see Note 11. Lease Exit and Related Charges in this 10-K.
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(2)
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This facility is utilized only by our Games segment.
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Item 3.
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Legal Proceedings
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Item 4.
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Mine Safety Disclosures
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Item 5.
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Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
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Item 6.
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Selected Financial Data
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Years Ended December 31,
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||||||||||||||||||
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2016
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2015
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2014
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2013
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2012
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||||||||||
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(In thousands, except per share data)
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||||||||||||||||||
Consolidated Statements of Operations Data:
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Net revenue
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$
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120,468
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$
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125,296
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$
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156,212
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$
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206,196
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$
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258,842
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Cost of revenue
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64,968
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70,297
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76,381
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79,091
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103,731
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|||||
Extinguishment of liability
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—
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—
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(10,580
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)
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—
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—
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|||||
Gross profit
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55,500
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54,999
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90,411
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127,105
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155,111
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|||||
Sale of patents and other technology assets, net of costs
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—
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—
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—
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—
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116,353
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|||||
Operating expenses:
|
|
|
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|
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||||||||||
Research and development
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29,923
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43,626
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52,765
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60,880
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63,194
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|||||
Sales and marketing
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31,608
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48,231
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66,926
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80,011
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90,301
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|||||
General and administrative
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27,415
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24,549
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34,001
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36,643
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43,891
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|||||
Restructuring and other charges
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1,489
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5,279
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4,992
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5,765
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15,225
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|||||
Lease exit and related charges (gains)
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2,239
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2,501
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880
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3,089
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3,290
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|||||
Loss on litigation settlements
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—
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—
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—
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11,525
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—
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|||||
Total operating expenses
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92,674
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124,186
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|
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159,564
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|
|
197,913
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215,901
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|
|||||
Operating income (loss)
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(37,174
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)
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|
(69,187
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)
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(69,153
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)
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(70,808
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)
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55,563
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|
|||||
Other income (expense), net (A)
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1,746
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|
(13,494
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)
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(1,382
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)
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|
16,721
|
|
|
1,796
|
|
|||||
Income (loss) before income taxes
|
|
(35,428
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)
|
|
(82,681
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)
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|
(70,535
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)
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|
(54,087
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)
|
|
57,359
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|
|||||
Income tax expense (benefit)
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|
1,122
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|
(834
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)
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|
1,280
|
|
|
4,903
|
|
|
12,518
|
|
|||||
Net income (loss) attributable to common shareholders
|
|
$
|
(36,550
|
)
|
|
$
|
(81,847
|
)
|
|
$
|
(71,815
|
)
|
|
$
|
(58,990
|
)
|
|
$
|
44,841
|
|
Diluted net income (loss) per share attributable to common shareholders
|
|
$
|
(0.99
|
)
|
|
$
|
(2.26
|
)
|
|
$
|
(2.00
|
)
|
|
$
|
(1.66
|
)
|
|
$
|
1.28
|
|
Shares used to compute diluted net income (loss) per share
|
|
36,781
|
|
|
36,165
|
|
|
35,947
|
|
|
35,553
|
|
|
35,122
|
|
|
|
As of December 31,
|
||||||||||||||||||
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
||||||||||
|
|
(In thousands)
|
||||||||||||||||||
Consolidated Balance Sheets Data:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash, cash equivalents, and short-term investments
|
|
$
|
77,052
|
|
|
$
|
99,129
|
|
|
$
|
161,706
|
|
|
$
|
226,155
|
|
|
$
|
271,414
|
|
Working capital
|
|
66,304
|
|
|
91,373
|
|
|
136,429
|
|
|
191,522
|
|
|
237,646
|
|
|||||
Total assets
|
|
130,437
|
|
|
161,343
|
|
|
250,299
|
|
|
342,781
|
|
|
433,897
|
|
|||||
Shareholders’ equity
|
|
88,581
|
|
|
120,683
|
|
|
197,198
|
|
|
268,981
|
|
|
342,728
|
|
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016-2015
Change
|
|
%
Change
|
|
2015-2014
Change
|
|
%
Change
|
||||||||||||
Total revenue
|
|
$
|
120,468
|
|
|
$
|
125,296
|
|
|
$
|
156,212
|
|
|
$
|
(4,828
|
)
|
|
(4
|
)%
|
|
$
|
(30,916
|
)
|
|
(20
|
)%
|
Cost of revenue
|
|
64,968
|
|
|
70,297
|
|
|
76,381
|
|
|
(5,329
|
)
|
|
(8
|
)%
|
|
(6,084
|
)
|
|
(8
|
)%
|
|||||
Extinguishment of liability
|
|
—
|
|
|
—
|
|
|
(10,580
|
)
|
|
—
|
|
|
—
|
%
|
|
10,580
|
|
|
100
|
%
|
|||||
Gross profit
|
|
55,500
|
|
|
54,999
|
|
|
90,411
|
|
|
501
|
|
|
1
|
%
|
|
(35,412
|
)
|
|
(39
|
)%
|
|||||
Gross margin
|
|
46
|
%
|
|
44
|
%
|
|
58
|
%
|
|
2
|
%
|
|
|
|
(14
|
)%
|
|
|
|||||||
Total operating expenses
|
|
92,674
|
|
|
124,186
|
|
|
159,564
|
|
|
(31,512
|
)
|
|
(25
|
)%
|
|
(35,378
|
)
|
|
(22
|
)%
|
|||||
Operating income (loss)
|
|
$
|
(37,174
|
)
|
|
$
|
(69,187
|
)
|
|
$
|
(69,153
|
)
|
|
$
|
32,013
|
|
|
46
|
%
|
|
$
|
(34
|
)
|
|
—
|
%
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016-2015
Change
|
|
%
Change
|
|
2015-2014
Change
|
|
%
Change
|
||||||||||||
Total revenue
|
|
$
|
25,051
|
|
|
$
|
28,613
|
|
|
$
|
39,121
|
|
|
$
|
(3,562
|
)
|
|
(12
|
)%
|
|
$
|
(10,508
|
)
|
|
(27
|
)%
|
Cost of revenue
|
|
7,074
|
|
|
13,257
|
|
|
13,466
|
|
|
(6,183
|
)
|
|
(47
|
)%
|
|
(209
|
)
|
|
(2
|
)%
|
|||||
Gross profit
|
|
17,977
|
|
|
15,356
|
|
|
25,655
|
|
|
2,621
|
|
|
17
|
%
|
|
(10,299
|
)
|
|
(40
|
)%
|
|||||
Gross margin
|
|
72
|
%
|
|
54
|
%
|
|
66
|
%
|
|
18
|
%
|
|
|
|
(12
|
)%
|
|
|
|||||||
Total operating expenses
|
|
18,399
|
|
|
26,526
|
|
|
41,950
|
|
|
(8,127
|
)
|
|
(31
|
)%
|
|
(15,424
|
)
|
|
(37
|
)%
|
|||||
Operating income (loss)
|
|
$
|
(422
|
)
|
|
$
|
(11,170
|
)
|
|
$
|
(16,295
|
)
|
|
$
|
10,748
|
|
|
96
|
%
|
|
$
|
5,125
|
|
|
31
|
%
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016-2015
Change
|
|
%
Change
|
|
2015-2014
Change
|
|
%
Change
|
||||||||||||
Total revenue
|
|
$
|
70,278
|
|
|
$
|
65,935
|
|
|
$
|
79,981
|
|
|
$
|
4,343
|
|
|
7
|
%
|
|
$
|
(14,046
|
)
|
|
(18
|
)%
|
Cost of revenue
|
|
50,026
|
|
|
47,834
|
|
|
52,193
|
|
|
2,192
|
|
|
5
|
%
|
|
(4,359
|
)
|
|
(8
|
)%
|
|||||
Gross profit
|
|
20,252
|
|
|
18,101
|
|
|
27,788
|
|
|
2,151
|
|
|
12
|
%
|
|
(9,687
|
)
|
|
(35
|
)%
|
|||||
Gross margin
|
|
29
|
%
|
|
27
|
%
|
|
35
|
%
|
|
2
|
%
|
|
|
|
(8
|
)%
|
|
|
|||||||
Total operating expenses
|
|
34,439
|
|
|
44,311
|
|
|
53,527
|
|
|
(9,872
|
)
|
|
(22
|
)%
|
|
(9,216
|
)
|
|
(17
|
)%
|
|||||
Operating income (loss)
|
|
$
|
(14,187
|
)
|
|
$
|
(26,210
|
)
|
|
$
|
(25,739
|
)
|
|
$
|
12,023
|
|
|
46
|
%
|
|
$
|
(471
|
)
|
|
(2
|
)%
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016-2015
Change
|
|
%
Change
|
|
2015-2014
Change
|
|
%
Change
|
||||||||||||
Total revenue
|
|
$
|
25,139
|
|
|
$
|
30,748
|
|
|
$
|
37,110
|
|
|
$
|
(5,609
|
)
|
|
(18
|
)%
|
|
$
|
(6,362
|
)
|
|
(17
|
)%
|
Cost of revenue
|
|
7,919
|
|
|
9,291
|
|
|
11,074
|
|
|
(1,372
|
)
|
|
(15
|
)%
|
|
(1,783
|
)
|
|
(16
|
)%
|
|||||
Gross profit
|
|
17,220
|
|
|
21,457
|
|
|
26,036
|
|
|
(4,237
|
)
|
|
(20
|
)%
|
|
(4,579
|
)
|
|
(18
|
)%
|
|||||
Gross margin
|
|
68
|
%
|
|
70
|
%
|
|
70
|
%
|
|
(2
|
)%
|
|
|
|
—
|
%
|
|
|
|||||||
Total operating expenses
|
|
19,644
|
|
|
29,086
|
|
|
37,170
|
|
|
(9,442
|
)
|
|
(32
|
)%
|
|
(8,084
|
)
|
|
(22
|
)%
|
|||||
Operating income (loss)
|
|
$
|
(2,424
|
)
|
|
$
|
(7,629
|
)
|
|
$
|
(11,134
|
)
|
|
$
|
5,205
|
|
|
68
|
%
|
|
$
|
3,505
|
|
|
31
|
%
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016-2015
Change
|
|
%
Change
|
|
2015-2014
Change
|
|
%
Change
|
||||||||||||
Cost of revenue
|
|
$
|
(51
|
)
|
|
$
|
(85
|
)
|
|
$
|
(352
|
)
|
|
$
|
34
|
|
|
(40
|
)%
|
|
$
|
267
|
|
|
(76
|
)%
|
Extinguishment of liability
|
|
—
|
|
|
—
|
|
|
(10,580
|
)
|
|
—
|
|
|
—
|
|
|
$
|
10,580
|
|
|
100
|
%
|
||||
Total operating expenses
|
|
20,192
|
|
|
24,263
|
|
|
26,917
|
|
|
(4,071
|
)
|
|
(17
|
)%
|
|
(2,654
|
)
|
|
(10
|
)%
|
|||||
Operating income (loss)
|
|
$
|
(20,141
|
)
|
|
$
|
(24,178
|
)
|
|
$
|
(15,985
|
)
|
|
$
|
4,037
|
|
|
17
|
%
|
|
$
|
(8,193
|
)
|
|
(51
|
)%
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016-2015
Change
|
|
%
Change
|
|
2015-2014
Change
|
|
%
Change
|
||||||||||||
Research and development
|
|
$
|
29,923
|
|
|
$
|
43,626
|
|
|
$
|
52,765
|
|
|
$
|
(13,703
|
)
|
|
(31
|
)%
|
|
$
|
(9,139
|
)
|
|
(17
|
)%
|
Sales and marketing
|
|
31,608
|
|
|
48,231
|
|
|
66,926
|
|
|
(16,623
|
)
|
|
(34
|
)%
|
|
(18,695
|
)
|
|
(28
|
)%
|
|||||
General and administrative
|
|
27,415
|
|
|
24,549
|
|
|
34,001
|
|
|
2,866
|
|
|
12
|
%
|
|
(9,452
|
)
|
|
(28
|
)%
|
|||||
Restructuring and other charges
|
|
1,489
|
|
|
5,279
|
|
|
4,992
|
|
|
(3,790
|
)
|
|
(72
|
)%
|
|
287
|
|
|
6
|
%
|
|||||
Lease exit and related charges
|
|
2,239
|
|
|
2,501
|
|
|
880
|
|
|
(262
|
)
|
|
(10
|
)%
|
|
1,621
|
|
|
184
|
%
|
|||||
Total consolidated operating expenses
|
|
$
|
92,674
|
|
|
$
|
124,186
|
|
|
$
|
159,564
|
|
|
$
|
(31,512
|
)
|
|
(25
|
)%
|
|
$
|
(35,378
|
)
|
|
(22
|
)%
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016-2015
Change
|
|
%
Change
|
|
2015-2014
Change
|
|
%
Change
|
||||||||||||
Interest income, net
|
|
$
|
449
|
|
|
$
|
680
|
|
|
$
|
556
|
|
|
$
|
(231
|
)
|
|
(34
|
)%
|
|
$
|
124
|
|
|
22
|
%
|
Gain (loss) on investments, net
|
|
8,473
|
|
|
(159
|
)
|
|
2,371
|
|
|
8,632
|
|
|
NM
|
|
|
(2,530
|
)
|
|
(107
|
)%
|
|||||
Equity in net loss of Rhapsody
|
|
(6,533
|
)
|
|
(14,521
|
)
|
|
(4,452
|
)
|
|
7,988
|
|
|
(55
|
)%
|
|
(10,069
|
)
|
|
226
|
%
|
|||||
Other income (expense), net
|
|
(643
|
)
|
|
506
|
|
|
143
|
|
|
(1,149
|
)
|
|
(227
|
)%
|
|
363
|
|
|
254
|
%
|
|||||
Total other income (expense), net
|
|
$
|
1,746
|
|
|
$
|
(13,494
|
)
|
|
$
|
(1,382
|
)
|
|
$
|
15,240
|
|
|
113
|
%
|
|
$
|
(12,112
|
)
|
|
(876
|
)%
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016-2015
Change
|
|
%
Change
|
|
2015-2014
Change
|
|
%
Change
|
||||||||||||
United States
|
|
$
|
41,505
|
|
|
$
|
46,893
|
|
|
$
|
61,660
|
|
|
$
|
(5,388
|
)
|
|
(11
|
)%
|
|
$
|
(14,767
|
)
|
|
(24
|
)%
|
Europe
|
|
13,700
|
|
|
15,166
|
|
|
26,575
|
|
|
(1,466
|
)
|
|
(10
|
)%
|
|
(11,409
|
)
|
|
(43
|
)%
|
|||||
Korea
|
|
43,236
|
|
|
37,832
|
|
|
39,852
|
|
|
5,404
|
|
|
14
|
%
|
|
(2,020
|
)
|
|
(5
|
)%
|
|||||
Rest of World
|
|
22,027
|
|
|
25,405
|
|
|
28,125
|
|
|
(3,378
|
)
|
|
(13
|
)%
|
|
(2,720
|
)
|
|
(10
|
)%
|
|||||
Total Revenue
|
|
$
|
120,468
|
|
|
$
|
125,296
|
|
|
$
|
156,212
|
|
|
$
|
(4,828
|
)
|
|
(4
|
)%
|
|
$
|
(30,916
|
)
|
|
(20
|
)%
|
|
|
December 31,
|
||||||
|
|
2016
|
|
2015
|
||||
Working capital
|
|
$
|
66,304
|
|
|
$
|
91,373
|
|
Cash, cash equivalents, and short-term investments
|
|
77,052
|
|
|
99,129
|
|
||
Restricted cash and investments
|
|
2,700
|
|
|
2,890
|
|
|
|
Years Ended December 31,
|
||||||||||
|
|
2016
|
|
2015
|
|
2014
|
||||||
Cash provided by (used in) operating activities
|
|
$
|
(24,328
|
)
|
|
$
|
(68,982
|
)
|
|
$
|
(60,244
|
)
|
Cash provided by (used in) investing activities
|
|
11,552
|
|
|
15,728
|
|
|
15,561
|
|
|||
Cash provided by (used in) financing activities
|
|
(345
|
)
|
|
341
|
|
|
(637
|
)
|
•
|
Revenue recognition;
|
•
|
Estimating music publishing rights and music royalty accruals;
|
•
|
Estimating recoverability of deferred costs;
|
•
|
Estimating allowances for doubtful accounts and sales returns;
|
•
|
Estimating losses on excess office facilities;
|
•
|
Valuation of equity method investments;
|
•
|
Valuation of definite-lived assets;
|
•
|
Valuation of goodwill;
|
•
|
Stock-based compensation; and
|
•
|
Accounting for income taxes.
|
Item 7A.
|
Quantitative and Qualitative Disclosures About Market Risk
|
Item 8.
|
Financial Statements and Supplementary Data
|
|
December 31,
2016 |
|
December 31,
2015 |
||||
ASSETS
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
33,721
|
|
|
$
|
47,315
|
|
Short-term investments
|
43,331
|
|
|
51,814
|
|
||
Trade accounts receivable, net of allowances
|
22,162
|
|
|
22,511
|
|
||
Deferred costs, current portion
|
760
|
|
|
460
|
|
||
Prepaid expenses and other current assets
|
4,910
|
|
|
7,140
|
|
||
Total current assets
|
104,884
|
|
|
129,240
|
|
||
|
|
|
|
||||
Equipment and software
|
46,231
|
|
|
66,702
|
|
||
Leasehold improvements
|
3,317
|
|
|
3,122
|
|
||
Total equipment, software, and leasehold improvements
|
49,548
|
|
|
69,824
|
|
||
Less accumulated depreciation and amortization
|
44,294
|
|
|
61,024
|
|
||
Net equipment, software, and leasehold improvements
|
5,254
|
|
|
8,800
|
|
||
Restricted cash equivalents and investments
|
2,700
|
|
|
2,890
|
|
||
Available for sale securities
|
—
|
|
|
1,721
|
|
||
Other assets
|
1,742
|
|
|
2,307
|
|
||
Deferred costs, non-current portion
|
1,246
|
|
|
212
|
|
||
Deferred tax assets, net
|
816
|
|
|
957
|
|
||
Other intangible assets, net
|
938
|
|
|
2,136
|
|
||
Goodwill
|
12,857
|
|
|
13,080
|
|
||
Total assets
|
$
|
130,437
|
|
|
$
|
161,343
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
18,225
|
|
|
$
|
17,050
|
|
Accrued and other current liabilities
|
15,425
|
|
|
17,320
|
|
||
Commitment to Rhapsody
|
1,500
|
|
|
—
|
|
||
Deferred revenue, current portion
|
3,430
|
|
|
3,497
|
|
||
Total current liabilities
|
38,580
|
|
|
37,867
|
|
||
Deferred revenue, non-current portion
|
240
|
|
|
105
|
|
||
Deferred rent
|
748
|
|
|
620
|
|
||
Deferred tax liabilities
|
87
|
|
|
88
|
|
||
Other long-term liabilities
|
2,201
|
|
|
1,980
|
|
||
Total liabilities
|
41,856
|
|
|
40,660
|
|
||
Commitments and contingencies
|
|
|
|
||||
Shareholders’ equity:
|
|
|
|
||||
Preferred stock, $0.001 par value, no shares issued and outstanding:
|
|
|
|
||||
Series A: authorized 200 shares
|
—
|
|
|
—
|
|
||
Undesignated series: authorized 59,800 shares
|
—
|
|
|
—
|
|
||
Common stock, $0.001 par value authorized 250,000 shares; issued and outstanding 37,501 shares in 2016 and 36,298 shares in 2015
|
37
|
|
|
36
|
|
||
Additional paid-in capital
|
633,928
|
|
|
627,316
|
|
||
Accumulated other comprehensive loss
|
(61,645
|
)
|
|
(59,480
|
)
|
||
Retained deficit
|
(483,739
|
)
|
|
(447,189
|
)
|
||
Total shareholders’ equity
|
88,581
|
|
|
120,683
|
|
||
Total liabilities and shareholders’ equity
|
$
|
130,437
|
|
|
$
|
161,343
|
|
|
Years Ended December 31,
|
||||||||||
|
2016
|
|
2015
|
|
2014
|
||||||
Net revenue (A)
|
$
|
120,468
|
|
|
$
|
125,296
|
|
|
$
|
156,212
|
|
Cost of revenue (B)
|
64,968
|
|
|
70,297
|
|
|
76,381
|
|
|||
Extinguishment of liability
|
—
|
|
|
—
|
|
|
(10,580
|
)
|
|||
Gross profit
|
55,500
|
|
|
54,999
|
|
|
90,411
|
|
|||
Operating expenses:
|
|
|
|
|
|
||||||
Research and development
|
29,923
|
|
|
43,626
|
|
|
52,765
|
|
|||
Sales and marketing
|
31,608
|
|
|
48,231
|
|
|
66,926
|
|
|||
General and administrative
|
27,415
|
|
|
24,549
|
|
|
34,001
|
|
|||
Restructuring and other charges
|
1,489
|
|
|
5,279
|
|
|
4,992
|
|
|||
Lease exit and related charges
|
2,239
|
|
|
2,501
|
|
|
880
|
|
|||
Total operating expenses
|
92,674
|
|
|
124,186
|
|
|
159,564
|
|
|||
Operating income (loss)
|
(37,174
|
)
|
|
(69,187
|
)
|
|
(69,153
|
)
|
|||
Other income (expenses):
|
|
|
|
|
|
||||||
Interest income, net
|
449
|
|
|
680
|
|
|
556
|
|
|||
Gain (loss) on sale of equity and other investments, net
|
8,473
|
|
|
(159
|
)
|
|
2,371
|
|
|||
Equity in net loss of Rhapsody investment
|
(6,533
|
)
|
|
(14,521
|
)
|
|
(4,452
|
)
|
|||
Other income (expense), net
|
(643
|
)
|
|
506
|
|
|
143
|
|
|||
Total other income (expenses), net
|
1,746
|
|
|
(13,494
|
)
|
|
(1,382
|
)
|
|||
Income (loss) before income taxes
|
(35,428
|
)
|
|
(82,681
|
)
|
|
(70,535
|
)
|
|||
Income tax expense (benefit)
|
1,122
|
|
|
(834
|
)
|
|
1,280
|
|
|||
Net income (loss)
|
$
|
(36,550
|
)
|
|
$
|
(81,847
|
)
|
|
$
|
(71,815
|
)
|
Basic net income (loss) per share
|
$
|
(0.99
|
)
|
|
$
|
(2.26
|
)
|
|
$
|
(2.00
|
)
|
Diluted net income (loss) per share
|
$
|
(0.99
|
)
|
|
$
|
(2.26
|
)
|
|
$
|
(2.00
|
)
|
Shares used to compute basic net income (loss) per share
|
36,781
|
|
|
36,165
|
|
|
35,947
|
|
|||
Shares used to compute diluted net income (loss) per share
|
36,781
|
|
|
36,165
|
|
|
35,947
|
|
|||
Comprehensive income (loss):
|
|
|
|
|
|
||||||
Unrealized investment holding gains (losses), net of reclassification adjustments
|
$
|
(1,303
|
)
|
|
$
|
(955
|
)
|
|
$
|
(4,145
|
)
|
Foreign currency translation adjustments, net of reclassification adjustments
|
(862
|
)
|
|
(3,273
|
)
|
|
(3,412
|
)
|
|||
Total other comprehensive income (loss)
|
(2,165
|
)
|
|
(4,228
|
)
|
|
(7,557
|
)
|
|||
Net income (loss)
|
(36,550
|
)
|
|
(81,847
|
)
|
|
(71,815
|
)
|
|||
Comprehensive income (loss)
|
$
|
(38,715
|
)
|
|
$
|
(86,075
|
)
|
|
$
|
(79,372
|
)
|
(A) Components of net revenue:
|
|
|
|
|
|
||||||
License fees
|
$
|
27,846
|
|
|
$
|
28,422
|
|
|
$
|
28,308
|
|
Service revenue
|
92,622
|
|
|
96,874
|
|
|
127,904
|
|
|||
|
$
|
120,468
|
|
|
$
|
125,296
|
|
|
$
|
156,212
|
|
(B) Components of cost of revenue:
|
|
|
|
|
|
||||||
License fees
|
$
|
6,062
|
|
|
$
|
6,381
|
|
|
$
|
8,012
|
|
Service revenue
|
58,906
|
|
|
63,916
|
|
|
68,369
|
|
|||
|
$
|
64,968
|
|
|
$
|
70,297
|
|
|
$
|
76,381
|
|
|
Years Ended December 31,
|
||||||||||
|
2016
|
|
2015
|
|
2014
|
||||||
Cash flows from operating activities:
|
|
|
|
|
|
||||||
Net income (loss)
|
$
|
(36,550
|
)
|
|
$
|
(81,847
|
)
|
|
$
|
(71,815
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
||||||
Depreciation and amortization
|
7,057
|
|
|
10,410
|
|
|
11,959
|
|
|||
Stock-based compensation
|
5,424
|
|
|
4,698
|
|
|
5,204
|
|
|||
Equity in net loss of Rhapsody
|
6,533
|
|
|
14,521
|
|
|
4,452
|
|
|||
Lease exit and related charges
|
2,239
|
|
|
2,501
|
|
|
668
|
|
|||
Deferred income taxes, net
|
130
|
|
|
(1,558
|
)
|
|
(237
|
)
|
|||
Loss (gain) on investments, net
|
(8,473
|
)
|
|
159
|
|
|
(2,371
|
)
|
|||
Realized translation loss (gain)
|
272
|
|
|
(264
|
)
|
|
(48
|
)
|
|||
Extinguishment of liability
|
—
|
|
|
—
|
|
|
(10,580
|
)
|
|||
Fair value of warrants granted in 2015, net of subsequent mark to market adjustments in 2016 and 2015
|
280
|
|
|
(1,053
|
)
|
|
—
|
|
|||
Net change in certain operating assets and liabilities:
|
|
|
|
|
|
||||||
Trade accounts receivable
|
(129
|
)
|
|
(8,236
|
)
|
|
8,732
|
|
|||
Deferred costs, prepaid expenses and other assets
|
964
|
|
|
2,606
|
|
|
1,982
|
|
|||
Accounts payable
|
1,571
|
|
|
(465
|
)
|
|
(769
|
)
|
|||
Accrued and other liabilities
|
(3,646
|
)
|
|
(10,454
|
)
|
|
(7,421
|
)
|
|||
Net cash provided by (used in) operating activities
|
(24,328
|
)
|
|
(68,982
|
)
|
|
(60,244
|
)
|
|||
Cash flows from investing activities:
|
|
|
|
|
|
||||||
Purchases of equipment, software, and leasehold improvements
|
(2,438
|
)
|
|
(1,319
|
)
|
|
(2,460
|
)
|
|||
Proceeds from sale of equity and other investments
|
4,967
|
|
|
459
|
|
|
2,754
|
|
|||
Purchases of short-term investments
|
(75,766
|
)
|
|
(72,136
|
)
|
|
(81,216
|
)
|
|||
Proceeds from sales and maturities of short-term investments
|
84,249
|
|
|
78,775
|
|
|
97,683
|
|
|||
Decrease in restricted cash equivalents and investments
|
190
|
|
|
110
|
|
|
—
|
|
|||
Acquisitions
|
(150
|
)
|
|
(161
|
)
|
|
(733
|
)
|
|||
Advance to Rhapsody
|
(3,500
|
)
|
|
(5,000
|
)
|
|
—
|
|
|||
Repayment from Rhapsody
|
—
|
|
|
5,000
|
|
|
—
|
|
|||
Proceeds from the sale of Slingo and social casino business
|
4,000
|
|
|
10,000
|
|
|
—
|
|
|||
Other
|
—
|
|
|
—
|
|
|
(467
|
)
|
|||
Net cash provided by (used in) investing activities
|
11,552
|
|
|
15,728
|
|
|
15,561
|
|
|||
Cash flows from financing activities:
|
|
|
|
|
|
||||||
Proceeds from issuance of common stock (stock options and stock purchase plan)
|
535
|
|
|
426
|
|
|
812
|
|
|||
Tax payments from shares withheld upon vesting of restricted stock
|
(880
|
)
|
|
(85
|
)
|
|
(407
|
)
|
|||
Payment of contingent consideration
|
—
|
|
|
—
|
|
|
(1,042
|
)
|
|||
Net cash provided by (used in) financing activities
|
(345
|
)
|
|
341
|
|
|
(637
|
)
|
|||
Effect of exchange rate changes on cash and cash equivalents
|
(473
|
)
|
|
(3,025
|
)
|
|
(2,662
|
)
|
|||
Net increase (decrease) in cash and cash equivalents
|
(13,594
|
)
|
|
(55,938
|
)
|
|
(47,982
|
)
|
|||
Cash and cash equivalents, beginning of year
|
47,315
|
|
|
103,253
|
|
|
151,235
|
|
|||
Cash and cash equivalents, end of year
|
$
|
33,721
|
|
|
$
|
47,315
|
|
|
$
|
103,253
|
|
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Retained
Earnings
(Deficit)
|
|
Total
Shareholders’
Equity
|
|||||||||||||
Shares
|
|
Amount
|
|
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balances, December 31, 2013
|
|
35,833
|
|
|
$
|
36
|
|
|
$
|
610,167
|
|
|
$
|
(47,695
|
)
|
|
$
|
(293,527
|
)
|
|
$
|
268,981
|
|
Common stock issued for exercise of stock options, employee stock purchase plan, and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock
|
|
266
|
|
|
—
|
|
|
405
|
|
|
—
|
|
|
—
|
|
|
405
|
|
|||||
Share of Rhapsody equity transactions
|
|
—
|
|
|
—
|
|
|
1,980
|
|
|
—
|
|
|
—
|
|
|
1,980
|
|
|||||
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
5,204
|
|
|
—
|
|
|
—
|
|
|
5,204
|
|
|||||
Other comprehensive income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,557
|
)
|
|
—
|
|
|
(7,557
|
)
|
|||||
Net income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(71,815
|
)
|
|
(71,815
|
)
|
|||||
Balances, December 31, 2014
|
|
36,099
|
|
|
$
|
36
|
|
|
$
|
617,756
|
|
|
$
|
(55,252
|
)
|
|
$
|
(365,342
|
)
|
|
$
|
197,198
|
|
Common stock issued for exercise of stock options, employee stock purchase plan, and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock
|
|
199
|
|
|
—
|
|
|
341
|
|
|
—
|
|
|
—
|
|
|
341
|
|
|||||
Share of Rhapsody equity transactions
|
|
—
|
|
|
—
|
|
|
4,521
|
|
|
—
|
|
|
—
|
|
|
4,521
|
|
|||||
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
4,698
|
|
|
—
|
|
|
—
|
|
|
4,698
|
|
|||||
Other comprehensive income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,228
|
)
|
|
—
|
|
|
(4,228
|
)
|
|||||
Net income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(81,847
|
)
|
|
(81,847
|
)
|
|||||
Balances, December 31, 2015
|
|
36,298
|
|
|
$
|
36
|
|
|
$
|
627,316
|
|
|
$
|
(59,480
|
)
|
|
$
|
(447,189
|
)
|
|
$
|
120,683
|
|
Common stock issued for exercise of stock options, employee stock purchase plan, and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock
|
|
1,203
|
|
|
1
|
|
|
(345
|
)
|
|
—
|
|
|
—
|
|
|
(344
|
)
|
|||||
Share of Rhapsody equity transactions
|
|
—
|
|
|
—
|
|
|
1,533
|
|
|
—
|
|
|
—
|
|
|
1,533
|
|
|||||
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
5,424
|
|
|
—
|
|
|
—
|
|
|
5,424
|
|
|||||
Other comprehensive income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,165
|
)
|
|
—
|
|
|
(2,165
|
)
|
|||||
Net income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(36,550
|
)
|
|
(36,550
|
)
|
|||||
Balances, December 31, 2016
|
|
37,501
|
|
|
$
|
37
|
|
|
$
|
633,928
|
|
|
$
|
(61,645
|
)
|
|
$
|
(483,739
|
)
|
|
$
|
88,581
|
|
Note 1.
|
Description of Business and Summary of Significant Accounting Policies
|
•
|
Level 1: Quoted prices in active markets for identical assets or liabilities
|
•
|
Level 2: Directly or indirectly observed inputs for the asset or liability, including quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active
|
•
|
Level 3: Significant unobservable inputs that reflect our own estimates of assumptions that market participants would use
|
Note 2.
|
Recent Accounting Pronouncements
|
Note 3.
|
Acquisitions and Disposals
|
Note 4.
|
Rhapsody Joint Venture
|
|
|
Year ended December 31,
2016 |
|
Year ended December 31,
2015 |
|
Year ended December 31,
2014 |
||||||
Net revenue
|
|
$
|
208,085
|
|
|
$
|
201,987
|
|
|
$
|
173,484
|
|
Gross profit
|
|
38,407
|
|
|
32,761
|
|
|
32,145
|
|
|||
Net loss
|
|
(14,913
|
)
|
|
(35,479
|
)
|
|
(21,336
|
)
|
|
|
As of December 31, 2016
|
|
As of December 31, 2015
|
||||
Current assets
|
|
$
|
55,831
|
|
|
$
|
53,274
|
|
Non-current assets
|
|
18,273
|
|
|
20,520
|
|
||
Current liabilities
|
|
104,906
|
|
|
92,794
|
|
||
Non-current liabilities
|
|
20,238
|
|
|
20,295
|
|
Note 5.
|
Fair Value Measurements
|
|
Fair Value Measurements as of
|
|
Amortized Cost as of
|
||||||||||||||||
|
December 31, 2016
|
|
December 31, 2016
|
||||||||||||||||
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
||||||||||
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash
|
$
|
32,585
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
32,585
|
|
|
$
|
32,585
|
|
Money market funds
|
136
|
|
|
—
|
|
|
—
|
|
|
136
|
|
|
136
|
|
|||||
Corporate notes and bonds
|
—
|
|
|
1,000
|
|
|
—
|
|
|
1,000
|
|
|
1,000
|
|
|||||
Total cash and cash equivalents
|
32,721
|
|
|
1,000
|
|
|
—
|
|
|
33,721
|
|
|
33,721
|
|
|||||
Short-term investments:
|
|
|
|
|
|
|
|
|
|
||||||||||
Corporate notes and bonds
|
—
|
|
|
43,331
|
|
|
—
|
|
|
43,331
|
|
|
43,343
|
|
|||||
Total short-term investments
|
—
|
|
|
43,331
|
|
|
—
|
|
|
43,331
|
|
|
43,343
|
|
|||||
Restricted cash equivalents and investments
|
—
|
|
|
2,700
|
|
|
—
|
|
|
2,700
|
|
|
2,700
|
|
|||||
Warrant issued by Rhapsody (included in Other assets)
|
—
|
|
|
—
|
|
|
773
|
|
|
773
|
|
|
—
|
|
|||||
Total
|
$
|
32,721
|
|
|
$
|
47,031
|
|
|
$
|
773
|
|
|
$
|
80,525
|
|
|
$
|
79,764
|
|
|
Fair Value Measurements as of
|
|
Amortized Cost as of
|
||||||||||||||||
|
December 31, 2015
|
|
December 31, 2015
|
||||||||||||||||
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
||||||||||
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash
|
$
|
23,152
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
23,152
|
|
|
$
|
23,152
|
|
Money market funds
|
5,061
|
|
|
—
|
|
|
—
|
|
|
5,061
|
|
|
5,061
|
|
|||||
Corporate notes and bonds
|
—
|
|
|
19,102
|
|
|
—
|
|
|
19,102
|
|
|
19,102
|
|
|||||
Total cash and cash equivalents
|
28,213
|
|
|
19,102
|
|
|
—
|
|
|
47,315
|
|
|
47,315
|
|
|||||
Short-term investments:
|
|
|
|
|
|
|
|
|
|
||||||||||
Corporate notes and bonds
|
—
|
|
|
51,814
|
|
|
—
|
|
|
51,814
|
|
|
51,862
|
|
|||||
Total short-term investments
|
—
|
|
|
51,814
|
|
|
—
|
|
|
51,814
|
|
|
51,862
|
|
|||||
Restricted cash equivalents and investments
|
—
|
|
|
2,890
|
|
|
—
|
|
|
2,890
|
|
|
2,890
|
|
|||||
Equity investments in publicly traded securities
|
1,721
|
|
|
—
|
|
|
—
|
|
|
1,721
|
|
|
362
|
|
|||||
Warrant issued by Rhapsody (included in Other assets)
|
—
|
|
|
—
|
|
|
1,053
|
|
|
1,053
|
|
|
$
|
—
|
|
||||
Total
|
$
|
29,934
|
|
|
$
|
73,806
|
|
|
$
|
1,053
|
|
|
$
|
104,793
|
|
|
$
|
102,429
|
|
|
Estimated
Fair Value
|
||
Within one year
|
$
|
41,135
|
|
Between one year and five years
|
2,196
|
|
|
Total short-term investments
|
$
|
43,331
|
|
Note 6.
|
Allowance for Doubtful Accounts Receivable and Sales Returns
|
|
|
Years ended December 31,
|
||||||||||
|
|
2016
|
|
2015
|
|
2014
|
||||||
Balance, beginning of year
|
|
$
|
765
|
|
|
$
|
1,288
|
|
|
$
|
966
|
|
Addition (reduction) to allowance
|
|
36
|
|
|
(355
|
)
|
|
433
|
|
|||
Amounts written off
|
|
(152
|
)
|
|
(77
|
)
|
|
—
|
|
|||
Effects of foreign currency translation
|
|
(16
|
)
|
|
(91
|
)
|
|
(111
|
)
|
|||
Balance, end of year
|
|
$
|
633
|
|
|
$
|
765
|
|
|
$
|
1,288
|
|
|
|
Years ended December 31,
|
||||||||||
|
|
2016
|
|
2015
|
|
2014
|
||||||
Balance, beginning of year
|
|
$
|
158
|
|
|
$
|
354
|
|
|
$
|
569
|
|
Addition (reduction) to allowance
|
|
15
|
|
|
(186
|
)
|
|
(209
|
)
|
|||
Amounts written off
|
|
(3
|
)
|
|
(9
|
)
|
|
(6
|
)
|
|||
Effects of foreign currency translation
|
|
(1
|
)
|
|
(1
|
)
|
|
—
|
|
|||
Balance, end of year
|
|
$
|
169
|
|
|
$
|
158
|
|
|
$
|
354
|
|
Total, Allowance for Doubtful Accounts Receivable and Sales Returns
|
|
$
|
802
|
|
|
$
|
923
|
|
|
$
|
1,642
|
|
Note 7.
|
Other Intangible Assets
|
|
|
|
As of December 31,
|
||||||||||||||||||||||
|
|
|
2016
|
|
2015
|
||||||||||||||||||||
|
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Net
|
||||||||||||
Amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Customer relationships
|
|
$
|
29,308
|
|
|
$
|
28,781
|
|
|
$
|
527
|
|
|
$
|
30,182
|
|
|
$
|
29,236
|
|
|
$
|
946
|
|
|
Developed technology
|
|
23,574
|
|
|
23,263
|
|
|
311
|
|
|
24,047
|
|
|
23,244
|
|
|
803
|
|
||||||
|
Patents, trademarks and tradenames
|
|
3,530
|
|
|
3,430
|
|
|
100
|
|
|
3,717
|
|
|
3,398
|
|
|
319
|
|
||||||
|
Service contracts
|
|
5,205
|
|
|
5,205
|
|
|
—
|
|
|
5,269
|
|
|
5,201
|
|
|
68
|
|
||||||
|
Total
|
|
$
|
61,617
|
|
|
$
|
60,679
|
|
|
$
|
938
|
|
|
$
|
63,215
|
|
|
$
|
61,079
|
|
|
$
|
2,136
|
|
|
|
||
2017
|
$
|
642
|
|
2018
|
296
|
|
|
Total
|
$
|
938
|
|
Note 8.
|
Goodwill
|
|
|
December 31,
|
||||||
|
|
2016
|
|
2015
|
||||
Balance, beginning of year
|
|
|
|
|
||||
Goodwill
|
|
$
|
323,733
|
|
|
$
|
328,008
|
|
Accumulated impairment losses
|
|
(310,653
|
)
|
|
(310,653
|
)
|
||
|
|
13,080
|
|
|
17,355
|
|
||
|
|
|
|
|
||||
Increases (decreases) due to current year acquisitions (disposals)
|
|
—
|
|
|
(3,620
|
)
|
Effects of foreign currency translation
|
|
(223
|
)
|
|
(655
|
)
|
||
|
|
(223
|
)
|
|
(4,275
|
)
|
||
Balance, end of year
|
|
|
|
|
||||
Goodwill
|
|
323,510
|
|
|
323,733
|
|
||
Accumulated impairment losses
|
|
(310,653
|
)
|
|
(310,653
|
)
|
||
|
|
$
|
12,857
|
|
|
$
|
13,080
|
|
|
|
December 31,
|
||||||
|
|
2016
|
|
2015
|
||||
Consumer Media
|
|
$
|
580
|
|
|
$
|
580
|
|
Mobile Services
|
|
1,979
|
|
|
2,202
|
|
||
Games
|
|
10,298
|
|
|
10,298
|
|
||
Total goodwill
|
|
$
|
12,857
|
|
|
$
|
13,080
|
|
Note 9.
|
Accrued and Other Current Liabilities
|
|
December 31, 2016
|
|
December 31, 2015
|
||||
Royalties and other fulfillment costs
|
$
|
2,629
|
|
|
$
|
3,094
|
|
Employee compensation, commissions and benefits
|
5,136
|
|
|
5,958
|
|
||
Sales, VAT and other taxes payable
|
3,258
|
|
|
2,976
|
|
||
Other
|
4,402
|
|
|
5,292
|
|
||
Total accrued and other current liabilities
|
$
|
15,425
|
|
|
$
|
17,320
|
|
Note 10.
|
Restructuring Charges
|
|
Employee Separation Costs
|
||
Costs incurred and charged to expense for the year ended December 31, 2016
|
$
|
1,489
|
|
Costs incurred and charged to expense for the year ended December 31, 2015
|
$
|
5,279
|
|
Costs incurred and charged to expense for the year ended December 31, 2014
|
$
|
4,992
|
|
|
Employee Separation Costs
|
||
Accrued liability as of December 31, 2013
|
$
|
756
|
|
Note 11.
|
Lease Exit and Related Charges
|
|
|
Years Ended December 31,
|
||||||||
|
|
2016
|
2015
|
2014
|
||||||
Accrued loss, beginning of year
|
|
$
|
2,595
|
|
$
|
234
|
|
$
|
254
|
|
Additions and adjustments to the lease loss accrual, including sublease income estimate revision, and related asset write-downs
|
|
2,428
|
|
2,981
|
|
668
|
|
|||
Less amounts paid, net of sublease income
|
|
(1,837
|
)
|
(620
|
)
|
(688
|
)
|
|||
Accrued loss, end of year
|
|
3,186
|
|
2,595
|
|
234
|
|
|||
Less current portion (included in Accrued and other current liabilities)
|
|
(1,024
|
)
|
(822
|
)
|
(234
|
)
|
|||
Accrued loss, non-current portion (included in Other long term liabilities)
|
|
$
|
2,162
|
|
$
|
1,773
|
|
$
|
—
|
|
Note 12.
|
Shareholders’ Equity
|
|
|
|
Years Ended December 31,
|
||||||||||
|
|
|
2016
|
|
2015
|
|
2014
|
||||||
Investments
|
|
|
|
|
|
|
|||||||
|
Accumulated other comprehensive income (loss), beginning of period
|
|
$
|
1,297
|
|
|
$
|
2,252
|
|
|
$
|
6,397
|
|
|
Unrealized gains (losses), net of tax effects of $10, $0, and $0
|
|
1,647
|
|
|
(562
|
)
|
|
(1,774
|
)
|
|||
|
Reclassification adjustments for losses (gains) included in other income (expense), net of tax effects of $0, $0, and $4
|
|
(2,950
|
)
|
|
(393
|
)
|
|
(2,371
|
)
|
|||
|
Net current period other comprehensive income
|
|
(1,303
|
)
|
|
(955
|
)
|
|
(4,145
|
)
|
|||
|
Accumulated other comprehensive income (loss) balance, end of period
|
|
$
|
(6
|
)
|
|
$
|
1,297
|
|
|
$
|
2,252
|
|
Foreign currency translation
|
|
|
|
|
|
|
|||||||
|
Accumulated other comprehensive income (loss), beginning of period
|
|
$
|
(60,777
|
)
|
|
$
|
(57,504
|
)
|
|
$
|
(54,092
|
)
|
|
Translation adjustments
|
|
(1,134
|
)
|
|
(3,009
|
)
|
|
(3,364
|
)
|
|||
|
Reclassification adjustments for losses (gains) included in other income (expense)
|
|
272
|
|
|
(264
|
)
|
|
(48
|
)
|
|||
|
Net current period other comprehensive income
|
|
(862
|
)
|
|
(3,273
|
)
|
|
(3,412
|
)
|
|||
|
Accumulated other comprehensive loss balance, end of period
|
|
$
|
(61,639
|
)
|
|
$
|
(60,777
|
)
|
|
$
|
(57,504
|
)
|
Total accumulated other comprehensive income (loss), end of period
|
|
$
|
(61,645
|
)
|
|
$
|
(59,480
|
)
|
|
$
|
(55,252
|
)
|
Note 13.
|
Employee Stock and Benefit Plans
|
|
|
Years Ended December 31,
|
||||||||||
|
|
2016
|
|
2015
|
|
2014
|
||||||
Total stock-based compensation expense
|
|
$
|
5,424
|
|
|
$
|
4,698
|
|
|
$
|
5,204
|
|
|
|
Years ended December 31,
|
|||||||
|
|
2016
|
|
2015
|
|
2014
|
|||
Expected dividend yield
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Risk-free interest rate
|
|
1.59
|
%
|
|
1.47
|
%
|
|
1.40
|
%
|
Expected term (years)
|
|
5.1
|
|
|
4.8
|
|
|
4.5
|
|
Volatility
|
|
35
|
%
|
|
38
|
%
|
|
41
|
%
|
|
Shares
|
Weighted Average Grant Date Fair Value Per Share
|
Total Grant Date Fair Value of Vested Awards (000's)
|
|||||
Nonvested shares, December 31, 2013
|
490
|
|
$
|
7.80
|
|
|
||
Granted
|
159
|
|
7.60
|
|
|
|||
Vested
|
(193
|
)
|
8.35
|
|
$
|
1,608
|
|
|
Forfeited/Canceled
|
(56
|
)
|
7.73
|
|
|
|||
Nonvested shares, December 31, 2014
|
400
|
|
$
|
7.47
|
|
|
||
Granted
|
296
|
|
5.44
|
|
|
|||
Vested
|
(109
|
)
|
7.01
|
|
$
|
763
|
|
|
Forfeited/Canceled
|
(263
|
)
|
7.27
|
|
|
|||
Nonvested shares, December 31, 2015
|
324
|
|
$
|
5.94
|
|
|
||
Granted
|
832
|
|
3.75
|
|
|
|||
Vested
|
(802
|
)
|
3.83
|
|
$
|
3,069
|
|
|
Forfeited/Canceled
|
(22
|
)
|
5.61
|
|
|
|||
Nonvested shares, December 31, 2016
|
332
|
|
$
|
5.59
|
|
|
|
|
|
Options Outstanding
|
|
Weighted Average Grant Date Fair Value
|
|||||||
Number
of Shares
|
|
Weighted
Average
Exercise Price
|
|
|||||||||
Outstanding, December 31, 2013
|
|
|
6,625
|
|
|
$
|
10.21
|
|
|
|
||
Options granted at common stock price
|
|
|
2,036
|
|
|
7.44
|
|
|
$
|
2.51
|
|
|
Options exercised
|
|
|
(44
|
)
|
|
7.26
|
|
|
|
Options cancelled
|
|
|
(1,893
|
)
|
|
14.47
|
|
|
|
|||
Outstanding, December 31, 2014
|
|
|
6,724
|
|
|
$
|
8.19
|
|
|
|
||
Options granted at common stock price
|
|
|
907
|
|
|
5.31
|
|
|
$
|
1.70
|
|
|
Options exercised
|
|
|
(14
|
)
|
|
1.92
|
|
|
|
|||
Options cancelled
|
|
|
(2,100
|
)
|
|
8.59
|
|
|
|
|||
Outstanding, December 31, 2015
|
|
|
5,517
|
|
|
$
|
7.58
|
|
|
|
||
Options granted at common stock price
|
|
|
1,230
|
|
|
4.50
|
|
|
$
|
1.51
|
|
|
Options cancelled as part of stock option exchange
|
|
|
(1,961
|
)
|
|
8.11
|
|
|
|
|||
Options granted as part of stock option exchange
|
|
|
1,961
|
|
|
4.73
|
|
|
$
|
0.74
|
|
|
Options exercised
|
|
|
(90
|
)
|
|
3.69
|
|
|
|
|||
Options cancelled
|
|
|
(796
|
)
|
|
8.81
|
|
|
|
|||
Outstanding, December 31, 2016
|
|
|
5,861
|
|
|
$
|
5.73
|
|
|
|
||
Exercisable, December 31, 2016
|
|
|
1,940
|
|
|
$
|
7.04
|
|
|
|
||
Vested and expected to vest, December 31, 2016
|
|
|
5,550
|
|
|
$
|
5.79
|
|
|
|
Note 14.
|
Income Taxes
|
|
|
Years ended December 31,
|
||||||||||
|
|
2016
|
|
2015
|
|
2014
|
||||||
United States operations
|
|
$
|
(34,100
|
)
|
|
$
|
(76,450
|
)
|
|
$
|
(67,186
|
)
|
Foreign operations
|
|
(1,328
|
)
|
|
(6,231
|
)
|
|
(3,349
|
)
|
|||
Income (loss) before income taxes
|
|
$
|
(35,428
|
)
|
|
$
|
(82,681
|
)
|
|
$
|
(70,535
|
)
|
|
|
Years ended December 31,
|
||||||||||
|
|
2016
|
|
2015
|
|
2014
|
||||||
Current:
|
|
|
|
|
|
|
||||||
United States federal
|
|
$
|
712
|
|
|
$
|
176
|
|
|
$
|
547
|
|
State and local
|
|
59
|
|
|
(44
|
)
|
|
69
|
|
|||
Foreign
|
|
221
|
|
|
592
|
|
|
901
|
|
|||
Total current
|
|
992
|
|
|
724
|
|
|
1,517
|
|
|||
Deferred:
|
|
|
|
|
|
|
||||||
United States federal
|
|
3
|
|
|
(1,636
|
)
|
|
21
|
|
|||
State and local
|
|
1
|
|
|
1
|
|
|
(40
|
)
|
|||
Foreign
|
|
126
|
|
|
77
|
|
|
(218
|
)
|
|||
Total deferred
|
|
130
|
|
|
(1,558
|
)
|
|
(237
|
)
|
|||
Total income tax expense (benefit)
|
|
$
|
1,122
|
|
|
$
|
(834
|
)
|
|
$
|
1,280
|
|
|
|
Years ended December 31,
|
||||||||||
|
|
2016
|
|
2015
|
|
2014
|
||||||
United States federal tax expense (benefit) at statutory rate
|
|
$
|
(12,400
|
)
|
|
$
|
(28,938
|
)
|
|
$
|
(24,687
|
)
|
State taxes, net of United States federal tax expense (benefit)
|
|
(533
|
)
|
|
(1,240
|
)
|
|
(1,083
|
)
|
|||
Change in valuation allowance
|
|
13,148
|
|
|
27,821
|
|
|
27,759
|
|
|||
Non-deductible stock compensation
|
|
144
|
|
|
218
|
|
|
270
|
|
|||
Impact of non-U.S. jurisdictional tax rate difference
|
|
132
|
|
|
648
|
|
|
529
|
|
|||
Research and development tax credit
|
|
(338
|
)
|
|
(243
|
)
|
|
(325
|
)
|
|||
Increase (reversal) of unrecognized tax benefits
|
|
135
|
|
|
(1,269
|
)
|
|
(901
|
)
|
|||
Non-U.S. withholding tax
|
|
452
|
|
|
141
|
|
|
393
|
|
|||
Other
|
|
382
|
|
|
2,028
|
|
|
(675
|
)
|
|||
Total income tax expense (benefit)
|
|
$
|
1,122
|
|
|
$
|
(834
|
)
|
|
$
|
1,280
|
|
|
|
December 31,
|
||||||
|
|
2016
|
|
2015
|
||||
Deferred tax assets:
|
|
|
|
|
||||
United States federal net operating loss carryforwards
|
|
$
|
93,985
|
|
|
$
|
84,426
|
|
Deferred expenses
|
|
1,136
|
|
|
1,591
|
|
||
Research and development tax credit carryforwards
|
|
24,702
|
|
|
24,442
|
|
||
Alternative minimum tax credit carryforward
|
|
3,561
|
|
|
3,626
|
|
||
Net unrealized loss on investments
|
|
97
|
|
|
97
|
|
||
Accrued loss on excess office facilities
|
|
1,178
|
|
|
959
|
|
||
Stock-based compensation
|
|
4,112
|
|
|
11,441
|
|
||
State net operating loss carryforwards
|
|
11,354
|
|
|
10,079
|
|
||
Foreign net operating loss carryforwards
|
|
29,863
|
|
|
30,657
|
|
||
Deferred revenue
|
|
156
|
|
|
82
|
|
||
Equipment, software, and leasehold improvements
|
|
4,636
|
|
|
4,263
|
|
||
Intangibles
|
|
7
|
|
|
12
|
|
Net unrealized gains and basis differences on investments
|
|
1,874
|
|
|
—
|
|
||
Other
|
|
1,624
|
|
|
5,150
|
|
||
Gross deferred tax assets
|
|
178,285
|
|
|
176,825
|
|
||
Less valuation allowance
|
|
176,274
|
|
|
173,872
|
|
||
Gross deferred tax assets, net of valuation allowance
|
|
$
|
2,011
|
|
|
$
|
2,953
|
|
Deferred tax liabilities:
|
|
|
|
|
||||
Other intangible assets
|
|
$
|
(50
|
)
|
|
$
|
(404
|
)
|
Net unrealized gains and basis differences on investments
|
|
—
|
|
|
(78
|
)
|
||
Other
|
|
(794
|
)
|
|
(218
|
)
|
||
Prepaid expenses
|
|
(438
|
)
|
|
(1,384
|
)
|
||
Gross deferred tax liabilities
|
|
(1,282
|
)
|
|
(2,084
|
)
|
||
Net deferred tax assets (liabilities)
|
|
$
|
729
|
|
|
$
|
869
|
|
|
|
Years ended December 31,
|
||||||||||
|
|
2016
|
|
2015
|
|
2014
|
||||||
Balance, beginning of year
|
|
$
|
320
|
|
|
$
|
3,541
|
|
|
$
|
4,505
|
|
Increases related to prior year tax positions
|
|
38
|
|
|
—
|
|
|
—
|
|
|||
Decreases related to prior year tax positions
|
|
—
|
|
|
(33
|
)
|
|
(196
|
)
|
|||
Settlements with taxing authorities
|
|
—
|
|
|
(3,285
|
)
|
|
—
|
|
|||
Increases related to current year tax positions
|
|
135
|
|
|
97
|
|
|
130
|
|
|||
Expiration of the statute of limitations
|
|
—
|
|
|
—
|
|
|
(898
|
)
|
|||
Balance, end of year
|
|
$
|
493
|
|
|
$
|
320
|
|
|
$
|
3,541
|
|
Note 15.
|
Earnings (Loss) Per Share
|
|
|
Years ended December 31,
|
||||||||||
|
|
2016
|
|
2015
|
|
2014
|
||||||
Net income (loss)
|
|
$
|
(36,550
|
)
|
|
$
|
(81,847
|
)
|
|
$
|
(71,815
|
)
|
Weighted average common shares outstanding used to compute basic EPS
|
|
36,781
|
|
|
36,165
|
|
|
35,947
|
|
|||
Dilutive effect of stock based awards
|
|
—
|
|
|
—
|
|
|
—
|
|
|||
Weighted average common shares outstanding used to compute diluted EPS
|
|
36,781
|
|
|
36,165
|
|
|
35,947
|
|
|||
Basic EPS
|
|
$
|
(0.99
|
)
|
|
$
|
(2.26
|
)
|
|
$
|
(2.00
|
)
|
Diluted EPS
|
|
$
|
(0.99
|
)
|
|
$
|
(2.26
|
)
|
|
$
|
(2.00
|
)
|
Note 16.
|
Commitments and Contingencies
|
|
|
Office
Leases
|
||
2017
|
|
$
|
5,302
|
|
2018
|
|
4,499
|
|
|
2019
|
|
4,765
|
|
|
2020
|
|
4,477
|
|
|
2021
|
|
4,325
|
|
|
Thereafter
|
|
10,528
|
|
|
Total minimum payments (a)
|
|
$
|
33,896
|
|
Note 17.
|
Guarantees
|
Note 18.
|
Segment Information
|
|
|
2016
|
|
2015
|
|
2014
|
||||||
Revenue
|
|
$
|
25,051
|
|
|
$
|
28,613
|
|
|
$
|
39,121
|
|
Cost of revenue
|
|
7,074
|
|
|
13,257
|
|
|
13,466
|
|
|||
Gross profit
|
|
17,977
|
|
|
15,356
|
|
|
25,655
|
|
|||
Operating expenses
|
|
18,399
|
|
|
26,526
|
|
|
41,950
|
|
|||
Operating income (loss)
|
|
$
|
(422
|
)
|
|
$
|
(11,170
|
)
|
|
$
|
(16,295
|
)
|
|
|
2016
|
|
2015
|
|
2014
|
||||||
Revenue
|
|
$
|
70,278
|
|
|
$
|
65,935
|
|
|
$
|
79,981
|
|
Cost of revenue
|
|
50,026
|
|
|
47,834
|
|
|
52,193
|
|
|||
Gross profit
|
|
20,252
|
|
|
18,101
|
|
|
27,788
|
|
|||
Operating expenses
|
|
34,439
|
|
|
44,311
|
|
|
53,527
|
|
|||
Operating income (loss)
|
|
$
|
(14,187
|
)
|
|
$
|
(26,210
|
)
|
|
$
|
(25,739
|
)
|
|
|
2016
|
|
2015
|
|
2014
|
||||||
Revenue
|
|
$
|
25,139
|
|
|
$
|
30,748
|
|
|
$
|
37,110
|
|
Cost of revenue
|
|
7,919
|
|
|
9,291
|
|
|
11,074
|
|
|||
Gross profit
|
|
17,220
|
|
|
21,457
|
|
|
26,036
|
|
|||
Operating expenses
|
|
19,644
|
|
|
29,086
|
|
|
37,170
|
|
|||
Operating income (loss)
|
|
$
|
(2,424
|
)
|
|
$
|
(7,629
|
)
|
|
$
|
(11,134
|
)
|
|
|
2016
|
|
2015
|
|
2014
|
||||||
Cost of revenue
|
|
$
|
(51
|
)
|
|
$
|
(85
|
)
|
|
$
|
(352
|
)
|
Extinguishment of liability
|
|
—
|
|
|
—
|
|
|
(10,580
|
)
|
|||
Operating expenses
|
|
20,192
|
|
|
24,263
|
|
|
26,917
|
|
|||
Operating income (loss)
|
|
$
|
(20,141
|
)
|
|
$
|
(24,178
|
)
|
|
$
|
(15,985
|
)
|
|
|
Years ended December 31,
|
||||||||||
|
|
2016
|
|
2015
|
|
2014
|
||||||
United States
|
|
$
|
41,505
|
|
|
$
|
46,893
|
|
|
$
|
61,660
|
|
Europe
|
|
13,700
|
|
|
15,166
|
|
|
26,575
|
|
|||
Republic of Korea
|
|
43,236
|
|
|
37,832
|
|
|
39,852
|
|
|||
Rest of the World
|
|
22,027
|
|
|
25,405
|
|
|
28,125
|
|
|||
Total
|
|
$
|
120,468
|
|
|
$
|
125,296
|
|
|
$
|
156,212
|
|
|
|
December 31,
|
||||||||||
|
|
2016
|
|
2015
|
|
2013
|
||||||
United States
|
|
$
|
13,052
|
|
|
$
|
16,821
|
|
|
$
|
33,421
|
|
Europe
|
|
3,920
|
|
|
4,898
|
|
|
6,696
|
|
|||
Republic of Korea
|
|
168
|
|
|
282
|
|
|
547
|
|
|||
Rest of the World
|
|
1,909
|
|
|
2,015
|
|
|
3,048
|
|
|||
Total long-lived assets
|
|
$
|
19,049
|
|
|
$
|
24,016
|
|
|
$
|
43,712
|
|
Note 19.
|
Related Party Transactions
|
Note 20.
|
Quarterly Information (Unaudited)
|
|
|
Total
|
|
Dec. 31
|
|
Sept. 30 (2)
|
|
June 30
|
|
Mar. 31
|
||||||||||
2016
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net revenue
|
|
$
|
120,468
|
|
|
$
|
31,453
|
|
|
$
|
31,051
|
|
|
$
|
29,734
|
|
|
$
|
28,230
|
|
Gross profit
|
|
55,500
|
|
|
14,095
|
|
|
14,311
|
|
|
14,036
|
|
|
13,058
|
|
|||||
Operating (loss) income
|
|
(37,174
|
)
|
|
(6,369
|
)
|
|
(8,389
|
)
|
|
(7,637
|
)
|
|
(14,779
|
)
|
|||||
Net income (loss)
|
|
(36,550
|
)
|
|
(9,976
|
)
|
|
(3,056
|
)
|
|
(8,347
|
)
|
|
(15,171
|
)
|
|||||
Basic net income (loss) per share (1)
|
|
(0.99
|
)
|
|
(0.27
|
)
|
|
(0.08
|
)
|
|
(0.23
|
)
|
|
(0.42
|
)
|
|||||
Diluted net income (loss) per share (1)
|
|
(0.99
|
)
|
|
(0.27
|
)
|
|
(0.08
|
)
|
|
(0.23
|
)
|
|
(0.42
|
)
|
|||||
2015
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net revenue
|
|
$
|
125,296
|
|
|
$
|
29,922
|
|
|
$
|
30,823
|
|
|
$
|
33,954
|
|
|
$
|
30,597
|
|
Gross profit
|
|
54,999
|
|
|
14,094
|
|
|
12,733
|
|
|
14,122
|
|
|
14,050
|
|
|||||
Operating (loss) income
|
|
(69,187
|
)
|
|
(7,506
|
)
|
|
(21,962
|
)
|
|
(20,707
|
)
|
|
(19,012
|
)
|
|||||
Net income (loss)
|
|
(81,847
|
)
|
|
(8,413
|
)
|
|
(21,184
|
)
|
|
(27,781
|
)
|
|
(24,469
|
)
|
|||||
Basic net income (loss) per share (1)
|
|
(2.26
|
)
|
|
(0.23
|
)
|
|
(0.59
|
)
|
|
(0.77
|
)
|
|
(0.68
|
)
|
|||||
Diluted net income (loss) per share (1)
|
|
(2.26
|
)
|
|
(0.23
|
)
|
|
(0.59
|
)
|
|
(0.77
|
)
|
|
(0.68
|
)
|
(1)
|
The sum of the quarterly net income per share amounts will not necessarily equal net income per share for the year due to the use of weighted average quarterly shares and the effects of rounding.
|
(2)
|
Included in third quarter 2016 net income was a
$4.0 million
pretax gain related to the 2015 sale of Slingo, described in Note 3. Acquisitions and Disposals, and a
$2.0 million
pretax gain related to the sale of an intangible asset, described in Note 7. Other Intangible Assets.
|
Item 9.
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|
Item 9A.
|
Controls and Procedures
|
Item 9B.
|
Other Information
|
Item 10.
|
Directors, Executive Officers and Corporate Governance
|
Item 11.
|
Executive Compensation
|
Item 12.
|
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
|
Plan Category
|
|
Number of Securities
to be Issued upon
Exercise of
Outstanding Options,
Warrants and Rights
(in 000’s)(a)
|
|
Weighted-average
Exercise Price of
Outstanding Options,
Warrants and Rights
(b)
|
|
Number of Securities
Remaining Available
for Future Issuance
under Equity
Compensation Plans
(Excluding Securities
Reflected in Column (a))
(in 000’s)(c)
|
|
|
||||
Equity compensation plans approved by security holders
|
|
6,193
|
|
|
$
|
5.73
|
|
|
6,479
|
|
|
(1)(2)
|
Equity compensation plans not approved by security holders
|
|
—
|
|
|
-
|
|
|
—
|
|
|
|
|
Total
|
|
6,193
|
|
|
$
|
5.73
|
|
|
6,479
|
|
|
(3)
|
(1)
|
On January 1, 2008, the 2007 ESPP became effective. Column (c) above excludes an aggregate of 0.3 million shares of the Company’s common stock that are authorized for issuance pursuant to the 2007 ESPP.
|
(2)
|
Includes shares available for future issuances pursuant to the RealNetworks, Inc. 2007 Director Compensation Stock Plan (2007 Director Plan), a sub-plan that operates and is administered under the 2005 Plan. Under the 2007 Director Plan, outside directors may elect to receive all or a portion of his or her quarterly director compensation in shares of the Company’s common stock in lieu of cash. Shares issued to directors under the 2007 Director Plan are issued from the shares reserved under the 2005 Plan.
|
(3)
|
The total securities in column (a) include 5,861 stock options and 332 restricted stock units and awards. The weighted average exercise prices in columns (b) relate to the stock options only; restricted stock units and awards have no exercise price.
|
Item 13.
|
Certain Relationships and Related Transactions, and Director Independence
|
Item 14.
|
Principal Accountant Fees and Services
|
Item 15.
|
Exhibits and Financial Statement Schedules
|
REALNETWORKS, INC.
|
||
|
|
|
BY:
|
|
/s/ ROBERT GLASER
|
|
|
Robert Glaser
|
|
|
Chairman of the Board and Chief Executive Officer
|
|
|
|
Signature
|
|
Title
|
|
|
|
/s/ ______
ROBERT GLASER
________
Robert Glaser
|
|
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
|
|
|
|
/s/ _____
MARJORIE THOMAS
______
Marjorie Thomas
|
|
Senior Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
|
|
|
|
/s/ _______
BRUCE A. JAFFE
________
Bruce A. Jaffe
|
|
Director
|
|
|
|
/s/ __
CHRISTOPHER R. JONES_____
_
Christopher R. Jones
|
|
Director
|
|
|
|
/s/ _______
DAWN G. LEPORE
_______
Dawn G. Lepore
|
|
Director
|
|
|
|
/s/ _______
JANICE ROBERTS
_______
Janice Roberts
|
|
Director
|
|
|
|
/s/ ______
MICHAEL B. SLADE
______
Michael B. Slade
|
|
Director
|
|
|
|
/s/ ____
DOMINIQUE TREMPONT
____
Dominique Trempont
|
|
Director
|
|
|
|
Incorporated by Reference
|
|||
Exhibit
No.
|
|
Exhibit Description
|
Form
|
SEC File No.
|
Exhibit
|
Filing Date
|
2.1
|
|
Transaction, Contribution and Purchase Agreement dated as of February 9, 2010 among Rhapsody America LLC, RealNetworks, Inc., RealNetworks Digital Music of California, Inc., Viacom International Inc. and DMS Holdco Inc.
|
8-K
|
000-23137
|
2.1
|
04/06/10
|
2.2
|
s
|
Asset Purchase Agreement dated as of January 26, 2012, by and between RealNetworks, Inc. and Intel Corporation. Certain schedules and exhibits referenced in the Asset Purchase Agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the Securities and Exchange Commission upon request.
|
8-K
|
000-23137
|
2.1
|
01/30/12
|
3.1
|
|
Amended and Restated Articles of Incorporation
|
10-Q
|
000-23137
|
3.1
|
08/11/00
|
3.2
|
|
Articles of Amendment to the Amended and Restated Articles of Incorporation
|
8-K
|
000-23137
|
3.1
|
08/31/11
|
3.3
|
|
Amended and Restated Bylaws effective July 23, 2010
|
8-K
|
000-23137
|
3.1
|
07/29/10
|
4.1
|
|
Amended and Restated Shareholder Rights Plan dated as of December 2, 2008, by and between RealNetworks, Inc. and Mellon Investor Services LLC including the form of Certificate of Designation, the form of Rights Certificate and the Summary of Rights attached thereto as Exhibits A, B and C, respectively
|
8-K
|
000-23137
|
4.1
|
12/03/08
|
4.2
|
|
Amendment to Amended and Restated Shareholder Rights Plan, dated as of April 15, 2016, between RealNetworks, Inc. and Computershare, Inc. (as successor to Mellon Investor Services, LLC.), as rights agent
|
8-K
|
000-23137
|
4.1
|
04/15/16
|
10.1
|
|
Shareholder Rights Plan Exception Agreement, dated as of April 15, 2016, between RealNetworks, Inc. and Ariel Investments, LLC
|
8-K
|
000-23137
|
10.1
|
04/15/16
|
10.2
|
†
|
RealNetworks, Inc. 1995 Stock Option Plan
|
S-8
|
333-63333
|
99.1
|
09/14/98
|
10.3
|
†
*
|
RealNetworks, Inc. 1996 Stock Option Plan, as amended and restated on September 19, 2016
|
|
|
|
|
10.4
|
†
|
RealNetworks, Inc. 2000 Stock Option Plan, as amended and restated on June 1, 2001
|
10-Q
|
000-23137
|
10.2
|
08/13/01
|
10.5
|
†
|
Amendment No. 1 to the RealNetworks, Inc. 2000 Stock Option Plan, as amended and restated on June 1, 2001 (effective December 17, 2009)
|
8-K
|
000-23137
|
10.2
|
12/21/09
|
10.6
|
†
*
|
Amendment No. 2 to the RealNetworks, Inc. 2000 Stock Option Plan, as amended and restated on June 1, 2001 (effective September 19, 2016)
|
|
|
|
|
10.7
|
†
|
RealNetworks, Inc. 2002 Director Stock Option Plan
|
10-Q
|
000-23137
|
10.2
|
07/25/02
|
10.8
|
†
|
Form of Stock Option Agreement under the RealNetworks, Inc. 1996 Stock Option Plan, as amended and restated
|
10-Q
|
000-23137
|
10.1
|
11/14/02
|
10.9
|
†
|
Form of Stock Option Agreement under the RealNetworks, Inc. 2000 Stock Option Plan, as amended and restated
|
10-Q
|
000-23137
|
10.2
|
11/14/02
|
10.10
|
†
|
Forms of Stock Option Agreement under the RealNetworks, Inc. 2002 Director Stock Option Plan
|
10-Q
|
000-23137
|
10.3
|
11/14/02
|
10.11
|
†
|
RealNetworks, Inc. 2007 Employee Stock Purchase Plan as amended and restated effective October 18, 2010
|
10-K
|
000-23137
|
10.10
|
03/16/11
|
10.12
|
†
|
RealNetworks, Inc. 2007 Director Compensation Stock Plan
|
10-K
|
000-23137
|
10.9
|
02/29/08
|
10.13
|
†
*
|
RealNetworks, Inc. 2005 Stock Incentive Plan, as amended and restated effective September 19, 2016
|
|
|
|
|
10.14
|
†
|
Form of Non-Qualified Stock Option Terms and Conditions for use under the RealNetworks, Inc. 2005 Stock Incentive Plan, as amended and restated
|
10-K
|
000-23137
|
10.13
|
03/18/13
|
|
|
|
Incorporated by Reference
|
|||
Exhibit
No.
|
|
Exhibit Description
|
Form
|
SEC File No.
|
Exhibit
|
Filing Date
|
10.15
|
†
|
Form of Restricted Stock Units Terms and Conditions for use under the RealNetworks, Inc. 2005 Stock Incentive Plan, as amended and restated
|
10-K
|
000-23137
|
10.14
|
03/18/13
|
10.16
|
†
|
Form of Performance Restricted Stock Units Terms and Conditions for use under the RealNetworks, Inc. 2005 Stock Incentive Plan, as amended and restated
|
10-K
|
000-23137
|
10.15
|
03/18/13
|
10.17
|
|
Office Building Lease dated May 2, 2013 between 1501 First Avenue South Limited Partnership, as landlord, and RealNetworks, Inc., as tenant
|
10-Q
|
000-23137
|
10.2
|
08/08/13
|
10.18
|
†
|
Form of Director and Officer Indemnification Agreement
|
S-1
|
333-36553
|
10.14
|
09/26/97
|
10.19
|
|
Voting Agreement dated September 25, 1997 by and among RealNetworks, Robert Glaser, Accel IV L.P., Mitchell Kapor and Bruce Jacobsen
|
S-1
|
333-36553
|
10.17
|
09/26/97
|
10.2
|
|
Agreement dated September 26, 1997 by and between RealNetworks and Robert Glaser
|
S-1
|
333-36553
|
10.18
|
09/26/97
|
10.21
|
†
|
Offer Letter dated July 24, 2014 between RealNetworks, Inc. and Robert Glaser
|
10-Q
|
000-23137
|
10.2
|
11/06/14
|
10.22
|
†
|
Offer Letter dated May 31, 2014 between RealNetworks, Inc. and Michael Mulica
|
10-Q
|
000-23137
|
10.1
|
08/07/14
|
10.23
|
†
|
Transition and Release Agreement dated March 30, 2016 between RealNetworks, Inc. and Michael Mulica
|
10-Q
|
000-23137
|
10.2
|
05/06/16
|
10.24
|
†
|
Offer Letter dated January 7, 2013 between RealNetworks, Inc. and Max Pellegrini
|
10-Q
|
000-23137
|
10.1
|
05/08/13
|
10.25
|
†
|
Promotion Letter dated August 24, 2012 between RealNetworks, Inc. and Michael Parham
|
10-Q
|
000-23137
|
10.3
|
08/08/13
|
10.26
|
†
|
Offer Letter dated between RealNetworks, Inc. and Marjorie Thomas
|
10-K
|
000-23137
|
10.25
|
02/25/15
|
10.27
|
†
|
Offer Letter dated September 13, 2016 between RealNetworks, Inc. and William Patrizio
|
10-Q
|
000-23137
|
10.26
|
11/04/16
|
10.28
|
†
|
Form of Amended and Restated Change in Control and Severance Agreement for Executive Officers
|
10-Q
|
000-23137
|
10.5
|
08/09/11
|
10.29
|
†
|
Form of MBO Plan Document under the RealNetworks, Inc. 2013 Executive Compensation Program
|
8-K
|
000-23137
|
10.1
|
03/29/13
|
10.30
|
†
|
Form of MBO Plan Document under the RealNetworks, Inc. 2014 Executive Compensation Program
|
8-K
|
000-23137
|
10.1
|
02/13/14
|
10.31
|
†
|
Form of MBO Plan Document under the RealNetworks, Inc. 2015 Executive Compensation Program
|
8-K
|
000-23137
|
10.1
|
02/24/15
|
10.32
|
†
|
Form of MBO Plan Document under the RealNetworks, Inc. 2016 Executive Compensation Program
|
8-K
|
000-23137
|
10.1
|
05/03/16
|
10.33
|
s
|
Amended and Restated Settlement Agreement dated as of March 10, 2006 between RealNetworks, Inc. and Microsoft Corporation
|
10-K
|
000-23137
|
10.24
|
03/16/06
|
10.34
|
s
|
Transaction, Contribution and Purchase Agreement dated as of August 20, 2007 by and among Rhapsody America LLC, RealNetworks, Inc., RealNetworks Digital Music of California, Inc., Viacom International Inc. and DMS Holdco Inc.
|
10-Q
|
000-23137
|
10.1
|
11/09/07
|
10.35
|
|
Amended and Restated Stockholder Agreement dated as of November 30, 2011 among Rhapsody International Inc., RealNetworks, Inc., RealNetworks Digital Music of California, Inc., Viacom International Inc., Napster, LLC, Best Buy Co., Inc. and DMS Holdco Inc.
|
10-K
|
000-23137
|
10.43
|
02/29/12
|
10.36
|
s
|
License Agreement, dated as of January 26, 2012, by and between RealNetworks, Inc. and Intel Corporation
|
8-K/A
|
000-23137
|
10.1
|
04/11/12
|
Name of Subsidiary
|
|
Jurisdiction of Incorporation
|
Atrativa Latin America Ltda.
|
|
Brazil
|
Beijing RealNetworks Technology Co. Ltd.
|
|
China
|
GameHouse Europe B.V.
|
|
The Netherlands
|
GameHouse Spain S.L.
|
|
Spain
|
Listen.com, Inc.
|
|
California
|
Muzicall Ltd.
|
|
United Kingdom
|
PT RealNetworks Indonesia
|
|
Indonesia
|
RealNetworks Asia Pacific Co., Ltd.
|
|
Republic of Korea
|
RealNetworks Australia Pty. Limited
|
|
Australia
|
RealNetworks Digital Music of California, Inc.
|
|
California
|
RealNetworks, d.o.o.
|
|
Croatia
|
RealNetworks GmbH
|
|
Austria
|
RealNetworks Hong Kong, Limited
|
|
Hong Kong
|
RealNetworks India Pvt. Ltd.
|
|
India
|
RealNetworks K.K.
|
|
Japan
|
RealNetworks Ltd.
|
|
United Kingdom
|
RN Acquisition Corp.
|
|
Washington
|
RN International Holdings B.V.
|
|
The Netherlands
|
RN International Holdings C.V.
|
|
The Netherlands
|
1.
|
I have reviewed this report on Form 10-K of RealNetworks, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
/s/ ROBERT GLASER
|
Robert Glaser
|
Title: Chairman and Chief Executive Officer
|
(Principal Executive Officer)
|
1.
|
I have reviewed this report on Form 10-K of RealNetworks, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
/s/ MARJORIE THOMAS
|
Marjorie Thomas
|
Title: Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
|
|
|
By:
|
/s/ ROBERT GLASER
|
Name:
|
Robert Glaser
|
Title:
|
Chairman and Chief Executive Officer
|
|
(Principal Executive Officer)
|
|
|
By:
|
/s/ MARJORIE THOMAS
|
Name:
|
Marjorie Thomas
|
Title:
|
Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
|